10-Q 1 cprt-20221031.htm 10-Q cprt-20221031
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                         to                        
Commission file number: 000-23255
COPART, INC.
(Exact name of registrant as specified in its charter)
Delaware
000-23255
94-2867490
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
14185 Dallas ParkwaySuite 300
Dallas
Texas
75254
        (Address of principal executive offices) (zip code)
(972) 391-5000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001CPRTThe NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 17, 2022, 476,300,011 shares of the registrant’s common stock were outstanding.



Copart, Inc.
Index to the Quarterly Report
October 31, 2022
Table of ContentsPage Number
2



Copart, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)October 31, 2022July 31, 2022
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash$1,539,391 $1,384,236 
Accounts receivable, net628,964 578,573 
Vehicle pooling costs116,526 112,242 
Inventories53,866 58,791 
Income taxes receivable5,261 49,882 
Prepaid expenses and other assets20,597 18,731 
Total current assets2,364,605 2,202,455 
Property and equipment, net2,582,481 2,485,764 
Operating lease right-of-use assets112,530 116,303 
Intangibles, net51,847 54,680 
Goodwill394,844 401,954 
Other assets87,370 47,708 
Total assets$5,593,677 $5,308,864 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities$446,974 $399,034 
Deferred revenue19,319 20,061 
Income taxes payable16,101  
Current portion of operating and finance lease liabilities22,083 21,794 
Total current liabilities504,477 440,889 
Deferred income taxes77,452 80,060 
Income taxes payable65,275 64,637 
Operating and finance lease liabilities, net of current portion91,670 95,683 
Long-term debt and other liabilities, net of discount1,969 1,996 
Total liabilities740,843 683,265 
Commitments and contingencies
Stockholders’ equity:
Preferred stock: $0.0001 par value - 5,000,000 shares authorized; none issued
  
Common stock: $0.0001 par value - 1,600,000,000 shares authorized; 476,195,814 and 476,081,948 shares issued and outstanding, respectively.
48 48 
Additional paid-in capital849,761 838,508 
Accumulated other comprehensive loss(198,936)(169,365)
Retained earnings4,201,961 3,956,408 
Total stockholders’ equity4,852,834 4,625,599 
Total liabilities and stockholders’ equity$5,593,677 $5,308,864 
The accompanying notes are an integral part of these consolidated financial statements.
3

Copart, Inc.
Consolidated Statements of Income
(Unaudited)
Three Months Ended October 31,
(In thousands, except per share amounts)20222021
Service revenues and vehicle sales:
Service revenues$726,840 $667,818 
Vehicle sales166,532 142,314 
Total service revenues and vehicle sales893,372 810,132 
Operating expenses:
Yard operations372,777 298,694 
Cost of vehicle sales151,112 126,408 
General and administrative57,980 54,909 
Total operating expenses581,869 480,011 
Operating income311,503 330,121 
Other expense:
Interest income (expense), net4,422 (5,107)
Other (expense) income, net(2,822)812 
Total other income (expense)1,600 (4,295)
Income before income taxes313,103 325,826 
Income tax expense67,255 65,463 
Net income$245,848 $260,363 
Basic net income per common share$0.52 $0.55 
Weighted average common shares outstanding476,099 474,136 
Diluted net income per common share$0.51 $0.54 
Diluted weighted average common shares outstanding482,168 482,442 
The accompanying notes are an integral part of these consolidated financial statements.
4

Copart, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended October 31,
(In thousands)20222021
Comprehensive income, net of tax:
Net income$245,848 $260,363 
Other comprehensive income:
Foreign currency translation adjustments(29,571)(10,518)
Comprehensive income$216,277 $249,845 
The accompanying notes are an integral part of these consolidated financial statements.
5

Copart, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
Common StockAccumulated
Other
Comprehensive
Income (Loss)
Additional
Paid-in
Capital
(In thousands, except share amounts)Outstanding
Shares
AmountRetained
Earnings
Stockholders’
Equity
Balances at July 31, 2022476,081,948 $48 $838,508 $(169,365)$3,956,408 $4,625,599 
Net income— — — — 245,848 245,848 
Currency translation adjustment— — — (29,571)— (29,571)
Exercise of stock options, net of repurchased shares75,554 — 1,061 — (295)766 
Stock-based compensation38,312 — 10,192 — — 10,192 
Balances at October 31, 2022476,195,814 48 849,761 (198,936)4,201,961 4,852,834 


