01—Abstract
Summary
Summary of the 10-K filed September 27, 2022. Cited figures are marked; the original filing is the authoritative source.
Copart (CPRT) reported fiscal 2022 (year ended July 31, 2022) total service revenues and vehicle sales of $3.50 billiona, up 30% from $2.69 billion in fiscal 2021, with operating income of $1.37 billion (39% operating margin, versus 42% in fiscal 2021) and net income of $1.09 billion, up 16%.
Diluted EPS was $4.52b versus $3.90. Growth was driven by a 25.6% rise in U.S. service revenue, supported by higher revenue per vehicle amid tight used-vehicle supply and higher miles driven after reopening. Vehicle sales, where Copart takes principal risk, grew 62% to $648 million, while cost of vehicle sales rose 69%, so this higher-risk principal business dilutes margins.
Operating margin compression was driven by yard operations expense growth of 30.5%, partly from Hurricane Ida costs and subhauling and labor inflation. Balance sheet strength improved meaningfully. Cash, cash equivalents, and restricted cash reached $1.38 billionc, up 32%, and the company had zero borrowings under its $1.25 billion revolving facility.
Copart retired its $400 milliond senior notes in May 2022 at a cost of $420.6 million, including a $16.8 million make-whole payment, which produced a one-time loss on extinguishment of debt. Operating cash flow was $1.18 billion, while capital expenditures fell to $337 million from $463 million. The company repurchased no shares in fiscal 2022 and has $81.5 million of authorization remaining, and it has never paid a cash dividend.
Management is considering buybacks, dividends, and acquisitions for excess cash. Key risks flagged include dependence on a limited number of large insurance sellers (80% of vehicles came from insurers), expansion into international markets (about 16% of revenue), a pending U.K.
Competition and Markets Authority review of the Hills Motors acquisition, cybersecurity exposure, and the 1% excise tax on share repurchases enacted under the Inflation Reduction Act. Weather and total loss frequency remain key drivers of volume.
02—Key points
Key Highlights
- Revenue of $3.50B grew 30% year over year, led by U.S. service revenue up 25.6% to $2.53B and vehicle sales up 62% to $648M.
- Operating income rose 21% to $1.37B, but operating margin contracted to 39% from 42% as yard operations costs grew 30.5% and cost of vehicle sales grew 69%.
- Net income of $1.09B (up 16%) and diluted EPS of $4.52 (up from $3.90), with income tax expense rising to an effective rate of 18.7%.
- Cash, equivalents, and restricted cash reached $1.38B, and the $1.25B revolver remained undrawn, giving the company substantial liquidity.
- Retired all $400M of senior notes in May 2022 for $420.6M, including a $16.8M make-whole payment, which created a $16.8M one-time loss on extinguishment of debt.
- No share repurchases in fiscal 2022; $81.5M remains under the 196M-share authorization, and no cash dividends have ever been paid.
- Customer and geographic concentration risk: insurers supplied 80% of vehicles, and a pending U.K. CMA review of the Hills Motors acquisition could force divestiture.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2022filed September 27, 2022Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $3.50B$2.69B | +30.0% |
| Operating Expenses | $2.13B$1.56B | +36.6% |
| Operating Income | $1.37B$1.14B | +21.0% |
| Net Income | $1.09B$936.50M | +16.4% |
| EPS (Basic) | $1.15$0.99 | +16.2% |
| EPS (Diluted) | $1.13$0.97 | +16.5% |
| Shares Outstanding (Basic) | 949.68M945.01M | +0.5% |
| Shares Outstanding (Diluted) | 964.60M961.16M | +0.4% |
05—Questions
Frequently Asked Questions
Why did Copart's operating margin decline despite strong revenue growth?
Operating margin fell from 42% to 39% because costs grew faster than revenue in key areas. Yard operations expenses rose 30.5%, driven by higher subhauling and labor costs, premiums tied to Hurricane Ida, and volume growth. Cost of vehicle sales rose 69% as the company bought and resold more vehicles on its own account, a lower-margin business that also carries inventory risk.
How strong is Copart's balance sheet and liquidity position?
Very strong. Cash and equivalents of $1.38B, zero revolver borrowings against a $1.25B facility, and total stockholders' equity of $4.63B (up 31%) indicate substantial financial flexibility. Total liabilities fell to $683M after the senior note retirement, and the consolidated net leverage ratio was negative (0.80x).
What is management doing with its excess cash?
The company said it is considering several uses, including additional share repurchases, dividends, and acquisitions. It did not buy back stock in fiscal 2022. Capital expenditures fell to $337M from $463M, and the company plans to keep expanding facilities, with new greenfield yards contingent on suitable zoned land.
What are the most significant risks to Copart's business?
The main risks are dependence on a limited number of insurance company sellers, which supplied 80% of vehicles; reliance on total loss frequency and used-car prices, which are affected by accident rates and fuel costs; international expansion and foreign currency exposure; cybersecurity and ransomware threats; and the pending U.K. CMA review of the Hills acquisition. Regulatory and tax changes, including the 1% excise tax on buybacks, are also relevant.
06—Continue