10-QPeriod: Q2 FY2009

COPART INC Quarterly Report for Q2 Ended Jan 31, 2009

Filed March 12, 2009For Securities:CPRT

Summary

Copart, Inc. reported decreased net income for the three and six months ended January 31, 2009, compared to the prior year, primarily due to a decline in vehicle sales revenue and increased yard operation expenses. Despite a challenging economic environment, the company saw growth in remarketing service fee revenue, driven by increased volume from insurance companies and banks, and a slight increase in revenue yield, excluding foreign currency impacts. The company's liquidity remains adequate, with sufficient cash generated from operations to meet its working capital requirements for at least the next 12 months. Copart also continues its strategy of expansion through acquisitions and new facility development, albeit with a cautious outlook given the prevailing economic conditions. The company's balance sheet shows a decrease in cash and cash equivalents and an increase in accounts receivable. Goodwill has decreased due to foreign currency exchange rates. The company also highlighted risks associated with its UK operations, including the principal-based sales model which negatively impacts gross margin percentages and exposes it to inventory risks. Management continues to monitor market risks, including interest rate and foreign currency fluctuations, and has not engaged in hedging activities for these exposures.

Key Highlights

  • 1Net income decreased by 15.2% to $27.2 million for the three months ended January 31, 2009, and by 7.5% to $64.4 million for the six months ended January 31, 2009, compared to the same periods in the prior year.
  • 2Remarketing service fee revenue increased by 2% ($2.2 million) for the three months and 4.3% ($12.4 million) for the six months, indicating resilience in its core service offering.
  • 3Vehicle sales revenue declined by 18% ($5.8 million) for the quarter and 11.8% ($8.4 million) for the six months, impacted by lower vehicle prices and foreign currency exchange rates.
  • 4Yard operation expenses increased by 2.0% for the quarter and 4.6% for the six months, driven by higher subhauling costs, payroll, and facilities costs.
  • 5Cash and cash equivalents decreased by $16.5 million from July 31, 2008, to January 31, 2009, standing at $22.4 million.
  • 6The company did not repurchase any shares of common stock during the six months ended January 31, 2009, compared to approximately $40.9 million repurchased in the same period last year.
  • 7Goodwill decreased by $17.7 million due to foreign currency exchange rates, now standing at $159.4 million.

Frequently Asked Questions

Copart experienced a decline in net income for both the three and six-month periods ended January 31, 2009, compared to the prior year. While remarketing service fee revenue showed growth, this was offset by a decrease in vehicle sales revenue and an increase in operating expenses, particularly yard operations.

The company believes its current cash and cash equivalents, along with cash generated from operations, are sufficient to meet its working capital needs for at least the next 12 months. They are also exploring potential internal and external sources for additional working capital if needed, while acknowledging the uncertainty of future debt or equity issuance terms.

Key risks include dependence on a limited number of major vehicle sellers, risks associated with international operations (particularly in the UK), potential goodwill impairment, the impact of operating on a principal basis in the UK, technology risks related to their internet-based sales model, capacity constraints at storage facilities, adverse weather conditions, macroeconomic factors, industry competition, and challenges in managing growth through acquisitions and new facility development.

Fluctuations in foreign currency exchange rates, primarily between the GBP and USD, had a negative impact on both vehicle sales revenue and remarketing service fee revenue. The company reported that excluding these currency impacts, fee revenue showed growth, and vehicle sales revenue also increased, although actual reported figures showed declines.