[10-Q] COPART INC Quarterly Earnings Report
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
(Zip Code) |
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 |
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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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 20, 2025,
Copart, Inc.
Index to the Quarterly Report on Form 10-Q
October 31, 2025
Table of Contents |
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Page Number |
PART I - Financial Information |
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Item 1 - Financial Statements (Unaudited) |
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Consolidated Balance Sheets |
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3 |
Consolidated Statements of Income |
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4 |
Consolidated Statements of Comprehensive Income |
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5 |
Consolidated Statement of Changes in Redeemable Noncontrolling Interests and Stockholders' Equity |
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6 |
Consolidated Statements of Cash Flows |
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7 |
Notes to Consolidated Financial Statements |
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8 |
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Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Results of Operations |
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14 |
Liquidity and Capital Resources |
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16 |
Critical Accounting Policies and Estimates |
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18 |
Recently Issued Accounting Standards |
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18 |
Contractual Obligations and Commitments |
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18 |
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Item 3 - Quantitative and Qualitative Disclosures About Market Risk |
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19 |
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Item 4 - Controls and Procedures |
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Evaluation of Disclosure Controls and Procedures |
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19 |
Changes in Internal Control Over Financial Reporting |
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19 |
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PART II - Other Information |
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Item 1 - Legal Proceedings |
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19 |
Item 1A - Risk Factors |
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19 |
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds |
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31 |
Item 3 - Defaults Upon Senior Securities |
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31 |
Item 4 - Mine Safety Disclosures |
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31 |
Item 5 - Other Information |
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31 |
Item 6 - Exhibits |
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32 |
Signatures |
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33 |
2
Table of Contents
Copart, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts) |
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October 31, 2025 |
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July 31, 2025 |
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ASSETS |
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Current assets: |
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Cash, cash equivalents, and restricted cash |
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$ |
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$ |
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Investment in held to maturity securities |
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Accounts receivable, net of allowance for credit losses of $ |
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Vehicle pooling costs |
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Inventories |
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Income taxes receivable |
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Prepaid expenses and other assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Intangibles, net |
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Goodwill |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued liabilities |
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$ |
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$ |
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Deferred revenue |
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Income taxes payable |
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Current portion of operating and finance lease liabilities |
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Total current liabilities |
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Deferred income taxes |
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Income taxes payable |
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Operating and finance lease liabilities, net of current portion |
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Total liabilities |
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Commitments and contingencies |
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Redeemable non-controlling interest |
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Stockholders’ equity: |
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Preferred stock: $ |
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Common stock: $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Retained earnings |
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Total stockholders’ equity |
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Total liabilities, redeemable noncontrolling interests and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
Table of Contents
Copart, Inc.
Consolidated Statements of Income
(Unaudited)
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Three Months Ended October 31, |
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(In thousands, except per share amounts) |
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2025 |
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2024 |
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Service revenues and vehicle sales: |
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Service revenues |
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$ |
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$ |
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Vehicle sales |
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Total service revenues and vehicle sales |
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Operating expenses: |
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Facility operations |
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Cost of vehicle sales |
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General and administrative |
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Total operating expenses |
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Operating income |
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Other income (expense): |
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Interest income, net |
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Other income (expense), net |
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( |
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Total other income |
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Income before income taxes |
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Income tax expense |
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Net income |
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Less: Net (loss) income attributable to redeemable noncontrolling interest |
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( |
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( |
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Net income attributable to Copart, Inc. |
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$ |
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$ |
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Basic net income per common share |
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$ |
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$ |
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Weighted average common shares outstanding |
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Diluted net income per common share |
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$ |
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$ |
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Diluted weighted average common shares outstanding |
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The accompanying notes are an integral part of these consolidated financial statements.
4
Table of Contents
Copart, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
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Three Months Ended October 31, |
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(In thousands) |
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2025 |
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2024 |
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Comprehensive income, net of tax: |
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Net income |
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$ |
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$ |
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Other comprehensive income: |
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Foreign currency translation adjustments |
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( |
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Comprehensive income |
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Less: Comprehensive (loss) income attributable to redeemable noncontrolling interest |
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( |
) |
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( |
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Comprehensive income attributable to Copart, Inc. |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
5
Table of Contents
Copart, Inc.
