America's Car-Mart Inc.

09/09/2026 | Press release | Distributed by Public on 09/09/2026 13:26

Quarterly Report for Quarter Ending July 31, 2026 (Form 10-Q)

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 events, 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," "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:
•the Company's ability to continue as a going concern;
•the Company's review of strategic and financing alternatives and the potential outcomes of that review and its ability to execute and consummate any potential transaction;
•the covenant relief and waivers under, and the Company's ability to satisfy the milestones and other conditions of, the June 19, 2026 amendment to the Company's Credit and Guaranty Agreement;
•the Company's liquidity and its efforts to preserve liquidity, including the curtailment of inventory purchases and finance receivable originations;
•the availability of capital, including through income from operations and securing additional financing to sustain and supplement operating cash flows through additional securitization transactions, warehouse credit facilities, or other sources, and the Company's ability to consummate such financing transactions;
•maintenance of the Company's operational infrastructure, including the continued transition to a centralized collections model and ongoing technology initiatives;
•gross profit margin percentages;
•gross profit per retail unit sold;
•future revenues and operating results;
•future credit losses;
•the Company's collection results;
•the effects of the dealership optimization initiatives and the closing of existing dealerships;
•the Company's ability to execute its business plan;
•future supply, demand, and affordability of used vehicles;
•seasonality; and
•the Company's business and operating 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 and events could differ materially from those projected in these forward-looking statements. Factors that may cause actual results and events 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, 2026, as well as:
•the existence of substantial doubt about the Company's ability to continue as a going concern, and the effects of that disclosure on the Company's relationships with customers, associates, suppliers, lenders and other stakeholders;
•the Company's ability to satisfy the milestones and other conditions of the June 19, 2026 amendment to its Credit and Guaranty Agreement, to further extend the related covenant relief and waiver period beyond September 11, 2026, if needed, and to obtain further waivers, covenant relief, forbearance or financing from its lenders on acceptable terms, or at all;
•the outcome of the Company's review of strategic and financing alternatives, including the risk that the review does not result in any transaction, results in a transaction on unfavorable terms, or is not completed in a timely manner, and the costs, timing and uncertainties associated with the review and related advisory engagements;
•the Company's substantial level of indebtedness and its ability to service that indebtedness, and the risk that its indebtedness could be accelerated (including under cross-default or cross-acceleration provisions) and that the Company would not have sufficient liquidity to repay it;
•the Company's ability to fund finance receivable originations, vehicle inventory purchases, debt service and operating expenses, including its ability to establish a warehouse credit facility and to continue to complete asset-backed securitization transactions;
•the curtailment of the Company's vehicle inventory purchases and finance receivable originations and the effect of that curtailment on the Company's sales, revenues and collections;
•the Company's changes to customer collection practices, including the transition to a centralized collections model and the transfer of customer accounts to dealerships located farther from customers' prior collection locations and the effect of the change on collections, revenues, and customer relationships;
•the potential need for the Company to seek protection under applicable bankruptcy or insolvency laws;
•the possibility that holders of the Company's common stock could experience a significant or complete loss of their investment, including as a result of any restructuring, recapitalization, or dilutive issuance of equity or equity-linked securities;
•the Company's ability to maintain compliance with the continued listing requirements of, and the continued listing of its common stock on, the Nasdaq Stock Market;
•the diversion of management's attention from ordinary-course operations as a result of the strategic review and the Company's liquidity and capital-structure matters;
•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, inflationary pressure on operating costs and customers' ability to make vehicle payments;
•the availability of quality used vehicles at prices that will be affordable to the Company's customers, including the impacts of changes in new vehicle production and sales, tariffs and trade restrictions on the automotive industry, and elevated wholesale vehicle costs;
•the availability of and access to capital through warehouse credit facilities, securitization financings or other debt or equity financing sources on terms acceptable to the Company, and any increase in the cost of capital, to support the Company's business;
•the Company's ability to consummate debt or equity financing transactions on terms acceptable to the Company;
•the Company's compliance with financial covenants and other terms of its senior secured term loan, non-recourse notes payable, and any future debt facilities;
•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;
•future shutdowns of the federal government or changes to federal or state government assistance programs impacting the Company's customers;
•the ability to keep pace with technological advances and changes in consumer behavior affecting our business;
•security breaches, cyber-attacks, or fraudulent activity;
•the occurrence and impact of any adverse weather events or other natural disasters affecting the Company's dealerships or customers;
•the Company's ability to maintain effective internal control over financial reporting following the remediation of its previously identified material weakness, and to design, implement, and maintain effective disclosure controls and procedures;
•the potential dilutive impact of outstanding warrants to purchase the Company's common stock, if exercised, and of any other future issuances of the Company's equity securities; 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, 2026, the Company operated 94 dealerships located primarily in small cities throughout the South-Central United States.
