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What changed in AMERICAS CARMART INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of AMERICAS CARMART INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+273 added−272 removedSource: 10-K (2023-06-26) vs 10-K (2022-07-11)

Top changes in AMERICAS CARMART INC's 2023 10-K

273 paragraphs added · 272 removed · 202 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

81 edited+23 added−24 removed53 unchanged
Biggest changeThe COVID-19 pandemic, or any future outbreak of any contagious diseases or other public health emergency, could continue to, and may materially, adversely affect our business, financial condition, liquidity and results of operations. 3 Business Strategy In general, it is the Company’s objective to continue to expand its business using the same business model that has been developed and used by Car-Mart for over 40 years.
Biggest changeBusiness Strategy In general, it is the Company’s objective to continue to expand its business using the same business model that has been developed and used by Car-Mart for over 40 years with enhancements to our technology and core products to better serve our customers. This business strategy focuses on: Collecting Customer Accounts.
The corporate office, based in Rogers, Arkansas, consists of regional vice presidents, area operations managers, regional inventory purchasing directors, a sales director, a vice president of collections, a vice president inventory operations, a director of audit and compliance and compliance auditors, a vice president of human resources, a director of general manager recruitment and development, associate and management development personnel, accounting and management information systems personnel, administrative personnel and senior management.
The corporate office, based in Rogers, Arkansas, consists of regional vice presidents, area operations managers, regional inventory purchasing directors, a sales director, a vice president of collections, a vice president of inventory operations, a director of audit and compliance and compliance auditors, a vice president of human resources, a director of general manager recruitment and development, associate and management development personnel, accounting and management information systems personnel, administrative personnel and senior management.
For covered components and assemblies, the Company coordinates service with third-party service centers with which the Company typically has previously negotiated labor rates. The vast majority of the Company’s customers elect to purchase a service contract when purchasing a vehicle. Additionally, the Company offers its customers to whom financing is extended an accident protection plan product.
For covered components and assemblies, the Company coordinates service with third-party service centers with which the Company typically has previously negotiated labor rates. The vast majority of the Company’s customers elect to purchase a service contract when purchasing a vehicle. Additionally, the Company offers its customers to whom financing is extended an accident protection plan (APP) product.
Further, the Company believes that operating costs, such as salaries, rent and advertising, are lower in smaller communities than in major metropolitan areas. As the Company builds its infrastructure and certain aspects of the business become more centralized, we may expand and operate in larger cities. 4 Enhanced Management Talent and Experience.
Further, the Company believes that operating costs, such as salaries, rent and advertising, are lower in smaller communities than in major metropolitan areas. As the Company builds its infrastructure and certain aspects of the business become more centralized, we may expand and operate in larger cities. Enhanced Management Talent and Experience.
Used Car Financing. The used automobile financing industry is served by traditional lending sources such as banks, savings and loans, and captive finance subsidiaries of automobile manufacturers, as well as by independent finance companies and Integrated Auto Sales and Finance dealers. Many loans that flow through the more traditional sources have historically ended up packaged in the securitization markets.
The used automobile financing industry is served by traditional lending sources such as banks, savings and loans, and captive finance subsidiaries of automobile manufacturers, as well as by independent finance companies and Integrated Auto Sales and Finance dealers. Many loans that flow through the more traditional sources have historically ended up packaged in the securitization markets.
This decentralized structure is complemented by the oversight and involvement of corporate office management and the maintenance of centralized financial controls, including monitoring proprietary credit scoring, establishing standards for down-payments and contract terms, and an internal compliance function. Expanding Through Controlled Organic Growth and Strategic Acquisitions.
This decentralized structure is complemented by the oversight and involvement of corporate office management and the maintenance of centralized financial controls, including monitoring proprietary credit scoring, establishing standards for down-payments and contract terms, and an internal compliance function. 5 Expanding Through Controlled Organic Growth and Strategic Acquisitions.
Upon the customer and the Company reaching a preliminary agreement as to financing terms, the Company obtains a credit application from the customer which includes information regarding employment, residence and credit history, personal references and a detailed budget itemizing the customer’s monthly income and expenses. Certain information is then verified by Company personnel.
Upon the customer and the Company reaching a preliminary agreement as to financing terms, the Company obtains a credit application from the customer which includes information regarding employment, residence and credit history, personal references and a budget itemizing the customer’s monthly income and expenses. Certain information is then verified by Company personnel.
The Company utilizes text messaging notifications which allows customers to elect to receive payment reminders and late notices via text message. The Company attempts to resolve payment delinquencies amicably prior to repossessing a vehicle.
The Company centrally utilizes text messaging notifications which allows customers to elect to receive payment reminders and late notices via text message. The Company attempts to resolve payment delinquencies amicably prior to repossessing a vehicle.
Senior management, with the assistance of the corporate office staff, will make decisions with respect to the communities in which to locate a new dealership and the specific sites within those communities. New dealerships have historically been located in the general proximity of existing dealerships to facilitate the corporate office’s oversight of the Company’s dealerships.
When opening new dealerships, senior management, with the assistance of the corporate office staff, will make decisions with respect to the communities in which to locate a new dealership and the specific sites within those communities. New dealerships have historically been located in the general proximity of existing dealerships to facilitate the corporate office’s oversight of the Company’s dealerships.
Integrated Auto Sales and Finance dealers typically offer their customers certain advantages over more traditional financing sources, such as less restrictive underwriting guidelines, flexible payment terms (including scheduling payments on a weekly or bi-weekly basis to coincide with a customer’s payday), and the ability to make payments in person, an important feature to individuals who may not have a checking account.
Integrated Auto Sales and Finance dealers typically offer their customers certain advantages over more traditional financing sources, such as less restrictive underwriting guidelines, flexible payment terms (including scheduling payments on a weekly or bi-weekly basis to coincide with a customer’s payday), and the ability to make payments in person, an important feature to individuals who may not have a checking account. 12 Used Car Financing.
Dealerships generally maintain an inventory of 20 to 90 vehicles depending on the size and maturity of the dealership and the time of the year. Inventory turns over approximately 7 to 9 times each year. Selling is done predominantly by the dealership manager, assistant manager, manager trainee or sales associate.
Dealerships generally maintain an inventory of 20 to 90 vehicles depending on the size and maturity of the dealership and also the time of the year. Inventory turns over approximately 7 times each year. Selling is done predominantly by the dealership manager, assistant manager, manager trainee or sales associate.
The corporate office monitors and oversees dealership operations. The corporate office has access to operating and financial information and reports on each dealership on a daily, weekly and monthly basis. This information includes cash receipts and disbursements, inventory and receivables levels and statistics, receivables aging and sales and account loss data.
The corporate office monitors and oversees dealership operations. The corporate office has access to operating and financial information and reports on each dealership on a daily, weekly, monthly, quarterly, and annual basis. This information includes cash receipts and disbursements, inventory and receivables levels and statistics, receivables aging, sales and account loss data.
By promoting from within, the Company believes it is able to train its associates in the Car-Mart way of doing business, maintain the Company’s unique culture and develop the loyalty of its associates by providing opportunity for advancement.
By promoting from within, the Company believes it is able to train its associates in the Car-Mart way of doing business, maintain the Company’s unique culture and develop the loyalty of its associates by providing opportunities for advancement.
Due to growth, the Company has, to a larger extent, also had to look outside of the Company for associates possessing requisite skills and who share the values and appreciate the unique culture the Company has developed over the years.
Due to growth, the Company has, to a larger extent, also had to look outside of the Company for associates possessing requisite skills and core competencies and who share the values and appreciate the unique culture the Company has developed over the years.
The Company provides centralized support to the dealership manager in the form of a proprietary credit scoring system used for monitoring and other supervisory assistance to assist with the credit decision. Credit quality is monitored centrally by corporate office personnel on a daily, weekly and monthly basis. 8 Collections.
The Company provides centralized support to the dealership manager in the form of a proprietary credit scoring system used for monitoring and other supervisory assistance to assist with credit decisions. Credit quality is monitored centrally by corporate office personnel on a daily, weekly and monthly basis. Collections.
This product contractually obligates the Company to cancel the remaining amount owed on a contract where the vehicle has been totaled, as defined in the plan, or the vehicle has been stolen.
The APP product contractually obligates the Company to cancel the remaining amount owed on a contract where the vehicle has been totaled, as defined in the plan, or the vehicle has been stolen.
The Company works very hard to keep its delinquency percentages low and not to repossess vehicles. Accounts one to three days late are contacted by telephone or text message. Notes from each contact are electronically maintained in the Company’s computer system.
The Company works diligently to keep its delinquency percentages low and not to repossess vehicles. Accounts one to three days late are contacted by telephone or text message. Notes from each contact are electronically maintained in the Company’s computer system.
For a reconciliation of adjusted debt to equity ratio to the most directly comparable GAAP financial measure, see “Non-GAAP Financial Measure” included in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Significant Expansion Opportunities.
For a reconciliation of adjusted debt to equity ratio to the most directly comparable GAAP financial measure, see “Non-GAAP Financial Measure” included in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations. Significant Expansion Opportunities.
Sales associates are paid a commission for sales that they make in addition to an hourly wage. Sales are made on an “as is” basis; however, customers are given an option to purchase a service contract which covers certain vehicle components and assemblies.
Sales associates are paid a commission for sales in addition to an hourly wage. Sales are made on an “as is” basis; however, customers are given an option to purchase a service contract, which covers certain vehicle components and assemblies.
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, 2022, the Company operated 154 dealerships located primarily in small cities throughout the South-Central United States.
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, 2023, the Company operated 156 dealerships located primarily in small cities throughout the South-Central United States.
The Company’s operating success has been a benefit for recruiting outside talent; however, the Company expects the hiring environment to continue to be challenging as a result of increasing wages, competition for qualified workers and the ongoing impact of COVID-19 on our business and operations. Cultivating Customer Relationships.
The Company’s operating success has been a benefit for recruiting outside talent; however, the Company expects the hiring environment to continue to be challenging as a result of increasing wages, competition for qualified workers, and the impact of inflation on our business and operations. Cultivating Customer Relationships.
All of the Company’s retail installment contracts are serviced by Company personnel at the dealership level. A high percentage of the Company’s customers make their payments in person at the dealership where they purchased their vehicle; however, in an effort to make paying convenient for its customers, the Company offers a variety of payment options.
All of the Company’s retail installment contracts are serviced by Company personnel at the dealership level. Approximately half of the Company’s customers make their payments in person at the dealership where they purchased their vehicle; however, in an effort to make paying convenient for its customers, the Company offers a variety of payment options.
The Company believes that developing and maintaining a relationship with its customers is critical to the success of the Company. A large percentage of sales at mature dealerships are made to repeat customers, and the Company estimates an additional 10% to 15% of sales result from customer referrals.
The Company believes that developing and maintaining a relationship with its customers is critical to the success of the Company. A large percentage of sales at mature dealerships are made to repeat customers, and additional sales result from customer referrals.
The Company historically targets smaller communities in which to locate its dealerships (i.e., populations from 20,000 to 50,000), but is also operating in larger cities such as Tulsa, Oklahoma; Lexington, Kentucky; Springfield, Missouri; Chattanooga, Tennessee and Little Rock, Arkansas.
The Company historically targets smaller communities in which to locate its dealerships (i.e., populations from 20,000 to 50,000), but is also continuing to expand its operations in larger cities such as Tulsa, Oklahoma; Lexington, Kentucky; Springfield, Missouri; Chattanooga and Knoxville, Tennessee and Little Rock, Arkansas.
As of April 30, 2022, the Company’s debt to equity ratio (Revolving credit facilities and non-recourse notes payable divided by total equity on the Consolidated Balance Sheet) was 0.94 to 1.0.
As of April 30, 2023, the Company’s debt to equity ratio (revolving credit facilities and non-recourse notes payable divided by total equity on the Consolidated Balance Sheet) was 1.28 to 1.0.
The Company’s hiring practices are designed to find and promote candidates reflecting the various communities in which we operate. As of April 30, 2022, 50% of the Company’s associates were women and 35% of our associates were racially or ethnically diverse. Employee Safety and Health Ensuring the safety of all associates is a critical priority for the Company.
The Company’s hiring practices are designed to find and promote candidates reflecting the various communities in which we operate. As of April 30, 2023, 52% of the Company’s associates were women and 34% of our associates were racially or ethnically diverse. Employee Safety and Health Ensuring the safety of all associates is a critical priority for the Company.
Judy is a Certified Public Accountant and prior to joining the Company her experience included approximately five years in public accounting with Arthur Andersen & Co. and approximately 17 years at National Home Center, Inc., a home improvement products and building materials retailer, most recently as Vice President of Financial Reporting. Leonard L.
Judy is a Certified Public Accountant and prior to joining the Company her experience included approximately five years in public accounting with Arthur Andersen & Co. and approximately 17 years at National Home Centers, Inc., a home improvement product and building materials retailer, most recently as Vice President of Financial Reporting.
Human Capital Resources At America’s Car-Mart, Inc., our associates are the heart of our business. Our associates are committed to making a difference for customers, their communities and each other. As of April 30, 2022, the Company, including its consolidated subsidiaries, employed a diverse associate base of approximately 2,100 full time associates.
Human Capital Resources At America’s Car-Mart, Inc., our associates are the heart of our business. Our associates are committed to making a difference for customers, their communities and each other. As of April 30, 2023, the Company, including its consolidated subsidiaries, employed a diverse associate base of approximately 2,260 fulltime associates.
Each dealership is ultimately responsible for buying and selling its own vehicles, making credit decisions, and collecting the contracts it originates in accordance with established policies and procedures. Approximately 50% of customers make their payments in person at one of the Company’s dealerships.
