Copart Inc. Reports Operating Results (10-Q)
Copart Inc. has a market cap of $3.38 billion; its shares were traded at around $41.12 with a P/E ratio of 22.23 and P/S ratio of 4.37. 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.
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 $5.3 million as of January 31, 2011. If the total number of participants in the medical plan changed by 10% we estimate that our medical expense would change by approximately $1.2 million and our medical accrual would change by approximately $350,000. 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. A 10% change in revenue would change our insurance premium for the general liability and umbrella policy by less than $25,000.
Service Revenues. Service revenues were approximately $173.7 million during the three months ended January 31, 2011 compared to $149.5 million for the same period last year, an increase of $24.3 million, or 16.2%. Growth in unit volume generated $21.7 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, new and expanded contracts with insurance companies and the migration from the principal model to the agency model in the UK. Revenue per car was relatively flat as the increase in revenue per car resulting from higher scrap metal and used car pricing was offset by growth in volume process from suppliers with below average revenue per car. Over 50% of our service revenue is tied in some manner to the ultimate selling price of the vehicle. We believe the average selling price was impacted by: (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 impact of the movement of these influences, we cannot determine which vehicles are sold to the end user or for scrap, dismantling, retailing or export nor can we predict their future movement. 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 1.58 dollars to the pound and 1.63 dollars to the pound for the three months ended January 31, 2011 and 2010, 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 $33.6 million during the three months ended January 31, 2011 compared to $27.1 million for the same period last year, an increase of $6.5 million, or 24.0%. The increase in vehicle sales revenue was primarily 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 the impact of the movement of these influences, we cannot determine which vehicles are sold directly to the end user or for scrap, dismantling, retailing, or export nor can we predict their future movement. Accordingly, we cannot quantify the specific impact of commodity pricing, we cannot predict the future movement in 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 resulted in an increase in vehicle sales revenue of $1.2 million. Also, during the quarter we had a beneficial settlement of a dispute with Her Majesty’s Revenue and Customs (HMRC) respecting the proper apportionment of gross proceeds between revenue and VAT. This settlement, which affects historical transactions, resulted in the recognition of approximately $1.8 million in vehicle sales revenue. The negative impact on recorded vehicle sales revenue due to the change in the GBP to USD exchange rate was $0.9 million.
Cost of Vehicle Sales. The cost of vehicle sales were $27.0 million during the three months ended January 31, 2011 compared to $22.2 million for the same period last year, an increase of approximately $4.8 million, or 21.7%. The increase in the cost per unit sold represented a $3.9 million increase relative to last year. Unit volume increase led to an increase of $1.6 million. The beneficial impact on the cost of sales due to the change in the GBP to USD exchange rate was $0.7 million.
General and Administrative Expenses. General and administrative expenses, excluding depreciation and amortization, were $23.7 million for the three months ended January 31, 2011 compared to $23.4 million for the same period last year, an increase of $0.3 million. The beneficial impact on general and administrative expenses due to the change in the GBP to USD exchange rate was approximately $0.1 million.
Other Income (Expense). Interest expense grew by $0.3 million reflecting the impact of the new $400.0 million term loan funded January 14, 2011. Other income primarily includes the income from the rent of certain real property, foreign exchange rate gains and losses and gains and losses from the disposal of assets and will fluctuate based on the nature of those activities during the period. Total other income was $0.5 million and expense of approximately $0.1 million during the three months ended January 31, 2011 and 2010, respectively.
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