The conditions affecting the Company's liquidity and capital structure that were described in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2026 continued throughout the first quarter of fiscal 2027 without material improvement. The Company continued to have no revolving credit facility or warehouse facility available to it, completed no asset-backed term funding transactions during the quarter, and obtained no new financing. The review by the special committee of the Company's Board of Directors (the "Special Committee") of strategic and financing alternatives, which was underway when the Form 10-K was filed, remained in progress at July 31, 2026 and has not resulted in a transaction as of the date of this report. The matters reported as subsequent events in the notes to the consolidated financial statements included in the Form 10-K developed during the quarter: the Company failed to comply with the minimum liquidity and minimum collateral coverage ratio covenants under its Credit and Guaranty Agreement as then in effect, obtained a series of short-term forbearance agreements with its lenders, and on June 19, 2026 entered into an amendment to the Credit and Guaranty Agreement (the "Amendment") providing covenant relief for a limited period (which on September 4, 2026, the lenders agreed to extend through September 11, 2026), subject to the Company's compliance with certain milestones and other conditions. In connection with the Amendment, the Company incurred approximately $3.9 million of fees and costs. Of that amount, a $3.0 million closing payment was added to the outstanding principal balance of the term loan and approximately $0.7 million of professional fees directly attributable to the Amendment were capitalized as debt issuance costs (see Note B). The remaining approximately $0.3 million of legal, financial advisory and other professional fees did not qualify for deferral and were expensed as incurred and included in net loss for the three months ended July 31, 2026. As described in Note B to the Condensed Consolidated Financial Statements, these conditions continue to raise substantial doubt about the Company's ability to continue as a going concern.
Although the Company collects a substantial amount from customers each month, under the accelerated amortization structure that applies to most of its outstanding securitizations a significant portion of those collections is applied directly to the repayment of non-recourse notes, which limits the cash available to fund vehicle inventory purchases and finance receivable originations. The Company's response to these constraints, which began during fiscal 2026 and continued through the first quarter of fiscal 2027, has included curtailing vehicle inventory purchases and finance receivable originations, tightening underwriting standards, consolidating 60 dealership locations into nearby dealerships and reducing associated staff, significantly reducing capital expenditures, and suspending dealership acquisitions. The Company is also prohibited under its current financing arrangements from repurchasing shares of its common stock or paying dividends without the consent of its lenders. That curtailment, rather than any change in underlying customer demand, is the principal driver of substantially every period-over-period comparison discussed in this Item 2.
Total revenues for the first three months of fiscal 2027 decreased 57.3% to $145.8 million, and the Company reported a net loss attributable to common stockholders of $69.0 million, or $8.28 per diluted share, compared to a net loss of $5.7 million, or $0.69 per diluted share, in the prior year period. Retail units sold decreased 81.9% to 2,450 units. The effects of the capital and inventory constraints intensified during the quarter. Compared to April 30, 2026, inventory decreased to $35.2 million from $54.1 million, finance receivables, net, decreased $169.4 million, or 15.7%, to $909.8 million, and cash, cash equivalents and restricted cash decreased $21.7 million to $110.0 million. The Company expects the ongoing capital and inventory constraints to continue to adversely affect its revenues and operating results in future periods. The extent and duration of those impacts will depend, in part, on the Company's ability to improve liquidity and increase inventory purchases and finance receivable originations.
The Company's cost structure is relatively fixed, as interest expense and the provision for credit losses are functions of a finance receivables portfolio originated in prior periods rather than of current-period sales. The Company's operating results are therefore sensitive to changes in sales volume. Because the Company's reduction in sales during the first quarter of fiscal 2027 was substantially greater than the reduction in the Company's cost base during the period, the Company's expenses during the current quarter as a percentage of sales were substantially higher than the prior year quarter, although cost of sales and the provision for credit losses each declined in absolute dollars.
