COPART, INC. Unless the context otherwise requires, references in this Form 10-Q to "Copart,"
the "Company," "we," "us," or "our" refer to
This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), including forward-looking statements concerning the potential impact of the COVID-19 pandemic on our business, operations, and operating results. All statements other than statements of historical facts are statements that could be deemed forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "expect," "plan," "intend," "forecast," "anticipate," "believe," "estimate," "predict," "potential," "continue" or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our or our industry's actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These forward-looking statements are made in reliance upon the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These factors include those listed in Part II, Item 1A. under the caption entitled "Risk Factors" in this Form 10-Q and those discussed elsewhere in this Form 10-Q. We encourage investors to review these factors carefully together with the other matters referred to herein, as well as in the other documents we file with theSecurities and Exchange Commission (theSEC ). We may from time to time make additional written and oral forward-looking statements, including statements contained in our filings with theSEC . We do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of us. Although we believe that, based on information currently available to us and our management, the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. Overview We are a leading provider of online auctions and vehicle remarketing services with operations inthe United States ("U.S."),Canada , theUnited Kingdom ("U.K."),Brazil , theRepublic of Ireland ,Germany ,Finland , theUnited Arab Emirates ("U.A.E."),Oman ,Bahrain , andSpain . Our goals are to generate sustainable profits for our stockholders, while also providing environmental and social benefits for the world around us. With respect to our environmental stewardship, we believe our business is a critical enabler for the global re-use and recycling of vehicles, parts, and raw materials. We are not responsible for the carbon emissions resulting from new vehicle manufacturing, governmental fuel emissions standards or vehicle use by consumers. Each vehicle that enters our business operations already exists, with whatever fuel technology and efficiency it was designed and built to have, and the substantial carbon emissions associated with the vehicle's manufacture have already occurred. However, upon our receipt of an existing vehicle, we help decrease its total environmental impact by extending its useful life and thereby avoiding the carbon emissions associated with the alternative of new vehicle and auto parts manufacturing. For example, many of the cars we process and remarket are subsequently restored to drivable condition, reducing the new vehicle manufacturing burden the world would otherwise face. Many of our cars are purchased by dismantlers, who recycle and refurbish parts for vehicle repairs, again reducing new and aftermarket parts manufacturing. And finally, some of our vehicles are returned to their raw material inputs through scrapping, reducing the need for further new resource extraction. In each of these cases, our business reduces the carbon and other environmental footprint of the global transportation industry. Beyond our environmental stewardship, we also support the world's communities in two important ways. First, we believe that we contribute to economic development and well-being by enabling more affordable access to mobility around the world. For example, many of the automobiles sold through our auction platform are purchased for use in developing countries where affordable transportation is a critical enabler of education, health care, and well-being more generally. Secondly, because of the special role we play in responding to catastrophic weather events, we believe we contribute to disaster recovery and resilience in the communities we serve. For example, we mobilized our people, and engaged with a multitude of service providers to timely retrieve, store, and remarket tens of thousands of flood-damaged vehicles in theNew York metropolitan area in the wake of Hurricane Ida in the fall of 2021. We provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our Virtual Bidding Third Generation internet auction-style sales technology, which we refer to as VB3. Vehicle sellers consist primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers, vehicle rental companies, and individuals. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and to the general public. The majority of the vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss; not economically repairable by the insurance companies; or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. We offer vehicle sellers a full range of services that help expedite each stage of the vehicle sales process, minimize administrative and processing costs, and maximize the ultimate sales price through the online auction process. 20
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In theU.S. ,Canada ,Brazil , theRepublic of Ireland ,Finland , theU.A.E. ,Oman , andBahrain , we sell vehicles primarily as an agent and derive revenue primarily from auction and auction related sales transaction fees charged for vehicle remarketing services as well as fees for services subsequent to the auction, such as delivery and storage. In theU.K. ,Germany , andSpain we operate both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the vehicles for our own account. InGermany andSpain , we also derive revenue from listing vehicles on behalf of insurance companies and insurance experts to determine the vehicle's residual value and/or to facilitate a sale for the insured. We monitor and analyze a number of key financial performance indicators in order to manage our business and evaluate our financial and operating performance. Such indicators include: Service and Vehicle Sales Revenue: Our service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing services. These auction and auction related services may include a combination of vehicle purchasing fees, vehicle listing fees, and vehicle selling fees that can be based on a predetermined percentage of the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of the selling price of the vehicle; transportation fees for the cost of transporting the vehicle to or from our facility; title processing and preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged. Purchased vehicle revenue includes the gross sales price of the vehicles which we have purchased or are otherwise considered to own. We have certain contracts with insurance companies, primarily in theU.K. , in which we act as a principal, purchasing vehicles and reselling them for our own account. We also purchase vehicles in the open market, primarily from individuals, and resell them for our own account. Our revenue is impacted by several factors, including total loss frequency and the average vehicle auction selling price, as a significant amount of our service revenue is associated in some manner with the ultimate selling price of the vehicle. Vehicle auction selling prices are driven primarily by: (i) market demand for rebuildable, driveable vehicles; (ii) used car pricing, which we believe has an impact on total loss frequency; (iii) end market demand for recycled and refurbished parts as reflected in demand from dismantlers; (iv) the mix of cars sold; (v) changes in theU.S. dollar exchange rate to foreign currencies, which we believe has an impact on auction participation by international