Each dealership is ultimately responsible for the quality of its vehicles, making sales contacts, making credit decisions, and collecting the contracts it originates in accordance with established policies and procedures. Approximately 50% of customers make their payments in person at one of the Company’s dealerships.
The Company requires that payments be made on a weekly, bi-weekly, semi-monthly or monthly basis, scheduled to coincide with the day the customer is paid by his or her employer.
The Company requires that payments be made on a weekly, bi-weekly, semi-monthly or monthly basis, scheduled to coincide with the day the customer is paid by his or her employer, with 79% of payments being due on either a weekly or bi-weekly basis.
His experience also includes approximately five years as Chief Financial Officer and Vice President of Operations of Wynco, LLC, a nationwide distributor of animal health products. Vickie D. Judy has served as Chief Financial Officer of the Company since January 2018 and served as Secretary of the Company from May 2018 to August 2019. Before becoming Chief Financial Officer, Ms.
His experience also includes approximately five years as Chief Financial Officer and Vice President of Operations of Wynco, LLC, a nationwide distributor of animal health products. Vickie D. Judy has served as Chief Financial Officer of the Company since January 2018. Before becoming Chief Financial Officer in January 2018, Ms.
Historically, new dealerships have operated with a low level of inventory and personnel. As a result of the modest staffing level, the new dealership manager performs a variety of duties (i.e., selling, collecting and administrative tasks) during the early stages of his or her dealership’s operations. As the dealership develops and the customer base grows, additional staff are hired.
As a result of the modest staffing level, the new dealership manager performs a variety of duties (i.e., selling, collecting and administrative tasks) during the early stages of his or her dealership’s operations. As the dealership develops and the customer base grows, additional staff are hired.
Each dealership is similar in nature and only engages in the selling and financing of used vehicles. All individual dealerships have similar operating characteristics. As such, individual dealerships have been aggregated into one reportable segment. Dealership Organization. Dealerships operate on a decentralized basis with centralized support by the corporate office in many areas.
Each dealership is similar in nature and only engages in the selling and financing of used vehicles. All individual dealerships have similar operating characteristics. As such, individual dealerships have been aggregated into one reportable segment. Dealership Organization. Dealerships operate on a decentralized basis.
Integrated Auto Sales and Finance dealers sell and finance used cars to individuals with limited credit histories or past credit problems.
Integrated Auto Sales and Finance dealers sell and finance used cars to individuals that often have limited credit histories or past credit problems.
The corporate office uses this information to compile Company-wide reports, plan dealership visits and prepare monthly financial statements. 10 Periodically, area operations managers, regional vice presidents, compliance auditors and senior management visit the Company’s dealerships to inspect, review and comment on operations. The corporate office assists in training new managers and other dealership level associates.
The corporate office uses this information to compile Company-wide reports, plan dealership visits and prepare monthly financial statements. Periodically, area operations managers, regional vice presidents, compliance auditors, loss prevention associates, and senior management visit the Company’s dealerships to inspect, review and comment on operations.
This product is available in most of the states in which the Company operates and the vast majority of financed customers elect to purchase this product when purchasing a vehicle in those states.
APP is available in most of the states in which the Company operates and the vast majority of financed customers elect to purchase this product when purchasing a vehicle in those states. The Company has a 7-day vehicle exchange policy.
Judy served as Principal Accounting Officer since March 2016 and Vice President of Accounting since August 2015. She joined the Company in May 2010, serving as Controller and Director of Financial Reporting. Ms.
Judy served as Principal Accounting Officer since March 2016 and Vice President of Accounting since August 2015. Since joining the Company in May 2010, Ms. Judy has also served as Controller and Director of Financial Reporting. Ms.
Of the external capital that will be needed to fund growth, the Company plans to draw on its existing credit facilities, or renewals or replacements of those facilities, and participate in the securitization market, when appropriate.
To the extent external capital is needed to fund growth, the Company plans to draw on its existing credit facilities, or renewals or replacements of those facilities, and to participate in the securitization market from time to time, when appropriate.
At these meetings, corporate office personnel provide training and recognize achievements of dealership managers. Near the end of every fiscal year, the respective area operations manager, regional vice president and senior management conduct “projection” meetings with each dealership manager.
The Company’s dealership managers meet monthly on an area, regional or Company-wide basis. At these meetings, corporate office personnel provide training and recognize achievements of dealership managers. Near the end of every fiscal year, the respective area operations manager, regional vice president and senior management conduct “projection” meetings with each dealership manager.
All associates are required complete orientation courses in culture, safety, discrimination, sexual harassment and other topics. Associates also have access to online training programs for the development of job-specific skills and leadership qualities.
All associates are required to complete orientation courses in culture, safety, sexual harassment and discrimination awareness, and other compliance topics. Associates also have access to online training programs for the development of job-specific skills, leadership behaviors, and advanced topics such as unconscious bias.
Depending on the condition of a repossessed vehicle, it is either resold on a retail basis through a Company dealership or sold for cash on a wholesale basis, primarily through physical or online auctions. New Dealership Openings.
Depending on the condition of a repossessed vehicle, it is either resold on a retail basis through a Company dealership or sold for cash on a wholesale basis, primarily through physical or online auctions. 10 New Dealership Openings. Along with strategic dealership acquisitions, the Company continues to explore opportunities for new dealership openings.
Below is a summary of dealerships operating during the fiscal years ended April 30, 2022, 2021 and 2020: Years Ended April 30, 2022 2021 2020 Dealerships at beginning of year 151 148 144 Dealerships opened or acquired 3 3 5 Dealerships closed - - (1 ) Dealerships at end of year 154 151 148 6 Below is a summary of dealership locations by state as of April 30, 2022, 2021 and 2020: As of April 30, Dealerships by State 2022 2021 2020 Arkansas 38 38 37 Oklahoma 30 28 27 Missouri 18 18 18 Alabama 16 16 16 Texas 13 13 13 Kentucky 12 12 12 Georgia 9 9 9 Tennessee 8 7 6 Mississippi 5 5 5 Illinois 3 3 3 Indiana 1 1 1 Iowa 1 1 1 Total 154 151 148 Dealerships are typically located in smaller communities.
Below is a summary of dealerships operating during the fiscal years ended April 30, 2023, 2022 and 2021: Years Ended April 30, 2023 2022 2021 Dealerships at beginning of year 154 151 148 Dealerships opened or acquired 3 3 3 Dealerships closed (1 ) - - Dealerships at end of year 156 154 151 Below is a summary of dealership locations by state as of April 30, 2023, 2022 and 2021: As of April 30, Dealerships by State 2023 2022 2021 Arkansas 37 38 38 Oklahoma 30 30 28 Missouri 18 18 18 Alabama 16 16 16 Texas 14 13 13 Kentucky 12 12 12 Georgia 9 9 9 Tennessee 10 8 7 Mississippi 5 5 5 Illinois 3 3 3 Indiana 1 1 1 Iowa 1 1 1 Total 156 154 151 8 Dealerships are located on leased or owned property between one and four acres in size.
The Company competes principally with other independent Integrated Auto Sales and Finance dealers, as well as with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions. The Company competes for both the purchase and resale of used vehicles.
Competition The used automotive retail industry is fragmented and highly competitive. The Company competes principally with other independent Integrated Auto Sales and Finance dealers, as well as with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions.
For example, the Company’s Future Managers training program allows associates to learn all facets of operating a Car-Mart store from vehicle inventory and facility management to profit and loss statements, while acquiring management techniques and soft leadership skills.
The Company’s Future Manager training program allows associates to learn all facets of operating a Car-Mart store from vehicle inventory and facility management to effective collection techniques, while acquiring leadership skills.
The Company’s average retail sales price was $16,649 per unit in fiscal 2022, compared to $13,621 in fiscal 2021. Used vehicle pricing continues to increase due to the high demand and tight supply of used vehicles.
The Company’s average retail sales price was $18,080 per unit in fiscal 2023, compared to $16,372 in fiscal 2022. Used vehicle pricing continued to increase due to the high demand and tight supply of used vehicles.
The Company believes there are numerous suitable communities of various sizes within the twelve states in which the Company currently operates and other contiguous states to satisfy anticipated dealership growth for the next several years. Operations Operating Segment.
The Company believes there are numerous suitable communities to expand our physical footprint within the twelve states in which the Company currently operates and other contiguous states to satisfy anticipated dealership growth for the next several years.
In addition, the Company created its “Car-Mart U” training program to build on the foundation established in the Future Managers program by providing a series of classes that prepare Assistant Managers for a General Manager or other management role by introducing new curriculum focused on leadership training, business concepts and customer experience.
In addition, the Company maintains its “Car-Mart U” training program which builds on the foundation established in the Future Manager program by providing a series of blended learning solutions preparing assistant managers for a general manager or other elevated management role by introducing new curriculum focused on advanced leadership training, business concepts and customer experience.
When opening a new dealership, the Company will typically use an existing structure on the property to conduct business or purchase a modular facility while business at the new location develops. Dealership facilities typically range in size from 1,500 to 5,000 square feet. Purchasing. The Company purchases vehicles primarily from wholesalers, new car dealers, individuals and auctions.
When opening a new dealership, the Company will either remodel an existing structure on the property to conduct business or construct a new facility. Dealership facilities typically range in size from 1,500 to 5,000 square feet. Purchasing. The Company purchases vehicles primarily from wholesalers, new car dealers, rental/fleet companies, auctions and the general public.
The majority of the Company’s dealerships are located in cities and towns with a population of 50,000 or less. The Company believes that by operating in smaller communities it develops strong personal relationships, resulting in better collection results.
As of April 30, 2023, approximately 71% of the Company’s dealerships were located in cities with populations of 50,000 or less. The Company believes that by operating in smaller communities it develops strong personal relationships, resulting in better collection results.
This business strategy focuses on: Collecting Customer Accounts. Collecting customer accounts is perhaps the single most important aspect of operating an Integrated Auto Sales and Finance used car business and is a focal point for dealership level and corporate office personnel on a daily basis.
Collecting customer accounts is perhaps the single most important aspect of operating an Integrated Auto Sales and Finance used car business and is a focal point for dealership level and corporate office personnel on a daily basis. The Company measures and monitors the collection results of its dealerships using internally developed delinquency and account loss standards.
Excluding the amount of debt equal to cash, the Company’s adjusted debt to equity ratio (a non-GAAP measure) as of April 30, 2022 was 0.85 to 1.0, which the Company believes is lower than many of its competitors. Further, the Company believes it can fund a significant amount of its planned growth from net income generated from operations.
Excluding the amount of debt equal to cash, the Company’s adjusted debt to equity ratio (a non-GAAP measure) as of April 30, 2023 was 1.14 to 1.0, which the Company believes is lower than many of its competitors.
The Company measures and monitors the collection results of its dealerships using internally developed delinquency and account loss standards. Substantially all associate incentive compensation is tied directly or indirectly to collection results. The Company has a vice president of collections and support staff at the corporate level to work with field operators to improve credit results.
Substantially, all associate incentive compensation is tied directly or indirectly to collection results. The Company has a vice president of collections and support staff at the corporate level to work with field operators to improve credit results. This team monitors efficiencies and the effectiveness of account representatives as they work to improve customer success rates.
The Company estimates that approximately 10% to 15% of the Company’s sales result from customer referrals. For mature dealerships, a large percentage of sales are to repeat customers. The Company primarily advertises using television, radio, local publications, internet and social media. In addition, the Company periodically conducts promotional sales campaigns in an effort to increase sales.
For mature dealerships, a large percentage of sales are to repeat customers. The Company primarily advertises using television, radio, digital and social media. In addition, the Company periodically conducts promotional sales campaigns in an effort to increase sales or promote the brand.
This limitation of capital to new, as well as existing, dealerships serves as an important operating discipline. Dealerships must be profitable in order to grow and typically new dealerships can be profitable within the first year of opening.
This limitation of capital to new, as well as existing, dealerships serves as an important operating discipline. Dealerships must be profitable in order to grow and typically new dealerships can be profitable within the first year of opening. Dealership Acquisitions. Since 2020, the Company has actively pursued strategic dealership acquisitions to expand its market presence and enhance its business operations.
Therefore, the Company generally realizes a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. The Company expects this pattern to continue in future years.
Conversely, the Company’s first and fourth fiscal quarters (May through July and February through April) have historically been the busiest times for vehicle sales. Therefore, the Company generally realizes a higher proportion of its revenue and operating profit during the first and fourth fiscal quarters. The Company expects this pattern to continue in future years.
The Company provides financing to substantially all of its customers who purchase a vehicle at one of its dealerships. The Company only provides financing to its customers for the purchase of its vehicles, and the Company does not provide any type of financing to non-customers.
The Company only provides financing to its customers for the purchase of its vehicles and related ancillary products, and the Company does not provide any type of financing to non-customers.
The Company also offers professional resources that promote associates’ health and general well-being. 13 Talent and Development The Company is committed to building a working environment and a culture that attracts, develops and retains motivated and high-performing associates.
Associates have access to retirement investment plans and legal consultants to help them save for their future needs. The Company also offers professional resources that promote associates’ mental health and general well-being. Talent and Development The Company is committed to building a working environment and culture that attracts, develops and retains motivated associates.
Each dealership is primarily responsible for buying and selling vehicles, making credit decisions, and servicing and collecting the installment contracts it originates. Dealerships also maintain their own records and make daily deposits. Dealership-level financial statements are prepared by the corporate office on a monthly basis.
