Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the Company’s Consolidated Financial Statements and Notes thereto appearing in Item 8 of this Annual Report on Form 10-K.
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Restated Disclosure Information for Contract Modifications for Interim Periods
Pursuant to a Current Report on Form 8-K filed by the Company on July 30, 2025, the Company is including the previously omitted footnote disclosure that should have been included in the Company’s interim unaudited Condensed Consolidated Financial Statements for each of the quarterly periods included in the Company’s Quarterly Reports on Form 10-Q filed with the SEC during fiscal years 2025 and 2024 regarding contract modifications made to borrowers experiencing financial difficulty. These disclosures relate to the Company’s systematic modification program that assists borrowers experiencing financial difficulty.
The required disclosures that the Company is now including relate to contract modifications affecting $436.1 million, or 28.9%, of the Company’s gross finance receivables as of April 30, 2025. These modifications primarily consist of:
• Term extensions and
• Combination of modifications, which include both term extensions and interest rate reductions as determined by the bankruptcy court when a borrower declares Chapter 13 bankruptcy.
This inclusion of these omitted disclosures has no impact on our previously reported interim unaudited Condensed Consolidated Statements of Operations, unaudited Condensed Consolidated Statements of Comprehensive Income, unaudited Condensed Consolidated Balance Sheets, or unaudited Condensed Consolidated Statements of Cash Flows.
Contract Modifications
The Company identifies and discloses contract modifications made for customers experiencing financial difficulty after the origination date. Due to the subprime nature and limited financial resources of the majority of the Company’s customers, all modifications that result in a term extension are identified by the Company as modifications made for customers experiencing financial difficulty and therefore included in the related disclosures. See Note B to the Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K for additional information on these contract modifications. These modifications are made with the intent to support customers while preserving asset value and minimizing credit losses.
The following tables present the aggregate outstanding principal balance of contracts that have been modified during the fiscal periods, categorized by type of modification. These modifications represent management’s efforts to work with customers experiencing financial difficulty to help them maintain their vehicle ownership while preserving asset value for the Company. The percentages shown represent the portion of the total gross finance receivables portfolio as of the end of the fiscal period that has been modified at least once during the fiscal period.
The following table presents contract modifications by type of modification for the following periods during fiscal year 2025:
(Dollars in thousands)
Contract Modification by Type
Nine Months Ended January 31, 2025
Three Months Ended January 31, 2025
Six Months Ended October 31, 2024
Three Months Ended October 31, 2024
Three Months Ended July 31, 2024
Type of Modification
Principal Balance
% of Portfolio
Principal Balance
% of Portfolio
Principal Balance
% of Portfolio
Principal Balance
% of Portfolio
Principal Balance
% of Portfolio
Term extension
Combination (1)
Total
(1) These modifications result from customer bankruptcy filings and have been made in accordance with bankruptcy court requirements. They generally consist of a reduction in the contractual interest rate and/or an extension of the contract term as part of the customer’s court-approved payment restructuring plan.
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The following table presents contract modifications by type of modification for the following periods during fiscal year 2024:
(Dollars in thousands)
Contract Modification by Type
Nine Months Ended January 31, 2024
Three Months Ended January 31, 2024
Six Months Ended October 31, 2023
Three Months Ended October 31, 2023
Three Months Ended July 31, 2023
Type of Modification
Principal Balance
% of Portfolio
Principal Balance
% of Portfolio
Principal Balance
% of Portfolio
Principal Balance
% of Portfolio
Principal Balance
% of Portfolio
Term extension
Combination (1)
Total
(1) These modifications result from customer bankruptcy filings and have been made in accordance with bankruptcy court requirements. They generally consist of a reduction in the contractual interest rate and/or an extension of the contract term as part of the customer’s court-approved payment restructuring plan.
The following table describes the financial effect of the modifications for the following periods during fiscal year 2025:
Type of Modification
Nine Months Ended January 31, 2025
Three Months Ended January 31, 2025
Six Months Ended October 31, 2024
Three Months Ended October 31, 2024
Three Months Ended July 31, 2024
Term extension
Added a weighted average of 2.0 months to the life of contracts, which reduced payment amounts due from borrowers.
Added a weighted average of 1.6 months to the life of contracts, which reduced payment amounts due from borrowers.
Added a weighted average of 1.8 months to the life of contracts, which reduced payment amounts due from borrowers.
Added a weighted average of 1.5 months to the life of contracts, which reduced payment amounts due from borrowers.
Added a weighted average of 1.6 months to the life of contracts, which reduced payment amounts due from borrowers.
Combination
Added a weighted average of 10.9 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.5% to 10.25%.
Added a weighted average of 9.7 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.5% to 10.25%.
Added a weighted average of 11.7 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.5% to 10.25%.
Added a weighted average of 10.8 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.25% to 10.25%.
Added a weighted average of 12.5 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.25% to 10.5%.
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The following table describes the financial effect of the modifications for the following periods during fiscal year 2024:
Type of Modification
Nine Months Ended January 31, 2024
Three Months Ended January 31, 2024
Six Months Ended October 31, 2023
Three Months Ended October 31, 2023
Three Months Ended July 31, 2023
Term extension
Added a weighted average of 2.1 months to the life of contracts, which reduced payment amounts due from borrowers.
Added a weighted average of 1.6 months to the life of contracts, which reduced payment amounts due from borrowers.
Added a weighted average of 1.9 months to the life of contracts, which reduced payment amounts due from borrowers.
Added a weighted average of 1.6 months to the life of contracts, which reduced payment amounts due from borrowers.
Added a weighted average of 1.7 months to the life of contracts, which reduced payment amounts due from borrowers.
Combination
Added a weighted average of 11.8 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.25% to 18%.
Added a weighted average of 12.0 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.25% to 18%.