Consolidated Statement of Changes in Redeemable Noncontrolling Interest and Stockholders’ Equity
(Unaudited)
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Redeemable |
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(In thousands, except share amounts) |
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Outstanding |
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Amount |
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Paid-in |
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Comprehensive |
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Retained |
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Stockholders’ |
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Noncontrolling |
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Balances at July 31, 2025 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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( |
) |
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Currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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Exercise of stock options, net of repurchased shares |
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— |
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— |
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( |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balances at October 31, 2025 |
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( |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Redeemable |
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(In thousands, except share amounts) |
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Outstanding |
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Amount |
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Paid-in |
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Comprehensive |
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Retained |
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Stockholders’ |
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Noncontrolling |
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Balances at July 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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( |
) |
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Currency translation adjustment |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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— |
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Exercise of stock options, net of repurchased shares |
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— |
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— |
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( |
) |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Balances at October 31, 2024 |
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( |
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The accompanying notes are an integral part of these consolidated financial statements.
6
Table of Contents
Copart, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended October 31, |
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(In thousands) |
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2025 |
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2024 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization, including debt cost |
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Allowance for credit losses |
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Equity in (earnings) losses of unconsolidated affiliates |
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( |
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( |
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Stock-based compensation |
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Gain on sale of property and equipment |
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( |
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( |
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Deferred income taxes |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
) |
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( |
) |
Vehicle pooling costs |
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( |
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( |
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Inventories |
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( |
) |
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( |
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Prepaid expenses, other current and non-current assets |
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Operating lease right-of-use assets and lease liabilities |
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Accounts payable and accrued liabilities |
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Deferred revenue |
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( |
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Income taxes receivable |
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Income taxes payable |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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( |
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( |
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Assets and liabilities acquired in connection with acquisition |
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( |
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( |
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Proceeds from sale of property and equipment |
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Proceeds from held to maturity securities |
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Investment in unconsolidated affiliate |
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( |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from the exercise of stock options |
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Payments for employee stock-based tax withholdings |
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( |
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( |
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Payments of finance lease obligations |
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( |
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Net cash provided by financing activities |
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Effect of foreign currency translation |
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( |
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Net increase in cash, cash equivalents, and restricted cash |
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Cash, cash equivalents, and restricted cash at beginning of period |
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Cash, cash equivalents, and restricted cash at end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Interest paid |
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$ |
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$ |
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Income taxes paid, net of refunds |
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$ |
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$ |
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Purchase of property and equipment through settlement of deposit |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
7
Table of Contents
Copart, Inc.
Notes to Consolidated Financial Statements
October 31, 2025
(Unaudited)
NOTE 1 – Summary of Significant Accounting Policies
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 dealers, individuals, charities, rental car companies, banks, finance companies, and fleet operators. The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and directly to the general public.
Basis of Presentation
Use of Estimates
The consolidated financial statements have been prepared in conformity with GAAP. Those principles require management to make estimates and assumptions 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.
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 |
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Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. |
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Level II |
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Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly. |
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Level III |
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Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate. |
The amounts recorded for financial instruments in the Company’s consolidated financial statements, which included cash, restricted cash, accounts receivable, accounts payable, and accrued liabilities approximated their fair values as of October 31, 2025 and July 31, 2025, 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. Held to maturity investments are classified within Level I of the fair value hierarchy because they are valued at quoted prices for identical assets that are traded in active markets. See NOTE 3 – Fair Value Measurements.
Redeemable Noncontrolling Interest
Redeemable noncontrolling interests represent a
8
Table of Contents
occur. Shares are redeemable at adjusted fair value from the third anniversary of the acquistion through the 10th anniversary of the acquisition, and are redeemable at fair value thereafter.
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, U.S. Treasury Bills, and money market accounts. The Company periodically invests its excess cash in money market funds and U.S. Treasury Bills. The Company’s cash, cash equivalents, and restricted cash are placed with high credit quality financial institutions.
The Company had held to maturity securities comprised of U.S. Treasury Bills as of October 31, 2025 and July 31, 2025. These investments were classified as held to maturity as the Company had the intent and ability to hold these investments until they matured.
