AMERICAS CARMART INC

Previous wording

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, 2024, the Company operated 156 dealerships located primarily in small cities throughout the South-Central United States.

Current wording

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

Previous wording

Over the last ten fiscal years, the Company’s revenue growth averaged 11.4%. Revenue for the first three months of fiscal 2025 declined 5.2% compared to the same period of fiscal 2024, primarily due to a 9.6% decrease in retail units sold. The decrease was partially offset by a 2.4% increase in the average retail sales price and a 7.2% increase in interest income. Our dealership volume productivity averaged 30.9 sales per month for the first three months of fiscal 2025, down from 34.2 during the same period last year.

Current wording

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

Previous wording

Over the last five fiscal years, the Company’s provision for credit losses as a percentage of sales averaged 26.36%, with a pre-pandemic rate of 23.71% in fiscal 2019. During fiscal 2024, credit losses exceeded pre-pandemic levels, partially due to the inflationary pressure on customers and increasing interest rates from federal monetary policy. For the first three months of fiscal 2025, the provision for credit losses as a percentage of sales decreased slightly sequentially to 33.2%, compared to 33.3% for the fourth quarter of fiscal 2024 as lower sales in the first quarter of fiscal 2025 largely offset improvements in the provision. Based on the Company’s current analysis of credit losses, the allowance for credit losses at July 31, 2024 was 25.0% of finance receivables, net of deferred revenue and pending APP claims.

Current wording

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

Previous wording

The Company’s gross profit dollars per retail unit sold increased by $228, or 3.4%, during the first three months of fiscal 2025 compared to the first three months of fiscal 2024, and gross margin as a percentage of sales for the first three months of fiscal 2025 increased to 35.0% of sales from 34.7% in the prior year period. The increase in gross profit dollars per retail unit sold was related to an increase in the average retail sales price of the vehicles sold during the respective periods. The Company’s initiatives around pricing discipline, reduced transportation costs and lower vehicle repair costs also contributed to the increase in gross profit dollars. The Company’s gross margin is based upon the cost of the vehicle purchased, with higher-priced vehicles typically having higher gross margin dollars but lower gross margin percentages. Gross margin is also affected by the percentage of wholesale sales to retail sales, which relates, for the most part, to repossessed vehicles sold at or near cost. The Company plans to continue to focus on managing gross margin dollars in the near term, as demonstrated by the increase during the first quarter of fiscal 2025, as well as continuing to focus on improving wholesale results, cost controls, and operational improvement around the acquisition and disposal of vehicles.

Current wording

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

Previous wording

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 2025 increased by $7.1 million, or 4.3%, over the prior year period. Principal collections, as a percentage of average finance receivables, however, stayed consistent at 7.8%, compared to the same period in prior year.

Current wording

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

Previous wording

The Company continues to prioritize investments to improve its products and services and operate more efficiently over time. One of the Company’s largest recent investments has been improving its processes and technology for credit applications and decision-making through a new loan origination system (“LOS”). This online loan application system allows the consumer to apply for credit faster in anticipation of their vehicle purchase, authorize a soft credit pull during the application process, and receive a response via text message on the status of their application, as well as have access to centralized appointment-setting. At the end of July 2024 the Company had implemented the LOS in 147 of its 156 dealerships, with centralized decision-making on approvals of applications submitted via the online platform. The remaining nine dealerships, which were acquired, are still in their earn-out period or have yet to be integrated. Through the LOS, the Company has tightened its credit approval standards, primarily by requiring a higher down payment and shorter terms from certain customers.

Current wording

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

Previous wording

Cost of sales, as a percentage of sales, decreased to 65.0% for the three months ended July 31, 2024 compared to 65.3% for the same period of the prior fiscal year, resulting in a gross margin as a percentage of sales of 35.0% for the current year period compared to 34.7% for the prior year period. The improvement in gross margin resulted from better operational execution in pricing discipline and our continued focus on inventory efficiencies in procurement, remarketing, and repairs as well as an improvement in APP claims.

Current wording

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

Previous wording

Gross margin as a percentage of sales is significantly impacted by the average retail sales price of the vehicles the Company sells, which is largely a function of the Company’s purchase cost and includes the price of ancillary products sold with the vehicle, such as the APP and vehicle repair plans. As purchase costs increase, the margin between the purchase cost and the sales price of the vehicles the Company sells generally narrows on a percentage basis because the Company must offer affordable prices to its customers. The average retail sales price for the first quarter of fiscal 2025 was $19,250, a $451 increase over the prior year quarter. This increase was due to the increase in the average price of ancillary products rather than an increase in the Company’s purchase cost. The Company continues to focus on gross margin improvement through pricing discipline, reduced transportation costs and lower vehicle repair costs.

