01—Abstract
Summary
Summary of the 10-K filed September 30, 2013. Cited figures are marked; the original filing is the authoritative source.
Copart's FY2013 10-K (fiscal year ended July 31, 2013) shows a company growing revenue and expanding internationally, while funding growth largely from operations and debt paydown.
Revenue rose 13.2% to $1,046.4 million and operating income fell slightly to $283.0 milliona from $286.4 million, as yard operation and G&A costs grew faster than revenue. Net income declined to $180.0 million from $182.1 million, and diluted EPS was flat at $1.39, supported by a lower share count after heavy buybacks in prior years. The year was defined by expansion: Copart acquired 43 North American facilities (including Salvage Parent, Inc.), plus new sites in Brazil, the UAE, Germany and Spain, and added roughly $267.5 million of goodwill.
Capital expenditures rose to $130.3 million and acquisition spending to $84.0 millionb, which, together with $96.7 million of debt repayments, drove cash down $76.5 million to $63.6 million. Total debt fell to $372.5 million, and stockholders' equity increased to $762.4 million. Management reported that Hurricane Sandy boosted volumes but also added abnormal costs, and that the company is mid-way through an ERP conversion expected to run through fiscal 2015.
Key investor watch items include a pending Georgia sales tax assessment of $73.8 millionc, which management says it has adequately provided for, the risks of entering principal-based markets with inventory exposure, goodwill impairment exposure across new acquisitions, and concentration of revenue in insurance-company sellers (82% of vehicles processed). Share repurchases slowed sharply to $15.0 million in FY2013 from $203.3 million in FY2012, with 47.7 million shares remaining under the authorization.
02—Key points
Key Highlights
- Revenue grew 13.2% to $1,046.4 million, driven by North American volume (including Hurricane Sandy and market share gains) and acquisitions.
- Operating income declined slightly to $283.0 million from $286.4 million as yard operations expenses rose 21% and G&A rose 20%.
- Net income fell 1.1% to $180.0 million; diluted EPS was $1.39, unchanged year over year.
- Acquired 43 North American facilities plus new sites in Brazil, UAE, Germany and Spain, lifting goodwill to $267.5 million.
- Cash fell $76.5 million to $63.6 million after $214.3 million in capex and acquisitions and $96.7 million in debt payments; total debt declined to $372.5 million.
- Share repurchases dropped to $15.0 million from $203.3 million the prior year, with 47.7 million shares still authorized.
- Pending $73.8 million Georgia sales tax assessment, which management believes is adequately reserved, is a notable contingent liability.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, Copart Inc kept $0.17.
- Revenue$1.05B100.0%
- Cost of revenue−$167.2M16.0%
- Gross profit$879.1M84.0%
- Operating costs−$596.2M57.0%
- Operating income$283.0M27.0%
- Interest, other & tax−$103.0M9.8%
- Net income$180.0M17.2%
Where FY2013 revenue went
$1.05B- Operating costs: $596.2M, 57% of revenue
- Net income: $180.0M, 17% of revenue
- Cost of revenue: $167.2M, 16% of revenue
- Interest, other & tax: $103.0M, 9.8% of revenue
Kept 17% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed September 30, 2013Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $1.05B$924.19M | +13.2% |
| Cost of Revenue | $167.24M$136.97M | +22.1% |
| Gross Profit | $879.15M$787.22M | +11.7% |
| Operating Income | $282.99M$286.35M | −1.2% |
| Interest Expense | $10.27M$11.34M | −9.5% |
| Net Income | $180.03M$182.12M | −1.1% |
| EPS (Basic) | $0.18$0.18 | +1.4% |
| EPS (Diluted) | $0.17$0.17 | 0.0% |
| Shares Outstanding (Basic) | 999.30M1.02M | +97396.1% |
| Shares Outstanding (Diluted) | 1.04B1.05M | +98646.8% |
05—Questions
Frequently Asked Questions
Why did operating income decline even though revenue grew more than 13%?
Operating costs grew faster than revenue. Yard operation expenses rose 21% to $417.5 million (excluding D&A) on higher volume, Hurricane Sandy-related abnormal costs, and new facilities, while G&A rose 23% to $122.0 million, partly from new product development, an ERP rollout and IT outsourcing transition costs of about $10.8 million.
How is Copart's growth being financed, and how leveraged is it?
Growth was funded mainly from operating cash flow of $199.3 million, existing cash, and the Term Loan. Debt declined to $372.5 million, with $368.8 million on the term loan maturing December 2015 and $18.8 million quarterly amortization. Management says current cash and operating cash flow are sufficient for at least 12 months, and the company was in covenant compliance at July 31, 2013.
What is the Georgia sales tax matter, and how big could it be?
The Georgia Department of Revenue assessed $73.8 million, including penalties and interest, on sales for resale to non-U.S. registered resellers. Copart has accrued for the assessment based on outside counsel's opinion and is contesting it through administrative appeal. Management acknowledges that an adverse resolution could be material, so the outcome is worth monitoring.
Is the international expansion likely to drive future margins?
The filing indicates risk. New markets such as Brazil and the UAE, and some U.K. contracts, operate on a principal basis that carries inventory risk and can pressure gross margins. Management intends to migrate these contracts toward the agency model where possible, but success is not assured, and international revenue was about 22% of the total ($228.9 million) in fiscal 2013.
Why did share repurchases slow so sharply?
In fiscal 2013 Copart repurchased only 500,000 shares for $15.0 million, versus 8.9 million shares for $203.3 million in fiscal 2012. The company is directing cash toward acquisitions, capex (including a larger data center and ERP investment), and debt repayment, while still holding 47.7 million shares of authorization for future use.
06—Continue