buyers; and (vi) changes in commodity prices, particularly the per ton price for crushed car bodies, as we believe this has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling. We cannot specifically quantify the financial impact that commodity pricing, used car pricing, and product sales mix has on the selling price of vehicles, our service revenues, or financial results. Total loss frequency is the percentage of cars involved in accidents that insurance companies salvage rather than repair and is driven by the relationship between repair costs, used car values, and auction returns. Over the last several years, we believe there has been an increase in overall growth in the salvage market driven by an increase in total loss frequency. The increase in total loss frequency may have been driven by the change in used car values and repair costs, which we believe are generally trending upward. Changes in used car prices and repair costs, may impact total loss frequency and affect our growth rate. Used car values are determined by many factors, including used car supply, which is tied directly to new car sales, and the average age of cars on the road. The average age of cars on the road continued to increase, growing from 9.6 years in 2002 to 12.1 years in 2021. Repair costs are generally based on damage severity, vehicle complexity, repair parts availability, repair parts costs, labor costs, and repair shop lead times. The factors that can influence repair costs, used car pricing, and auction returns are many and varied and we cannot predict their movements. Accordingly, we cannot predict future trends in total loss frequency. Beginning inMarch 2020 , our business and operations began to experience the impact of the worldwide COVID-19 pandemic. In materially all of our jurisdictions, we have been deemed by local authorities an essential business because our operations ensure the removal of vehicles from repair shops, impound yards, and streets and highways, enabling the critical function of road infrastructure. As a result, we have continued to operate our facilities as well as our online-only auctions, while following appropriate health and safety protocols to ensure safe working conditions for our employees as well as for our sellers, buyers, and other business partners with whom we come in contact. From a financial perspective, our operating results were adversely affected by lower processed vehicle volume, but these adverse effects were more than offset by corresponding increases in vehicle average sales prices. Although we initially saw substantial declines in vehicle assignments following the onset of the COVID-19 pandemic, which we attribute principally to reduced accident volume as miles driven dramatically declined in response to shelter-in-place orders across the globe, we have generally seen vehicle assignment volumes steadily recovering; however additional subsequent shelter-in-place orders have occasionally stalled or regressed the assignment volume commensurate with the severity and duration of such orders. We cannot predict how the pandemic will continue to develop, whether and to what extent new shelter-in-place orders will be issued, or to what extent the pandemic may have longer term unanticipated impacts on our markets, including, for example, the risk of long-term reductions in miles driven. 21
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Although we have been deemed an "essential business" in the jurisdictions in which we operate and have largely been able to continue our yard operations, we have been required to make adjustments in our business processes that may reduce efficiency or increase operating expenses, particularly if the pandemic continues over a long period of time. We adjusted, but did not make material modifications to, our operating expenses to be able to continue providing employment for our employees, service to our sellers, and process incoming vehicles for sale in future quarters. The pandemic may have an adverse effect on our future revenues, with the magnitude and timing of these effects dependent upon the extent and duration of suspended economic activity across our markets. We believe that the longer-term impact on our business will depend on potential adverse operational impacts from outbreaks of COVID-19 at any of our locations; additional outbreaks of COVID-19 in one or more of our geographic markets; a reduction in miles driven due to one or more factors relating to the COVID-19 pandemic; the relationship of supply and demand for newly manufactured vehicles, on the one hand, and used salvage vehicles, on the other hand, due to reduced manufacturing capacity and broader supply chain disruptions during the COVID-19 pandemic and the effects of these supply and demand relationships on the average sales prices obtained at auction for the vehicles assigned to us for remarketing; any further government actions in response to COVID-19 outbreaks that restrict business activity or travel; disruptions of governmental administrative operations due to COVID-19 outbreaks that adversely impact our core business activities, such as vehicle title processing; and deteriorating economic conditions generally, and the potential availability, among other things, of vaccines or treatments, none of which we can predict. For a further discussion of risks to our business and operating results arising from the pandemic, please see the section of this Quarterly Report on Form 10-Q captioned "Risk Factors." Operating Costs and Expenses: Yard operations expenses consist primarily of operating personnel (which includes yard management, clerical, and yard employees); rent; vehicle transportation; insurance; property related taxes; fuel; equipment maintenance and repair; marketing costs directly related to the auction process; and costs of vehicles sold under the purchase contracts. General and administrative expenses consist primarily of executive management; accounting; data processing; sales personnel; professional services; marketing expenses; and system maintenance and enhancements. Other (Expense) Income: Other (expense) income consists primarily of interest expense on long-term debt, see Notes to Unaudited Consolidated Financial Statements, Note 6 - Long-Term Debt; foreign exchange rate gains and losses; gains and losses from the disposal of assets, which will fluctuate based on the nature of these activities each period; and earnings from unconsolidated affiliates. Liquidity and Cash Flows: Our primary source of working capital is cash operating results and debt financing. The primary source of our liquidity is our cash and cash equivalents and Revolving Loan Facility. The primary factors affecting cash operating results are: (i) seasonality; (ii) market wins and losses; (iii) supplier mix; (iv) accident frequency; (v) total loss frequency; (vi) volume from our existing suppliers; (vii) commodity pricing; (viii) used car pricing; (ix) foreign currency exchange rates; (x) product mix; (xi) contract mix to the extent applicable; (xii) our capital expenditures; and (xiii) other macroeconomic factors such as COVID-19. These factors are further discussed in the Results of Operations and Risk Factors sections of this Quarterly Report on Form 10-Q. Potential internal sources of additional working capital and liquidity are the sale of assets or the issuance of shares through option exercises and shares issued under our Employee Stock Purchase Plan. A potential external source of additional working capital and liquidity is the issuance of additional debt or equity. However, we cannot predict if these sources will be available in the future or on commercially acceptable terms.