Common StockAccumulated
Other
Comprehensive
Income (Loss)
Additional
Paid-in
Capital
(In thousands, except share amounts)Outstanding
Shares
AmountRetained
Earnings
Stockholders’
Equity
Balances at July 31, 2021474,028,546 $48 $761,810 $(100,860)$2,868,203 $3,529,201 
Net income— — — — 260,363 260,363 
Currency translation adjustment— — — (10,518)— (10,518)
Exercise of stock options, net of repurchased shares291,972 — 5,572 — (249)5,323 
Stock-based compensation42,182 — 9,452 — — 9,452 
Balances at October 31, 2021474,362,700 48 776,834 (111,378)3,128,317 3,793,821 
The accompanying notes are an integral part of these consolidated financial statements.
6

Copart, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended October 31,
(In thousands)20222021
Cash flows from operating activities:
Net income$245,848 $260,363 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt cost39,327 32,049 
Allowance for credit loss1,396 295 
Equity in losses of unconsolidated affiliates2,122 168 
Stock-based compensation10,192 9,452 
Gain on sale of property and equipment(113)(440)
Deferred income taxes(1,780)8,319 
Changes in operating assets and liabilities:
Accounts receivable(53,837)(82,676)
Vehicle pooling costs(4,643)(21,697)
Inventories4,020 (3,463)
Prepaid expenses, other current and non-current assets(35,303)3,071 
Operating lease right-of-use assets and lease liabilities52 382 
Accounts payable and accrued liabilities40,372 62,013 
Deferred revenue(588)(979)
Income taxes receivable44,595 19,479 
Income taxes payable19,899 26,204 
Net cash provided by operating activities311,559 312,540 
Cash flows from investing activities:
Purchases of property and equipment(152,655)(64,696)
Proceeds from sale of property and equipment185 813 
Net cash used in investing activities(152,470)(63,883)
Cash flows from financing activities:
Proceeds from the exercise of stock options1,061 5,572 
Payments for employee stock-based tax withholdings(295)(249)
Payments of finance lease obligations(7)(157)
Net cash provided by financing activities759 5,166 
Effect of foreign currency translation(4,693)(3,710)
Net increase in cash, cash equivalents, and restricted cash155,155 250,113 
Cash, cash equivalents, and restricted cash at beginning of period1,384,236 1,048,260 
Cash, cash equivalents, and restricted cash at end of period$1,539,391 $1,298,373 
Supplemental disclosure of cash flow information:
Interest paid$64 $5,080 
Income taxes paid, net of refunds$5,700 $10,089 
The accompanying notes are an integral part of these consolidated financial statements.
7

Copart, Inc.
Notes to Consolidated Financial Statements
October 31, 2022
(Unaudited)
NOTE 1 – Summary of Significant Accounting Policies
Basis of Presentation and Description of Business
Copart, Inc. (“the Company”) provides vehicle sellers with a full range of services to process and sell vehicles over the internet through the Company’s Virtual Bidding Third Generation (“VB3”) internet auction-style sales technology. Vehicle sellers consist primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers, vehicle rental companies, and individuals. The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and directly to the general public. The majority of vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or 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. The Company offers vehicle sellers a full range of services that expedite each stage of the vehicle sales process, minimize administrative and processing costs and maximize the ultimate sales price through the online auction process. In the United States (“U.S.”), Canada, Brazil, the Republic of Ireland, Finland, the United Arab Emirates (“U.A.E.”), Oman, and Bahrain, the Company sells vehicles primarily as an agent and derives 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 the United Kingdom (“U.K.”), Germany, and Spain, the Company operates both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the vehicles for its own account. In Germany and Spain, the Company also derives 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.
Principles of Consolidation
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments of a normal recurring nature considered necessary for fair presentation of the Company’s financial position as of October 31, 2022 and July 31, 2022, its consolidated statements of income, comprehensive income and stockholders’ equity for the three months ended October 31, 2022 and 2021, and its cash flows for the three months ended October 31, 2022 and 2021. Interim results for the three months ended October 31, 2022 are not necessarily indicative of the results that may be expected for any future period, or for the entire year ending July 31, 2023. These consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2022. Certain prior year amounts have been reclassified to conform to current year presentation.
The consolidated financial statements of the Company include the accounts of the parent company and its wholly-owned subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation.

On October 3, 2022, the Company’s Board of Directors approved a two-for-one common stock split effected in the form of a stock dividend subject to and contingent upon, among other things, obtaining stockholder approval of an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock. On October 31, 2022, the Company’s stockholders approved such increase at a special meeting of stockholders. As such, on November 3, 2022, the Company effected the two-for-one stock dividend to stockholders of record as of October 6, 2022. The stock dividend increased the number of shares of common stock outstanding and all share and per share amounts have been retroactively adjusted for the stock dividend, as of the date earliest presented in these financial statements. Certain prior year amounts have been retroactively adjusted to conform to current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates include, but are not limited to, vehicle pooling costs; income taxes; stock-based compensation; and contingencies. Actual results may differ from these estimates.
8