Each dealership is responsible for selling vehicles, making credit decisions, and servicing and collecting the installment contracts it originates, with assistance from the corporate office. Dealership-level financial statements are prepared by the corporate office on a monthly basis and reviewed by various levels of management.
The information contained on the website or available by hyperlink from the website is not incorporated into this Annual Report on Form 10-K or other documents the Company files with, or furnishes to, the SEC.
The information contained on the website or available by hyperlink from the website is not incorporated into this Annual Report on Form 10-K or other documents the Company files with, or furnishes to, the SEC. 15 Executive Officers of the Registrant The following table provides information regarding the executive officers of the Company as of April 30, 2023: Name Age Position with the Company Jeffrey A.
Among other things, these laws require that the Company limit or prescribe terms of the contracts it originates, require specified disclosures to customers, restrict collections practices, limit the Company’s right to repossess and sell collateral, and prohibit discrimination against customers on the basis of certain characteristics including age, race, gender and marital status.
Among other things, these laws require that the Company limit or prescribe terms of the contracts it originates, require specified disclosures to customers, restrict collections practices, limit the Company’s right to repossess and sell collateral, and prohibit discrimination against customers on the basis of certain characteristics including age, race, gender and marital status. 13 The Company’s consumer financing and collection activities are also subject to oversight by the federal Consumer Financial Protection Bureau (“CFPB”), which has broad regulatory powers over consumer credit products and services such as those offered by the Company.
The Company’s installment sales contracts as of April 30, 2022, typically include down payments ranging from 0% to 20% (average of 6.4%), terms ranging from 18 months to 54 months (average of 42.9 months), and a fixed annual interest rate of 16.5% (19.5% to 21.5% in Illinois) (weighted average of 16.5%).
The Company’s installment sales contracts as of April 30, 2023, typically include down payments ranging from 0% to 20% (average of 5.4%), terms ranging from 18 months to 69 months (average of 46.3 months), and a fixed annual interest rate of 18.0% for contracts originating after early December 2022 (up from 16.5%) for all states except Arkansas and Illinois.
Williams has served as Chief Executive Officer of the Company since January 2018, President of the Company since March 2016, and as a director since 2011. Before becoming President in March 2016, Mr. Williams served as Chief Financial Officer, Secretary and Vice President Finance of the Company since October 2005. Mr.
Williams 60 Chief Executive Officer and Director Vickie D. Judy 57 Chief Financial Officer Douglas Campbell 47 President Jeffrey A. Williams has served as Chief Executive Officer of the Company since January 2018, President of the Company from March 2016 until October 2022, and as a director since August 2011. Before becoming Chief Executive Officer, Mr.
The Company added three new dealerships during the year, ending fiscal 2022 with 154 locations. The Company intends to continue to add new dealerships, subject to favorable operating performance and available general manager talent to run these dealerships, and pursue strategic acquisition opportunities that it believes will enhance its brand and maximize the return to its shareholders.
The Company acquired three new dealerships during the year ending fiscal 2023 with 156 locations. The Company intends to continue to add new dealerships primarily through the pursuit of strategic acquisition opportunities that it believes will enhance its brand and maximize the return to its shareholders.
Recently, the Company has opened new dealerships under experienced top performing general managers and may continue to do so in order to grow and leverage the talents of these experienced managers. 9 The Company’s approach with respect to new dealership openings has been one of gradual development.
The Company intends to add new dealerships, subject to favorable operating performance of existing dealerships and availability of qualified managers. Recently, the Company has opened new dealerships under experienced top performing general managers and may continue to do so in order to grow and leverage the talents of these experienced managers.
The manager in charge of a new dealership is normally a recently promoted associate who was an assistant manager at a larger dealership and in most cases participated in the formal manager-in-training program. The corporate office provides significant resources and support with pre-opening and initial operations of new dealerships.
The Company’s approach with respect to new dealership openings has been one of gradual development. The manager in charge of a new dealership is normally a recently promoted associate who was an assistant manager at a larger dealership and in most cases participated in the formal manager-in-training program.
Also, bankrupt and legal action accounts and other accounts that have been written off at dealerships are handled by the corporate office in an effort to allow dealership personnel time to focus on more current accounts. The Company’s dealership managers meet monthly on an area, regional or Company-wide basis.
In addition to financial results, the corporate office uses delinquency and account loss standards and a point system to evaluate a dealership’s performance. Also, bankrupt and legal action accounts and other accounts that have been written off at dealerships are handled by the corporate office to allow dealership personnel time to focus on more current accounts.
During fiscal 2022, credit losses began to normalize to pre-pandemic levels, with credit losses as a percentage of sales at 24.2%. See Item 1A. Risk Factors for further discussion. Maintaining a Decentralized Operation. The Company’s dealerships operate on a decentralized basis.
During fiscal 2023, credit losses continued to normalize to pre-pandemic levels, partially due to the inflationary pressure on customers and increasing interest rates from federal monetary policy. See Item 1A, Risk Factors, for further discussion. Maintaining a Decentralized Operation. The Company’s dealerships operate on a decentralized basis.
The Company strives to purchase vehicles that require little or no repair as the Company has limited facilities to repair or recondition vehicles. The Company has formed relationships with recondition facilities to recondition vehicles, in particular repossessions and trades, in order to have access to lower cost vehicles. 7 Selling, Marketing and Advertising.
As part of the strategy to obtain quality, affordable vehicles, the Company has formed relationships with reconditioning companies to recondition vehicles, in particular repossessions and trades, in order to have access to a larger quantity of and lower cost vehicles. Selling, Marketing and Advertising.
These limits have generally been based on either (i) a specified margin above the federal primary credit rate, (ii) the age of the vehicle, or (iii) a fixed rate. 12 We are subject to a variety of federal, state and local laws and regulations that pertain to the environment, including compliance with regulations concerning the use, handing and disposal of hazardous substances and wastes.
These limits have generally been based on either (i) a specified margin above the federal primary credit rate, (ii) the age of the vehicle, or (iii) a fixed rate.
Management believes that its dealerships are not only competitive in each of these areas, but have some distinct advantages, specifically related to the provision of strong customer service. The Company’s local face-to-face presence combined with some centralized support through digital and phone allows it to serve customers at a higher level by forming strong personal relationships.
Management believes that its dealerships are not only competitive in each of these areas, but have some distinct advantages, specifically related to the provision of strong customer service for a credit challenged consumer.
Management attributed the increase to the ultra-low interest rate environment combined with the historical credit performance of the used automobile financing market during and after the recession.
Beginning in 2012, funding for the deep subprime automobile market increased significantly and has remained elevated compared to historic levels, likely due to the ultra-low interest rate environment combined with the historical credit performance of the used automobile financing market during and after the recession of the prior decade.
From a health perspective, the Company believes it is important to support the physical, mental, social, environmental and financial well-being of our Car-Mart associates at work and at home. The Company is committed to doing so with key initiatives that inspire associates to strive for long-term sustainable health and wellness for themselves and their families.
We continue to follow the CDC COVID-19 guidelines and established Company procedures to maintain facilities that are clean, safe, and sanitized. 14 From a health perspective, the Company believes it is important to support the physical, mental, social, environmental and financial well-being of our Car-Mart associates at work and at home.
Compliance auditors visit dealerships to ensure policies and procedures are being followed and that the Company’s assets are being safe-guarded. In addition to financial results, the corporate office uses delinquency and account loss standards and a point system to evaluate a dealership’s performance.
The corporate office provides the overall training plan and assists in training new managers and other dealership level associates. Compliance auditors and loss prevention associates visit dealerships to ensure policies and procedures are being followed and that the Company’s assets are being safe-guarded.
The Company has grown its preferred vendor network for used vehicles and plans to continue to leverage its industry partnerships. Generally, the Company purchases vehicles between 5 and 12 years of age with 70,000 to 150,000 miles and pays between $5,000 and $20,000 per vehicle. The Company focuses on providing basic transportation to its customers.
Generally, the Company purchases vehicles between 5 and 12 years of age with 70,000 to 140,000 miles and pays between $7,000 and $15,000 per vehicle with an average cost of $10,000 per vehicle. The Company focuses on providing basic transportation to its customers. The Company sells a variety of vehicles that include primarily sport utility vehicles, trucks, and sedans.
We seek to educate and empower associates to improve and maintain their overall health. Further, we offer resources for preventive care, such as flu shots, vaccinations and other preventative health screenings. Associates have access to retirement investment plans and legal consultants to help them save for their future needs.
The Company is committed to doing so with key initiatives that inspire associates to strive for long-term sustainable health and wellness for themselves and their families. We seek to educate and empower associates to improve and maintain their overall health. Further, we offer resources for preventive care, such as flu shots, vaccinations and other preventative health screenings.
The Company uses an outside marketing firm and has a director of marketing overseeing the Company’s digital marketing efforts in order to broaden and increase the Company’s usage of digital and social media channels as a part of its marketing strategy. Underwriting and Finance.
The Company uses an outside marketing firm and recently hired a chief digital officer to oversee the Company’s marketing efforts, enhance its brand strategy and broaden the Company’s usage of digital and social media channels. 9 Underwriting and Finance. The Company provides financing to substantially all of its customers who purchase a vehicle at one of its dealerships.
Associate compensation is standardized for each dealership position and adjusted for various markets. Other operating costs are closely monitored and scrutinized. Technology is utilized to maximize efficiency. The Company monitors operating costs as a percentage of revenues, and per unit sold, and strives to provide excellent service at a low cost. 5 Well-Capitalized / Limited External Capital Required for Growth.
The Company monitors operating costs as a percentage of revenues, per customer served, and per unit sold, and strives to provide excellent service at a low cost. Well-Capitalized. The Company believes it can fund its planned growth from net income generated from operations supplemented by its external capital resources.
In general, the demand for quality, used vehicles has increased due to shortage of new vehicles and fewer available used vehicles on account of lower repossessions. The Company aims to keep the terms of its installment sales contracts relatively short (overall portfolio weighted average of 42.9 months), while balancing that with affordable payments. Operating in Smaller Communities.
The Company focuses on providing a quality vehicle with affordable payment terms while maintaining relatively shorter term lengths compared to others in the industry on its installment sales contracts (overall portfolio weighted average of 46.3 months). Operating in Smaller Communities .
The Company is able to cultivate these relationships through a variety of communication channels and the fact that a high percentage of customers make their payments in person at one of the Company’s dealerships on a weekly or bi-weekly basis.
The Company is able to cultivate these relationships through a variety of communication channels, including our recently developed customer relationship management technology and direct face-to-face interactions as a high percentage of customers visit Company dealerships in-person to make payments and for account and vehicle servicing needs. 6 Business Strengths The Company believes it possesses a number of strengths or advantages that distinguish it from most of its competitors.
Business Strengths The Company believes it possesses a number of strengths or advantages that distinguish it from most of its competitors. These business strengths include: Experienced and Motivated Management. The Company’s senior management team has significant experience in the industry and an average tenure of nearly 20 years.
These business strengths include: Experienced and Motivated Management. The Company has a strong senior management team with extensive experience in the automotive industry and expertise in understanding the unique needs and preferences of subprime customers.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeCapital and credit markets were significantly affected by onset of the crisis and could be disrupted once again by any future wave of the virus or outbreak of a new coronavirus variant, and our ability to obtain any new or additional financing is not guaranteed and largely dependent upon evolving market conditions and other factors. 15 The extent to which the COVID-19 pandemic or any similar public health crisis ultimately impacts our business, sales, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and future spread of the outbreak, the distribution of vaccines, and the extent to which economic and operating conditions are affected by any future adverse developments relating to the pandemic.
Biggest changeCapital and credit markets were significantly affected by onset of the crisis and could be disrupted once again by any future wave of the virus or outbreak of a new coronavirus variant, and our ability to obtain any new or additional financing is not guaranteed and largely dependent upon evolving market conditions and other factors.
The Company may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. Most of the Company's customers provide personal information when applying for financing. The Company relies on encryption and authentication technology to provide security to effectively store and securely transmit confidential information.
The Company may not have the resources or technical sophistication to anticipate or prevent rapidly evolving types of cyber-attacks. 21 Most of the Company's customers provide personal information when applying for financing. The Company relies on encryption and authentication technology to provide security to effectively store and securely transmit confidential information.
Any adverse changes in the Company’s ability to borrow under revolving credit facilities or accessing the securitization market, or any increase in the cost of such borrowings, would likely have a negative impact on the Company’s ability to finance receivables growth which would adversely affect the Company’s growth and business strategies.
Any adverse changes in the Company’s ability to borrow under revolving credit facilities or by accessing the securitization market, or any increase in the cost of such borrowings, would likely have a negative impact on the Company’s ability to finance receivables growth which would adversely affect the Company’s growth and business strategies.
Risks Related to the Company ’ s Operations The Company may have a higher risk of delinquency and default than traditional lenders because it finances its sales of used vehicles to credit-impaired borrowers . Substantially all of the Company’s automobile contracts involve financing to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders.
Risks Related to the Company’s Operations The Company may have a higher risk of delinquency and default than traditional lenders because it finances its sales of used vehicles to credit-impaired borrowers . Substantially all of the Company’s automobile contracts involve financing to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders.
If the Company’s assumptions and judgments prove to be incorrect, its current allowance may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in its contract portfolio which could adversely affect the Company’s financial condition and results of operations.
If the Company’s assumptions and judgments prove to be incorrect, its current allowance for credit losses may not be sufficient and adjustments may be necessary to allow for different economic conditions or adverse developments in its contract portfolio which could adversely affect the Company’s financial condition and results of operations.
The continuing effects of these conditions or any future outbreaks of the pandemic or similar health crises could negatively impact all aspects of our business, including used vehicle sales and financing, finance receivable collections, repossession activity and inventory acquisition. Our business is also dependent on the continued health and productivity of our associates, including management teams, throughout this crisis.