(In thousands) |
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October 31, 2025 |
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Amortized Cost |
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Gross Unrealized |
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Fair Value |
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Investment in held to maturity securities |
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$ |
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$ |
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$ |
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(In thousands) |
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July 31, 2025 |
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Amortized Cost |
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Gross Unrealized |
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Fair Value |
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Investment in held to maturity securities |
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$ |
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$ |
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$ |
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NOTE 2 – Long-Term Debt
Credit Agreement
On December 21, 2021, the Company entered into a Second Amended and Restated Credit Agreement by and among the Company, certain subsidiaries of the Company party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent (the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement amends and restates certain terms of the First Amended and Restated Credit Agreement, dated as of July 21, 2020, by and among the Company, the lenders party thereto, and Bank of America, N.A., as administrative agent (as successor in interest to Wells Fargo Bank, National Association) (the “Existing Credit Agreement”). The Second Amended and Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by $
The Second and Amended and Restated Credit Agreement provides for the Revolving Loan Facility of $
Borrowings under the Second Amended and Restated Credit Agreement bear interest based on, at our option, either (1) the applicable fixed rate plus
The Company’s obligations under the Second Amended and Restated Credit Agreement are guaranteed by certain of the Company’s domestic subsidiaries meeting materiality thresholds set forth in the Second Amended and Restated Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the assets of the subsidiary guarantors pursuant to a Security Documents Confirmation Agreement as part of the Second Amended and Restated Credit Agreement.
9
Table of Contents
The Second Amended and Restated Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions on and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Second Amended and Restated Credit Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than
Related to execution of the Second Amended and Restated Credit Agreement, the Company incurred $
NOTE 3 – 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, 2025 |
|
|
July 31, 2025 |
|
||||||||||
(In thousands) |
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Investment in held to maturity securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The Company has investments in U.S. Treasury Bills some of which mature over a period greater than 90 days and are classified as short-term investments. The U.S. Treasury Bills are carried at amortized cost and classified as held to maturity as the Company has the intent and the ability to hold them until they mature. The carrying value of the U.S. Treasury Bills are adjusted for accretion of discounts over the remaining life of the investment. Income related to the Treasury Bills is recognized in interest income in the Company’s consolidated statement of income. The U.S. Treasury Bills are classified within Level I of the fair value hierarchy.
During the three months ended October 31, 2025, no transfers were made between any levels within the fair value hierarchy.
NOTE 4 – 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) |
|
2025 |
|
|
2024 |
|
||
Weighted average common shares outstanding |
|
|
|
|
|
|
||
Effect of dilutive securities |
|
|
|
|
|
|
||
Weighted average common and dilutive potential common shares outstanding |
|
|
|
|
|
|
||
There were no material adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive net income per share calculation were
NOTE 5 – Stock-based Compensation
Refer to Note 12 - Stockholders’ Equity of the Notes to the Consolidated Financial Statements in Form 10-K for further description of the various types of stock-based compensation awards, their valuations and their award terms.
10
Table of Contents
stock-based compensation recognized by the Company for stock options, restricted stock awards ("RSA"), restricted stock unit awards ("RSU"), and performance stock units ("PSU"):
|
|
Three Months Ended October 31, |
|
|||||
(In thousands) |
|
2025 |
|
|
2024 |
|
||
General and administrative |
|
$ |
|
|
$ |
|
||
Facility operations |
|
|
|
|
|
|
||
Total stock-based compensation |
|
$ |
|
|
$ |
|
||
The Company grants stock option awards that vest based on time or time and market conditions. For stock option awards that vest based on time the Company recognizes compensation expense on a straight-line basis over the requisite service period of five years. For stock option awards that vest based on time and market conditions, the Company recognizes compensation expense using the accelerated attribution method over each vesting tranche of the award. These options will become exercisable over
The following is a summary of activity for the Company’s stock options for the three months ended October 31, 2025:
|
|
Time Based |
|
|
Time and Market Condition Based |
|
||||||||||
(In thousands, except per share and term data) |
|
Shares |
|
|
Weighted Average |
|
|
Shares |
|
|
Weighted Average |
|
||||
Outstanding as of July 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Grants of options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercises |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeitures or expirations |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of October 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of October 31, 2025 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The Company’s RSA, RSU, and PSU awards have been issued with vesting periods ranging from
The following is a summary of activity for the Company’s RSA, RSU and PSU awards for the three months ended October 31, 2025:
(In thousands, except per share data) |
|
Restricted and |
|
|
Weighted |
|
||
Outstanding as of July 31, 2025 |
|
|
|
|
$ |
|
||
Grants |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Forfeitures or expirations |
|
|
( |
) |
|
|
|
|
Outstanding as of October 31, 2025 |
|
|
|
|
$ |
|
||
NOTE 6 – Income Taxes
The Company’s effective income tax rates were
11
Table of Contents
NOTE 7 –
Pending
In December 2023, the FASB issued ASU 2023-09 "Income Taxes (Topics 740): Improvements to Income Tax Disclosures" to expand the disclosure requirements for income taxes, primarily related to the rate reconciliation and income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. Management is currently evaluating this ASU to determine its impact on the Company's disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement–Reporting Comprehensive Income–Expense Disaggregation Disclosures (Subtopic 220-40). ASU 2024-03 requires disclosure of specified information about certain costs and expenses. ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted, and the amendments may be applied either prospectively or retrospectively. Management is currently evaluating this ASU to determine its impact on the Company's disclosures.
