Market Overview

Copart Reports Second Quarter Fiscal 2018 Financial Results

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Copart, Inc. (NASDAQ:CPRT) today reported financial results for the
quarter ended January 31, 2018.

For the three months ended January 31, 2018, revenue, gross margin, and
net income were $459.1 million, $191.6 million, and $103.3 million,
respectively. These represent an increase in revenue of $109.6 million,
or 31.3%; an increase in gross margin of $44.8 million, or 30.6%; and an
increase in net income of $37.2 million, or 56.3%, respectively, from
the same quarter last year. Fully diluted earnings per share for the
three months were $0.43 compared to $0.28 last year, an increase of
53.6%.

For the six months ended January 31, 2018, revenue, gross margin, and
net income were $878.3 million, $354.9 million, and $180.8 million,
respectively. These represent an increase in revenue of $182.8 million,
or 26.3%; an increase in gross margin of $62.8 million, or 21.5%; and a
decrease in net income of $52.6 million, or 22.5%, respectively, from
the same period last year. Fully diluted earnings per share for the six
months were $0.75 compared to $0.99 last year, a decrease of 24.2%.

The operating results for the three and six months ended January 31,
2018 were adversely affected by abnormal costs of $36.5 million and
$72.3 million, respectively, incurred as a result of Hurricane Harvey.
These costs included temporary storage facilities; premiums for
subhaulers; labor costs incurred from overtime; travel and lodging due
to the reassignment of employees to the affected region; and equipment
lease expenses to handle the increased volume, as well as cost of
vehicle sales. These costs, net of the associated revenues of $44.8
million and $63.4 million, respectively, generated pre-tax income for
the three months ended January 31, 2018 of $8.3 million, and a pre-tax
loss of $8.9 million for the six month period. The operating results for
the three months ended January 31, 2018 were also adversely impacted by
a charge of $10.0 million to income tax expense for the deemed
repatriation of foreign earnings and profits under the Tax Cuts and Jobs
Act of 2017, net of deferred tax changes, and was offset by the Act's
reduction of the federal corporate income tax rate. Because Copart's
fiscal year includes periods before and after the effective date of the
Act, during which the U.S. federal corporate tax rate was 35% and 21%,
respectively, our U.S. federal corporate tax rate for fiscal year 2018
will be 26.9%. The operating results for the three months ended January
31, 2018, include the benefit of this rate reduction, as well as a
favorable adjustment of $7.6 million to account for previously accrued
taxes at our prior federal corporate tax rate for the three months ended
October 31, 2017.

Excluding the impact of income taxes on the deemed repatriation of
foreign earnings, net of deferred tax changes, disposals of
non-operating assets, foreign currency-related losses and gains, certain
income tax benefits and payroll taxes related to accounting for stock
option exercises, non-GAAP fully diluted earnings per share for the
three months ended January 31, 2018 and 2017, were $0.47 and $0.29,
respectively. Non-GAAP fully diluted earnings per share for the six
months ended January 31, 2018 and 2017, were $0.79 and $0.57,
respectively. A reconciliation of non-GAAP financial measures to the
most directly comparable financial measures computed in accordance with
U.S. generally accepted accounting principles (GAAP) can be found in the
tables attached to this press release.

On Monday, February 26, 2018, at 11 a.m. Eastern time, Copart will
conduct a conference call to discuss the results for the quarter. The
call will be webcast live and can be accessed at http://stream.conferenceamerica.com/copart022618.
A replay of the call will be available through April 27, 2018 by calling (877)
919-4059
. Use confirmation code # 77546245.

About Copart

Copart, Inc., founded in 1982, is a global leader in online vehicle
auctions. Copart's innovative technology and online auction platform
links sellers to more than 750,000 Members in over 170 countries. Copart
offers services to process and sell salvage and clean title vehicles to
dealers, dismantlers, rebuilders, exporters, and in some cases, to end
users. Copart sells vehicles on behalf of insurance companies, banks,
finance companies, charities, fleet operators, dealers and also sells
vehicles sourced from individual owners. With operations at over 200
locations in 10 countries, Copart has more than 125,000 vehicles
available online every day. Copart currently operates in the United
States (Copart.com), Canada (Copart.ca), the United Kingdom
(Copart.co.uk), the Republic of Ireland (Copart.ie), Brazil
(Copart.com.br), Germany (Copart.de), the United Arab Emirates, Oman and
Bahrain (Copartmea.com), and Spain (Copart.es). For more information, or
to become a Member, visit Copart.com/Register.

