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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2024

Or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 0-14939

AMERICA’S CAR-MART, INC.

(Exact name of registrant as specified in its charter)

Texas | 63-0851141
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)

1805 North 2nd Street, Suite 401, Rogers, Arkansas 72756

(Address of principal executive offices) (zip code)

(479) 464-9944

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class | Trading Symbol(s) | Name of each exchange on which registered
Common Stock, par value $0.01 per share | CRMT | NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer ☐ | Accelerated filer ☒ |
| Non-accelerated filer ☐ | Smaller reporting company ☐ | Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Title of Each Class | Outstanding at December 4, 2024
Common stock, par value $.01 per share | 8,252,612

AMERICA’S CAR-MART, INC.

TABLE OF CONTENTS

|  |  | Page
|  |  | No.
PART I. | FINANCIAL INFORMATION |
| Item 1. | Financial Statements |
|  | Condensed Consolidated Balance Sheets (Unaudited) – October 31, 2024 and April 30, 2024 | 3
|  | Condensed Consolidated Statements of Operations (Unaudited) – Three and Six Months Ended October 31, 2024 and 2023 | 4
|  | Condensed Consolidated Statements of Cash Flows (Unaudited) – Six Months Ended October 31, 2024 and 2023 | 5
|  | Condensed Consolidated Statements of Equity (Unaudited) – Three and Six Months Ended October 31, 2024 | 6
|  | Condensed Consolidated Statements of Equity (Unaudited) – Three and Six Months Ended October 31, 2023 | 7
|  | Notes to Consolidated Financial Statements (Unaudited) | 8
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 37
| Item 4. | Controls and Procedures | 37
PART II. | OTHER INFORMATION |
| Item 1. | Legal Proceedings | 38
| Item 1A. | Risk Factors | 38
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 38
| Item 3. | Defaults Upon Senior Securities | 38
| Item 4. | Mine Safety Disclosure | 38
| Item 5. | Other Information | 38
| Item 6. | Exhibits | 39
SIGNATURES | 40

2

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements | America’s Car-Mart, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

October 31, 2024 and April 30, 2024

(Dollars in thousands except share and per share amounts) |  | October 31, 2024 |  |  | April 30, 2024 |
Assets: |  | (Unaudited) |  |  |  |  |
Cash and cash equivalents |  | $ | 8,006 |  |  | $ | 5,522 |
Restricted cash |  |  | 121,678 |  |  |  | 88,925 |
Accrued interest on finance receivables |  |  | 7,573 |  |  |  | 6,907 |
Finance receivables, net |  |  | 1,132,618 |  |  |  | 1,098,591 |
Inventory |  |  | 122,102 |  |  |  | 107,470 |
Income tax receivable, net |  |  | - |  |  |  | 2,958 |
Prepaid expenses and other assets |  |  | 35,259 |  |  |  | 31,276 |
Right-of-use asset |  |  | 65,889 |  |  |  | 61,185 |
Goodwill |  |  | 22,859 |  |  |  | 14,449 |
Property and equipment, net |  |  | 59,192 |  |  |  | 60,361 |
Total Assets |  | $ | 1,575,176 |  |  | $ | 1,477,644 |
Liabilities, mezzanine equity and equity: |  |  |  |  |  |  |  |
Liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 34,174 |  |  | $ | 21,379 |
Deferred accident protection plan revenue |  |  | 50,956 |  |  |  | 51,836 |
Deferred service contract revenue |  |  | 55,645 |  |  |  | 68,945 |
Accrued liabilities |  |  | 33,625 |  |  |  | 27,828 |
Income tax payable, net |  |  | 1,563 |  |  |  | - |
Deferred income tax liabilities, net |  |  | 12,313 |  |  |  | 17,808 |
Lease liability |  |  | 69,056 |  |  |  | 64,250 |
Notes payable, net |  |  | 656,414 |  |  |  | 553,629 |
Revolving line of credit, net |  |  | 107,365 |  |  |  | 200,819 |
Total liabilities |  |  | 1,021,111 |  |  |  | 1,006,494 |
Commitments and contingencies (Note K) |  |  |  |  |  |  |  |
Mezzanine equity: |  |  |  |  |  |  |  |
Mandatorily redeemable preferred stock |  |  | 400 |  |  |  | 400 |
Equity: |  |  |  |  |  |  |  |
Preferred stock, par value $.01 per share, 1,000,000 shares authorized; none issued or outstanding |  |  | - |  |  |  | - |
Common stock, par value $.01 per share, 50,000,000 shares authorized; 15,595,273 and 13,727,013 issued at October 31, 2024 and April 30, 2024, respectively, of which 8,253,186 and 6,394,675 were outstanding at October 31, 2024 and April 30, 2024, respectively |  |  | 156 |  |  |  | 137 |
Additional paid-in capital |  |  | 193,123 |  |  |  | 113,930 |
Retained earnings |  |  | 658,484 |  |  |  | 654,369 |
Less: Treasury stock, at cost, 7,342,087 and 7,332,338 shares at October 31, 2024 and April 30, 2024, respectively |  |  | (298,198 | ) |  |  | (297,786 | )
Total stockholders' equity |  |  | 553,565 |  |  |  | 470,650 |
Non-controlling interest |  |  | 100 |  |  |  | 100 |
Total equity |  |  | 553,665 |  |  |  | 470,750 |
Total Liabilities, Mezzanine Equity and Equity |  | $ | 1,575,176 |  |  | $ | 1,477,644 |

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

Condensed Consolidated Statements of Operations (Unaudited) | America’s Car-Mart, Inc.

Three and Six Months Ended October 31, 2024 and 2023

|  | Three Months Ended October 31, |  |  | Six Months Ended October 31, |
(Dollars in thousands except share and per share amounts) |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Revenues: |  | (Unaudited) |  |  | (Unaudited) |
Sales |  | $ | 285,774 |  |  | $ | 300,400 |  |  | $ | 573,022 |  |  | $ | 610,737 |
Interest and other income |  |  | 61,495 |  |  |  | 59,382 |  |  |  | 122,010 |  |  |  | 115,838 |
Total revenues |  |  | 347,269 |  |  |  | 359,782 |  |  |  | 695,032 |  |  |  | 726,575 |
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales |  |  | 173,215 |  |  |  | 196,763 |  |  |  | 359,785 |  |  |  | 399,410 |
Selling, general and administrative |  |  | 47,407 |  |  |  | 44,863 |  |  |  | 94,118 |  |  |  | 91,333 |
Provision for credit losses |  |  | 99,522 |  |  |  | 135,395 |  |  |  | 194,945 |  |  |  | 231,718 |
Interest expense |  |  | 18,042 |  |  |  | 16,582 |  |  |  | 36,354 |  |  |  | 30,856 |
Depreciation and amortization |  |  | 1,926 |  |  |  | 1,696 |  |  |  | 3,810 |  |  |  | 3,389 |
Loss on disposal of property and equipment |  |  | 41 |  |  |  | 74 |  |  |  | 87 |  |  |  | 240 |
Total costs and expenses |  |  | 340,153 |  |  |  | 395,373 |  |  |  | 689,099 |  |  |  | 756,946 |
Income (loss) before taxes |  |  | 7,116 |  |  |  | (35,591 | ) |  |  | 5,933 |  |  |  | (30,371 | )
Provision (benefit) for income taxes |  |  | 2,017 |  |  |  | (8,128 | ) |  |  | 1,798 |  |  |  | (7,094 | )
Net income (loss) |  | $ | 5,099 |  |  | $ | (27,463 | ) |  | $ | 4,135 |  |  | $ | (23,277 | )
Less: Dividends on mandatorily redeemable preferred stock |  |  | (10 | ) |  |  | (10 | ) |  |  | (20 | ) |  |  | (20 | )
Net income (loss) attributable to common stockholders |  | $ | 5,089 |  |  | $ | (27,473 | ) |  | $ | 4,115 |  |  | $ | (23,297 | )
Earnings (loss) per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.62 |  |  | $ | (4.30 | ) |  | $ | 0.57 |  |  | $ | (3.65 | )
Diluted |  | $ | 0.61 |  |  | $ | (4.30 | ) |  | $ | 0.55 |  |  | $ | (3.65 | )
Weighted average number of shares used in calculation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 8,147,971 |  |  |  | 6,386,208 |  |  |  | 7,272,364 |  |  |  | 6,383,956 |
Diluted |  |  | 8,292,459 |  |  |  | 6,386,208 |  |  |  | 7,423,936 |  |  |  | 6,383,956 |

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

Condensed Consolidated Statements of Cash Flows (Unaudited) | America’s Car-Mart, Inc.

Six Months Ended October 31, 2024 and 2023

|  | Six Months Ended October 31, |
(In thousands) |  | 2024 |  |  | 2023 |
|  | (Unaudited) |
Operating Activities: |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 4,135 |  |  | $ | (23,277 | )
Adjustments to reconcile net income to net cash used in operating activities: |  |  |  |  |  |  |  |
Provision for credit losses |  |  | 194,945 |  |  |  | 231,718 |
Losses on claims for accident protection plan |  |  | 16,797 |  |  |  | 15,173 |
Depreciation and amortization |  |  | 3,810 |  |  |  | 3,389 |
Amortization of debt issuance costs |  |  | 2,657 |  |  |  | 2,780 |
Loss on disposal of property and equipment |  |  | 4 |  |  |  | 146 |
Impairment of goodwill |  |  | 83 |  |  |  | 94 |
Stock based compensation |  |  | 5,243 |  |  |  | 1,739 |
Deferred income taxes |  |  | (5,495 | ) |  |  | (14,249 | )
Excess tax benefit from share based compensation |  |  | - |  |  |  | 213 |
Change in operating assets and liabilities: |  |  |  |  |  |  |  |
Finance receivable originations |  |  | (527,487 | ) |  |  | (580,082 | )
Loan origination costs |  |  | 8 |  |  |  | (10 | )
Finance receivable collections |  |  | 224,640 |  |  |  | 218,208 |
Accrued interest on finance receivables |  |  | (666 | ) |  |  | (1,248 | )
Inventory |  |  | 48,141 |  |  |  | 65,123 |
Prepaid expenses and other assets |  |  | (4,409 | ) |  |  | (2,522 | )
Accounts payable and accrued liabilities |  |  | 10,047 |  |  |  | (4,317 | )
Deferred accident protection plan revenue |  |  | (880 | ) |  |  | 1,306 |
Deferred service contract revenue |  |  | (13,300 | ) |  |  | 4,042 |
Income taxes, net |  |  | 4,521 |  |  |  | 5,644 |
Net cash used in operating activities |  |  | (37,206 | ) |  |  | (76,130 | )
Investing Activities: |  |  |  |  |  |  |  |
Acquisition |  |  | (7,527 | ) |  |  | - |
Purchase of property and equipment |  |  | (2,338 | ) |  |  | (2,149 | )
Proceeds from sale of property and equipment |  |  | 24 |  |  |  | 561 |
Net cash used in investing activities |  |  | (9,841 | ) |  |  | (1,588 | )
Financing Activities: |  |  |  |  |  |  |  |
Exercise of stock options |  |  | - |  |  |  | (455 | )
Issuance of common stock |  |  | 73,969 |  |  |  | 143 |
Purchase of common stock |  |  | (412 | ) |  |  | (68 | )
Dividend payments |  |  | (20 | ) |  |  | (20 | )
Change in cash overdrafts |  |  | 2,074 |  |  |  | 1,416 |
Debt issuance costs |  |  | (4,467 | ) |  |  | (4,091 | )
Issuances of notes payable |  |  | 449,889 |  |  |  | 360,340 |
Payments on notes payable |  |  | (345,622 | ) |  |  | (250,935 | )
Proceeds from revolving line of credit |  |  | 296,424 |  |  |  | 276,266 |
Payments on revolving line of credit |  |  | (389,551 | ) |  |  | (278,419 | )
Net cash provided by financing activities |  |  | 82,284 |  |  |  | 104,177 |
Increase in cash, cash equivalents, and restricted cash |  |  | 35,237 |  |  |  | 26,459 |
Cash, cash equivalents, and restricted cash beginning of period |  |  | 94,447 |  |  |  | 68,034 |
Cash, cash equivalents, and restricted cash end of period |  | $ | 129,684 |  |  | $ | 94,493 |

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Condensed Consolidated Statements of Equity (Unaudited) | America’s Car-Mart, Inc.

Three and Six Months Ended October 31, 2024

|  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  |  |  |  |  | Non- |  |  |  |  |
|  | Common Stock |  |  | Paid-In |  |  | Retained |  |  | Treasury |  |  | Controlling |  |  | Total |
(In thousands, except share data) |  | Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Stock |  |  | Interest |  |  | Equity |
Balance at April 30, 2024 |  |  | 13,727,013 |  |  | $ | 137 |  |  | $ | 113,930 |  |  | $ | 654,369 |  |  | $ | (297,786 | ) |  | $ | 100 |  |  | $ | 470,750 |
Issuance of common stock |  |  | 2,491 |  |  |  | - |  |  |  | 76 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 76 |
Stock options exercised |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Purchase of treasury shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (24 | ) |  |  | - |  |  |  | (24 | )
Stock based compensation |  |  | - |  |  |  | - |  |  |  | 1,325 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,325 |
Dividends on subsidiary preferred stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (10 | ) |  |  | - |  |  |  | - |  |  |  | (10 | )
Net (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (964 | ) |  |  | - |  |  |  | - |  |  |  | (964 | )
Balance at July 31, 2024 (Unaudited) |  |  | 13,729,504 |  |  | $ | 137 |  |  | $ | 115,331 |  |  | $ | 653,395 |  |  | $ | (297,810 | ) |  | $ | 100 |  |  | $ | 471,153 |
Issuance of common stock, net of issuance costs |  |  | 1,865,769 |  |  |  | 19 |  |  |  | 73,874 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 73,893 |
Stock options exercised |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Purchase of treasury shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (388 | ) |  |  | - |  |  |  | (388 | )
Stock issued related to acquisitions |  |  | - |  |  |  | - |  |  |  | 2,500 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,500 |
Stock based compensation |  |  | - |  |  |  | - |  |  |  | 1,418 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,418 |
Dividends on subsidiary preferred stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (10 | ) |  |  | - |  |  |  | - |  |  |  | (10 | )
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,099 |  |  |  | - |  |  |  | - |  |  |  | 5,099 |
Balance at October 31, 2024 (Unaudited) |  |  | 15,595,273 |  |  | $ | 156 |  |  | $ | 193,123 |  |  | $ | 658,484 |  |  | $ | (298,198 | ) |  | $ | 100 |  |  | $ | 553,665 |

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Condensed Consolidated Statements of Equity (Unaudited) | America’s Car-Mart, Inc.

