10-Q 1 cprt-20211031.htm 10-Q cprt-20211031
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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, 2021
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 18, 2021, 237,188,461 shares of the registrant’s common stock were outstanding.



Copart, Inc.
Index to the Quarterly Report
October 31, 2021
Table of ContentsPage Number
2



Copart, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)October 31, 2021July 31, 2021
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash$1,298,373 $1,048,260 
Accounts receivable, net562,637 480,628 
Vehicle pooling costs115,994 94,449 
Inventories48,194 44,968 
Income taxes receivable537 20,012 
Prepaid expenses and other assets14,045 14,294 
Total current assets2,039,780 1,702,611 
Property and equipment, net2,318,701 2,296,624 
Operating lease right-of-use assets123,254 119,487 
Intangibles, net43,914 45,873 
Goodwill354,062 355,717 
Other assets39,141 41,831 
Total assets$4,918,852 $4,562,143 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities$411,249 $369,826 
Deferred revenue19,951 20,973 
Income taxes payable37,175 7,760 
Current portion of operating and finance lease liabilities23,536 22,472 
Total current liabilities491,911 421,031 
Deferred income taxes72,166 63,969 
Income taxes payable51,094 52,345 
Operating and finance lease liabilities, net of current portion100,920 97,961 
Long-term debt and other liabilities, net of discount408,940 397,636 
Total liabilities1,125,031 1,032,942 
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; 237,181,350 and 237,014,273 shares issued and outstanding, respectively.
24 24 
Additional paid-in capital776,858 761,834 
Accumulated other comprehensive loss(111,378)(100,860)
Retained earnings3,128,317 2,868,203 
Total stockholders’ equity3,793,821 3,529,201 
Total liabilities and stockholders’ equity$4,918,852 $4,562,143 
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)20212020
Service revenues and vehicle sales:
Service revenues$667,818 $515,372 
Vehicle sales142,314 77,568 
Total service revenues and vehicle sales810,132 592,940 
Operating expenses:
Yard operations298,694 231,811 
Cost of vehicle sales126,408 64,360 
General and administrative54,909 48,175 
Total operating expenses480,011 344,346 
Operating income330,121 248,594 
Other expense:
Interest expense, net(5,107)(5,032)
Other income, net812 3,253 
Total other expense(4,295)(1,779)
Income before income taxes325,826 246,815 
Income tax expense65,463 46,530 
Net income$260,363 $200,285 
Basic net income per common share$1.10 $0.85 
Weighted average common shares outstanding237,068 235,791 
Diluted net income per common share$1.08 $0.83 
Diluted weighted average common shares outstanding241,221 239,968 
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)20212020
Comprehensive income, net of tax:
Net income$260,363 $200,285 
Other comprehensive income:
Foreign currency translation adjustments(10,518)(7,406)
Comprehensive income$249,845 $192,879 
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, 2021237,014,273 $24 $761,834 $(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 shares145,986 — 5,572 — (249)5,323 
Stock-based compensation21,091 — 9,452 — — 9,452 
Balances at October 31, 2021237,181,350 24 776,858 (111,378)3,128,317 3,793,821 
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, 2020235,315,337 $24 $672,727 $(121,088)$1,937,853 $2,489,516 
Net income— — — — 200,285 200,285 
Currency translation adjustment— — — (7,406)— (7,406)
Exercise of stock options, net of repurchased shares802,670 — 20,014 — (489)19,525 
Stock-based compensation— — 8,913 — — 8,913 
Balances at October 31, 2020236,118,007 24 701,654 (128,494)2,137,649 2,710,833 
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)20212020
Cash flows from operating activities:
Net income$260,363 $200,285 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt cost32,049 29,227 
Allowance for credit loss295 (157)
Equity in losses (earnings) of unconsolidated affiliates168 (1,741)
Stock-based compensation9,452 8,913 
Gain on sale of property and equipment(440)(1,230)
Deferred income taxes8,319 6,239 
Changes in operating assets and liabilities:
Accounts receivable(82,676)(57,860)
Vehicle pooling costs(21,697)(10,600)
Inventories(3,463)(8,259)
Prepaid expenses and other current and non-current assets3,071 15,236 
Operating lease right-of-use assets and lease liabilities382 153 
Accounts payable and accrued liabilities62,013 42,880 
Deferred revenue(979)1,251 
Income taxes receivable19,479 25,825 
Income taxes payable26,204 8,371 
