Copart(CPRT) - 2024 Q3 - Quarterly Report

PART I - Financial Information This section presents the unaudited financial statements and management's discussion and analysis for the reporting period Item 1 - Financial Statements (Unaudited) Presents Copart, Inc.'s unaudited consolidated financial statements and notes for the period ended April 30, 2024 Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity as of April 30, 2024 Consolidated Balance Sheet Highlights (In thousands) | Metric | April 30, 2024 | July 31, 2023 | Change | % Change | |:---|:---|:---|:---|:---| | Total Assets | $8,010,632 | $6,737,879 | $1,272,753 | 18.9% | | Current Assets | $4,149,129 | $3,262,604 | $886,525 | 27.2% | | Investment in held to maturity securities | $2,000,334 | $1,406,589 | $593,745 | 42.2% | | Accounts receivable, net | $822,650 | $702,038 | $120,612 | 17.2% | | Goodwill | $511,372 | $394,289 | $117,083 | 29.7% | | Total Liabilities | $814,446 | $750,439 | $64,007 | 8.5% | | Total Stockholders' Equity | $7,171,253 | $5,987,440 | $1,183,813 | 19.8% | Consolidated Statements of Income This statement details the company's revenues, expenses, and net income for the periods presented Consolidated Statements of Income Highlights (In thousands, except per share amounts) | Metric | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | % Change (3M) | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | % Change (9M) | |:---|:---|:---|:---|:---|:---|:---| | Service revenues | $946,630 | $847,249 | 11.7% | $2,667,911 | $2,363,886 | 12.9% | | Vehicle sales | $180,629 | $174,582 | 3.5% | $499,913 | $508,041 | -1.6% | | Total service revenues and vehicle sales | $1,127,259 | $1,021,831 | 10.3% | $3,167,824 | $2,871,927 | 10.3% | | Operating income | $437,203 | $418,924 | 4.4% | $1,212,479 | $1,095,952 | 10.6% | | Net income attributable to Copart, Inc. | $382,291 | $350,431 | 9.1% | $1,040,453 | $889,956 | 16.9% | | Basic net income per common share | $0.40 | $0.37 | 8.1% | $1.08 | $0.93 | 16.1% | | Diluted net income per common share | $0.39 | $0.36 | 8.3% | $1.07 | $0.92 | 16.3% | Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income components for the periods presented Consolidated Statements of Comprehensive Income Highlights (In thousands) | Metric | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | % Change (3M) | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | % Change (9M) | |:---|:---|:---|:---|:---|:---|:---|\n| Net income | $382,110 | $350,431 | 9.0% | $1,040,169 | $889,956 | 16.9% | | Foreign currency translation adjustments | $(11,528) | $4,048 | -384.8% | $(15,801) | $16,906 | -193.5% | | Comprehensive income attributable to Copart, Inc. | $370,763 | $354,479 | 4.6% | $1,024,652 | $906,862 | 13.0% | Consolidated Statement of Changes in Redeemable Noncontrolling Interests and Stockholders' Equity This statement outlines changes in equity, including noncontrolling interests, for the periods presented Changes in Stockholders' Equity (In thousands) | Metric | July 31, 2023 | April 30, 2024 | Change | |:---|:---|:---|:---| | Total Stockholders' Equity | $5,987,440 | $7,171,253 | $1,183,813 | | Additional Paid-in Capital | $938,910 | $1,102,684 | $163,774 | | Retained Earnings | $5,189,440 | $6,225,280 | $1,035,840 | | Accumulated Other Comprehensive Income (Loss) | $(141,006) | $(156,807) | $(15,801) | | Redeemable Noncontrolling Interest | $0 | $24,933 | $24,933 | Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Nine Months Ended April 30, In thousands) | Metric | 2024 | 2023 | Change | % Change | |:---|:---|:---|:---|:---|\n| Net cash provided by operating activities | $1,033,343 | $1,005,633 | $27,710 | 2.8% | | Net cash used in investing activities | $(916,494) | $(328,759) | $(587,735) | 178.8% | | Net cash provided by financing activities | $10,889 | $51,020 | $(40,131) | -78.7% | | Net increase in cash, cash equivalents, and restricted cash | $132,600 | $729,947 | $(597,347) | -81.8% | | Cash, cash equivalents, and restricted cash at end of period | $1,089,995 | $2,114,183 | $(1,024,188) | -48.4% | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements NOTE 1 – Summary of Significant Accounting Policies Outlines the company's accounting principles, revenue recognition, and financial instrument policies - Copart provides online vehicle auction and remarketing services, primarily for insurance companies, selling to licensed