Revenue Recognition
The Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process. Service revenue and vehicle sales revenue are recognized at the date the vehicles are sold at auction, excluding annual registration fees. Costs to prepare the vehicles for auction, including inbound transportation costs and titling fees, are deferred and recognized at the time of revenue recognition at auction.
The Company’s disaggregation between service revenues and vehicle sales at the segment level reflects how the nature, timing, amount and uncertainty of its revenues and cash flows are impacted by economic factors. The Company reports sales taxes on relevant transactions on a net basis in the Company’s consolidated results of operations, and therefore does not include sales taxes in revenues or costs.
Service revenues
The Company’s service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing services. Within this revenue category, the Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process. 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 the Company’s facility; title processing and preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These services are not distinct within the context of the contract. Accordingly, revenue for these services is recognized when the single performance obligation is satisfied at the completion of the auction process. The Company does not take ownership of these consigned vehicles, which are stored at the Company’s facilities located throughout the U.S. and at its international locations. These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged.
The Company has a separate performance obligation related to providing access to its online auction platform as the Company charges members an annual registration fee for the right to participate in its online auctions and access the Company’s bidding platform. This fee is recognized ratably over the term of the arrangement, generally one year, as each day of access to the online auction platform represents the best depiction of the transfer of the service.
No provision for returns has been established, as all sales are final with no right of return or warranty, although the Company provides for credit loss expense in the case of non-performance by its buyers or sellers.
Three Months Ended October 31,
(In thousands)20222021
Service revenues
United States$651,657 $590,758 
International75,183 77,060 
Total service revenues$726,840 $667,818 
Vehicle sales
Certain vehicles are purchased and remarketed on the Company’s own behalf. The Company has a single performance obligation related to the sale of these vehicles, which is the completion of the online auction process. Vehicle sales revenue is recognized on the auction date. As the Company acts as a principal in vehicle sales transactions, the gross sales price at auction is recorded as revenue.
Three Months Ended October 31,
(In thousands)20222021
Vehicle sales
United States$97,192 $87,703 
International69,340 54,611 
Total vehicle sales$166,532 $142,314 
Contract assets
The Company capitalizes certain contract assets related to obtaining a contract, where the amortization period for the related asset is greater than one year. These assets are amortized over the expected life of the customer relationship. Contract assets are classified as current or long-term other assets, based on the timing of when the Company expects to recognize the related revenues and are amortized as an offset to the associated revenues on a straight-line basis. The Company assesses these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists. The contract asset costs where the amortization period for the related asset is one year or less are expensed as incurred and recorded within general and administrative expenses in the accompanying consolidated statements of income.
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The change in the carrying amount of contract assets was as follows (In thousands):
Balance as of July 31, 2022$4,778 
Capitalized contract assets during the period25,000 
Costs amortized during the period(930)
Effect of foreign currency exchange rates(111)
Balance as of October 31, 2022$28,737 
Vehicle Pooling Costs
The Company defers costs that relate directly to the fulfillment of its contracts associated with vehicles consigned to and received by the Company, but not sold as of the end of the period. The Company quantifies the deferred costs using a calculation that includes the number of vehicles at its facilities at the beginning and end of the period, the number of vehicles sold during the period, and an allocation of certain yard operation costs of the period. The primary expenses allocated and deferred are inbound transportation costs, titling fees, certain facility costs, labor, and vehicle processing. If the allocation factors change, then yard operation expenses could increase or decrease correspondingly in the future. These costs are expensed into yard operations expenses as vehicles are sold in subsequent periods on an average cost basis.
Foreign Currency Translation
The Company records foreign currency translation adjustments from the process of translating the functional currency of the financial statements of its foreign subsidiaries into the U.S. dollar reporting currency. The British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, and Bahraini dinar are the functional currencies of the Company’s foreign subsidiaries as they are the primary currencies within the economic environment in which each subsidiary operates. The original equity investment in the respective subsidiaries is translated at historical rates. Assets and liabilities of the respective subsidiary’s operations are translated into U.S. dollars at period-end exchange rates, and revenues and expenses are translated into U.S. dollars at average exchange rates in effect during each reporting period. Adjustments resulting from the translation of each subsidiary’s financial statements are reported in other comprehensive income.
The cumulative effects of foreign currency exchange rate fluctuations were as follows (In thousands):
Cumulative loss on foreign currency translation as of July 31, 2021$(100,860)
Loss on foreign currency translation(68,505)
Cumulative loss on foreign currency translation as of July 31, 2022$(169,365)
Loss on foreign currency translation(29,571)
Cumulative loss on foreign currency translation as of October 31, 2022$(198,936)
Fair Value of Financial Instruments
The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in U.S. GAAP. In accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, the Company considers fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:
Level I    Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level II    Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly.
Level III    Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate.
The amounts recorded for financial instruments in the Company’s consolidated financial statements, which included cash, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximated their fair values as of October 31, 2022 and July 31, 2022, due to the short-term nature of those instruments and are classified within Level II of the fair value hierarchy. Cash equivalents are classified within Level II of the fair value hierarchy because they are valued using quoted market prices of the underlying investments.
Cash, Cash Equivalents, and Restricted Cash
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The Company considers all highly liquid investments purchased with original maturities of three months or less at the time of purchase to be cash equivalents. Cash, cash equivalents, and restricted cash include cash held in checking, U.S. Treasury Bills, and money market accounts. The Company periodically invests its excess cash in money market funds and U.S. Treasury Bills. The Company’s cash, cash equivalents, and restricted cash are placed with high credit quality financial institutions. The carrying values of the Company’s cash equivalents that were not carried at fair value in the consolidated balance sheets were $1,358.0 million and $1,237.0 million as of October 31, 2022 and July 31, 2022, respectively, and fair values of the Company’s cash equivalents that were not carried at fair value in the consolidated balance sheets were $1,360.3 million and $1,237.3 million as of October 31, 2022 and July 31, 2022, respectively.
Capitalized Software Costs
The Company capitalizes system development costs and website development costs related to the enterprise computing services during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Internal-use software is amortized on a straight-line basis over its estimated useful life, generally three to seven years. The Company evaluates the useful lives of these assets on an annual basis and tests for impairment whenever events or changes in circumstances occur that impact the recoverability of these assets.
Total gross capitalized software as of October 31, 2022 and July 31, 2022 was $81.1 million and $78.2 million, respectively. Accumulated amortization expense related to software as of October 31, 2022 and July 31, 2022 totaled $54.5 million and $52.5 million, respectively.
NOTE 2 — Acquisitions
Fiscal Year 2022 Transactions
On July 5, 2022, the Company acquired 100% of the voting stock of ILT Project Limited which conducts business primarily as Hills Motors (“Hills”), a leading parts recycler in the United Kingdom. Hills predominantly sells recycled parts to the public. The purchase price paid for Hills was $106.6 million.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed for Hills (in thousands).
Cash$8,960 
Accounts receivable and prepaid expenses5,348 
Inventory4,913 
Property and equipment22,259 
Intangible assets15,931 
Goodwill56,051 
Liabilities assumed(6,858)
Fair value of net assets and liabilities acquired$106,604 
The Hills acquisition was undertaken for the strategic fit to the Company. This acquisition has been accounted for using the purchase method in accordance with ASC 805, Business Combinations, which resulted in the recognition of goodwill in the Company’s consolidated financial statements. Goodwill arose because the purchase price reflected a number of factors, including future earnings and cash flow potential; the comparable multiples of earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers; and the complementary strategic fit and resulting synergies brought to existing operations. Goodwill is calculated as the excess of the consideration transferred over the fair value of the identifiable net assets acquired and is not amortized for financial reporting purposes. The acquisition of Hills is currently undergoing review by the U.K. Competition and Markets Authority. Given the timing of the acquisition the Company has not completed its determination of the fair value of assets acquired and liabilities assumed and the amount shown in the table above are preliminary amounts. The estimates and assumptions used in the preliminary purchase price allocation are subject to change if additional information, which existed as of the acquisition date, becomes known to the Company. However, the Company believes any changes to the preliminary purchase price allocation will not have a material impact to the Company’s consolidated financial position and results of operations.
The Company used third party market rates to assist in the determination of the fair value of the land and buildings acquired which are Level II inputs. The Hills acquisition did not result in a significant change in the Company’s consolidated results of operations; therefore, pro forma financial information has not been presented. The operating results have been included in the Company’s consolidated financial position and results of operations since the acquisition date.
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NOTE 3 — Accounts Receivable, Net
Accounts receivable, net consisted of:
(In thousands)October 31, 2022July 31, 2022
Advance charges receivable$476,672 $440,650 
Trade accounts receivable142,010 137,243 
Other receivables18,046 7,257 
636,728 585,150 
Less: Allowance for credit loss(7,764)(6,577)
Accounts receivable, net$628,964 $578,573 
Advance charges receivable represents amounts paid to third parties on behalf of insurance companies for which the Company will be reimbursed when the vehicle is sold. As advance charges are recovered within one year, the Company has not adjusted the amount of consideration received from the customer for a significant financing component. Trade accounts receivable includes fees and gross auction proceeds to be collected from insurance companies and buyers.
NOTE 4 — Property and Equipment, Net
Property and equipment, net consisted of the following:
(In thousands)October 31, 2022July 31, 2022
Land$1,595,410 $1,526,446 
Buildings and improvements1,245,331 1,209,331 
Transportation and other equipment449,017 429,405 
Office furniture and equipment83,491 84,728 
Software81,051 78,216 
 3,454,300 3,328,126 
Less: Accumulated depreciation and amortization(871,819)(842,362)
Property and equipment, net$2,582,481 $2,485,764 
Depreciation expense on property and equipment was $37.2 million and $29.9 million for the three months ended October 31, 2022 and 2021, respectively.
NOTE 5 – Leases