Acquisitions and New Operations
As part of our overall expansion strategy of offering integrated services to vehicle sellers, we anticipate acquiring and developing facilities in new regions, as well as the regions currently served by our facilities. We believe that these acquisitions and openings will strengthen our coverage, as we have facilities located in theU.S. ,Canada , theU.K. ,Brazil , theRepublic of Ireland ,Germany ,Finland , theU.A.E. ,Oman ,Bahrain , andSpain with the intention of providing global coverage for our sellers. 22
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The following tables set forth operational facilities that we have opened and
are now operational from
United States Locations Date
Redding, California August 2020
Dothan, Alabama August 2020
Jacksonville, Florida August 2020
Milwaukee, Wisconsin September 2020
Houston, Texas December 2020
Knightdale, North Carolina March 2021
Gastonia, North Carolina May 2021
Bismarck, North Dakota June 2021
Fairburn, Georgia July 2021
Dyer, Indiana July 2021
Mobile South, Alabama August 2021
International Locations Geographic Service Area Date
Bruchmühlbach-Miesau, Rhineland-Palatinate (Mannheim) Germany February 2021
Mallorca, Balearic Islands Spain April 2021
Halifax, Novia Scotia Canada September 2021
The period-to-period comparability of our consolidated operating results and
financial position is affected by business acquisitions, new openings, weather
and product introductions during such periods.
In addition to growth through business acquisitions, we seek to increase
revenues and profitability by, among other things, (i) acquiring and developing
additional vehicle storage facilities in key markets, including foreign markets;
(ii) pursuing global, national, and regional vehicle seller agreements; (iii)
increasing our service offerings; and (iv) expanding the application of VB3 into
new markets. In addition, we implement our pricing structure and auction
procedures, and attempt to introduce cost efficiencies at each of our acquired
facilities by implementing our operational procedures, integrating our
management information systems, and redeploying personnel, when necessary.
Results of Operations
The following table shows certain data from our consolidated statements of
income expressed as a percentage of total service revenues and vehicle sales for
the three and six months ended
Three Months Ended January 31, Six Months Ended January 31,
(In percentages) 2022 2021 2022 2021
Service revenues and vehicle sales:
Service revenues 82 % 86 % 82 % 87 %
Vehicle sales 18 % 14 % 18 % 13 %
Total service revenues and vehicle sales 100 % 100 % 100 % 100 %
Operating expenses:
Yard operations 37 % 38 % 37 % 39 %
Cost of vehicle sales 16 % 12 % 16 % 11 %
General and administrative 6 % 8 % 7 % 8 %
Total operating expenses 59 % 58 % 60 % 58 %
Operating income 41 % 42 % 40 % 42 %
Other expense (1) % (1) % (1) % (1) %
Income before income taxes 40 % 41 % 39 % 41 %
Income taxes 6 % 10 % 7 % 9 %
Net income 34 % 31 % 32 % 32 %
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Comparison of the Three and Six Months Ended
The following table presents a comparison of service revenues for the three and
six months ended
Three Months Ended January 31, Six Months Ended January 31,
(In thousands) 2022 2021 Change % Change 2022 2021 Change % Change
Service revenues
United States $ 630,707 $ 465,423 $ 165,284 35.5 %$ 1,221,465 $ 915,658 $ 305,807 33.4 % International 80,383 67,178 13,205 19.7 % 157,443 132,315 25,128 19.0 % Total service revenues$ 711,090 $ 532,601 $ 178,489 33.5 %$ 1,378,908 $ 1,047,973 $ 330,935 31.6 % Service Revenues. The increase in service revenue during the three months endedJanuary 31, 2022 of$178.5 million or 33.5%, as compared to the same period last year resulted from an increase in theU.S. of$165.3 million and (ii) an increase in International of$13.2 million . The growth in theU.S. was driven primarily by (i) an increase in revenue per car, (ii) an increase in volume resulting from higher miles driven due to the reopening ofthe United States economy and restriction within the global supply chain for automobiles. Excluding the detrimental impact of$0.8 million due to changes in foreign currency exchange rates, primarily from the change in the Brazilian real andEuropean Union euro toU.S. dollar exchange rates, the growth in International was driven primarily by an increase in revenue per car, an increase in volume resulting from higher miles driven due to the reopening of the International economies and restriction within the global supply chain for automobiles. The increase in service revenues during the six months endedJanuary 31, 2022 of$330.9 million , or 31.6%, as compared to the same period last year resulted from (i) an increase in theU.S. of$305.8 million and (ii) an increase in International of$25.1 million . The growth in theU.S. was driven primarily by (i) an increase in revenue per car, (ii) an increase in volume resulting from higher miles driven due to the reopening ofthe United States economy and restriction within the global supply chain for automobiles. Excluding the beneficial impact of$2.5 million due to changes in foreign currency exchange rates, primarily from the change in the British pound, and Canadian dollar toU.S. dollar exchange rates, the growth in International was driven primarily by an increase in volume from higher miles driven due to the reopening of the International economies and restrictions within the global supply chain for automobiles.