dismantlers, rebuilders, dealers, and the public. Revenue is derived from auction and related fees (agent model) and outright vehicle sales (principal model, mainly in UK, Germany, Spain)[22] - The company effected two-for-one common stock splits on November 3, 2022, and August 21, 2023, retroactively adjusting all share and per share amounts[23] - Service revenue from auction fees is recognized at the completion of the auction. Annual registration fees for platform access are recognized ratably over the one-year term. Vehicle sales revenue (where Copart acts as principal) is recognized at the auction date based on the gross sales price[26][27][29] Contract Assets (In thousands) | Metric | July 31, 2023 | April 30, 2024 | |:---|:---|:---|\n| Balance of capitalized contract assets | $25,726 | $51,470 | Foreign Currency Translation (In thousands) | Metric | July 31, 2023 | April 30, 2024 | |:---|:---|:---|\n| Cumulative loss on foreign currency translation | $(141,006) | $(156,807) | Investment in Held-to-Maturity Securities (In thousands) | Metric | July 31, 2023 | April 30, 2024 | |:---|:---|:---|\n| Amortized Cost | $1,406,589 | $2,000,334 | NOTE 2 — Acquisitions Details the acquisition of an 80% controlling interest in Purple Wave, Inc. and related financial impacts - On October 6, 2023, Copart acquired an 80% controlling interest in Purple Wave, Inc., an online offsite heavy equipment auction company[41] - The acquisition price was $108.0 million, with the fair value of merger consideration at $112.1 million, primarily allocated to intangible assets and goodwill[41] - A 20% redeemable noncontrolling interest in Purple Wave, Inc. was valued at $25.2 million[41] NOTE 3 — Accounts Receivable, Net Provides a breakdown of accounts receivable, net, and the allowance for credit loss Accounts Receivable, Net (In thousands) | Metric | April 30, 2024 | July 31, 2023 | |:---|:---|:---|\n| Accounts receivable, net | $822,650 | $702,038 | | Advance charges receivable | $616,324 | $537,261 | | Allowance for credit loss | $(12,332) | $(8,640) | NOTE 4 — Property and Equipment, Net Details the composition and changes in property and equipment, including depreciation expense Property and Equipment, Net (In thousands) | Metric | April 30, 2024 | July 31, 2023 | |:---|:---|:---|\n| Property and equipment, net | $3,073,090 | $2,844,339 | | Land | $1,972,821 | $1,812,001 | | Buildings and improvements | $1,442,039 | $1,339,820 | | Transportation and other equipment | $560,433 | $490,136 | Depreciation Expense (In thousands) | Period | 2024 | 2023 | |:---|:---|:---|\n| Three months ended April 30 | $47,400 | $35,500 | | Nine months ended April 30 | $129,200 | $109,200 | NOTE 5 – Leases Describes the company's lease arrangements, including expenses, cash flows, and rental income Total Lease Expense (In thousands) | Period | 2024 | 2023 | |:---|:---|:---|\n| Three months ended April 30 | $7,228 | $8,096 | | Nine months ended April 30 | $23,247 | $24,511 | Supplemental Cash Flow Information Related to Leases (Nine Months Ended April 30, In thousands) | Metric | 2024 | 2023 | |:---|:---|:---|\n| Operating cash flows related to operating leases | $18,085 | $19,507 | | Right-of-use assets obtained for new operating lease liabilities | $23,972 | $12,872 | Rental Income from Operating Leases (In thousands) | Period | 2024 | 2023 | |:---|:---|:---|\n| Three months ended April 30 | $4,400 | $4,000 | | Nine months ended April 30 | $13,000 | $12,300 | NOTE 6 – Goodwill and Intangible Assets Details changes in goodwill and intangible assets, including acquisition-related increases and amortization Intangibles, Net (In thousands) | Metric | April 30, 2024 | July 31, 2023 | |:---|:---|:---|\n| Intangibles, net | $76,786 | $62,702 | Goodwill (In thousands) | Metric | July 31, 2023 | April 30, 2024 | |:---|:---|:---|\n| Balance of goodwill | $394,289 | $511,372 | | Acquisitions during the period | - | $120,634 | Aggregate Amortization Expense (In thousands) | Period | 2024 | 2023 | |:---|:---|:---|\n| Three months ended April 30 | $3,300 | $1,900 | | Nine months ended April 30 | $10,000 | $5,600 | NOTE 7 – Long-Term Debt Outlines the company's revolving loan facility and compliance with debt covenants - The company has a $1,250.0 million Revolving Loan Facility maturing on December 21, 2026[54] Outstanding Borrowings Under Revolving Loan Facility (In thousands) | Date | Outstanding