01—Abstract
Summary
Summary of the 10-Q filed February 27, 2024. Cited figures are marked; the original filing is the authoritative source.
Copart's 10-Q for the fiscal second quarter ended January 31, 2024 shows a business that kept growing on both revenue and profit.
Total service revenues and vehicle sales rose 6.5% to $1.02 billiona for the quarter, and for the six months they rose 10.3% to $2.04 billion. Service revenues grew 9.1% in the quarter, led by a 7.1% rise in the U.S. (fee optimization and volume) and a 25.7% rise internationally, though part of the international gain came from currency. Vehicle sales fell 5.1%, reflecting lower auction selling prices in the U.S. Operating income rose 3.9% to $379.9 million, and diluted EPS was $0.33 versus $0.30 a year earlier.
The quarter's headline profit improvement was helped by interest income, which nearly tripled to $34.0 millionb as cash was invested in U.S. Treasury Bills. Operating margin, however, eased slightly, as yard operations and G&A expenses grew faster than revenue. G&A rose 38.2%, driven by labor, legal, software, marketing, and the consolidation of the Purple Wave acquisition.
Cash, cash equivalents, and restricted cash increased to $1.26 billionc, and the company carries no revolver borrowings after repaying $11.0 million. Operating cash flow was $537.0 million for the six months, up 7.4%, and capital expenditures and acquisitions reached $379.7 million, up 48%. The main investor overhang is a U.S. Department of Justice investigation into potential money-laundering violations related to the company's member-screening practices.
The company received a DOJ letter in October 2023, is cooperating, and says it cannot predict the range of possible loss. The 10-Q adds no accrual for this matter.
Management describes the company as having sufficient liquidity for the foreseeable future, and it states that the credit agreement does not meaningfully restrict dividends. The company has not paid a cash dividend since becoming public in 1994.
02—Key points
Key Highlights
- Revenue growth: total service revenues and vehicle sales were $1,020.1 million for the quarter, up 6.6% from $956.7 million. Six-month revenue rose 10.3% to $2,040.6 million.
- Profitability: operating income rose 3.9% to $379.9 million, but operating margin slipped to 37% from 39% as operating costs grew faster than revenue. Net income attributable to Copart was $325.6 million, up 10.9%.
- Per-share results: diluted EPS was $0.33 for the quarter versus $0.30 a year earlier, and $0.68 for the six months versus $0.56.
- Interest income tripled: net interest income rose to $34.0 million from $14.5 million, driven by T-bill investments. This is a meaningful contributor to the earnings growth.
- Cost pressure: G&A expense rose 38.2% to $84.3 million, driven by labor, legal, software, and marketing costs and the consolidation of Purple Wave. Yard operations expense rose 9.0%.
- Balance sheet strength: cash, cash equivalents, and restricted cash reached $1.26 billion. Held-to-maturity T-bills totaled $1.41 billion, and the revolver was fully repaid. Total equity is $6.79 billion.
- Legal overhang: a DOJ money-laundering investigation is ongoing, and the company cannot estimate the range of possible loss. Investors should watch this for potential fines or remedies.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed February 27, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.02B$956.72M | +6.6% |
| Operating Expenses | $640.25M$591.20M | +8.3% |
| Operating Income | $379.90M$365.52M | +3.9% |
| Net Income | $325.63M$293.68M | +10.9% |
| EPS (Basic) | $0.34$0.31 | +9.7% |
| EPS (Diluted) | $0.33$0.30 | +10.0% |
| Shares Outstanding (Basic) | 960.52M952.75M | +0.8% |
| Shares Outstanding (Diluted) | 974.59M965.07M | +1.0% |
05—Questions
Frequently Asked Questions
How did Copart perform in the fiscal second quarter ended January 31, 2024?
Copart grew total service revenues and vehicle sales 6.6% to $1.02 billion, and operating income rose 3.9% to $379.9 million. Diluted EPS was $0.33, up from $0.30. Growth came mainly from service revenues, which rose 9.1%, while vehicle sales declined 5.1%.
What is the main risk raised in this filing?
The filing discloses an ongoing U.S. Department of Justice investigation into potential violations of money-laundering laws tied to how Copart screens and monitors its members. The company received a letter from the DOJ in October 2023 and is cooperating. It cannot predict the outcome, the size of any fines, or possible remedies, and it has recorded no accrual for the matter.
Why did operating margin decline even though revenue and profit grew?
Operating expenses grew faster than revenue. G&A rose 38.2%, reflecting higher labor, legal, software, and marketing costs and the consolidation of Purple Wave, which was acquired in October 2023. Yard operations rose 9.0%, driven by volume growth, higher labor costs, and depreciation from new facilities. Operating margin fell to 37% from 39%.
How strong is Copart's liquidity, and does it pay dividends?
Liquidity is strong. Cash, cash equivalents, and restricted cash totaled $1.26 billion, and there are $1.41 billion of held-to-maturity T-bills. Copart repaid its $11.0 million revolver balance, and minimum liquidity available was $3.9 billion. Copart has not paid a cash dividend since becoming a public company in 1994, and its credit agreement does not significantly restrict future dividends if the company chooses to pay them.
What drove growth in international operations?
International service revenues rose 25.7% in the quarter to $105.7 million. About $4.1 million of that growth came from favorable currency movements, and the rest came mainly from higher volume, partly offset by a slight decline in revenue per car. The company also expanded through the Glasgow, Corby, and Alhendin facilities and the Purple Wave acquisition.
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