Current wording

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

Previous wording

Selling, general and administrative expenses, as a percentage of sales, were 16.3% for the three months ended July 31, 2024, an increase of 1.3% from the same period of the prior fiscal year. Selling, general and administrative expenses are, for the most part, more fixed in nature. In dollar terms, overall selling, general and administrative expenses increased approximately $241,000 in the first quarter of fiscal 2025 compared to the same period of the prior fiscal year. Although the Company had favorable declines in payroll and related costs as a result of prior cost cutting measures, this was offset by increases in the licensing and expenses related to technology implementations, along with the increased selling, general and administrative expenses related to the acquisitions*.* * *

Current wording

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

Previous wording

Provision for credit losses as a percentage of sales was 33.2% for the three months ended July 31, 2024 compared to 31.0% for the prior year period. The provision for credit losses as a percentage of sales was higher during the current year period primarily due to the growth in the balance of finance receivables, net of deferred revenue of $28.5 million, as well as being amplified with a decrease in sales of $23.1 million compared to the prior year period. In overall dollars, the provision for credit losses decreased 0.9% in the first quarter of fiscal 2025 compared to the same period of the prior fiscal year due to the improved experience of contracts underwritten in the Company’s new loan origination system.

Current wording

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

Previous wording

Interest expense as a percentage of sales increased to 6.4% for the three months ended July 31, 2024, compared to 4.6% for the prior year period. In dollar terms, interest expense increased $4.0 million due to increasing interest rates and an increase in the average borrowings of approximately $91.8 million during the three-month period ended July 31, 2024.

Current wording

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

Previous wording

Revenues decreased by approximately $19.0 million, or 5.2%, for the three months ended July 31, 2024 as compared to the same period in the prior fiscal year. The decrease resulted from a decline in revenue at dealerships that operated a full three months in both the current and prior year quarter ($31.9 million decrease) and by dealerships that were closed during the prior year quarter ($3.6 million decrease); partially offset by revenue growth from dealerships opened or acquired after the prior year quarter ($15.9 million). The decline in revenue was related to a 9.6% decrease in retail units sold, largely reflecting the challenging macroeconomic environment for our customers, partially offset by a 7.2% increase in interest income and a 2.4% increase in the average retail sales price. Interest income increased approximately $4.1 million for the three months ended July 31, 2024, as compared to the same period in the prior fiscal year, due to the $45.9 million increase in average finance receivables.

Current wording

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

Previous wording

Finance receivables, net, have increased 2.5% and 1.0% since April 30, 2024 and July 31, 2023, respectively, while revenues decreased 5.2% compared to the prior year period. 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.

Current wording

Finance receivables, net, have increased 3.1% and 2.5% since April 30, 2024 and October 31, 2023, respectively, while revenues decreased 4.3% for the six months ended October 31, 2024 compared to the same period in the prior fiscal year. The Company currently anticipates that the growth in finance receivables will generally be slightly higher than overall revenue growth on an annual basis due to overall term length increases in our installment sale contracts, partially offset by improvements in underwriting and collection procedures in an effort to reduce credit losses.

Previous wording

During the first three months of fiscal 2025, inventory increased by $7.1 million compared to inventory at April 30, 2024, primarily due to the most recent acquisition which added $5.0 million to the inventory balance. Annualized inventory turns decreased for the current year quarter at 6.7 versus the prior year’s first quarter at 7.2. 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.

Current wording

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

Previous wording

Property and equipment, net, decreased by $568,000 at July 31, 2024 as compared to property and equipment, net, at April 30, 2024. The Company incurred $986,000 in expenditures during the first three months of fiscal 2025 primarily related to remodeling existing locations in order to support growth. The Company incurred $1.9 million in depreciation expense during the first three months of fiscal 2025.

Current wording

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

Previous wording

Accounts payable and accrued liabilities increased by $18.9 million during the first three months of fiscal 2025 as compared to accounts payable and accrued liabilities at April 30, 2024, related primarily to invoice management and vendor efficiencies.

Current wording

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

Previous wording

Deferred income tax liabilities, net, decreased approximately $942,000 at July 31, 2024 as compared to April 30, 2024, due primarily to a current year net operating loss.