Three and Six Months Ended October 31, 2023

|  |  |  |  |  |  |  |  |  | Additional |  |  |  |  |  |  |  |  |  |  | Non- |  |  |  |  |
|  | Common Stock |  |  | Paid-In |  |  | Retained |  |  | Treasury |  |  | Controlling |  |  | Total |
(In thousands, except share data) |  | Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Stock |  |  | Interest |  |  | Equity |
Balance at April 30, 2023 |  |  | 13,701,468 |  |  | $ | 137 |  |  | $ | 109,929 |  |  | $ | 685,802 |  |  | $ | (297,421 | ) |  | $ | 100 |  |  | $ | 498,547 |
Issuance of common stock |  |  | 2,921 |  |  |  | - |  |  |  | 78 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 78 |
Stock options exercised |  |  | 6,493 |  |  |  | - |  |  |  | (455 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (455 | )
Purchase of treasury shares |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (68 | ) |  |  | - |  |  |  | (68 | )
Stock based compensation |  |  | - |  |  |  | - |  |  |  | 2,451 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,451 |
Dividends on subsidiary preferred stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (10 | ) |  |  | - |  |  |  | - |  |  |  | (10 | )
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,186 |  |  |  | - |  |  |  | - |  |  |  | 4,186 |
Balance at July 31, 2023 (Unaudited) |  |  | 13,710,882 |  |  | $ | 137 |  |  | $ | 112,003 |  |  | $ | 689,978 |  |  | $ | (297,489 | ) |  | $ | 100 |  |  | $ | 504,729 |
Issuance of common stock |  |  | 849 |  |  |  | - |  |  |  | 65 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 65 |
Stock based compensation |  |  | - |  |  |  | - |  |  |  | (712 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (712 | )
Dividends on subsidiary preferred stock |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (10 | ) |  |  | - |  |  |  | - |  |  |  | (10 | )
Net (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (27,463 | ) |  |  | - |  |  |  | - |  |  |  | (27,463 | )
Balance at October 31, 2023 (Unaudited) |  |  | 13,711,731 |  |  | $ | 137 |  |  | $ | 111,356 |  |  | $ | 662,505 |  |  | $ | (297,489 | ) |  | $ | 100 |  |  | $ | 476,609 |

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Notes to Consolidated Financial Statements (Unaudited) | America’s Car-Mart, Inc.

A – Organization and Business

America’s Car-Mart, Inc., a Texas corporation (the “Company”), is one of the largest publicly held automotive retailers in the United States focused exclusively on the “Integrated Auto Sales and Finance” segment of the used car market. References to the Company typically include the Company’s consolidated subsidiaries. The Company’s operations are principally conducted through its two operating subsidiaries, America’s Car Mart, Inc., an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an Arkansas corporation (“Colonial”). The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company’s customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit difficulties. As of October 31, 2024, the Company operated 154 dealerships located primarily in small cities throughout the South-Central United States.

B – Summary of Significant Accounting Policies

General

The accompanying condensed consolidated balance sheet as of April 30, 2024, which has been derived from audited financial statements, and the unaudited interim condensed financial statements as of October 31, 2024 and 2023, have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended October 31, 2024 are not necessarily indicative of the results that may be expected for the year ending April 30, 2025. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended April 30, 2024.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of America’s Car-Mart, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated.

Going Concern and Liquidity

In accordance with ASC 205-40, Presentation of Financial Statements - Going Concern, management has evaluated whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The Company’s revolving line of credit is currently scheduled to become due in September 2025. The line of credit allows the Company to borrow up to an aggregate of $320 million (see Note F). As of October 31, 2024, the Company had $107.4 million in outstanding borrowings under its revolving line of credit. The loan and security agreement, as amended, requires the Company to maintain compliance with certain financial covenants computed on a monthly basis. The Company is currently in compliance with such financial covenants. Given this maturity of the line of credit combined with the Company’s decline in operations, such as negative cash flows from operations and a negative working capital position, the Company will require additional liquidity to continue its operations over the next 12 months if the line of credit is not extended. The Company plans to continue raising capital through the non-recourse securitization market, which represents the majority of its funding. During the past two fiscal years the Company has issued five series of asset-backed non-recourse securities, and the Company currently expects to issue additional series of asset-backed non-recourse securities during the fiscal year.

Though substantial doubt about the Company’s ability to continue as a going concern has been raised due to the upcoming maturity of the revolving credit facility, the Company maintains strong banking relationships. In the first quarter of fiscal year 2025, the Company entered into its first warehouse agreement and executed the 7th amendment on the Third Amended and Restated Loan and Security Agreement. The 8th Amendment to the Third Amended and Restated Loan and Security Agreement was executed in the second quarter of this fiscal year. The Company has initiated discussions with the lending group to begin the process for the extension of the revolver. The commencement of these discussions, along with the recently executed agreements and amendments, demonstrate the Company’s strong banking relationship and indicate that refinancing before maturity is probable of being implemented.

Management believes the ability to issue the asset backed non-recourse securities is sufficient to allow the Company to meet its obligations as they become due for a period of at least 12 months from the issuance of these financial statements. Additionally, management believes that the implementation of the refinancing of the revolving line of credit will strengthen the Company’s financial position. Management believes that the plans are probable and have alleviated the substantial doubt regarding the Company’s ability to continue as a going concern.

Segment Information

Each dealership is an operating segment with its results regularly reviewed by the Company’s chief operating decision maker in an effort to make decisions about resources to be allocated to the segment and to assess its performance. Individual dealerships meet the aggregation criteria for reporting purposes under the current accounting guidance. The Company operates in the Integrated Auto Sales and Finance segment of the used car market, also referred to as the Integrated Auto Sales and Finance industry. In this industry, the nature of the sale and the financing of the transaction, financing processes, the type of customer and the methods used to distribute the Company’s products and services, including the actual servicing of the contracts as well as the regulatory environment in which the Company operates, all have similar characteristics. Each individual 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.

Reclassifications

Accident protection plan (“APP”) reserves in the amount of approximately $11.7 million for the three months ended July 31, 2023 and wholesales sales of $3.0 million for the six months ended October 31, 2023 in the prior year financial statements were reclassified to conform with the current year presentation. APP reserves of $5.8 million were reclassed out of accrued liabilities to reserve against finance receivables and $5.9 million of estimated APP insurance receivables were reclassed out of finance receivables to prepaid expenses and other assets for the three months ended July 31, 2023. $1.2 million and $1.8 million of wholesales sales were reclassed out of wholesales – third party sales to cost of goods sold for the three months ended July 31, 2023 and October 31, 2023, respectively. The reclassification had no effect on the prior year net income or shareholder’s equity.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect 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 period. Actual results could differ from those estimates. Significant estimates include the Company’s allowance for credit losses.

Change in Accounting Estimate

During the second quarter of 2024, the Company refined its accounting estimate with respect to its service contracts. The Company previously recognized deferred service contract revenue over the term associated with the service contract. The service contract is completed once a customer has (a) incurred the designated mileage or (b) the contract has surpassed the designated years. Management performed an analysis to determine when its performance obligations were being met and determined that its customers are reaching the mileage limit prior to reaching the maximum time duration of the service contracts. As such, management has determined that service contract revenue should be recognized over a 9 month term for each 12,000 miles, which would effectively result in a 25% acceleration of the timing of revenue recognition prospectively. The impact to revenue recognized for service contracts in the second quarter of 2024 is $13.2 million, $7.1 million net of tax, or $0.85 increase to diluted earnings per share ($0.87 increase to basic earnings per share).

8

Concentration of Risk

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 28% of current period revenues resulting from sales to Arkansas customers.

As of October 31, 2024, and periodically throughout the period, the Company maintained cash in financial institutions in excess of the amounts insured by the federal government. The cash is held in several highly rated banking institutions. The Company regularly monitors its counterparty credit risk and mitigates exposure by limiting the amount it invests in one institution.

Restrictions on Distributions / Dividends

The Company’s revolving credit facilities generally restrict distributions by the Company to its shareholders. On September 16, 2024, the Company entered into an amendment to its revolving credit facilities that, among other things, restricts the Company from future repurchases of the Company’s stock. See Note F for additional information on this amendment to the revolving credit facilities. As of October 31, 2024, the Company may not repurchase shares of the Company’s stock (other than receiving shares surrendered to pay the exercise price or tax withholding in connection with equity-based awards issued under the Company’s equity incentive plans), pay dividends or make other distributions to its shareholders without the consent of the Company’s lenders.

Cash Equivalents

The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents.

Restricted Cash

Restricted cash is related to the financing and securitization transaction discussed below and is held by the securitization trusts.

Restricted cash from collections on auto finance receivables for non-recourse notes includes collections of principal, interest, and late fee payments on auto finance receivables that are restricted for payment to holders of non-recourse notes payable pursuant to the applicable agreements.

The restricted cash on deposit in reserve accounts is for the benefit of holders of non-recourse notes payable and these funds are not expected to be available to the Company or its creditors. If the cash generated by the related receivables in a given period was insufficient to pay the interest, principal, and other required payments, the balances on deposit in the reserve accounts would be used to pay those amounts.

Restricted cash consisted of the following at October 31, 2024 and April 30, 2024:

9

(In thousands) |  | October 31, 2024 |  |  | April 30, 2024 |
Restricted cash from collections on auto finance receivables for non-recourse notes payable |  | $ | 63,993 |  |  | $ | 43,956 |
Restricted cash on deposit in reserve accounts for non-recourse notes payable |  |  | 57,685 |  |  |  | 44,969 |
Restricted Cash |  | $ | 121,678 |  |  | $ | 88,925 |

Financing, Securitization, and Warehouse Transactions

The Company utilizes term securitizations to provide long-term funding for a portion of the auto finance receivables initially funded through the debt facilities. In these transactions, a pool of auto finance receivables is sold to a special purpose entity that, in turn, transfers the receivables to a special purpose trust. The trust issues asset-backed securities, secured by the transferred receivables, and the proceeds from the sale of the asset-backed securities are used to purchase the receivables.

The Company recognizes transfers of auto finance receivables into the term securitization as secured borrowings, recording the auto finance receivables and the related non-recourse notes payable on our consolidated balance sheet. These auto finance receivables can only be used as collateral to settle obligations of the related non-recourse notes payable until the issued notes are repaid in full. The term securitization investors have no recourse to the Company’s assets beyond the related auto finance receivables, the amounts on deposit in the reserve account, and the cash from collections on auto finance receivables.

The Company’s principal operating subsidiary and a newly formed affiliate also entered into a loan and security agreement in the first quarter of fiscal 2025 under which the Company’s affiliate borrowed $150 million through an amortizing warehouse loan facility collateralized by certain additional auto finance receivables originated by the Company’s operating subsidiaries. Under the loan and security agreement, the warehouse lender had recourse against the Company for up to 10% of the aggregate amount borrowed under the facility. The Company paid off the warehouse facility in October 2024. No debt was outstanding under the warehouse loan facility as of October 31, 2024. See Notes C and F for additional information on auto finance receivables, non-recourse notes payable and warehouse loan facility.

The Company carries the debt from the term securitization trusts on its balance sheet in recognition of the Company’s residual economic interest in the receivable pools for each transaction. The Company or one of its subsidiaries serves as the servicer for each securitization, managing collection activities in the same manner as it does with its overall portfolio of receivables. The overcollateralization in each financing serves to absorb credit losses (subject to limitations) and the Company receives remaining assets of the trust upon repayment in full of the related indebtedness.

Finance Receivables, Repossessions and Charge-offs and Allowance for Credit Losses

The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts carry a weighted average interest rate of approximately 17.5% using the simple effective interest method including any deferred fees. During the third quarter of the 2024 fiscal year, the Company increased the interest rate on new originations of installment sale contracts to 18.25% (from 18.0%) in all states except Arkansas (which originate at 16.75%), Illinois (which originate at 19.5% - 21.5%) and acquired dealerships in Tennessee (which originate at up to 23.0%). Contract origination costs are not significant. The installment sale contracts are structured to have variable payments whereby borrowers are obligated to pay back principal plus the full amount of interest that will accrue over the entire term of the contract. Finance receivables are collateralized by vehicles sold and consist of contractually scheduled payments from installment contracts net of unearned finance charges and an allowance for credit losses. Unearned finance charges to be collected represent the balance of interest receivable to be earned over the remaining term of the related installment contract, and as such, have been reflected as a reduction to the gross contract amount in arriving at the principal balance in finance receivables. Total earned finance charges were $7.6 million and $6.9 million at October 31, 2024 and April 30, 2024, respectively, on the Consolidated Balance Sheets.

An account is considered delinquent when the customer is one day or more behind on their contractual payments. While the Company does not formally place contracts on nonaccrual status, the immaterial amount of interest that may accrue after an account becomes delinquent up until the point of resolution via repossession or write-off is reserved for against the accrued interest on the Condensed Consolidated Balance Sheets. Delinquent contracts are addressed and either made current by the customer, which is the case in most situations, or the vehicle is repossessed or written off if the collateral cannot be recovered quickly. Customer payments are set to match their payday, with approximately 78% of payments due on either a weekly or bi-weekly basis. The frequency of the payment due dates combined with the declining value of collateral lead to prompt resolutions on problem accounts. On October 31, 2024, 3.5% of the Company’s finance receivable balances were 30 days or more past due, compared to 3.1% at April 30, 2024.

10

Substantially all of the Company’s installment sale contracts involve contracts made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Contracts made with buyers who are restricted in their ability to obtain financing from traditional lenders generally entail a higher risk of delinquency, default and repossession, and higher losses than contracts made with buyers with better credit. At the time of originating an installment sale contract, the Company requires customers to meet certain criteria that demonstrate their intent and ability to pay for the financed principal and interest on the vehicle they are purchasing. However, the Company recognizes that their customer base is at a higher risk of default given their impaired or limited credit histories.

The Company strives to keep its delinquency percentages low, and not to repossess vehicles. Accounts one to three days late are contacted by telephone or text messaging notifications. Notes from each contact are electronically maintained in the Company’s computer system. The Company also utilizes text messaging notifications that allow customers the option to receive due date reminders and late notifications, if applicable. The Company attempts to resolve payment delinquencies amicably prior to repossessing a vehicle. If a customer becomes severely delinquent in his or her payments, and management determines that timely collection of future payments is not probable, the Company will take steps to repossess the vehicle.

Periodically, the Company enters into contract modifications with its customers to extend or modify the payment terms. The Company only enters into a contract modification or extension if it believes such action will increase the amount of money the Company will ultimately realize on the customer’s account and will increase the likelihood of the customer being able to pay off the installment sale contract. At the time of modification, the Company expects to collect amounts due including accrued interest at the contractual interest rate for the period of delay. No other concessions are granted to customers, beyond the extension of additional time, at the time of modifications. Modifications are minor and are made for payday changes, minor vehicle repairs and other reasons. For those vehicles that are repossessed, the majority are returned or surrendered by the customer on a voluntary basis. Other repossessions are performed by Company personnel or third-party repossession agents. 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.

The Company takes steps to repossess a vehicle when the customer becomes delinquent in his or her payments and management determines that timely collection of future payments is not probable. Accounts are charged-off after the expiration of a statutory notice period for repossessed accounts, or when management determines that the timely collection of future payments is not probable for accounts where the Company has been unable to repossess the vehicle. For accounts with respect to which the vehicle was repossessed, the fair value of the repossessed vehicle is charged as a reduction of the gross finance receivables balance charged-off. On average, accounts are approximately 69 days past due at the time of charge-off. For previously charged-off accounts that are subsequently recovered, the amount of such recovery is credited to the allowance for credit losses. The amount of the net repossession and charge-off loss is also reduced by any deferred service contract and accident protection plan revenue at the time of charge-off.

The quantitative portion of the Company’s allowance for credit losses is measured using an undiscounted cash flow (“CF”) model whereby the undiscounted cash flows are adjusted by a prepayment rate and then the loss rate is applied and compared to the amortized cost basis of finance receivables to reflect management’s estimate of expected credit losses. The CF model is based on installment sale contract level characteristics of the Company’s finance receivables, such as the contractual payment structure, maturity date, payment frequency for recurring payments, and interest rates, as well as the following assumptions:

| ● | a historical loss period, which represents a full economic credit cycle utilizing loss experience, to calculate the historical loss rate; and

| ● | static annualized historical rate based on average time of charge-off; and

| ● | expected prepayment rates based on our historical experience, which also incorporates non-standard contractual payments such as down payments made during the first ninety-days or annual seasonal payments.