The following table presents a comparison of vehicle sales for the three and six
months ended
Three Months Ended January 31, Six Months Ended January 31,
(In thousands) 2022 2021 Change % Change 2022 2021 Change % Change
Vehicle sales
United States $ 96,679 $ 52,500 $ 44,179 84.2 % $ 184,382 $ 99,520 $ 84,862 85.3 %
International 59,691 31,930 27,761 86.9 % 114,302 62,478 51,824 82.9 %
Total vehicle sales $ 156,370 $ 84,430 $ 71,940 85.2 % $ 298,684 $ 161,998 $ 136,686 84.4 %
Vehicle Sales. The increase in vehicle sales for the three months ended January
31, 2022 of $71.9 million , or 85.2%, as compared to the same period last year
resulted from (i) an increase in the U.S. of $44.2 million and an (ii) an
increase in International of $27.8 million . The increase in the U.S. was
primarily the result of increased volume and higher average auction selling
prices, which we believe was due to a change in the mix of vehicles sold,
increased demand, and reduced supply. Excluding a detrimental impact of $2.3
million due to changes in foreign currency exchange rates, primarily from the
change in the European Union euro to U.S. dollar exchange rates, the increase in
International was primarily the result of higher average auction selling prices,
and increased volume.
The increase in vehicle sales for the six months ended January 31, 2022 of
$136.7 million , or 84.4%, as compared to the same period last year, resulted
from (i) an increase in the U.S. of $84.9 million and (ii) an increase in
International of $51.8 million . The increase in the U.S. was primarily the
result of higher average auction selling prices, which we believe was due to a
change in the mix of vehicles sold; increased demand; and reduced supply.
Excluding a detrimental impact of $1.5 million due to changes in foreign
currency exchange rates, primarily from the detrimental change in the European
Union euro to U.S. dollar exchange rates net against a beneficial change in
British Pound to the US dollar exchange rates, the increase in International was
primarily the result of higher average auction selling prices, an increase in
volume resulting from higher miles driven due to the reopening of the
International economies and restrictions within the global supply chain for
automobiles.
The following table presents a comparison of yard operations expenses for the
three and six months ended
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Three Months Ended January 31, Six Months Ended January 31,
(In thousands) 2022 2021 Change % Change 2022 2021 Change % Change
Yard operations expenses
United States $ 278,093 $ 199,107 $ 78,986 39.7 % $ 534,714 $ 393,526 $ 141,188 35.9 %
International 45,721 36,797 8,924 24.3 % 87,794 74,189 13,605 18.3 %
Total yard operations
expenses $ 323,814 $ 235,904 $ 87,910 37.3 % $ 622,508 $ 467,715 $ 154,793 33.1 %
Yard operations expenses,
excluding depreciation and
amortization
United States $ 253,596 $ 177,044 $ 76,552 43.2 % $ 487,612 $ 350,755 $ 136,857 39.0 %
International 41,928 33,680 8,248 24.5 % 80,158 68,486 11,672 17.0 %
Yard depreciation and amortization
United States $ 24,497 $ 22,063 $ 2,434 11.0 % $ 47,102 $ 42,771 $ 4,331 10.1 %
International 3,793 3,117 676 21.7 % 7,636 5,703 1,933 33.9 %
Yard Operations Expenses. The increase in yard operations expense for the three
months ended January 31, 2022 of $87.9 million , or 37.3%, as compared to the
same period last year resulted from (i) increase in the U.S. of $79.0 million
and (ii) increase in International of $8.9 million . The increase in the U.S.
compared to the same period last year relates primarily to an increase in volume
resulting from higher miles driven due to the reopening of the United States
economy and restriction within the global supply chain for automobiles,
increased subhaul costs and increased labor costs responding to market
conditions. The increase in International relates primarily to an increase in
volume resulting from higher miles driven due to the reopening of the
International economies and restriction within the global supply chain for
automobiles, excluding a beneficial impact of $0.7 million due to changes in
foreign currency exchange rates, primarily from the change European Union Euro
to US dollar exchange rate. Included in yard operations expenses were
depreciation and amortization expenses. The increase in yard operations
depreciation and amortization expenses during the three months ended January 31,
2022 as compared to the same period last year resulted primarily from
depreciating new and expanded facilities placed into service in the U.S.