The Company has both lessee and lessor arrangements. The Company determines whether a contract is or contains a lease at the inception of the contract or at any subsequent modification. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment. Depending on the terms, leases are classified as either operating or finance leases if the Company is the lessee, or as operating, sales-type, or direct financing leases if the Company is the lessor. Certain of the Company’s lessee and lessor leases have renewal options to extend the leases for additional periods at the Company’s discretion.
Leases - Lessee
The Company leases certain facilities and certain equipment under non-cancelable finance and operating leases, which are recorded as right-of-use assets and lease liabilities. Certain leases provide the Company with either a right of first refusal to acquire or an option to purchase a facility at fair value. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the right-of-use asset and the lease liabilities. The effects of these escalation clauses or concessions have been reflected in lease expense on a straight-line basis over the expected lease term and any variable lease payments subsequent to establishing the lease liability are expensed as incurred. The lease term commences on the date when the Company has the right to control the use of the leased property, which is typically before lease payments are due under the terms of the lease. Certain of the Company’s leases have renewal periods up to 40 years, exercisable at the Company’s option, and generally require the Company to pay property taxes, insurance and maintenance costs, in addition to the lease payments. At lease inception, the Company includes all renewals or option periods that are reasonably certain to exercise when determining the expected lease term, as failure to renew the lease would impose an economic penalty.
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Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the expected lease term. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the information available at lease commencement date, as rates are not implicitly stated in the Company’s leases.
Components of lease expense were as follows:
Three Months Ended October 31,
(In thousands)20222021
Operating lease expense$6,860 $7,067 
Finance lease expense:
Amortization of right-of-use assets7 153 
Interest on finance lease liabilities 2 
Short-term lease expense1,169 1,768 
Variable lease expense239 224 
Total lease expense$8,275 $9,214 
Supplemental cash flow information related to leases as of October 31, 2022 were as follows:
Three Months Ended October 31,
(In thousands)20222021
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows related to operating leases$6,635 $6,697 
Operating cash flows related to finance leases 2 
Financing cash flows related to finance leases7 157 
Right-of-use assets obtained in exchange for new operating lease liabilities7,667 10,823 
Right-of-use assets obtained in exchange for new finance lease liabilities  
Leases - Lessor
The Company’s lessor arrangements include certain facilities and various land locations, of which each qualifies as an operating lease. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the straight-line rental income. The effects of these escalation clauses or concessions have been reflected in lease payments receivable on a straight-line basis over the expected lease term and any variable lease income subsequent to establishing the receivable will be recognized as earned.
The cost of the leased space as of October 31, 2022 and July 31, 2022 was $51.2 million and $51.2 million, respectively. The accumulated depreciation associated with the leased assets as of October 31, 2022 and July 31, 2022 was $3.0 million and $2.8 million, respectively. Both the leased assets and accumulated depreciation are included in Property and equipment, net on the consolidated balance sheet. Rental income from these operating leases was $4.1 million and $3.5 million for the three months ended October 31, 2022 and 2021, respectively, and is included within Service revenues on the consolidated statements of income.
NOTE 6 – Goodwill and Intangible Assets
The following table sets forth amortizable intangible assets by major asset class:
(In thousands)October 31, 2022July 31, 2022
Amortized intangibles:
Supply contracts and customer relationships$70,920 $71,875 
Trade names18,887 18,896 
Licenses and databases612 633 
Accumulated amortization(38,572)(36,724)
Intangibles, net$51,847 $54,680 
Aggregate amortization expense on amortizable intangible assets was $1.9 million and $1.8 million for the three months ended October 31, 2022 and 2021, respectively.
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The change in the carrying amount of goodwill was as follows:
(In thousands)
Balance as of July 31, 2022$401,954 
Effect of foreign currency exchange rates(7,110)
Balance as of October 31, 2022$394,844 
NOTE 7 – Long-Term Debt
Credit Agreement
On December 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, and Bank 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 of July 21, 2020, by and among Copart, the lenders party thereto, and Bank of America, N.A., as administrative agent (as successor in interest to Wells 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 (the “Revolving Loan Facility”) 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 from July 21, 2023 to December 21, 2026, (f) replacing the LIBOR interest rate applicable to U.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 the Revolving Loan Facility of $1,250.0 million maturing on December 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 to CPRT 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 to Copart 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 of October 31, 2022 and July 31, 2022.
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 an aggregate amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined, shall be not less than $75.0 million
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both before and after giving effect to any such dividend or restricted payment. As of October 31, 2022, the consolidated total net leverage ratio was (0.91):1. Minimum liquidity available as of October 31, 2022 was $2.7 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 of October 31, 2022.
Related to execution of the Second Amended and Restated Credit Agreement, the Company incurred $2.7 million in costs, which were capitalized as debt issuance fees. The debt discount is amortized to interest expense over the term of the respective debt instruments and is classified as reductions of the outstanding liability.