Added a weighted average of 12.0 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.25% to 18%.
Added a weighted average of 12.6 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.25% to 18%.
Added a weighted average of 11.0 months to the life of contracts, which reduced payment amounts due from borrowers and/or reduced interest rates to rates ranging from 4.25% to 18%.
The Company closely monitors the performance of the contracts that are modified to understand the effectiveness of its modification efforts. The following table depicts the status of contracts that have term modifications for the periods presented:
Payment Status (Principal Balance)
(In thousands)
Total
Current
3-29 Days Past Due
30-60 Days Past Due
61-90 Days Past Due
90+ Days Past Due
For Three Months Ended
January 31, 2025
For Three Months Ended
October 31, 2024
For Three Months Ended
July 31, 2024
For Three Months Ended
January 31, 2024
For Three Months Ended
October 31, 2023
For Three Months Ended
July 31, 2023
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The following table depicts the status of contracts that have term modifications due to the combination of modifications due to bankruptcies for the periods presented:
Payment Status (Principal Balance)
(In thousands)
Total
Payment Received in Last 30 Days
Payment Received in Last 31-60 Days
Payment Received in Last 61-90 Days
Payment Received in Last 90+ Days
For Three Months Ended
January 31, 2025
For Three Months Ended
October 31, 2024
For Three Months Ended
July 31, 2024
For Three Months Ended
January 31, 2024
For Three Months Ended
October 31, 2023
For Three Months Ended
July 31, 2023
The following table depicts the aggregate principal amounts of customer contracts that were charged off during the periods presented following contract modifications:
(In thousands)
Principal Amounts
For Nine Months Ended January 31, 2025
For Three Months Ended January 31, 2025
For Six Months Ended October 31, 2024
For Three Months Ended October 31, 2024
For Three Months Ended July 31, 2024
For Nine Months Ended January 31, 2024
For Three Months Ended January 31, 2024
For Six Months Ended October 31, 2023
For Three Months Ended October 31, 2023
For Three Months Ended July 31, 2023
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Overview
America’s Car-Mart, Inc., a Texas corporation (the “Company”), is one of the largest publicly held automotive retailers in the United States focused exclusively on the “Integrated Auto Sales and Finance” segment of the used car market. References to the Company include the Company’s consolidated subsidiaries. The Company’s operations are principally conducted through its two operating subsidiaries, America’s Car Mart, Inc., an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an Arkansas corporation (“Colonial”). Collectively, Car-Mart of Arkansas and Colonial are referred to herein as “Car-Mart.” The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company’s customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit problems. As of April 30, 2025, the Company operated 154 dealerships located primarily in small cities throughout the South-Central United States.
Over the last ten fiscal years, the Company’s revenue growth averaged 10.6%. However, revenue for fiscal year 2025 declined 0.2% compared to fiscal year 2024. This follows a similar decline of 0.5% in fiscal year 2024 compared to fiscal year 2023. The slight decrease in revenue for fiscal year 2025 is primarily due to a 1.7% decrease in retail units sold, partially offset by a 1.5% increase in the average retail sales price and a 5.0% increase in interest income.
The Company has focused on improving vehicle quality by procuring lower-mileage vehicles, while balancing affordability for customers. The Company’s recent strategic partnership with a leading automotive services and technology provider initiated in fiscal year 2024 has begun to increase efficiencies within the Company’s inventory supply chain and is enabling the Company to utilize reconditioning and auction facilities, enhancing the quality of the Company’s vehicle offerings. Management expects this strategic partnership to help the Company optimize its inventory supply chain and further improve vehicle quality over the long term. The Company believes these efforts will reduce customers’ vehicle repair costs, lower service contract repair expenses, and increase recovery values in the event of repossession. When combined with enhanced inventory procurement efficiencies, these initiatives are expected to improve the customer experience and contribute to better gross margins.
The Company generates revenue primarily through the sale of used vehicles, typically accompanied by a related service contract and accident protection plan, as well as interest income and late fees from financing. The Company’s cost structure is relatively fixed and is sensitive to changes in volume. Revenue is influenced by factors such as competition, the availability of funding in the subprime automobile industry, and fluctuations in the purchase costs of vehicles for resale. Additionally, the macroeconomic environment plays a significant role in revenue performance.
The Company closely monitors key variables such as down payments, contract terms, and customer credit scores at the point of sale to help ensure customers’ success in meeting their payment obligations. After the sale, collections, delinquencies, and charge-offs are critical components in assessing the Company’s financial condition and results of operations. These factors are continuously monitored by management to ensure timely intervention and appropriate strategy adjustments.
The Company places significant emphasis on building strong, long-term relationships with customers, believing that fostering repeat business is integral to the Company’s success and growth. The Company also prioritizes excellent customer service, leveraging its “local” face-to-face approach, while continuing to expand and enhance digital and online services to meet the growing demand for an integrated, seamless sales and service experience.
In recent years, the Company has focused on offering a diverse mix of vehicles at various price points to improve affordability for customers. This approach is aimed at meeting a broad spectrum of customer needs while maintaining a competitive edge in the market.
The purchase price of vehicles has a direct impact on the Company’s revenues, liquidity, and capital resources. Since the Company’s selling price is largely based on the cost of acquiring its vehicles, increases in purchase costs often result in higher selling prices. This, in turn, can place pressure on gross margin percentages and contract terms, as the Company seeks to maintain affordable payment options for its customer base, which typically has limited financial flexibility.
Furthermore, declines in the volume of new car sales, particularly within domestic brands, lead to decreased vehicle supply and generally result in higher prices in the wholesale used car market. Changes in consumer credit availability, coupled with broader economic conditions, can also affect the demand for vehicles and the resulting purchase
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prices in the used car market. Tariffs or the imposition of new tariffs, trade wars, barriers or restrictions, or threats of such actions could also affect the demand and resulting purchase price of vehicles.