Current wording

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

Previous wording

The Company had $448.7 million and $553.6 million of notes payable outstanding related to asset-backed term funding transactions as of July 31, 2024 and April 30, 2024, respectively. These non-recourse notes issued by the Company accrue interest at fixed rates with a weighted average rate of 9.0% as of July 31, 2024. The Company’s warehouse loan facility accrues interest at a rate equal to the term SOFR plus 350 basis points. See Note F for further details on the non-recourse notes payable, warehouse loan facility and the revolving line of credit.

Current wording

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

Previous wording

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, (v) capital expenditures, and if applicable, (vi) common stock repurchases. 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 common stock repurchases. The overall increase in total borrowings during the first quarter of fiscal 2025 was made to support an increase in finance receivables, with longer terms, and a growing customer base. During the first three months of fiscal 2025, the Company funded finance receivables growth of $29.9 million, increased inventory by $7.1 million, invested $13.5 million in dealership acquisitions, and purchased fixed assets of $986,000, with income from operations and increased total debt of $28 million, or a $23.7 million increase in total debt, net of cash.

Current wording

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

Previous wording

Cash flows used in operating activities for the three months ended July 31, 2024 compared to the same period in the prior fiscal year decreased primarily as a result of a decrease in finance receivable originations and an increase in accounts payable and accrued liabilities. Finance receivables, net, increased by $27.7 million from April 30, 2024 to July 31, 2024.

Current wording

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

Previous wording

The Company’s business model relies on leasing the majority of the properties where its dealerships are located. As of July 31, 2024, the Company leased approximately 86% of its dealership properties. The Company expects to continue to lease the majority of the properties where its dealerships are located.

Current wording

The Company’s business model relies on leasing the majority of the properties where its dealerships are located. As of October 31, 2024, the Company leased approximately 87% of its dealership properties. The Company expects to continue to lease the majority of the properties where its dealerships are located.

Previous wording

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, 2024, the Company had approximately $4.7 million of cash on hand and approximately an additional $33.5 million of availability under its revolving credit facilities (see Note F to the Condensed Consolidated Financial Statements). The revolving credit facility has a scheduled maturity date of September 30, 2025, with total permitted borrowings of $340 million at July 31, 2024. In July 2024, the Company entered into Amendment No. 7 to its revolving credit agreement to allow for, among other things, the entry into an amortizing warehouse agreement and to amend the fixed charge coverage ratio under the credit agreement. On September 16, 2024, the Company entered into Amendment No. 8 to its revolving credit agreement that, among other things, reduces the total permitted borrowings under the revolving line of credit by $20 million to $320 million. Under the amendment, the Company will be required, after October 15, 2024, to maintain a minimum amount available to be drawn under the credit facilities, based on eligible finance receivables and inventory, of $20 million. If the outstanding principal balance under the line of credit equals or exceeds $300 million, the Company will be required tomaintain a minimum availability of $50 million. The amendment provides that the Company will use the net proceeds of any junior capital raise of $50 million or more to pay down the then outstanding principal balance of the line of credit and will pay a fee to the lenders of 0.10% of the total permitted borrowings under the line of credit if the Company has not completed such a capital raise by October 31, 2024. The amendment also makes certain modifications to the fixed charge coverage ratio covenant under the credit agreement and restricts the Company from making future repurchases of its common stock, along with the agreement’s existing restrictions on other distributions to the Company’s shareholders. Thus, the Company is limited in its ability to pay dividends or make other distributions to its shareholders without the consent of the Company’s lenders.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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, 2024, the weighted average contract term was 48.1 months with 36.1 months remaining. The allowance for credit losses at July 31, 2024 of $334.4 million, was 25.0% of the principal balance in finance receivables of $1.5 billion, less unearned accident protection plan revenue of $52.0 million and unearned service contract revenue of $69.7 million, less APP claims of $5.4 million.

Current wording

The Company maintains an allowance for credit losses on an aggregate basis at a level it considers sufficient to cover estimated losses expected to be incurred on the portfolio at the measurement date in the collection of its finance receivables currently outstanding. At October 31, 2024, the weighted average contract term was 48.2 months with 35.9 months remaining. The allowance for credit losses at October 31, 2024 of $336.7 million, was 27.42% of the principal balance in finance receivables of $1.5 billion, less unearned accident protection plan revenue of $51.0 million and unearned service contract revenue of $55.6 million, less APP claims of $5.3 million.