Borrowings | |:---|:---|\n| April 30, 2024 | $0.0 | | July 31, 2023 | $11,000 | - The company was in compliance with all covenants related to the Second Amended and Restated Credit Agreement as of April 30, 2024, with a consolidated total net leverage ratio of (1.61):1[56] NOTE 8 – Fair Value Measurements Details the fair value measurements of financial instruments, primarily cash equivalents and securities Fair Value of Financial Instruments (In thousands) | Metric | April 30, 2024 (Fair Value) | July 31, 2023 (Fair Value) | |:---|:---|:---|\n| Total Assets | $2,755,215 | $2,092,418 | | Cash equivalents | $736,806 | $677,515 | | Investment in held to maturity securities | $2,018,409 | $1,414,903 | - No transfers were made between any levels within the fair value hierarchy during the nine months ended April 30, 2024[58] NOTE 9 – Net Income Per Share Reconciles basic and diluted weighted average common shares outstanding for EPS calculation Weighted Average Common Shares Outstanding (In thousands) | Metric | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | |:---|:---|:---|:---|:---|\n| Weighted average common shares outstanding (Basic) | 961,813 | 953,574 | 960,143 | 952,834 | | Weighted average common and dilutive potential common shares outstanding (Diluted) | 976,445 | 967,380 | 974,226 | 965,436 | - Excluded from diluted EPS calculation were 631,147 options (3 months) and 1,937,294 options (9 months) for April 30, 2024, as their inclusion would have been anti-dilutive[60] NOTE 10 – Stock-based Compensation Details stock-based compensation plans, including options, RSAs, RSUs, PSUs, and related expenses Total Stock-based Compensation Expense (In thousands) | Period | 2024 | 2023 | |:---|:---|:---|\n| Three months ended April 30 | $9,018 | $10,081 | | Nine months ended April 30 | $26,694 | $30,404 | - Compensation cost attributable to Purple Wave, Inc. equity-based compensation plan was $1.3 million for the nine months ended April 30, 2024[66] Stock Options Outstanding (April 30, 2024, In thousands) | Type | Shares | Weighted Average Exercise Price | |:---|:---|:---|\n| Outstanding (without market conditions) | 16,809 | $18.23 | | Outstanding (with market conditions) | 5,995 | $24.70 | Restricted and Performance Shares Outstanding (April 30, 2024, In thousands) | Metric | Shares | Weighted Average Grant Date Fair Value | |:---|:---|:---|\n| Outstanding | 1,891 | $46.45 | NOTE 11 – Stock Repurchases Confirms no stock repurchases during the period and available shares for future repurchases - The company did not repurchase any shares of its common stock under the program during the nine months ended April 30, 2024, or 2023[69] - As of April 30, 2024, 326 million shares were available for repurchase under the program[69] NOTE 12 – Income Taxes Discusses effective income tax rates, excess tax benefits, and ongoing tax examinations Effective Income Tax Rates | Period | 2024 | 2023 | |:---|:---|:---|\n| Nine months ended April 30 | 20.4% | 21.3% | | Three months ended April 30 | 19.1% | 20.4% | Excess Tax Benefits from Stock-based Compensation (In thousands) | Period | 2024 | 2023 | |:---|:---|:---|\n| Three months ended April 30 | $6,900 | $4,400 | | Nine months ended April 30 | $12,600 | $5,100 | - The company is currently under examination by certain U.S. taxing authorities for fiscal years between 2019 and 2022[70] NOTE 13 – Recent Accounting Pronouncements Outlines recent FASB ASUs and their expected impact on the company's financial disclosures - ASU 2023-02 (Investments—Equity Method and Joint Ventures) is effective for fiscal years beginning after December 15, 2023, and is not expected to have a material impact[71] - ASU 2023-07 (Segment Reporting) is effective for fiscal years beginning after December 15, 2023, and management is currently evaluating its impact on disclosures[71] - ASU 2023-09 (Income Taxes) is effective for annual periods beginning after December 15, 2024, and management is currently evaluating its impact on disclosures[72] NOTE 14 – Legal Proceedings Addresses ordinary course litigation and an ongoing DOJ investigation into money laundering - The company is subject to threats of litigation and is involved in actual litigation and damage claims arising in the ordinary course of business, but believes any ultimate liability would not have a material effect on its consolidated results of operations, financial position, or cash