Collections on finance receivables were the Company's principal source of operating cash during the first quarter of fiscal 2027. In connection with the Company's consolidation of 60 dealership locations during fiscal 2026, the Company transferred the servicing and collection of the associated customer accounts to nearby dealerships or to the Company's centralized collections department. The Company's rollout of its centralized collections model, which began in the fourth quarter of fiscal 2026, continued through the first quarter of fiscal 2027. Because the model is still in the early stages of operation and its effectiveness over a full collections cycle has not yet been demonstrated, its ultimate effect on collections and credit losses is uncertain, and a shortfall in collections would directly reduce the cash available to the Company. Total collections of principal, interest, and late fees for the quarter decreased $19.2 million, or 10.5%, to $164.4 million compared to $183.6 million in the prior year period, and collections of principal as a percentage of average finance receivables were 8.3%, compared to 7.9% in the prior year period. Net charge-offs were $124.5 million for the quarter, compared to $100.1 million in the prior year period, on a portfolio 23.1% smaller, reflecting a combination of operational and macroeconomic factors. The Company began rolling out a centralized collections function in the fourth quarter of fiscal year 2026, consolidating account servicing that had previously been performed at the dealership level, and completed the transition during the first quarter of fiscal year 2027 in connection with the transition of the consolidated dealerships. The ramp-up spanned both periods and included the migration of active accounts to the centralized platform, the hiring and training of collections staff, and the implementation of standardized contact and workflow procedures. Collections activity during this ramp-up period reflected the operational demands of the transition, and delinquency and charge-off performance on the affected accounts was elevated relative to the Company's historical experience. Separately, continued fuel and cost-of-living pressure weighed on the Company's customers throughout the quarter. Accounts over 30 days past due were 4.6% at July 31, 2026, compared to 4.1% at April 30, 2026.
Three Months Ended July 31, 2026 vs. Three Months Ended July 31, 2025
Consolidated Operations
(Operating Statement)
% Change As a % of Sales
2026
Three Months Ended July 31, vs. Three Months Ended July 31,
(Dollars in thousands except Operating Data) 2026 2025 2025 2026 2025
Revenues:
Sales $ 89,902 $ 276,240 (67.5) % 100.0 % 100.0 %
Interest and other income 55,849 65,072 (14.2) 62.1 23.6
Total revenues 145,751 341,312 (57.3) % 162.1 % 123.6 %
Costs and expenses:
Cost of sales, excluding depreciation 70,266 175,080 (59.9) 78.2 63.4
Selling, general and administrative 51,551 51,408 0.3 57.3 18.6
Provision for credit losses 71,559 103,036 (30.5) 79.6 37.3
Interest expense 19,226 17,042 12.8 21.4 6.2
Depreciation and amortization 1,802 2,139 (15.8) 2.0 0.8
Loss on disposal of property and equipment 178 9 1877.8 0.2 -
Total 214,582 348,714 (38.5) % 238.7 % 126.3 %
Pretax loss $ (68,831) $ (7,402) (76.6) % (2.7) %
Operating Data:
Retail units sold 2,450 13,568 (81.9)
Wholesale sales (in thousands)
$ 21,020 $ 10,794 94.7
Average dealerships in operation 94 154 (39.0)
Average units sold per dealership per month 8.7 29.4 (70.4)
Average retail sales price, excluding ancillary products $ 18,530 $ 17,319 7.0
Gross profit per retail unit sold $ 8,015 $ 7,456 7.5
Same store revenue growth (47.5) % (4.1) %
Period End:
Dealerships open 94 154
Accounts over 30 days past due 4.6 % 4.1 %
Total revenues decreased $195.6 million, or 57.3%, for the three months ended July 31, 2026 as compared to the same period in the prior fiscal year. Sales decreased $186.3 million, or 67.5%, and interest and other income decreased $9.2 million, or 14.2%. The decrease in sales was primarily the result of the curtailment of vehicle inventory purchases and finance receivable originations undertaken to preserve liquidity, which limited the volume of inventory available for sale, together with the consolidation of 60 dealership locations during fiscal 2026, which reduced the Company's active dealership count from 154 to 94. Retail units sold decreased 11,118 units, or 81.9%, to 2,450 units. The decrease in retail volume was partially offset by an increase in third-party wholesale sales, which rose to $21.0 million from $10.8 million.
The increase primarily reflects a change in disposition strategy rather than a change in repossession activity. With limited capital available to fund new originations, the Company began wholesaling substantially all repossessed vehicles in late May to accelerate cash conversion, rather than retaining a portion of those units for retail sale as it had historically. The decrease in interest and other income reflects the decline in average finance receivables, net, which decreased $187.6 million, or 15.9%, from the prior year period as originations were reduced and the portfolio continued to amortize.