The Company’s allowance for credit losses also considers qualitative factors not captured within the CF modeled results such as changes in underwriting and collection practices, economic trends, changes in volume and terms of installment sales contracts, credit quality trends, installment sale contract review results, collateral trends, and concentrations of credit. The Company’s qualitative factors incorporate a macroeconomic variable forecast of inflation over a reasonable and supportable forecast period of one year that affects its customers’ non-discretionary income and ability to repay. The reasonable and supportable forecast period of one year is based on management’s current review of the reliability of extended forecasts and is applied as an adjustment to the historical loss rate.

The Company maintains an allowance for credit losses on an aggregate basis at an amount it considers sufficient to cover net credit losses expected over the remaining life of the installment sales contracts in the portfolio at the measurement date. At October 31, 2024, the weighted average total contract term was 48.2 months, with 35.9 months remaining. The allowance for credit losses at October 31, 2024, $336.7 million, was 24.72% of the principal balance in finance receivables of $1.5 billion, less deferred APP revenue of $51.0 million and deferred service contract revenue of $55.6 million, less pending APP claims of $5.3 million. The allowance for credit losses is periodically reviewed by management with any changes reflected in current operations.

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In most states, the Company offers retail customers who finance their vehicle the option of purchasing an accident protection plan product as an add-on to the installment sale contract. This product contractually obligates the Company to cancel the remaining principal outstanding for any contract where the retail customer’s vehicle is totaled, as defined by the product, or the vehicle has been stolen. The Company periodically evaluates anticipated losses to ensure that if anticipated losses exceed deferred accident protection plan revenues, an additional liability is recorded for such difference. At October 31, 2024, anticipated losses did not exceed deferred accident protection plan revenues.

Inventory

Inventory consists of used vehicles and is valued at the lower of cost or net realizable value on a specific identification basis. Vehicle reconditioning costs are capitalized as a component of inventory. Repossessed vehicles and trade-in vehicles are recorded at fair value, which approximates wholesale value. The cost of used vehicles sold is determined using the specific identification method.

Goodwill

Goodwill reflects the excess of purchase price over the fair value of specifically identified net assets purchased. Goodwill and intangible assets deemed to have indefinite lives are not amortized but are subject to qualitative annual impairment tests at the Company’s year-end. The impairment tests are based on the comparison of the fair value of the reporting unit to the carrying value of such unit. The implied goodwill is compared to the carrying value of the goodwill to determine the impairment, if any. During the six months ended October 31, 2024, the Company evaluated goodwill and recorded an immaterial impairment of $83,000 due to the closure of an acquired dealership location in the first quarter of fiscal year 2024. The Company also recorded an $8.5 million increase to goodwill due to the acquisition of Texas Auto Center in the first quarter of fiscal year 2025.

Goodwill totaled $22.9 million at October 31, 2024 and $14.4 million at April 30, 2024.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Expenditures for additions, remodels and improvements are capitalized. Costs of repairs and maintenance are expensed as incurred. Leasehold improvements are amortized over the shorter of the estimated life of the improvement or the lease period. The lease period includes the primary lease term plus any extensions that are reasonably assured. Depreciation is computed principally using the straight-line method generally over the following estimated useful lives:

Furniture, fixtures and equipment | 3 to 7 years
Leasehold improvements | 5 to 15 years
Buildings and improvements | 18 to 39 years

Long-Lived Assets

Long-lived assets, such as property and equipment, capitalized internal-use software and operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares the undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, such assets are considered to be impaired, and the impairment is recognized to the extent that the carrying value exceeds its fair value. There were no impairment charges recognized during any of the periods presented.

Cloud Computing Implementation Costs

The Company enters into cloud computing service contracts to support its sales, inventory management, and administrative activities. The Company capitalizes certain implementation costs for cloud computing arrangements that meet the definition of a service contract. The Company includes these capitalized implementation costs within prepaid expenses and other assets on the Condensed Consolidated Balance Sheets. Once placed in service, the Company amortizes these costs over the remaining subscription term to the same caption on the Condensed Consolidated Statement of Operations as the related cloud subscription. Capitalized implementation costs for cloud computing arrangements accounted for as service contracts were $19.7 million and $16.7 million as of October 31, 2024 and April 30, 2024, respectively. Accumulated amortization of capitalized implementation costs for these arrangements was $1.1 million for the three months ended October 31, 2024 and $48,000 for the same period in the prior year.

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Cash Overdraft

As checks are presented for payment from the Company’s primary disbursement bank account, monies are automatically drawn against cash collections for the day and, if necessary, are drawn against one of the revolving credit facilities. Any cash overdraft balance principally represents outstanding checks, net of any deposits in transit that as of the balance sheet date had not yet been presented for payment, net of any deposits in transit. Any cash overdraft balance is reflected in accrued liabilities on the Company’s Condensed Consolidated Balance Sheets.

Deferred Sales Tax

Deferred sales tax represents a sales tax liability of the Company for vehicles sold on an installment basis in the states of Alabama and Texas. Under Alabama and Texas law for vehicles sold on an installment basis, the related sales tax is due as the payments are collected from the customer, rather than at the time of sale. Deferred sales tax liabilities are reflected in accrued liabilities on the Company’s Condensed Consolidated Balance Sheets.

Income Taxes

Income taxes are accounted for under the liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates expected to apply in the years in which these differences are expected to be recovered or settled. The quarterly provision for income taxes is determined using an estimated annual effective tax rate, which is based on expected annual taxable income, statutory tax rates and the Company’s best estimate of nontaxable and nondeductible items of income and expense. The effective income tax rates were 30.3% and 23.4% for the six months ended October 31, 2024 and October 31, 2023, respectively. Total income tax expense for the six months ended October 31, 2024 differed from amounts computed by applying the United States federal statutory tax rates to pre-tax income primarily due to state income taxes and the impact of permanent differences between book and taxable income. The Company did not record a discrete income tax benefit for the six months ended October 31, 2024 related to excess tax benefits on share-based compensation. The Company recorded a discrete income tax benefit of approximately $213,000 for the six months ended October 31, 2023.

Occasionally, the Company is audited by taxing authorities. These audits could result in proposed assessments of additional taxes. The Company believes that its tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from those of the Company, which could result in the imposition of additional taxes.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies this methodology to all tax positions for which the statute of limitations remains open.

The Company is subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company is no longer subject to U.S. federal, state and local income tax examinations by tax authorities for the years before fiscal 2021.

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 October 31, 2024 or April 30, 2024.

Revenue Recognition

Revenues are generated principally from the sale of used vehicles, which in most cases includes a service contract and an accident protection plan product, as well as interest income and late fees earned on finance receivables. Revenues are net of taxes collected from customers and remitted to government agencies. Cost of vehicle sales include costs incurred by the Company to prepare the vehicle for sale including license and title costs, gasoline, transport services, and repairs.

Revenues from the sale of used vehicles are recognized when the sales contract is signed, the customer has taken possession of the vehicle and, if applicable, financing has been approved. Revenues from the sale of vehicles sold at wholesale are recognized at the time the proceeds are received. As discussed in Change in Accounting Estimate, beginning in the quarter ended October 31, 2024, revenues from the sale of service contracts are recognized ratably over a nine month term for each 12,000 miles. Service contract revenues are included in sales and the related expenses are included in cost of sales. Accident protection plan revenues are initially deferred and then recognized to income using the “Rule of 78’s” interest method over the life of the contract so that revenues are recognized in proportion to the amount of cancellation protection provided. Accident protection plan revenues are included in sales and related losses are included in cost of sales as incurred. Any unearned revenue from ancillary products is charged-off at the time of repossession. Interest income is recognized on all active finance receivables accounts using the simple effective interest method. Active accounts include all accounts except those that have been paid-off or charged-off.

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Sales for the three and six months ended October 31, 2024 and 2023 consisted of the following:

|  | Three Months Ended October 31, |  |  | Six Months Ended October 31, |
(In thousands) |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Sales – used autos |  | $ | 237,787 |  |  | $ | 261,335 |  |  | $ | 489,092 |  |  | $ | 534,803 |
Wholesales – third party |  |  | 9,674 |  |  |  | 11,787 |  |  |  | 19,370 |  |  |  | 22,992 |
Service contract sales |  |  | 29,548 |  |  |  | 17,649 |  |  |  | 46,620 |  |  |  | 33,996 |
Accident protection plan revenue |  |  | 8,765 |  |  |  | 9,629 |  |  |  | 17,940 |  |  |  | 18,946 |
Total |  | $ | 285,774 |  |  | $ | 300,400 |  |  | $ | 573,022 |  |  | $ | 610,737 |

At October 31, 2024 and 2023, finance receivables more than 90 days past due were approximately $6.3 million and $7.4 million, respectively. Late fee revenues totaled approximately $1.3 million and $2.5 million for the three and six months ended October 31, 2024, respectively. Late fee revenues totaled approximately $1.2 million and $2.4 million for the three and six months ended October 31, 2023, respectively. Late fees are recognized when collected and are reflected in interest and other income on the Condensed Consolidated Statements of Operations. The amount of revenue recognized for the six months ended October 31, 2024 that was included in the April 30, 2024 deferred service contract revenue was $22.6 million.

Earnings (Loss) per Share

Basic earnings (loss) per share are computed by dividing net income (loss) attributable to common stockholders by the average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed by dividing net income (loss) attributable to common stockholders by the average number of common shares outstanding during the period plus dilutive common stock equivalents. The calculation of diluted earnings per share takes into consideration the potentially dilutive effect of common stock equivalents, such as outstanding stock options and non-vested restricted stock, which if exercised or converted into common stock would then share in the earnings of the Company. In computing diluted earnings per share, the Company utilizes the treasury stock method and anti-dilutive securities are excluded.

Stock-Based Compensation

The Company recognizes the cost of employee services received in exchange for awards of equity instruments, such as stock options and restricted stock, based on the fair value of those awards at the date of grant over the requisite service period. The Company uses the Black-Scholes option pricing model to determine the fair value of stock option awards. The Company may issue either new shares or treasury shares upon exercise of these awards. Stock-based compensation plans, related expenses, and assumptions used in the Black-Scholes option pricing model are more fully described in Note I. If an award contains a performance condition, expense is recognized only for those shares for which it is considered reasonably probable as of the current period end that the performance condition will be met. The Company accounts for forfeitures as they occur and records any excess tax benefits or deficiencies from its equity awards in its Consolidated Statements of Operations in the reporting period in which the exercise occurs. The Company did not record a discrete income tax benefit for the six months ended October 31, 2024. The Company recorded a discrete income tax benefit of approximately $213,000 for the six months ended October 31, 2023. As a result, the Company’s income tax expenses and associated effective tax rate will be impacted by fluctuations in stock price between the grant dates and exercise dates of equity awards.

Treasury Stock

Treasury stock may be used for issuances under the Company’s stock-based compensation plans or for other general corporate purposes. The Company has a reserve account of 10,000 shares of treasury stock to secure outstanding service contracts issued in Iowa in accordance with the regulatory requirements of that state and another reserve account of 14,000 shares of treasury stock for its subsidiary, ACM Insurance Company, in accordance with the requirements of the Arkansas Department of Insurance.

Recent Accounting Pronouncements

Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies which the Company will adopt as of the specified effective date. Unless otherwise discussed, the Company believes the implementation of recently issued standards which are not yet effective will not have a material impact on its consolidated financial statements upon adoption.

In March 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses. This guidance changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance will affect the Company’s vintage disclosures related to current-period gross write-offs by year of origination for financing receivables. The amendments in this update are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on May 1, 2023 under a prospective basis. In regard to installment sale contract modifications, management notes that the Company primarily modifies a customer’s installment sale contract to allow for insignificant payment delays. This type of modification is generally done to account for payday changes for the customer and minor vehicle repairs.

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In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which sets forth improvements to the current segment disclosure requirements in accordance with Topic 280 “Segment Reporting,” including clarifying that entities with a single reportable segment are subject to both new and existing segment reporting requirements. ASU 2023-07 will be effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Early adoption is permitted. Adoption of this ASU will result in additional disclosure, but will not impact the Company’s consolidated financial position, results of operations or cash flows.

In December 2023, the FASB issued an accounting pronouncement (ASU 2023-09) related to income tax disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We plan to adopt this pronouncement for our fiscal year beginning May 1, 2025, and we do not expect it to have a material effect on our consolidated financial statements.

C – Finance Receivables, Net

The Company originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts, which carry a fixed interest rate of 18.25% for all states except Arkansas (which originate at 16.75%), Illinois (which originate at 19.5% - 21.5%) and acquired dealerships in Tennessee (which originate at up to 23.0%), are collateralized by the vehicle sold and typically provide for payments over periods ranging from 18 to 79 months. The Company’s finance receivables are defined as one segment and one class of contracts, which is sub-prime consumer automobile contracts. The level of risks in the Company’s finance receivables is managed as one homogeneous pool.

The components of finance receivables are as follows:

(In thousands) |  | October 31, 2024 |  |  | April 30, 2024 |
Gross contract amount |  | $ | 1,889,413 |  |  | $ | 1,844,392 |
Less unearned finance charges |  |  | (415,619 | ) |  |  | (409,004 | )
Principal balance |  |  | 1,473,794 |  |  |  | 1,435,388 |
Less: estimated insurance receivables for APP claims |  |  | (2,485 | ) |  |  | (3,026 | )
Less: allowance for APP claims |  |  | (2,651 | ) |  |  | (3,171 | )
Less allowance for credit losses |  |  | (336,693 | ) |  |  | (331,260 | )
Finance receivables, net |  |  | 1,131,965 |  |  |  | 1,097,931 |
Loan origination costs |  |  | 653 |  |  |  | 660 |
Finance receivables, net, including loan origination costs |  | $ | 1,132,618 |  |  | $ | 1,098,591 |

Changes in the finance receivables, net are as follows:

|  | Six Months Ended October 31, |
(In thousands) |  | 2024 |  |  | 2023 |
Balance at beginning of period |  | $ | 1,097,931 |  |  | $ | 1,062,760 |
Finance receivable originations |  |  | 527,487 |  |  |  | 580,082 |
Finance receivable collections |  |  | (224,640 | ) |  |  | (218,208 | )
Provision for credit losses |  |  | (194,945 | ) |  |  | (231,718 | )
Losses on claims for accident protection plan |  |  | (16,797 | ) |  |  | (15,173 | )
Inventory acquired in repossession and accident protection plan claims |  |  | (57,071 | ) |  |  | (73,217 | )
Balance at end of period |  | $ | 1,131,965 |  |  | $ | 1,104,526 |

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Changes in the finance receivables allowance for credit losses are as follows:

|  | Six Months Ended October 31, |
(In thousands) |  | 2024 |  |  | 2023 |
Balance at beginning of period |  | $ | 331,260 |  |  | $ | 299,608 |
Provision for credit losses |  |  | 194,945 |  |  |  | 231,718 |
Charge-offs |  |  | (250,057 | ) |  |  | (255,685 | )
Recovered collateral |  |  | 60,545 |  |  |  | 68,689 |
Balance at end of period |  | $ | 336,693 |  |  | $ | 344,330 |

Amounts recovered from previously written-off accounts were approximately $1.8 million and $1.4 million for the six months ended October 31, 2024 and 2023, respectively. These amounts are netted against recovered collateral in the table above.

