America’s Car-Mart, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended April 30, 2018 (not calendar-year Q4). The filing also reports fourth-quarter results. America’s Car-Mart sells older-model used vehicles and finances substantially all sales, primarily to customers with limited or impaired credit histories. It operated 139 dealerships across 11 states at year-end.
Financial performance and condition
| Metric | FY2018 | FY2017 | Change / context |
|---|---|---|---|
| Total revenue | $612.2 million | $587.8 million | Up 4.2%; sales rose 3.3%, interest and other income rose 10.5% |
| Net income attributable to common stockholders | $36.5 million | $20.2 million | Up 80.8%; FY2018 included an $8.1 million deferred-tax benefit from the Tax Cuts and Jobs Act |
| Diluted EPS | $4.90 | $2.49 | Increased; reflects higher earnings and fewer weighted-average shares |
| Income before income taxes | $38.9 million | $32.2 million | Up 20.7% |
| Gross profit on vehicle sales | $222.3 million | $215.2 million | Gross margin was approximately 41.4% of sales, broadly stable year over year |
| Provision for credit losses | $149.1 million | $149.1 million | 27.7% of sales versus 28.7% |
| Net cash from operating activities | $10.0 million | $7.3 million | Receivables growth absorbs substantial cash |
| Total debt facilities | $152.4 million | $117.9 million | Up $34.4 million; debt-to-equity ratio was 0.66:1 |
| Cash and revolving availability | $1.0 million cash; approximately $46 million available | — | At April 30, 2018 |
- Finance receivables, net, increased 7.4% to $383.6 million; inventory rose 11.6% to $33.6 million. Receivables growth exceeded revenue growth.
- Allowance for credit losses was $117.8 million, or 25.0% of principal receivables net of deferred product revenue. Net charge-offs were 28.8% of average receivables, down from 30.5%; receivables 30+ days past due were 3.5%, versus 3.6%.
- Average retail selling price was $10,604, up 0.6%; retail units sold rose 2.5%; same-store revenue growth was 5.2%. Average contract term in the portfolio was 32.5 months and average down payment was 6.4%.
- Interest expense increased 37.6% to $5.6 million, reflecting higher average borrowings and interest rates. Revolving debt bore approximately 4.25% at year-end; a 1 percentage-point rate increase on outstanding revolving debt would add about $1.5 million in annual interest expense.
- Fourth-quarter revenue was $169.5 million and common-stockholder net income was $10.2 million, compared with $152.9 million and $5.2 million, respectively, in FY2017’s fourth quarter.
Material changes versus the prior year
- Revenue growth accelerated to 4.2% from 3.5%, driven by higher unit sales, a modestly higher average selling price, and increased interest income. Three dealerships opened and four underperforming locations closed; year-end dealership count declined by one.
- Credit losses improved modestly: provision as a share of sales fell to 27.7% from 28.7%, and net charge-offs declined to 28.8% from 30.5%. Management attributed the improvement mainly to lower loss frequency and better collections execution.
- SG&A rose 7.7% to $99.0 million, or 18.4% of sales versus 17.7%, partly due to spending on recruiting, training, collections support, and digital marketing.
- Debt increased alongside receivables growth and significant share repurchases. The Company repurchased 979,040 shares for $42.3 million during FY2018, compared with $20.5 million in FY2017.
- The Tax Act reduced the U.S. corporate tax rate and produced an $8.1 million discrete deferred-tax benefit; the reported tax provision fell to $2.4 million from $12.0 million.
Outlook, risks, and contingencies
- Management outlook: No specific revenue or earnings guidance was provided. Management expects receivables growth generally to be slightly above revenue growth, gross-margin percentages to remain under pressure in the near term, and credit losses to remain above historical ranges amid competitive and macroeconomic pressures. It expects to spend approximately $4.2 million on property and equipment over the next 12 months, subject to operating results, and stated it believes liquidity is adequate for foreseeable needs.
- Funding and liquidity: Revolving facilities mature in December 2019. Management expects renewal or refinancing by maturity. Facilities are secured primarily by finance receivables and inventory, contain financial and other covenants, and restrict dividends and repurchases; the Company reported covenant compliance at April 30, 2018.
- Credit exposure: The business serves non-prime borrowers, making defaults, repossessions, recoveries, and allowance estimates particularly important. A 1% change in the allowance as a percentage of receivables would change pretax results by approximately $4.7 million. Longer contract terms and lower down payments, driven partly by competition, may pressure collections and losses.
- Other operating risks: Used-vehicle supply and purchase costs may constrain margins; results are exposed to competition, local economic conditions, interest rates, seasonality, weather, employee retention, and information-security and technology disruptions. Approximately 30% of revenue came from Arkansas, creating geographic concentration.
- Tax and legal matters: The Company relies on intercompany receivable-sale tax treatment that it believes complies with applicable rules; an adverse interpretation could increase taxes and accelerate tax payments. Ordinary-course legal proceedings were not expected by management to have a material effect, though outcomes are uncertain. Operating lease commitments totaled $50.5 million, including optional renewal periods considered reasonably assured; a $1 million standby letter of credit was outstanding.
- Audit and controls: The auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- How much of the earnings increase is sustainable after excluding the $8.1 million Tax Act deferred-tax benefit, and how the effective tax rate evolves.
- Whether lower loss frequency persists, and whether the 25% allowance adequately covers future charge-offs, given the high-risk borrower base and portfolio growth.
- Receivables growth, collections, delinquency trends, contract terms, down payments, and recovery values relative to revenue growth.
- Gross-margin trends and vehicle sourcing costs, particularly if used-vehicle supply remains tight.
- Availability, borrowing-base headroom, covenant compliance, interest-rate exposure, and refinancing plans ahead of the December 2019 facility maturity.
- Returns from substantial share repurchases and the effect of repurchases on liquidity and leverage.