The Company maintains a consistent focus on collections, with each dealership responsible for its own collection efforts under the oversight of the corporate office. Over the past five fiscal years, the Company’s provision for credit losses as a percentage of sales has ranged from a low of approximately 19.3% in fiscal 2021 to a high of 36.5% in fiscal 2024, with an average of 28.1%. In fiscal 2025, the provision for credit losses as a percentage of sales decreased to 32.7%. In fiscal 2022, credit losses began to return to pre-pandemic levels, though they remained below historical averages, despite an increase in average retail sales prices, and in fiscal 2023, credit losses exceeded pre-pandemic levels, due in part to the expiration of federal stimulus programs and prevailing macroeconomic conditions. The high credit loss percentage for fiscal 2024 was primarily driven by the Company’s implementation in October 2023 of third-party software to provide more accurate credit loss calculations, which resulted in an increase in the allowance for credit losses, as percentage of finance receivables, net of deferred revenue and pending APP , from 23.91% at April 30, 2023 to 25.32% at April 30, 2024 (26.04% at October 31, 2023), and a corresponding increase in the provision for credit .
As of April 30, 2025, the Company’s allowance for credit losses decreased to 23.25% of finance receivables, net of deferred revenue and pending APP claims. This improvement was mainly due to improved credit performance on contracts underwritten in the new loan origination system and tighter underwriting standards, with a noticeable reduction in charge-offs and loss rates compared to loans originated using the legacy system. The new underwriting system centralizes loan information, providing dealerships with easy access to internal scores, down-payment percentages, credit reports, and other relevant customer data, all in one location. This improvement enables more informed decision-making and supports better credit management.
Credit losses, on a percentage basis, tend to be higher at new and developing dealerships due to less experienced management and a less seasoned customer base. More mature dealerships typically have a higher rate of repeat customers, who are generally lower credit risks. Credit losses can also be influenced by market and economic factors, such as competition in the used vehicle financing space and macroeconomic pressures, including inflation in essential goods and services. However, as the Company provides affordable transportation, these economic conditions do not always lead to higher credit losses.
The Company continuously seeks ways to improve operational efficiency, including refining its underwriting and collections processes. The Company’s proprietary credit scoring system allows for constant monitoring of contract quality. Corporate personnel regularly review credit scores and work with dealerships when scores fall outside acceptable thresholds. Additionally, the Company uses credit reporting and GPS technology to support its collections efforts, while its training department ensures ongoing improvement in collections practices. Effective execution of these business practices is considered the primary driver of the Company’s long-term credit loss performance.
Over the past five fiscal years, the Company’s gross margin as a percentage of sales has fluctuated, reaching a high of approximately 40.2% in fiscal 2021 and a low of 33.5% in fiscal 2023, with an average of 36.3%. The gross margin percentage improved to 34.7% in fiscal 2024 and 36.7% in fiscal 2025, including a 0.7% benefit resulting from a change in accounting estimate related to revenue recognition for service contracts implemented in the second quarter of fiscal 2025. The Company’s initiatives in vehicle pricing discipline, reduced transportation costs, lower repair expenses, and more effective disposal strategies have collectively contributed to the increase in gross profit. The total gross profit per retail unit sold increased by $431 compared to the prior fiscal year.
The Company’s gross margin is primarily influenced by the cost of vehicles purchased, with lower-priced vehicles generally yielding higher gross margin percentages but lower gross profit dollars. Additionally, the margin is impacted by the proportion of wholesale sales relative to retail sales, which is primarily associated with the sale of repossessed vehicles, typically sold at or near cost. Going forward, the Company intends to maintain a focus on increasing gross margin dollars, as evidenced by the growth observed in fiscal 2025, This will be achieved through continued efforts to improve wholesale results, enforce cost controls, and enhance operational efficiency related to vehicle acquisition and disposal.
The recruitment, training, and retention of qualified personnel are also pivotal to the Company’s continued success. The Company’s capacity to expand its dealership network and implement operational initiatives is constrained by the availability of adequately trained managers and support staff. High turnover rates, particularly among dealership managers, could impede the Company’s ability to scale its operations and execute strategic initiatives. Given the highly competitive hiring environment, the Company has consistently allocated resources towards enhancing its recruitment, training, and development processes, with a particular emphasis on filling dealership manager roles. The Company
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anticipates ongoing investment in its workforce development programs to ensure the availability of skilled personnel to support its growth trajectory.
Consolidated Operations
(Operating Statement Dollars in Thousands)
% Change
Years Ended April 30,
As a % of Sales
Operating Statement:
Revenues:
Sales
Interest and other income
Total
Costs and expenses:
Cost of sales, excluding depreciation shown below
Selling, general and administrative
Provision for credit losses
Interest expense
Depreciation and amortization
Loss on disposal of property and equipment
Total
Income (loss) before taxes
Operating Data (Unaudited):
Retail units sold
Average dealerships in operation
Average units sold per dealership per month
Average retail sales price
Gross profit per retail unit sold
Same store revenue growth
Receivables average yield
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Fiscal 2025 Compared to Fiscal 2024
Total revenues decreased $3.0 million, or 0.2%, in fiscal year 2025 compared to fiscal year 2024, primarily as a result of declines in revenue from (i) dealerships that operated a full twelve months in both fiscal years ($68.2 million), and (ii) dealerships that were closed during or after the year ended April 30, 2024 ($18.3 million), which were mostly offset by revenue generated from (iii) dealerships opened or acquired after April 30, 2024 ($83.5 million). The overall decline in revenue for fiscal 2025 was primarily due to a 1.7% decrease in retail units sold, partially offset by a 5.0% increase in interest and other income and a 1.5% increase in the average retail sales price. Interest income increased approximately $11.6 million compared to fiscal 2024, due to the $36.9 million increase in average finance receivables.