NOTE 8 – Net Income Per Share
The table below reconciles basic weighted average shares outstanding to diluted weighted average shares outstanding:
Three Months Ended October 31,
(In thousands)20222021
Weighted average common shares outstanding476,099 474,136 
Effect of dilutive securities6,069 8,306 
Weighted average common and dilutive potential common shares outstanding
482,168 482,442 
There were no material adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive earnings per share calculation were 1,642,800 and 110,500 options to purchase the Company’s common stock for the three months ended October 31, 2022 and 2021, respectively, because their inclusion would have been anti-dilutive.
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NOTE 9 – Stock-based Compensation
The Company recognizes compensation expense for stock option awards without a market condition on a straight-line basis over the requisite service period of the award. The following is a summary of activity for the Company’s stock options for the three months ended October 31, 2022:
(In thousands, except per share and term data)SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (In years)Aggregate Intrinsic Value
Outstanding as of July 31, 202211,394 $29.31 5.50$398,331 
Grants of options  
Exercises(64)13.26 
Forfeitures or expirations(262)54.31 
Outstanding as of October 31, 202211,068 $28.81 5.09$324,456 
Exercisable as of October 31, 20228,889 $24.36 4.43$298,758 
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. The number of options that were in-the-money was 12,483,348 at October 31, 2022.
The Company grants option awards to certain executives that contain service and market conditions. The options will become exercisable over five years, subject to continued service by the executive, with 20% vesting on the first anniversary of the grant date and the balance vesting monthly over the subsequent four years. Separate and apart from the time-based vesting schedule, the options are also subject to a market condition requiring the trading price of Copart, Inc. common stock on the NASDAQ Global Select Market to be greater than or equal to 125% of the exercise price of the options, determined both (i) at the time of any exercise, and (ii) based on the closing price on each of the twenty consecutive trading days preceding the date of any exercise. The exercise price of the options is equivalent to the closing price of the Company’s common stock on the grant date. The fair value of the awards is determined at the grant date using either Lattice or Monte Carlo model, risk-free interest rates ranging from 0.71% to 2.38%, estimated volatility ranging from 25.2% to 25.7%, and no expected dividends. The total estimated compensation expense to be recognized by the Company over the five-year service period for these options is $44.0 million and will be recognized using the accelerated attribution method over each vesting tranche of the award. The Company recognized $3.2 million and $2.2 million in compensation expense related to these awards in the three months ended October 31, 2022 and 2021, respectively.

