Copart(US:CPRT)2022-09-27 20:27Part I Business Copart leads global online vehicle auctions and remarketing services for insurance companies across 11 countries, leveraging its VB3 platform Overview - Copart is a leading global provider of online auctions and vehicle remarketing services with operations in the U.S., Canada, U.K., Brazil, Republic of Ireland, Germany, Finland, U.A.E., Oman, Bahrain, and Spain - The company's business model contributes to environmental sustainability by extending the useful life of vehicles and their parts, thereby reducing the carbon footprint associated with new vehicle and parts manufacturing - Vehicle sellers are primarily insurance companies, but also include banks, finance companies, charities, fleet operators, and individuals. Buyers are mainly licensed vehicle dismantlers, rebuilders, used vehicle dealers, and exporters Fiscal 2022 Financial Highlights | Metric | Amount (USD) | | :--- | :--- | | Revenues | $3.5 billion | | Operating Income | $1.4 billion | Industry Overview - The vehicle remarketing industry provides a venue for sellers to liquidate vehicles to a broad buyer pool. Copart's primary sellers are insurance companies dealing with vehicles declared a 'total loss' - The largest group of vehicle buyers are dismantlers, who either sell parts individually or sell the entire vehicle to rebuilders or dealers. Other buyers include rebuilders, repair licensees, and used vehicle dealers - Increasing vehicle complexity (e.g., advanced safety systems, electronics) makes repairs more costly, leading to a higher likelihood of vehicles being deemed a 'total loss' by insurance companies Operating and Growth Strategy - Copart's growth strategy focuses on four key areas: - Acquiring and developing vehicle storage facilities in key domestic and foreign markets - Pursuing global, national, and regional vehicle seller agreements - Expanding service offerings for both sellers and buyers - Expanding the application of its VB3 online auction platform into new markets Our Competitive Advantages - Extensive geographic coverage across 11 countries provides sellers with broad buyer access, reduced transportation costs, and rapid response to natural disasters - A comprehensive range of value-added services, powered by its VB3 technology, includes internet bidding, mobile applications, online payment capabilities, and sophisticated vehicle processing - The company has a proven ability to successfully acquire and integrate new facilities into its global network, leveraging its technology infrastructure and operational expertise Our Business Segments Revenue by Segment (Fiscal Year 2022) | Segment | Revenue Percentage | | :--- | :--- | | U.S. | 84.1% | | International | 15.9% | Our Service Offerings - Copart provides a suite of digital tools for sellers, including 'Copart Access' for online vehicle management, 'Copart ProQuote' for salvage value estimation, and 'IntelliSeller' for automated auction decision-making - The company offers flexible vehicle processing programs: Percentage Incentive Program (PIP), Consignment Program, and a Purchase Program (primarily in the U.K.) - Services for the public and dealers include 'Cash For Cars' for direct vehicle purchasing, 'Copart Dealer Services' for trade-ins, and 'National Powersport Auctions' for non-salvage powersports Sales - No single customer accounted for more than 10% of consolidated revenues in fiscal 2022, 2021, or 202070 - Insurance company sellers are the primary source of vehicles, accounting for 80% of the total number of vehicles processed in fiscal 202270 Competition - Key competitors in the U.S. include Insurance Auto Auctions, Inc. (IAA), KAR Auction Services, Inc. (KAR), Manheim, Inc., ACV Auctions Inc., and the large national dismantler LKQ Corporation74 Employees and Human Capital Employee Statistics as of July 31, 2022 | Metric | Number/Percentage | | :--- | :--- | | Total Employees | ~9,500 | | U.S. Employees | ~70% | | International Employees | ~30% | | U.S. Female Employees | ~48% | | U.S. Female Management | 33% | Seasonality - The business is subject to seasonality, with higher demand for services during winter months due to more weather-related accidents. Severe weather events like hurricanes and floods can also significantly impact vehicle volumes89 Risk Factors Copart faces risks from seller concentration, international operations, cybersecurity, competition, vehicle supply, and regulatory changes - A limited number of vehicle sellers historically account for a substantial portion of revenues, and the loss of a significant seller could materially impact results91 - Expansion into markets outside the U.S. exposes the company to risks including foreign currency exchange rates, complex regulations (like FCPA and GDPR), and difficulties in adapting its business model to new markets9194106 - The business is exposed to online commerce security risks, including data breaches, credit card fraud, and system disruptions, which could damage its reputation and result in financial loss96112 - Mild weather can reduce the supply of salvage vehicles by decreasing accident rates, while extreme weather can create an oversupply that leads to abnormal expenses and capacity constraints102103 - Macroeconomic factors such as high fuel prices, fluctuations in used car prices, and vehicle-related technological advances (e.g., accident avoidance systems) could reduce accident rates and total loss frequency, adversely affecting revenue growth121 Properties The company's corporate headquarters are in Dallas, Texas, with a global network of owned and leased operational facilities - Copart owns or leases facilities in every U.S. state except Vermont, as well as in Canada, the U.K., Brazil, the Republic of Ireland, the U.A.E., Oman, Bahrain, Finland, Germany, and