The effects of any future outbreaks of the pandemic or similar health crises could negatively impact all aspects of our business, including used vehicle sales and financing, finance receivable collections, repossession activity and inventory acquisition. Our business is also dependent on the continued health and productivity of our associates, including management teams, throughout this crisis.
In addition, if negative global economic conditions persist for an extended period of time or worsen substantially, the Company’s business may suffer in a manner which could cause the Company to fail to satisfy the financial and other restrictive covenants under its credit facilities. 21 General Risk Factors The impact of climate-change related events, including efforts to reduce or mitigate the effects of climate change and inclement weather can adversely impact the Company ’ s operating results.
In addition, if negative domestic or global economic conditions persist for an extended period of time or worsen substantially, the Company’s business may suffer in a manner which could cause the Company to fail to satisfy the financial and other restrictive covenants under its credit facilities. 22 The impact of climate-change related events, including efforts to reduce or mitigate the effects of climate change and inclement weather can adversely impact the Company ’ s operating results.
Recent and future disruptions in domestic and global economic and market conditions, including rising gasoline and grocery prices and interest rate increases, or significant changes in the political environment (such as the ongoing military conflict between Ukraine and Russia) and/or public policy, could adversely affect consumer demand or increase the Company’s costs, resulting in lower profitability for the Company.
Recent and future disruptions in domestic and global economic and market conditions, including rising interest rates and higher grocery and gasoline, or significant changes in the political environment (such as the ongoing military conflict between Ukraine and Russia) and/or public policy, could adversely affect consumer demand or increase the Company’s costs, resulting in lower profitability for the Company.
Acquisitions are accompanied by a number of inherent risks, including, without limitation, the difficulty of integrating acquired companies and operations; potential disruption of our ongoing business and distraction of our management or the management of the target company; difficulties in maintaining controls, procedures and policies; potential impairment of relationships with associates and partners as a result of any integration of new personnel; potential inability to manage an increased number of locations and associates; failure to realize expected efficiencies, synergies and cost savings; or the effect of any government regulations which relate to the businesses acquired.
Acquisitions are accompanied by a number of inherent risks, including, without limitation, the difficulty of integrating acquired companies and operations; potential disruption of our ongoing business and distraction of our management or the management of the target company; difficulties in maintaining controls, procedures and policies; potential impairment of relationships with associates and partners as a result of any integration of new personnel; potential inability to manage an increased number of locations and associates; failure to realize expected efficiencies, synergies and cost savings; reaction to the transaction among the companies’ customers and potential customers; and the effect of any government regulations which relate to the businesses acquired. ● Availability of suitable dealership sites .
Any future deterioration in economic conditions may result in additional future credit losses that may not be fully reflected in the allowance for credit losses. 19 The Company ’ s success depends upon the continued contributions of its management teams and the ability to attract and retain qualified employees.
Any future deterioration in economic conditions or consumer financial health may result in additional future credit losses that may not be fully reflected in the allowance for credit losses. 20 The Company ’ s success depends upon the continued contributions of its management teams and the ability to attract and retain qualified employees.
The Company could have to absorb a portion of cost increases. The supply of vehicles at appropriate prices available to the Company is significantly affected by overall new car sales volumes, which were negatively impacted by the business and economic disruptions following the outbreak of the COVID-19 pandemic and have historically been materially and adversely affected by prior economic downturns.
The supply of vehicles at appropriate prices available to the Company is significantly affected by overall new car sales volumes, which were negatively impacted by the business and economic and supply chain disruptions following the outbreak of the COVID-19 pandemic and have historically been materially and adversely affected by prior economic downturns.
Our ability to expand our business through additional dealership openings or strategic acquisitions is dependent on a sufficiently favorable level of operating performance to support the management, personnel and capital resources necessary to successfully open and operate or acquire new locations. ● Availability of suitable dealership sites .
Our ability to expand our business through additional dealership openings or strategic acquisitions is dependent on a sufficiently favorable level of operating performance to support the management, personnel and capital resources necessary to successfully open and operate or acquire new locations. 18 ● Ability to successfully identify, complete and integrate new acquisitions.
When applicable, the Company has to recognize losses resulting from the inability of certain borrowers to pay contracts and the insufficient realizable value of the collateral securing contracts. The Company maintains an allowance for credit losses in an attempt to cover credit losses expected to be incurred on the portfolio at the measurement date.
When applicable, the Company has to recognize losses resulting from the inability of certain borrowers to pay contracts and the insufficient realizable value of the collateral securing contracts. The Company maintains an allowance for credit losses in an attempt to cover net credit losses expected over the remaining life of the contracts in the portfolio at the measurement date.
The consequences of any ongoing or future adverse public health developments relating to the COVID-19 outbreak could have a material adverse effect on our business, sales, results of operations and financial condition.
The consequences of any future adverse public health developments could have a material adverse effect on our business, sales, results of operations and financial condition.
The Company competes principally with other independent Integrated Auto Sales and Finance dealers, and with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions.
Increased competition on the financing side of the business could result in increased credit losses. The Company competes principally with other independent Integrated Auto Sales and Finance dealers, and with (i) the used vehicle retail operations of franchised automobile dealerships, (ii) independent used vehicle dealers, and (iii) individuals who sell used vehicles in private transactions.
The Company generates cash from income from continuing operations. The cash is primarily used to fund finance receivables growth. To the extent finance receivables growth exceeds income from continuing operations, generally the Company increases its borrowings under its revolving credit facilities and more recently, accessing the securitization market, to provide the cash necessary to fund operations.
The Company generates cash from income from continuing operations. The cash is primarily used to fund finance receivables growth. To the extent finance receivables growth exceeds income from continuing operations, the Company generally increases its borrowings under its revolving credit facilities and, more recently, has issued non-recourse notes through asset-back securitization transactions to provide the cash necessary to fund operations.
We could have difficulty identifying attractive target dealerships, completing the acquisition or integrating the acquired business’ assets, personnel and operations with our own.
Part of our current growth strategy includes strategic acquisitions of dealerships. We could have difficulty identifying attractive target dealerships, completing the acquisition or integrating the acquired business’ assets, personnel and operations with our own.
Additionally, our liquidity could be negatively impacted if economic conditions resulting from the pandemic were to once again deteriorate, which could require us to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, support the origination of vehicle financing, and meet our financial obligations.
Additionally, our liquidity could be negatively impacted if economic conditions were to once again deteriorate due to a future COVID-19 outbreak or other public health crisis, which could require us to pursue additional sources of financing to obtain working capital, maintain appropriate inventory levels, support the origination of vehicle financing, and meet our financial obligations.
In addition, many of the third parties who provide products, services, or support to the Company could also experience any of the above cyber risks or security breaches, which could impact the Company's customers and its business and could result in a loss of customers, suppliers, or revenue. 20 We may be unable to keep pace with technological advances and changes in consumer behavior affecting our business, which could adversely affect our business, financial condition and results of operations.
In addition, many of the third parties who provide products, services, or support to the Company could also experience any of the above cyber risks or security breaches, which could impact the Company's customers and its business and could result in a loss of customers, suppliers, or revenue.
There can be no assurance that sufficient inventory will continue to be available to the Company or will be available at comparable costs. Any reduction in the availability of inventory or increases in the cost of vehicles could adversely affect gross margin percentages as the Company focuses on keeping payments affordable to its customer base.
Any reduction in the availability of inventory or increases in the cost of vehicles could adversely affect gross margin percentages as the Company focuses on keeping payments affordable to its customer base. The Company could have to absorb a portion of cost increases.
If conditions arise that impair vehicle sales during the first or fourth fiscal quarters, the adverse effect on the Company’s revenues and operating results for the year could be disproportionately large.
If conditions arise that impair vehicle sales during the first or fourth fiscal quarters, the adverse effect on the Company’s revenues and operating results for the year could be disproportionately large. 19 The effects of any future public health crisis could have a significant impact on our business, sales, results of operations and financial condition.
Additionally, the Company’s finance subsidiary, Colonial, is deemed a “larger participant” in the automobile finance market and is therefore subject to examination and supervision by the CFPB, which has broad regulatory powers over consumer credit products and services such as those offered by the Company. 16 Recent and future disruptions in domestic and global economic and market conditions could have adverse consequences for the used automotive retail industry in the future and may have greater consequences for the non-prime segment of the industry.
Additionally, the Company’s finance subsidiary, Colonial, is deemed a “larger participant” in the automobile finance market and is therefore subject to examination and supervision by the CFPB, which has broad regulatory powers over consumer credit products and services such as those offered by the Company.
In addition, new dealerships may experience higher than anticipated credit losses, which may require the Company to incur additional costs to reduce future credit losses or to close the underperforming locations altogether.
In addition, new dealerships may experience higher than anticipated credit losses, which may require the Company to incur additional costs to reduce future credit losses or to close the underperforming locations altogether. Any of these circumstances could have a material adverse effect on the Company’s future financial condition and operating results.
We may not be able to establish sufficient technological upgrades to support evolving consumer buying preferences and to keep pace with our competitors.
Further, to address changes in consumer buying preferences and to improve customer experience, inventory procurement and recruiting and training, we make corresponding technology and systems upgrades. We may not be able to establish sufficient technological upgrades to support evolving consumer buying preferences and to keep pace with our competitors.
These sales are made primarily to customers residing in Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas with approximately 27.4% of revenues resulting from sales to Arkansas customers. The Company’s current results of operations depend substantially on general economic conditions and consumer spending habits in these local markets.
The Company provides financing in connection with the sale of substantially all of its vehicles. These sales are made primarily to customers residing in Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas with approximately 27.4% of revenues resulting from sales to Arkansas customers.
We rely on our information technology systems to facilitate digital sales leads. Our ability to optimize our digital sales platform is affected by online search engines and classified sites that are not direct competitors but that may direct online traffic to the websites of competing automotive retailers.
Our ability to optimize our digital sales platform is affected by online search engines and classified sites that are not direct competitors but that may direct online traffic to the websites of competing automotive retailers. These third-party sites could make it more difficult for us to market our vehicles online and attract customers to our online offerings.
Any future decline in new car sales could further adversely affect the Company’s access to and costs of inventory. Our ability to source vehicles could also be impacted by the closure of auctions and wholesalers as a result of any future public health crisis, adverse economic conditions, or other factors.
Our ability to source vehicles could also be impacted by the closure of auctions and wholesalers as a result of any future public health crisis, adverse economic conditions, or other factors. 17 The used automotive retail industry is fragmented and highly competitive, which could result in increased costs to the Company for vehicles and adverse price competition.
The Company is unable to predict with certainty the future impact of the most recent global economic conditions on consumer demand in our markets or on the Company’s costs. The Company ’ s business is geographically concentrated; therefore, the Company ’ s results of operations may be adversely affected by unfavorable conditions in its local markets.
The Company is unable to predict with certainty the future impact of the most recent global and domestic economic conditions on consumer demand in our markets or on the Company’s costs. A reduction in the availability or access to sources of inventory could adversely affect the Company ’ s business by increasing the costs of vehicles purchased.
Any decline in the general economic conditions or decreased consumer spending in these markets may have a negative effect on the Company’s results of operations. 17 The Company ’ s growth strategy is dependent upon the following factors: ● Favorable operating performance.
The Company’s current results of operations depend substantially on general economic conditions and consumer spending habits in these local markets. Any decline in the general economic conditions or decreased consumer spending in these markets may have a negative effect on the Company’s results of operations.
The United States has experienced a recession as a result of the outbreak of COVID-19 and the outlook for the U.S. economy remains uncertain, which may adversely affect the Company’s financial condition, results of operations and liquidity.
The outlook for the U.S. economy and the impacts of efforts to reduce inflation through interest rate increases remains uncertain, which may adversely affect the Company’s financial condition, results of operations and liquidity.
The Company’s performance is subject to local economic, competitive, and other conditions prevailing in the twelve states where the Company operates. The Company provides financing in connection with the sale of substantially all of its vehicles.
The Company ’ s business is geographically concentrated; therefore, the Company ’ s results of operations may be adversely affected by unfavorable conditions in its local markets. The Company’s performance is subject to local economic, competitive, and other conditions prevailing in the twelve states where the Company operates.
The allowance for credit losses represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical credit loss experience and other quantitative considerations, such as delinquency levels, collateral values, current economic conditions and underwriting and collections practices. This evaluation is inherently subjective as it requires estimates of material factors that may be susceptible to significant change.
The allowance for credit losses represents management’s best estimate of lifetime expected losses based on reasonable and supportable forecasts, historical credit loss experience, changes in contractual characteristics (i.e., average amount financed, term, and interest rates), and other qualitative considerations, such as credit quality trends, collateral values, current and forecasted economic conditions, underwriting and collections practices, concentration risk, credit review, and other external factors.
Removed
Risks Related to the COVID-19 Pandemic The continuing effects of, and any future adverse developments relating to, the COVID-19 pandemic or similar health crises could have a significant negative impact on our business, sales, results of operations and financial condition.
Added
Risks Related to the Company ’ s Business, Industry, and Markets Recent and future disruptions in domestic and global economic and market conditions could have adverse consequences for the used automotive retail industry in the future and may have greater consequences for the non-prime segment of the industry.
Removed
Risks Related to the Company ’ s Business, Industry, and Markets A reduction in the availability or access to sources of inventory could adversely affect the Company ’ s business by increasing the costs of vehicles purchased. The Company acquires vehicles primarily through wholesalers, new car dealers, individuals and auctions.
