10-QPeriod: Q3 FY2017

COPART INC Quarterly Report for Q3 Ended Apr 30, 2017

Filed May 25, 2017For Securities:CPRT

Summary

Copart, Inc. (CPRT) reported strong growth in its Q3 2017 filing, with significant increases in service revenues driven by both domestic and international operations. The U.S. market showed robust expansion, fueled by increased volumes from new and existing insurance company contracts, and a rise in total loss frequency. International revenue also saw growth, despite negative impacts from foreign currency fluctuations, primarily due to increased volume. The company continues its strategic expansion, opening new facilities across the U.S., Ireland, Spain, Germany, and Brazil. This expansion is supported by a strong liquidity position, with substantial increases in cash and cash equivalents and working capital driven by operating cash flows. While the company's debt facilities provide ample liquidity, it also maintains a strong leverage ratio, indicating a healthy financial structure.

Financial Highlights

53 data points
Beta

Revenue

$373.86M

46.1% Gross Margin

Net Income

$90.55M

24.2% Net Margin

EPS (Diluted)

$0.10

Total Assets

$1.81B

Cash & Equivalents

$189.62M

Free Cash Flow

$160.00M

Financial Statements
Beta
Revenue$373.86M
Cost of Revenue$34.78M
Gross Profit$172.50M
Operating Income$136.79M
Interest Expense$5.87M
Net Income$90.55M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)919.68M
Shares Outstanding (Diluted)948.54M

Key Highlights

  • 1Service revenues increased by 9.5% for the three months ended April 30, 2017, and 16.5% for the nine months ended April 30, 2017, primarily driven by increased volume and higher average auction selling prices.
  • 2U.S. service revenues showed significant growth, up 10.4% for the quarter and 18.0% year-to-date, attributed to new contracts and increased total loss frequency.
  • 3International service revenues grew by 3.8% for the quarter and 6.8% year-to-date, despite a negative impact from foreign currency exchange rates.
  • 4Vehicle sales revenue decreased slightly by 5.1% for the quarter and 0.8% year-to-date, mainly due to a decline in international vehicle sales, partially offset by U.S. growth.
  • 5Yard operations expenses increased by 9.7% for the quarter and 17.4% year-to-date, largely in line with increased volume and expansion of facilities.
  • 6The company's liquidity position strengthened, with cash and cash equivalents increasing by 21.7% and working capital by 68.7%.
  • 7Operating cash flows saw a substantial increase of 66.9% for the nine-month period, indicating strong operational performance.

Frequently Asked Questions

Copart's revenue growth is primarily driven by an increase in service revenues. This growth stems from higher volumes of vehicles sold, particularly in the U.S. market, due to new and expanded contracts with insurance companies and an increase in total loss frequency. Higher average auction selling prices, potentially influenced by commodity prices, also contribute to revenue growth on a per-car basis.

Copart is actively expanding its international presence by acquiring and developing facilities in new regions. While this strategy offers growth opportunities, it also exposes the company to risks such as currency fluctuations, differing regulatory environments, integration challenges with acquired businesses, and the need to adapt its auction model to local market conditions. The report specifically mentions the impact of the British pound to U.S. dollar exchange rate on international revenue and costs.

Copart's financial health appears strong. The company reported a significant increase in cash and cash equivalents and working capital. Operating cash flows have also increased substantially, reflecting robust operational performance. The company has access to a substantial Revolving Loan Facility and maintains a healthy consolidated total net leverage ratio, indicating good liquidity and financial flexibility to support ongoing operations and expansion plans.

Yes, there is a significant ongoing matter regarding a sales and use tax audit in Georgia. The Georgia Department of Revenue initially assessed a substantial amount, but after discussions and review, the disputed principal amount has been reduced to $2.6 million plus applicable interest. While the company believes it has strong defenses and has adequately provided for potential assessments, an adverse resolution could still have a material impact. The company also notes ongoing litigation with a former ERP system vendor.