Company Quick10K Filing
Copart
Price80.91 EPS3
Shares239 P/E28
MCap19,310 P/FCF43
Net Debt219 EBIT812
TEV19,529 TEV/EBIT24
TTM 2019-10-31, in MM, except price, ratios
10-Q 2020-01-31 Filed 2020-02-27
10-Q 2019-10-31 Filed 2019-11-25
10-K 2019-07-31 Filed 2019-09-30
10-Q 2019-04-30 Filed 2019-05-29
10-Q 2019-01-31 Filed 2019-02-28
10-Q 2018-10-31 Filed 2018-11-29
10-K 2018-07-31 Filed 2018-10-01
10-Q 2018-04-30 Filed 2018-05-25
10-Q 2018-01-31 Filed 2018-02-27
10-Q 2017-10-31 Filed 2017-11-28
10-K 2017-07-31 Filed 2017-09-28
10-Q 2017-04-30 Filed 2017-05-25
10-Q 2017-01-31 Filed 2017-02-28
10-Q 2016-10-31 Filed 2016-11-30
10-K 2016-07-31 Filed 2016-09-28
10-Q 2016-04-30 Filed 2016-05-26
10-Q 2016-01-31 Filed 2016-02-25
10-Q 2015-10-31 Filed 2015-11-24
10-K 2015-07-31 Filed 2015-09-25
10-Q 2015-04-30 Filed 2015-05-28
10-Q 2015-01-31 Filed 2015-03-04
10-Q 2014-10-31 Filed 2014-11-26
10-K 2014-07-31 Filed 2014-09-29
10-Q 2014-04-30 Filed 2014-06-09
10-Q 2014-01-31 Filed 2014-03-05
10-Q 2013-10-31 Filed 2013-12-10
10-K 2013-07-31 Filed 2013-09-30
10-Q 2013-04-30 Filed 2013-06-05
10-Q 2013-01-31 Filed 2013-03-12
10-Q 2012-10-31 Filed 2012-12-07
10-K 2012-07-31 Filed 2012-10-01
10-Q 2012-04-30 Filed 2012-06-11
10-Q 2012-01-31 Filed 2012-03-09
10-Q 2011-10-31 Filed 2011-12-12
10-K 2011-07-31 Filed 2011-09-28
10-Q 2011-04-30 Filed 2011-06-09
10-Q 2011-01-31 Filed 2011-03-07
10-Q 2010-10-31 Filed 2010-12-03
10-K 2010-07-31 Filed 2010-09-23
10-Q 2010-04-30 Filed 2010-06-09
10-Q 2010-01-31 Filed 2010-03-12
8-K 2020-03-17 Off-BS Arrangement
8-K 2020-02-19 Earnings, Exhibits
8-K 2019-12-06 Shareholder Vote
8-K 2019-11-20 Earnings, Exhibits
8-K 2019-10-28 Officers
8-K 2019-09-04 Earnings, Exhibits
8-K 2019-09-03 Officers, Exhibits
8-K 2019-07-20 Officers, Exhibits
8-K 2019-05-22 Earnings, Exhibits
8-K 2019-02-20 Earnings, Exhibits
8-K 2018-12-17 Shareholder Vote
8-K 2018-11-20 Earnings, Exhibits
8-K 2018-10-10 Officers
8-K 2018-09-19 Earnings, Exhibits
8-K 2018-05-23 Earnings, Exhibits
8-K 2018-02-26 Earnings, Exhibits
8-K 2018-01-04 Officers

CPRT 10Q Quarterly Report

Note 1 - Summary of Significant Accounting Policies
Note 2 - Accounts Receivable, Net
Note 3 - Property and Equipment, Net
Note 4 - Leases
Note 5 - Goodwill and Intangible Assets
Note 6 - Long-Term Debt
Note 7 - Fair Value Measures
Note 8 - Net Income per Share
Note 9 - Stock-Based Compensation
Note 10 - Stock Repurchases
Note 11 - Income Taxes
Note 12 - Recent Accounting Pronouncements
Note 13 - Legal Proceedings
Note 14 - Segments and Other Geographic Reporting
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 cprt01312020-ex311.htm
EX-31.2 cprt01312020-ex312.htm
EX-32.1 cprt01312020-ex321.htm
EX-32.2 cprt01312020-ex322.htm

Copart Earnings 2020-01-31

Balance SheetIncome StatementCash Flow
2.92.31.71.20.60.02012201420172020
Assets, Equity
0.60.50.40.20.10.02012201420172020
Rev, G Profit, Net Income
0.50.30.20.0-0.1-0.32012201420172020
Ops, Inv, Fin

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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 January 31, 2020
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 Parkway
Suite 300
Dallas
Texas
75254
 
(Address of principal executive offices, including zip code)
 
(972) 391-5000
(Registrant’s telephone number, including area code)
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 $0.0001
CPRT
The NASDAQ Global Select Market
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 February 26, 2020, 233,705,480 shares of the registrant’s common stock were outstanding.