The increase in yard operations expense for the six months ended January 31,
2022 of $154.8 million , or 33.1%, as compared to the same period last year
resulted from (i) an increase in the U.S. of $141.2 million , and (ii) an
increase in International of $13.6 million . Excluding depreciation and
amortization, the increase in the U.S. compared to the same period last year
relates to an increase in volume as a result of the reopening of the United
States economy combined with an increase in the cost to process each car. The
increase in cost to process each car was driven by increased non-CAT related
subhaul costs, and labor costs, combined with an increase in premiums for CAT
related subhaul, labor costs incurred from overtime, and increased travel,
lodging, and equipment lease cost associated with Hurricane Ida. The increase in
International was primarily driven by the increase in volume following the
reopening of International economies, combined with a detrimental impact of $0.6
million due to changes in foreign currency exchange rates, primarily from a
detrimental change in the British pound, and Canadian Dollar to U.S. dollar
exchange rate net against the beneficial change in European Union Euro to US
dollar exchange rate. Included in yard operations expenses were depreciation and
amortization expenses. The increase in yard operations depreciation and
amortization expenses during the six months ended January 31, 2022 as compared
to the same period last year resulted primarily from depreciating new and
expanded facilities placed into service in the U.S. and International locations.
The following table presents a comparison of cost of vehicle sales for the three
and six months ended
Three Months Ended January 31, Six Months Ended January 31,
(In thousands) 2022 2021 Change % Change 2022 2021 Change % Change
Cost of vehicle sales
United States $ 90,263 $ 48,601 $ 41,662 85.7 %$ 170,605 $ 90,107 $ 80,498 89.3 % International 50,041 25,028 25,013 99.9 % 96,107 47,882 48,225 100.7 % Total cost of vehicle sales$ 140,304 $ 73,629 $ 66,675 90.6 %$ 266,712 $ 137,989 $ 128,723 93.3 % 25
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Cost of Vehicle Sales. The increase in cost of vehicle sales for the three months endedJanuary 31, 2022 of$66.7 million , or 90.6%, as compared to the same period last year resulted from (i) an increase in theU.S. of$41.7 million and (ii) an increase in International of$25.0 million . The increase in theU.S. was primarily the result of increased volume and higher average purchase prices, which we believe was due to a change in the mix of vehicles sold, increased demand, and reduced supply. Excluding the beneficial impact of$2.1 million due to changes in foreign currency exchange rates, primarily from the change in the Brazilian real andEuropean Union euro toU.S. dollar exchange rates, the increase in International of$25.0 million was primarily higher average purchase prices and increase in volume due to change in mix of vehicles sold, increased demand and reduced supply. The increase in cost of vehicle sales for the six months endedJanuary 31, 2022 of$128.7 million , or 93.3%, as compared to the same period last year resulted from (i) an increase in theU.S. of$80.5 million and (ii) an increase in International of$48.2 million . The increase in theU.S. was primarily the result of increased volume and higher average purchase prices, which we believe was due to a change in the mix of vehicles sold, increased demand; and reduced supply. Excluding the beneficial impact of$1.7 million due to changes in foreign currency exchange rates, primarily from the change in theEuropean Union euro toU.S. dollar exchange rates net against the detrimental impact of the British Pound to US dollar exchange rate, the increase in International was primarily the result of higher average purchase prices and increase in volume, which we believe was due to a change in the mix of vehicles sold, increased demand; and reduced supply.