Net cash provided by operating activities312,540 258,533 
Cash flows from investing activities:
Purchases of property and equipment(64,696)(147,093)
Proceeds from sale of property and equipment813 271 
Net cash used in investing activities(63,883)(146,822)
Cash flows from financing activities:
Proceeds from the exercise of stock options5,572 20,014 
Payments for employee stock-based tax withholdings(249)(489)
Payments of finance lease obligations(157)(327)
Net cash provided by financing activities5,166 19,198 
Effect of foreign currency translation(3,710)(2,895)
Net increase in cash, cash equivalents, and restricted cash250,113 128,014 
Cash, cash equivalents, and restricted cash at beginning of period1,048,260 477,718 
Cash, cash equivalents, and restricted cash at end of period$1,298,373 $605,732 
Supplemental disclosure of cash flow information:
Interest paid$5,080 $4,762 
Income taxes paid, net of refunds$10,089 $6,157 
The accompanying notes are an integral part of these consolidated financial statements.
7

Copart, Inc.
Notes to Consolidated Financial Statements
October 31, 2021
(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 its financial position as of October 31, 2021 and July 31, 2021, its consolidated statements of income, comprehensive income and stockholders’ equity for the three months ended October 31, 2021 and 2020, and its cash flows for the three months ended October 31, 2021 and 2020. Interim results for the three months ended October 31, 2021 are not necessarily indicative of the results that may be expected for any future period, or for the entire year ending July 31, 2022. 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, 2021. 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 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.
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.
8

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)20212020
Service revenues
United States$590,758 $450,235 
International77,060 65,137 
Total service revenues$667,818 $515,372 
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)20212020
Vehicle sales
United States$87,703 $47,020 
International54,611 30,548 
Total vehicle sales$142,314 $77,568 
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.
9

The change in the carrying amount of contract assets was as follows (In thousands):
Balance as of July 31, 2021$7,485 
Capitalized contract assets during the period 
Costs amortized during the period(1,030)
Effect of foreign currency exchange rates(134)
Balance as of October 31, 2021$6,321 
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, 2020$(121,088)
Gain on foreign currency translation20,228 
Cumulative loss on foreign currency translation as of July 31, 2021$(100,860)
Loss on foreign currency translation(10,518)
Cumulative loss on foreign currency translation as of October 31, 2021$(111,378)
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, accrued liabilities, and amounts outstanding under the Revolving Loan Facility approximated their fair values as of October 31, 2021 and July 31, 2021, 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 Measurements.
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Cash, Cash Equivalents, and Restricted Cash
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, domestic certificates of deposit, 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.
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, 2021 and July 31, 2021 was $68.8 million and $66.2 million, respectively. Accumulated amortization expense related to software as of October 31, 2021 and July 31, 2021 totaled $46.0 million and $43.4 million, respectively.
NOTE 2 — Accounts Receivable, Net
Accounts receivable, net consisted of:
(In thousands)October 31, 2021July 31, 2021
Advance charges receivable$446,368 $385,002 
Trade accounts receivable117,337 97,249 
Other receivables4,596 4,013 
568,301 486,264 
Less: Allowance for credit loss(5,664)(5,636)
Accounts receivable, net$562,637 $480,628 
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)October 31, 2021July 31, 2021
Land$1,454,026 $1,428,262 
Buildings and improvements1,128,552 1,126,414 
Transportation and other equipment342,868 326,622 
Office furniture and equipment81,735 79,928 
Software68,813 66,170 
 3,075,994 3,027,396 
Less: Accumulated depreciation and amortization(757,293)(730,772)
Property and equipment, net$2,318,701 $2,296,624 
Depreciation expense on property and equipment was $29.9 million and $27.1 million for the three months ended October 31, 2021 and 2020, respectively.