Use of Non-GAAP Financial Measures

Included in this release are certain non-GAAP financial measures,
including non-GAAP net income per diluted share, which exclude the
impact of income taxes on the deemed repatriation of foreign earnings,
net of deferred tax changes, disposals of non-operating assets, foreign
currency-related losses and gains, and certain income tax benefits and
payroll taxes related to accounting for stock option exercises. These
non-GAAP financial measures do not represent alternative financial
measures under GAAP. In addition, these non-GAAP financial measures may
be different from non-GAAP financial measures used by other companies.
Furthermore, these non-GAAP financial measures do not reflect a
comprehensive view of Copart's operations in accordance with GAAP and
should only be read in conjunction with the corresponding GAAP financial
measures. This information constitutes non-GAAP financial measures
within the meaning of Regulation G adopted by the U.S. Securities and
Exchange Commission. Accordingly, Copart has presented herein, and will
present in other information it publishes that contains these non-GAAP
financial measures, a reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP financial measures.

Copart believes the presentation of non-GAAP net income per diluted
share included in this release in conjunction with the corresponding
GAAP financial measures provides meaningful information for investors,
analysts and management in assessing Copart's business trends and
financial performance. From a financial planning and analysis
perspective, Copart management analyzes its operating results with and
without the impact of income taxes on the deemed repatriation of foreign
earnings, net of deferred tax changes, disposals of non-operating
assets, foreign currency-related losses and gains, and certain income
tax benefits and payroll taxes related to accounting for stock option
exercises.

Cautionary Note About Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of federal securities laws, and these forward-looking statements
are subject to substantial risks and uncertainties. These
forward-looking statements are subject to certain risks, trends and
uncertainties that could cause actual results to differ materially from
those projected or implied by our statements and comments. For a more
complete discussion of the risks that could affect our business, please
review the "Management's Discussion and Analysis" and the other risks
identified in Copart's latest Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, as filed with the
Securities and Exchange Commission. We encourage investors to review
these disclosures carefully. We do not undertake to update any
forward-looking statement that may be made from time to time on our
behalf.

 

Copart, Inc.

Consolidated Statements of Income

(In thousands, except per share data)

(Unaudited)

 
  Three Months Ended
January 31,
  Six Months Ended
January 31,
2018   2017 2018   2017
Service revenues and vehicle sales:
Service revenues $ 401,954 $ 310,033 $ 776,079 $ 617,111
Vehicle sales 57,152   39,499   102,195   78,412  
Total service revenues and vehicle sales 459,106 349,532 878,274 695,523
Operating expenses:
Yard operations 204,289 158,556 410,508 315,918
Cost of vehicle sales 50,313 33,686 88,610 66,773
Yard depreciation and amortization 11,893 9,717 22,429 19,165
Yard stock-based payment compensation 1,002   808   1,854   1,609  
Gross margin 191,609 146,765 354,873 292,058
General and administrative 29,694 27,675 59,196 58,599
General and administrative depreciation and amortization 5,978 5,498 11,344 10,759
General and administrative stock-based payment compensation 4,990   4,712   9,444   8,996  
Total operating expenses 308,159   240,652   603,385   481,819  
Operating income 150,947 108,880 274,889 213,704
Other (expense) income:
Interest expense, net (5,561 ) (5,760 ) (10,959 ) (11,382 )
Other (expense) income, net (948 ) (3,021 ) (5,364 ) 311  
Total other expenses (6,509 ) (8,781 ) (16,323 ) (11,071 )
Income before income taxes 144,438 100,099 258,566 202,633
Income tax expense (benefit) 41,137   34,033   77,705   (30,713 )
Net income 103,301 66,066 180,861 233,346
Net income attributable to noncontrolling interest 45     90    
Net income attributable to Copart, Inc. $ 103,256   $ 66,066   $ 180,771   $ 233,346  
 
Basic net income per common share $ 0.45   $ 0.29   $ 0.78   $ 1.03  
Weighted average common shares outstanding 231,478   229,142   231,086   227,288  
 
Diluted net income per common share $ 0.43   $ 0.28   $ 0.75   $ 0.99  
Diluted weighted average common shares outstanding 241,360   235,588   240,076   236,672  
 
 

Copart, Inc.

Consolidated Balance Sheets

(In thousands)

(Unaudited)

 
  January 31, 2018   July 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 195,300 $ 210,100
Accounts receivable, net 398,972 311,846
Vehicle pooling costs and inventories 50,994 41,281
Income taxes receivable 3,836 6,418
Prepaid expenses and other assets 17,374   17,616  
Total current assets 666,476 587,261
Property and equipment, net 1,024,564 944,056
Intangibles, net 69,934 75,938
Goodwill 344,499 340,243
Deferred income taxes 301 1,287
Other assets 37,767   33,716  
Total assets $ 2,143,541   $ 1,982,501  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 242,594 $ 208,415
Deferred revenue 6,797 5,019
Income taxes payable 13,806 6,472
Deferred income taxes 92
Current portion of revolving loan facility and capital lease
obligations
111,851   82,155  
Total current liabilities 375,048 302,153
Deferred income taxes 5,196 3,192
Income taxes payable 27,128 24,573
Long-term debt, revolving loan facility and capital lease
obligations, net of discount
400,646 550,883
Other liabilities 3,732   3,100  
Total liabilities 811,750 883,901
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock 23 23
Additional paid-in capital 483,895 453,349
Accumulated other comprehensive loss (78,913 ) (100,676 )
Retained earnings 926,163 745,370
Noncontrolling interest 623   534  
Total stockholders' equity 1,331,791   1,098,600  
Total liabilities and stockholders' equity $ 2,143,541   $ 1,982,501  
 