Spain125 Legal Proceedings The company is subject to ordinary course litigation but reports no material pending legal proceedings significantly impacting its financial condition - Information regarding legal proceedings is referenced in Note 15 of the Notes to Consolidated Financial Statements126 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Copart's common stock trades on NASDAQ ('CPRT'), with an authorized repurchase program but no recent activity or cash dividends - The company's common stock trades on the NASDAQ Global Select Market under the symbol 'CPRT'129 Stock Repurchase Program Status as of July 31, 2022 | Metric | Shares | | :--- | :--- | | Total Authorization | 196,000,000 | | Total Repurchased | 114,549,198 | | Available for Repurchase | 81,450,802 | - No shares were repurchased under the program in fiscal 2022, 2021, or 2020130 - Copart has not paid a cash dividend since becoming a public company in 1994 and currently intends to retain earnings133 Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2022 revenues grew to $3.5 billion from service and vehicle sales, with increased operating expenses and strong liquidity Results of Operations Consolidated Revenue Comparison (in thousands) | Revenue Type | FY 2022 (thousands) | FY 2021 (thousands) | % Change | | :--- | :--- | :--- | :--- | | Service Revenues | $2,853,040 | $2,291,867 | 24.5% | | Vehicle Sales | $647,881 | $400,644 | 61.7% | - The increase in service revenues in FY2022 was driven by higher revenue per car due to vehicle scarcity and increased volume from economic reopening161 Consolidated Operating Expense Comparison (in thousands) | Expense Type | FY 2022 (thousands) | FY 2021 (thousands) | % Change | | :--- | :--- | :--- | :--- | | Yard Operations | $1,309,497 | $1,003,292 | 30.5% | | Cost of Vehicle Sales | $585,203 | $346,128 | 69.1% | | General & Administrative | $231,224 | $206,665 | 11.9% | - Yard operations expenses increased due to higher volume, increased subhaul and labor costs, and premium costs associated with Hurricane Ida163 - The effective income tax rate increased to 18.7% in FY2022 from 16.5% in FY2021, unfavorably impacted by discrete tax adjustments related to the prior year's tax return169 Liquidity and Capital Resources Key Liquidity and Cash Flow Metrics (in thousands) | Metric | July 31, 2022 (thousands) | July 31, 2021 (thousands) | | :--- | :--- | :--- | | Cash, cash equivalents, and restricted cash | $1,384,236 | $1,048,260 | | Working capital | $1,761,566 | $1,281,580 | | Net cash provided by operating activities | $1,176,683 | $990,891 | | Net cash used in investing activities | ($442,310) | ($465,466) | | Net cash used in financing activities | ($382,693) | $40,922 | - On December 21, 2021, the company amended and restated its credit agreement, increasing the revolving credit facility to $1.25 billion and extending the maturity to December 2026185335 - On May 24, 2022, the company retired 100% of its Senior Notes, paying $420.6 million, which included a $16.8 million make-whole payment188341 Critical Accounting Policies and Estimates - Key critical accounting policies include Revenue Recognition, where service and vehicle sales revenue is recognized at the date of auction, and the accounting for Uncertain Tax Positions, which requires significant judgment190192198 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate risk on cash equivalents and variable-rate debt, and foreign currency risk from international operations - Principal financial market risks are identified as interest rate risk, foreign currency risk, and translation risk203 - A hypothetical 10% adverse change in the value of the U.S. dollar relative to the currencies of its international operations would have resulted in a decrease in operating income of $12.0 million for fiscal 2022206 Financial Statements and Supplementary Data This item presents the audited consolidated financial statements for fiscal year ended July 31, 2022, including key financial statements and notes - This section contains the audited consolidated financial statements and supplementary data as listed in the index on page 69209247 Controls and Procedures Management confirmed effective disclosure controls and internal financial reporting as of July 31, 2022, supported by an unqualified auditor opinion - Management concluded that as of July 31, 2022, the company's disclosure controls and procedures were effective211 - Management concluded that the company's internal control over financial reporting was effective as of July 31, 2022, based on the COSO 2013 framework214 - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of July 31, 2022215218 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance practices is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement227 Executive Compensation Details regarding executive and director compensation are incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement230 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership by beneficial owners and management, and equity compensation plans, is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement231 Certain Relationships and Related Transactions, and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement232 Principal Accounting Fees and Services Details on fees and services from the principal independent registered public accounting firm are incorporated by reference from the 2022 Proxy Statement - Information is incorporated by reference from the company's 2022 Proxy Statement233 Part IV Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Form 10-K, including consolidated financial statements and various exhibits - This section lists the financial statements, financial statement schedules (if any), and exhibits filed with the Form 10-K234235