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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 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.
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)20212020
Operating lease expense$7,067 $7,257 
Finance lease expense:
Amortization of right-of-use assets153 167 
Interest on finance lease liabilities2 21 
Short-term lease expense1,768 1,245 
Variable lease expense224 539 
Total lease expense$9,214 $9,229 
Supplemental cash flow information related to leases as of October 31, 2021 were as follows:
Three Months Ended October 31,
(In thousands)20212020
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows related to operating leases$6,697 $7,856 
Operating cash flows related to finance leases2 21 
Financing cash flows related to finance leases157 327 
Right-of-use assets obtained in exchange for new operating lease liabilities10,823 5,672 
Right-of-use assets obtained in exchange for new finance lease liabilities 15,761 
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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, 2021 and July 31, 2021 was $57.2 million and $55.5 million, respectively. The accumulated depreciation associated with the leased assets as of October 31, 2021 and July 31, 2021 was $2.3 million and $1.9 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 $3.5 million and $3.6 million for the three months ended October 31, 2021 and 2020, respectively and is included within Service revenues on the consolidated statements of income.
NOTE 5 – Goodwill and Intangible Assets
The following table sets forth amortizable intangible assets by major asset class:
(In thousands)October 31, 2021July 31, 2021
Amortized intangibles:
Supply contracts and customer relationships$55,438 $55,598 
Trade names18,935 18,944 
Licenses and databases719 736 
Accumulated amortization(31,178)(29,405)
Net intangibles$43,914 $45,873 
Aggregate amortization expense on amortizable intangible assets was $1.8 million and $1.8 million for the three months ended October 31, 2021 and 2020, respectively.
The change in the carrying amount of goodwill was as follows:
(In thousands)
Balance as of July 31, 2021$355,717 
Effect of foreign currency exchange rates(1,655)
Balance as of October 31, 2021$354,062 
NOTE 6 – Long-Term Debt
Credit Agreement
On July 21, 2020, the Company entered into a First Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, Truist Bank (as successor by merger to Suntrust Bank), BMO Harris Bank N.A., Santander Bank, N.A., and Bank of America, N.A., as administrative agent (as amended from time to time, the “Credit Amendment”), bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement (the “Revolving Loan Facility”), to $1,050.0 million.
The interest rate as of October 31, 2021 on the Company’s Revolving Loan Facility was the Eurodollar Rate of 0.75% plus an applicable margin of 1.50%. Amounts borrowed under the Revolving Loan Facility may be repaid and reborrowed until the maturity date of July 21, 2023. The Company had no outstanding borrowings under the Revolving Loan Facility as of October 31, 2021 or July 31, 2021. The Credit Agreement contains customary affirmative and negative covenants and the Company was in compliance with all covenants related to the Credit Agreement as of October 31, 2021.
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Note Purchase Agreement
On December 3, 2014, the Company entered into a Note Purchase Agreement and sold to certain purchasers (collectively, the “Purchasers”) $400.0 million in aggregate principal amount of senior secured notes (the “Senior Notes”) consisting of (i) $100.0 million aggregate principal amount of 4.07% Senior Notes, Series A, due December 3, 2024; (ii) $100.0 million aggregate principal amount of 4.19% Senior Notes, Series B, due December 3, 2026; (iii) $100.0 million aggregate principal amount of 4.25% Senior Notes, Series C, due December 3, 2027; and (iv) $100.0 million aggregate principal amount of 4.35% Senior Notes, Series D, due December 3, 2029. Interest is due and payable quarterly, in arrears, on each of the Senior Notes. The Company may prepay the Senior Notes, in whole or in part, at any time, subject to certain conditions, including minimum amounts and payment of a make-whole amount equal to the discounted value of the remaining scheduled interest payments under the Senior Notes. The Note Purchase Agreement contains customary affirmative and negative covenants and the Company was in compliance with all covenants related to the Note Purchase Agreement as of October 31, 2021.