The following is a summary of activity for the Company’s stock option awards subject to market conditions for the three months ended October 31, 2022:
(In thousands, except per share and term data)SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (In years)Aggregate Intrinsic Value
Outstanding as of July 31, 20222,810 $47.83 8.33$45,590 
Grants of options  
Exercises  
Forfeitures or expirations  
Outstanding as of October 31, 20222,810 $47.83 8.07$30,677 
Exercisable as of October 31, 2022984 $43.07 7.65$14,211 

The table below sets forth the stock-based compensation recognized by the Company for stock options, restricted stock, and restricted unit awards:
Three Months Ended October 31,
(In thousands)20222021
General and administrative$8,747 $8,471 
Yard operations1,445 981 
Total stock-based compensation$10,192 $9,452 
The Company’s restricted stock awards (“RSA”) and restricted stock unit awards (“RSU”) have generally been issued with vesting periods ranging from two years to five years and vest solely on service conditions. Accordingly, the Company recognizes compensation expense for RSA and RSU awards on a straight-line basis over the requisite service period of the award.
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The following is a summary of activity for the Company’s RSA’s and RSU’s for the three months ended October 31, 2022:
(In thousands, except per share data)Restricted SharesWeighted Average Grant Date Fair Value
Outstanding as of July 31, 2022354 $60.28 
Grants 25 53.92 
Vested(20)53.19 
Forfeitures or expirations(7)50.47 
Outstanding as of October 31, 2022352 $60.42 
NOTE 10 – Stock Repurchases
On September 22, 2011, the Company’s Board of Directors approved an 160 million share increase in the stock repurchase program, bringing the total current authorization to 392 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 the Company deems appropriate and may be discontinued at any time. The Company did not repurchase any shares of its common stock under the program during the three months ended October 31, 2022 or 2021. As of October 31, 2022, the total number of shares repurchased under the program was 229,098,396, and 162,901,604 shares were available for repurchase under the program.
NOTE 11 – Income Taxes
The Company’s effective income tax rates were 21.5% and 20.1% for the three months ended October 31, 2022 and 2021, respectively, which differs from the U.S. statutory rate of 21% primarily due to state income taxes, deduction for Foreign Derived Intangible Income, and excess tax benefits associated with equity-based compensation.
The Company applies the provisions of the accounting standard for uncertain tax positions to its income taxes. For benefits to be realized, a tax position must be more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is currently under examination by certain taxing authorities in the U.S. for fiscal years between 2014 and 2018. At this time, the Company does not believe that the outcome of any examination will have a material impact on the Company’s consolidated results of operations and financial position.
NOTE 12 – Recent Accounting Pronouncements
Adopted
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company’s adoption of ASU 2019-12 did not have a material impact on the Company’s consolidated results of operations and financial position.