The Company reduced the allowance for credit loss in the second quarter of fiscal year 2025 to 24.72% from 25.00% at July 31, 2024, resulting in a decrease of $3.8 million to the provision. The primary driver of this change was favorable performance in loans originated under the loan origination system and the improvements the new system is driving in the Company’s historical loss rates.

The following table presents the finance receivables that are current and past due as follows:

(Dollars in thousands) |  | October 31, 2024 |  |  | April 30, 2024 |  |  | October 31, 2023 |
|  | Principal |  |  | Percent of |  |  | Principal |  |  | Percent of |  |  | Principal |  |  | Percent of |
|  | Balance |  |  | Portfolio |  |  | Balance |  |  | Portfolio |  |  | Balance |  |  | Portfolio |
Current |  | $ | 1,188,852 |  |  |  | 80.66 | % |  | $ | 1,125,945 |  |  |  | 78.44 | % |  | $ | 1,121,215 |  |  |  | 76.62 | %
3 - 29 days past due |  |  | 233,486 |  |  |  | 15.84 | % |  |  | 264,491 |  |  |  | 18.43 | % |  |  | 290,123 |  |  |  | 19.83 | %
30 - 60 days past due |  |  | 35,039 |  |  |  | 2.38 | % |  |  | 34,042 |  |  |  | 2.37 | % |  |  | 37,602 |  |  |  | 2.57 | %
61 - 90 days past due |  |  | 10,083 |  |  |  | 0.68 | % |  |  | 6,438 |  |  |  | 0.45 | % |  |  | 7,068 |  |  |  | 0.48 | %
> 90 days past due |  |  | 6,334 |  |  |  | 0.44 | % |  |  | 4,472 |  |  |  | 0.31 | % |  |  | 7,390 |  |  |  | 0.50 | %
Total |  | $ | 1,473,794 |  |  |  | 100.00 | % |  | $ | 1,435,388 |  |  |  | 100.00 | % |  | $ | 1,463,398 |  |  |  | 100.00 | %

Accounts one and two days past due are considered current for this analysis, due to the varying payment dates and variation in the day of the week at each period end. Delinquencies may vary from period to period based on the average age of the portfolio, seasonality within the calendar year, the day of the week and overall economic factors. The above categories are consistent with internal operational measures used by the Company to monitor credit results.

Substantially all of the Company’s installment sale contracts involve contracts made to individuals with impaired or limited credit histories, or higher debt-to-income ratios than permitted by traditional lenders. Contracts made with buyers who are restricted in their ability to obtain financing from traditional lenders generally entail a higher risk of delinquency, default and repossession, and higher losses than contracts made with buyers with better credit. The Company monitors customer scores, contract term length, payment to income, down payment percentages, and collections for credit quality indicators.

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|  | Six Months Ended October 31, |
|  | 2024 |  |  | 2023 |
Average total collected per active customer per month |  | $ | 561 |  |  | $ | 534 |
Principal collected as a percent of average finance receivables |  |  | 15.4 | % |  |  | 15.2 | %
Average down-payment percentage |  |  | 5.2 | % |  |  | 4.9 | %
Average originating contract term (in months) |  |  | 44.3 |  |  |  | 44.4 |

|  | As of |
|  | October 31, 2024 |  |  | October 31, 2023 |
Portfolio weighted average contract term, including modifications (in months) |  |  | 48.2 |  |  |  | 47.3 |

Total dollars collected per active customer for the six months ended October 31, 2024 increased 5.0% year over year and principal collections as a percentage of average finance receivables increased slightly by 20 basis points compared to the prior year. The average originating contract term was close to flat compared to prior year. The portfolio weighted average contract term increased primarily due to the increased average selling price for the six months ended October 31, 2024, up $736 or 3.9%, from the prior year period.

When customers apply for financing, the Company’s proprietary scoring model relies on the customers’ credit histories and certain application information to evaluate and rank their risk. The Company obtains credit histories and other credit data that includes information such as number of different addresses, age of oldest record, high risk credit activity, job time, time at residence and other factors. The application information that is used includes income, collateral value and down payment. The scoring models yield credit grades that represent the relative likelihood of repayment. Customers with the highest probability of repayment are 6 rated customers. Customers assigned a lower grade are determined to have a lower probability of repayment. For installment sales contracts that are approved, the credit grade influences the terms of the agreement, such as the maximum amount financed, term length and minimum down payment. After origination, credit grades are generally not updated.

The following table presents a summary of finance receivables by credit quality indicator, as of October 31, 2024, segregated by customer score and year of origination.

|  |  | As of October 31, 2024 |
(Dollars in thousands) |  |  | Fiscal Year of Origination |  |  | Prior to |  |  |  |  |  |  |  |  |
Customer Rating |  |  | 2025 |  |  | 2024 |  |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2021 |  |  | Total |  |  | % |
1-2 |  |  | $ | 30,975 |  |  | $ | 27,649 |  |  | $ | 8,152 |  |  | $ | 1,805 |  |  | $ | 133 |  |  | $ | 54 |  |  | $ | 68,768 |  |  |  | 4.7 | %
3-4 |  |  | $ | 171,128 |  |  | $ | 206,403 |  |  | $ | 75,913 |  |  | $ | 19,301 |  |  | $ | 1,836 |  |  | $ | 313 |  |  | $ | 474,894 |  |  |  | 32.2 | %
5-6 |  |  | $ | 269,257 |  |  | $ | 369,298 |  |  | $ | 206,893 |  |  | $ | 73,766 |  |  | $ | 9,949 |  |  | $ | 969 |  |  | $ | 930,132 |  |  |  | 63.1 | %
Total |  |  | $ | 471,360 |  |  | $ | 603,350 |  |  | $ | 290,958 |  |  | $ | 94,872 |  |  | $ | 11,918 |  |  | $ | 1,336 |  |  | $ | 1,473,794 |  |  |  | 100.0 | %
Charge-offs |  |  | $ | 24,742 |  |  | $ | 137,604 |  |  | $ | 66,999 |  |  | $ | 18,381 |  |  | $ | 1,993 |  |  | $ | 338 |  |  | $ | 250,057 |  |  |  |  |

The following table presents a summary of finance receivables by credit quality indicator, as of October 31, 2023, segregated by customer score.

|  |  | As of October 31, 2023 |
(Dollars in thousands) |  |  | Fiscal Year of Origination |  |  | Prior to |  |  |  |  |  |  |  |  |
Customer Rating |  |  | 2024 |  |  | 2023 |  |  | 2022 |  |  | 2021 |  |  | 2020 |  |  | 2020 |  |  | Total |  |  | % |
1-2 |  |  | $ | 26,044 |  |  | $ | 23,346 |  |  | $ | 7,271 |  |  | $ | 1,127 |  |  | $ | 150 |  |  | $ | 13 |  |  | $ | 57,951 |  |  |  | 4.0 | %
3-4 |  |  | $ | 189,850 |  |  | $ | 190,995 |  |  | $ | 64,672 |  |  | $ | 11,479 |  |  | $ | 643 |  |  | $ | 246 |  |  | $ | 457,885 |  |  |  | 31.3 | %
5-6 |  |  | $ | 317,130 |  |  | $ | 411,515 |  |  | $ | 178,564 |  |  | $ | 37,177 |  |  | $ | 2,485 |  |  | $ | 691 |  |  | $ | 947,562 |  |  |  | 64.7 | %
Total |  |  | $ | 533,024 |  |  | $ | 625,856 |  |  | $ | 250,507 |  |  | $ | 49,783 |  |  | $ | 3,278 |  |  | $ | 950 |  |  | $ | 1,463,398 |  |  |  | 100.0 | %
Charge-offs |  |  | $ | 36,228 |  |  | $ | 153,765 |  |  | $ | 54,307 |  |  | $ | 10,301 |  |  | $ | 791 |  |  | $ | 293 |  |  | $ | 255,685 |  |  |  |  |

D – Property and Equipment, Net

A summary of property and equipment is as follows:

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(In thousands) ​​​​​ |  | October 31, 2024 |  |  | April 30, 2024 |
Land |  | $ | 11,998 |  |  | $ | 11,998 |
Buildings and improvements |  |  | 23,473 |  |  |  | 23,435 |
Furniture, fixtures and equipment |  |  | 22,107 |  |  |  | 21,752 |
Leasehold improvements |  |  | 51,011 |  |  |  | 50,689 |
Construction in progress |  |  | 4,241 |  |  |  | 2,393 |
Less accumulated depreciation and amortization |  |  | (53,638 | ) |  |  | (49,906 | )
Total |  | $ | 59,192 |  |  | $ | 60,361 |

E – Accrued Liabilities

A summary of accrued liabilities is as follows:

(In thousands) |  | October 31, 2024 |  |  | April 30, 2024 |
Cash Overdraft |  | $ | 2,897 |  |  | $ | 823 |
Employee compensation |  |  | 9,436 |  |  |  | 10,774 |
Deferred sales tax (see Note B) |  |  | 3,640 |  |  |  | 6,234 |
Fair value of contingent consideration |  |  | 6,536 |  |  |  | 3,193 |
Accrued interest payable |  |  | 2,724 |  |  |  | 2,221 |
Other |  |  | 8,392 |  |  |  | 4,583 |
Total |  | $ | 33,625 |  |  | $ | 27,828 |

F – Debt Facilities

A summary of debt facilities is as follows:

(In thousands) |  | October 31, 2024 |  |  | April 30, 2024 |
Revolving line of credit |  | $ | 108,616 |  |  | $ | 201,743 |
Debt issuance costs |  |  | (1,251 | ) |  |  | (924 | )
Revolving line of credit, net |  | $ | 107,365 |  |  | $ | 200,819 |
Non-recourse notes payable - 2023-1 Issuance |  | $ | 91,665 |  |  | $ | 150,190 |
Non-recourse notes payable - 2023-2 Issuance |  |  | 141,450 |  |  |  | 203,189 |
Non-recourse notes payable - 2024-1 Issuance |  |  | 127,447 |  |  |  | 202,916 |
Non-recourse notes payable - 2024-2 Issuance |  |  | 300,000 |  |  |  | - |
Debt issuance costs - non-recourse notes payable |  |  | (4,148 | ) |  |  | (2,666 | )
Non-recourse notes payable, net |  |  | 656,414 |  |  |  | 553,629 |
Total debt |  | $ | 763,779 |  |  | $ | 754,448 |

Revolving Line of Credit

On September 16, 2024, the Company entered into Amendment No. 8 to its revolving credit facility agreement (the “Amendment”), which, among other things, reduced the total permitted borrowings from $340 million to $320 million and requires the Company to maintain a minimum amount available to be drawn under the credit facilities of $20 million. If the outstanding principal balance under the line of credit equals or exceeds $300 million, the Company will be required to maintain a minimum availability of $50 million. The Amendment also made certain modifications to the fixed charge coverage ratio covenant and restricts the Company from making future repurchases of its common stock, along with the agreement’s existing restrictions on other distributions to the Company’s shareholders. In addition, the Amendment adds Colonial Underwriting, Inc., an Arkansas corporation, as a new guarantor.

At October 31, 2024, the Company and its subsidiaries have $320.0 million of permitted borrowings under the revolving line of credit. The revolving credit facilities are collateralized by finance receivables and inventory, are cross collateralized and contain a guarantee by the Company. Interest is payable monthly under the revolving credit facilities with a scheduled maturity date of September 30, 2025. The current applicable interest rate under the credit facilities is SOFR plus 3.50% or for non-SOFR amounts the base rate of 8.00% plus 1% at October 31, 2024 and April 30, 2024. The credit facilities contain various reporting and performance covenants including (i) maintenance of certain financial ratios and tests, (ii) limitations on borrowings from other sources, (iii) restrictions on certain operating activities and (iv) restrictions on the payment of dividends or distributions (see Note B).

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The Company was in compliance with the covenants at October 31, 2024. The amount available to be drawn under the credit facilities is a function of eligible finance receivables and inventory. Based upon eligible finance receivables and inventory at October 31, 2024, the Company had additional availability of approximately $97.0 million under the revolving credit facilities.

Under the existing terms of the loan and security agreement, as amended, for the revolving credit facility, the facility is scheduled to mature in September 2025. However, discussions are in process for the extension of the revolver, and the Company expects that it will reach agreement on an extension of the credit facility prior to its maturity.

Non-Recourse and Recourse Notes Payable

The Company has issued five separate series of asset-backed non-recourse notes (known as the “2022 Issuance”, “2023-1 Issuance”, “2023-2 Issuance”, “2024-1 Issuance” and “2024-2 Issuance”). All five issuances are collateralized by installment sale contracts directly originated by the Company. Credit enhancement for the non-recourse notes payable consists of overcollateralization, a reserve account funded with an initial amount of not less than 2.0% of the pool balance, excess interest on the auto finance receivables, and in some cases, the subordination of certain payments to noteholders of less senior classes of notes. The timing of principal payments on the non-recourse notes payable is based on the timing of principal collections and defaults on the related auto finance receivables. In December 2023, the Company fully paid off the 2022 Issuance. The debt related to the remaining term securitization transactions accrues interest at fixed rates and has scheduled maturities through January 22, 2030, June 20, 2030, January 21, 2031, and August 20, 2031, respectively, but may be repaid earlier, depending upon collections from the underlying auto finance receivables. The original principal balance and weighted average fixed coupon rate for the four securitizations are as follows:

|  |  | Original Principal Balance (in thousands) |  |  | Weighted Average Fixed Coupon Rate |
2023-1 |  |  | $ | 400,200 |  |  |  | 8.68 | %
2023-2 |  |  |  | 360,300 |  |  |  | 8.80 | %
2024-1 |  |  |  | 250,000 |  |  |  | 9.50 | %
2024-2 |  |  |  | 300,000 |  |  |  | 9.51 | %

On July 12, 2024, the Company’s principal operating subsidiary, America’s Car Mart, Inc., and a newly formed affiliate entered into a loan and security agreement under which the Company’s affiliate borrowed $150 million in funding through an amortizing warehouse loan facility collateralized by installment sale contracts directly originated by the Company’s operating subsidiaries. The Company used the funding from the warehouse loan facility to pay down outstanding amounts borrowed under the Company’s revolving line of credit to fund its finance receivables. The loan and security agreement provided for additional borrowing availability, subject to the terms and conditions of the agreement, and recourse against the Company with respect to up to 10% of the aggregate amount borrowed under the warehouse facility payable. Interest on any outstanding balances accrues at a rate of SOFR plus 350 basis points, with a scheduled maturity date of July 12, 2026. In October 2024, the Company used the proceeds from its 2024-2 Issuance to pay down the outstanding balance under the warehouse loan facility. No debt was outstanding under the warehouse loan facility as of October 31, 2024.

G – Fair Value Measurements

Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.

ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a fair value hierarchy that requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Topic 820 describes three levels of inputs that may be used to measure fair value:

| ● | Level 1 Inputs – Quoted prices in active markets for identical assets or liabilities.

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| ● | Level 2 Inputs – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

| ● | Level 3 Inputs – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Because no market exists for certain of the Company’s financial instruments, fair value estimates are based on judgments and estimates regarding yield expectations of investors, credit risk and other risk characteristics, including interest rate and prepayment risk. These estimates are subjective in nature and involve uncertainties and matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates.