The cost of sales as a percentage of sales increased to 78.2% for the three months ended July 31, 2026 compared to 63.4% for the same period of the prior fiscal year, resulting in a gross margin as a percentage of sales of 21.8% for the current year period compared to 36.6% for the prior year period. In dollar terms, gross profit decreased $81.5 million, or 80.6%. The decline in gross margin resulted principally from the increased proportion of third-party wholesale sales, which represented 23.4% of total sales in the current year period compared to 3.9% in the prior year period and which were sold at an aggregate loss of $4.7 million as the Company made a decision to sell more repossessed vehicles through wholesale channels, rather than re-retailing them, as part of its capital management strategy, together with the fixed and semi-fixed components of cost of sales being spread over a substantially reduced retail sales base.
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. 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, excluding ancillary products, for the first quarter of fiscal 2027 was $18,530, an increase of $1,211, or 7.0%, over the prior year quarter.
Selling, general and administrative ("SG&A") expenses as a percentage of sales increased to 57.3% for the three months ended July 31, 2026 compared to 18.6% for the same period in the prior fiscal year. The increase in the percentage is principally a function of the substantially reduced sales base. In absolute terms, SG&A expenses were essentially unchanged, increasing $0.1 million, or 0.3%, from the same period in the prior fiscal year. This aggregate result reflects two offsetting drivers. The Company incurred $9.6 million in professional and advisory fees in connection with the Special Committee's ongoing review of strategic and financing alternatives intended to address the Company's liquidity and capital structure, and $4.1 million of expense associated with the retention program approved by the Board of Directors on June 3, 2026 for senior management and other key employees, which was intended to support operational stability during that review. Excluding these two items, all other SG&A expenses decreased $13.5 million, or 26.3%, from the same period in the prior fiscal year, consistent with the reduction in the Company's footprint.
Provision for credit losses as a percentage of sales was 79.6% for the three months ended July 31, 2026 compared to 37.3% for the same period in the prior fiscal year. In overall dollars, the provision for credit losses decreased $31.5 million, or 30.5%, in the first quarter of fiscal 2027 compared to the same period of the prior fiscal year, reflecting the smaller finance receivables portfolio. The increase in the provision as a percentage of sales is primarily a function of the substantially reduced sales base resulting from the curtailment of inventory purchases and finance receivable originations undertaken to preserve liquidity.
Interest expense for the three months ended July 31, 2026 as a percentage of sales increased to 21.4%, from 6.2% for the prior year period. In dollar terms, interest expense increased $2.2 million, or 12.8%. The increase reflects interest on the senior secured term loan entered into on October 30, 2025, together with the amortization of debt issuance costs, original issue discount and warrant discount associated with that facility. The applicable margin on the term loan was 7.50% per annum over the term benchmark rate through June 18, 2026 and, as a result of the Amendment, 10.50% per annum over the term benchmark rate for the remainder of the period. Of the interest expense recognized on the facility during the quarter, $1.1 million was paid in kind by adding such amount to the outstanding principal balance rather than in cash. The effect of the term loan was partially offset by lower interest expense on the Company's asset-backed non-recourse notes payable, the outstanding balance of which declined from $610.8 million at July 31, 2025 to $357.7 million at July 31, 2026 as those notes amortized from collections on the underlying auto finance receivables, and by the absence of any interest on a revolving credit facility. The Company repaid and retired its revolving line of credit on October 30, 2025. As a result, total outstanding debt decreased from $775.1 million at July 31, 2025 to $623.9 million at July 31, 2026, a reduction of 19.5%, while interest expense increased, reflecting the higher cost of the senior secured term loan relative to the borrowings it replaced. Interest expense increased as a percentage of sales principally because the Company sold substantially fewer vehicles during the period as a result of the curtailment of vehicle inventory purchases and finance receivable originations undertaken to preserve liquidity, which reduced the sales base.