Added
The Company acquires vehicles primarily through wholesalers, new car dealers, individuals and auctions. There can be no assurance that sufficient inventory will continue to be available to the Company or will be available at comparable costs.
Removed
The used automotive retail industry is fragmented and highly competitive, which could result in increased costs to the Company for vehicles and adverse price competition. Increased competition on the financing side of the business could result in increased credit losses.
Added
Any future decline in new car sales could further adversely affect the Company’s access to and costs of inventory.
Removed
Any of these circumstances could have a material adverse effect on the Company’s future financial condition and operating results. 18 ● Ability to successfully identify, complete and integrate new acquisitions. Part of our current growth strategy includes strategic acquisitions of dealerships.
Added
The Company ’ s growth strategy is dependent upon the following factors: ● Favorable operating performance.
Removed
In the fourth quarter of fiscal 2021, the Company decreased its allowance for credit losses from 26.5% to 24.5% of the principal balance of our finance receivables, primarily due to improved credit losses and delinquencies, as well as changes in our outlook for projected losses. The allowance for credit losses remains at 24.5% at April 30, 2022.
Added
This evaluation is inherently subjective as it requires estimates of material factors that may be susceptible to significant change.
Removed
These third-party sites could make it more difficult for us to market our vehicles online and attract customers to our online offerings. Further, to address changes in consumer buying preferences and to improve customer experience, inventory procurement and recruiting and training, we make corresponding technology and systems upgrades.
Added
At April 30, 2023 the Company increased its allowance for credit losses to 23.91% from 23.65% of the principal balance of finance receivables, net of deferred revenue, primarily due to increases in historical losses as a result of the ending of federal stimulus programs, continuing inflationary pressure on customers and increasing interest rates from federal monetary policy.
Added
We may be unable to keep pace with technological advances and changes in consumer behavior affecting our business, which could adversely affect our business, financial condition and results of operations. We rely on our information technology systems to facilitate digital sales leads.
Added
Risks Related to the Company ’ s Common Stock The Company ’ s stock trading volume may result in greater volatility in the market price of the Company ’ s common stock and may not provide adequate liquidity for investors.
Added
Although shares of the Company’s common stock are traded on the NASDAQ Global Select Market, the average daily trading volume in the Company’s common stock is less than that of other larger automotive retail companies.
Added
A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of a sufficient number of willing buyers and sellers of the common stock at any given time. This presence depends on the individual decisions of investors and general economic and market conditions over which the Company has no control.
Added
Given the average daily trading volume of the Company’s common stock, the market price of the Company’s common stock may be subject to greater volatility than companies with larger trading volumes as smaller transactions can more significantly impact the Company’s stock price.
Added
Significant sales of the Company’s common stock in a brief period of time, or the expectation of these sales, could cause a decline in the price of the Company’s common stock.
Added
The price of the Company’s common stock may also be subject to wide fluctuations based upon the Company’s operating results, general economic and market conditions, general trends and prospects for our industry, announcements by competitors, the Company’s ability to achieve any long-term targets or performance metrics and other factors.
Added
Any such fluctuations could increase the Company’s risk of being subject to securities class action litigation, which could result in substantial costs, divert management’s attention and resources and have other material adverse impacts on the Company’s business. Additionally, low trading volumes may limit a stockholder’s ability to sell shares of the Company’s common stock.
Added
The Company currently does not intend to pay future dividends on its common stock. The Company historically has not paid cash dividends on its common stock and currently does not anticipate paying future cash dividends on its common stock.
Added
Any determination to pay future dividends and other distributions in cash, stock, or property by the Company in the future will be at the discretion of the Company’s Board of Directors and will be dependent on then-existing conditions, including the Company’s financial condition and results of operations and contractual restrictions.
Added
The Company is also limited in its ability to pay dividends or make other distributions to its shareholders without the consent of its lender. Therefore, stockholders should not rely on future dividend income from shares of the Company’s common stock.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties As of April 30, 2022, the Company leased approximately 81% of its facilities, including dealerships and the Company’s corporate offices. These facilities are located principally in the states of Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas. The Company’s corporate offices are located in approximately 50,000 square feet of leased space in Rogers, Arkansas.
Biggest changeItem 2. Properties As of April 30, 2023, the Company leased approximately 79% of its facilities, including dealerships and the Company’s corporate offices. These facilities are located principally in the states of Alabama, Arkansas, Georgia, Illinois, Kentucky, Mississippi, Missouri, Oklahoma, Tennessee and Texas. The Company’s corporate offices are located in approximately 50,000 square feet of leased space in Rogers, Arkansas.
For additional information regarding the Company’s properties, see “Operations-Dealership Locations and Facilities” under Item 1 above and “Contractual Payment Obligations” and “Off-Balance Sheet Arrangements” under Item 7 of Part II. 22
For additional information regarding the Company’s properties, see “Operations-Dealership Locations and Facilities” under Item 1 above and “Contractual Payment Obligations” and “Off-Balance Sheet Arrangements” under Item 7 of Part II.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeStockholder Return Performance Graph Set forth below is a line graph comparing the fiscal year end percentage change in the cumulative total stockholder return on the Company’s common stock to (i) the cumulative total return of the NASDAQ Market Index (U.S. companies), and (ii) the Hemscott Group 744 Index – Auto Dealerships (“Automobile Index”), for the period of five fiscal years commencing on May 1, 2017 and ending on April 30, 2022.
Biggest changeStockholder Return Performance Graph Set forth below is a line graph comparing the fiscal year end percentage change in the cumulative total stockholder return on the Company’s common stock to (i) the cumulative total return of the NASDAQ Market Index (U.S. companies), and (ii) the market-weighted value of a customized peer group of automotive dealership companies (“Auto Dealerships”) composed of the common stock of Asbury Automotive Group, Inc.; AutoNation, Inc.; CarMax, Inc.; Copart, Inc.; Group 1 Automotive, Inc.; Lithia Motors, Inc.; Penske Automotive Group, Inc.; Rush Enterprises, Inc.; and Sonic Automotive, Inc. for the period of five fiscal years commencing on May 1, 2018 and ending on April 30, 2023.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities General The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol CRMT. As of July 5, 2022, there were approximately 887 shareholders of record.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information for Common Equity The Company’s common stock is traded on the NASDAQ Global Select Market under the symbol CRMT. Holders of Record As of June 23, 2023, there were approximately 977 shareholders of record.
Dividend Policy Since its inception, the Company has paid no cash dividends on its common stock. The Company currently intends for the foreseeable future to continue its policy of retaining earnings to finance future growth.
The Company currently intends for the foreseeable future to continue its policy of retaining earnings to finance future growth.
The graph assumes that the value of the investment in the Company’s common stock and each index was $100 on April 30, 2017. * $100 invested on 4/30/2017 in stock or index, including reinvestment of dividends.
The Company selected the customized peer group because the Hemscott Group 744 Index is no longer available. The graph assumes that the value of the investment in the Company’s common stock and each index or peer group was $100 on April 30, 2018.
Fiscal year ending April 30. 23 The dollar value at April 30, 2022 of $100 invested in the Company’s common stock on April 30, 2017 was $216.76, compared to $246.98 for the automobile index described above and $213.67 for the NASDAQ Market Index (U.S. Companies).
The dollar value at April 30, 2023 of $100 invested in the Company’s common stock on April 30, 2018 was $150.3, compared to $180.98 for the NASDAQ Market Index (U.S. Companies) and $241.12 for the Auto Dealerships peer group. 25 Dividend Policy Since its inception, the Company has paid no cash dividends on its common stock.
Removed
The following table sets forth information with respect to purchases made by or on behalf of the Company of shares of the Company’s common stock during the periods indicated: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1) February 1, 2022 through February 28, 2022 25,500 $ 95.35 25,500 780,815 March 1, 2022 through March 31, 2022 34,500 $ 90.59 34,500 746,315 April 1, 2022 through April 30, 2022 32,000 $ 82.45 32,000 714,315 Total 92,000 $ 89.08 92,000 714,315 (1) The above described stock repurchase program has no expiration date.
Added
No shares of the Company’s common stock were purchased under the Company’s stock repurchase program during the fourth quarter of fiscal 2023. Item 6. [Reserved]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

79 edited+30 added−39 removed24 unchanged
Biggest changeThese investments reflect our commitment to providing the necessary inventory and facilities to support a growing customer base. 30 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, 2022 2021 2020 Operating activities: Net income $ 93,307 $ 104,139 $ 51,343 Provision for credit losses 257,101 163,662 162,246 Losses on claims for accident protection plan 21,871 18,954 17,966 Depreciation and amortization 4,033 3,719 3,839 Amortization of debt issuance costs 775 391 273 Stock based compensation 5,496 5,962 4,732 Deferred income taxes 8,226 7,028 (1,280 ) Finance receivable originations (1,009,859 ) (762,716 ) (604,497 ) Finance receivable collections 417,796 370,254 322,180 Accrued interest on finance receivables (1,559 ) (269 ) (750 ) Inventory 50,881 5,019 53,827 Accounts payable and accrued liabilities 5,166 14,766 1,009 Deferred accident protection plan revenue 11,232 8,224 3,113 Deferred service contract revenue 24,449 12,465 1,049 Income taxes, net (424 ) (3,691 ) 5,788 Other (2,775 ) (1,719 ) 79 Total (114,284 ) (53,812 ) 20,917 Investing activities: Purchase of investments (1,343 ) - (4,648 ) Purchase of property and equipment (20,921 ) (8,952 ) (5,422 ) Proceeds from sale of property and equipment 20 694 184 Total (22,244 ) (8,258 ) (9,886 ) Financing activities: Debt facilities, net (186,037 ) 9,965 62,377 Non-recourse debt, net 399,994 - - Change in cash overdrafts (1,802 ) 1,802 (1,274 ) Purchase of common stock (34,698 ) (10,616 ) (16,009 ) Dividend payments (40 ) (40 ) (40 ) Exercise of stock options, including tax benefits and issuance of common stock (1,195 ) 4,292 1,723 Total 176,222 5,403 46,777 Increase (decrease) in cash, cash equivalents, and restricted cash $ 39,694 $ (56,667 ) $ 57,808 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.
Biggest changeThese investments reflect our commitment to providing the necessary inventory and facilities to support a growing customer base. 32 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, 2023 2022 2021 Operating activities: Net income $ 20,432 $ 95,014 $ 104,820 Provision for credit losses 352,860 238,054 153,835 Losses on claims for accident protection plan 25,107 21,871 18,954 Depreciation and amortization 5,602 4,033 3,719 Amortization of debt issuance costs 5,461 775 391 Stock based compensation 5,314 5,496 5,962 Deferred income taxes 8,866 8,750 7,239 Finance receivable originations (1,161,132 ) (1,009,858 ) (762,717 ) Finance receivable collections 434,458 417,796 370,254 Accrued interest on finance receivables (1,188 ) (1,559 ) (269 ) Inventory 133,047 51,057 5,019 Accounts payable and accrued liabilities 8,621 5,167 14,766 Deferred accident protection plan revenue 17,150 21,850 14,865 Deferred service contract revenue 24,542 30,645 14,760 Income taxes, net (8,984 ) (424 ) (3,691 ) Other (1) (5,884 ) (7,845 ) (1,719 ) Total (135,728 ) (119,178 ) (53,812 ) Investing activities: Purchase of investments (5,549 ) (1,574 ) - Purchase of property and equipment (1) (22,106 ) (15,796 ) (8,952 ) Proceeds from sale of property and equipment 84 20 694 Total (27,571 ) (17,350 ) (8,258 ) Financing activities: Debt facilities, net (207,696 ) (186,037 ) 9,965 Non-recourse debt, net 400,176 399,994 - Change in cash overdrafts - (1,802 ) 1,802 Purchase of common stock (5,196 ) (34,698 ) (10,616 ) Dividend payments (40 ) (40 ) (40 ) Exercise of stock options, including tax benefits and issuance of common stock 1,502 (1,195 ) 4,292 Total 188,746 176,222 5,403 Increase (decrease) in cash, cash equivalents, and restricted cash $ 25,447 $ 39,694 $ (56,667 ) (1) Prepaid expenses and other assets at April 30, 2022, reflects an immaterial reclassification of approximately $6.0 million of capitalized implementation costs related to a cloud-computing arrangement previously recorded in Property and equipment, net, and did not impact operating income.
Additionally, the Company has placed significant focus on the collection area as the Company’s training department continues to spend significant time and effort on collections improvements. The Company’s vice president of collections oversees the collections department and provides timely oversight and additional accountability on a consistent basis.
Additionally, the Company has placed significant focus on the collection area as the Company’s training department continues to spend significant time and effort on collections improvements. The Company’s vice president of collections oversees the collections area and provides timely oversight and additional accountability on a consistent basis.
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.
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.
However, credit loss results improved substantially in fiscal 2021 due to a lower frequency of losses and lower severity of loss amounts relative to the principal balance as the CARES Act enhanced unemployment and stimulus funds, combined with the Company’s commitment to working with customers, aided customers’ ability to make their vehicle payments.
Credit loss results improved substantially in fiscal 2021 due to a lower frequency of losses and lower severity of loss amounts relative to the principal balance as the CARES Act enhanced unemployment and stimulus funds, combined with the Company’s commitment to working with customers, aided customers’ ability to make their vehicle payments.
Revenues can be affected by our level of competition, which is influenced to a large extent by the availability of funding to the sub-prime automobile industry, together with the availability and resulting purchase cost of the types of vehicles the Company purchases for resale. Revenues can also be affected by the macro-economic environment.
Revenue can be affected by our level of competition, which is influenced to a large extent by the availability of funding to the sub-prime automobile industry, together with the availability and resulting purchase cost of the types of vehicles the Company purchases for resale. Revenues can also be affected by the macro-economic environment.