Copart, Inc.
Index to the Quarterly Report
January 31, 2020
Table of Contents
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2




Copart, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)
 
January 31, 2020
 
July 31, 2019
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
93,511

 
$
186,319

Accounts receivable, net
 
445,963

 
367,265

Vehicle pooling costs
 
90,595

 
76,548

Inventories
 
18,515

 
20,941

Income taxes receivable
 
68,415

 
19,526

Prepaid expenses and other assets
 
14,964

 
16,568

Total current assets
 
731,963

 
687,167

Property and equipment, net
 
1,789,326

 
1,427,726

Operating lease right-of-use assets
 
104,360

 

Intangibles, net
 
50,291

 
55,156

Goodwill
 
338,262

 
333,321

Deferred income taxes
 
348

 
411

Other assets
 
34,055

 
43,836

Total assets
 
$
3,048,605

 
$
2,547,617

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable and accrued liabilities
 
$
296,977

 
$
270,918

Deferred revenue
 
7,603

 
6,466

Income taxes payable
 
728

 
3,482

Current portion of operating lease liabilities
 
23,314

 

Current portion of revolving loan facility and finance lease liabilities
 
14,215

 
1,138

Total current liabilities
 
342,837

 
282,004

Deferred income taxes
 
55,499

 
48,683

Income taxes payable
 
43,650

 
35,116

Operating lease liabilities, net of current portion
 
81,906

 

Long-term debt, revolving loan facility and finance lease liabilities, net of discount
 
399,846

 
400,091

Other liabilities
 
138

 
3,342

Total liabilities
 
923,876

 
769,236

Commitments and contingencies
 

 

Stockholders’ equity:
 
 
 
 
Preferred stock: $0.0001 par value - 5,000,000 shares authorized; none issued
 

 

Common stock: $0.0001 par value - 400,000,000 shares authorized; 233,636,685 and 229,790,268 shares issued and outstanding, respectively.
 
23

 
23

Additional paid-in capital
 
617,714

 
572,559

Accumulated other comprehensive loss
 
(119,870
)
 
(132,529
)
Retained earnings
 
1,626,862

 
1,338,328

Total stockholders’ equity
 
2,124,729

 
1,778,381

Total liabilities and stockholders’ equity
 
$
3,048,605

 
$
2,547,617

The accompanying notes are an integral part of these consolidated financial statements.

3


Copart, Inc.
Consolidated Statements of Income
(Unaudited)
 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
(In thousands, except per share amounts)
 
2020
 
2019
 
2020
 
2019
Service revenues and vehicle sales:
 
 
 
 
 
 
 
 
Service revenues
 
$
510,034

 
$
416,807

 
$
997,890

 
$
811,613

Vehicle sales
 
65,106

 
68,091

 
131,674

 
134,653

Total service revenues and vehicle sales
 
575,140

 
484,898

 
1,129,564

 
946,266

Operating expenses:
 
 
 
 
 
 
 
 
Yard operations
 
257,351

 
215,460

 
498,142

 
423,154

Cost of vehicle sales
 
57,900

 
61,212

 
116,664

 
118,968

General and administrative
 
49,997

 
43,487

 
99,475

 
87,965

Total operating expenses
 
365,248

 
320,159

 
714,281

 
630,087

Operating income
 
209,892

 
164,739

 
415,283

 
316,179

 
 
 
 
 
 
 
 
 
Other (expense) income:
 
 
 
 
 
 
 
 
Interest expense
 
(4,914
)
 
(5,233
)
 
(9,525
)
 
(9,884
)
Interest income
 
450

 
678

 
1,035

 
1,638

Other (expense) income, net
 
(354
)
 
4,782

 
363

 
5,819

Total other (expense) income
 
(4,818
)
 
227

 
(8,127
)
 
(2,427
)
Income before income taxes
 
205,074

 
164,966

 
407,156

 
313,752

Income tax expense
 
36,367

 
33,593

 
20,269

 
68,296

Net income
 
$
168,707

 
$
131,373

 
$
386,887

 
$
245,456

 
 
 
 
 
 
 
 
 
Basic net income per common share
 
$
0.73

 
$
0.57

 
$
1.67

 
$
1.06

Weighted average common shares outstanding
 
232,671

 
230,798

 
231,920

 
232,343

 
 
 
 
 
 
 
 
 
Diluted net income per common share
 
$
0.71

 
$
0.55

 
$
1.62

 
$
1.01

Diluted weighted average common shares outstanding
 
238,470

 
240,660

 
238,566

 
242,743

The accompanying notes are an integral part of these consolidated financial statements.