The methodology and assumptions utilized to estimate the fair value of the Company’s financial instruments and other assets are as follows:

Financial Instrument and Other Assets | Valuation Methodology
Cash, cash equivalents, and restricted cash | The carrying amount is considered to be a reasonable estimate of fair value due to the short-term nature of the financial instruments (Level 1).
Repossessed inventory | The fair value approximates wholesale value (Level 1).
Finance receivables, net | The Company estimated the fair value of its receivables at what a third-party purchaser might be willing to pay. The Company has had discussions with third parties and has bought and sold portfolios and has had a third-party appraisal in October 2022 that indicates a range of 34% to 39% discount to face would be a reasonable fair value in a negotiated third-party transaction. The sale of finance receivables from Car-Mart of Arkansas to Colonial is made at a 38.5% discount. For financial reporting purposes these sale transactions are eliminated (Level 2).
Accounts payable | The carrying amount is considered to be a reasonable estimate of fair value due to the short-term nature of the financial instrument (Level 2).
Contingent consideration payable for acquisition | The fair value is based upon inputs from the earn-out projection for the applicable acquisition (Level 2).
Revolving line of credit | The fair value approximates carrying value due to the variable interest rates charged on the borrowings, which reprice frequently (Level 2).
Notes payable | The fair value is based upon inputs derived from prices for similar instruments at period end (Level 2).

The estimated fair values, and related carrying amounts, of the financial instruments and other assets included in the Company’s financial statements at October 31, 2024 and April 30, 2024 are as follows:

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|  | October 31, 2024 |  |  | April 30, 2024 |
(In thousands) |  | Carrying Value |  |  | Fair Value |  |  | Carrying Value |  |  | Fair Value |
Cash and cash equivalents |  | $ | 8,006 |  |  | $ | 8,006 |  |  | $ | 5,522 |  |  | $ | 5,522 |
Restricted cash |  |  | 121,678 |  |  |  | 121,678 |  |  |  | 88,925 |  |  |  | 88,925 |
Inventory - Repossessions |  |  | 18,061 |  |  |  | 18,061 |  |  |  | 18,182 |  |  |  | 18,182 |
Finance receivables, net |  |  | 1,132,618 |  |  |  | 906,383 |  |  |  | 1,098,591 |  |  |  | 882,764 |
Accounts payable |  |  | 34,174 |  |  |  | 34,174 |  |  |  | 21,379 |  |  |  | 21,379 |
Contingent Consideration |  |  | 6,536 |  |  |  | 6,536 |  |  |  | 3,193 |  |  |  | 3,193 |
Revolving line of credit, net |  |  | 107,365 |  |  |  | 107,365 |  |  |  | 200,819 |  |  |  | 200,819 |
Non-recourse notes payable, net |  |  | 656,414 |  |  |  | 669,900 |  |  |  | 553,629 |  |  |  | 553,003 |

H – Weighted Average Shares Outstanding

Weighted average shares of common stock outstanding used in the calculation of basic and diluted earnings per share were as follows:

|  | Three Months Ended October 31, |  |  | Six Months Ended October 31, |
|  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Weighted average shares outstanding-basic |  |  | 8,147,971 |  |  |  | 6,386,208 |  |  |  | 7,272,364 |  |  |  | 6,383,956 |
Dilutive options and restricted stock |  |  | 144,488 |  |  |  | - |  |  |  | 151,572 |  |  |  | - |
Weighted average shares outstanding-diluted |  |  | 8,292,459 |  |  |  | 6,386,208 |  |  |  | 7,423,936 |  |  |  | 6,383,956 |
Antidilutive securities not included: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Options |  |  | 662,667 |  |  |  | 207,500 |  |  |  | 598,717 |  |  |  | 447,500 |
Restricted stock |  |  | 28,395 |  |  |  | 5,033 |  |  |  | 21,286 |  |  |  | 5,033 |

I – Stock-Based Compensation

The Company has stock-based compensation plans available to grant non-qualified stock options, incentive stock options and restricted stock to employees, directors and certain advisors of the Company. The stock-based compensation plans being utilized at October 31, 2024 are the Amended and Restated Stock Option Plan, the Amended and Restated Stock Incentive Plan, and the 2024 Equity Incentive Plan. The 2024 Equity Incentive Plan was approved by the Company’s shareholders and became effective on August 27, 2024. This plan governs all new equity-based awards granted on or after its effective date. The 2024 Equity Incentive Plan includes a reserve of 500,000 shares authorized for issuance of awards under the plan. At October 31, 2024, a total of 449,085 shares remained available for future awards under the 2024 Equity Incentive Plan. The Company recorded total stock-based compensation expense for all plans of approximately $2.7 million ($1.9 million after tax effects) and $1.7 million ($1.3 million after tax effects) for the six months ended October 31, 2024 and 2023, respectively. Tax benefits were recognized for these costs at the Company’s overall effective tax rate, excluding discrete income tax benefits related to excess benefits on share-based compensation.

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Stock Option Awards

The Company has options outstanding under the Amended and Restated Stock Option Plan. The shareholders of the Company approved the Amended and Restated Stock Option Plan (the “Restated Option Plan”) on August 5, 2015, which extended the term of the Stock Option Plan to June 10, 2025 and increased the number of shares of common stock reserved for issuance under the plan by an additional 300,000 shares to 1,800,000 shares. On August 29, 2018, August 26, 2020, and August 30, 2022, the shareholders of the Company approved amendments to the Restated Option Plan increasing the number of shares of common stock reserved for issuance under the plan by an additional 200,000, 200,000, and 185,000 shares, respectively. At October 31, 2024, a total of 408,734 shares of common stock are reserved for issuance of outstanding stock options under the Restated Option plan. Options outstanding under the Restated Option Plan expire in the calendar years 2025 through 2034. As of October 31, 2024, there were 285,433 unvested options under the Company’s Restated Option Plan. No further awards may be granted under the Restated Option Plan.

The 2024 Equity Incentive Plan, which replaced the Restated Option Plan, provides for the grant of options to purchase shares of the Company’s common stock to employees, directors and certain advisors of the Company at a price not less than the fair market value of the stock on the date of grant and for periods not to exceed ten years. As of October 31, 2024, no stock options had been issued under the 2024 Equity Incentive Plan.

|  | Restated Option Plan |  |  | 2024 Equity Incentive Plan |
Minimum exercise price as a percentage of fair market value at date of grant |  |  | 100% |  |  |  | 100% |
Last expiration date for outstanding options |  | May 9, 2034 |  |  |  | N/A |
Shares available for grant at October 31, 2024 |  |  | - |  |  |  | 449,085 |

The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in the table below.

|  | Six Months Ended October 31, |
|  | 2024 |  |  | 2023 |
Expected terms (years) |  |  | 4.9 |  |  |  | 5.5 |
Risk-free interest rate |  |  | 5.13 | % |  |  | 3.66 | %
Volatility |  |  | 60 | % |  |  | 58 | %
Dividend yield |  |  | - |  |  |  | - |

The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of the Company’s common stock. The Company has not historically issued any dividends and does not expect to do so in the foreseeable future.

There were 22,281 and 35,000 options granted during the six months ended October 31, 2024 and 2023 under the Restated Option Plan, respectively. The grant-date fair value of options granted during the six months ended October 31, 2024 and 2023 was $350,000 and $1.5 million, respectively. The options were granted at fair market value on the date of grant.

Stock option compensation expense was $558,000 ($389,000 after tax effects) and $947,000 ($727,000 after tax effects) for the six months ended October 31, 2024 and 2023, respectively. As of October 31, 2024, the Company had approximately $1.5 million of total unrecognized compensation cost related to unvested options that are expected to vest. These unvested outstanding options have a weighted-average remaining vesting period of 1.7 years.

The Company had the following options exercised for the periods indicated. The impact of these cash receipts is included in financing activities in the accompanying Condensed Consolidated Statements of Cash Flows.

|  | Six Months Ended October 31, |
(Dollars in thousands) |  | 2024 |  |  | 2023 |
Options exercised |  |  | - |  |  |  | 30,000 |
Cash received from option exercises |  | $ | - |  |  | $ | - |
Intrinsic value of options exercised |  | $ | - |  |  | $ | 1,036 |

There were no options exercised through net settlements during the six months ended October 31, 2024. During the six months ended October 31, 2023, there were 30,000 options exercised through net settlements in accordance with plan provisions, wherein the shares issued were reduced by 23,507 shares to satisfy the exercise price and applicable withholding taxes to acquire 6,493 shares.

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The aggregate intrinsic value of outstanding options at October 31, 2024 and 2023 was $270,000 and $4.1 million, respectively. As of October 31, 2024, there were 408,734 vested and exercisable stock options outstanding with an aggregate intrinsic value of $270,000, a weighted average remaining contractual life of 4.7 years, and a weighted average exercise price of $77.74.

Restricted Stock Awards

On August 5, 2015, the shareholders of the Company approved the Amended and Restated Stock Incentive Plan (the “Restated Incentive Plan”), which extended the term of the Company’s Stock Incentive Plan to June 10, 2025. On August 29, 2018, the shareholders of the Company approved an amendment to the Restated Stock Incentive Plan that increased the number of shares of common stock that may be issued under the Restated Incentive Plan by 100,000 shares to 450,000 shares. The 2024 Equity Incentive Plan replaced the Restated Incentive Plan. As of August 27, 2024, no further awards may be granted under the Restated Incentive Plan. For shares issued under the Restated Incentive Plan and the 2024 Equity Incentive Plan, the associated compensation expense is generally recognized equally over the vesting periods established at the award date and is subject to the employee’s continued employment by the Company.

There were 67,279 restricted shares granted during the six months ended October 31, 2024 and 5,033 restricted shares granted during the six months ended October 31, 2023. An aggregate of 248,003 unvested restricted shares were outstanding under these incentive plans as of October 31, 2024, with a weighted average grant date fair value of $61.76.

As of October 31, 2024, the Company had approximately $5.6 million of total unrecognized compensation cost related to unvested awards granted under the Restated Incentive Plan and 2024 Equity Incentive Plan, which the Company expects to recognize over a weighted-average remaining period of 2.4 years. The Company recorded compensation cost of approximately $2.2 million ($1.5 million after tax effects) and $767,000 ($589,000 after tax effects) related to the 2024 Equity Incentive Plan and Restated Incentive Plan during the six months ended October 31, 2024 and 2023, respectively.

There were no modifications to any of the Company’s outstanding share-based payment awards during fiscal 2024 or during the first six months of fiscal 2025.

J – Common Stock

On September 20, 2024, the Company completed an underwritten public offering of 1,700,000 shares of its common stock, par value $0.01 per share, at a public offering price of $43.00. Net proceeds from the offering were $68.2 million after deducting underwriting discounts, commissions and offering expenses. Under the terms of the Underwriting Agreement entered into in connection with the offering, the Company granted the underwriter an option (the “Over-allotment Option”), exercisable for 30 days, to purchase up to 255,000 additional shares (the “Option Shares”) at the public offering price, less the underwriting discounts and commissions. On October 22, 2024, the Company completed the sale of 138,272 common stock in connection with the partial exercise by the underwriter of the Over-allotment Option at a public offering price of $43.00 per share. The Company received net proceeds from the offering of the Option Shares of approximately $5.6 million after deducting underwriting discounts and commissions.

As of October 31, 2024, the Company has a total of 8,253,186 shares of its common stock outstanding, compared to 6,394,675 outstanding as of April 30, 2024.

K – Commitments and Contingencies

The Company has entered into operating leases for approximately 87% of its dealership and office facilities. Generally, these leases are for periods of three to five years and usually contain multiple renewal options. The Company uses leasing arrangements to maintain flexibility in its dealership locations and to preserve capital. The Company expects to continue to lease the majority of its dealership and office facilities under arrangements substantially consistent with the past. Rent expense for all operating leases amounted to approximately $5.2 million and $4.5 million for the six-month periods ended October 31, 2024 and 2023, respectively.

Scheduled amounts and timing of cash flows arising from operating lease payments as of October 31, 2024, discounted at the weighted average interest rate in effect as of October 31, 2024 of approximately 4.9%, are as follows:

Maturity of lease liabilities |  |  |  |
2025 (remaining) |  | $ | 5,163 |
2026 |  |  | 9,939 |
2027 |  |  | 9,310 |
2028 |  |  | 8,636 |
2029 |  |  | 7,740 |
Thereafter |  | $ | 48,650 |
Total undiscounted operating lease payments |  |  | 89,438 |
Less: imputed interest |  |  | (20,382 | )
Present value of operating lease liabilities |  | $ | 69,056 |

The Company has two standby letters of credit relating to insurance policies totaling $3.9 million and $2.9 million at October 31, 2024 and 2023, respectively.

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Car-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price. These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these transactions are eliminated in consolidation, and a deferred income tax liability has been recorded for this timing difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection for the Company’s finance receivables and, principally because of certain state apportionment characteristics of Colonial, also has the effect of reducing the Company’s overall effective state income tax rate. The actual interpretation of the regulations is in part a facts and circumstances matter. The Company believes it satisfies the material provisions of the regulations. Failure to satisfy those provisions could result in the 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.

L – Supplemental Cash Flow Information

Supplemental cash flow disclosures are as follows:

|  | Six Months Ended October 31, |
(In thousands) |  | 2024 |  |  | 2023 |
Supplemental disclosures: |  |  |  |  |  |  |  |
Interest paid |  | $ | 35,851 |  |  | $ | 30,467 |
Income taxes (credits) paid, net |  |  | (2,765 | ) |  |  | 1,299 |
Non-cash transactions: |  |  |  |  |  |  |  |
Inventory acquired in repossession and accident protection plan claims |  |  | 57,071 |  |  |  | 69,679 |
Net settlement option exercises |  |  | - |  |  |  | 1,646 |
Right-of-use assets obtained in exchange for operating lease liabilities |  |  | 384 |  |  |  | - |
Right-of-use assets obtained in exchange for operating lease liabilities through acquisitions |  |  | 7,433 |  |  |  | - |

M – Acquisitions

On June 3, 2024, the Company completed its business combination of Texas Auto Center (“TAC”), which includes two dealership locations in Austin and San Marcos, Texas.

The total purchase price of the TAC acquisition was $13.5 million, which included $3.5 million of contingent consideration. The structure of the transaction is consistent with prior transactions whereby the Company did not acquire existing finance receivables and the seller may receive a performance-based earn-out in the future ranging from zero to a maximum of $15 million based on cumulative pre-tax income.

The excess of the purchase price over the preliminary fair values of the net assets acquired was allocated to goodwill, all of which is deductible for tax purposes and represents the future economic benefits expected to arise from anticipated synergies and intangible assets that do not qualify for separate recognition. The Company recorded the preliminary fair values of the assets acquired and liabilities assumed in the TAC acquisition, which resulted in the recognition of: (1) net working capital assumed of $100,000, (2) inventory of $5 million, (3) gross right use of asset and lease liability of $7.4 million and (4) goodwill of $8.5 million.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Company's Condensed Consolidated Financial Statements and notes thereto appearing elsewhere in this report.

Forward-Looking Information

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements address the Company’s future objectives, plans and goals, as well as the Company’s intent, beliefs and current expectations regarding future operating performance, and can generally be identified by words such as “may,” “will,” “should,” “could,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” and other similar words or phrases. Specific events addressed by these forward-looking statements may include, but are not limited to:

| • | operational infrastructure investments;

| • | same dealership sales and revenue growth;

| • | customer growth and engagement;

| • | gross profit margin percentages;

| • | gross profit per retail unit sold;

| • | business acquisitions;

| • | inventory acquisition, reconditioning, transportation and remarketing;

| • | technological investments and initiatives;

| • | future revenue growth;

| • | receivables growth as related to revenue growth;

| • | new dealership openings;

| • | performance of new or existing dealerships;

| • | interest rates;

| • | future credit losses;

| • | the Company’s collection results, including but not limited to collections during income tax refund periods;

| • | future supply, demand and affordability of used vehicles;

| • | availability of used vehicle financing;

| • | seasonality; and

| • | the Company’s business, operating and growth strategies and expectations.