Financial Condition
The following table sets forth the major balance sheet accounts of the Company as of the dates specified:
(In thousands) July 31, 2026 April 30, 2026
Assets:
Finance receivables, net of allowance for credit losses $ 909,797 $ 1,079,167
Inventory 35,194 54,074
Income tax receivable, net 3,600 3,524
Property and equipment, net 40,087 42,855
Liabilities:
Accounts payable and accrued liabilities $ 56,992 $ 67,964
Deferred revenue 66,811 96,414
Deferred tax liabilities, net 34,207 34,207
Senior secured note payable, net 266,205 263,681
Non-recourse notes payable, net 357,655 458,685
Finance receivables, net, decreased $169.4 million, or 15.7%, since April 30, 2026 and decreased $273.7 million, or 23.1%, since July 31, 2025, while total revenues decreased 57.3% for the three months ended July 31, 2026 compared to the same period in the prior fiscal year. The decline in finance receivables reflects the curtailment of finance receivable originations undertaken to preserve liquidity, together with continued collections and charge-offs on the existing portfolio.
During the first three months of fiscal 2027, inventory decreased by $18.9 million, or 34.9%, compared to April 30, 2026, reflecting the Company's curtailment of vehicle inventory purchases to preserve liquidity together with the disposition of vehicles via wholesale channels. Annualized inventory turns were 6.3 for the current year quarter compared to 6.2 for the prior year first quarter. The reduction in inventory levels has constrained, and is expected to continue to constrain, the Company's retail sales volumes.
Property and equipment, net, decreased by $2.8 million at July 31, 2026 as compared to April 30, 2026. The decrease reflects $1.8 million in depreciation expense and disposals of property and equipment which resulted in a $0.2 million loss on disposal and generated cash proceeds of $0.9 million, partially offset by $0.1 million of expenditures during the three months ended July 31, 2026.
Accounts payable and accrued liabilities decreased by $11.0 million, or 16.1%, at July 31, 2026 as compared to April 30, 2026, related primarily to the reduction in vehicle inventory purchases, lower expenses related to fewer stores and the timing of payments and check clearings.
Deferred revenue decreased $29.6 million, or 30.7%, at July 31, 2026 as compared to April 30, 2026, consisting of an $11.0 million decrease in deferred accident protection plan revenue and an $18.6 million decrease in deferred service contract revenue, primarily resulting from the decrease in units sold.
Deferred income tax liabilities, net, were unchanged at July 31, 2026 as compared to April 30, 2026.
The Company had $357.7 million and $458.7 million of notes payable outstanding related to asset-backed term funding transactions as of July 31, 2026 and April 30, 2026, respectively. These non-recourse notes issued by the Company accrue interest at fixed rates with a weighted average rate of 6.6% as of July 31, 2026 and April 30, 2026. The Company did not complete any asset-backed term funding transactions during the three months ended July 31, 2026. The $101.0 million reduction in the outstanding balance during the quarter reflects scheduled and accelerated amortization from collections on the underlying auto finance receivables. Most of the Company's outstanding securitizations use an accelerated amortization structure under which a significant portion of collections is applied directly to the repayment of the related non-recourse notes, which reduces the amount of collections available to the Company to fund vehicle inventory purchases, finance receivable originations, and other operating needs. See Note G to the Condensed Consolidated Financial Statements for further details on the non-recourse notes payable.
The Company repaid and terminated its $350.0 million asset-backed revolving line of credit on October 30, 2025, using a portion of the proceeds of its senior secured term loan, and terminated its $150.0 million amortizing warehouse loan facility in November 2025. Neither facility is available to the Company, and the Company does not currently have a revolving credit facility or warehouse facility available to fund the origination of finance receivables. Historically, income from operations, together with borrowings on the revolving credit facilities and securitized debt, funded the Company's finance receivables growth and capital asset purchases. During the three months ended July 31, 2026, the carrying value of the Company's total debt decreased $98.5 million, from $722.4 million at April 30, 2026 to $623.9 million at July 31, 2026, consisting of the $101.0 million reduction in non-recourse notes payable, partially offset by a $2.5 million increase in the carrying value of the senior secured note payable. The outstanding principal balance of the senior secured term loan increased $4.1 million, from $300.0 million at April 30, 2026 to $304.1 million at July 31, 2026, reflecting the $3.0 million closing fee and $1.1 million of interest, each of which was paid in kind by addition to the outstanding principal balance pursuant to the Amendment. Unamortized debt issuance costs and debt discounts, which are presented as reductions of the carrying value of the debt, increased by a net $1.6 million, reflecting the addition of the $3.0 million closing fee and $0.7 million of professional fees directly attributable to the Amendment that qualified for capitalization, partially offset by $2.1 million of amortization of debt issuance costs and debt discounts.
