What drove Copart's revenue and earnings growth in fiscal 2002?

Growth came mainly from higher gross proceeds on auctioned vehicles and increased buyer fees, plus the addition of new facilities. The share of vehicles processed under the higher-fee Percentage Incentive Program rose to 67% from 62%, and yard and fleet costs as a share of revenue fell, which lifted operating margin.

Why did management lower its fiscal 2003 outlook?

In September 2002 management reduced its revenue and earnings projections because mild weather in the U.S. during the first nine months of calendar 2002 reduced the supply of salvage vehicles, and NOAA forecast drought conditions to persist into March 2003. Mild weather lowers accident and total-loss volumes, which directly affects auction inventory.

How concentrated is Copart's customer and supplier base?

Concentration is meaningful. In fiscal 2002 two suppliers accounted for 14% and 9% of revenue, and at year-end they represented 13% and 7% of accounts receivable. Supplier agreements are generally cancelable on 30 to 90 days' notice, so losing a major supplier could materially affect results.

Is the company financially positioned to fund its growth?

Yes. Cash and short-term investments reached $132.7 million, and total debt is just $0.4 million. The company also has a $100 million revolving credit facility, of which $96.3 million was available at July 31, 2002. Management believes these resources and operating cash flow will cover needs for at least 12 months, though significant future growth could require additional debt or equity.

What are the main legal and operational risks disclosed?

The company faces California class actions alleging that rental car vehicles with prior damage were sold on clean titles rather than salvage certificates. It also faces environmental risks from fluid spills and stored hazardous materials, competition from larger auction and dismantler rivals, and risks from its growing public auction business, where it has limited experience. Management believes none of these matters will have a material adverse effect, though outcomes cannot be predicted.

CPRT 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed October 29, 2002. Cited figures are marked; the original filing is the authoritative source.

Copart, Inc. (CPRT) reported fiscal 2002 (year ended July 31, 2002) results that marked strong growth in the salvage vehicle auction business.

Revenues rose 25% to $316.5 million^a from $253.9 million, driven by a 15% increase in gross proceeds to about $1.2 billion and higher buyer fees. Operating income grew 32% to $89.9 million, with operating margin expanding to 28.4% from 26.8%, as yard and fleet expenses fell to 59.1% of revenue. Net income increased 34% to $57.4 million, or $0.63 per diluted share, compared with $42.7 million, or $0.50, in fiscal 2001.

Figures are as filed and reflect a three-for-two forward stock split effected during fiscal 2002. The balance sheet strengthened considerably. Following a November 2001 follow-on offering of 6.9 million shares that raised about $126 million^b, cash and short-term investments reached $132.7 million, and shareholders' equity nearly doubled to $486.2 million.

Total debt is negligible at $0.4 million^c, and the company has a $100 million unsecured revolving credit facility with $96.3 million available. Operating cash flow was $82.0 million, while capital expenditures were $85.9 million, reflecting continued investment in facilities and land. Investors should weigh several risks.

Management reduced its fiscal 2003 revenue and earnings projections in September 2002 because mild weather reduced vehicle supply, and weather is a recurring sensitivity. The company depends on a few large insurance suppliers, with State Farm at about 14%^d of revenue and a second supplier at 9%.

Other risks include competition from ADESA, Insurance Auto Auctions and Manheim, growth through acquisitions, expansion into public auctions, and pending class actions in California over rental car titling. Executive officers and affiliates hold about 24% of the stock, and the company disclosed that its disclosure controls evaluation would appear in the next quarterly report.

02—Key points

Key Highlights

Revenue grew 25% to $316.5 million, and gross proceeds rose 15% to roughly $1.2 billion.
Operating income increased 32% to $89.9 million, with operating margin expanding to 28.4% from 26.8%.
Net income rose 34% to $57.4 million; diluted EPS was $0.63 versus $0.50 in fiscal 2001.
Balance sheet strengthened: cash and short-term investments of $132.7 million, shareholders' equity of $486.2 million, and total debt of only $0.4 million.
A November 2001 follow-on offering of 6.9 million shares raised about $126 million, and six acquisitions were completed in fiscal 2002 for about $8.6 million in cash plus stock.
Management cut fiscal 2003 revenue and earnings projections in September 2002 due to mild weather reducing salvage vehicle supply.
Concentrated supplier base: State Farm accounts for about 14% of revenue and the second-largest supplier for about 9%.

03—Questions

Frequently Asked Questions

What drove Copart's revenue and earnings growth in fiscal 2002?
Growth came mainly from higher gross proceeds on auctioned vehicles and increased buyer fees, plus the addition of new facilities. The share of vehicles processed under the higher-fee Percentage Incentive Program rose to 67% from 62%, and yard and fleet costs as a share of revenue fell, which lifted operating margin.
Why did management lower its fiscal 2003 outlook?
In September 2002 management reduced its revenue and earnings projections because mild weather in the U.S. during the first nine months of calendar 2002 reduced the supply of salvage vehicles, and NOAA forecast drought conditions to persist into March 2003. Mild weather lowers accident and total-loss volumes, which directly affects auction inventory.
How concentrated is Copart's customer and supplier base?
Concentration is meaningful. In fiscal 2002 two suppliers accounted for 14% and 9% of revenue, and at year-end they represented 13% and 7% of accounts receivable. Supplier agreements are generally cancelable on 30 to 90 days' notice, so losing a major supplier could materially affect results.
Is the company financially positioned to fund its growth?
Yes. Cash and short-term investments reached $132.7 million, and total debt is just $0.4 million. The company also has a $100 million revolving credit facility, of which $96.3 million was available at July 31, 2002. Management believes these resources and operating cash flow will cover needs for at least 12 months, though significant future growth could require additional debt or equity.
What are the main legal and operational risks disclosed?
The company faces California class actions alleging that rental car vehicles with prior damage were sold on clean titles rather than salvage certificates. It also faces environmental risks from fluid spills and stored hazardous materials, competition from larger auction and dismantler rivals, and risks from its growing public auction business, where it has limited experience. Management believes none of these matters will have a material adverse effect, though outcomes cannot be predicted.

04—Continue

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