flows[73][74] - The U.S. Department of Justice, Consumer Protection Branch (DOJ) is conducting an ongoing investigation into potential violations by the Company of certain money laundering laws. The Company is cooperating but is unable to predict the duration, scope, or result of any potential governmental, criminal, or civil proceeding, or the range of possible loss[75] NOTE 15 – Segments and Other Geographic Reporting Presents financial information for the U.S. and International reportable segments - The company's two reportable segments are U.S. and International, representing geographic areas[76] Total Service Revenues and Vehicle Sales by Segment (In thousands) | Segment | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | |:---|:---|:---|:---|:---|\n| United States | $918,916 | $833,758 | $2,590,548 | $2,370,536 | | International | $208,343 | $188,073 | $577,276 | $501,391 | Operating Income by Segment (In thousands) | Segment | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | |:---|:---|:---|:---|:---|\n| United States | $392,931 | $384,791 | $1,102,560 | $1,003,582 | | International | $44,272 | $34,133 | $109,919 | $92,370 | Total Assets by Segment (In thousands) | Segment | April 30, 2024 | July 31, 2023 | |:---|:---|:---|\n| United States | $7,034,960 | $5,825,064 | | International | $975,672 | $912,815 | Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of Copart's financial performance, condition, and operational results Overview Copart is a global online vehicle auction provider, emphasizing environmental stewardship and economic contributions - Copart is a leading 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[81] - The business facilitates global re-use and recycling of vehicles, parts, and raw materials, reducing environmental impact, and contributes to economic development by enabling affordable access to mobility and supporting disaster recovery[81] - Revenue is primarily derived from auction and auction related sales transaction fees (agent model) and, in some regions (U.K., Germany, Spain), from purchasing and reselling salvage vehicles (principal model)[84] - Revenue is impacted by total loss frequency and average vehicle auction selling price, which are influenced by market demand, used car pricing, parts demand, currency exchange rates, global supply chain, and commodity prices[84] - The company believes there is a long-term trend of increases in total loss frequency, driven by changes in used car values and repair costs[84] Acquisitions and New Operations Details Copart's growth strategy through acquisitions, new facility development, and service expansion - In October 2023, Copart acquired a controlling interest in Purple Wave, Inc., an online offsite heavy equipment auction company[87] - In fiscal year 2024, the company opened two new operational facilities in the U.K. (Corby, Glasgow), one in Spain (Alhendin, Granada), and one in the U.S. (Rutland, Vermont)[87] - Growth strategies include acquiring and developing additional vehicle storage facilities, pursuing global/national/regional vehicle seller agreements, increasing service offerings, and expanding the application of VB3 into new markets[87] Results of Operations Analyzes revenue growth, vehicle sales, and operating expenses for the periods presented Service Revenues Comparison (In thousands) | Segment | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | % Change (3M) | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | % Change (9M) | |:---|:---|:---|:---|:---|:---|:---|\n| United States | $830,680 | $752,077 | 10.5% | $2,349,241 | $2,109,467 | 11.4% | | International | $115,950 | $95,172 | 21.8% | $318,670 | $254,419 | 25.3% | | Total Service Revenues | $946,630 | $847,249 | 11.7% | $2,667,911 | $2,363,886 | 12.9% | Vehicle Sales Comparison (In thousands) | Segment | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | % Change (3M) | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | % Change (9M) | |:---|:---|:---|:---|:---|:---|:---|\n| United States | $88,236 | $81,681 | 8.0% | $241,307 | $261,069 | -7.6% | | International | $92,393 | $92,901 | -0.5% | $258,606 | $246,972 | 4.7% | | Total Vehicle Sales | $180,629 | $174,582 | 3.5% | $499,913 | $508,041 | -1.6% | Yard Operations Expenses Comparison (In thousands) | Segment | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | % Change (3M) | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | % Change (9M) | |:---|:---|:---|:---|:---|:---|:---|\n| United States | $369,577 | $323,426 | 14.3% | $1,062,859 | $973,067 | 9.2% | | International | $69,296 | $55,532 | 24.8% | $193,693 | $154,165 | 25.6% | | Total Yard Operations Expenses | $438,873 | $378,958 | 15.8% | $1,256,552 | $1,127,232 | 11.5% | General and Administrative Expenses Comparison (In thousands) | Segment | Three Months Ended April 30, 2024 | Three Months Ended April 30, 2023 | % Change (3M) | Nine Months Ended April 30, 2024 | Nine Months Ended April 30, 2023 | % Change (9M) | |:---|:---|:---|:---|:---|:---|:---|\n| United States | $75,096 | $50,590 | 48.4% | $201,667 | $147,456 | 36.8% | | International | $13,206 | $13,916 | -5.1% | $39,530 | $36,005 | 9.8% | | Total General and Administrative Expenses | $88,302 | $64,506 | 36.9% | $241,197 | $183,461 | 31.5% | Total Other Income Comparison (In thousands) | Period | 2024 | 2023 | Change | % Change | |:---|:---|:---|:---|:---|\n| Three months ended April 30 | $34,909 | $21,506 | $13,403 | 62.3% | | Nine months ended April 30 | $93,695 | $34,684 | $59,011 | 170.1% | Income Taxes Comparison (In thousands) | Period | 2024 | 2023 | Change | % Change | |:---|:---|:---|:---|:---|\n| Nine months ended April 30 | $266,005 | $240,680 | $25,325 | 10.5% | Liquidity and Capital Resources Discusses cash flows, working capital, and the revolving loan facility, highlighting changes in liquidity Liquidity Metrics (In thousands) | Metric | April 30, 2024 | July 31, 2023 | Change | % Change | |:---|:---|:---|:---|:---|\n| Cash, cash equivalents, and restricted cash | $1,089,995 | $957,395 | $132,600 | 13.9% | | Working capital | $3,585,710 | $2,769,835 | $815,875 | 29.5% | Cash Flow Activities (Nine Months Ended April 30, In thousands) | Activity | 2024 | 2023 | Change | % Change | |:---|:---|:---|:---|:---|\n| Operating cash flows | $1,033,343 | $1,005,633 | $27,710 | 2.8% | | Investing cash flows | $(916,494) | $(328,759) | $(587,735) | -178.8% | | Financing cash flows | $10,889 | $51,020 | $(40,131) | -78.7% | - Net cash used in investing activities increased primarily due to increased capital expenditures and purchase of U.S. Treasury Bills[104] - Net cash provided by financing activities decreased primarily due to a reduction of proceeds from stock option exercises net against the repayment of the revolver facility[104] - The company had $0.0 million outstanding borrowings under its $1,250.0 million Revolving Loan Facility as of April 30, 2024[105] - $145.7 million of cash, cash equivalents, and restricted cash was held by foreign subsidiaries, with the intent to permanently reinvest these funds outside of the U.S.[103] Critical Accounting Policies and Estimates Confirms no material changes to critical accounting policies and estimates from the prior annual report - There have been no material changes to the critical accounting policies and estimates from what was disclosed in the Annual Report on Form 10-K for the fiscal year ended July 31, 2023[107] - Key estimates and judgments include vehicle pooling costs, income taxes, stock-based compensation, and contingencies[107] Contractual Obligations and Commitments Confirms no material changes to contractual obligations from the prior annual report - There have been no material changes to contractual obligations disclosed in the Annual Report on Form 10-K for the fiscal year ended July 31, 2023[109] Off-Balance Sheet Arrangements Reports no material off-balance sheet arrangements other than a letter of credit and surety bonds - As of April 30, 2024, the company had no off-balance sheet arrangements other than a letter of credit and funding commitments pursuant to surety bonds, none of which are material[110] Item 3 - Quantitative and Qualitative Disclosures About Market Risk Confirms no material changes to market risk disclosures from the prior annual report - There have been no material changes to the information required under this Item from what was disclosed in the Annual Report on Form 10-K for the fiscal year ended July 31, 2023[111] Item 4 - Controls and Procedures Details the evaluation of disclosure controls and changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures CEO and CFO concluded disclosure controls and procedures were effective as of April 30, 2024 - The CEO and CFO concluded that, as of April 30, 2024, the company's disclosure controls and