Copart Inc. Reports Operating Results (10-Q)
Copart Inc. has a market cap of $2.8 billion; its shares were traded at around $33.12 with a P/E ratio of 18.8 and P/S ratio of 3.5. Copart Inc. had an annual average earning growth of 12.7% over the past 10 years. GuruFocus rated Copart Inc. the business predictability rank of 4.5-star.CPRT is in the portfolios of Richard Aster Jr of Meridian Fund, Ron Baron of Baron Funds, First Pacific Advisors of First Pacific Advisors, LLC, Chuck Royce of Royce& Associates, Jean-Marie Eveillard of First Eagle Investment Management, LLC, Jim Simons of Renaissance Technologies LLC, Mario Gabelli of GAMCO Investors, Pioneer Investments, Jeremy Grantham of GMO LLC, Bruce Kovner of Caxton Associates, Steven Cohen of SAC Capital Advisors.
Highlight of Business Operations: We are partially self-insured for certain losses related to medical, general liability, workers' compensation and auto liability. Our insurance policies are subject to a $250,000 deductible per claim, with the exception of our medical policy which is $150,000 per claim. In addition, each of our policies contains an aggregate stop loss which limits our ultimate exposure. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. The primary estimates used in the actuarial analysis include total payroll and revenue. Our estimates have not materially fluctuated from actual results. While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity of claims and medical cost inflation, differ from our estimates, our consolidated financial position, results of operations or cash flows could be impacted. The process of determining our insurance reserves requires estimates with various assumptions, each of which can positively or negatively impact those balances. The total amount reserved for all policies is approximately $4.4 million as of October 31, 2010. If the total number of participants in the medical plan changed by 10% we estimate that our medical expense would change by approximately $1.0 million and our medical accrual would change by approximately $350,000 annually. If our total payroll changed by 10% we estimate that our workers' compensation expense would change by less than $100,000 and our accrual for workers' compensation expenses would change by less than $100,000 annually. A 10% change in revenue would change our insurance premium for the general liability and umbrella policy by less than $25,000 annually.
Service revenues were approximately $179.6 million during the three months ended October 31, 2010 compared to $153.8 million for the same period last year, an increase of $25.8 million, or 16.8%. Excluding the impact from the adoption of ASU 2009-13 which increased revenue by $9.1 million, revenue increased by $16.7 million. Growth in unit volume generated $13.4 million in additional service revenue relative to last year and was driven primarily by growth in the number of units sold on behalf of franchise and independent car dealerships and the migration from the principal model to the agency model in the UK. Increased revenue per car, which was driven primarily by growth in the average selling price of vehicles relative to the comparable quarter last year, resulted in a $3.9 million increase in service fee revenue. Over 50% of our service revenue is tied in some manner to the ultimate selling price of the vehicle. We believe the increase in the average selling price was primarily due to: (i) the year over year increase in commodity pricing as we believe that commodity pricing, particularly the per ton price for crushed car bodies, has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling; (ii) the general increase in used car pricing, which we believe has an impact on the average selling price of vehicles which are repaired and retailed or purchased by the end user and (iii) in the UK, the continuing beneficial impact of VB2 which we introduced to the UK in 2008 and which expands our buyer base by opening vehicle sales to buyers worldwide. We cannot determine the movement of these factors nor can we determine which vehicles are sold to the end user or for scrap, dismantling, retailing or export. Accordingly, we cannot quantify the specific impact that commodity pricing, used car pricing, and the introduction of VB2 had on the selling price of vehicles and ultimately on service revenue. The average USD to GBP exchange rate was 1.57 dollars to the pound and 1.64 dollars to the pound for the three months ended October 31, 2010 and 2009, respectively, and led to a reduction in service revenue of $0.6 million.
Vehicle Sales. We have certain contracts in the UK that require us to act as a principal, purchasing vehicles from the insurance companies and reselling them for our own account. Vehicle sales revenues were approximately $33.1 million during the three months ended October 31, 2010 compared to $31.7 million for the same period last year, an increase of $1.4 million, or 4.4%. The increase in vehicle sales revenue was due to the rise in the average selling price of vehicles which resulted in increased revenue of $4.4 million. The rise in the average selling price per unit was primarily due to: (i) the increase in commodity pricing, particularly the per ton price for crushed car bodies, which has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling and (ii) in the UK, the continuing beneficial impact of VB2 which we introduced to the UK in 2008 and which expands our buyer base by opening vehicle sales to buyers worldwide. We cannot determine which vehicles are sold directly to the end user or for scrap, dismantling, retailing, or export and, accordingly, cannot quantify the specific impact of commodity pricing nor can we isolate the impact that VB2 had on the ultimate selling price of vehicles sold in the UK. The change in volume reflects the migration of certain contracts in the UK from the principal model to the agency model and resulted in a reduction in vehicle sales revenue of $1.8 million. The negative impact on recorded vehicle sales revenue due to the change in the GBP to USD exchange rate was $1.2 million.
Yard Operation Expenses. Yard operation expenses, excluding depreciation and amortization, were approximately $86.2 million during the three months ended October 31, 2010 compared to $69.9 million for the same period last year, an increase of approximately $16.2 million, or 23.2%. The increase was driven by the growth in volume of units processed, an impairment of an airplane of $1.2 million and the adoption of ASU 2009-13 on August 1, 2010. As a result of the adoption of ASU 2009-13, we recognized in the quarter certain revenues and expenses associated primarily with towing fees, titling fee and seller storage fees, which were previously deferred until the period the car associated with those services
Cost of Vehicle Sales. The cost of vehicle sales were approximately $28.2 million during the three months ended October 31, 2010 compared to $24.4 million for the same period last year, an increase of approximately $3.8 million, or 15.5%. Cost per unit sold increased and represented a $5.6 million increase relative to last year. Unit volume decline lead to a reduction of $0.8 million and was due primarily to the migration of certain contracts in the UK from a principal basis to a fee basis. The beneficial impact on the cost of sales due to the change in the GBP to USD exchange rate was $1.0 million.
General and Administrative Expenses. General and administrative expenses, excluding depreciation and amortization, were approximately $27.0 million for the three months ended October 31, 2010 compared to $23.9 million for the same period last year, an increase of approximately $3.1 million, or 12.8%. The growth in general and administrative costs was due primarily to increased advertising costs as we invested in events and media promotions to generate new member activity and technology costs as we continue to modify our IT systems and our seller interfaces. The beneficial impact on general and administrative expenses due to the change in the GBP to USD exchange rate was approximately $0.1 million.
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