The cost of sales as a percentage of total sales decreased to 63.3% in fiscal 2025, compared to 65.3% in fiscal 2024, resulting in a gross margin of 36.7% in fiscal 2025, which includes a 0.7% benefit from the change in accounting estimate for revenue recognition related to service contracts. This represents an improvement in gross margin from 34.7% in fiscal 2024. On a dollar basis, the gross margin per retail unit sold increased by $431 in fiscal 2025, relative to fiscal 2024. The primary driver of this decrease in the cost of sales was the Company’s sustained efforts in vehicle pricing discipline, reductions in transportation and repair costs, and improvements in vehicle disposal strategies.
The average retail sales price in fiscal 2025, including ancillary products, was $19,398, reflecting an increase of $285 over the prior fiscal year. This increase was largely attributable to a $13.2 million benefit recognized in the second quarter of fiscal 2025 due to the aforementioned change in accounting estimate for service contract revenue recognition. The average retail sales price of the vehicles themselves, excluding ancillary products, rose modestly to $17,315, an increase of $20 from the previous fiscal year, primarily driven by the Company’s focus on maintaining consumer affordability and strategically procuring vehicles through preferred partners.
Selling, general and administrative (SG&A) expenses as a percentage of sales increased to 16.5% in fiscal 2025, compared to 15.5% for fiscal 2024. SG&A expenses are, by nature, relatively fixed. In absolute terms, SG&A expenses rose by $9.5 million from fiscal 2024. This increase is primarily attributable to the Company’s continued investments across several key areas, including senior management, technology, inventory procurement and management, customer experience, and digital initiatives. Additionally, the growth of the Company’s dealership network through acquisitions in the past year contributed to the rise in SG&A expenses. These acquisitions are integral to the Company’s long-term growth strategy and, while they may temporarily impact SG&A expense leverage, they play a critical role in expanding customer portfolios and enhancing future revenue potential. The Company remains committed to cost control while ensuring continued investment in strategic areas to drive future growth.
Provision for credit losses as a percentage of sales decreased to 32.7% for fiscal 2025 compared to 36.5% for fiscal 2024. Net charge-offs as a percentage of average finance receivables decreased to 25.9% for fiscal 2025 compared to 27.2% for the prior year. The Company experienced an improvement in both the frequency and severity of losses. The allowance for credit losses as a percentage of finance receivables, net of deferred revenue and pending accident protection plan claims was 23.25 % at April 30, 2025 compared to 25.32% at April 30, 2024. The primary drivers of this change were continued favorable performance in contracts originated under the Company’s enhanced underwriting standards as well as an increase in the outstanding portfolio balance (excluding acquisitions) originated under the Company’s LOS to approximately 65.7% at April 30, 2025.
Interest expense for fiscal 2025 as a percentage of sales increased to 6.2% in fiscal 2025 from 5.6% in fiscal 2024. The increase in interest expense is primarily due to higher average borrowings in fiscal 2025 ($769.7 million in fiscal 2025 compared to $730.3 million for fiscal 2024) as well as the higher interest rates in 2025. Approximately two-thirds of the increase in interest expense is attributable to the increase in borrowings, and one-third is attributable to the higher interest rates in 2025.
Fiscal 2024 Compared to Fiscal 2023
Total revenues decreased $6.5 million or 0.5%, in fiscal 2024, as compared to revenue growth of 17.6% in fiscal 2023, principally as a result of declines in revenue from (i) dealerships that operated a full twelve months in both fiscal years ($13.8 million), and (ii) dealerships that were closed during or after the year ended April 30, 2023 ($14.9 million), partially offset by revenue generated from (iii) dealerships opened or acquired after the year ended April 30, 2023 ($22.2 million). The decline in revenue for fiscal 2024 is attributable to an 8.8% decrease in retail units sold, largely reflecting the challenging macroeconomic environment for our customers, partially offset by an 18.8% increase in interest and other
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income and a 5.7% increase in the average retail sales price. Interest income increased approximately $36.9 million compared to fiscal 2023, due to the $187.9 million increase in average finance receivables.
Cost of sales, as a percentage of sales, decreased to 65.3% compared to 66.5% in fiscal 2023, resulting in an increase in the gross margin percentage to 34.7% of sales in fiscal 2024 from 33.5% of sales in fiscal 2023. On a dollar basis, our gross margin per retail unit sold increased by $593 in fiscal 2024 compared to fiscal 2023. The average retail sales price for fiscal 2024 was $19,113, a $1,033 increase over the prior fiscal year, with over half of the increase attributable to vehicle price and the remainder related to ancillary products. As purchase costs increase, the margin between the purchase cost and the sales price of the vehicles we sell generally narrows on a percentage basis because the Company must offer affordable prices to our customers. The Company initiated a strategic partnership with an industry leader in October 2023 and implemented initiatives around vehicle reconditioning efforts, transportation and scaling that aided the Company’s cost improvement efforts during the second half of fiscal 2024 and in fiscal 2025 and are expected to continue to provide a better volume of affordable units going forward.
Selling, general and administrative expenses, as a percentage of sales increased to 15.5% in fiscal 2024 from 14.7% for fiscal 2023. Selling, general and administrative expenses are, for the most part, more fixed in nature. In dollar terms, selling, general and administrative expenses increased $2.8 million from fiscal 2023. The increase resulted from increased collections costs due primarily to a higher frequency of repossessions and increased spending in professional services around improvements in technology, as well as operating in a higher inflationary environment, partially offset by operational improvements and cost-cutting measures implemented in fiscal 2024. These efforts resulted in the lowest percentage change in annual selling, general and administrative expenses in over five years at just a 1.5% increase.