These forward-looking statements are based on the Company’s current estimates and assumptions and involve various risks and uncertainties. As a result, you are cautioned that these forward-looking statements are not guarantees of future performance, and that actual results could differ materially from those projected in these forward-looking statements. Factors that may cause actual results to differ materially from the Company’s projections include those risks described elsewhere in this report and in the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2024, as well as:

| • | general economic conditions in the markets in which the Company operates, including but not limited to fluctuations in gas prices, grocery prices and employment levels and inflationary pressure on operating costs;

| • | the availability of quality used vehicles at prices that will be affordable to our customers, including the impacts of changes in new vehicle production and sales;

| • | the availability of credit facilities and access to capital through securitization financings or other sources on terms acceptable to us, and any increase in the cost of capital, to support the Company’s business;

| • | the Company’s ability to underwrite and collect its contracts effectively, including whether anticipated benefits from the Company’s recently implemented loan origination system are achieved as expected or at all;

| • | competition;

| • | dependence on existing management;

| • | ability to attract, develop, and retain qualified general managers;

| • | changes in consumer finance laws or regulations, including but not limited to rules and regulations that have recently been enacted or could be enacted by federal and state governments;

| • | the ability to keep pace with technological advances and changes in consumer behavior affecting our business;

| • | security breaches, cyber-attacks, or fraudulent activity;

| • | the ability to identify and obtain favorable locations for new or relocated dealerships at reasonable cost;

| • | the ability to successfully identify, complete and integrate new acquisitions;

| • | the occurrence and impact of any adverse weather events or other natural disasters affecting the Company’s dealerships or customers; and

| • | potential business and economic disruptions and uncertainty that may result from any future public health crises and any efforts to mitigate the financial impact and health risks associated with such developments.

The Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers and investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made.

25

Overview

America’s Car-Mart, Inc., a Texas corporation initially formed in 1981 (the “Company”), is one of the largest publicly held automotive retailers in the United States focused exclusively on the “Integrated Auto Sales and Finance” segment of the used car market. The Company’s operations are principally conducted through its two operating subsidiaries, America’s Car Mart, Inc., an Arkansas corporation (“Car-Mart of Arkansas”), and Colonial Auto Finance, Inc., an Arkansas corporation (“Colonial”). References to the Company include the Company’s consolidated subsidiaries. The Company primarily sells older model used vehicles and provides financing for substantially all of its customers. Many of the Company’s customers have limited financial resources and would not qualify for conventional financing as a result of limited credit histories or past credit difficulties. As of October 31, 2024, the Company operated 154 dealerships located primarily in small cities throughout the South-Central United States.

Over the last ten fiscal years, the Company’s revenue growth averaged 11.4%. Revenue for the first six months of fiscal 2025 declined 4.3% compared to the same period of fiscal 2024, primarily due to a 9.3% decrease in retail units sold. The decrease was partially offset by a 3.9% increase in the average retail sales price and a 5.3% increase in interest income. Our dealership volume productivity averaged 30.3 sales per month for the first six months of fiscal 2025, down from 33.4 during the same period last year.

The Company has been focused on improving vehicle quality by bringing lower mileage and on average newer model-year vehicles to our consumers, while balancing this with affordability. The Company believes this will aid in driving down our customers’ vehicle repair costs, reduce our service contract repair expenses, and lead to better recovery values in the event of repossession. When combined with inventory procurement efficiencies, these changes are expected to drive improved customer experience and contribute to better gross margins.

In the fourth quarter of fiscal year 2024, the Company entered into a strategic partnership with a leading automotive services and technology provider, to improve the efficiencies within the Company’s inventory supply chain process. This partnership is allowing the Company to utilize reconditioning and auction facilities, which the Company expects will improve the Company’s vehicle quality.

Over the last five fiscal years, the Company’s provision for credit losses as a percentage of sales averaged 26.36%, with a pre-pandemic rate of 23.71% in fiscal 2019. During fiscal 2024, credit losses exceeded pre-pandemic levels, partially due to the inflationary pressure on customers and increasing interest rates from federal monetary policy. For the first six months of fiscal 2025, the provision for credit losses as a percentage of sales was 34.0% compared to 37.9% for the same period of fiscal 2024 as provision for credit losses decreased 15.9% with lower sales partially offsetting the improvements. Based on the Company’s current analysis of credit losses, the allowance for credit losses at October 31, 2024 was 24.72% of finance receivables, net of deferred revenue and pending APP claims.

The Company’s credit losses and charge-offs are impacted by market and economic factors, including macro-economic conditions such as inflation in the cost of vehicle insurance, rent, groceries, the price of gasoline, childcare, and other staple items, and overall unemployment levels, as well as the personal income levels of the Company’s customers. Historically, credit losses, on a percentage basis, also tend to be higher at new and developing dealerships than at longer tenure locations with experienced management. Generally, this is because the management at new and developing dealerships tends to be less experienced in making credit decisions and collecting customer accounts and the customer base is less seasoned. Normally more mature dealerships have more repeat customers and, on average, repeat customers are a better credit risk than non-repeat customers.

The Company continuously looks for ways to operate more efficiently, improve its business practices and adjust underwriting and collection procedures. 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. Additionally, the Company’s training department continuously strengthens its training for collections. The Company’s collections department and support staff oversee collections and provide timely oversight and additional accountability on a consistent basis. The Company believes that the proper execution of its business practices is the single most important determinant of its long-term credit loss experience.

The Company’s gross profit dollars per retail unit sold increased by $767, or 11.3%, during the first six months of fiscal 2025 compared to the first six months of fiscal 2024, and gross margin as a percentage of sales for the first six months of fiscal 2025 increased to 37.2% of sales, including a 150 bps benefit from the impact of the service contract accounting change in estimate for revenue recognition, from 34.6% in the prior year period. The increase in gross profit dollars per retail unit sold was primarily related to the impact of the accounting change during the second quarter of fiscal year 2025 in the Company’s estimated revenue recognition period for sales of its vehicle service contracts. The Company’s initiatives around pricing discipline, reduced transportation costs and lower vehicle repair costs also contributed to the increase in gross profit dollars. The Company’s gross margin is based upon the cost of the vehicle purchased, with higher-priced vehicles typically having higher gross margin dollars but lower gross margin percentages. Gross margin is also affected by the percentage of wholesale sales to retail sales, which relates, for the most part, to repossessed vehicles sold at or near cost. The Company plans to continue to focus on managing gross margin dollars in the near term, as demonstrated by the increase during the first six months of fiscal year 2025, as well as continuing to focus on improving wholesale results, cost controls, and operational improvement around the acquisition and disposal of vehicles.

26

The Company consistently focuses on collections. Each dealership is responsible for its own collections with supervisory involvement and oversight from the corporate office. Total collections of principal, interest, and late fees for the first six months of fiscal 2025 increased by $12.6 million, or 3.8%, over the prior year period. Principal collections, as a percentage of average finance receivables, increased slightly at 15.4%, compared to 15.2% in the same period in prior year.

Hiring, training and retaining qualified associates is critical to the Company’s success. 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 landscape for hiring remains very competitive. 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.

The Company continues to prioritize investments to improve its products and services and operate more efficiently over time. One of the Company’s largest recent investments has been improving its processes and technology for credit applications and decision-making through a new loan origination system (“LOS”). This online loan application system allows the consumer to apply for credit faster in anticipation of their vehicle purchase, authorize a soft credit pull during the application process, and receive a response via text message on the status of their application, as well as have access to centralized appointment-setting. At the end of October 2024, the Company had implemented the LOS in 145 of its 154 dealerships, with centralized decision-making on approvals of applications submitted via the online platform. The remaining nine dealerships, which were acquired, are still in their earn-out period or have yet to be integrated. Through the LOS, the Company has tightened its credit approval standards, primarily by requiring a higher down payment and shorter terms from certain customers.

27

Three months ended October 31, 2024 vs. Three months ended October 31, 2023

Consolidated Operations

(Operating Statement Dollars in Thousands)

|  |  |  |  |  |  |  |  |  | % Change |  |  | As a % of Sales |
|  | Three Months Ended |  |  | 2024 |  |  | Three Months Ended |
|  | October 31, |  |  | vs. |  |  |  | October 31, |
|  | 2024 |  |  | 2023 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales |  | $ | 285,774 |  |  | $ | 300,400 |  |  |  | (4.9 | )% |  |  | 100.0 | % |  |  | 100.0 | %
Interest income |  |  | 61,495 |  |  |  | 59,382 |  |  |  | 3.6 |  |  |  | 21.5 |  |  |  | 19.8 |
Total |  |  | 347,269 |  |  |  | 359,782 |  |  |  | (3.5 | ) |  |  | 121.5 |  |  |  | 119.8 |
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales, excluding depreciation shown below |  |  | 173,215 |  |  |  | 196,763 |  |  |  | (12.0 | ) |  |  | 60.6 |  |  |  | 65.5 |
Selling, general and administrative |  |  | 47,407 |  |  |  | 44,863 |  |  |  | 5.7 |  |  |  | 16.6 |  |  |  | 14.9 |
Provision for credit losses |  |  | 99,522 |  |  |  | 135,395 |  |  |  | (26.5 | ) |  |  | 34.8 |  |  |  | 45.1 |
Interest expense |  |  | 18,042 |  |  |  | 16,582 |  |  |  | 8.8 |  |  |  | 6.3 |  |  |  | 5.5 |
Depreciation and amortization |  |  | 1,926 |  |  |  | 1,696 |  |  |  | 13.6 |  |  |  | 0.7 |  |  |  | 0.6 |
Loss on disposal of property and equipment |  |  | 41 |  |  |  | 74 |  |  |  | (44.6 | ) |  |  | - |  |  |  | - |
Total |  |  | 340,153 |  |  |  | 395,373 |  |  |  | (14.0 | )% |  |  | 119.0 |  |  |  | 131.6 |
Pretax income (loss) |  | $ | 7,116 |  |  | $ | (35,591 | ) |  |  |  |  |  |  | 2.5 | % |  |  | (11.8 | )%
Operating Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail units sold |  |  | 13,784 |  |  |  | 15,162 |  |  |  |  |  |  |  |  |  |  |  |  |
Average dealerships in operation |  |  | 154 |  |  |  | 154 |  |  |  |  |  |  |  |  |  |  |  |  |
Average units sold per dealership per month |  |  | 29.8 |  |  |  | 32.8 |  |  |  |  |  |  |  |  |  |  |  |  |
Average retail sales price |  | $ | 20,031 |  |  | $ | 19,035 |  |  |  |  |  |  |  |  |  |  |  |  |
Gross profit per retail unit sold |  | $ | 8,166 |  |  | $ | 6,835 |  |  |  |  |  |  |  |  |  |  |  |  |
Same store revenue growth |  |  | (8.4 | )% |  |  | 2.6 | % |  |  |  |  |  |  |  |  |  |  |  |
Period End Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Dealerships open |  |  | 154 |  |  |  | 153 |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts over 30 days past due |  |  | 3.5 | % |  |  | 3.6 | % |  |  |  |  |  |  |  |  |  |  |  |

Revenues decreased by approximately $12.5 million, or 3.5%, for the three months ended October 31, 2024 as compared to the same period in the prior fiscal year. The decrease resulted from a decline in revenue at dealerships that operated a full three months in both the current and prior year quarter ($29.5 million decrease) and by dealerships that were closed during the prior year quarter ($6.2 million decrease), partially offset by revenue growth from dealerships opened or acquired after the prior year quarter ($23.2 million). The decline in revenue was related to a 9.1% decrease in retail units sold, largely reflecting the challenging macroeconomic environment for our customers, partially offset by a 3.6% increase in interest income and a $13.2 million benefit in service contract revenue. The service contract revenue was a result of a performance analysis on the Company’s service contract program resulting in an accounting change in which the Company shortened its estimate for the revenue recognition period to better reflect the actual life of the service contract, which accelerated the Company’s recognition of a portion of its related deferred revenue. . Interest income increased approximately $2.1 million for the three months ended October 31, 2024, as compared to the same period in the prior fiscal year, due to the $8.7 million increase in average finance receivables.

Cost of sales, as a percentage of sales, decreased to 60.6% for the three months ended October 31, 2024 compared to 65.5% for the same period of the prior fiscal year, resulting in a gross margin as a percentage of sales of 39.4% for the current year period, including 2.9% from the impact of the service contract accounting change in estimate for revenue recognition, compared to 34.5% for the prior year period. The additional improvement in gross margin outside of the service contract adjustment resulted from better procurement processes and operational efficiencies.

28

Gross margin as a percentage of sales is significantly impacted by the average retail sales price of the vehicles the Company sells, which is largely a function of the Company’s purchase cost and includes the price of ancillary products sold with the vehicle, such as the APP and vehicle repair plans. As purchase costs increase, the margin between the purchase cost and the sales price of the vehicles the Company sells generally narrows on a percentage basis because the Company must offer affordable prices to its customers. The average retail sales price for the second quarter of fiscal 2025 was $20,031, a $996 increase over the prior year quarter. However, this increase was due to the $13.2 million benefit as a result of the service contract accounting change in estimate for revenue recognition, rather than as a result of purchase cost increases. The Company continues to focus on gross margin improvement through pricing discipline, reduced transportation costs and lower vehicle repair costs.

Selling, general and administrative expenses, as a percentage of sales, were 16.6% for the three months ended October 31, 2024, an increase of 5.7% from the same period of the prior fiscal year. Selling, general and administrative expenses are, for the most part, more fixed in nature. In dollar terms, overall selling, general and administrative expenses increased approximately $2.5 million in the second quarter of fiscal 2025 compared to the same period of the prior fiscal year. The Company’s two most recent acquisitions drove $2.1 million of the increase with the remainder related to stock compensation expense increases. The Company continued to have favorable declines in payroll and related costs as a result of prior cost cutting measures.

Provision for credit losses as a percentage of sales was 34.8% for the three months ended October 31, 2024 compared to 45.1% for the prior year period. In overall dollars, the provision for credit losses decreased $35.9 million in the second quarter of fiscal 2025 compared to the same period of the prior fiscal year due to the improved experience of contracts underwritten in the Company’s new loan origination system. On a percentage of sales basis, the decrease in the provision was partially offset by a decrease in sales of $14.6 million compared to the prior year period.

Interest expense as a percentage of sales increased to 6.3% for the three months ended October 31, 2024, compared to 5.5% for the prior year period. In dollar terms, interest expense increased $1.5 million due to increasing interest rates and an increase in the average borrowings of approximately $13.3 million during the three-month period ended October 31, 2024.

