10-QPeriod: Q3 FY2008

COPART INC Quarterly Report for Q3 Ended Apr 30, 2008

Filed June 9, 2008For Securities:CPRT

Summary

Copart, Inc. (CPRT) reported robust revenue growth of 51.8% for the three months ended April 30, 2008, reaching $221.2 million, driven significantly by its newly acquired UK operations, which contributed $60.6 million in revenue. While North American revenue also saw a healthy increase, the UK operations, which largely function on a principal model (purchasing and reselling vehicles), resulted in a lower gross margin percentage (9%) compared to North America (51%). This shift in operational model and geographic expansion impacted the overall net income margin, which decreased to 21.0% from 26.7% in the prior year's comparable period, despite a net income increase to $46.5 million. The company also expanded its credit facility to $200 million and actively repurchased shares during the period, underscoring a focus on growth and shareholder returns.

Key Highlights

  • 1Total revenues increased by 51.8% to $221.2 million for the three months ended April 30, 2008, primarily due to the integration of UK acquisitions.
  • 2Net income rose to $46.5 million, an increase from $38.9 million in the prior year's quarter, though net income as a percentage of revenue decreased due to the principal-based UK model.
  • 3The company expanded its operations significantly in the UK through multiple acquisitions (Universal, Century, AG Watson, Simpson Bros), contributing substantially to revenue but impacting gross margins.
  • 4Operating income showed a solid increase, growing from $57.2 million to $68.7 million for the quarter, indicating strong underlying operational performance.
  • 5Short-term investments, primarily auction rate securities, were $0 as of April 30, 2008, down from $102.6 million at July 31, 2007.
  • 6Copart entered into a new $200 million unsecured revolving credit facility on March 6, 2008.
  • 7The company repurchased approximately 3.8 million shares of common stock during the nine months ended April 30, 2008, under an expanded repurchase program.

Frequently Asked Questions

The UK acquisitions, notably Universal Salvage, Century, AG Watson, and Simpson Bros, significantly boosted Copart's revenue, contributing $60.6 million in the latest quarter. However, because the UK operations primarily function on a principal model (buying and reselling vehicles) rather than an agency model (earning fees), this led to lower gross margins (9% in the UK vs. 51% in North America) and a decrease in the overall net income margin compared to the previous year, despite higher absolute net income.

As of April 30, 2008, Copart had no short-term investments, a significant decrease from $102.6 million in auction rate securities held at July 31, 2007. The company converted its entire portfolio of auction rate securities to cash and cash equivalents prior to October 31, 2007.

Copart generated strong cash flow from operations, increasing to $140.5 million for the nine months ended April 30, 2008. The company also established a new $200 million revolving credit facility in March 2008 to support general corporate purposes, including stock repurchases and capital expenditures. Furthermore, Copart continued its share repurchase program, buying back approximately 3.8 million shares during the reported nine-month period.

Yard operation expenses increased substantially by 83.0% year-over-year for the quarter, reaching $133.0 million. This increase was largely driven by the new UK operations, which accounted for $53.9 million in expenses, including $40.0 million for the cost of purchased cars under the principal model. In North America, yard operation expenses increased due to higher volumes and an impairment charge for a building.