4


Copart, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
 
 
Three Months Ended January 31,
 
Six Months Ended January 31,
(In thousands)
 
2020
 
2019
 
2020
 
2019
Comprehensive income, net of tax:
 
 
 
 
 
 
 
 
Net income
 
$
168,707

 
$
131,373

 
$
386,887

 
$
245,456

Other comprehensive income:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(580
)
 
8,423

 
12,659

 
705

Comprehensive income
 
$
168,127

 
$
139,796

 
$
399,546

 
$
246,161


The accompanying notes are an integral part of these consolidated financial statements.

5


Copart, Inc.
Consolidated Statements of Stockholders’ Equity
(Unaudited)
 
 
Common Stock
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
 
 
Additional
Paid-in
Capital
 
 
 
 
 
(in thousands, except share amounts)
 
Outstanding
Shares
 
Amount
 
 
 
Retained
Earnings
 
Stockholders’
Equity
Balances at July 31, 2019
 
229,790,268

 
$
23

 
$
572,559

 
$
(132,529
)
 
$
1,338,328

 
$
1,778,381

Net income
 

 

 

 

 
218,180

 
218,180

Currency translation adjustment
 

 

 

 
13,239

 

 
13,239

Exercise of stock options, net of repurchased shares
 
2,643,310

 

 
9,551

 

 
(98,285
)
 
(88,734
)
Stock-based compensation
 

 

 
5,533

 

 

 
5,533

Balances at October 31, 2019
 
232,433,578

 
23

 
587,643

 
(119,290
)
 
1,458,223

 
1,926,599

Net income
 

 

 

 

 
168,707

 
168,707

Currency translation adjustment
 

 

 

 
(580
)
 

 
(580
)
Exercise of stock options, net of repurchased shares
 
1,141,040

 

 
19,975

 

 
(68
)
 
19,907

Stock-based compensation
 

 

 
6,141

 

 

 
6,141

Shares issued for Employee Stock Purchase Plan
 
62,067

 

 
3,955

 

 

 
3,955

Balances at January 31, 2020
 
233,636,685

 
$
23

 
$
617,714

 
$
(119,870
)
 
$
1,626,862

 
$
2,124,729

The accompanying notes are an integral part of these consolidated financial statements.


6


Copart, Inc.
Consolidated Statements of Stockholders’ Equity
Continued
(Unaudited)
 
 
Common Stock
 
 
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
 
 
 
 
Additional
Paid-in
Capital
 
 
 
 
 
(in thousands, except share amounts)
 
Outstanding
Shares
 
Amount
 
 
 
Retained
Earnings
 
Stockholders’
Equity
Balances at July 31, 2018
 
233,898,841

 
$
23

 
$
526,858

 
$
(107,928
)
 
$
1,162,146

 
$
1,581,099

Net income
 

 

 

 

 
114,083

 
114,083

Currency translation adjustment
 

 

 

 
(7,718
)
 

 
(7,718
)
Cumulative effect of change in accounting standard
 

 

 

 

 
(22,954
)
 
(22,954
)
Exercise of stock options, net of repurchased shares
 
109,321

 

 
1,229

 

 
(2
)
 
1,227

Stock-based compensation
 

 

 
6,021

 

 

 
6,021

Balances at October 31, 2018
 
234,008,162

 
23

 
534,108

 
(115,646
)
 
1,253,273

 
1,671,758

Net income
 

 

 

 

 
131,373

 
131,373

Currency translation adjustment
 

 

 

 
8,423

 

 
8,423

Exercise of stock options, net of repurchased shares
 
241,896

 

 
3,991

 

 
(25
)
 
3,966

Stock-based compensation
 

 

 
5,929

 

 

 
5,929

Shares issued for Employee Stock Purchase Plan
 
86,208

 

 
3,501

 

 

 
3,501

Shares repurchased
 
(7,635,596
)
 

 
(17,427
)
 

 
(347,570
)
 
(364,997
)
Balances at January 31, 2019
 
226,700,670

 
$
23

 
$
530,102

 
$
(107,223
)
 
$
1,037,051

 
$
1,459,953

The accompanying notes are an integral part of these consolidated financial statements.