Provision for credit losses as a percentage of sales increased to 36.5% for fiscal 2024 compared to 29.3% for fiscal 2023. The provision for credit losses as a percentage of sales was higher during fiscal 2024 due to the growth in the balance of finance receivables, net of deferred revenue, coupled with a decrease in sales of $43.4 million. An increase in net charge-offs also contributed to the higher provision. Net charge-offs as a percentage of average finance receivables increased to 27.2% for fiscal 2024 compared to 23.3% for the prior year. The Company experienced continued increases in both the frequency and severity of losses, with the frequency increase accounting for over 80% of the increase as the Company’s customers continue to face pressures on higher average costs of everyday items. Severity was also higher due to the longer terms and lower recovery values. The increased frequency and severity of losses was partially mitigated by improved collection results from loans originated using our new underwriting system compared to our outstanding loans originated under our legacy system. Approximately 20% of the portfolio balance at April 30, 2024 originated under the new underwriting system.
Interest expense for fiscal 2024 as a percentage of sales increased to 5.6% from 3.2% in fiscal 2023. The increase in interest expense is primarily due to the higher interest rates in 2024 as well as the higher average borrowings in fiscal 2024 ($730.3 million in fiscal 2024 compared to $568.3 million for fiscal 2023). 60% of the increase in interest expense is attributable to the higher interest rates in 2024, and 40% is attributable to the increase in borrowings.
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Financial Condition
The following table sets forth the major balance sheet accounts of the Company at April 30, 2025, 2024 and 2023 (in thousands):
Years Ended April 30,
Assets:
Finance receivables, net
Inventory
Income taxes receivable, net
Property and equipment, net
Liabilities:
Accounts payable and accrued liabilities
Deferred revenue
Income tax payable, net
Deferred income tax liabilities, net
Notes payable, net
Revolving line of credit, net
The following table shows receivables growth compared to revenue growth during each of the past three fiscal years. For fiscal year 2025, growth in finance receivables, net of deferred revenue was 6.2%, while revenue decline of 0.2%, due primarily to the increases in term lengths of our installment sales contracts as the Company strives to keep payments affordable for our customers. The Company currently anticipates that the growth in finance receivables will continue to modestly exceed the overall change in revenue on an annual basis due to overall term length increases in our installment sales contracts, partially offset by improvements in underwriting and collection procedures in an effort to reduce credit losses. The weighted average contract term for the portfolio of installment sales contracts at April 30, 2025 was 48.3 months, compared to 47.9. months for April 30, 2024.
Years Ended April 30,
Growth in finance receivables, net of deferred revenue
Revenue growth
At fiscal year-end 2025, inventory increased 4.4%, or $4.8 million, compared to fiscal year-end 2024. The increase is primarily due to the most recent acquisition completed in the first quarter of 2025. Annualized inventory turns for fiscal year-end 2025 were 6.6, a slight decrease from 7.0 for the prior year. The Company strives to improve the quality of the inventory and maintain adequate turns while maintaining inventory levels to ensure an adequate supply of vehicles, in volume and mix, and to meet sales demand.
Property and equipment, net, decreased by approximately $3.5 million as of April 30, 2025 as compared to fiscal 2024. The Company incurred approximately $3.9 million in expenditures during fiscal year 2025, primarily related to remodeling of existing locations. These expenditures were offset by $7.6 million in depreciation expense during fiscal 2025.
Accounts payable and accrued liabilities increased by approximately $21.7 million at April 30, 2025 as compared to April 30, 2024 which reflects the impact of higher inventory and SG&A expenses and a strategic shift in payment scheduling, allowing us to optimize cash flow while maintaining strong supplier relationships.
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Deferred revenue decreased by $7.5 million as of April 30, 2025, compared to April 30, 2024. This decrease was primarily due to the $13.2 million benefit recognized in the second quarter of fiscal 2025, resulting from the Company’s adjustment to its estimate for the applicable recognition period under the Company’s service contract accounting change.
Deferred income tax liabilities, net, decreased approximately $10.7 million on April 30, 2025, compared to April 30, 2024, primarily due to a net operating loss carryforward for the related finance company.
The Company had $572.0 million and $553.6 million of notes payable outstanding related to asset-backed term funding transactions as of April 30, 2025 and 2024, respectively. These non-recourse notes issued by the Company accrue interest at fixed rates with a weighted average rate of 8.2% as of April 30, 2025. During fiscal 2025, the Company completed two issuances of asset-backed term funding on January 31, 2025 and October 9, 2024, respectively, and used the proceeds of the issuances to pay down existing debt. In July 2024, the Company borrowed $150 million in funds under a warehouse loan facility that accrued interest at a rate equal to the term SOFR plus 350 basis points. The Company repaid the funds borrowed under the warehouse facility in October 2024 using the proceeds from its asset-backed term funding. See Note F to the Consolidated Financial Statements for further details on the non-recourse notes payable and warehouse loan facility.
On September 20, 2024, the Company completed an underwritten public offering of 1,700,000 shares of common stock at a price per share of $43.00. The net proceeds of the public offering were approximately $73.8 million after deducting the underwriting discount, commissions and offering costs of approximately $4.9 million. Under the terms of the Underwriting Agreement entered into in connection with the offering, on October 22, 2024, the Company completed the sale of an additional 138,272 shares of common stock at the price of $43.00 per share, in connection with the partial exercise by the underwriter of an option (the “Over-Allotment Option”) granted in the Underwriting Agreement for the underwriters to purchase up to 255,000 additional shares at the public offering price to cover over-allotments. The net proceeds to the Company of the underwriter’s partial exercise of the Over-Allotment Option were approximately $5.6 million after deducting the underwriting discount, commissions and offering costs of approximately $346,000, resulting in aggregate net proceeds to the Company from the offering of approximately $73.8 million. The Company used the net proceeds from this offering to pay down a portion of the Company’s revolving line of credit.