From a long-term historical perspective, the current fiscal year net charge-offs were much improved and below historical levels despite the increase in the average retail sales price. The frequency of losses increased compared to the prior year as credit losses began to normalize to pre-pandemic levels.
From a long-term historical perspective, the fiscal 2022 net charge-offs were much improved and below historical levels despite the increase in the average retail sales price. The frequency of losses increased compared to the prior year as credit losses began to normalize to pre-pandemic levels.
Car-Mart has grown its revenues between approximately 4% and 32% per year over the last ten years (average 11%). Growth results from same dealership revenue growth and the addition of new dealerships.
Car-Mart has grown its revenues between approximately 4% and 32% per year over the last ten years (average 12.0%). Growth results from same dealership revenue growth and the addition of new dealerships.
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, 2022, the Company operated 154 dealerships located primarily in small cities throughout the South-Central United States. 24 Car-Mart has been operating since 1981.
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, 2023, the Company operated 156 dealerships located primarily in small cities throughout the South-Central United States. Car-Mart has been operating since 1981.
Demand for the vehicles we purchase for resale remained high during fiscal 2021 and the supply continued to be restricted due to lower repossessions, lower levels of new car production and sales and additional demand due to stimulus money. Selling, general and administrative expenses, as a percentage of sales decreased to 16.2% in fiscal 2021 from 18.0% for fiscal 2020.
Demand for the vehicles we purchase for resale remained high during fiscal 2022 and the supply continued to be restricted due to lower repossessions, lower levels of new car production and sales and additional demand due to stimulus money. Selling, general and administrative expenses, as a percentage of sales decreased to 15.0% in fiscal 2022 from 16.4% for fiscal 2021.
The Company strives to improve the quality of the inventory and maintain adequate turns while maintaining inventory levels to ensure adequate supply of vehicles, in volume and mix, and to meet sales demand. Property and equipment, net, increased by approximately $16.7 million as of April 30, 2022 as compared to fiscal 2021.
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. 31 Property and equipment, net, increased by approximately $16.3 million as of April 30, 2023 as compared to fiscal 2022.
Also, expansions or constrictions in consumer credit, as well as general economic conditions, can have an overall effect on the demand and the resulting purchase cost of the types of vehicles the Company purchases for resale. The COVID-19 pandemic and the resulting economic effects have had an impact on the availability and prices of the vehicles the Company purchases.
Also, expansions or constrictions in consumer credit, as well as general economic conditions, can have an overall effect on the demand and the resulting purchase cost of the types of vehicles the Company purchases for resale. The COVID-19 global pandemic and the resulting macroeconomic effects have negatively impacted the availability and prices of the vehicles the Company purchases.
See Note F for further details on these non-recourse notes payable. Borrowings on the Company’s revolving credit facilities fluctuate primarily based upon a number of factors including (i) net income, (ii) finance receivables changes, (iii) income taxes, (iv) capital expenditures, (v) common stock repurchases and (vi) other sources of financing, such as our recent issuance of asset-backed non-recourse notes.
Borrowings on the Company’s revolving credit facilities fluctuate primarily based upon a number of factors including (i) net income, (ii) finance receivables changes, (iii) income taxes, (iv) capital expenditures, (v) common stock repurchases and (vi) other sources of financing, such as our recent issuance of asset-backed non-recourse notes.
Deferred revenue increased $35.7 million at April 30, 2022 over April 30, 2021, primarily resulting from the increase in sales of the accident protection plan and service contract products, as well as the increased terms on the service contracts.
Deferred revenue increased $28 million at April 30, 2023 over April 30, 2022, primarily resulting from the increase in sales of the accident protection plan and service contract products, as well as the increased terms on the service contracts.
Macro-economic factors such as unemployment levels and general inflation can significantly affect our collection results and ultimately credit losses. Currently, as our customers look to cover rising costs of non-discretionary items, such as groceries and gasoline, it may impact their ability to make their car payments.
The Company’s liquidity is also impacted by our credit losses. Macro-economic factors such as unemployment levels and general inflation can significantly affect our collection results and ultimately credit losses. Currently, as our customers look to cover rising costs of non-discretionary items, such as groceries and gasoline, it may impact their ability to make their car payments.
Interest expense for fiscal 2022 as a percentage of sales increased slightly to 1.0% in fiscal 2022 from 0.8% in fiscal 2021.
Interest expense as a percentage of sales increased slightly to 1.0% in fiscal 2022 from 0.9% in fiscal 2021.
Finance receivables, net, increased by $159.0 million during fiscal 2021. 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 increased selling prices.
Finance receivables, net, increased by $231.4 million during fiscal 2022. 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 increased selling prices.
On a longer-term basis, the Company expects its principal sources of liquidity to consist of income from operations and borrowings under revolving credit facilities or fixed interest term loans.
On a longer-term basis, the Company expects its principal sources of liquidity to consist of income from operations, funding from asset-back securitization transactions, and borrowings under revolving credit facilities or fixed interest term loans.
The landscape for hiring remains very competitive as the business activity and workforce participation continue to adjust post-pandemic. The Company has continued to add resources to recruit, train, and develop personnel, especially personnel targeted to fill dealership manager positions.
The landscape for hiring remains very competitive as business activity and workforce participation continue to adjust post-pandemic. The Company has continued to add resources to recruit, train, and develop personnel, especially personnel targeted to fill dealership manager positions. The Company expects to continue to invest in the development of its workforce.
Failure to satisfy those provisions could result in the loss of a tax deduction at the time the receivables are sold and have the effect of increasing the Company’s overall effective income tax rate as well as the timing of required tax payments.
The Company believes it satisfies the material provisions of the Regulations. Failure to satisfy those provisions could result in the loss of a tax deduction at the time the receivables are sold and have the effect of increasing the Company’s overall effective income tax rate as well as the timing of required tax payments.
Provision for credit losses as a percentage of sales increased to 24.2% for fiscal 2022 compared to 20.3% for fiscal 2021. Net charge-offs as a percentage of average finance receivables increased to 20.2% for fiscal 2022 compared to 19.3% for the prior year. The stimulus payments during fiscal 2021 had positive impacts on collections and net charge-off metrics.
Provision for credit losses as a percentage of sales increased to 22.8% for fiscal 2022 compared to 19.3% for fiscal 2021. Net charge-offs as a percentage of average finance receivables increased to 18.3% for fiscal 2022 compared to 18.0% for the prior year. The stimulus payments during fiscal 2021 had positive impacts on collections and net charge-off metrics.
On a dollar basis, our gross margin per retail unit sold increased by $760 in fiscal 2022 compared to fiscal 2021. The average retail sales price for fiscal 2022 was $16,649, a $3,028 increase over the prior fiscal year, reflecting the high demand for used cars, especially in the market we serve.
On a dollar basis, our gross margin per retail unit sold increased by $639 in fiscal 2022 compared to fiscal 2021. The average retail sales price for fiscal 2022 was $16,372, a $2,908 increase over the prior fiscal year, reflecting the high demand for used cars, especially in the market we serve.
The improvement in credit losses as a percentage of sales for fiscal 2021 was further accelerated by the Company’s decision during the fourth quarter of fiscal 2021 to reduce the allowance for credit losses back to 24.5% of finance receivables, net of deferred revenue, which resulted in a $15.1 million pretax decrease in the provision for credit losses.
The improvement in credit losses as a percentage of sales for fiscal 2021 was further accelerated by the Company’s decision during the fourth quarter of fiscal 2021 to reduce the allowance for credit losses back to 23.55% of finance receivables, net of deferred revenue, which resulted in a $14.2 million pretax decrease in the provision for credit losses.
The average term for installment sales contracts at April 30, 2022 was 42.9 months, compared to 37.3 months for April 30, 2021.
The average term for installment sales contracts at April 30, 2023 was 46.3 months, compared to 42.9. months for April 30, 2022.
Of the $81.9 million total lease obligations, $48.3 million of these commitments will become due in more than five years. The Company expects to continue to lease the majority of the properties where its dealerships are located. The Company’s revolving credit facilities generally restrict distributions by the Company to its shareholders.
Of the $82.2 million total lease obligations, $46.5 million of these commitments will become due in more than five years. The Company expects to continue to lease the majority of the properties where its dealerships are located. The Company’s revolving credit facilities generally restrict distributions by the Company to its shareholders.
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, 2022, the weighted average total contract term was 42.9 months with 34.2 months remaining.
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, 2023, the weighted average contract term was 46.3 months with 36.3 months remaining.
Credit losses and charge-offs can also be impacted by market and economic factors, including a competitive used vehicle financing environment and macro-economic conditions such as inflation in the price of gasoline, groceries and other staple items and overall unemployment levels, as well as the personal income levels of the Company’s customers.
Credit losses and charge-offs can also be impacted by market and economic factors, including a competitive used vehicle financing environment and macro-economic conditions such as inflation in the price of gasoline, groceries and other staple items.
Over the past two years, the reduction in new car production, fewer off-lease vehicles and fewer repossessions in the overall market have negatively impacted the availability of product and resulted in higher purchase costs. The Company constantly reviews and adjusts purchasing avenues in order to obtain an appropriate flow of vehicles.
Over the past three years, the reduction in new car production and fewer off-lease vehicles have negatively impacted the availability of used vehicle inventory and resulted in higher purchase costs. The Company constantly reviews and adjusts purchasing avenues in order to obtain an appropriate flow of vehicles.
Corporate office personnel monitor proprietary credit scores and work with dealerships when the distribution of scores falls outside of prescribed thresholds. The Company also uses credit reporting and the use of global positioning system (“GPS”) units on vehicles.
The Company has a proprietary credit scoring system which enables the Company to monitor the quality of contracts. Corporate office personnel monitor proprietary credit scores and work with dealerships when the distribution of scores falls outside of prescribed thresholds. The Company also uses credit reporting and the use of global positioning system (“GPS”) units on vehicles.
The Company had no accrued penalties or interest as of April 30, 2022. 34 Critical Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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.
Critical Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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.
The increase in revenue for fiscal 2021 is attributable to (i) a 15.5% increase in average retail sales price, (ii) a 7.4% increase in retail units sold and (iii) a 20.7% increase in interest and other income.
The increase in revenue for fiscal 2022 is attributable to (i) a 21.6% increase in average retail sales price, (ii) a 6.7% increase in retail units sold and (iii) a 37.4% increase in interest and other income.
This strong demand, 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.
This strong demand, 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 have begun to soften but remain high by historical standards.
On a dollar basis, our gross margin per retail unit sold increased by $791 in fiscal 2021 compared to fiscal 2020. The average retail sales price for fiscal 2021 was $13,621, a $1,828 increase over the prior fiscal year, reflecting the high demand for used cars, especially in the market we serve.
On a dollar basis, our gross margin per retail unit sold increased by $72 in fiscal 2023 compared to fiscal 2022. The average retail sales price for fiscal 2023 was $18,080, a $1,708 increase over the prior fiscal year, reflecting the high demand for used cars, especially in the market we serve.
The Company consistently focuses on collections. Each dealership is responsible for its own collections with supervisory involvement of the corporate office. Over the last five fiscal years, the Company’s credit losses as a percentage of sales have ranged from approximately 20.3% in fiscal 2021 to 28.7% in fiscal 2018 (average of 24.4%).
The Company consistently focuses on collections. Each dealership is responsible for its own collections with supervisory involvement of the corporate office. Over the last five fiscal years, the Company’s credit losses as a percentage of sales have ranged from approximately 19.30% in fiscal 2019 to 29.20% in fiscal 2023 (average of 23.74%).
Net charge-offs as a percentage of average finance receivables decreased to 19.3% for fiscal 2021 compared to 23.1% for the prior year.
Net charge-offs as a percentage of average finance receivables increased to 23.3% for fiscal 2023 compared to 18.3% for the prior year.
The gross margin percentage decreased in fiscal 2022 to 37.4% from 40.7% in the prior fiscal year, while gross margin dollars per retail unit sold increased by $760, primarily as a result of the Company selling on average a higher priced vehicle in fiscal 2022.
The gross margin percentage decreased in fiscal 2023 to 33.4% from 36.4% in the prior fiscal year, while total gross profit per retail unit sold increased by $72, primarily as a result of the Company selling on average a higher priced vehicle in fiscal 2023.
The Company believes that the amount of credit available for the sub-prime auto industry will remain relatively consistent with levels in recent years, which management expects will contribute to continued strong overall demand for most, if not all, of the vehicles the Company purchases for resale.
The Company believes that the amount of credit available, even with it tightening in 2023, for the sub-prime auto industry will remain relatively consistent with levels in recent years, which management expects will contribute to continued strong overall demand for most, if not all, of the vehicles the Company purchases for resale. 34 The Company has generally leased the majority of the properties where its dealerships are located.
The increase in revenue for fiscal 2022 is attributable to (i) a 22.2% increase in average retail sales price, (ii) a 6.7% increase in retail units sold and (iii) a 37.4% increase in interest and other income, due to the $265.1 million increase in average finance receivables.
The increase in revenue for fiscal 2023 is attributable to (i) a 10.4% increase in average retail sales price, (ii) a 4.9% increase in retail units sold and (iii) a 29.2% increase in interest and other income, due to the $289.2 million increase in average finance receivables.
The Company currently anticipates going forward that the growth in finance receivables will generally be slightly higher than overall revenue growth on an annual basis due to overall term length increases in our installment sales contracts in recent years, partially offset by improvements in underwriting and collection procedures in an effort to reduce credit losses.