procedures were effective[113] - Disclosure Controls are designed to provide reasonable assurance that information required to be disclosed in Exchange Act reports is recorded, processed, summarized, and reported within specified time periods[113] Changes in Internal Control Over Financial Reporting Reports no material changes in internal control over financial reporting during the fiscal quarter - There have not been any changes in internal control over financial reporting during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect internal control over financial reporting[114] PART II - Other Information This section provides additional information including legal proceedings, risk factors, and exhibits Item 1 - Legal Proceedings Refers to Note 14 for details on legal proceedings, including an ongoing DOJ investigation - For a discussion of Legal Proceedings, refer to Note 14 – Legal Proceedings included in Part I, Item 1 of this Quarterly Report on Form 10-Q[116] Item 1A - Risk Factors Outlines various business, regulatory, legal, intellectual property, and stock ownership risks Risks Related to Our Business and Industry Addresses risks from major sellers, international expansion, online security, capacity, competition, and weather - The company depends on a limited number of major vehicle sellers for a substantial portion of its revenues; the loss of one or more could adversely affect consolidated results[118] - Expansion into international markets exposes the company to risks such as managing foreign offices, legal compliance costs, tariffs, foreign currency exchange rate risk, and adapting to different business cultures[118][120] - The business is exposed to risks associated with online commerce security and credit card fraud, including potential breaches of systems and liability for fraudulent transactions[121] - Failure to maintain sufficient capacity at storage facilities could adversely affect relationships with insurance companies or other sellers[122] - The rate of business growth may decline if the company is unable to successfully complete acquisitions and develop new facilities, or manage growth effectively[122][125] - The vehicle sales industry is highly competitive, and the company faces significant competition for vehicle supply and buyers from other auction and remarketing service companies and large vehicle dismantlers[128] - Mild weather conditions can reduce the available supply of salvage vehicles, adversely affecting revenues, while extreme weather can lead to an oversupply requiring abnormal expenses[126] Risks Related to Regulatory Compliance and Legal Matters Covers political, regulatory, inventory, data privacy, industry-specific, and tax law compliance risks - Business activities and public policy interests may be unpopular in certain communities, exposing the company to reputational and political risk, impacting its ability to obtain permits[130] - International operations expose the company to political, regulatory, economic, and reputational risks, including compliance with anti-bribery laws (e.g., FCPA, U.K. Bribery Act) and trade controls[130] - Transacting on a principal basis (purchasing and reselling vehicles) exposes the company to inventory risks (theft, damage, obsolescence) and may have an adverse impact on gross margin percentages[132] - The company is subject to evolving domestic and international laws and regulations regarding privacy and data protection (e.g., GDPR, CCPA, LGPD), which may incur substantial compliance costs or penalties for noncompliance[133] - The vehicle sales industry is subject to various laws and regulations (e.g., land use, licensure, environmental, anti-money laundering), and non-compliance or changes in these regulations could impair operations, increase costs, or create liabilities[133] - An ongoing U.S. Department of Justice investigation into potential money laundering law violations could lead to liability, fines, or reputational harm[133] - Changes in laws or interpretations affecting the import and export of vehicles could reduce demand and impact the international buyer base[135] - Operation of storage facilities poses environmental risks, potentially leading to substantial expenditures for remediation or liabilities[135] - Changes in federal, state, local, or foreign tax laws, or adverse determinations by tax authorities, could increase the company's tax burden[135] Risks