The Company maintains a revolving line of credit with a group of lenders with available borrowings based on and secured by eligible finance receivables and inventory. The credit facilities provide for four pricing tiers for determining the applicable interest rate, based on the Company’s consolidated leverage ratio for the preceding fiscal quarter. The current applicable interest rate under the credit facilities is SOFR plus 3.50% or, for non-SOFR amounts, the base rate of 7.50% plus 1% at April 30, 2025 and 8.25% plus 1% at April 30, 2024. At April 30, 2025 and 2024 the Company had $204.8 million and $200.8 million, respectively, in outstanding borrowings under the revolving credit facilities. See Note F for further details on the revolving line of credit.
Borrowings on the Company’s revolving credit facilities fluctuate based upon a number of factors including (i) net income, (ii) finance receivables changes, (iii) funds available from asset-backed securitization offerings, warehouse facilities and/or other capital financing sources, (iv) income taxes, and (v) capital expenditures. Historically, income from operations, as well as borrowings on the revolving credit facilities and securitized debt, have funded the Company’s finance receivables growth and capital asset purchases and, as applicable, common stock repurchases. The overall increase in total borrowings during fiscal 2025 was made to support an increase in finance receivables, with longer terms, and a growing customer base. During fiscal 2025, the Company funded finance receivables growth of $73.8 million, increased inventory by $4.8 million, invested in an acquisition and fixed assets of $11.4 million and increased total cash by $30.1 million with income from operations, a $22.3 million increase in total debt and $73.8 million in net proceeds from the sale of common stock.
The proceeds from the Company’s common stock offering during the second quarter substantially offset the increase in finance receivables for fiscal year 2025.
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Liquidity and Capital Resources
The following table sets forth certain historical information with respect to the Company’s Statements of Cash Flows (in thousands):
Years Ended April 30,
Operating activities:
Net income (loss)
Provision for credit losses
Losses on claims for accident protection plan
Depreciation and amortization
Amortization of debt issuance costs
Stock based compensation
Deferred income taxes
Finance receivable originations
Finance receivable collections
Accrued interest on finance receivables
Inventory
Accounts payable and accrued liabilities
Deferred accident protection plan revenue
Deferred service contract revenue
Income taxes, net
Other
Total
Investing activities:
Purchase of investments
Purchase of property and equipment
Proceeds from sale of property and equipment
Total
Financing activities:
Revolving credit facilities, net
Notes payable, net
Change in cash overdrafts
Debt issuance costs
Purchase of common stock
Dividend payments
Exercise of stock options, including tax benefits and issuance of common stock
Total
Increase in cash, cash equivalents, and restricted cash
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The primary drivers of operating profits and cash flows include (i) top line sales (ii) interest income on finance receivables, (iii) gross margin percentages on vehicle sales, and (iv) credit losses, a significant portion of which relates to the collection of principal on finance receivables. Historically, most or all of the cash generated from operations has been used to fund finance receivables growth, capital expenditures, and as applicable, common stock repurchases. To the extent finance receivables growth, capital expenditures and common stock repurchases have exceeded income from operations, the Company has increased borrowings under its revolving credit facilities and secured additional funding through the issuance of asset-backed non-recourse notes.
Cash flows used in operating activities for fiscal 2025 compared to fiscal 2024 decreased primarily as a result of (i) an increase in net income and (ii) a decrease in deferred income taxes, (iii) an increase in finance receivable collections and (iv) a decrease in finance receivable originations. Finance receivables, net, increased by $82.1 million from April 30, 2024 to April 30, 2025.
Cash flows used in operating activities for fiscal 2024 compared to fiscal 2023 decreased primarily as a result of (i) an increase in the provision for credit losses and (ii) a decrease in finance receivable originations, partially offset by (iii) an increase in cash used for accounts payable and accrued liabilities and (iv) a net loss.
The purchase price the Company pays for a vehicle has a significant effect on liquidity and capital resources. Because the Company bases its selling price on the purchase cost for the vehicle, increases in purchase costs result in higher selling prices. As the selling price increases, it generally becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the Company’s customers have limited incomes, and their car payments must remain affordable within their individual budgets. Several external factors can negatively affect the purchase cost of vehicles. Decreases in the overall volume of new car sales, particularly domestic brands, lead to decreased supply in the used car market. The long-term impacts of any economic downturn on new car sales volumes and the ability of auctions and wholesalers to continue to operate could be impacted by tariffs or the imposition of new tariffs, trade wars, barriers or restrictions, or threats of such actions, and any future decline in new car sales could exacerbate challenges related to sourcing inventory or increase the cost of vehicles.
Sustained macro-economic pressures affecting our customers have helped keep demand high in recent years for the types of vehicles we purchase. This strong demand for used vehicles, coupled with modest levels of new vehicle sales in recent years, have led to a generally ongoing tight supply of used vehicles available to the Company in both quality and quantity. Wholesale prices continued to soften in calendar year 2024 and into 2025 but began to improve late in fiscal year 2025. The Company expects that the tight supply of used vehicles, strong demand for the types of vehicles we purchase, and market reactions to ongoing tariff uncertainty will continue to keep purchase costs and resulting sales prices elevated in the short term, However, an increase in marketplace wages for our customers could enhance affordability.
The Company has made substantial efforts to enhance its purchasing processes in order to secure an adequate supply of vehicles at competitive prices. This includes a strategic partnership with an industry leader, the expansion of its purchasing territories into larger cities near its dealerships, and the establishment of relationships with reconditioning partners to reduce procurement costs. Additionally, the Company has heightened accountability for its purchasing agents through updates to sourcing and pricing guidelines. Ongoing efforts also include the cultivation of relationships with national vendors capable of supplying large volumes of high-quality vehicles.