The following table presents a comparison of general and administrative expenses
for the three and six months ended
Three Months Ended January 31, Six Months Ended January 31,
(In thousands) 2022 2021 Change % Change 2022 2021 Change % ChangeGeneral and administrative expenses
United States $ 46,384 $ 40,763 $ 5,621 13.8 %$ 92,932 $ 80,501 $ 12,431 15.4 % International 9,630 8,514 1,116 13.1 % 17,991 16,951 1,040 6.1 % Total general and administrative expenses$ 56,014 $ 49,277 $ 6,737 13.7 %$ 110,923 $ 97,452 $ 13,471 13.8 % General and administrative expenses, excluding depreciation and amortization United States$ 41,566 $ 35,081 $ 6,485 18.5 %$ 82,989 $ 69,365 $ 13,624 19.6 % International 9,436 7,984 1,452 18.2 % 17,599 16,220 1,379 8.5 % General and administrative depreciation and amortization United States$ 4,819 $ 5,682 $ (863) (15.2) %$ 9,944 $ 11,136 $ (1,192) (10.7) % International 194 530 (336) (63.4) % 392 731 (339) (46.4) % General and Administrative Expenses. The increase in general and administrative expenses for the three months endedJanuary 31, 2022 of$6.7 million , or 13.7%, as compared to the same period last year resulted from (i) an increase in International of$1.1 million , and (ii) an increase in theU.S. of$5.6 million . Excluding depreciation and amortization, the increase in International of$1.5 million resulted primarily from higher labor costs. The increase in theU.S. of$6.5 million resulted primarily from increases in stock compensation, increased labor costs and travel costs. Depreciation and amortization expenses for the three months endedJanuary 31, 2022 as compared to the same period last year declined sightly driven from fully depreciating certain intangible and technology assets in the US and international locations. The increase in general and administrative expenses for the six months endedJanuary 31, 2022 of$13.5 million , or 13.8%, as compared to the same period last year resulted from (i) an increase in International of$1.0 million and (ii) an increase in theU.S. of$12.4 million . Excluding depreciation and amortization, the increase in International of$1.4 million resulted primarily from higher labor costs and increased legal costs. The increase in theU.S. of$13.6 million resulted primarily from increases in stock compensation, increased labor costs and travel costs. Depreciation and amortization expenses for the six months endedJanuary 31, 2022 as compared to the same period last year declined sightly driven from fully depreciating certain intangible and technology assets in the US and international locations. 26
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The following table summarizes total other expense for the three and six months
ended
Three Months Ended January 31, Six Months Ended January 31,
(In thousands) 2022 2021 Change % Change 2022 2021 Change % Change
Total other expense $ (5,273) $ (5,769) $ 496 8.6 % $ (9,568) $ (7,548) $ (2,020) (26.8) %
Other Expense. The decrease in total other expense for the three months ended
January 31, 2022 of $0.5 million as compared to the same period last year was
primarily due to higher earnings of unconsolidated affiliates and offset by
losses on the disposal of certain non-operating assets in the current year.
The increase in total other expense for the six months ended January 31, 2022 of
$2.0 million as compared to the same period last year was primarily due to lower
earnings of unconsolidated affiliates, and losses on disposal of certain
non-operating assets in the current year, and currency losses in the current
year.
The following table summarizes income taxes for the three and six months ended
January 31, 2022 and 2021:
Three Months Ended January 31, Six Months Ended January 31,
(In thousands) 2022 2021 Change % Change 2022 2021 Change % Change
Income taxes $ 54,643 59,012 (4,369) (7.4) % 120,106 105,542 14,564 13.8 %
Income Taxes. Our effective income tax rates were 16.0% and 23.4% for the three
months ended January 31, 2022 and 2021, respectively, and 18.0%, and 21.1% for
the six months ended January 31, 2022 and 2021, respectively. The effective tax
rate in the current year was impacted by the filing of amended returns in
certain jurisdictions for a benefit of $17.5 million . The effective rates in the
current and prior year were impacted by the recognition of excess tax benefits
from stock based compensation. The recognition of excess tax benefits from stock
based compensation. The recognition of excess tax benefits from the exercise of
employee stock options of $4.0 million and $2.2 million for the three months
ended January 31, 2022 and 2021, respectively, and $7.0 million and $13.9
million for the six months ended January 31, 2022 and 2021, respectively. .
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Liquidity and Capital Resources
The following table presents a comparison of key components of our liquidity and capital resources atJanuary 31, 2022 andJuly 31, 2021 and for the six months endedJanuary 31, 2022 and 2021, respectively, excluding additional funds available to us through our Revolving Loan Facility: January 31, (In thousands) 2022 July 31, 2021 Change % Change Cash, cash equivalents, and restricted cash$ 971,651 $ 1,048,260 $ (76,609) (7.3) % Working capital 1,771,513 1,281,580 489,933 38.2 % Six Months Ended January 31, (In thousands) 2022 2021 Change % Change Operating cash flows$ 446,548 $ 393,041 $ 53,507 13.6 % Investing cash flows (530,283) (283,085) (247,198) (87.3) % Financing cash flows 16,094 26,583 (10,489) (39.5) %
Capital expenditures and acquisitions
