Americas Carmart Inc: Form 10-Q for the period ended Jul 31, 2025

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;
• gross profit margin percentages;
• gross profit per retail unit sold;
• business acquisitions;
• technological investments and initiatives;
• future revenue growth;
• receivables growth as related to revenue growth;
• new dealership openings;
• performance of new 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, 2025, 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;
• 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.

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 July 31, 2025, the Company operated 154 dealerships located primarily in small cities throughout the South-Central United States.

Over the last ten fiscal years, the Company’s revenue growth averaged 10.6%. Revenue for the first three months of fiscal 2026 declined 1.9% compared to the same period of fiscal 2025, primarily due to a 5.7% decrease in retail units sold. The decrease was partially offset by a 7.5% increase in interest income.

The Company has been focused on improving vehicle quality by procuring lower-mileage vehicles, while balancing affordability for customers. 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.

Over the last five fiscal years, the Company’s provision for credit losses as a percentage of sales averaged 30.2%. During fiscal 2025, credit losses well exceeded the pre-pandemic rate of 23.71% in fiscal 2019, partially due to the inflationary pressure on customers and increasing interest rates from federal monetary policy. For the first three months of fiscal 2026, the provision for credit losses as a percentage of sales increased to 37.3%, compared to 33.2% for the same period of fiscal 2025, resulting from an increased frequency and severity of losses coupled with the effect of lower sales revenues. Based on the Company’s current analysis of credit losses, the allowance for credit losses at July 31, 2025 was 23.35% of finance receivables, net of deferred revenue and pending accident protection plan (“APP”) claims, an improvement from 25.00% at July 31, 2024 and a decline from 23.25% at April 30, 2025, resulting in a $3.0 million increase to the provision for credit losses from the fourth quarter of fiscal 2025.

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.

However, the Company continues to believe that the proper execution of its business practices is the single most important determinant of its long-term credit loss experience. The Company continuously looks for ways to operate more efficiently, improve its business practices and adjust underwriting and collection procedures. During the quarter, the Company advanced its credit and collections infrastructure through upgrades to its loan origination system ("LOS"), which incorporate a new scorecard and embedded risk-based pricing. These enhancements are more closely aligning expected returns with customer risk profiles, with early results showing a shift in originations toward higher-ranked customers and away from lower-tier applicants, consistent with the system’s design. In parallel, the Company implemented updates to its payments platform, which are facilitating a shift from in-store to online payments and supporting more consistent customer payment behavior. Together, these initiatives are expected to further strengthen the Company’s underwriting discipline and enhance the effectiveness of its collection efforts, providing a more scalable framework to support long-term growth.

The Company’s gross profit dollars per retail unit sold increased by $460, or 6.6%, during the first three months of fiscal 2026 compared to the first three months of fiscal 2025, and gross margin as a percentage of sales for the first three months of fiscal 2026 increased to 36.6% of sales from 35.0% in the prior year period. The increase in gross profit dollars per retail unit sold was related to a decrease in the aggregate cost of the vehicles sold during the respective periods related to the Company’s initiatives around pricing discipline, lower frequency and severity of vehicle repair costs, and improved retention of wholesale buyers for vehicles repossessed by the Company. 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 quarter of fiscal 2026, as well as continuing to focus on improving wholesale results, cost controls, and operational improvement around the acquisition and disposal of vehicles.

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 three months of fiscal 2026 increased by $10.7 million, or 6.2%, over the prior year period. Principal collections, as a percentage of average finance receivables, increased slightly to 7.9%, compared to 7.8% for 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. During the quarter, the Company deployed updates to its processes and technology for credit applications and decision-making through a new version of LOS. Since the implementation of the initial LOS, this online loan application system has allowed consumers to apply for credit faster in anticipation of their vehicle purchase, authorize a soft credit pull during the application process, receive status updates via text message, as well as have access to centralized appointment-setting. At the end of the first quarter, the Company had implemented 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 LOS, the Company has tightened its credit approval standards, primarily by requiring a higher down payment and shorter terms from certain customers. The updates to LOS implemented during the first quarter introduced an upgraded, more predictive scorecard and risk-based pricing capabilities, improving risk identification and customer rankings. The revised scorecard provides improved risk identification by assigning customer rankings with greater granularity. As a result, the Company made a higher proportion of its sales during the first quarter to customers ranked 5–7, rankings which have historically demonstrated a lower probability of loss and delivered stronger overall returns on their installment sale contracts compared to lower-ranked customers. In addition, the Company implemented upgrades to its payments platform in late June 2025, which are driving a shift from in-store to online payments, enhancing convenience for customers while supporting more consistent payment behavior and improved collections efficiency.