 

Copart, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
  Six Months Ended January 31,
2018   2017
Cash flows from operating activities:
Net income $ 180,861 $ 233,346
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, including debt cost 33,994 30,146
Allowance for doubtful accounts 1,013 26
Equity in losses of unconsolidated affiliates 251 408
Stock-based payment compensation 11,298 10,605
Loss (gain) on sale of property and equipment 4,639 (79 )
Deferred income taxes 2,666 23,466
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable (86,147 ) (74,789 )
Vehicle pooling costs and inventories (9,073 ) (4,944 )
Prepaid expenses and other current assets (1,437 ) 894
Other assets (4,320 ) (801 )
Accounts payable and accrued liabilities 38,919 (4,599 )
Deferred revenue 1,705 1,350
Income taxes receivable 2,575 (64,757 )
Income taxes payable 9,365 5,934
Other liabilities 84   (678 )
Net cash provided by operating activities 186,393 155,528
 
Cash flows from investing activities:
Purchases of property and equipment, including acquisitions (110,782 ) (92,412 )
Proceeds from sale of property and equipment 2,812 386
Investment in unconsolidated affiliate   (1,050 )
Net cash used in investing activities (107,970 ) (93,076 )
 
Cash flows from financing activities:
Proceeds from the exercise of stock options 16,603 20,381
Proceeds from the issuance of Employee Stock Purchase Plan shares 2,723 1,908
Payments for employee stock-based tax withholdings (3 ) (134,638 )
Net (repayments) proceeds on revolving loan facility (120,300 ) 72,000
Distributions to noncontrolling interest (55 )  
Net cash used in financing activities (101,032 ) (40,349 )
Effect of foreign currency translation 7,809   (3,000 )
Net (decrease) increase in cash and cash equivalents (14,800 ) 19,103
Cash and cash equivalents at beginning of period 210,100   155,849  
Cash and cash equivalents at end of period $ 195,300   $ 174,952  
Supplemental disclosure of cash flow information:
Interest paid $ 11,010   $ 11,810  
Income taxes paid, net of refunds $ 64,104   $ 4,616  
 
 

Copart, Inc.

Additional Financial Information

Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share data)

(Unaudited)

 
  Three Months Ended
January 31,
  Six Months Ended
January 31,
2018   2017 2018   2017
GAAP net income attributable to Copart, Inc. $ 103,256 $ 66,066 $ 180,771 $ 233,346
Effect of deemed repatriation of foreign earnings, net of deferred
tax changes
10,000 10,000
Effect of disposal of non-operating assets, net of tax 2,994
Effect of foreign currency-related losses (gains), net of tax 768 2,720 1,076 (127 )
Effect of income tax benefit of ASU 2016-09 adoption, net of tax (1) (2,596 ) (1,347 ) (6,363 ) (102,742 )
Effect of payroll taxes on certain executive stock compensation, net
of tax
      3,307  
Non-GAAP net income attributable to Copart, Inc. $ 111,428   $ 67,439   $ 188,478   $ 133,784  
 
GAAP diluted net income per common share $ 0.43   $ 0.28   $ 0.75   $ 0.99  
Non-GAAP diluted net income per common share $ 0.47   $ 0.29   $ 0.79   $ 0.57  
 
GAAP diluted weighted average common shares outstanding 241,360 235,588 240,076 236,672
Effect on common equivalent shares from ASU 2016-09 adoption(1) (2,703 ) (1,404 ) (1,352 ) (2,250 )
Non-GAAP diluted weighted average common shares outstanding 238,657   234,184   238,724   234,422  
 
(1)   In March 2016, the FASB issued ASU No. 2016-09, Improvements to
Employee Share-Based Payment Accounting. Under this standard, all
excess tax benefits and tax deficiencies related to exercises of
stock options are recognized as income tax expense or benefit in the
income statement as discrete items in the reporting period in which
they occur. Additionally, excess tax benefits are classified as an
operating activity on the consolidated statements of cash flows. The
Company adopted ASU 2016-09 during the fourth quarter of fiscal 2016
on a modified retrospective basis. For a more complete discussion,
please review the Company's Annual Report on Form 10-K, filed with
the Securities and Exchange Commission on September 27, 2017.
 

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