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:
Three Months Ended July 31,
(In thousands) 2026 2025
Operating Activities:
Net loss $ (68,980) $ (5,736)
Provision for credit losses 71,559 103,036
Losses on claims for accident protection plan 7,132 8,595
Depreciation and amortization 1,802 2,139
Amortization of debt issuance costs 2,956 1,269
Stock based compensation (190) 1,157
Deferred income taxes - 608
Finance receivable originations (40,976) (262,746)
Finance receivable collections 108,810 118,720
Accrued interest on finance receivables 1,110 (713)
Inventory 41,514 28,618
Accounts payable and accrued liabilities (12,178) 3,205
Deferred accident protection plan revenue (10,970) (578)
Deferred service contract revenue (18,633) (455)
Income taxes, net (76) (2,255)
Other (2,811) (782)
Net cash provided by (used in) operating activities $ 80,069 $ (5,918)
Investing activities:
Purchases of property and equipment $ (90) $ (459)
Proceeds from sale of property and equipment 881 20
Net cash provided by (used in) investing activities $ 791 $ (439)
Financing activities:
Issuance of common stock $ 29 $ 69
Purchase of common stock (25) (71)
Dividend payments (10) (10)
Change in cash overdrafts - 6,162
Debt issuance costs (662) (1,708)
Non-recourse notes payable, net (101,861) 38,501
Revolving line of credit, net - (39,696)
Net cash provided by (used in) financing activities $ (102,529) $ 3,247
(Decrease) increase in cash, cash equivalents, and restricted cash $ (21,669) $ (3,110)
The primary drivers of the Company's operating results and cash flows are (i) sales volume, (ii) interest income on finance receivables, (iii) gross margin 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 growth in finance receivables, capital expenditures, and, when applicable, common stock repurchases, with any
excess of these uses over cash from operations funded through borrowings under revolving credit facilities and the issuance of asset-backed non-recourse notes.
As described in the Company's Annual Report on Form 10-K for the fiscal year ended April 30, 2026, the Company's available liquidity is constrained, principally due to the amortization structure of its outstanding asset-backed securitization trusts, the restrictive covenants under the Company's senior secured term loan, and the Company's inability, to date, to secure a revolving warehouse credit facility or other additional financing. These conditions continued throughout the three months ended July 31, 2026 without material improvement. The Company collects a significant amount of payments each month from customers, consisting of principal, interest, and fee payments on its finance receivables portfolio, but under the accelerated amortization structure that applies to most of its outstanding securitizations, a significant portion of those collections is paid directly to the trusts to retire outstanding non-recourse notes, leaving a reduced amount available to the Company to fund vehicle inventory purchases, finance receivable originations, and other operating needs. A revolving credit or warehouse facility would allow the Company to draw against the facility to fund operations and bridge the difference between the collections retained by the trusts and the Company's near-term funding needs. Without such a facility, the Company has relied on the reduced pool of collections it retains after trust paydowns, together with cash on hand. During the three months ended July 31, 2026, the outstanding balance of the Company's non-recourse notes payable was reduced by $101.0 million through scheduled and accelerated amortization funded by collections on the underlying finance receivables.
Net cash provided by operating activities was $80.1 million for the three months ended July 31, 2026, compared to net cash used in operating activities of $5.9 million for the three months ended July 31, 2025. The change principally reflects the Company's continued actions to preserve capital and liquidity, including (i) a reduction in finance receivable originations to $41.0 million from $262.7 million in the prior year period, which deployed substantially less cash into new installment sale contracts, and (ii) a drawdown of vehicle inventory, which provided $41.5 million of operating cash as vehicles sold were not replenished, together with (iii) finance receivable collections of $108.8 million, partially offset by (iv) the net loss for the period. Net cash used in financing activities of $102.5 million consisted primarily of $101.9 million of net repayments of non-recourse notes payable. As a result, cash, cash equivalents, and restricted cash decreased $21.7 million during the quarter, to $110.0 million at July 31, 2026. Finance receivables, net, decreased by $169.4 million from April 30, 2026 to July 31, 2026.
