01—Abstract
Summary
Summary of the 10-K filed September 30, 2019. Cited figures are marked; the original filing is the authoritative source.
Copart's fiscal 2019 (year ended July 31, 2019) showed strong top-line and profit growth.
Total service revenues and vehicle sales rose to $2.04 billiona, up 13.1% from $1.81 billion, while operating income climbed 22.6% to $716.5 million and operating margin expanded to 35% from 32%. Net income reached $591.7 million, or $2.46 per diluted share, versus $418.0 million ($1.73) in fiscal 2018. Part of the net income jump reflects a much lower effective tax rate of 16.1% (versus 25.7% in fiscal 2018, which absorbed the Tax Act's one-time effects), so investors should view the bottom-line gain as partly tax-driven.
Growth was led by the U.S. (81.1% of revenue), where service revenue rose 11.0%, and by International, where service revenue grew 12.9% and vehicle sales (which are recognized gross because Copart acts as principal in some markets) rose 37.7%. Balance sheet and cash flow remain healthy. Operating cash flow rose 20.9% to $646.6 millionb, but capital expenditures of $373.9 million (up 30%) consumed most of it, and cash fell 32% to $186.3 million.
Management returned capital through its first buyback in several years: 7.6 million shares for $365.0 millionc at a weighted average of $47.81. Total debt was stable at $401.2 million, with no borrowings on the $850 million revolver, and the consolidated net leverage ratio was 0.30:1, well inside covenant limits. The company has never paid a cash dividend and states it intends to retain earnings.
Key risks flagged in the filing include dependence on insurance company sellers (80%d of vehicles processed in fiscal 2019), exposure to international expansion (notably Germany, where insurers have historically been less involved in salvage disposition), a remediated material weakness in IT general controls, an ongoing sales-tax challenge from the Georgia Department of Revenue, and sensitivity to weather, used-car prices, and scrap commodity prices. Subsequent to year-end, CEO A. Jayson Adair exercised 4.0 million options in a cashless exercise.
02—Key points
Key Highlights
- Revenue grew 13.1% to $2.04 billion (service revenues $1.76 billion, up 11.2%; vehicle sales $286.3 million, up 26.0%), driven by U.S. volume growth and higher average selling prices.
- Operating income rose 22.6% to $716.5 million, with operating margin expanding to 35% from 32%, reflecting operating leverage on higher volume.
- Diluted EPS of $2.46 versus $1.73 in fiscal 2018 (+42%); the effective tax rate fell to 16.1% from 25.7%, so part of the EPS gain is tax-related.
- Operating cash flow of $646.6 million (+20.9%), but capex of $373.9 million (+30%) pushed cash down 32% to $186.3 million.
- Repurchased 7.6 million shares for $365.0 million at $47.81 average; $81.5 million remains available under the 196 million-share program.
- Balance sheet is conservative: $401.2 million total debt, undrawn $850 million revolver, net leverage of 0.30:1 versus a 3.25:1 dividend-restriction threshold.
- Concentration and expansion risks: insurance companies supplied 80% of vehicles, international expansion (especially Germany) carries execution and market-adoption risk, and a material IT controls weakness was remediated during the year.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Copart Inc kept $0.29.
- Revenue$2.04B100.0%
- Cost of revenue−$255.5M12.5%
- Gross profit$1.79B87.5%
- Operating costs−$1.07B52.4%
- Operating income$716.5M35.1%
- Interest, other & tax−$124.8M6.1%
- Net income$591.7M29.0%
Where FY2019 revenue went
$2.04B- Operating costs: $1.07B, 52% of revenue
- Net income: $591.7M, 29% of revenue
- Cost of revenue: $255.5M, 13% of revenue
- Interest, other & tax: $124.8M, 6.1% of revenue
Kept 29% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed September 30, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $2.04B$1.81B | +13.1% |
| Cost of Revenue | $255.50M$196.46M | +30.1% |
| Gross Profit | $1.79B$1.61B | +11.0% |
| Operating Income | $716.48M$584.35M | +22.6% |
| Interest Expense | $19.81M$20.37M | −2.7% |
| Net Income | $591.69M$417.87M | +41.6% |
| EPS (Basic) | $0.64$0.45 | +42.8% |
| EPS (Diluted) | $0.61$0.43 | +42.2% |
| Shares Outstanding (Basic) | 921.96M927.17M | −0.6% |
| Shares Outstanding (Diluted) | 961.81M967.51M | −0.6% |
05—Questions
Frequently Asked Questions
How much of Copart's revenue growth came from international operations versus the U.S.?
The U.S. remains the dominant contributor at 81.1% of revenue. U.S. service revenue grew $152.2 million (11.0%), while International service revenue grew $25.0 million (12.9%), or about $37.0 million excluding currency effects. International vehicle sales grew much faster, up 37.7%, but that line is recognized gross because Copart acts as principal in some markets, so it carries lower margins than agency-based service fees.
Why did net income grow faster than operating income?
Net income rose 41.6% while operating income rose 22.6%, largely because income tax expense fell from $144.5 million to $113.3 million. The effective tax rate dropped to 16.1% from 25.7%, aided by $10.2 million of discrete benefits from amended prior-year returns and $46.1 million of excess tax benefits from stock option exercises. Investors should treat some of the earnings improvement as non-recurring or dependent on option-exercise activity.
Is Copart's balance sheet or dividend capacity a concern?
Not on the disclosed figures. Total debt was about $401 million, the $850 million revolving facility was undrawn at year-end, and the consolidated net leverage ratio was 0.30:1 against covenant limits of 3.25:1 for unrestricted dividends. Minimum liquidity was $1.0 billion versus a $75 million requirement. Copart has never paid a cash dividend and says it intends to retain earnings to fund growth and buybacks, so there is no dividend income for shareholders.
What are the main risks to Copart's business model?
Key risks include reliance on insurance companies for 80% of vehicle supply, with no long-term contractual commitments in many cases; execution risk in new international markets, where principal-based models expose the company to inventory risk and insurers are less established, notably in Germany; sensitivity to accident frequency, weather, used-car prices, and scrap steel prices; and cybersecurity and systems-integrity risks. The filing also discloses a remediated material weakness in IT change-management controls and a sales-tax challenge from the Georgia Department of Revenue.
Did insiders or the CEO sell or exercise a large amount of stock around this period?
The filing discloses cashless option exercises by executives. In fiscal 2019, the former President exercised all his vested options, and in September 2019 (after year-end), CEO A. Jayson Adair exercised options over 4.0 million shares, receiving a net 1.9 million shares after settling the exercise price and tax withholding. Executive officers and directors together held 15.3% of common stock as of July 31, 2019, which gives them significant influence over stockholder votes.
06—Continue