NOTE 7 – Fair Value Measurements
The following table summarizes the carrying values and fair values of the Company’s financial instruments that were not carried at fair value in the consolidated balance sheets:
October 31, 2021July 31, 2021
(In thousands)Carrying Value TotalFair Value TotalCarrying Value TotalFair Value Total
Assets
Cash equivalents$1,019,239 $1,019,249 $754,300 $754,304 
Total Assets$1,019,239 $1,019,249 $754,300 $754,304 
Liabilities
Long-term fixed rate debt, including current portion$399,742 $422,386 $399,733 $432,027 
Total Liabilities$399,742 $422,386 $399,733 $432,027 
During the three months ended October 31, 2021, no transfers were made between any levels within the fair value hierarchy. The fair value of the Senior Notes is based on the discounted value of each interest and principal payment calculated utilizing market interest rates of similar types of borrowing arrangements and was classified within Level II of the fair value hierarchy. See Note 1 – Summary of Significant Accounting Policies, and Note 6 – Long-Term Debt.
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)20212020
Weighted average common shares outstanding237,068 235,791 
Effect of dilutive securities4,153 4,177 
Weighted average common and dilutive potential common shares outstanding
241,221 239,968 
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 55,250 and 1,350,000 options to purchase the Company’s common stock for the three months ended October 31, 2021 and 2020, 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, 2021:
(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, 20217,557 $56.19 6.53$686,269 
Grants of options25 143.23 
Exercises(146)38.17 
Forfeitures or expirations  
Outstanding as of October 31, 20217,436 $56.84 6.29$732,121 
Exercisable as of October 31, 20214,507 $41.08 5.08$514,746 
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 7,436,171 at October 31, 2021.
In June 2020, the Compensation Committee of the Company’s Board of Directors approved the grant to A. Jayson Adair, the Company’s Chief Executive Officer, of nonqualified stock options to purchase 1,000,000 shares of the Company’s common stock at an exercise price of $85.04 per share, which equaled the closing price of the Company’s common stock on June 12, 2020, the effective date of grant. The option will become exercisable over five years, subject to continued service by Mr. Adair, with 20% vesting on June 12, 2021, 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 market based vesting, such that no options will be exercisable unless and until the average closing price in trading of Copart, Inc., common stock on the NASDAQ Global Select Market is greater than or equal to $106.30 per share (which is an amount equivalent to 125% of the exercise price of the options) for a period of 20 consecutive trading days. The market based vesting condition was satisfied in the first quarter of fiscal 2021. The time-based vesting conditions of the option held by Mr. Adair will become fully vested, assuming continued service by Mr. Adair on June 12, 2025. The fair value of each option at the date of grant using the Monte Carlo simulation model was $25.47, with an expected life of 7.64 years, a risk-free interest rate of 0.71%, estimated volatility of 25.2%, and no expected dividends. The total estimated compensation expense to be recognized by the Company over the five year estimated service period for these options is $25.5 million and will be recognized using the accelerated attribution method over each vesting tranche of the award. The Company recognized $1.8 million in compensation expense for this grant in the three months ended October 31, 2021.
Subsequently, on November 17, 2021, the Compensation Committee amended the stock option award to Mr. Adair to implement a new market-based vesting condition with respect to 500,000 of the unvested stock options. Following the amendment, and subject to the existing time-based vesting schedule, no portion of these 500,000 stock options will be exercisable unless the price in trading of Copart, Inc. common stock on the NASDAQ Global Select Market is greater than or equal to $106.30 per share (which is an amount equivalent 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 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)20212020
General and administrative$8,471 $7,382 
Yard operations981 1,531 
Total stock-based compensation$9,452 $8,913 
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, 2021:
(In thousands, except per share data)Restricted SharesWeighted Average Grant Date Fair Value
Outstanding as of July 31, 2021102 $90.46 
Grants 39 143.88 
Vested(5)70.68 
Forfeitures or expirations(3)109.77 
Outstanding as of October 31, 2021133 $106.74 
NOTE 10 – Stock Repurchases
On September 22, 2011, the Company’s Board of Directors approved an 80 million share increase in the stock repurchase program, bringing the total current authorization to 196 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, 2021 or 2020. As of October 31, 2021, the total number of shares repurchased under the program was 114,549,198, and 81,450,802 shares were available for repurchase under the program.