The purchase price the Company pays for a vehicle has a significant effect on its liquidity and capital resources, as selling prices are largely 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 consistent with historical results, given customers' limited incomes and the need to keep payments affordable. During the three months ended July 31, 2026, the effect of vehicle acquisition costs on liquidity continued to be magnified by the Company's constrained access to origination capital. Because each vehicle purchased consumes a greater share of the Company's available capital, higher per-unit costs further limit the volume of vehicles the Company can purchase, finance, and carry in inventory, contributing to the reduction in finance receivable originations and retail units sold during the quarter. Several external factors influence acquisition costs, including reduced volumes of new car sales-particularly of domestic brands-which constrain used-vehicle supply, and broader economic conditions, which affect auction and wholesale activity. Tariffs imposed on the automotive industry have also increased procurement costs, and future tariffs, trade restrictions, or declines in new car sales could further increase vehicle costs or make sourcing more difficult. The Company expects tight used-vehicle supply, elevated demand for the types of vehicles the Company sells, and ongoing tariff uncertainty to keep purchase costs, and resulting sales prices, elevated in the near term.
The Company's liquidity and operating capital are also influenced by its credit losses. Macroeconomic factors, such as unemployment and general inflation affecting both essential and discretionary goods, can significantly affect collection results and, consequently, credit losses. As customers continue to face rising costs for non-discretionary items such as childcare, insurance, groceries, and fuel, their ability to meet vehicle payment obligations may be strained. To mitigate these risks, the Company has continued to make refinements to its underwriting standards to improve the credit quality of new originations and has enhanced its collections infrastructure, including an upgraded payments platform that offers customers multiple payment options and has facilitated a shift toward online payments. The Company completed its transition to a centralized collections model during the first quarter of fiscal year 2027; the model is designed to improve consistency and efficiency while preserving individualized, dealership-level customer engagement.
The Company's business model relies on leasing the majority of the properties where its dealerships are located. As of July 31, 2026, the Company leased approximately 83% of its dealership properties. The $59.0 million of operating lease commitments includes $32.2 million of non-cancelable lease commitments under the lease terms and $26.8 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 currently consist of cash on hand and cash flows from operations, including the portion of collections on finance receivables retained by the Company after required payments to the securitization trusts. At July 31, 2026, the Company had approximately $27.5 million of unrestricted cash and cash equivalents, compared to approximately $47.0 million at April 30, 2026. The Company's restricted cash of $82.4 million at July 31, 2026 consists primarily of collections on auto finance receivables restricted for payment to the holders of non-recourse notes payable and deposits in reserve accounts for the benefit of those noteholders, together with cash collateralizing letters of credit, and is not available to fund the Company's operations. The Company does not currently have a revolving credit facility, warehouse facility, or other committed source of additional financing available to it: the Company's revolving line of credit was repaid and retired on October 30, 2025 using a portion of the proceeds of the senior secured term loan. The Company completed no asset-backed term funding transactions during the three months ended July 31, 2026. The absence of available financing constrains the Company's ability to fund vehicle inventory purchases and to originate new finance receivables.
The Company's senior secured term loan under the Credit and Guaranty Agreement requires compliance with financial and other covenants, including a minimum liquidity covenant and a minimum collateral coverage ratio. As described in Note B and Note G to the Condensed Consolidated Financial Statements, during the three months ended July 31, 2026 the Company failed to comply with the minimum liquidity and minimum collateral coverage ratio covenants as then in effect, obtained a series of short-term forbearance agreements with its lenders, and on June 19, 2026 entered into an amendment to the Credit and Guaranty Agreement providing covenant relief for a limited period extending through September 7, 2026 (which on September 4, 2026 the administrative agent and the lenders agreed to extend to September 11, 2026), which may be extended through September 21, 2026 and November 6, 2026 only if specified conditions are satisfied. During the relief period, the Company must satisfy certain milestones and conditions, including maintaining a special committee of independent directors, delivering weekly and monthly forecasts and reports (including a 13-week cash flow budget), progressing a process to explore potential financing, recapitalization, restructuring, or other strategic transactions, and entering into a support agreement with the administrative agent and requisite lenders. The Company is also subject to revised financial covenants, including minimum liquidity of $7.0 million as of each Friday and $5.0 million at all other times and a minimum collateral coverage ratio of 1.25 to 1.00 as of June 30, 2026 and 1.20 to 1.00 as of each month-end thereafter, as well as enhanced reporting obligations and restrictions on taking certain material actions. In connection with the forbearance agreements and the Amendment, the Company incurred fees and costs of approximately $3.9 million. Of that amount, a closing payment of $3.0 million was fully earned on the effective date of the Amendment and was paid in kind by adding such amount to the outstanding principal balance under the Credit and Guaranty Agreement. The amount was recorded as debt issuance costs and is being amortized over the remaining term of the facility. In addition, approximately $0.7 million of professional fees directly attributable to the Amendment qualified for capitalization and were recorded as debt issuance costs. The remaining approximately $0.3 million consisted of legal, financial advisory and other professional fees, which did not qualify for deferral and were expensed as incurred. The Company was in compliance with the revised financial covenants and the other terms and conditions of the Credit and Guaranty Agreement, as amended, as of July 31, 2026, and has remained in compliance through the date of this report.