In July 2025, the FASB issued ASU No. 2025-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which allows entities to elect a practical expedient permitting an entity to assume that conditions at the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current classified accounts receivable and contract assets. ASU 2025-05 is effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted in both interim and annual reporting periods in which financial statements have not yet been issued or made available for issuance. Management is currently evaluating this ASU to determine its impact on the Company's consolidated results of operations and financial position.
In September 2025, the FASB issued ASU 2025-06 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which remove all references to prescriptive and sequential software development stages (referred to as “project stages”) throughout Subtopic 350-40. ASU 2025-06 is effective for all entities for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. Early adoption is permitted and may be applied prospectively, retrospectively, or modified transition approach that is based on the status of the project and whether software costs were capitalized before the date of adoption. Management is currently evaluating this ASU to determine its impact on the Company's consolidated results of operations and financial position.
NOTE 8 – 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. In addition, from time to time, the Company receives communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdictions in which the Company operates. Except as otherwise noted in this Note 8, 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 accruals for 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, legal and regulatory proceedings are inherently unpredictable, and the amount of the liabilities associated with claims, if any, cannot be determined with certainty. If one or more matters were resolved against us for amounts in excess of the Company’s expectations, the impact on the Company’s consolidated results of operations, financial position, or cash flow could be material. 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.
The U.S. Department of Justice, Consumer Protection Branch (DOJ) is conducting an ongoing investigation into potential violations by the Company of certain money laundering laws related to its practices and procedures for preventing and detecting money-laundering activity by its auction platform members. In connection with this investigation, the Company received a letter from the DOJ in October 2023 in which the DOJ indicated the Company may have exposure as a result of potential violations of such money laundering statutes and regulations. The Company is cooperating with the DOJ’s investigation. At this time, we are unable to predict the duration, scope, or result of any potential governmental, criminal, or civil proceeding that may result, the imposition of fines and penalties, and/or other remedies, and as a result, are unable to predict the range of possible loss.
12
Table of Contents
NOTE 9 – Segments and Other Geographic Reporting
The Company’s U.S. and International regions are considered
The following table presents financial information by segment:
|
|
Three Months Ended October 31, 2025 |
|
|
Three Months Ended October 31, 2024 |
|
||||||||||||||||||
(In thousands) |
|
United States |
|
|
International |
|
|
Total |
|
|
United States |
|
|
International |
|
|
Total |
|
||||||
Service revenues |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Vehicle sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total service revenues and vehicle sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Facility operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cost of vehicle sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating income |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Depreciation and amortization, excluding debt costs |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Interest Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital expenditures and acquisitions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
October 31, 2025 |
|
|
July 31, 2025 |
|
||||||||||||||||||
(In thousands) |
|
United States |
|
|
International |
|
|
Total |
|
|
United States |
|
|
International |
|
|
Total |
|
||||||
Total assets |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
13
Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion, which presents Copart Inc.'s (“Copart,” the “Company,” “our,” "us” or “we”) results for periods occurring in the fiscal year ending July 31, 2026 and the fiscal year ended July 31, 2025, should be read in conjunction with our Consolidated Financial Statements as of and for the three months ended October 31, 2025, and the accompanying notes included in Part 1, Item 1 of this Quarterly Report on Form 10-Q, as well as our Consolidated Financial Statements as of and for the year ended July 31, 2025, the accompanying notes and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025.