29

Six months ended October 31, 2024 vs. Six months ended October 31, 2023

Consolidated Operations

(Operating Statement Dollars in Thousands)

|  |  |  |  |  |  |  |  |  | % Change |  |  | As a % of Sales |
|  | Six Months Ended |  |  | 2024 |  |  | Six Months Ended |
|  | October 31, |  |  | vs. |  |  | October 31, |
|  | 2024 |  |  | 2023 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales |  | $ | 573,022 |  |  | $ | 610,737 |  |  |  | (6.2 | )% |  |  | 100.0 | % |  |  | 100.0 | %
Interest income |  |  | 122,010 |  |  |  | 115,838 |  |  |  | 5.3 |  |  |  | 21.3 |  |  |  | 19.0 |
Total |  |  | 695,032 |  |  |  | 726,575 |  |  |  | (4.3 | ) |  |  | 121.3 |  |  |  | 119.0 |
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales, excluding depreciation shown below |  |  | 359,785 |  |  |  | 399,410 |  |  |  | (9.9 | ) |  |  | 62.8 |  |  |  | 65.4 |
Selling, general and administrative |  |  | 94,118 |  |  |  | 91,333 |  |  |  | 3.0 |  |  |  | 16.4 |  |  |  | 15.0 |
Provision for credit losses |  |  | 194,945 |  |  |  | 231,718 |  |  |  | (15.9 | ) |  |  | 34.0 |  |  |  | 37.9 |
Interest expense |  |  | 36,354 |  |  |  | 30,856 |  |  |  | 17.8 |  |  |  | 6.3 |  |  |  | 5.1 |
Depreciation and amortization |  |  | 3,810 |  |  |  | 3,389 |  |  |  | 12.4 |  |  |  | 0.7 |  |  |  | 0.6 |
Loss (gain) on disposal of property and equipment |  |  | 87 |  |  |  | 240 |  |  |  | (63.8 | ) |  |  | - |  |  |  | - |
Total |  |  | 689,099 |  |  |  | 756,946 |  |  |  | (9.0 | )% |  |  | 120.2 |  |  |  | 124.0 |
Pretax loss |  | $ | 5,933 |  |  | $ | (30,371 | ) |  |  |  |  |  |  | 1.0 | % |  |  | (5.0 | )%
Operating Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retail units sold |  |  | 28,175 |  |  |  | 31,074 |  |  |  |  |  |  |  |  |  |  |  |  |
Average stores in operation |  |  | 155 |  |  |  | 155 |  |  |  |  |  |  |  |  |  |  |  |  |
Average units sold per store per month |  |  | 30.3 |  |  |  | 33.4 |  |  |  |  |  |  |  |  |  |  |  |  |
Average retail sales price |  | $ | 19,650 |  |  | $ | 18,914 |  |  |  |  |  |  |  |  |  |  |  |  |
Gross profit per retail unit |  | $ | 7,568 |  |  | $ | 6,801 |  |  |  |  |  |  |  |  |  |  |  |  |
Same store revenue change |  |  | (8.2% | ) |  |  | 5.4 | % |  |  |  |  |  |  |  |  |  |  |  |
Period End Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stores open |  |  | 154 |  |  |  | 153 |  |  |  |  |  |  |  |  |  |  |  |  |
Accounts over 30 days past due |  |  | 3.5 | % |  |  | 3.6 | % |  |  |  |  |  |  |  |  |  |  |  |

Revenues decreased by approximately $31.5 million, or 4.3%, for the six months ended October 31, 2024 as compared to the same period in the prior fiscal year. The decrease resulted from a decline in revenue at dealerships that operated a full six months in both the current and prior year quarter ($58.5 million decrease) and by dealerships that were closed during the prior year six-month period ($12.1 million decrease); partially offset by revenue growth from dealerships opened or acquired after the prior year six-months ($39.1 million). Revenue decline was primarily related to a 9.3% decrease in retail units sold, partially offset by a 21.3% increase in interest income and a 3.9% increase in the average retail sales price. Interest income increased approximately $6.2 million for the six months ended October 31, 2024, as compared to the same period in the prior fiscal year, due to the $27.5 million increase in average finance receivables.

Cost of sales, as a percentage of sales, decreased to 62.8% for the six months ended October 31, 2024 compared to 65.4% for the same period of the prior fiscal year, resulting in a gross margin as a percentage of sales of 37.2% for the current year period, including 1.5% from the impact of the service contract accounting change in estimate for revenue recognition, compared to 34.6% for the prior year period. The primary driver of this cost of sales decrease was the Company’s continued focus on inventory efficiencies in procurement, remarketing, and repairs. The average retail sales price for the six months ended October 31, 2024 was $19,650, an increase of $736 or 3.9% over the prior year period. However, this increase was primarily due to the $13.2 million benefit in the second quarter of fiscal year 2025 as a result of the service contract accounting change in estimate for revenue recognition, rather than as a result of purchase cost increases.

Selling, general and administrative expenses, as a percentage of sales, were 16.4% for the six months ended October 31, 2024, an increase of 3.0% from the same period of the prior fiscal year. In dollar terms, overall selling, general and administrative expenses increased approximately $2.8 million in the six months ended October 31, 2024, compared to the same period of the prior fiscal year. The Company has made increasing investments in several areas including senior management, inventory procurement and management, customer experience and digital efforts. Increased collections costs due primarily to the higher frequency of repossessions, the addition of new dealerships through acquisitions since last year and the continuing impact of general inflation contributed to the remaining increase. The Company continues to focus on controlling costs, while at the same time ensuring a solid infrastructure to support a growing customer base with a high level of support for its customers.

30

Provision for credit losses as a percentage of sales was 34.0% for the six months ended October 31, 2024 compared to 37.9% for the six months ended October 31, 2023. Net charge-offs as a percentage of average finance receivables were 13.0% for the six months ended October 31, 2024 and 13.1% for the prior year period. The decrease in the provision is largely attributable to improvements in the frequency of losses, partially offset by a small increase in the severity of loss. The allowance for credit losses as a percentage of finance receivables, net of deferred revenue and pending accident protection plan claims was 24.72% at October 31, 2024 compared to 26.04% at October 31, 2023 and 25.00% at July 31, 2024. The Company decreased the allowance for credit losses rate from 25.00% to 24.72%, sequentially, resulting in a $3.8 million change to the provision for credit losses.

Interest expense as a percentage of sales increased to 6.3% for the six months ended October 31, 2024, compared to 5.1% for the prior year period. In dollar terms, interest expense increased $5.5 million due to increasing interest rates and an increase in the average borrowings of approximately $52.5 million during the six-month period ended October 31, 2024. Approximately 60% of the increase in interest expense was related to the increase in rates over the same period of the prior fiscal year.

Financial Condition

The following table sets forth the major balance sheet accounts of the Company as of the dates specified (in thousands):

|  | October 31, 2024 |  |  | April 30, 2024 |
Assets: |  |  |  |  |  |  |  |
Finance receivables, net |  | $ | 1,132,618 |  |  | $ | 1,098,591 |
Inventory |  |  | 122,102 |  |  |  | 107,470 |
Income tax receivable, net |  |  | - |  |  |  | 2,958 |
Property and equipment, net |  |  | 59,192 |  |  |  | 60,361 |
Liabilities: |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  |  | 67,799 |  |  |  | 49,207 |
Deferred revenue |  |  | 106,601 |  |  |  | 120,781 |
Income tax payable, net |  |  | 1,563 |  |  |  | - |
Deferred tax liabilities, net |  |  | 12,313 |  |  |  | 17,808 |
Notes payable, net |  |  | 656,414 |  |  |  | 553,629 |
Revolving line of credit, net |  |  | 107,365 |  |  |  | 200,819 |

Finance receivables, net, have increased 3.1% and 2.5% since April 30, 2024 and October 31, 2023, respectively, while revenues decreased 4.3% for the six months ended October 31, 2024 compared to the same period in the prior fiscal year. The Company currently anticipates 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 sale contracts, partially offset by improvements in underwriting and collection procedures in an effort to reduce credit losses.

During the first six months of fiscal 2025, inventory increased by $14.6 million compared to inventory at April 30, 2024, primarily due to the most recent acquisition which added $5.0 million to the inventory balance. Annualized inventory turns decreased for the current year quarter at 6.0 versus the prior year’s second quarter at 7.1. The Company strives to improve the quality of the inventory and maintain adequate turns while maintaining inventory levels to ensure an adequate supply of vehicles in volume and mix, and to meet sales demand.

Property and equipment, net, decreased by $1.2 million at October 31, 2024 as compared to property and equipment, net, at April 30, 2024. The Company incurred $2.3 million in expenditures during the first six months of fiscal 2025 primarily related to remodeling existing locations in order to support growth. The Company incurred $3.8 million in depreciation and amortization expense during the first six months of fiscal 2025.

Accounts payable and accrued liabilities increased by $18.6 million during the first six months of fiscal 2025 as compared to accounts payable and accrued liabilities at April 30, 2024, related primarily to invoice management, vendor efficiencies and the timing of cash overdrafts for outstanding deposits at the end of the month.

The Company had $1.6 million of income taxes payable, net at October 31, 2024 compared to $3.0 million of income taxes receivable, net at April 30, 2024. The change from income taxes receivable at April 30, 2024 to income taxes payable at October 31, 2024 was primarily due to a reduction in the credit loss provision and in increase in revenue recognized for the ancillary products due to a change in estimate during the second quarter of fiscal 2025.

31

Deferred revenue decreased $14.2 million at October 31, 2024 as compared to April 30, 2024, primarily resulting from the $13.2 million benefit in service contract revenue which was a result of the service contract accounting change in the Company’s estimate for the applicable revenue recognition period.

Deferred income tax liabilities, net, decreased approximately $5.5 million at October 31, 2024 as compared to April 30, 2024, primarily due to a net operating loss carryforward for the six months ended October 31, 2024.

The Company had $656.4 million and $553.6 million of notes payable outstanding related to asset-backed term funding transactions as of October 31, 2024 and April 30, 2024, respectively. These non-recourse notes issued by the Company accrue interest at fixed rates with a weighted average rate of 9.1% as of October 31, 2024. . The Company completed its most recent issuance of asset-backed term funding on October 9, 2024, and used the proceeds of the issuance to pay down existing debt, including the $150 million balance borrowed under the Company’s warehouse loan facility. Prior to the repayment of the warehouse loan facility, the funds borrowed under the facility accrued interest at a rate equal to the term SOFR plus 350 basis points. See Note F for further details on the non-recourse notes payable, warehouse loan facility and the revolving line of credit.

On September 20, 2024, the Company completed an underwritten public offering of 1,700,000 shares of common stock at a price per share of $43.00. The net proceeds of the public offering were approximately $68.2 million after deducting the underwriting discount and offering costs of approximately $4.9 million. Under the terms of the Underwriting Agreement entered into in connection with the offering, on October 22, 2024, the Company completed the sale of an additional 138,272 common stock at a price of $43.00 per share, in connection with a partial exercise by the underwriter of an option (the “Over-Allotment Option”) granted in the Underwriting Agreement for the underwriters to purchase up to 255,000 additional shares at the public offering price to cover over-allotments. The net proceeds to the Company of the underwriter’s partial exercise of the Over-Allotment Option were approximately $5.6 million after deducting the underwriting discount and offering costs of approximately $346,000. The Company used the net proceeds from this offering to pay down a portion of the Company’s revolving line of credit.

Borrowings on the Company’s revolving credit facilities fluctuate based upon a number of factors including (i) net income, (ii) finance receivables changes, (iii) funds available from asset-backed securitization offerings, warehouse facilities and/or other capital financing sources, (iv) income taxes, and (v) capital expenditures. Historically, income from operations, as well as borrowings on the revolving credit facilities and securitized debt, have funded the Company’s finance receivables growth and capital asset purchases and, as applicable, common stock repurchases The overall increase in total borrowings during the first six months of fiscal 2025 was made to support an increase in finance receivables, with longer terms, and a growing customer base. During the first six months of fiscal 2025, the Company funded finance receivables growth of $34.0 million, increased inventory by $14.6 million, invested $13.5 million in dealership acquisitions, and reduced fixed assets by $1.2 million, with income from operations, increased total debt of $9.3 million, and the use of $25.9 million in cash available at April 30, 2024. The proceeds from the Company’s common stock offering during the second quarter substantially offset the increase in total debt for the first six months of 2025.

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Liquidity and Capital Resources

The following table sets forth certain summarized historical information with respect to the Company’s Condensed Consolidated Statements of Cash Flows (in thousands):

|  | Six Months Ended October 31, |
|  | 2024 |  |  | 2023 |
Operating activities: |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 4,135 |  |  | $ | (23,277 | )
Provision for credit losses |  |  | 194,945 |  |  |  | 231,718 |
Losses on claims for accident protection plan |  |  | 16,797 |  |  |  | 15,173 |
Depreciation and amortization |  |  | 3,810 |  |  |  | 3,389 |
Stock based compensation |  |  | 5,243 |  |  |  | 1,739 |
Finance receivable originations |  |  | (527,487 | ) |  |  | (580,082 | )
Finance receivable collections |  |  | 224,640 |  |  |  | 218,208 |
Inventory |  |  | 48,141 |  |  |  | 65,123 |
Accounts payable and accrued liabilities |  |  | 10,047 |  |  |  | (4,317 | )
Deferred accident protection plan revenue |  |  | (880 | ) |  |  | 1,306 |
Deferred service contract revenue |  |  | (13,300 | ) |  |  | 4,042 |
Income taxes, net |  |  | 4,521 |  |  |  | 5,644 |
Deferred income taxes |  |  | (5,495 | ) |  |  | (14,249 | )
Accrued interest on finance receivables |  |  | (666 | ) |  |  | (1,248 | )
Other |  |  | (1,657 | ) |  |  | 701 |
Total |  |  | (37,206 | ) |  |  | (76,130 | )
Investing activities: |  |  |  |  |  |  |  |
Acquisition |  |  | (7,527 | ) |  |  | - |
Purchase of property and equipment |  |  | (2,338 | ) |  |  | (2,149 | )
Other |  |  | 24 |  |  |  | 561 |
Total |  |  | (9,841 | ) |  |  | (1,588 | )
Financing activities: |  |  |  |  |  |  |  |
Revolving credit facilities, net |  |  | (93,127 | ) |  |  | (2,153 | )
Notes payable, net |  |  | 104,267 |  |  |  | 109,405 |
Change in cash overdrafts |  |  | 2 ,074 |  |  |  | 1,416 |
Debt issuance costs |  |  | (4,467 | ) |  |  | (4,091 | )
Purchase of common stock |  |  | (412 | ) |  |  | (68 | )
Dividend payments |  |  | (20 | ) |  |  | (20 | )
Exercise of stock options and issuance of common stock |  |  | 73,969 |  |  |  | (312 | )
Total |  |  | 82,284 |  |  |  | 104,177 |
Increase in cash |  | $ | 35,237 |  |  | $ | 26,459 |

The primary drivers of cash flows include (i) top line sales, (ii) interest income on finance receivables, (iii) gross margin percentages on vehicle sales, and (iv) credit losses, a significant portion of which relates to the collection of principal on finance receivables. Historically, most or all of the cash generated from operations has been used to fund finance receivables growth, capital expenditures, and as applicable, common stock repurchases. To the extent finance receivables growth, capital expenditures and common stock repurchases have exceeded income from operations, the Company has increased borrowings under our revolving credit facilities and secured additional funding through the issuance of asset-backed non-recourse notes.

Cash flows used in operating activities for the six months ended October 31, 2024 compared to the same period in the prior fiscal year decreased primarily as a result of a decrease in finance receivable originations, an increase in finance receivable collections, and an increase in accounts payable and accrued liabilities. Finance receivables, net, increased by $34.0 million from April 30, 2024 to October 31, 2024.