NOTE 11 – 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 12 – 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.
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 13 – 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, 2021Three Months Ended October 31, 2020
(In thousands)United StatesInternationalTotalUnited StatesInternationalTotal
Service revenues$590,758 $77,060 $667,818 $450,235 $65,137 $515,372 
Vehicle sales87,703 54,611 142,314 47,020 30,548 77,568 
Total service revenues and vehicle sales678,461 131,671 810,132 497,255 95,685 592,940 
Yard operations256,621 42,073 298,694 194,419 37,392 231,811 
Cost of vehicle sales80,342 46,066 126,408 41,506 22,854 64,360 
General and administrative46,548 8,361 54,909 39,738 8,437 48,175 
Operating income$294,949 $35,172 $330,121 $221,591 $27,003 $248,594 
Depreciation and amortization$27,725 $4,035 $31,760 $26,162 $2,787 $28,949 
Capital expenditures and acquisitions54,272 10,424 64,696 122,459 24,634 147,093 
October 31, 2021July 31, 2021
(In thousands)United StatesInternationalTotalUnited StatesInternationalTotal
Total assets$4,223,448 $695,404 $4,918,852 $3,900,712 $661,431 $4,562,143 
Goodwill270,269 83,793 354,062 270,305 85,412 355,717 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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), including forward-looking statements concerning the potential impact of the COVID-19 pandemic on our business, operations, and operating results. 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. Unless the context otherwise requires, references in this Form 10-Q to “Copart,” the “Company,” “we,” “us,” or “our” refer to Copart, Inc. 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, entered into emergency leases, and engaged with a multitude of service providers to timely retrieve, store, and remarket tens of thousands of flood-damaged vehicles in the Houston, Texas metropolitan area in the wake of Hurricane Harvey in the summer of 2017.
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 last several years, we believe there has been an increase in overall growth in the salvage market driven by an increase in total loss frequency. The increase in total loss frequency may have been driven by the change in used car values and repair costs, which we believe are generally trending upward. Changes in used car prices and repair costs, may impact total loss frequency and 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 continued to increase, growing from 9.6 years in 2002 to 12.1 years in 2021. 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. Accordingly, we cannot predict future trends in total loss frequency.
Beginning in March 2020, our business and operations began to experience the impact of the worldwide COVID-19 pandemic. In materially all of our jurisdictions, we have been deemed by local authorities an essential business because our operations ensure the removal of vehicles from repair shops, impound yards, and streets and highways, enabling the critical function of road infrastructure. As a result, we have continued to operate our facilities as well as our online-only auctions, while following appropriate health and safety protocols to ensure safe working conditions for our employees as well as for our sellers, buyers, and other business partners with whom we come in contact.
From a financial perspective, our operating results were adversely affected by lower processed vehicle volume, but these adverse effects were more than offset by corresponding increases in vehicle average sales prices. Although we initially saw substantial declines in vehicle assignments following the onset of the COVID-19 pandemic, which we attribute principally to reduced accident volume as miles driven dramatically declined in response to shelter-in-place orders across the globe, we have generally seen vehicle assignment volumes steadily recovering; however additional subsequent shelter-in-place orders have occasionally stalled or regressed the assignment volume commensurate with the severity and duration of such orders. We cannot predict how the pandemic will continue to develop, whether and to what extent new shelter-in-place orders will be issued, or to what extent the pandemic may have longer term unanticipated impacts on our markets, including, for example, the risk of long-term reductions in miles driven.