NOTE 13 – Legal Proceedings
The Company is subject to threats of litigation and is involved in actual litigation and damage claims arising in the ordinary course of business, such as actions related to injuries, property damage, contract disputes, and handling or disposal of vehicles. There are no material pending legal proceedings to which the Company is a party, or with respect to which any of the Company’s property is subject.
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The Company provides for costs relating to matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of any such matters on the Company’s future consolidated results of operations and cash flows cannot be predicted because any such effect depends on future results of operations and the amount and timing of the resolution of any such matters. The Company believes that any ultimate liability regarding existing litigation and claims would not have a material effect on its consolidated results of operations, financial position, or cash flows. However, the amount of the liabilities associated with claims, if any, cannot be determined with certainty. The Company maintains insurance which may or may not provide coverage for claims made against the Company. There is no assurance that there will be insurance coverage available when and if needed. Additionally, the insurance that the Company carries requires that the Company pay for costs and/or claims exposure up to the amount of the insurance deductibles.
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NOTE 14 – Segments and Other Geographic Reporting
The Company’s U.S. and International regions are considered two separate operating segments and are disclosed as two reportable segments. The segments represent geographic areas and reflect how the chief operating decision maker allocates resources and measures results, including total revenues and operating income.
The following table presents financial information by segment:

Three Months Ended October 31, 2022Three Months Ended October 31, 2021
(In thousands)United StatesInternationalTotalUnited StatesInternationalTotal
Service revenues$651,657 $75,183 $726,840 $590,758 $77,060 $667,818 
Vehicle sales97,192 69,340 166,532 87,703 54,611 142,314 
Total service revenues and vehicle sales748,849 144,523 893,372 678,461 131,671 810,132 
Yard operations326,244 46,533 372,777 256,621 42,073 298,694 
Cost of vehicle sales92,439 58,673 151,112 80,342 46,066 126,408 
General and administrative47,538 10,442 57,980 46,548 8,361 54,909 
Operating income$282,628 $28,875 $311,503 $294,949 $35,172 $330,121 
Depreciation and amortization$34,935 $4,123 $39,058 $27,725 $4,035 $31,760 
Capital expenditures and acquisitions136,283 16,372 152,655 54,272 10,424 64,696 
October 31, 2022July 31, 2022
(In thousands)United StatesInternationalTotalUnited StatesInternationalTotal
Total assets$4,870,941 $722,736 $5,593,677 $4,615,788 $693,076 $5,308,864 
Goodwill270,269 124,575 394,844 270,269 131,685 401,954 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references in this Form 10-Q to “Copart,” the “Company,” “we,” “us,” or “our” refer to Copart, Inc.
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). 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 the Securities and Exchange Commission (the “SEC”). We may from time to time make additional written and oral forward-looking statements, including statements contained in our filings with the SEC. 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 in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), Brazil, the Republic of Ireland, Germany, Finland, the United Arab Emirates (“U.A.E.”), Oman, Bahrain, and Spain.
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 South Florida in the wake of Hurricane Ian in the fall of 2022.
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.
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In the U.S., Canada, Brazil, the Republic of Ireland, Finland, the U.A.E., Oman, and Bahrain, 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 the U.K., Germany, and Spain 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. In Germany and Spain, 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 the U.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 also 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 the U.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 past 30 years we believe there has been an increase in overall growth in the salvage market driven by an increase in total loss frequency. This increase in total loss frequency may have been driven by changes in used car values and repair costs over the same long-term horizon, which we believe are generally trending upward. Recently we have noted fluctuations in total loss frequency. Nonetheless, we believe the long-term trend of increases in total loss frequency will continue. In the near term changes in used car prices and repair cost, may tend to reduce total loss frequency and thereby 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 has continued to increase, growing from 9.6 years in 2002 to 12.2 years in 2022. 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 with precision.
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 7 – 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. 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
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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 the U.S., Canada, the U.K., Brazil, the Republic of Ireland, Germany, Finland, the U.A.E., Oman, Bahrain, and Spain with the intention of providing global coverage for our sellers.
The following tables set forth operational facilities that we have opened and are now operational from August 1, 2021 through October 31, 2022:
United States LocationsDate
Mobile South, AlabamaAugust 2021
Madison, WisconsinOctober 2021
Augusta, GeorgiaApril 2022
Milwaukee South, Wisconsin
May 2022
Punta Gorda, Florida
June 2022
Anchorage, AlaskaAugust 2022
Rapid City, South DakotaAugust 2022
Kansas City, MissouriSeptember 2022
International LocationsGeographic Service AreaDate
Barcelona, SpainSpainSeptember 2021
Halifax, Novia ScotiaCanadaApril 2022
The following table sets forth the operational facilities obtained through business acquisitions from August 1, 2021 through October 31, 2022:
LocationsGeographic Service AreaDate
Skelmersdale, EnglandUnited KingdomJuly 2022
Dumfries, EnglandUnited KingdomJuly 2022
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.
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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 months ended October 31, 2022 and 2021:
Three Months Ended October 31,
(In percentages)20222021
Service revenues and vehicle sales:
Service revenues81 %82 %
Vehicle sales19 %18 %
Total service revenues and vehicle sales100 %100 %
Operating expenses:
Yard operations42 %37 %
Cost of vehicle sales17 %16 %
General and administrative%%
Total operating expenses65 %60 %
Operating income35 %40 %
Other expense— %(1)%
Income before income taxes35 %39 %
Income taxes%%
Net income27 %31 %
Comparison of the Three Months Ended October 31, 2022 and 2021
The following table presents a comparison of service revenues for the three months ended October 31, 2022 and 2021:
Three Months Ended October 31,
(In thousands)20222021Change% Change
Service revenues
United States$651,657 $590,758 $60,899 10.3 %
International75,183 77,060 (1,877)(2.4)%
Total service revenues$726,840 $667,818 $59,022 8.8 %
Service Revenues. The increase in service revenue during the three months ended October 31, 2022 of $59.0 million or 8.8%, as compared to the same period last year resulted from (i) an increase in the U.S. of $60.9 million and (ii) a decrease in International of $1.9 million. The growth in the U.S. was driven primarily by (i) an increase in revenue per car due to higher auction selling prices, which we believe is due to a change in mix of vehicles sold and reduced supply and (ii) an increase in volume. Excluding the unfavorable impact of $10.9 million due to changes in foreign currency exchange rates, primarily from the change in the European Union euro, Canadian dollar and British Pound to U.S. dollar exchange rates, net against a favorable impact of the Brazilian Real to the U.S. dollar exchange rate, the growth in International was driven primarily by an increase in revenue per car due to a change in mix of vehicles sold and an increase in volume.
The following table presents a comparison of vehicle sales for the three months ended October 31, 2022 and 2021:
Three Months Ended October 31,
(In thousands)20222021Change% Change
Vehicle sales
United States$97,192 $87,703 $9,489 10.8 %
International69,340 54,611 14,729 27.0 %
Total vehicle sales$166,532 $142,314 $24,218 17.0 %
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Vehicle Sales. The increase in vehicle sales for the three months ended October 31, 2022 of $24.2 million, or 17.0%, as compared to the same period last year resulted from (i) an increase in the U.S. of $9.5 million and an (ii) an increase in International of $14.7 million. The increase in the U.S. was primarily (i) the result of increased volume and (ii) 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 an unfavorable impact of $12.8 million due to changes in foreign currency exchange rates, primarily from the unfavorable change in the European Union euro and British Pound to U.S. dollar exchange rates, the increase in International was primarily the result of higher average auction selling prices, which we believe was due to a change in mix of vehicles sold combined with increased prices resulting from restrictions within the global supply chain for automobiles.
The following table presents a comparison of yard operations expenses for the three months ended October 31, 2022 and 2021:
Three Months Ended October 31,
(In thousands)20222021Change% Change
Yard operations expenses
United States$326,244 $256,621 $69,623 27.1 %
International46,533 42,073 4,460 10.6 %
Total yard operations expenses$372,777 $298,694 $74,083 24.8 %
Yard operations expenses, excluding depreciation and amortization
United States$295,850 $234,019 $61,831 26.4 %
International42,567 38,233 4,334 11.3 %
Yard depreciation and amortization
United States$30,394 $22,602 $7,792 34.5 %
International3,966