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The purchase price the Company pays for a vehicle has a significant effect on liquidity and capital resources. Because the Company bases its selling price on the purchase cost for the vehicle, increases in purchase costs result in higher selling prices. As the selling price increases, it generally becomes more difficult to keep the gross margin percentage and contract term in line with historical results because the Company’s customers have limited incomes and their vehicle payments must remain affordable within their individual budgets. Several external factors can negatively affect the purchase cost of vehicles. Decreases in the overall volume of new vehicle sales, particularly domestic brands, lead to decreased supply in the used vehicle market. Also, constrictions in consumer credit, as well as general economic conditions, can increase overall demand for the types of vehicles the Company purchases for resale as used vehicles become more attractive than new vehicles in times of economic instability. A negative shift in used vehicle supply, combined with strong demand for used vehicles, results in increased used vehicle prices and thus higher purchase costs for the Company.

Sustained macro-economic pressures affecting our customers have helped keep demand high in recent years for the types of vehicles we purchase. This strong demand for used vehicles, coupled with modest levels of new vehicle sales in recent years, have led to a generally ongoing tight supply of used vehicles available to the Company in both quality and quantity. Wholesale prices continue to soften in calendar year 2024 but remain high compared to the last several years. The Company expects the tight used vehicle supply and strong demand for the types of vehicles we purchase to continue to keep purchase costs and resulting sales prices elevated for the short-term, but anticipates that an increase in marketplace wages for our customers could enhance affordability.

The Company has devoted significant efforts to improving its purchasing processes to ensure adequate supply at appropriate prices which includes the new partnership with an industry leader, expanding its purchasing territories to larger cities in close proximity to its dealerships and forming relationships with reconditioning partners to reduce purchasing costs. 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.

The Company’s liquidity is also impacted by our credit losses. Macro-economic factors such as unemployment levels and general inflation on core and discretionary items 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 childcare, insurance, groceries and gasoline, it may impact our customers’ ability to make their vehicle payments. The Company has made improvements to its business processes via the implementation of the loan origination system during the last two years to strengthen controls and provide stronger infrastructure to support its collections efforts. 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 business model relies on leasing the majority of the properties where its dealerships are located. As of October 31, 2024, the Company leased approximately 87% of its dealership properties. The Company expects to continue to lease the majority of the properties where its dealerships are located.

The Company’s principal sources of liquidity include income from operations, proceeds from non-recourse notes payable issued under asset-back securitization transactions, warehouse facilities, borrowings under its revolving credit facilities, and other potential debt or equity financing sources. At October 31, 2024, the Company had approximately $8.0 million of cash on hand and approximately an additional $97.0 million of availability under its revolving credit facilities (see Note F to the Condensed Consolidated Financial Statements). The revolving credit facility has a scheduled maturity date of September 30, 2025, with total permitted borrowings of $320 million at October 31, 2024. In July 2024, the Company entered into Amendment No. 7 to its revolving credit agreement to allow for, among other things, the entry into an amortizing warehouse agreement and to amend the fixed charge coverage ratio under the credit agreement. On September 16, 2024, the Company entered into Amendment No. 8 to its revolving credit agreement that, among other things, reduces the total permitted borrowings under the revolving line of credit by $20 million to $320 million. Under the amendment, the Company is required to maintain a minimum amount available to be drawn under the credit facilities, based on eligible finance receivables and inventory, of $20 million. If the outstanding principal balance under the line of credit equals or exceeds $300 million, the Company will be required to maintain a minimum availability of $50 million. The amendment also required the Company to use the net proceeds of any junior capital raise of $50 million or more to pay down the then outstanding principal balance of the line of credit. The Company used the $73.8 million in aggregate net proceeds from its underwritten public common stock offering completed during the second quarter of fiscal year 2025 to pay down a portion of the outstanding balance of the line of credit. The amendment also made certain modifications to the fixed charge coverage ratio covenant under the credit agreement and restricts the Company from making future repurchases of its common stock, along with the agreement’s existing restrictions on other distributions to the Company’s shareholders. Thus, the Company is limited in its ability to pay dividends or make other distributions to its shareholders without the consent of the Company’s lenders.

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In July 2024, the Company entered into a $150 million amortizing warehouse agreement backed by a portion of its finance receivables. The warehouse facility accrued interest at a rate of SOFR plus 350 basis points, with payments of principal and interest due monthly and a scheduled maturity date of July 12, 2026. The Company primarily used the funds from the warehouse facility to pay down the current revolving loan balance. On September 16, 2024, the Company entered into an amendment to the warehouse agreement that amends the fixed charge coverage ratio covenant consistent with Amendment No. 8 to the revolving credit agreement and modifies certain other financial covenants under the warehouse agreement. In October 2024, the Company used the proceeds from its most recent asset-back term securitization funding to pay down the outstanding balance under the warehouse loan facility. No debt was outstanding under the warehouse loan facility as of October 31, 2024.

The Company expects to use cash from operations and other financing sources to (i) pay down the outstanding principal balance of the revolving line of credit, (ii) grow its finance receivables portfolio, (iii) purchase fixed assets of approximately $8 million in the next 12 months as we complete facility updates and general fixed asset requirements, (iv) fund dealership acquisitions as opportunities arise on terms acceptable to the Company, and (v) reduce the Company’s remaining debt to the extent excess cash is available.

The Company believes it will have adequate liquidity to continue to grow its revenues and to satisfy its capital needs for at least one year from the financial statement issuance date through expected financing sources such as additional securitized borrowings or public registered offerings.

Off-Balance Sheet Arrangements

The Company has two standby letters of credit relating to insurance policies totaling $3.9 million at October 31, 2024.

Other than its letters of credit, the Company is not a party to any off-balance sheet arrangement that management believes is reasonably likely to have a current or future effect on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Related Finance Company Contingency

Car-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price. These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these transactions are eliminated in consolidation and a deferred income tax liability has been recorded for this timing difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection for the Company’s finance receivables and, principally because of certain state apportionment characteristics of Colonial, also has the effect of reducing the Company’s overall effective state income tax rate by approximately 250 basis points. The actual interpretation of the Regulations is in part a facts and circumstances matter. The Company believes it satisfies the material provisions of the Regulations. Failure to satisfy those provisions could result in the 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’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 October 31, 2024.

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Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the Company’s estimates. The Company believes the most significant estimate made in the preparation of the accompanying Condensed Consolidated Financial Statements relates to the determination of its allowance for credit losses, which is discussed below. The Company’s accounting policies are discussed in Note B to the Condensed Consolidated Financial Statements.

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 October 31, 2024, the weighted average contract term was 48.2 months with 35.9 months remaining. The allowance for credit losses at October 31, 2024 of $336.7 million, was 27.42% of the principal balance in finance receivables of $1.5 billion, less unearned accident protection plan revenue of $51.0 million and unearned service contract revenue of $55.6 million, less APP claims of $5.3 million.

The allowance for credit losses is a critical accounting estimate for the following reasons:

| ● | estimates relating to the allowance for credit losses require management to project future loan performance, including cash flows, prepayments, and charge-offs;

| ● | the allowance for credit losses is influenced by factors outside of management’s control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions including, but not limited to, inflation; and

| ● | judgment is required to determine whether the model used to generate the allowance for credit losses produces results that appropriately reflect a current estimate of lifetime expected credit losses.

Because management’s estimate of the allowance for credit losses involves a high degree of judgment, such as the subjectivity of the assumptions used, there is uncertainty inherent in such estimates. Changes in these estimates could significantly impact the allowance and provision for credit losses.

Recent Accounting Pronouncements

Occasionally, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard-setting bodies, which the Company will adopt as of the specified effective date. Unless otherwise discussed, the Company believes the implementation of recently issued standards which are not yet effective will not have a material impact on its consolidated financial statements upon adoption.

In March 2022, the FASB issued Accounting Standards Update (“ASU”) 2022-02, Financial Instruments – Credit Losses. The guidance changes the methodology for measuring credit losses on financial instruments and the timing of when such losses are recorded. This guidance will affect the Company’s vintage disclosures related to current-period gross write-offs by year of origination for financing receivables. The amendments in this update are effective for fiscal years beginning after December 15, 2022. The Company adopted this standard on May 1, 2023, under a prospective basis. In regard to installment sale contract modifications, management notes that the Company primarily modifies a customer’s installment sale contract to allow for insignificant payment delays. This type of modification is generally done to account for payday changes for the customer and minor vehicle repairs.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which sets forth improvements to the current segment disclosure requirements in accordance with Topic 280 “Segment Reporting,” including clarifying that entities with a single reportable segment are subject to both new and existing segment reporting requirements. ASU 2023-07 will be effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Early adoption is permitted. Adoption of this ASU will result in additional disclosure, but will not impact the Company’s consolidated financial position, results of operations or cash flows.

In December 2023, the FASB issued an accounting pronouncement (ASU 2023-09) related to income tax disclosures. The amendments in this update are intended to enhance the transparency and decision usefulness of income tax disclosures primarily through changes to the rate reconciliation and income taxes paid information. This update is effective for annual periods beginning after December 15, 2024, though early adoption is permitted. We plan to adopt this pronouncement for our fiscal year beginning May 1, 2025, and we do not expect it to have a material effect on our consolidated financial statements.

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Seasonality

Historically, the Company’s third fiscal quarter (November through January) has been the slowest period for vehicle sales. 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.

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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is exposed to market risk on its financial instruments from changes in interest rates. In particular, the Company has historically had exposure to changes in the federal primary credit rate and has exposure to changes in the prime interest rate of its lender. The Company does not use financial instruments for trading purposes but has in the past entered into an interest rate swap agreement to manage interest rate risk.

Interest rate risk. The Company’s exposure to changes in interest rates relates primarily to its debt obligations. 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 $107.4 million at October 31, 2024. The impact of a 1% increase in interest rates would result in increased annual interest expense of approximately $10.7 million and a corresponding decrease in net income before income tax.

The Company’s earnings are impacted by its net interest income, which is the difference between the income earned on interest-bearing assets and the interest paid on interest-bearing notes payable. The Company’s finance receivables carry a fixed annual interest rate based on the Company’s contract interest rate as of the origination date of the installment sales contract, while its revolving credit facilities contain variable interest rates that fluctuate with market interest rates. During the third quarter of fiscal 2024, the Company increased the interest rate by 0.25%. The Company’s finance receivables now carry a fixed annual interest rate of 18.25% (up from 18.0%) for all states, except Arkansas at 16.75% (which is subject to a usury cap of 17.0%), Illinois (remains at 19.5% – 21.5%), and acquired dealerships in Tennessee (which originate at up to 23.0%). The interest rate on the Company’s revolving credit facilities is generally SOFR plus 3.50%, or for non-SOFR amounts the base rate of 8.00% plus 1% at October 31, 2024.

Item 4. Controls and Procedures

| a) | Evaluation of Disclosure Controls and Procedures

Management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of October 31, 2024. Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of October 31, 2024. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure.

| b) | Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the three month period ending October 31, 2024 that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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Part II. OTHER INFORMATION

Item 1. Legal Proceedings

In the ordinary course of business, the Company has become a defendant in various types of legal proceedings. While the outcome of these proceedings cannot be predicted with certainty, the Company does not expect the final outcome of any of these proceedings, individually or in the aggregate, to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Item 1A. Risk Factors

Except as set forth below, there have been no material changes to the Company’s risk factors as previously disclosed in Item 1A to Part I of the Company’s Form 10-K for the fiscal year ended April 30, 2024.

The coming maturity of the Company’s revolving line of credit in September 2025 could adversely affect our business.

The Company currently maintains a revolving line of credit with a group of lenders that permits the Company to borrow up to an aggregate of $320 million, which the Company has historically used to finance a portion of its finance receivables growth. Under the existing terms of the loan and security agreement, as amended, for the revolving credit facility, the facility is scheduled to mature in September 2025. The Company has initiated discussions with the lending group to begin the process for the extension of the revolver, and the Company expects that it will reach agreement on an extension given the Company’s strong relationship with the lending group and the history of prior extensions of the credit facility. However, if the Company is unable to secure an extension of the revolving line of credit prior to its maturity date on terms that are acceptable to the Company, or at all, this could materially and adversely affect our ability to achieve our planned growth and operating results. Our ability to extend the revolver will depend upon market conditions, our financial condition and the willingness of financing sources to make capital available to us at acceptable rates and terms. The inability to extend the revolving line of credit at acceptable rates and terms could restrict or limit our ability to achieve our growth objectives, which could adversely affect our financial condition and results of operations and would require us to rely on other sources of financing, such as additional asset-backed term securitizations, warehouse loan agreements or a new revolving line of credit with other lenders. We cannot assure that we would be able to secure such other sources of financing at acceptable rates and terms to the Company or at all.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company is authorized to repurchase shares of its common stock under its common stock repurchase program. On December 14, 2020, the Board of Directors authorized the repurchase of up to an additional one million shares along with the balance remaining under its previous authorization approved and announced on November 16, 2017. No shares were repurchased under the Company’s stock repurchase program during the second quarter of fiscal year 2025.

The Company has not historically issued any dividends and does not expect to do so in the foreseeable future. Payment of cash dividends in the future will be determined by the Company’s Board of Directors and will depend upon, among other things, the Company’s future earnings, operations, capital requirements and surplus, general financial condition, contractual restrictions that may exist, and such other factors as the Board of Directors may deem relevant.

The Company is also currently restricted from paying dividends or making other distributions to its shareholders, including repurchasing shares of its common stock, without the consent of its lender under the Company’s revolving credit agreement. Please see “Liquidity and Capital Resources” under Item 2 of Part I for more information regarding this limitation.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

During the three months ended October 31, 2024, none of the Company’s directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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Item 6. Exhibits

Exhibit Number |  | Description of Exhibit
3.1 |  | Articles of Incorporation of the Company, as amended. (Incorporated by reference to Exhibits 4.1-4.8 to the Company's Registration Statement on Form S-8 filed with the SEC on November 16, 2005 (File No. 333-129727)).
3.2 |  | Amended and Restated Bylaws of the Company dated December 4, 2007. (Incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2007 filed with the SEC on December 7, 2007).
3.3 |  | Amendment No. 1 to the Amended and Restated Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Report on Form 8-K filed with the SEC on February 19, 2014).
10.1 |  | Amendment No. 8 to Third Amended and Restated Loan and Security Agreement and Joinder dated September 16, 2024 (Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed with the SEC on September 18, 2024).
10.2 |  | Offer Letter, dated as of September 19, 2024, between America’s Car-Mart, Inc., an Arkansas corporation, and Jamie Fischer (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 24, 2024).
10.3 |  | Purchase Agreement, dated October 9, 2024, by and between Colonial Auto Finance, Inc. and ACM Funding, LLC (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 11, 2024).
10.4 |  | Sale and Servicing Agreement, dated October 9, 2024, by and among ACM Auto Trust 2024-02, ACM Funding, LLC, America’s Car-Mart, Inc., Deutsche Bank National Trust Company, as Indenture Trustee, Calculation Agent and Paying Agent, and Systems & Services Technologies, Inc. as Backup Servicer (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on October 11, 2024).
31.1 |  | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
31.2 |  | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act.
32.1 |  | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS |  | Inline XBRL Instance Document
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| America’s Car-Mart, Inc.
| By: /s/ Douglas Campbell
| Douglas Campbell
| President and Chief Executive Officer
| (Principal Executive Officer)
| By: /s/ Vickie D. Judy
| Vickie D. Judy
| Chief Financial Officer
| (Principal Financial Officer)
Dated: December 9, 2024 |

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