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, 2025 and 2024:
|
|
Three Months Ended October 31, |
|
|||||
(In percentages) |
|
2025 |
|
|
2024 |
|
||
Service revenues and vehicle sales: |
|
|
|
|
|
|
||
Service revenues |
|
|
86 |
% |
|
|
86 |
% |
Vehicle sales |
|
|
14 |
% |
|
|
14 |
% |
Total service revenues and vehicle sales |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
||
Facility operations |
|
|
41 |
% |
|
|
43 |
% |
Cost of vehicle sales |
|
|
12 |
% |
|
|
12 |
% |
General and administrative |
|
|
9 |
% |
|
|
9 |
% |
Total operating expenses |
|
|
62 |
% |
|
|
64 |
% |
Operating income |
|
|
38 |
% |
|
|
36 |
% |
Other income (expense) |
|
|
4 |
% |
|
|
3 |
% |
Income before income taxes |
|
|
42 |
% |
|
|
39 |
% |
Income taxes |
|
|
7 |
% |
|
|
8 |
% |
Net income |
|
|
35 |
% |
|
|
31 |
% |
Comparison of the Three Months Ended October 31, 2025 and 2024
The following table presents a comparison of service revenues for the three months ended October 31, 2025 and 2024:
|
|
Three Months Ended October 31, |
|
|||||||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|
% |
|
||||
Service revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
855,534 |
|
|
$ |
859,990 |
|
|
$ |
(4,456 |
) |
|
|
(0.5 |
)% |
International |
|
|
136,311 |
|
|
|
126,346 |
|
|
$ |
9,965 |
|
|
|
7.9 |
% |
Total service revenues |
|
$ |
991,845 |
|
|
$ |
986,336 |
|
|
$ |
5,509 |
|
|
|
0.6 |
% |
Service Revenues. The increase in service revenues during the three months ended October 31, 2025 of $5.5 million, or 0.6%, as compared to the same period last year resulted from (i) a decrease in the U.S. of $4.5 million and (ii) an increase in International of $10.0 million. The decrease in the U.S. compared to the same period last year is the related to the one time revenue associated with hurricanes Helene and Milton recognized in fiscal year 2025 offset by an increase in revenue per car. The growth in International, after excluding positive fluctuations in currency exchange rates of $3.7 million, was driven primarily by an increase in revenue per car, offset by decrease in volume.
The following table presents a comparison of vehicle sales for the three months ended October 31, 2025 and 2024:
|
|
Three Months Ended October 31, |
|
|||||||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|
% |
|
||||
Vehicle sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
97,080 |
|
|
$ |
87,549 |
|
|
$ |
9,531 |
|
|
|
10.9 |
% |
International |
|
$ |
66,105 |
|
|
|
72,944 |
|
|
$ |
(6,839 |
) |
|
|
(9.4 |
)% |
Total vehicle sales |
|
$ |
163,185 |
|
|
$ |
160,493 |
|
|
$ |
2,692 |
|
|
|
1.7 |
% |
Vehicle Sales. The increase in vehicle sales for the three months ended October 31, 2025 of $2.7 million, or 1.7%, as compared to the same period last year, resulted from (i) an increase in the U.S. of $9.5 million and (ii) a decrease in International of $6.8 million. The increase in the U.S. was primarily driven by an increase in revenue per car, which we believe was due to a change in mix of vehicles
14
Table of Contents
sold, offset by a decrease in volume. The decrease in International, after excluding positive fluctuations in currency exchange rates of $2.7 million, was primarily driven by a decrease in volume related to sellers switching to a consignment model and decrease in revenue per car, which we believe was due to a change in mix of vehicles sold.