The Company’s liquidity is also influenced by its credit losses. Macro-economic factors, such as unemployment rates and general inflation affecting both core and discretionary items, can significantly impact collection results and, consequently, credit losses. At present, as customers face rising costs for non-discretionary items like childcare, insurance, groceries, and gasoline, their ability to meet vehicle payment obligations may be strained. To mitigate these risks, the Company has implemented several process improvements, including the introduction of a loan origination system over the past two years, which strengthens controls and provides a more robust infrastructure to support collections. Management remains focused on enhancing execution at the dealership level, particularly in terms of individualized customer engagement related to collection matters.
The Company’s business model relies on leasing the majority of the properties where its dealerships are located. As of April 30, 2025, the Company leased approximately 87% of its dealership properties. The $86.6 million of operating lease commitments includes $21.3 million of non-cancelable lease commitments under the lease terms and $65.3 million of lease commitments for renewal periods at the Company’s option that are reasonably assured. The Company expects to continue to lease the majority of the properties where its dealerships are located.
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The Company’s principal sources of liquidity include income from operations, proceeds from non-recourse notes payable issued under asset-back securitization transactions, warehouse facilities, borrowings under its revolving credit facilities, and other potential debt or equity financing sources. At April 30, 2025, the Company had approximately $9.8 million of cash on hand and approximately an additional $27.3 million of availability under its revolving credit facilities (see Note F to the Consolidated Financial Statements). The revolving credit facility has a scheduled maturity date of March 31, 2027, with total permitted borrowings of $350 million at April 30, 2025.
In July 2024, the Company entered into Amendment No. 7 to its revolving credit agreement to allow for, among other things, the entry into an amortizing warehouse agreement and to amend the fixed charge coverage ratio under the credit agreement. On September 16, 2024, the Company entered into Amendment No. 8 to its revolving credit agreement that, among other things, reduced the total permitted borrowings under the revolving line of credit by $20 million to $320 million. Amendment No. 8 required the Company to maintain a minimum amount available to be drawn under the credit facilities, based on eligible finance receivables and inventory, of $20 million, or $50.0 million if the outstanding principal balance under the line of credit equaled or exceeded $300 million. The amendment also required the Company to use the net proceeds of any junior capital raise of $50 million or more to pay down the then outstanding principal balance of the line of credit. The Company used the $73.8 million in aggregate net proceeds from its underwritten public common stock offering completed during the second quarter of fiscal year 2025 to pay down a portion of the outstanding balance of the line of credit. The amendment also made certain modifications to the fixed charge coverage ratio covenant under the credit agreement and restricts the Company from making future repurchases of its common stock, along with the agreement’s existing restrictions on other distributions to the Company’s shareholders. Thus, the Company is restricted from paying dividends or making other distributions to its shareholders without the consent of the Company’s lenders.
On February 28, 2025, the Company entered into Amendment No. 9 to its revolving credit agreement that, among other things, extended the maturity date of the credit facility to March 31, 2027 and increased the total permitted borrowings by $30 million to $350 million. Under the amendment, the Company is required to maintain a minimum amount available to be drawn under the credit facilities, based on eligible finance receivables and inventory, of $20 million when the outstanding principal balance under the line of credit is less than or equal to $325 million. If the outstanding principal balance under the line of credit is greater than $325 million, the Company will be required to maintain a minimum availability of $50 million. The amendment made further adjustments to the required fixed charge coverage ratio, including incremental increases in the required ratio through July 31, 2026. The amendment also decreased the Company’s permissible capital expenditure limit from $35.0 million to $25.0 million in the aggregate during any fiscal year
In July 2024, the Company entered into a $150 million amortizing warehouse agreement backed by a portion of its finance receivables. The warehouse facility accrues interest at a rate of SOFR plus 350 basis points, with payments of principal and interest due monthly and a scheduled maturity date of July 12, 2026. The Company primarily used the funds from the warehouse facility to pay down outstanding amounts borrowed under the revolving line of credit to fund finance receivables. On September 16, 2024, the Company entered into an amendment to the warehouse agreement that amended the fixed charge coverage ratio covenant consistent with Amendment No. 8 to the revolving credit agreement and modified certain other financial covenants under the warehouse agreement. In October 2024, the Company used the proceeds from its October 2024 asset-back term securitization funding to pay down the outstanding balance under the warehouse loan facility. No debt was outstanding under the warehouse loan facility as of April 30, 2025
The Company expects to use cash from operations and other financing sources to (i) periodically pay down the outstanding principal balance of the revolving line of credit, (ii) grow its finance receivables portfolio, (iii) purchase fixed assets of approximately $9 million in the next 12 months as we complete facility updates and general fixed asset requirements, (iv) fund dealership acquisitions as opportunities arise on terms acceptable to the Company, and (v) reduce the Company’s remaining debt to the extent excess cash is available.
The Company believes it will have adequate liquidity to continue to grow its revenues and to satisfy its capital needs for the foreseeable future through expected financing sources such as additional securitized borrowings or public registered offerings.
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Off-Balance Sheet Arrangements
The Company has two standby letters of credit relating to insurance policies totaling $4.4 million at April 30, 2025.
Other than its letters of credit, the Company is not a party to any off-balance sheet arrangement that management believes is reasonably likely to have a current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Related Finance Company Contingency
Car-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price. These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these transactions are eliminated in consolidation and a deferred income tax liability has been recorded for this timing difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection for the Company’s finance receivables and, principally because of certain state apportionment characteristics of Colonial, also has the effect of reducing the Company’s overall effective state income tax rate. The actual interpretation of the Regulations is in part a facts and circumstances matter. The Company believes it satisfies the material provisions of the Regulations. Failure to satisfy those provisions could result in the of a tax deduction at the time the receivables are sold and have the effect of increasing the Company’s overall income tax rate as well as the timing of required tax payments.