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Although we have been deemed an “essential business” in the jurisdictions in which we operate and have largely been able to continue our yard operations, we have been required to make adjustments in our business processes that may reduce efficiency or increase operating expenses, particularly if the pandemic continues over a long period of time. We adjusted, but did not make material modifications to, our operating expenses to be able to continue providing employment for our employees, service to our sellers, and process incoming vehicles for sale in future quarters. The pandemic may have an adverse effect on our future revenues, with the magnitude and timing of these effects dependent upon the extent and duration of suspended economic activity across our markets. We believe that the longer-term impact on our business will depend on potential adverse operational impacts from outbreaks of COVID-19 at any of our locations; additional outbreaks of COVID-19 in one or more of our geographic markets; a reduction in miles driven due to one or more factors relating to the COVID-19 pandemic; the relationship of supply and demand for newly manufactured vehicles, on the one hand, and used salvage vehicles, on the other hand, due to reduced manufacturing capacity and broader supply chain disruptions during the COVID-19 pandemic and the effects of these supply and demand relationships on the average sales prices obtained at auction for the vehicles assigned to us for remarketing; any further government actions in response to COVID-19 outbreaks that restrict business activity or travel; disruptions of governmental administrative operations due to COVID-19 outbreaks that adversely impact our core business activities, such as vehicle title processing; and deteriorating economic conditions generally, and the potential availability, among other things, of vaccines or treatments, none of which we can predict. For a further discussion of risks to our business and operating results arising from the pandemic, please see the section of this Quarterly Report on Form 10-Q captioned “Risk Factors.”
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 6 – 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 such as COVID-19. 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 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.
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The following tables set forth operational facilities that we have opened and are now operational from August 1, 2020 through October 31, 2021:
United States LocationsDate
Redding, CaliforniaAugust 2020
Dothan, AlabamaAugust 2020
Jacksonville, FloridaAugust 2020
Milwaukee, WisconsinSeptember 2020
Houston, TexasDecember 2020
Knightdale, North CarolinaMarch 2021
Gastonia, North CarolinaMay 2021
Bismarck, North DakotaJune 2021
Fairburn, GeorgiaJuly 2021
Dyer, IndianaJuly 2021
Mobile South, AlabamaAugust 2021
International LocationsGeographic Service AreaDate
Bruchmühlbach-Miesau, Rhineland-Palatinate (Mannheim)GermanyFebruary 2021
Mallorca, Balearic IslandsSpainApril 2021
Halifax, Novia ScotiaCanadaSeptember 2021
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.
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, 2021 and 2020:
Three Months Ended October 31,
(In percentages)20212020
Service revenues and vehicle sales:
Service revenues82 %87 %
Vehicle sales18 %13 %
Total service revenues and vehicle sales100 %100 %
Operating expenses:
Yard operations37 %39 %
Cost of vehicle sales16 %11 %
General and administrative%%
Total operating expenses60 %58 %
Operating income40 %42 %
Other expense(1)%— %
Income before income taxes39 %42 %
Income taxes%%
Net income31 %34 %
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Comparison of the Three Months Ended October 31, 2021 and 2020
The following table presents a comparison of service revenues for the three months ended October 31, 2021 and 2020:
Three Months Ended October 31,
(In thousands)20212020Change% Change
Service revenues
United States$590,758 $450,235 $140,523 31.2 %
International77,060 65,137 11,923 18.3 %
Total service revenues$667,818 $515,372 $152,446 29.6 %
Service Revenues. The increase in service revenues during the three months ended October 31, 2021 of $152.4 million, or 29.6%, as compared to the same period last year resulted from (i) an increase in the U.S. of $140.5 million and (ii) an increase in International of $11.9 million. The growth in the U.S. was driven primarily by (i) an increase in revenue per car, (ii) an increase in volume resulting from higher miles driven due to the reopening of the United States economy and restriction within the global supply chain for automobiles. Excluding the beneficial impact of $3.2 million due to changes in foreign currency exchange rates, primarily from the change in the British pound, Brazilian real and Canadian dollar to U.S. dollar exchange rates, the growth in International was driven primarily by an increase in volume from higher miles driven due to the reopening of the International economies and restrictions within the global supply chain for automobiles.
