01—Abstract
Summary
Summary of the 10-K filed September 28, 2020. Cited figures are marked; the original filing is the authoritative source.
Copart (CPRT) closed fiscal 2020 (year ended July 31, 2020) with revenues of $2.21 billiona, up 8.0% from $2.04 billion in fiscal 2019, and operating income of $816.1 million, up 13.9%.
Net income rose to $699.9 millionb from $591.7 million, and diluted EPS increased to $2.93 from $2.46. Service revenues, the company's core auction fee business, grew 10.9% to $1.95 billion, driven mainly by U.S. volume growth tied to higher total loss frequency and higher average auction selling prices. Operating margin expanded to 37% from 35%, reflecting disciplined yard operations and G&A leverage, although the effective tax rate fell to 12.6% from 16.1% largely due to $92.5 million of excess tax benefits from stock option exercises.
The filing also highlights the COVID-19 pandemic as the key near-term risk. Management reported substantial declines in vehicle assignments from March 2020 onward as miles driven fell under shelter-in-place orders. Because most transactional revenue is recognized only at auction completion, management expects the lower volumes to weigh on future quarters, even though the company was deemed an essential business and remained operational.
Despite this, the balance sheet strengthened considerably: cash rose to $477.7 millionc, the revolver was undrawn, liquidity reached $1.5 billion, and the company extended and upsized its revolving credit facility to $1.05 billion with a July 2023 maturity. Capital expenditures of $592 million, up 58%, reflect an aggressive land and yard expansion program, which is the main driver of the large increase in property and equipment to $1.94 billion.
For investors, the key tensions are strong underlying growth and profitability versus exposure to pandemic-related volume declines, rising capex intensity, and international expansion risks, including Brexit, currency exposure, and the principal-model businesses in the U.K. and Germany. The company paid no dividends and repurchased no shares in fiscal 2020, instead retaining capital to fund growth.
02—Key points
Key Highlights
- Revenue grew 8.0% to $2.21 billion and operating income rose 13.9% to $816.1 million, with operating margin expanding to 37% from 35%.
- Service revenues, the core auction fee business, rose 10.9% to $1.95 billion, led by U.S. volume growth and higher average selling prices.
- Diluted EPS increased 19% to $2.93 from $2.46, though the 12.6% effective tax rate was flattered by $92.5 million of excess tax benefits from stock option exercises.
- COVID-19 reduced vehicle assignments from March 2020 onward, and because revenue is recognized at auction, the impact is expected to carry into future quarters.
- Liquidity improved to $1.5 billion, with cash of $477.7 million and an undrawn revolver. The credit facility was upsized to $1.05 billion and extended to July 2023.
- Capital expenditures rose 58% to $592 million as the company expanded its land and yard footprint. Property and equipment increased to $1.94 billion.
- No dividends were paid and no shares were repurchased in fiscal 2020. About 81.5 million shares remain authorized for repurchase, and goodwill stands at $343.6 million.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2020filed September 28, 2020Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $2.21B$2.04B | +8.0% |
| Operating Income | $816.10M$716.48M | +13.9% |
| Interest Expense | $20.23M$19.81M | +2.1% |
| Net Income | $699.91M$591.69M | +18.3% |
| EPS (Basic) | $0.75$0.64 | +16.7% |
| EPS (Diluted) | $0.73$0.61 | +19.1% |
| Shares Outstanding (Basic) | 932.81M921.96M | +1.2% |
| Shares Outstanding (Diluted) | 954.62M961.81M | −0.7% |
05—Questions
Frequently Asked Questions
How did Copart perform financially in fiscal 2020?
Copart grew revenue 8.0% to $2.21 billion and operating income 13.9% to $816.1 million. Net income increased to $699.9 million from $591.7 million, and diluted EPS rose to $2.93 from $2.46. Operating margin improved to 37% from 35%, though part of the net income gain came from a lower effective tax rate.
What is the biggest risk to Copart's near-term results?
The COVID-19 pandemic is the main near-term risk. Reduced miles driven led to lower accident volumes and fewer vehicle assignments. Because most revenue is recognized only once auctions close, the effects are expected to continue into future quarters. Other risks include a possible second wave of infections, government restrictions, and deteriorating economic conditions.
Why did the effective tax rate drop so sharply?
The effective tax rate fell to 12.6% from 16.1%. The main driver was $92.5 million of excess tax benefits from employee stock option exercises, recognized as discrete items under ASU 2016-09. This benefit is tied to the stock price and exercise activity, so it may not recur at the same level, and it should be considered when evaluating earnings quality.
Is Copart financially positioned to fund its growth?
Yes. Cash rose to $477.7 million and total liquidity was $1.5 billion at July 31, 2020. The company repaid all revolver borrowings drawn in March 2020 and then upsized and extended its revolving facility to $1.05 billion through July 2023. Management believes existing cash and operating cash flow ($917.9 million in fiscal 2020) are sufficient for at least the next 12 months, though capital spending of $592 million is substantial.
Does Copart pay dividends or buy back stock?
Copart has never paid a cash dividend and currently intends to retain earnings. It made no share repurchases in fiscal 2020, after buying back 7.6 million shares for $365 million in fiscal 2019. Roughly 81.5 million shares remain available under the repurchase authorization. The credit agreement permits dividends and repurchases subject to leverage tests, and the company currently has net cash, so those tests are not a constraint.
06—Continue