7


Copart, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Six Months Ended January 31,
(In thousands)
 
2020
 
2019
Cash flows from operating activities:
 
 
 
 
Net income
 
$
386,887

 
$
245,456

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization, including debt cost
 
48,097

 
42,487

Allowance for doubtful accounts
 
1,301

 
96

Equity in losses (earnings) of unconsolidated affiliates
 
3,124

 
(514
)
Stock-based compensation
 
11,674

 
11,950

Gain on sale of property and equipment
 
(1,315
)
 
(3,890
)
Deferred income taxes
 
6,719

 
6,632

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(78,510
)
 
(86,125
)
Vehicle pooling costs
 
(13,921
)
 
(20,218
)
Inventories
 
2,765

 
(11,640
)
Prepaid expenses and other current and non-current assets
 
7,184

 
(725
)
Operating lease right-of-use assets and lease liabilities
 
331

 

Accounts payable and accrued liabilities
 
24,862

 
7,338

Deferred revenue
 
1,021

 
2,843

Income taxes receivable
 
(48,722
)
 
15,286

Income taxes payable
 
5,794

 
6,890

Other liabilities
 
(371
)
 
(662
)
Net cash provided by operating activities
 
356,920

 
215,204

Cash flows from investing activities:
 
 
 
 
Purchases of property and equipment
 
(400,352
)
 
(136,727
)
Proceeds from sale of property and equipment
 
1,639

 
17,488

Net cash used in investing activities
 
(398,713
)
 
(119,239
)
Cash flows from financing activities:
 
 
 
 
Proceeds from the exercise of stock options
 
32,594

 
5,220

Proceeds from the issuance of Employee Stock Purchase Plan shares
 
3,955

 
3,501

Repurchases of common stock
 

 
(364,997
)
Payments for employee stock-based tax withholdings
 
(101,422
)
 
(27
)
Net proceeds on revolving loan facility
 
13,600

 
93,300

Net cash used in financing activities
 
(51,273
)
 
(263,003
)
Effect of foreign currency translation
 
258

 
692

Net decrease in cash and cash equivalents
 
(92,808
)
 
(166,346
)
Cash and cash equivalents at beginning of period
 
186,319

 
274,520

Cash and cash equivalents at end of period
 
$
93,511

 
$
108,174

Supplemental disclosure of cash flow information:
 
 
 
 
Interest paid
 
$
9,007

 
$
9,018

Income taxes paid, net of refunds
 
$
57,591

 
$
39,327

The accompanying notes are an integral part of these consolidated financial statements.

8


Copart, Inc.
Notes to Consolidated Financial Statements

January 31, 2020
(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. Sellers are primarily insurance companies but also include banks, finance companies, charities, fleet operators, dealers and vehicles sourced directly from individual owners. The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, and exporters; however, at certain locations, the Company sells 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 its financial position as of January 31, 2020 and July 31, 2019, its consolidated statements of income, comprehensive income and stockholders’ equity for the three and six months ended January 31, 2020 and 2019, and its cash flows for the six months ended January 31, 2020 and 2019. Interim results for the three and six months ended January 31, 2020 are not necessarily indicative of the results that may be expected for any future period, or for the entire year ending July 31, 2020. 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, 2019. 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.
Use of Estimates
The preparation of 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; purchase price allocations; and contingencies. Actual results could differ from these estimates.
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.
There were no contract liabilities on the consolidated balance sheets at January 31, 2020 and July 31, 2019. 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.

9


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 bad debt expense in the case of non-performance by its buyers or sellers.
 