Three Months Ended July 31, 2025 vs. Three Months Ended July 31, 2024

Consolidated Operations

(Operating Statement Dollars in Thousands)

Total revenues decreased $6.5 million, or 1.9%, for the three months ended July 31, 2025 as compared to the same period in the prior fiscal year. The decrease was primarily as a result of declines in revenue at dealerships that operated a full three months in both the current and prior year quarter ($13.7 million decrease) and by a decline in revenue at dealerships that were closed during the prior year quarter ($3.0 million decrease), partially offset by revenue growth from dealerships opened or acquired during or after the prior year quarter ($10.2 million increase). The primary decrease in revenue was related to a 5.7% decrease in retail units sold, largely resulting from balancing affordability for the consumer, profit margins and portfolio quality. The purchase cost of vehicles rose during the quarter, consuming more of our borrowing capacity, which limited the amount of inventory we carried and had an impact on the sales volumes. The decrease in revenue was partially offset by a 7.5% increase in interest income. Interest income increased for the three months ended July 31, 2025, as compared to the same period in the prior fiscal year, due to the $35.4 million increase in average finance receivables and an increase in the weighted average interest rate on outstanding finance receivables to 17.6%, up from 17.4% during the prior year period.

The cost of sales as a percentage of sales decreased to 63.4% for the three months ended July 31, 2025 compared to 65.0% for the same period of the prior fiscal year, resulting in a gross margin as a percentage of sales of 36.6% for the current year period compared to 35.0% for the prior year period. The improvement in gross margin compared to the same period in the prior fiscal year resulted from continued efforts related to vehicle sales pricing improvements, reduced repairs in both frequency and severity and improved rates on wholesale retention.

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 the vehicle service contract. 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 first quarter of fiscal 2026, including ancillary products, was $19,564, reflecting an increase of $278 over the prior year quarter. The improvement in gross margin for the quarter demonstrates the Company's continued focus on gross margin improvement through pricing discipline, reduced transportation costs and lower vehicle repair costs.

Selling, general and administrative (SG&A) expenses as a percentage of sales increased to 18.6% for the three months ended July 31, 2025 compared to 16.3% the same period in the prior fiscal year. In absolute terms, SG&A expenses rose by $4.7 million from the same period in the prior fiscal year. The increase is primarily related to additions in technology and increases in compensation and benefit expense, related to additions to the leadership team in areas such as finance and accounting.

Provision for credit losses as a percentage of sales was 37.3% for the three months ended July 31, 2025 compared to 33.2% for the same period in the prior fiscal year. In overall dollars, the provision for credit losses increased $7.6 million in the first quarter of fiscal 2025 compared to the same period of the prior fiscal year. This increase was a result of increases in both the frequency and severity of losses coupled with softer sales.

Interest expense for three months ended July 31, 2025 as a percentage of sales decreased to 6.2%, from 6.4% for the prior year period. In dollar terms, interest expense decreased $1.3 million, reflecting improvements in our securitization platform and a more favorable interest rate environment.

Financial Condition

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

37

Finance receivables, net, have increased 0.2% and 5.1% since April 30, 2025 and July 31, 2024, respectively, while revenues decreased 1.9% for the three months ended July 31, 2025 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 three months of fiscal 2026, inventory increased by $0.2 million, or 0.2%, compared to April 30, 2025. Annualized inventory turns decreased for the current year quarter at 6.2 versus the prior year first quarter at 6.7. 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 $1.7 million at July 31, 2025 as compared to April 30, 2025. The Company incurred $0.5 million in expenditures during the three months ended July 31, 2025 primarily related to remodeling existing locations. These expenditures were offset by $2.1 million in depreciation expense during the first three months ended July 31, 2025.

Accounts payable and accrued liabilities increased by $9.7 million at July 31, 2025 as compared to April 30, 2025, related primarily to timing of payments and check clearings.

