Business context and reporting period
America’s Car-Mart, Inc. filed this Form 10-K for the fiscal year ended April 30, 2020. Although the request metadata says “2019 Q4,” the filing covers fiscal 2020; its fourth quarter was February–April 2020. The company operates 148 used-car dealerships, primarily in the South-Central United States, and finances substantially all vehicle sales to customers who often have limited or impaired credit histories.
Financial performance and condition
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $744.6 million | $669.1 million |
| Net income | $51.3 million | $47.6 million |
| Net income attributable to common stockholders | $51.3 million | $47.6 million |
| Diluted EPS | $7.39 | $6.73 |
| Gross margin on vehicle sales | 40.5% | 41.4% |
| Provision for credit losses / sales | 24.8% | 25.0% |
| Net charge-offs / average finance receivables | 23.1% | 25.7% |
| Net cash provided by operating activities | $20.9 million | $24.9 million |
- Revenue grew 11.3%, with retail units sold up 5.3%, average retail selling price up 6.0% to $11,793, and interest and other income up 10.9%. Same-store revenue growth was 9.3%.
- Cost of sales rose to 59.5% of vehicle sales from 58.6%; gross margin dollars per retail unit increased $172. SG&A was 18.0% of sales versus 18.3%.
- At April 30, 2020, finance receivables, net, were $466.1 million, up from $415.5 million; total assets were $667.3 million and equity was $302.8 million.
- Cash was $59.6 million, compared with $1.8 million a year earlier. Debt facilities were $215.6 million, up from $152.9 million; the company reported $23 million of additional revolver availability. Debt-to-equity was 0.71; management’s adjusted debt-net-of-cash-to-equity measure was 0.52.
- Investing cash outflow was $9.9 million and financing cash inflow was $46.8 million. The company repurchased $16.0 million of common stock and reported $5.4 million of property and equipment purchases.
Material changes versus the prior comparable period
- Revenue rose 11.3% versus 9.3% growth in FY2019, while net income increased 7.8% and diluted EPS rose from $6.73 to $7.39.
- Credit-loss expense increased to $162.2 million from $146.4 million. Net charge-offs improved year over year, but the fourth-quarter allowance increase added $9.1 million of pre-tax provision ($7.0 million after tax, or $1.02 per diluted share).
- Receivables growth of 14.4% exceeded revenue growth. Portfolio weighted-average contract term increased to 33.3 months from 32.1 months.
- Delinquencies 30 or more days past due increased to 6.2% of principal receivables from 2.9%. Receivables over 90 days past due rose to approximately $3.1 million from $1.2 million.
- FY2020 fourth-quarter revenue was $195.7 million, while net income was $9.3 million, down from $14.6 million in the prior-year quarter; the filing attributes the year-end credit provision increase principally to COVID-19 uncertainty.
- Adoption of lease accounting guidance increased assets and liabilities by $34.5 million at adoption; the filing says income and cash flow statements were not materially affected.
Outlook, risks, contingencies, and unusual items
- COVID-19 disrupted store operations, consumer demand, collections, repossessions, and vehicle sourcing. Dealerships remained open under health precautions; the company drew $30 million on its credit facilities, reduced inventory purchases and expenses, and deferred certain tax and payroll-tax payments to preserve liquidity.
- Management expected near-term credit losses to increase and gross-margin percentages to remain under pressure. It anticipated receivables growth would generally run slightly above revenue growth and planned approximately $6.5 million in property and equipment purchases over the next 12 months, subject to operating results.
- Management stated it believed liquidity was adequate for the foreseeable future. Revolving facilities mature in September 2022; the company expected renewal or refinancing, but this is not assured. A 1% rise in rates on reported revolving debt would increase annual interest expense by approximately $2.1 million.
- Key risks include further pandemic-related deterioration, the high-risk non-prime borrower portfolio, insufficient credit-loss reserves, competitive pressure, vehicle supply and purchase costs, regulatory and CFPB oversight, employee retention, geographic concentration, and access to credit facilities and covenant compliance.
- The allowance for credit losses was $155.0 million, or 26.5% of the specified receivables principal balance, at year-end. Management noted a 1 percentage-point change in the allowance rate would change pre-tax results by approximately $5.9 million.
- Operating lease commitments totaled $86.4 million, including reasonably assured renewal periods. The company disclosed ordinary-course legal proceedings but did not expect their outcomes to have a material adverse effect; it also disclosed a $250,000 standby letter of credit.
- The financial-statement auditor issued an unqualified opinion, and the company and auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Confirm the filing period: this is FY2020 ended April 30, 2020, not a fiscal 2019 fourth-quarter report.
- Track subsequent delinquency, charge-off, recovery, and allowance trends, including how much of the $9.1 million pandemic-related provision proved necessary.
- Monitor the availability and cost of vehicle inventory, sales volumes, gross-margin percentages, and the effect of longer contract terms on collections and liquidity.
- Review cash use, revolver availability, debt covenants, and the September 2022 facility maturity, particularly if receivables continue growing faster than revenue.
- Assess the status of COVID-19 effects, deferred tax and payroll-tax payments, and management’s stated capital-spending plans against subsequent filings.