Market Overview

Copart Reports Third Quarter Fiscal 2018 Financial Results

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Copart, Inc. (NASDAQ:CPRT) today reported financial results for the
quarter ended April 30, 2018.

For the three months ended April 30, 2018, revenue, gross profit, and
net income were $478.2 million, $219.1 million, and $127.3 million,
respectively. These represent an increase in revenue of $104.3 million,
or 27.9%; an increase in gross profit of $46.6 million, or 27.0%; and an
increase in net income of $36.8 million, or 40.6%, respectively, from
the same quarter last year. Fully diluted earnings per share for the
three months were $0.52 compared to $0.38 last year, an increase of
36.8%.

For the nine months ended April 30, 2018, revenue, gross profit, and net
income were $1.4 billion, $573.9 million, and $308.1 million,
respectively. These represent an increase in revenue of $287.1 million,
or 26.8%; an increase in gross profit of $109.4 million, or 23.5%; and a
decrease in net income of $15.8 million, or 4.9%, respectively, from the
same period last year. Fully diluted earnings per share for the nine
months were $1.28 compared to $1.37 last year, a decrease of 6.6%.

The operating results for the three and nine months ended April 30, 2018
were adversely affected by abnormal costs of $7.4 million and $79.7
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 $3.5 million and
$66.9 million, respectively, generated pre-tax loss for the three months
ended April 30, 2018 of $3.9 million, and a pre-tax loss of $12.8
million for the nine month period. The operating results for the nine
months ended April 30, 2018 were also adversely impacted by a charge of
$11.0 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 nine months ended April 30, 2018, include
the benefit of this rate reduction.

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 April 30, 2018 and 2017, were $0.52 and $0.37,
respectively. Non-GAAP fully diluted earnings per share for the nine
months ended April 30, 2018 and 2017, were $1.31 and $0.94,
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 Thursday, May 24, 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/copart052418.
A replay of the call will be available through July 23, 2018 by calling (877)
919-4059
. Use confirmation code # 12253443.

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 11 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), Spain (Copart.es), and Finland (AVK.fi). 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 amounts)

(Unaudited)

 
  Three Months Ended   Nine Months Ended
April 30, April 30,
2018   2017 2018   2017
Service revenues and vehicle sales:
Service revenues $ 410,762 $ 332,346 $ 1,186,841 $ 949,457
Vehicle sales 67,436   41,516   169,631   119,928  
Total service revenues and vehicle sales 478,198 373,862 1,356,472 1,069,385
Operating expenses:
Yard operations 189,346 155,793 599,854 471,711
Cost of vehicle sales 57,538 34,785 146,148 101,558
Yard depreciation and amortization 11,188 9,951 33,617 29,116
Yard stock-based payment compensation 1,058   828   2,912   2,437  
Gross profit 219,068 172,505 573,941 464,563
General and administrative 34,181 28,280 93,377 86,879
General and administrative depreciation and amortization 5,385 3,257 16,729 14,016
General and administrative stock-based payment compensation 4,883   4,180   14,327   13,176  
Total operating expenses 303,579   237,074   906,964   718,893  
Operating income 174,619 136,788 449,508 350,492
Other (expense) income:
Interest expense, net (4,134 ) (5,506 ) (15,093 ) (16,888 )
Other income (expense), net 731   (194 ) (4,633 ) 117  
Total other expenses (3,403 ) (5,700 ) (19,726 ) (16,771 )
Income before income taxes 171,216 131,088 429,782 333,721
Income tax expense 43,811   40,542   121,516   9,829  
Net income 127,405 90,546 308,266 323,892
Net income attributable to noncontrolling interest 57     147    
Net income attributable to Copart, Inc. $ 127,348   $ 90,546   $ 308,119   $ 323,892  
 
Basic net income per common share $ 0.55   $ 0.39   $ 1.33   $ 1.42  
Weighted average common shares outstanding 232,010   229,920   231,387   228,146  
 
Diluted net income per common share $ 0.52   $ 0.38   $ 1.28   $ 1.37  
Diluted weighted average common shares outstanding 242,960   237,135   241,030   236,808  
 
Copart, Inc.
Consolidated Balance Sheets

(In thousands)

(Unaudited)