Deferred revenue decreased $1.0 million at July 31, 2025 as compared to April 30, 2025, primarily resulting from the decrease in units sold.

Deferred income tax liabilities, net, increased approximately $0.6 million at July 31, 2025 as compared to April 30, 2025, primarily because of re-measurement of previously recorded temporary differences.

The Company had $610.8 million and $572.0 million of notes payable outstanding related to asset-backed term funding transactions as of July 31, 2025 and April 30, 2025, respectively. These non-recourse notes issued by the Company accrue interest at fixed rates with a weighted average rate of 7.86% as of July 31, 2025. During fiscal year 2025, the Company completed two issuances of asset-backed term funding, followed by an additional issuance in the first quarter of fiscal year 2026. The net proceeds from these issuances were used to repay outstanding borrowings under the Company’s revolving credit facility. See Note F to the Consolidated Financial Statements for further details on the non-recourse notes payable.

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, capital asset purchases and, where applicable, common stock repurchases. During the three months ended July 31, 2025, the Company funded finance receivables growth of $2.8 million, increased inventory by $0.2 million, and acquired fixed assets of $0.5 million, with a $1.6 million decrease in total debt.

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):

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

Cash flows used in operating activities for the three months ended July 31, 2025 compared to the three months ended July 31, 2024 decreased primarily as a result of (i) a decrease in net income, partially offset by, (ii) an increase in finance receivable collections and (iii) a decrease in finance receivable originations. Finance receivables, net, increased by $2.8 million from April 30, 2025 to July 31, 2025.

The purchase price the Company pays for a vehicle has a significant effect on liquidity and capital resources, as selling prices are directly tied to acquisition costs. Higher purchase costs generally require higher selling prices, which can make it more difficult to maintain gross margin percentages and contract terms in line with historical results, given customers’ limited incomes and the need to keep payments affordable. Several external factors influence vehicle acquisition costs. Reduced volumes of new car sales, particularly domestic brands, constrain supply in the used car market, while broader economic downturns may also affect auction and wholesaler activity. Recently imposed tariffs on the automotive industry have added approximately $500 per vehicle to procurement costs since the beginning of the year. Although procurement costs have stabilized in the near term, future tariffs, trade restrictions, or declines in new car sales could create uncertainty, which may exacerbate challenges related to sourcing inventory or increase the cost of vehicles.

Sustained macro-economic pressures affecting our customers have helped keep demand high in recent years for the types of vehicles we purchase. This strong demand for used vehicles, coupled with modest levels of new vehicle sales in recent years, have led to a generally ongoing tight supply of used vehicles available to the Company in both quality and quantity. Wholesale prices continued to soften in calendar year 2024 and into 2025 but began to increase late in fiscal year 2025. The Company expects that the tight supply of used vehicles, strong demand for the types of vehicles we purchase, and market reactions to ongoing tariff uncertainty will continue to keep purchase costs and resulting sales prices elevated in the short term. However, an increase in marketplace wages for our customers could enhance affordability.

The Company has made substantial efforts to enhance its purchasing processes in order to secure an adequate supply of vehicles at competitive prices. This includes a strategic partnership with an industry leader, the expansion of its purchasing territories into larger cities near its dealerships, and the establishment of relationships with reconditioning partners to reduce procurement costs. Additionally, the Company has heightened accountability for its purchasing agents through updates to sourcing and pricing guidelines. Ongoing efforts also include the cultivation of relationships with national vendors capable of supplying large volumes of high-quality vehicles.

The Company’s liquidity is also influenced by its credit losses. Macro-economic factors, such as unemployment rates and general inflation affecting both core and discretionary items, can significantly impact collection results and, consequently, credit losses. At present, as customers face rising costs for non-discretionary items like childcare, insurance, groceries, and gasoline, their ability to meet vehicle payment obligations may be strained. To mitigate these risks, the Company has implemented several process improvements, including the introduction of LOS over the past two years, which strengthens controls and provides a more robust infrastructure to support collections. The Company also launched an upgraded payments platform, which has begun facilitating a shift from in-store to online payments and should support more consistent payment behavior. Management remains focused on enhancing execution at the dealership level, particularly in terms of individualized customer engagement related to collection matters.