If the Company fails to satisfy the covenants, milestones, and conditions under the Credit and Guaranty Agreement and the Amendment, or is unable to obtain further covenant relief, waivers, forbearance or financing before the relief period expires, the lenders would be entitled to exercise remedies under the Credit and Guaranty Agreement, including acceleration of the outstanding indebtedness, which could trigger cross-default or cross-acceleration provisions under the Company's other financing arrangements. The Company would not have sufficient liquidity to repay such indebtedness if it were accelerated.
The Company's material cash requirements over the next twelve months consist primarily of debt service on the senior secured term loan and the non-recourse notes payable, operating lease payments, vehicle inventory purchases and finance receivable originations to the extent available liquidity permits, compensation and other operating costs, and professional and advisory fees associated with the strategic alternatives review and the Company's financing arrangements. The Company expects capital expenditures to remain limited to essential maintenance requirements.
The Company's plans are focused on (i) maintaining efficient operations, (ii) managing the size and composition of its finance receivables portfolio in light of available liquidity, and (iii) reducing outstanding debt. The Company is pursuing additional liquidity through potential financing sources, including additional securitized borrowings, warehouse facilities, and other debt or equity arrangements, and a Special Committee of the Board of Directors, with the assistance of
independent financial and legal advisors, is conducting a review of strategic and financing alternatives intended to address the Company's liquidity and capital structure. That review remained in progress at July 31, 2026 and has not resulted in a transaction. There can be no assurance that any financing or strategic transaction will be available or completed on acceptable terms, or at all, and these plans have not alleviated the substantial doubt about the Company's ability to continue as a going concern within one year after the date that the Condensed Consolidated Financial Statements are issued. Unless and until the Company obtains additional financing or completes one or more strategic transactions, the Company expects its liquidity to remain constrained and to continue to limit vehicle inventory purchases and finance receivable originations, which will continue to adversely affect its revenues, operating results, cash flows and its ability to continue as a going concern. See Note B (Liquidity and Going Concern) to the Condensed Consolidated Financial Statements.
The Company remains restricted from paying dividends and repurchasing shares of its common stock under its current financing arrangements.
Off-Balance Sheet Arrangements
The Company has three standby letters of credit relating to insurance policies totaling $5.1 million at July 31, 2026.
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, 2026.
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 Condensed Consolidated Financial Statements in Item 1 relates to the determination of its allowance for credit losses, which is discussed below. The Company's accounting policies are discussed in Note C to the Condensed 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, 2026, the weighted average contract term was 49.3 months with 33.8 months remaining. At July 31, 2025, the weighted average total contract term was 48.3 months with 35.7 months remaining. The allowance for credit losses at July 31, 2026, $277.0 million, was 24.74% of the principal balance in finance receivables of $1.2 billion, less unearned accident protection plan revenue of $34.0 million, unearned service contract revenue of $32.8
million, and pending APP claims of $4.8 million. The Company increased the allowance for credit losses as a percentage of finance receivables from 23.35% at July 31, 2025 to 24.74% at July 31, 2026 and decreased it slightly from 25.15% at April 30, 2026.
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 Condensed 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 Condensed 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 expects additional disclosures to be included in the Company's Consolidated Financial Statements once the standard is adopted.
In September 2025, the FASB issued ASU 2025-06, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The standard updates the capitalization criteria for internal-use software and requires related disclosures to be provided under ASC 360. The guidance is effective for annual periods 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 has generally realized a higher
proportion of its revenue and operating profit during the first and fourth fiscal quarters. However, the Company's current capital and liquidity constraints, including the curtailment of vehicle inventory purchases and finance receivable originations, had a significant adverse effect on the Company's operating results for the first quarter of fiscal 2027. Unless and until the Company's liquidity position improves and inventory purchases and contract originations return to normalized levels, seasonal trends may not be a reliable indicator of future performance, as the Company's capital constraints may continue to reduce or override the effect of historical seasonal patterns on the Company's revenue and operating results.
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