Related to Our Intellectual Property and Technology Focuses on IT system disruptions, IP protection, infringement claims, and technological obsolescence risks - Disruptions to information technology systems, including cyber-attacks, ransomware, and system outages, could materially and adversely affect reputation, operating results, and financial condition[136] - Inability to protect intellectual property rights (patents, trademarks, trade secrets) could have a material adverse effect on the business[137] - The company may be subject to costly intellectual property rights claims, which could require paying damages, seeking licenses, or developing alternative technologies[138] - Difficulties in operating and developing its proprietary enterprise operating system carry risks of design/deployment errors, disruptions, and delays[138] - Rapid technological changes may render existing technology obsolete, requiring continuous enhancement and development of new services to remain competitive[139][141] Risks Related to Ownership of Our Common Stock Discusses stock price fluctuations, self-insurance, insider ownership, and anti-takeover provisions - Quarterly and annual performance may fluctuate due to factors such as market value of salvage/used vehicles, commodity prices, foreign exchange, weather, and operating costs, potentially causing the stock price to decline[142][143][144] - The company is partially self-insured for certain losses; if estimates of future claims differ from actual trends, results of operations could be harmed[145] - Executive officers, directors, and their affiliates hold a large percentage (over 10%) of common stock, which could give them significant influence over matters requiring stockholder approval, potentially differing from other stockholders' interests[146] - Provisions in the certificate of incorporation and bylaws may have an anti-takeover effect, delaying or preventing acquisition bids or limiting stockholders' attempts to replace management[147] - The amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain disputes, which could limit stockholders' ability to choose their judicial forum[147] General Risk Factors Covers investment risks, macroeconomic factors, and foreign currency exchange rate fluctuations - Cash investments are subject to risks including fluctuations in interest rates, credit risk, market risk, and systemic economic risk, which may result in losses[147] - Macroeconomic factors such as high fuel prices, declines in commodity prices, fluctuations in used car prices, and vehicle-related technological advances may adversely affect revenues and operating results[147] - Adverse U.S. and international economic conditions may negatively affect business, operating results, and financial condition by reducing miles driven, accident claims, and salvage vehicle supply[148] - Fluctuations in foreign currency exchange rates could result in declines in reported revenues and earnings, as the company does not engage in foreign currency hedging arrangements[149] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds Confirms no unregistered sales or issuer purchases of equity securities during the fiscal quarter - There were no unregistered sales of equity securities during the fiscal quarter ended April 30, 2024[151] - There were no issuer purchases of equity securities during the fiscal quarter ended April 30, 2024[151] Item 3 - Defaults Upon Senior Securities States there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[151] Item 4 - Mine Safety Disclosures States that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[151] Item 5 - Other Information Reports no director or executive officer adopted or terminated Rule 10b5-1 trading arrangements - No director or officer adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement" during the fiscal quarter ended April 30, 2024[152] Item 6 - Exhibits Lists exhibits filed with the Quarterly Report, including certifications and XBRL documents - Exhibits include certifications of Principal Executive Officer and Principal Financial Officer (31.1*, 31.2*, 32.1**, 32.2**)[154] - XBRL Instance Document and Taxonomy Extension Documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104) are filed[154] - Corporate governance documents such as the Amended and Restated Certificate of Incorporation and Bylaws, and Corporate Aircraft Personal Use Policy are included[154]