The Company’s business model relies on leasing the majority of the properties where its dealerships are located. As of July 31, 2025, the Company leased approximately 87% of its dealership properties. The $86.1 million of operating lease commitments includes $28.5 million of non-cancelable lease commitments under the lease terms and $57.6 million of lease commitments for renewal periods at the Company’s option that are reasonably assured. The Company expects to continue to lease the majority of the properties where its dealerships are located.

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 July 31, 2025, the Company had approximately $9.7 million of cash on hand and approximately an additional $20.8 million of availability under its revolving credit facilities (see Note F to the Consolidated Financial Statements). The revolving credit facility has a scheduled maturity date of March 31, 2027, with total permitted borrowings of $350.0 million at July 31, 2025.

The Company had $610.8 million of asset-backed non-recourse notes as of July 31, 2025 with a weighted average fixed coupon rate of 7.86%. The notes payable have scheduled maturities through June 20, 2028, June 20, 2030, January 21, 2031, August 20, 2031, November 20, 2031 and February 20, 2032, but may be repaid earlier, depending upon collections from the underlying auto finance receivables.

In July 2024, the Company also entered into a $150.0 million amortizing warehouse agreement backed by a portion of its finance receivables, which was amended in September 2024 and subsequently repaid with proceeds from the Company’s October 2024 asset-backed securitization. No debt was outstanding under the warehouse loan facility as of July 31, 2025.

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 as funds are available, (ii) grow its finance receivables portfolio, (iii) purchase fixed assets of approximately $9 million in the next 12 months as we complete facility updates and general fixed asset requirements, (iv) fund dealership acquisitions as opportunities arise on terms acceptable to the Company, and (v) reduce the Company’s remaining debt to the extent excess cash is available.

The Company believes it will have adequate liquidity to continue to grow its revenues and to satisfy its capital needs for the foreseeable future through expected financing sources such as additional securitized borrowings, warehouse loan facilities or other debt or equity financing arrangements.

Off-Balance Sheet Arrangements

The Company has three standby letters of credit relating to insurance policies totaling $4.7 million at July 31, 2025.

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

Related Finance Company Contingency

Car-Mart of Arkansas and Colonial do not meet the affiliation standard for filing consolidated income tax returns, and as such they file separate federal and state income tax returns. Car-Mart of Arkansas routinely sells its finance receivables to Colonial at what the Company believes to be fair market value and is able to take a tax deduction at the time of sale for the difference between the tax basis of the receivables sold and the sales price. These types of transactions, based upon facts and circumstances, have been permissible under the provisions of the Internal Revenue Code as described in the Treasury Regulations. For financial accounting purposes, these transactions are eliminated in consolidation and a deferred income tax liability has been recorded for this timing difference. The sale of finance receivables from Car-Mart of Arkansas to Colonial provides certain legal protection for the Company’s finance receivables and, principally because of certain state apportionment characteristics of Colonial, also has the effect of reducing the Company’s overall effective state income tax rate. The actual interpretation of the Regulations is in part a facts and circumstances matter. The Company believes it satisfies the material provisions of the Regulations. Failure to satisfy those provisions could result in the 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 July 31, 2025.

Critical Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires the Company to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the Company’s estimates. The Company believes the most significant estimate made in the preparation of the Consolidated Financial Statements in Item 8 relates to the determination of its allowance for credit losses, which is discussed below. The Company’s accounting policies are discussed in Note B to the Consolidated Financial Statements in Item 1.

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 July 31, 2025, the weighted average contract term was 48.3 months with 35.7 months remaining. At July 31, 2024, the weighted average total contract term was 48.1 months with 36.1 months remaining. The allowance for credit losses at July 31, 2025, $326.1 million, was 23.35% of the principal balance in finance receivables of $1.5 billion, less unearned accident protection plan revenue of $50.9 million, unearned service contract revenue of $61.3 million, and pending APP claims of $7.0 million. The Company decreased the allowance for credit losses as a percentage of finance receivables from 25.00% at July 31, 2024 to 23.35% at July 31, 2025 and increased it slightly from 23.25% at April 30, 2025.

The allowance for credit losses represents the Company’s expectation of future net charge-offs at the measurement date. The allowance takes into account quantitative and qualitative factors such as historical credit loss experience, with consideration given to changes in contract characteristics (i.e., customer interest rates, credit deterioration and delinquency rates), current and forecasted inflationary economic conditions, amongst others. The allowance for credit losses is reviewed at least quarterly by management with any changes reflected in current operations.