The Company anticipates going forward that the growth in finance receivables will generally continue to be slightly higher than overall revenue growth on an annual basis due to the overall term length increases in our installment sales contracts in recent years.
Other than its letter 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.
Off-Balance Sheet Arrangements The Company has two standby letters of credit relating to insurance policies totaling $2.9 million at April 30, 2023. 35 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.
Cost of sales, as a percentage of sales, increased to 62.6% compared to 59.3% in fiscal 2021, resulting in a decrease in the gross margin percentage to 37.4% of sales in fiscal 2022 from 40.7% of sales in fiscal 2021.
Cost of sales, as a percentage of sales, increased slightly to 63.6% compared to 60.0% in fiscal 2021, resulting in a decrease in the gross margin percentage to 36.4% of sales in fiscal 2022 from 40.0% of sales in fiscal 2021.
Historically, income from continuing operations, as well as borrowings on the revolving credit facilities, have funded the Company’s finance receivables growth, capital asset purchases and common stock repurchases.
At April 30, 2023, the Company had $167.2 million in outstanding borrowings under the revolving credit facilities. Historically, income from continuing operations, as well as borrowings on the revolving credit facilities, have funded the Company’s finance receivables growth, capital asset purchases and common stock repurchases.
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 by approximately 250 basis points.
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.
Accounts payable and accrued liabilities increased by approximately $3.2 million at April 30, 2022 as compared to April 30, 2021 primarily due to higher accounts payable related to increased inventory and sales activity, and higher deferred sales tax related to the increase in sales.
Accounts payable and accrued liabilities increased by approximately $8.1 million at April 30, 2023 as compared to April 30, 2022 primarily due to higher accounts payable related to increased inventory and sales activity.
The Company expects to use cash from operations and borrowings to (i) grow its finance receivables portfolio, (ii) purchase fixed assets of approximately $25 million in the next 12 months to add technology improvements and to refurbish existing dealerships and adding new dealerships, subject to strong operating results, (iii) repurchase shares of common stock when favorable conditions exist and (iv) reduce debt to the extent excess cash is available.
The Company expects to use cash from operations and borrowings to (i) grow its finance receivables portfolio, (ii) purchase fixed assets of approximately $12 million in the next 12 months as we complete facility updates and general fixed asset requirements, (iii) repurchase shares of common stock when favorable conditions exist and (iv) reduce debt to the extent excess cash is available.
The majority of the Company’s growth has been self-funded. 31 Cash flows from operations in fiscal 2022 compared to fiscal 2021 decreased primarily as a result of (i) an increase in finance receivable originations and (ii) an increase in inventory, partially offset by increases in (iii) finance receivable collections and (iv) deferred revenue.
Finance receivables, net, increased by $210.1 million during fiscal 2023. Cash flows from operations in fiscal 2022 compared to fiscal 2021 decreased primarily as a result of (i) an increase in finance receivable originations and (ii) an increase in inventory, partially offset by increases in (iii) finance receivable collections and (iv) deferred revenue.
The Company’s policy is to recognize accrued interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.
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, 2023.
Negative macro-economic issues, however, do not always lead to higher credit loss results for the Company because the Company provides basic affordable transportation which in many cases is not a discretionary expenditure for customers.
Negative macro-economic issues, however, do not always lead to higher credit loss results for the Company because the Company provides basic affordable transportation which in many cases is not a discretionary expenditure for customers. 27 The Company continuously looks for ways to operate more efficiently, improve its business practices and adjust underwriting and collection procedures.
The rate at which the Company adds new dealerships and is able to implement operating initiatives is limited by the number of trained managers and support personnel the Company has at its disposal. Excessive turnover, particularly at the dealership manager level, could impact the Company’s ability to add new dealerships and to meet operational initiatives.
The Company’s ability to add new dealerships and implement operating initiatives is dependent on having a sufficient number of trained managers and support personnel. Excessive turnover, particularly at the dealership manager level, could impact the Company’s ability to add new dealerships and to meet operational initiatives.
The Company has also increased the level of accountability for its purchasing agents including updates to sourcing and pricing guidelines. The Company continues to make corporate level purchases and form relationships with national vendors that can supply a large quantity of high-quality vehicles.
The Company has also increased the level of accountability for its purchasing agents including updates to sourcing and pricing guidelines. The Company continues to build relationships with national vendors that can supply a large quantity of high-quality vehicles. Even with these efforts, the Company expects gross margin percentages to remain under pressure over the near term.
Revenue increased 32.0% for the fiscal year ended April 30, 2022 compared to fiscal 2021 primarily due to a 22.2% increase in average retail sales price, a 6.7% increase in units sold and a 37.4% increase in interest income. The Company added three new dealerships in fiscal 2022.
Revenue increased 17.6% for the fiscal year ended April 30, 2023 compared to fiscal 2022 primarily due to a 10.4% increase in average retail sales price, a 4.9% increase in units sold and a 29.2% increase in interest income.
The Company believes that the proper execution of its business practices is the single most important determinant of its long-term credit loss experience. Historically, the Company’s gross margin as a percentage of sales has been fairly consistent from year to year at approximately 40% or 41% over each of the previous five fiscal years.
The Company believes that the proper execution of its business practices is the single most important determinant of its long-term credit loss experience. Over the last five fiscal years, the Company’s gross margin as a percentage of sales has ranged from approximately 40.4% in fiscal 2019 to 33.4% in fiscal 2023 (average of 38.0%).
Based on the Company’s current analysis of loan losses, the allowance for credit losses remains at 24.5% at April 30, 2022. 25 Historically, credit losses, on a percentage basis, tend to be higher at new and developing dealerships than at mature dealerships.
Based on the Company’s current analysis of credit losses, the allowance for credit losses as a percentage of finance receivables, net of deferred revenue, increased from 23.57% at April 30, 2022 to 23.91% at April 30, 2023. Historically, credit losses, on a percentage basis, tend to be higher at new and developing dealerships than at mature dealerships.
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. Recently Adopted Accounting Pronouncements In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform.
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. Recently Issued Accounting Pronouncements Not Yet Adopted In March 2022, the FASB issued an accounting pronouncement (ASU 2022-02) related to troubled debt restructurings (“TDRs”) and vintage disclosures for financing receivables.
The reserve amount in the allowance for credit losses at April 30, 2022, $247.2 million, was 24.5% of the principal balance in finance receivables of $1.1 billion, less unearned accident protection plan revenue of $48.6 million and unearned service contract revenue of $43.9 million.
The allowance for credit losses at April 30, 2023 of $299.6 million, was 23.91% of the principal balance in finance receivables of $1.4 billion, less unearned accident protection plan revenue of $53.1 million and unearned service contract revenue of $67.4 million.
At April 30, 2022, the Company had approximately $6.9 million of cash on hand and $197.8 million of availability under its revolving credit facilities (see Note F to the Consolidated Financial Statements in Item 8). On a short-term basis, the Company’s principal sources of liquidity include income from operations and borrowings under its revolving credit facilities.
At April 30, 2023, the Company had approximately $9.8 million of cash on hand and $121.4 million of availability under its revolving credit facilities (see Note F to the Consolidated Financial Statements in Item 8).
The increase in interest expense is primarily due to the higher average borrowings in fiscal 2022 ($331.6 million in fiscal 2022 compared to $215.0 million for fiscal 2021). 2021 Compared to 2020 Total revenues increased $174.0 million, or 23.4%, in fiscal 2021, as compared to revenue growth of 11.3% in fiscal 2020, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($137.6 million), and (ii) revenue from stores opened or acquired during or after the year ended April 30, 2020 ($36.7 million), partially offset by (iii) decreased revenue from dealerships closed during or after the year ended April 30, 2020 ($333,000).
Fiscal 2022 Compared to Fiscal 2021 Total revenues increased $285.9 million, or 31.4%, in fiscal 2022, as compared to revenue growth of 22.2% in fiscal 2021, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($269.2 million), and (ii) revenue from stores opened or acquired during or after the year ended April 30, 2021 ($16.8 million), partially offset by (iii) decreased revenue from dealerships closed during or after the year ended April 30, 2021 ($86,000).
The Company has devoted significant efforts to improving its purchasing processes to ensure adequate supply at appropriate prices, including expanding its purchasing territories to larger cities in close proximity to its dealerships and increasing its efforts to purchase vehicles from individuals at the dealership level as well as via the internet.
The Company has devoted significant efforts to improving its purchasing processes to ensure adequate supply at appropriate prices, including expanding its purchasing territories to larger cities in close proximity to its dealerships and forming relationships with reconditioning partners to reduce purchasing costs.
At April 30, 2022, the Company had $81.9 million of operating lease commitments, including $18.0 million of non-cancelable lease commitments under the lease terms, and $63.9 million of lease commitments for renewal periods at the Company’s option that are reasonably assured.
As of April 30, 2023, the Company leased approximately 79% of its dealership properties. At April 30, 20223 the Company had $82.2 million of operating lease commitments, including $13.3 million of non-cancelable lease commitments under the lease terms, and $68.9 million of lease commitments for renewal periods at the Company’s option that are reasonably assured.
Historically, most of the cash generated from operations has been used to fund finance receivables growth, capital expenditures and common stock repurchases. To the extent finance receivables growth, common stock repurchases and capital expenditures exceed income from operations we historically increased our borrowings under our revolving credit facilities and most recently also utilized the securitization market.
Historically, most of the cash generated from operations has been used to fund finance receivables growth, capital expenditures and common stock repurchases.
In fiscal 2022, the Company had a $175.0 million net increase in total debt, net of cash, used to contribute to the funding of finance receivables growth of $292.0 million, an inventory increase of $33.0 million, net capital expenditures of $20.9 million and common stock repurchases of $34.7 million.
In fiscal 2023, the Company had a $172.5 million net increase in total debt, net of cash, used to contribute to the funding of finance receivables growth of $210.1 million, net capital expenditures of $22.3 million and common stock repurchases of $5.2 million.
The Company focuses on the benefits of excellent customer service and its “local” face-to-face offering in an effort to help customers succeed, while continuing to enhance the Company’s digital services and offerings to meet growing demands for an online sales experience.
Management believes that developing and maintaining a relationship with its customers and earning their repeat business is critical to the success and growth of the Company and can serve to offset the effects of increased competition and negative macro-economic factors. 26 The Company focuses on the benefits of excellent customer service and its “local” face-to-face offering in an effort to help customers succeed, while continuing to enhance the Company’s digital services and offerings to meet growing demands for an online sales experience.
As a % of Sales 2022 2021 2020 2021 2020 2022 2021 2020 Operating Statement: Revenues: Sales $ 1,060,512 $ 808,065 $ 652,992 31.2 % 23.7 % 100.0 % 100.0 % 100.0 % Interest and other income 151,853 110,545 91,619 37.4 20.7 14.3 13.7 14.0 Total 1,212,365 918,610 744,611 32.0 23.4 114.3 113.7 114.0 Costs and expenses: Cost of sales, excluding depreciation shown below 663,631 479,153 388,475 38.5 % 23.3 % 62.6 59.3 59.5 Selling, general and administrative 156,130 130,855 117,762 19.3 11.1 14.7 16.2 18.0 Provision for credit losses 257,101 163,662 162,246 57.1 0.9 24.2 20.3 24.8 Interest expense 10,919 6,820 8,052 60.1 (15.3 ) 1.0 0.8 1.2 Depreciation and amortization 4,033 3,719 3,839 8.4 (3.1 ) 0.4 0.5 0.6 Gain on disposal of property and equipment 149 (40 ) (114 ) - - - - - Total 1,091,963 784,169 680,260 39.3 15.3 103.0 97.0 104.1 Income before income taxes $ 120,402 $ 134,441 $ 64,351 11.4 % 16.6 % 9.9 % Operating Data (Unaudited): Retail units sold 60,595 56,806 52,914 6.7 % 7.4 % Average dealerships in operation 152 150 146 1.3 2.7 Average units sold per dealership per month 33.2 31.6 30.2 5.1 4.6 Average retail sales price $ 16,649 $ 13,621 $ 11,793 22.2 15.5 Gross profit per retail unit sold $ 6,550 $ 5,790 $ 4,999 13.1 15.8 Same store revenue growth 30.5 % 18.7 % 9.3 % Receivables average yield 15.8 % 15.9 % 15.7 % 2022 Compared to 2021 Total revenues increased $293.8 million, or 32.0%, in fiscal 2022, as compared to revenue growth of 23.4% in fiscal 2021, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($276.7 million), and (ii) revenue from stores opened or acquired during or after the year ended April 30, 2021 ($17.1 million), partially offset by (iii) decreased revenue from dealerships closed during or after the year ended April 30, 2021 ($86,000).