The following table presents a comparison of vehicle sales for the three months ended October 31, 2021 and 2020:
Three Months Ended October 31,
(In thousands)20212020Change% Change
Vehicle sales
United States$87,703 $47,020 $40,683 86.5 %
International54,611 30,548 24,063 78.8 %
Total vehicle sales$142,314 $77,568 $64,746 83.5 %
Vehicle Sales. The increase in vehicle sales for the three months ended October 31, 2021 of $64.7 million, or 83.5%, as compared to the same period last year, resulted from (i) an increase in the U.S. of $40.7 million and (ii) an increase in International of $24.1 million. The increase in the U.S. was primarily the result of 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 a beneficial impact of $0.7 million due to changes in foreign currency exchange rates, primarily from the change in the British pound, Brazilian real and Canadian dollar to U.S. dollar exchange rates, the increase in International was primarily the result of higher average auction selling prices, an increase in volume resulting from higher miles driven due to the reopening of the International economies and 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, 2021 and 2020:
Three Months Ended October 31,
(In thousands)20212020Change% Change
Yard operations expenses
United States$256,621 $194,419 $62,202 32.0 %
International42,073 37,392 4,681 12.5 %
Total yard operations expenses$298,694 $231,811 $66,883 28.9 %
Yard operations expenses, excluding depreciation and amortization
United States$234,019 $173,711 $60,308 34.7 %
International38,233 34,806 3,427 9.8 %
Yard depreciation and amortization
United States$22,602 $20,708 $1,894 9.1 %
International3,840 2,586 1,254 48.5 %
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Yard Operations Expenses. The increase in yard operations expense for the three months ended October 31, 2021 of $66.9 million, or 28.9%, as compared to the same period last year resulted from (i) an increase in the U.S. of $62.2 million, and (ii) an increase in International of $4.7 million. Excluding depreciation and amortization, the increase in the U.S. compared to the same period last year relates to an increase in volume as a result of the reopening of the United States economy combined with an increase in the cost to process each car. The increase in cost to process each car was driven by increased non-CAT related subhaul costs combined with an increase in premiums for CAT related subhaul, labor costs incurred from overtime, and increased travel, lodging, and equipment lease cost associated with Hurricane Ida. The increase in International was primarily driven by the increase in volume following the reopening of International economies, combined with a detrimental increase in foreign currency exchange rates of $1.3 million primarily from the British pound and Brazilian Real to U.S. Dollar exchange rate partially offset by a decrease in the cost to process each car Included in yard operations expenses were depreciation and amortization expenses. The increase in yard operations depreciation and amortization expenses during the three months ended October 31, 2021 as compared to the same period last year resulted primarily from depreciating new and expanded facilities placed into service in the U.S. and International locations.
The following table presents a comparison of cost of vehicle sales for the three months ended October 31, 2021 and 2020:
Three Months Ended October 31,
(In thousands)20212020Change% Change
Cost of vehicle sales
United States$80,342 $41,506 $38,836 93.6 %
International46,066 22,854 23,212 101.6 %
Total cost of vehicle sales$126,408 $64,360 $62,048 96.4 %
Cost of Vehicle Sales. The increase in cost of vehicle sales for the three months ended October 31, 2021 of $62.0 million, or 96.4%, as compared to the same period last year resulted from (i) an increase in the U.S. of $38.8 million and (ii) an increase in International of $23.2 million. The increase in the U.S. was primarily the result of increased volume and higher average purchase prices, which we believe was due to a change in the mix of vehicles sold, increased demand; and reduced supply. Excluding the detrimental impact of $0.4 million due to changes in foreign currency exchange rates, primarily from the change in the British pound to U.S. dollar exchange rates, the increase in International was primarily the result of higher average purchase prices, which we believe was due to a change in the mix of vehicles sold, increased demand; and reduced supply.
The following table presents a comparison of general and administrative expenses for the three months ended October 31, 2021 and 2020:
Three Months Ended October 31,
(In thousands)20212020Change% Change
General and administrative expenses
United States$46,548 $39,738 $6,810 17.1 %
International8,361 8,437 (76)(0.9)%
Total general and administrative expenses$54,909 $48,175 $6,734 14.0 %
General and administrative expenses, excluding depreciation and amortization