The Company’s policy is to recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company had no accrued penalties or interest as of April 30, 2025.
Critical Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the Company’s estimates. The Company believes the most significant estimate made in the preparation of the Consolidated Financial Statements in Item 8 relates to the determination of its allowance for credit losses, which is discussed below. The Company’s accounting policies are discussed in Note B to the Consolidated Financial Statements in Item 8.
The Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient to cover estimated losses expected to be incurred on the portfolio at the measurement date in the collection of its finance receivables currently outstanding. At April 30, 2025, the weighted average contract term was 48.3 months with 35.9 months remaining. At April 30, 2024, the weighted average total contract term was 47.9 months with 36.1 months remaining. The allowance for credit losses at April 30, 2025, $323.1 million, was 23.25% of the principal balance in finance receivables of $1.5 billion, less unearned accident protection plan revenue of $51.5 million, unearned service contract revenue of $61.8 million, and pending APP claims of $6.2 million. The allowance for credit losses at April 30, 2024, $331.3 million, was 25.32% of the principal balance in finance receivables of $1.4 billion, less deferred APP revenue of $51.8 million, deferred service contract revenue of $68.9 million, and pending APP claims of $6.4 million. The Company decreased the allowance for credit losses as a percentage of finance receivables from 25.32% at April 30, 2024 to 23.25% at April 30, 2025.
The allowance for credit losses represents the Company’s expectation of future net charge-offs at the measurement date. The allowance takes into account quantitative and qualitative factors such as historical credit loss experience, with consideration given to changes in contract characteristics (i.e., customer interest rates, credit deterioration and delinquency rates), current and forecasted inflationary economic conditions, amongst others. The allowance for credit losses is reviewed at least quarterly by management with any changes reflected in current operations.
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The allowance for credit losses is a critical accounting estimate for the following reasons:
• estimates relating to the allowance for credit losses require management to project future loan performance, including cash flows, prepayments, and charge-offs;
• the allowance for credit losses is influenced by factors outside of management’s control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions including, but not limited to, inflation; and
• judgment is required to evaluate whether the model used to generate the allowance for credit losses, which is then adjusted for changes in customer interest rates, credit deterioration and delinquency rates, as well as the expected effects from current and forecasted inflation, produces an allowance that appropriately reflects a current estimate of lifetime expected credit losses.
Because management’s estimate of the allowance for credit losses involves a high degree of qualitative judgment, such as the subjectivity of the assumptions used, there is uncertainty inherent in such estimates. Changes in these estimates could significantly impact the allowance and provision for credit losses.
Recent Accounting Pronouncements
Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies which the Company will adopt as of the specified effective date. Unless otherwise discussed, the Company believes the implementation of recently issued standards which are not yet effective will not have a material impact on its consolidated financial statements upon adoption.
In October 2023, the FASB issued an accounting pronouncement (ASU 2023-06) related to disclosure or presentation requirements for various subtopics in the FASB’s Accounting Standards Codification (“Codification”). The amendments in the update are intended to align the requirements in the Codification with the U.S. Securities and Exchange Commission’s (“SEC”) regulations and facilitate the application of GAAP for all entities. The effective date for each amendment is the date on which the SEC removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or if the SEC has not removed the requirements by June 30, 2027, this amendment will be removed from the Codification and will not become effective for any entity. Early adoption is prohibited. We do not expect this update to have a material impact on our consolidated financial statements.
In November 30, 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which sets forth improvements to the current segment disclosure requirements in accordance with Topic 280 “Segment Reporting,” including clarifying that entities with a single reportable segment are subject to both new and existing segment reporting requirements. The Company adopted this standard for the year ended April 30, 2025. Adoption of this ASU expanded our business segment disclosures, but did not impact the Company’s consolidated financial position, results of operations or cash flows.
In December 2023, the FASB issued an accounting pronouncement (ASU 2023-09) related to income tax disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We plan to adopt this pronouncement for our fiscal year beginning May 1, 2025, and we do not expect it to have a material effect on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenses. This standard requires public business entities to provide enhanced disclosures of certain natural expense categories within relevant income statement captions. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact of this standard on its financial statement disclosures.
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Non-GAAP Financial Measure
This Annual Report on Form 10-K contains financial information determined by methods other than in accordance with generally accepted accounting principles (GAAP). We present debt, net of cash, and an adjusted debt to finance receivables ratio, each a non-GAAP financial measure, as supplemental measures of our financial condition. Debt, net of cash, is defined as total debt minus total cash, cash equivalents, and restricted cash on the balance sheet. The adjusted debt to finance receivables ratio is defined as the ratio of total debt, net of total cash, cash equivalents, and restricted cash divided by the outstanding principal balance of our finance receivables. We believe debt, net of cash, and the adjusted debt to finance receivables ratio are useful measures to monitor leverage and evaluate balance sheet risk. These measures should not be considered in isolation or as substitutes for reported GAAP results because they exclude certain items as compared to similar GAAP-based measures, and such measures may not be comparable to similarly-titled measures reported by other companies. We strongly encourage investors to review our consolidated financial statements included in this Annual Report on Form 10-K in their entirety and not rely solely on any one, single financial measure. The reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures as of April 30, 2025 and 2024, are provided in the table below.
April 30, 2025
April 30, 2024
Debt:
Revolving lines of credit, net
Non-recourse notes payable, net
Total debt (A)
Cash:
Cash and cash equivalents
Restricted cash on auto finance receivables
Total cash, cash equivalents, and restricted cash (B)
Debt, net of total cash (A-B)
Principal balance of finance receivables (C)
Ratio of debt to finance receivables (A/C)
Ratio of debt, net of total cash, to finance receivables ((A-B)/C)