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

• estimates relating to the allowance for credit losses require management to project future loan performance, including cash flows, prepayments, and charge-offs;
• the allowance for credit losses is influenced by factors outside of management’s control such as industry and business trends, geopolitical events and the effects of laws and regulations as well as economic conditions including, but not limited to, inflation; and
• judgment is required to evaluate whether the model used to generate the allowance for credit losses, which is then adjusted for changes in customer interest rates, credit deterioration and delinquency rates, as well as the expected effects from current and forecasted inflation, produces an allowance that appropriately reflects a current estimate of lifetime expected credit losses.

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

Recent Accounting Pronouncements

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

In October 2023, the FASB issued an accounting pronouncement (ASU 2023-06) related to disclosure or presentation requirements for various subtopics in the FASB’s Accounting Standards Codification (“Codification”). The amendments in the update are intended to align the requirements in the Codification with the U.S. Securities and Exchange Commission’s (“SEC”) regulations and facilitate the application of GAAP for all entities. The effective date for each amendment is the date on which the SEC removal of the related disclosure requirement from Regulation S-X or Regulation S-K becomes effective, or if the SEC has not removed the requirements by June 30, 2027, this amendment will be removed from the Codification and will not become effective for any entity. Early adoption is prohibited. We do not expect this update to have a material impact on our consolidated financial statements.

In 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 will adopt this pronouncement in our Annual Report on Form 10-K for the fiscal year ending April 30, 2026, and we do not expect it to have a material effect on our consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenses. This standard requires public business entities to provide enhanced disclosures of certain natural expense categories within relevant income statement captions. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The Company is currently evaluating the impact of this standard on its financial statement disclosures.

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.

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 changes in the prime interest rate of its lender. The Company does not use financial instruments for trading purposes but has in the past utilized 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 $168.6 million at July 31, 2025. The impact of a 1% increase in interest rates would result in increased annual interest expense of approximately $1.6 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 sale contract, while its revolving credit facilities contain variable interest rates that fluctuate with market interest rates. The Company’s finance receivables carry annual interest rates ranging from 12.99% to 23.00%. 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 7.5% plus 1.0% at July 31, 2025.

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 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 July 31, 2025. As previously disclosed in “Item 9A. Controls and Procedures” of the Company’s Annual Report on Form 10-K for the fiscal year ended April 30, 2025, management identified a material weakness in internal control over financial reporting related to the omission of required disclosures concerning loan modifications for borrowers experiencing financial difficulty under ASC 310-10-50-42 through 50-44.

Because of this material weakness, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of July 31, 2025. Notwithstanding the material weakness, management has concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, the financial position, results of operations, and cash flows of the Company for the periods presented in conformity with accounting principles generally accepted in the United States of America.

Remediation Efforts to Address Material Weakness

Management, with oversight from the Audit Committee of the Board of Directors, has initiated remediation efforts to address the material weakness related to omitted loan modification disclosures. These efforts include:

• Enhancing internal processes to ensure compliance with the disclosure requirements of ASC 310-10-50-42 through 50-44 related to loan modifications for borrowers experiencing financial difficulty, including the nature of modifications, their financial effects, and subsequent performance;
• Increasing the Company’s accounting and financial reporting resources by adding experienced personnel with technical expertise to improve oversight of the Company’s accounting and financial reporting processes, including the preparation and review of required disclosures; and
• Providing targeted training to accounting and financial reporting personnel to reinforce understanding of disclosure requirements and strengthen review procedures designed to ensure the completeness and accuracy of required financial statement disclosures.

These remediation measures are in process and, once fully implemented and tested, are expected to remediate the material weakness. Management will continue to monitor their effectiveness and make further adjustments as necessary.

b) Changes in Internal Control over Financial Reporting

Except as described above, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended July 31, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting, other than the ongoing remediation efforts described above.

Inherent Limitations on Effectiveness of Controls

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures or internal control over financial reporting will prevent or detect all errors or all instances of fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect resource constraints, and the benefits of controls must be considered relative to their costs. Because of these inherent limitations, no evaluation of controls can provide absolute assurance that all control deficiencies and instances of fraud, if any, have been prevented or detected.

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, 2025.