As a % of Sales 2023 2022 2021 2022 2021 2023 2022 2021 Operating Statement: Revenues: Sales $ 1,209,279 $ 1,043,698 $ 799,129 15.9 % 30.6 % 100.0 % 100.0 % 100.0 % Interest and other income 196,219 151,853 110,545 29.2 37.4 16.2 14.5 13.8 Total 1,405,498 1,195,551 909,674 17.6 31.4 116.2 114.5 113.8 Costs and expenses: Cost of sales, excluding depreciation shown below 805,873 663,631 479,153 21.4 % 38.5 % 66.6 63.6 60.0 Selling, general and administrative 176,696 156,130 130,855 13.2 19.3 14.6 15.0 16.4 Provision for credit losses 352,860 238,054 153,835 48.2 54.7 29.2 22.8 19.3 Interest expense 38,312 10,919 6,820 250.9 60.1 3.2 1.0 0.9 Depreciation and amortization 5,602 4,033 3,719 38.9 8.4 0.5 0.4 0.5 Loss (gain) on disposal of property and equipment 361 149 (40 ) - - - - - Total 1,379,704 1,072,916 774,342 28.6 38.6 114.1 102.8 97.1 Income before income taxes $ 25,794 $ 122,635 $ 135,332 2.1 % 11.8 % 16.9 % Operating Data (Unaudited): Retail units sold 63,584 60,595 56,806 4.9 % 6.7 % Average dealerships in operation 155 152 150 2.0 1.3 Average units sold per dealership per month 34.2 33.2 31.6 3.0 5.1 Average retail sales price $ 18,080 $ 16,372 $ 13,464 10.4 21.6 Gross profit per retail unit sold $ 6,344 $ 6,272 $ 5,633 1.1 11.3 Same store revenue growth 16.6 % 30.0 % 18.7 % Receivables average yield 15.7 % 15.8 % 15.9 % Fiscal 2023 Compared to Fiscal 2022 Total revenues increased $209.9 million, or 17.6%, in fiscal 2023, as compared to revenue growth of 31.4% in fiscal 2022, principally as a result of (i) revenue growth from dealerships that operated a full twelve months in both fiscal years ($196.7 million), and (ii) revenue from stores opened or acquired during or after the year ended April 30, 2022 ($15.3 million), partially offset by (iii) decreased revenue from dealerships closed during or after the year ended April 30, 2022 ($2.1 million).
The Company’s revolving credit facilities mature in September 2024 and the Company expects that it will be able to renew or refinance its revolving credit facilities on or before the date they mature. The Company has also recently accessed the securitization market with an inaugural issuance in April 2022 of $400 million in aggregate principal amount of non-recourse asset-backed notes.
The Company’s revolving credit facilities mature in September 2024 and the Company expects that it will be able to renew or refinance its revolving credit facilities on or before the date they mature.
Demand for the vehicles we purchase for resale has remained high and the supply has continued to be restricted due to lower repossessions and lower levels of new car production.
Demand for the vehicles we purchase for resale has remained high and the supply has continued to be restricted primarily due to lower levels of new car production. The inflationary environment during fiscal 2023 also contributed to the lower gross margin percentage due to increased costs of vehicle parts, shop labor rates and transport services.
The increase was primarily focused on investments in our associates, especially building our customer experience team and investing in procurement, combined with increased commissions due to higher net income. 28 Provision for credit losses as a percentage of sales decreased to 20.3% for fiscal 2021 compared to 24.8% for fiscal 2020.
Selling, general and administrative expenses remained, for the most part, more fixed in nature. In dollar terms, overall selling, general and administrative expenses increased $25.3 million from fiscal 2021. The increase was primarily focused on investments in our associates, especially building our customer experience team and investing in procurement, combined with increased commissions due to higher net income.
We incurred approximately $20.9 million in expenditures during fiscal year 2022, primarily related to technology investments, designed to attract additional sales opportunities, and remodeling or relocating existing locations. The net increase to property and equipment, net, was partially offset by depreciation expense of $4.0 million and disposals of approximately $200,000 in furniture and equipment.
We incurred approximately $22.3 million in expenditures during fiscal year 2023, primarily related to new locations, relocations and finalizing our rebranding project. The increase to property and equipment, net, was partially offset by depreciation expense of $5.6 million and disposals of approximately $454,000 in furniture and equipment.
The Company continues to strive to reduce credit losses in spite of the current economic challenges and continued competitive pressures by improving deal structures. Management continues to focus on improved execution at the dealership level, specifically as related to working individually with customers concerning collection issues.
Management continues to focus on improved execution at the dealership level, specifically as related to working individually with customers concerning collection issues. The Company’s collection results, credit losses and liquidity are also affected by the availability of funding to the sub-prime auto industry.
Deferred income tax liabilities, net, increased approximately $8.2 million at April 30, 2022 as compared to April 30, 2021, due primarily to the increase in finance receivables, net.
Deferred income tax liabilities, net, increased approximately $8.9 million at April 30, 2023 as compared to April 30, 2022, due primarily to the increase in finance receivables, net. The Company had $471 million and $396 million of non-recourse notes payable outstanding related to asset-backed term funding transactions for the periods ended April 30, 2023 and 2022, respectively.
The allowance takes into account historical credit loss experience (both timing and severity of losses), with consideration given to recent credit loss trends and changes in contract characteristics (i.e., average amount financed, months outstanding at loss date, term and age of portfolio), delinquency levels, collateral values, economic conditions and underwriting and collection practices.
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., average amount financed, greater than 30 day delinquencies, term, and interest rates), credit quality trends, collateral values, current and forecasted inflationary economic conditions, underwriting and collection practices, concentration risk, credit review, and other external factors.
Additionally, the long-term economic impact of the COVID-19 pandemic and the resulting effects on the Company’s collections and credit loss results remains uncertain. The Company has made improvements to its business processes within the last few years to strengthen controls and provide stronger infrastructure to support its collections efforts.
The Company has made improvements to its business processes within the last few years to strengthen controls and provide stronger infrastructure to support its collections efforts. The Company continues to strive to reduce credit losses in spite of the current economic challenges and continued competitive pressures by improving deal structures.
Years Ended April 30, 2022 2021 2020 Growth in finance receivables, net of deferred revenue 34.1 % 28.7 % 14.4 % Revenue growth 32.0 % 23.4 % 11.3 % At fiscal year-end 2022, inventory increased 40.2% ($33.0 million), compared to fiscal year-end 2021, primarily due to increasing our investment in inventory quantities to accommodate the higher sales volumes and provide customers a quality mix of vehicles, combined with the higher cost of the vehicles we purchase.
Years Ended April 30, 2023 2022 2021 Growth in finance receivables, net of deferred revenue 24.2 % 34.1 % 28.7 % Revenue growth 17.6 % 31.4 % 23.7 % At fiscal year-end 2023, inventory decreased 5.2% ($6.0 million), compared to fiscal year-end 2022, primarily due to a concerted effort to increase efficiencies in our inventory operations resulting in annualized inventory turns of 7.2 compared to 6.7 for the previous year.
Increased competition resulting from availability of funding to the sub-prime auto industry generally contributes to lower down payments and longer terms, which can have a negative effect on collection percentages, liquidity and credit losses when compared to historical periods.
In recent years, increased competition resulting from the availability of funding to the sub-prime auto industry has contributed to the Company reducing down payments and lengthening contract terms for our customers, which added negative pressure to our collection percentages and credit losses and increased our need for external sources of liquidity.
Cash flows from operations in fiscal 2021 compared to fiscal 2020 decreased primarily as a result of (i) an increase in finance receivable originations, (ii) an increase in inventory and (iii) a decrease in income taxes payable, partially offset by (iv) an increase in finance receivable collections, (v) an increase in accounts payable and accrued liabilities and (vi) an increase in deferred revenue.
To the extent finance receivables growth, common stock repurchases and capital expenditures exceed income from operations we historically increased our borrowings under our revolving credit facilities and most recently also utilized the securitization market. 33 Cash flows from operations in fiscal 2023 compared to fiscal 2022 decreased primarily as a result of (i) an increase in finance receivable originations and (ii) a decrease in deferred revenue, partially offset by an increase in (iii) finance receivable collections.
The calculation of the allowance for credit losses uses the following primary factors: ● The number of units repossessed or charged-off as a percentage of total units financed over specific historical periods of time from one year to five years. ● The average net repossession and charge-off loss per unit during the last eighteen months, segregated by the number of months since the contract origination date, and adjusted for the expected future average net charge-off loss per unit.
The allowance for credit losses is reviewed at least quarterly by management with any changes reflected in current operations. 36 The calculation of the allowance for credit losses uses the following primary factors: ● The probability of default (“PD”) or the number of units repossessed or charged-off divided by the number of units financed over the last five fiscal years (based on increments of 1, 1.5, 2, 3, 4, and 5 years). ● Loss given at default (“LGD”) or the average net repossession and charge-off loss per unit during the last 18 months, segregated by the number of months since the contract origination date, and adjusted for the expected average net charge-off per unit. ● The timing of repossession and charge-off loss relative to the date of sale (i.e., how long it takes for a repossession or charge-off to occur) for repossessions and charge-offs occurring during the last 18 months.
Non-GAAP Financial Measure The reconciliation between the Company’s debt to equity ratio and adjusted debt, net of cash, to equity ratio for fiscal year ending April 30, 2022, is summarized in the table below. April 30, 2022 Debt to Equity 0.94 Cash to Equity 0.09 Debt net of Cash to Equity 0.85 36
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 anyone, single financial measure. The reconciliation between the Company’s debt to equity ratio and debt, net of cash, to equity ratio for fiscal year ending April 30, 2023, is summarized in the table below.
The Company estimates that total interest payments on its outstanding debt facilities as of April 30, 2022, are approximately $240.8 million, assuming an increase in average total debt of approximately $212.0 million with an average annual rate increase of approximately 2%, with approximately $28.0 million in interest payable during fiscal 2023.
The Company estimates that total interest payments on its outstanding debt facilities as of April 30, 2023, are approximately $54.3 million with approximately $34.3 million in interest payable during fiscal 2024. The Company believes it will have adequate liquidity to continue to grow its revenues and to satisfy its capital needs for the foreseeable future.
Cost of sales, as a percentage of sales, decreased slightly to 59.3% compared to 59.5% in fiscal 2020, resulting in a slight improvement in the gross margin percentage to 40.7% of sales in fiscal 2021 from 40.5% of sales in fiscal 2020.
Cost of sales, as a percentage of sales, increased to 66.6% compared to 63.6% in fiscal 2022, resulting in a decrease in the gross margin percentage to 33.4% of sales in fiscal 2023 from 36.4% of sales in fiscal 2022.
Financial Condition The following table sets forth the major balance sheet accounts of the Company at April 30, 2022, 2021 and 2020 (in thousands): April 30, 2022 2021 2020 Assets: Finance receivables, net $ 854,290 $ 625,119 $ 466,141 Inventory 115,302 82,263 36,414 Income taxes receivable, net 274 - - Property and equipment, net 51,438 34,719 30,140 Liabilities: Accounts payable and accrued liabilities 52,685 49,486 32,846 Deferred revenue 92,491 56,810 36,121 Income taxes payable, net - 150 3,841 Deferred income tax liabilities, net 28,233 20,007 12,979 Non-recourse notes payable 395,986 - - Revolving line of credit 44,670 225,924 215,568 29 The following table shows receivables growth compared to revenue growth during each of the past three fiscal years.
The increase in interest expense is primarily due to the higher average borrowings in fiscal 2022 ($333.2 million in fiscal 2022 compared to $220.7 million in fiscal 2021). 30 Financial Condition The following table sets forth the major balance sheet accounts of the Company at April 30, 2023, 2022 and 2021 (in thousands): April 30, 2023 2022 2021 Assets: Finance receivables, net $ 1,073,764 $ 863,674 $ 632,270 Inventory 109,290 115,302 82,263 Income taxes receivable, net 9,259 274 - Property and equipment, net (1) 61,682 45,412 34,719 Liabilities: Accounts payable and accrued liabilities 60,802 52,685 49,486 Deferred revenue 120,469 92,491 56,810 Income taxes payable, net - - 150 Deferred income tax liabilities, net 39,315 30,449 21,698 Non-recourse notes payable, net 471,367 395,986 - Revolving line of credit, net 167,231 44,670 225,924 (1) Prepaid expenses and other assets at April 30, 2022, reflects an immaterial reclassification of approximately $6.0 million of capitalized implementation costs related to a cloud-computing arrangement previously recorded in Property and equipment, net, and did not impact operating income.
The Company expects that it will continue to access this market in diversifying and growing the business. Furthermore, while the Company has no specific plans to issue further debt or equity securities, the Company believes, if necessary, it could raise additional capital through the issuance of such securities.
The Company also believes it could raise additional capital through the issuance of additional debt or equity securities if necessary or if market conditions are favorable to pursue strategic opportunities.
Removed
Management believes that developing and maintaining a relationship with its customers and earning their repeat business is critical to the success and growth of the Company and can serve to offset the effects of increased competition and negative macro-economic factors.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

3 edited+0 added−0 removed3 unchanged
Biggest changeThe Company’s finance receivables carry a fixed interest rate of 16.5% per annum (19.5% to 21.5% in Illinois), based on the Company’s contract interest rate as of the contract origination date, while its revolving credit facilities contain variable interest rates that fluctuate with market interest rates.
Biggest changeThe Company’s finance receivables carry a fixed annual interest rate of 16.5% (prior to December 2022) to 18.0% (effective December 2022) for all states except Arkansas (which is subject to a usury cap of 17%) and Illinois (where dealerships originate at 19.5% to 21.5%), based on the Company’s contract interest rate as of the contract origination date, while its revolving credit facilities contain variable interest rates that fluctuate with market interest rates. 38
The impact of a 1% increase in interest rates on this amount of debt would result in increased annual interest expense of approximately $467,000 and a corresponding decrease in net income before income tax.
The impact of a 1% increase in interest rates on this amount of debt would result in increased annual interest expense of approximately $1.7 million and a corresponding decrease in net income before income tax.
The Company is exposed to changes in interest rates as a result of its revolving credit facilities, and the interest rates charged to the Company under its credit facilities fluctuate based on its primary lender’s base rate of interest. The Company had an outstanding balance on its revolving line of credit of $46.7 million at April 30, 2022.
The Company is exposed to changes in interest rates as a result of its revolving credit facilities, and the interest rates charged to the Company under its credit facilities fluctuate based on its primary lender’s base rate of interest. The Company had an outstanding balance on its revolving line of credit of $167.2 million at April 30, 2023.

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