01—Abstract
Summary
Summary of the 10-K filed September 23, 2010. Cited figures are marked; the original filing is the authoritative source.
Copart (CPRT) closed fiscal 2010 (year ended July 31, 2010) with revenues of $772.9 milliona, up 4.0% from $743.1 million in fiscal 2009, and operating income of $239.1 million, up 6.1% from $225.3 million.
Net income rose 7.5% to $151.6 millionb, and diluted EPS was $1.78 versus $1.66 a year earlier. Growth was driven mainly by higher average selling prices per vehicle (tied to commodity prices and used car prices) and modest unit volume growth of just over 1%, partly offset by a $25.0 million revenue reduction from the migration of UK contracts from a principal to an agency model. Operating leverage was limited by a 25.3% jump in general and administrative expenses, which reflected increased advertising, non-cash executive compensation tied to the Chairman and CEO grants, and higher headcount.
The balance sheet strengthened considerably. Cash and cash equivalents reached $268.2 millionc, up from $162.7 million, and total debt was negligible at under $1 million. Shareholders' equity grew to $1.09 billion.
Operating cash flow was $199.4 milliond, roughly flat versus prior year, while capital expenditures were $75.8 million. The company used $21.4 million for the D Hales acquisition in the UK and repurchased only 121,251 shares in fiscal 2010, a sharp slowdown from the 6.6 million shares repurchased in fiscal 2008. Management stated that it has no cash dividend history and is considering stock repurchases, dividends, or acquisitions for excess cash.
Key risks for investors include reliance on insurance company sellers (about 80% of vehicles processed), the seasonal and weather-driven nature of vehicle supply, growing exposure to the UK principal-model business with inventory and margin risk, goodwill of $175.9 million subject to impairment testing, and a shift to an Internet-only sales model that depends on proprietary VB2 technology. Macroeconomic sensitivity to used car and scrap commodity prices is also significant, since more than 50% of service revenue is tied to the ultimate selling price of vehicles.
02—Key points
Key Highlights
- Revenue rose 4.0% to $772.9 million and operating income rose 6.1% to $239.1 million in fiscal 2010.
- Diluted EPS increased to $1.78 from $1.66, with net income up 7.5% to $151.6 million.
- Cash and equivalents increased to $268.2 million from $162.7 million, with negligible debt (under $1 million) and an undrawn $150 million-available credit facility.
- General and administrative expenses grew 25.3% to $108.9 million, driven by advertising, executive non-cash compensation, and headcount, which pressured operating margin.
- Operating cash flow was $199.4 million, and capital expenditures were $75.8 million, mainly for facility lease buyouts, yard improvements, and equipment.
- Approximately 80% of vehicles processed came from insurance company sellers, and no single customer exceeded 10% of revenue, though seller contracts are cancellable on 30 to 90 days' notice.
- Goodwill of $175.9 million and a UK principal-based business model create ongoing impairment and inventory risks for the company.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2010, Copart Inc kept $0.20.
- Revenue$772.9M100.0%
- Cost of revenue−$104.7M13.5%
- Gross profit$668.2M86.5%
- Operating costs−$429.1M55.5%
- Operating income$239.1M30.9%
- Interest, other & tax−$87.4M11.3%
- Net income$151.6M19.6%
Where FY2010 revenue went
$772.9M- Operating costs: $429.1M, 56% of revenue
- Net income: $151.6M, 20% of revenue
- Cost of revenue: $104.7M, 14% of revenue
- Interest, other & tax: $87.4M, 11% of revenue
Kept 20% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2010filed September 23, 2010Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $772.88M$743.08M | +4.0% |
| Cost of Revenue | $104.67M$106.03M | −1.3% |
| Gross Profit | $668.21M$637.05M | +4.9% |
| Operating Expenses | $533.81M$517.76M | +3.1% |
| Operating Income | $239.07M$225.32M | +6.1% |
| Interest Expense | $216K$274K | −21.2% |
| Net Income | $151.63M$141.10M | +7.5% |
| EPS (Basic) | $0.11$0.11 | +6.5% |
| EPS (Diluted) | $0.11$0.10 | +7.2% |
| Shares Outstanding (Basic) | 1.35B1.34B | +0.8% |
| Shares Outstanding (Diluted) | 1.36B1.36B | +0.1% |
05—Questions
Frequently Asked Questions
Did Copart's profitability improve in fiscal 2010?
Yes. Operating income rose 6.1% to $239.1 million and net income rose 7.5% to $151.6 million. Diluted EPS increased to $1.78 from $1.66. However, operating margin was roughly flat at about 30.9% because G&A expenses grew faster than revenue.
What drove the revenue increase?
Service revenue increased $26.8 million, mainly due to higher revenue per vehicle sold. That was tied to rising commodity prices (particularly crushed car body prices) and general increases in used car pricing. Unit volume grew just over 1%, adding about $7.1 million. Vehicle sales rose $3.0 million, but a $25.0 million reduction from UK contracts migrating to an agency model offset most of the increase from higher selling prices.
Does Copart pay dividends or repurchase stock?
Copart has not paid a cash dividend since its 1994 IPO and intends to retain earnings for now. Management is considering additional buybacks, dividends, and acquisitions for excess cash. In fiscal 2010 it repurchased only 121,251 shares at $36.76 (about $4.5 million), versus 6.6 million shares in fiscal 2008. About 15.2 million shares remain authorized under the program.
What are the main risks facing investors?
Key risks include dependence on insurance company sellers (about 80% of vehicles) with cancellable contracts, weather and accident-rate sensitivity to supply, UK principal-model inventory risk, goodwill impairment risk on $175.9 million of goodwill, reliance on the proprietary VB2 internet sales platform, competition from larger rivals such as KAR, Manheim, and LKQ, and the exposure of over 50% of service revenue to vehicle selling prices.
Is Copart financially stable?
Yes. Shareholders' equity increased to $1.09 billion, total assets reached $1.23 billion, and working capital was $330.2 million. Management believes existing cash and operating cash flow will cover operating needs for at least 12 months. The company had no off-balance sheet arrangements, and the only material commitments were operating leases of about $77.1 million and $7.8 million in letters of credit.
06—Continue