 
 
Three Months Ended January 31,
Six Months Ended January 31,
(In thousands)
 
2020
 
2019
 
2020
 
2019
Service revenues
 
 
 
 
 
 
 
 
 
United States
 
$
447,345

 
$
362,023

 
$
878,148

 
$
705,596

 
International
 
62,689

 
54,784

 
119,742

 
106,017

 
Total service revenues
 
$
510,034

 
$
416,807

 
$
997,890

 
$
811,613

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 January 31,
Six Months Ended January 31,
(In thousands)
 
2020
 
2019
 
2020
 
2019
Vehicle sales
 
 
 
 
 
 
 
 
 
United States
 
$
35,392

 
$
28,049

 
$
68,753

 
$
55,685

 
International
 
29,714

 
40,042

 
62,921

 
78,968

 
Total vehicle sales
 
$
65,106

 
$
68,091

 
$
131,674

 
$
134,653


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 statements of income.
The change in the carrying amount of contract assets was as follows (in thousands):
Balance as of July 31, 2019
 
$
10,574

Capitalized contract assets during the period
 
100

Costs amortized during the period
 
(1,748
)
Effect of foreign currency exchange rates
 
356

Balance as of January 31, 2020
 
$
9,282



10


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 Canadian dollar, British pound, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, Bahraini dinar, and Indian rupee 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, 2018
 
$
(107,928
)
Loss on foreign currency translation
 
(24,601
)
Cumulative loss on foreign currency translation as of July 31, 2019
 
$
(132,529
)
Gain on foreign currency translation
 
12,659

Cumulative loss on foreign currency translation as of January 31, 2020
 
$
(119,870
)

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 ASC 820, Fair Value Measurements and Disclosures, as amended by Accounting Standards Update (“ASU”) 2011-04, 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, accounts receivable, accounts payable, accrued liabilities and Revolving Loan Facility approximated their fair values as of January 31, 2020 and July 31, 2019, 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. See Note 6 – Long-Term Debt, and Note 7 – Fair Value Measures.

11


Income Taxes and Deferred Tax Assets
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities, their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company considers the need to maintain a valuation allowance on deferred tax assets based on an assessment of whether it is more likely than not that the Company would realize those deferred tax assets based on future reversals of existing taxable temporary differences and the ability to generate sufficient taxable income within the carryforward period available under the applicable tax law. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Excess tax benefits and deficiencies related to exercises of stock options are recognized as expense or benefit in the consolidated statements of income as discrete items in the reporting period in which they occur.
The Company recognizes and measures uncertain tax positions in accordance with ASC 740, Income Taxes, pursuant to which the Company only recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company reports a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. ASC 740 further requires that a change in judgment related to the expected ultimate resolution of uncertain tax positions be recognized in earnings in the quarter in which such change occurs. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
The Company files annual income tax returns in multiple taxing jurisdictions. A number of years may elapse before an uncertain tax position is audited by the relevant tax authorities and finally resolved. The Company believes that its reserves for income taxes reflect the most likely outcome. The Company adjusts these reserves, as well as the related interest, where appropriate in light of changing facts and circumstances.
Cash and Cash Equivalents
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 and cash equivalents include cash held in checking, domestic certificates of deposit, and money market accounts. The Company periodically invests its excess cash in money market funds and U.S. Treasury Bills. The Company’s cash and cash equivalents are placed with high credit quality financial institutions.
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.
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 January 31, 2020 and July 31, 2019 was $46.3 million and $39.4 million, respectively. Accumulated amortization expense related to software as of January 31, 2020 and July 31, 2019 totaled $28.5 million and $23.6 million, respectively.
Acquisitions
The Company recognizes and measures identifiable assets acquired and liabilities assumed in acquired entities in accordance with ASC 805, Business Combinations. The allocation of the purchase consideration for acquisitions can require extensive use of accounting estimates and judgments to allocate the purchase consideration to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. The excess of the fair value of purchase consideration over the values of the identifiable assets and liabilities is recorded as goodwill. Critical estimates in valuing certain identifiable assets include but are not limited to expected long-term revenues; future expected operating expenses; cost of capital; appropriate attrition; and discount rates.

12


NOTE 2 — Accounts Receivable, Net
Accounts receivable, net consisted of:
(In thousands)
 
January 31, 2020
 
July 31, 2019
Advance charges receivable
 
$
349,517

 
$
280,835

Trade accounts receivable
 
98,529

 
89,274

Other receivables
 
4,233

 
2,098

 
 
452,279

 
372,207

Less: Allowance for doubtful accounts
 
(6,316
)
 
(4,942
)
Accounts receivable, net
 
$
445,963

 
$
367,265


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 3 — Property and Equipment, Net
Property and equipment, net consisted of the following:
(In thousands)
 
January 31, 2020
 
July 31, 2019
Land
 
$
1,131,553

 
$
939,817

Buildings and improvements
 
864,245

 
686,615

Transportation and other equipment
 
260,237

 
236,282

Office furniture and equipment
 
66,605

 
63,200

Software
 
46,342

 
39,434

 
 
2,368,982

 
1,965,348

Less: Accumulated depreciation and amortization
 
(579,656
)
 
(537,622
)
Property and equipment, net
 
$
1,789,326

 
$
1,427,726


Depreciation expense on property and equipment was $22.0 million and $17.8 million for the three months ended January 31, 2020 and 2019, respectively, and $42.5 million and $36.7 million for the six months ended January 31, 2020 and 2019, respectively.
NOTE 4 – 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 capital 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.

