01—Abstract
Summary
Summary of the 10-K filed September 29, 2009. Cited figures are marked; the original filing is the authoritative source.
Copart (CPRT) closed fiscal 2009 (year ended July 31, 2009) with revenues of $743.1 milliona, down 5.3% from $784.8 million in fiscal 2008, and operating income of $225.3 million, down 5.3% from $237.9 million.
Net income fell about 10% to $141.1 millionb, or $1.66 per diluted share, from $156.9 million, or $1.75 per diluted share. The decline was driven mainly by a weaker British pound, which reduced reported UK revenue and costs, and by lower used car and scrap metal prices that pressured the selling prices of vehicles. Underlying North American service revenue was resilient: unit volume grew, aided by higher salvage frequency tied to lower used car prices, and insurance company sellers still supplied about 83% of vehicles processed.
The balance sheet strengthened meaningfully. Cash and cash equivalents rose to $162.7 millionc from $39.0 million, operating cash flow was $203.3 million, and the company carries essentially no debt ($1.5 million total, with an undrawn $175 million Bank of America revolver). Shareholders' equity increased to $921.5 million.
Management did not repurchase any shares in fiscal 2009, leaving 15.4 million shares available under the program, and it has never paid a cash dividend, though the board is considering dividends, buybacks, and acquisitions for excess cash. Key risks for investors include dependence on insurance company sellers (contracts are cancellable on 30 to 90 days notice), goodwill of about $166 milliond tied largely to UK acquisitions that could be impaired if conditions deteriorate, the UK principal-basis business model that pressures gross margins, rising execution risk from international expansion and new buyer programs (CopartDirect, Market Maker), and sensitivity to fuel prices, commodity prices, and used car values.
The company also faces two lawsuits (CARS, Liberty Mutual) that management believes will not be material. Stock performance was mixed: the share price closed the year at $35.31, and the five-year total return of 158.7 (index 100 base) trailed the NASDAQ Q-50 and the peer group in some periods.
02—Key points
Key Highlights
- Revenue fell 5.3% to $743.1M (FY2008: $784.8M), mostly from the weaker GBP/USD exchange rate, which reduced UK revenue by about $39M (FX impact on service revenue of $9.5M and vehicle sales of $29.7M).
- Net income declined 10.1% to $141.1M; diluted EPS was $1.66 versus $1.75, aided by a 9.8% reduction in diluted share count to 84.9M.
- Operating cash flow rose to $203.3M, and cash and equivalents more than quadrupled to $162.7M, while total debt was only $1.5M.
- North American service revenue held up, with unit volume growth from insurance company and dealer sellers offsetting lower per-unit selling prices tied to used car and scrap prices.
- No share repurchases in FY2009 (versus 6.6M shares for $269M in FY2008); 15.4M shares remain authorized, and management is evaluating dividends, buybacks, or acquisitions.
- Goodwill of $166M (largely UK-related) is subject to impairment testing, and management flagged continued economic deterioration as a potential trigger.
- Expanded to 147 facilities (133 US, 2 Canada, 12 UK) and launched CopartDirect, Market Maker, and Registered Broker programs to open sales to the general public.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Copart Inc kept $0.19.
- Revenue$743.1M100.0%
- Cost of revenue−$106.0M14.3%
- Gross profit$637.1M85.7%
- Operating costs−$411.7M55.4%
- Operating income$225.3M30.3%
- Interest, other & tax−$84.2M11.3%
- Net income$141.1M19.0%
Where FY2009 revenue went
$743.1M- Operating costs: $411.7M, 55% of revenue
- Net income: $141.1M, 19% of revenue
- Cost of revenue: $106.0M, 14% of revenue
- Interest, other & tax: $84.2M, 11% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed September 29, 2009Financial Statements
| Revenue | $743.08M |
| Cost of Revenue | $106.03M |
| Gross Profit | $637.05M |
| Operating Expenses | $517.76M |
| Operating Income | $225.32M |
| Interest Expense | $274K |
| Net Income | $141.10M |
| EPS (Basic) | $0.11 |
| EPS (Diluted) | $0.10 |
| Shares Outstanding (Basic) | 1.34B |
| Shares Outstanding (Diluted) | 1.36B |
05—Questions
Frequently Asked Questions
Why did Copart's revenue and earnings decline in fiscal 2009?
Most of the decline came from currency and commodity pricing rather than volume. The weaker British pound reduced reported UK revenue by roughly $39M, and lower scrap metal and used car prices reduced the selling prices of vehicles, which affects the over 50% of service revenue tied to sale price. Unit volume actually grew in service revenue, and yard operating expenses fell modestly, but lower vehicle sales revenue from the UK principal-basis contracts also contributed.
How concentrated is Copart's customer base?
Insurance companies supplied about 83% of vehicles processed in fiscal 2009. No single customer accounted for more than 10% of revenue in fiscal 2009 or 2008, although State Farm represented 10% of revenue in fiscal 2007. Seller agreements are generally cancellable by either party on 30 to 90 days notice, which is a key risk for investors.
Does Copart pay dividends, and what are its capital return plans?
Copart has not paid a cash dividend since becoming public in 1994 and intends to retain earnings for now. It is considering additional share repurchases, dividends, and acquisitions for its remaining cash. It made no repurchases in fiscal 2009 but has 15.35 million shares left under its authorization, and it withheld shares to cover tax obligations on executive option exercises.
What are the main risks from the UK business?
The UK operates mostly on a principal basis, buying vehicles outright and reselling them, which lowers gross margin percentages and adds inventory risk (theft, devaluation, obsolescence). The UK also carries goodwill that could be impaired if economic conditions worsen, exposes the company to GBP currency swings, and had credit card fraud losses in fiscal 2008. Management acknowledged limited experience operating outside North America.
Are there material legal or environmental liabilities?
Two lawsuits are pending: CARS seeks more than $2M alleging breach of contract and misrepresentation, and Liberty Mutual seeks to charge Copart a $2M self-insured retention. Management believes neither will have a material effect. An environmental matter at the Dallas, Texas facility, involving lead-impacted soil, has been under TCEQ review, with the surface water report approved in May 2009, and management does not expect a material adverse effect.
06—Continue