Cash, cash equivalents, and restricted cash and working capital increased$(76.6) million and$489.9 million atJanuary 31, 2022 , respectively, as compared toJuly 31, 2021 . Cash, cash equivalents, and restricted cash increased primarily due to cash generated from operations and proceeds from stock option exercises not fully offset by capital expenditures. Working capital increased primarily from cash generated from operations and timing of cash receipts and payments, partially offset by capital expenditures, certain income tax benefits related to stock option exercises, and timing of cash payments. Cash equivalents consisted of bank deposits,U.S. Treasury Bills, and funds invested in money market accounts, which bear interest at variable rates. Historically, we have financed our growth through cash generated from operations, public offerings of common stock, equity issued in conjunction with certain acquisitions and debt financing. Our primary source of cash generated by operations is from the collection of service fees and funds received from sale of vehicles. We expect to continue to use cash flows from operations to finance our working capital needs and to develop and grow our business. In addition to our stock repurchase program, we are considering a variety of alternative potential uses for our remaining cash balances and our cash flows from operations. These alternative potential uses include additional stock repurchases, repayments of long-term debt, the payment of dividends, and acquisitions. For further detail, see Notes to Unaudited Consolidated Financial Statements, Note 6 - Long-Term Debt and Note 10 - Stock Repurchases and under the subheadings "Credit Agreement" and "Note Purchase Agreement" below. Our business is seasonal as inclement weather during the winter months increases the frequency of accidents and consequently, the number of cars involved in accidents which the insurance companies salvage rather than repair. During the winter months, most of our facilities process 5% to 20% more vehicles than at other times of the year. Severe weather events, including but not limited to tornadoes, hurricanes, and hailstorms, can also impact our volumes. These increased volumes require the increased use of our cash to pay out advances and handling costs of the additional business. We believe that our currently available cash and cash equivalents and cash generated from operations will be sufficient to satisfy our operating and working capital requirements for the foreseeable future. We expect to acquire or develop additional locations and expand some of our current facilities in the foreseeable future. We may be required to raise additional cash through drawdowns on our Revolving Loan Facility or potentially issue equity to fund this expansion. Although the timing and magnitude of growth through expansion and acquisitions are not predictable, the opening of new greenfield yards is contingent upon our ability to locate property that (i) is in an area in which we have a need for more capacity; (ii) has adequate size given the capacity needs; (iii) has the appropriate shape and topography for our operations; (iv) is reasonably close to a major road or highway; and (v) most importantly, has the appropriate zoning for our business. As ofJanuary 31, 2022 ,$183.2 million of the$1.0 billion of cash, cash equivalents, and restricted cash was held by our foreign subsidiaries. If these funds are needed for our operations in theU.S. , the repatriation of these funds could still be subject to the foreign withholding tax following theU.S. Tax Reform. However, our intent is to permanently reinvest these funds outside of theU.S. and our current plans do not require repatriation to fund ourU.S. operations. Net cash provided by operating activities increased for the six months endedJanuary 31, 2022 as compared to the same period in 2021 due to improved cash operating results primarily from an increase in service revenues and vehicle sales, and changes in operating assets and liabilities. The change in operating assets and liabilities was primarily the result of a decrease in funds received in accounts receivable of$41.6 . million; partially offset by decreases in funds used to pay accounts payable of$4.6 million and increase in funds to pay for vehicle pooling costs of$38.2 million . 28
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Net cash used in investing activities increased for the six months endedJanuary 31, 2022 as compared to the same period in 2021 due primarily to the purchase of 6 monthTreasury bills and increased capital expenditures. Our capital expenditures are primarily related to lease buyouts of certain facilities, acquiring land, opening and improving facilities, capitalized software development costs for new software for internal use and major software enhancements, and acquiring yard equipment. We continue to develop, expand and invest in new and existing facilities. Net cash provided by (used in) financing activities increased for the six months endedJanuary 31, 2022 as compared to the same period in 2021 due primarily to lower payments for employee stock based tax withholdings, and a decrease in proceeds from the exercise of stock options.
Credit Agreement
OnDecember 21, 2021 , the Company entered into a Second Amended and Restated Credit Agreement by and among Copart, certain subsidiaries of Copart party thereto, the lenders party thereto, andBank of America, N.A ., as administrative agent (the "Second Amended and Restated Credit Agreement"). The Second Amended and Restated Credit Agreement amends and restates certain terms of the First Amended and Restated Credit Agreement, dated as ofJuly 21, 2020 , by and among Copart, the lenders party thereto, andBank of America, N.A ., as administrative agent (as successor in interest toWells Fargo Bank, National Association ) (the "Existing Credit Agreement"). The Second Amended and Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by$200.0 million , bringing the aggregate principal amount of the revolving credit commitments under the Second Amended and Restated Credit Agreement to$1,250.0 million , (b) an increase in the letter of credit sublimit from$60.0 million to$100.0 million , (c) addition of Copart UK Limited,CPRT GmbH and Copart Autos España, S.L.U., each a wholly-owned direct or indirect foreign subsidiary of Copart, as borrowers, (d) addition of the ability to borrow under the Second and Amended and Restated Credit Agreement in certain foreign currencies including Pounds Sterling, Euro and Canadian Dollars, (e) extension of the maturity date of the revolving credit facility under the Existing Credit Agreement fromJuly 21, 2023 toDecember 21, 2026 , (f) replacing the LIBOR interest rate applicable toU.S. Dollar denominated borrowings with a SOFR-based interest rate, and (g) changing the pricing levels with respect to the revolving loans as further described below. The Second and Amended and Restated Credit Agreement provides for a$1,250.0 million revolving credit facility maturing onDecember 21, 2026 (including up to$550.0 million equivalent of borrowings in Pounds Sterling, Euro and Canadian Dollars) with a$150.0 million equivalent sub-facility available toCPRT GmbH , a$150.0 million equivalent sub-facility available to Copart Autos España, S.L.U. and a$250.0 million equivalent