13


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 for the six months ended January 31, 2020 were as follows:
 
 
 
Six Months Ended January 31,
(In thousands)
 
2020
Operating lease expense
 
$
15,682

Finance lease expense:
 
 
 
Amortization of right-of-use assets
 
312

 
Interest on finance lease liabilities
 
14

Short-term lease expense
 
3,292

Variable lease expense
 
819

Total lease expense
 
$
20,119


The components of right-of-use assets and lease liabilities on the consolidated balance sheet are as follows (in thousands):
Lease Asset and Liabilities
 
Balance Sheet Classification (In thousands)
 
January 31, 2020
Operating lease right-of-use assets
 
Operating lease right-of-use assets
 
$
104,360

Finance lease right-of-use assets
 
Property and equipment, net
 
1,406

Total lease assets, net
 
 
 
$
105,766

 
 
 
 
 
Operating lease liabilities - current
 
Current portion of operating lease liabilities
 
$
23,314

Finance lease liabilities - current
 
Current portion of revolving loan facility and finance lease liabilities
 
615

Operating lease liabilities - non-current
 
Operating lease liabilities, net of current portion
 
81,906

Finance lease liabilities - non-current
 
Long-term debt, revolving loan facility and finance lease liabilities, net of discount
 
800

Total lease liabilities
 
 
 
$
106,635


The weighted-average remaining lease terms and discount rates as of January 31, 2020 are as follows:
(in thousands)
 
Weighted-Average Remaining Lease Term (in years)
 
Weighted-Average Discount Rate(1)
Operating leases
 
9.30
 
2.99
%
Finance leases
 
2.30
 
1.73
%
(1)
The Company cannot determine the interest rate implicit in the Company’s leases. Therefore, the discount rate represents the Company’s incremental borrowing rate and is determined based on the risk-free rate, adjusted for the risk premium attributed to the Company’s corporate credit rating for a secured or collateralized instrument.
Supplemental cash flow information related to leases as of January 31, 2020 are as follows:
(in thousands)
 
Six Months Ended
 January 31, 2020
Cash paid for amounts included in the measurement of lease liabilities
 
 
 
Operating cash flows related to operating leases
 
$
14,797

 
Operating cash flows related to finance leases
 
14

 
Financing cash flows related to finance leases
 
312

Right-of-use assets obtained in exchange for new operating lease liabilities
 
13,601

Right-of-use assets obtained in exchange for new finance lease liabilities
 



14


The annual maturities of the Company’s lease liabilities as of January 31, 2020 are as follows:
Fiscal year (In thousands)
 
Finance leases
 
Operating leases
2020 (remaining six months)
 
$
318

 
$
13,636

2021
 
619

 
22,806

2022
 
505

 
17,891

2023
 

 
14,892

2024
 

 
10,549

Thereafter
 

 
43,919

Total future lease commitments
 
$
1,442

 
$
123,693

Less: imputed interest
 
(27
)
 
(18,474
)
Present value of lease liabilities
 
$
1,415

 
$
105,219


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 incurred.
Future lease payments receivable under operating leases with terms greater than one year as of January 31, 2020 are as follows:
Fiscal year (In thousands)
 
Operating leases
2020 (remaining six months)
 
$
2,989

2021
 
6,398

2022
 
5,691

2023
 
4,842

2024
 
4,904

Thereafter
 
21,888

Total future lease payments receivable
 
$
46,712


The cost of the leased space was $57.7 million as of January 31, 2020.  The accumulated depreciation associated with the leased assets was $0.1 million as of January 31, 2020. Both the leased assets and accumulated depreciation are included in Property and equipment, net on the consolidated balance sheet.
NOTE 5 – Goodwill and Intangible Assets
The following table sets forth amortizable intangible assets by major asset class:
(In thousands)
 
January 31, 2020
 
July 31, 2019
Amortized intangibles:
 
 
 
 
Supply contracts and customer relationships
 
$
49,006

 
$
49,109

Trade names
 
23,506

 
23,501

Licenses and databases
 
7,691

 
7,688

Accumulated amortization