01—Abstract
Summary
Summary of the 10-Q filed May 23, 2024. Cited figures are marked; the original filing is the authoritative source.
Copart's third-quarter fiscal 2024 10-Q (quarter ended April 30, 2024) shows a business still growing revenue and profit at a healthy clip.
Total service revenues and vehicle sales rose 10.3% year over year to $1.127 billiona for the quarter, and service revenues grew 11.7% to $946.6 million, driven by volume growth and fee optimization in the U.S. and higher volumes internationally. Net income attributable to Copart rose 9.1% to $382.3 million, and diluted EPS reached $0.39 versus $0.36 a year earlier. For the nine months, revenue was $3.17 billion (up 10.3%) and net income was $1.04 billion (up 16.9%).
Operating margin for the quarter was 38.8% (operating income of $437.2 millionb), compared with 41.0% a year ago, as yard operations and general and administrative costs grew faster than revenue. Margin pressure is the main watch item. Yard operations expense rose 15.8% in the quarter, and G&A jumped 36.9%, which management attributes to labor, legal, software, and the consolidation of the Purple Wave acquisition.
Other income more than doubled to $34.9 millionc, supported by interest on U.S. Treasury bills, so pre-tax income grew faster than operating income. Vehicle sales were flat-to-up in the quarter but down 1.6% for the nine months, reflecting lower auction selling prices in the U.S. Balance sheet strength is a clear positive. Cash, cash equivalents, and restricted cash rose to $1.09 billion, and held-to-maturity Treasury bills reached $2.0 billion, for roughly $3.1 billion in liquid assets.
The company carries no funded debt, having repaid its $11 milliond revolver balance, and has $1.25 billion of revolver capacity. The company repurchased no shares during the nine months and has not paid a cash dividend since its 1994 IPO, although management says it is considering buybacks, acquisitions, and dividends. The most significant new risk is an ongoing U.S. Department of Justice investigation into potential anti-money-laundering violations; the company received a letter in October 2023 and says it cannot yet estimate the range of possible loss.
02—Key points
Key Highlights
- Revenue growth: Total service revenues and vehicle sales were $1.127 billion for the quarter, up 10.3% year over year, and service revenues grew 11.7% to $946.6 million, led by 10.5% growth in the U.S. and 21.8% growth internationally.
- Earnings: Diluted EPS was $0.39 for the quarter versus $0.36 a year earlier (up 8.3%), and nine-month diluted EPS was $1.07 versus $0.92 (up 16.3%).
- Margin compression: Operating margin fell to 38.8% from 41.0% in the prior-year quarter, as yard operations expense rose 15.8% and G&A rose 36.9%, partly from labor, legal, software, and Purple Wave consolidation.
- Interest income: Net interest income nearly doubled to $36.2 million in the quarter, driven by higher yields on U.S. Treasury bills and a larger balance of held-to-maturity securities.
- Liquidity: Cash and restricted cash of $1.09 billion plus $2.0 billion in held-to-maturity Treasury bills, with no funded debt after the revolver balance was repaid to zero.
- Capital returns: No share repurchases in the nine months and no dividends paid since 1994, with 326 million shares still authorized under the repurchase program.
- Legal overhang: The DOJ's ongoing money-laundering investigation, first disclosed through an October 2023 letter, carries uncertain potential fines and penalties, and management says it cannot estimate the range of possible loss.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2024filed May 23, 2024Financial Statements
Q3 FY2024 against Q3 FY2023
| Line item | Q3 FY2024Q3 FY2023 | Change |
|---|---|---|
| Revenue | $1.13B$1.02B | +10.3% |
| Operating Expenses | $690.06M$602.91M | +14.5% |
| Operating Income | $437.20M$418.92M | +4.4% |
| Net Income | $382.29M$350.43M | +9.1% |
| EPS (Basic) | $0.40$0.37 | +8.1% |
| EPS (Diluted) | $0.39$0.36 | +8.3% |
| Shares Outstanding (Basic) | 961.81M953.57M | +0.9% |
| Shares Outstanding (Diluted) | 976.45M967.38M | +0.9% |
05—Questions
Frequently Asked Questions
How did Copart perform in the quarter ended April 30, 2024?
Copart grew revenue and earnings. Total service revenues and vehicle sales rose 10.3% to $1.127 billion, operating income increased 4.4% to $437.2 million, and net income attributable to Copart rose 9.1% to $382.3 million, or $0.39 per diluted share. Operating margin declined about 2.2 percentage points as operating costs grew faster than revenue.
Why did operating expenses grow faster than revenue?
Yard operations expense rose 15.8%, driven by higher volume, increased subhauling costs, labor, supplies, and the Purple Wave acquisition, along with higher depreciation from new and expanded facilities. G&A rose 36.9%, mainly from labor, legal, computer software, and the consolidation of Purple Wave, which the company acquired in October 2023.
Is Copart carrying any debt, and how strong is its liquidity?
Copart had no outstanding borrowings under its $1.25 billion revolving credit facility as of April 30, 2024, down from $11.0 million at fiscal year-end 2023. Liquidity is strong, with about $1.09 billion of cash and restricted cash, $2.0 billion in held-to-maturity Treasury bills, and minimum available liquidity of $4.3 billion under the credit agreement. Management says current resources are sufficient for its foreseeable needs.
What is the main legal or regulatory risk disclosed?
The U.S. Department of Justice's Consumer Protection Branch is investigating potential violations of money-laundering laws related to Copart's procedures for detecting money-laundering activity by its members. Copart received a letter from the DOJ in October 2023, is cooperating with the investigation, and says it cannot predict the duration, scope, or outcome or estimate the range of possible loss. The filing also notes that the investigation could lead to fines, penalties, or other remedies.
Does Copart pay dividends or repurchase shares?
Copart has not paid a cash dividend since its 1994 IPO and did not repurchase any shares during the nine months ended April 30, 2024 or 2023. Management says it is considering additional buybacks, acquisitions, and dividends for its remaining cash, and 326 million shares remain available under the repurchase authorization. The credit agreement does not restrict dividends if the net leverage ratio stays below 3.25:1, and the ratio was (1.61):1 at quarter-end.
06—Continue