 
  April 30, 2018   July 31, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 204,275 $ 210,100
Accounts receivable, net 356,125 311,846
Vehicle pooling costs and inventories 52,523 41,281
Income taxes receivable 1,363 6,418
Prepaid expenses and other assets 16,616   17,616  
Total current assets 630,902 587,261
Property and equipment, net 1,087,910 944,056
Intangibles, net 69,382 75,938
Goodwill 342,459 340,243
Deferred income taxes 1,239 1,287
Other assets 33,301   33,716  
Total assets $ 2,165,193   $ 1,982,501  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 245,473 $ 208,415
Deferred revenue 5,906 5,019
Income taxes payable 18,048 6,472
Deferred income taxes 92
Current portion of revolving loan facility and capital lease
obligations
1,151   82,155  
Total current liabilities 270,578 302,153
Deferred income taxes 3,927 3,192
Income taxes payable 27,303 24,573
Long-term debt, revolving loan facility and capital lease
obligations, net of discount
398,914 550,883
Other liabilities 3,659   3,100  
Total liabilities 704,381 883,901
Commitments and contingencies
Stockholders' equity:
Preferred stock
Common stock 23 23
Additional paid-in capital 497,010 453,349
Accumulated other comprehensive loss (90,412 ) (100,676 )
Retained earnings 1,053,510 745,370
Noncontrolling interest 681   534  
Total stockholders' equity 1,460,812   1,098,600  
Total liabilities and stockholders' equity $ 2,165,193   $ 1,982,501  
 
 
Copart, Inc.
Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 
  Nine Months Ended April 30,
2018   2017
Cash flows from operating activities:
Net income $ 308,266 $ 323,892
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization, including debt cost 50,678 43,951
Allowance for doubtful accounts 1,096 (542 )
Equity in losses of unconsolidated affiliates 679 584
Stock-based payment compensation 17,239 15,613
Loss (gain) on sale of property and equipment 4,044 (125 )
Deferred income taxes (17 ) 21,791
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable (43,361 ) (35,668 )
Vehicle pooling costs and inventories (8,290 ) (2,262 )
Prepaid expenses and other current assets (371 ) 1,440
Other assets (413 ) (1,185 )
Accounts payable and accrued liabilities 27,981 1,140
Deferred revenue 849 1,532
Income taxes receivable 5,043 (23,909 )
Income taxes payable 14,025 2,619
Other liabilities (251 ) (1,044 )
Net cash provided by operating activities 377,197 347,827
 
Cash flows from investing activities:
Purchases of property and equipment, including acquisitions (188,482 ) (134,710 )
Proceeds from sale of property and equipment 3,368 554
Investment in unconsolidated affiliate   (3,566 )
Net cash used in investing activities (185,114 ) (137,722 )
 
Cash flows from financing activities:
Proceeds from the exercise of stock options 23,816 30,171
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 on revolving loan facility (231,000 ) (73,000 )
Distributions to noncontrolling interest (55 )  
Net cash used in financing activities (204,519 ) (175,559 )
Effect of foreign currency translation 6,611   (774 )
Net (decrease) increase in cash and cash equivalents (5,825 ) 33,772
Cash and cash equivalents at beginning of period 210,100   155,849  
Cash and cash equivalents at end of period $ 204,275   $ 189,621  
Supplemental disclosure of cash flow information:
Interest paid $ 15,406   $ 17,681  
Income taxes paid, net of refunds $ 102,762   $ 9,452  
 
 
Copart, Inc.
Additional Financial Information
Reconciliation of GAAP to Non-GAAP Financial Measures

(In thousands, except per share amounts)

(Unaudited)

 
  Three Months Ended   Nine Months Ended
April 30, April 30,
2018   2017 2018   2017
GAAP net income attributable to Copart, Inc. $ 127,348 $ 90,546 $ 308,119 $ 323,892
Effect of deemed repatriation of foreign earnings, net of deferred
tax changes
1,000 11,000
Effect of disposal of non-operating assets, net of tax 2,994
Effect of foreign currency-related losses (gains), net of tax (261 ) (167 ) 777 (295 )
Effect of income tax benefit of ASU 2016-09 adoption, net of tax (1) (3,085 ) (4,007 ) (9,448 ) (106,749 )
Effect of payroll taxes on certain executive stock compensation, net
of tax
      3,307  
Non-GAAP net income attributable to Copart, Inc. $ 125,002   $ 86,372   $ 313,442   $ 220,155  
 
GAAP diluted net income per common share $ 0.52   $ 0.38   $ 1.28   $ 1.37  
Non-GAAP diluted net income per common share $ 0.52   $ 0.37   $ 1.31   $ 0.94  
 
GAAP diluted weighted average common shares outstanding 242,960 237,135 241,030 236,808
Effect on common equivalent shares from ASU 2016-09 adoption(1) (3,090 ) (1,692 ) (1,030 ) (2,065 )
Non-GAAP diluted weighted average common shares outstanding 239,870   235,443   240,000   234,743  
(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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