sub-facility available toCopart UK Limited . The proceeds may be used for general corporate purposes, including working capital and capital expenditures, potential share repurchases, acquisitions, or other investments relating to the Company's expansion strategies in domestic and international markets. Borrowings under the Second Amended and Restated Credit Agreement bear interest based on, at our option, either (1) the applicable fixed rate plus 1.00% to 1.75% or (2) the daily rate plus 0.0% to 0.75%, in each case, depending on Copart's consolidated total net leverage ratio. Additionally, the unused revolving commitments under the Second Amended and Restated Credit Agreement are subject to the payment of a customary commitment fee at a range of 0.175% to 0.275%, depending on Copart's consolidated total net leverage ratio. The applicable fixed rates described above with respect to borrowings denominated in(1) U.S. Dollars is SOFR plus certain "spread adjustments" described in the Second Amended and Restated Credit Agreement,(2) Pounds Sterling is SONIA plus certain "spread adjustments" described in the Second Amended and Restated Credit Agreement,(3) Euro is EURIBOR, and(4) Canadian Dollars is CDOR. The Company had no outstanding borrowings under the Revolving Loan Facility as ofJanuary 31, 2022 andJuly 31, 2021 . The Company's obligations under the Second Amended and Restated Credit Agreement are guaranteed by certain of the Company's domestic subsidiaries meeting materiality thresholds set forth in the Second Amended and Restated Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the assets of the subsidiary guarantors pursuant to a Security Documents Confirmation Agreement as part of the Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries' ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions on and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Second Amended and Restated Credit Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in 29 -------------------------------------------------------------------------------- Table of Contents an aggregate amount not to exceed$50.0 million ; provided, that, minimum liquidity, as defined, shall be not less than$75.0 million both before and after giving effect to any such dividend or restricted payment. As ofJanuary 31, 2022 , the consolidated total net leverage ratio was (0.59):1. Minimum liquidity as ofJanuary 31, 2022 was$2.5 billion . Accordingly, the Company does not believe that the provisions of the Second Amended and Restated Credit Agreement represent a significant restriction to its ability to pay dividends or to the successful future operations of the business. The Company has not paid a cash dividend since becoming a public company in 1994. The Company was in compliance with all covenants related to the Second Amended and Restated Credit Agreement as ofJanuary 31, 2022 .
Note Purchase Agreement
OnJuly 21, 2020 , we entered into a Note Purchase Agreement and sold to certain purchasers (collectively, the "Purchasers")$400.0 million in aggregate principal amount of senior secured notes (the "Senior Notes") consisting of (i)$100.0 million aggregate principal amount of 4.07% Senior Notes, Series A, dueDecember 3, 2024 ; (ii)$100.0 million aggregate principal amount of 4.19% Senior Notes, Series B, dueDecember 3, 2026 ; (iii)$100.0 million aggregate principal amount of 4.25% Senior Notes, Series C, dueDecember 3, 2027 ; and (iv)$100.0 million aggregate principal amount of 4.35% Senior Notes, Series D, dueDecember 3, 2029 . Interest is due and payable quarterly, in arrears, on each of the Senior Notes. We may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including minimum amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest payments under the Senior Notes. The Note Purchase Agreement contains customary affirmative and negative covenants and we were in compliance with all covenants related to the Note Purchase Agreement as ofJanuary 31, 2022 .
Stock Repurchases
OnSeptember 22, 2011 , our Board of Directors approved an 80 million share increase in the stock repurchase program, bringing the total current authorization to 196 million shares. The repurchases may be effected through solicited or unsolicited transactions in the open market or in privately negotiated transactions. No time limit has been placed on the duration of the stock repurchase program. Subject to applicable securities laws, such repurchases will be made at such times and in such amounts as we deem appropriate and may be discontinued at any time. We did not repurchase any shares of our common stock under the program during the six months endedJanuary 31, 2022 or 2021. As ofJanuary 31, 2022 , the total number of shares repurchased under the program was 114,549,198, and 81,450,802 shares were available for repurchase under the program.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including costs related to vehicle pooling costs; income taxes; stock-based compensation; and contingencies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management has discussed the selection of critical accounting policies and estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting policies and estimates in this Quarterly Report on Form 10-Q. There have been no material changes to the critical accounting policies and estimates from what was disclosed in our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2021 filed with theSEC onSeptember 27, 2021 . Our significant accounting policies are described in the Notes to Unaudited Consolidated Financial Statements, Note 1 - Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q.
Recently Issued Accounting Standards
For a description of the new accounting standards that affect us, refer to the Notes to Unaudited Consolidated Financial Statements, Note 11 - Recent Accounting Pronouncements.
Contractual Obligations and Commitments
There have been no material changes during the six months endedJanuary 31, 2022 to our contractual obligations disclosed in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2021, filed with theSEC onSeptember 27, 2021 . 30
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Off-Balance Sheet Arrangements
As ofJanuary 31, 2022 , we had no off-balance sheet arrangements other than a letter of credit and our funding commitments pursuant to surety bonds, none of which have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. .
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