The following table presents a comparison of facility operations expenses for the three months ended October 31, 2025 and 2024:
|
|
Three Months Ended October 31, |
|
|||||||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|
% |
|
||||
Facility operations expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
398,485 |
|
|
$ |
423,617 |
|
|
$ |
(25,132 |
) |
|
|
(5.9 |
)% |
International |
|
|
78,004 |
|
|
|
72,929 |
|
|
|
5,075 |
|
|
|
7.0 |
% |
Total facility operations expenses |
|
$ |
476,489 |
|
|
$ |
496,546 |
|
|
$ |
(20,057 |
) |
|
|
(4.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Facility operations expenses, excluding depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
359,452 |
|
|
$ |
383,597 |
|
|
$ |
(24,145 |
) |
|
|
(6.3 |
)% |
International |
|
|
69,647 |
|
|
|
65,472 |
|
|
|
4,175 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Facility depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
39,033 |
|
|
$ |
40,020 |
|
|
$ |
(987 |
) |
|
|
(2.5 |
)% |
International |
|
|
8,357 |
|
|
|
7,457 |
|
|
|
900 |
|
|
|
12.1 |
% |
Facility Operations Expenses. The decrease in facility operations expense for the three months ended October 31, 2025 of $20.1 million, or 4.0%, as compared to the same period last year resulted from (i) a decrease in the U.S. of $25.1 million, and (ii) an increase in International of $5.1 million. The decrease in the U.S. compared to the same period last year is related to one time costs associated with hurricanes Helene and Milton recognized in fiscal year 2025 offset by increase in subhaul, insurance, and bank charges. The increase in International, after excluding negative fluctuations in currency exchange rate of $1.9 million, was the result of an increase in cost to process a car. Included in facility operations expenses were depreciation and amortization expenses. The increase in facility operations depreciation and amortization expenses during the three months ended October 31, 2025 as compared to the same period last year resulted primarily from depreciating new and expanded facilities placed into service in International. The decrease in the United States is the result of a customer relationship being fully amortized.
The following table presents a comparison of cost of vehicle sales for the three months ended October 31, 2025 and 2024:
|
|
Three Months Ended October 31, |
|
|||||||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|
% |
|
||||
Cost of vehicle sales |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
89,959 |
|
|
$ |
76,286 |
|
|
$ |
13,673 |
|
|
|
17.9 |
% |
International |
|
|
51,584 |
|
|
|
61,892 |
|
|
|
(10,308 |
) |
|
|
(16.7 |
)% |
Total cost of vehicle sales |
|
$ |
141,543 |
|
|
$ |
138,178 |
|
|
$ |
3,365 |
|
|
|
2.4 |
% |
Cost of Vehicle Sales. The increase in cost of vehicle sales for the three months ended October 31, 2025 of $3.4 million, or 2.4%, as compared to the same period last year resulted from (i) an increase in the U.S. of $13.7 million and (ii) a decrease in International of $10.3 million. The increase in the U.S. was primarily the result of a change in the mix of vehicles sold offset by a decrease in volume. The decrease in International after excluding the positive fluctuations of currency exchange rates of $2.2 million, was primarily due to a decrease in volume related to sellers switching to a consignment model, combined with a change in the mix of vehicles sold.
15
Table of Contents
The following table presents a comparison of general and administrative expenses for the three months ended October 31, 2025 and 2024:
|
|
Three Months Ended October 31, |
|
|||||||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|
% |
|
||||
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
89,198 |
|
|
$ |
92,577 |
|
|
$ |
(3,379 |
) |
|
|
(3.6 |
)% |
International |
|
|
17,106 |
|
|
|
13,161 |
|
|
|
3,945 |
|
|
|
30.0 |
% |
Total general and administrative expenses |
|
$ |
106,304 |
|
|
$ |
105,738 |
|
|
$ |
566 |
|
|
|
0.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative expenses, excluding depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
82,822 |
|
|
$ |
86,682 |
|
|
$ |
(3,860 |
) |
|
|
(4.5 |
)% |
International |
|
|
16,830 |
|
|
|
12,906 |
|
|
|
3,924 |
|
|
|
30.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
General and administrative depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
||||
United States |
|
$ |
6,376 |
|
|
$ |
5,895 |
|
|
$ |
481 |
|
|
|
8.2 |
% |
International |
|
|
276 |
|
|
|
255 |
|
|
|
21 |
|
|
|
8.2 |
% |
General and Administrative Expenses. The increase in general and administrative expenses for the three months ended October 31, 2025 of $0.6 million, or 0.5%, as compared to the same period last year resulted from (i) a decrease in the U.S. of $3.4 million and (ii) an increase in International of $3.9 million. Excluding depreciation and amortization, the decrease in the U.S. of $3.9 million resulted primarily from decreases in third party outside services (including legal, compliance, and system implementations). The increase in International of $3.9 million, after excluding the negative fluctuations in currency exchange rates of $0.5 million, resulted primarily from an increase in third party outside services (including consulting and legal), and labor. Depreciation and amortization expenses for the three months ended October 31, 2025 as compared to the same period last year increased as result of the addition of technology assets being placed in service in the U.S. and Internationally.
The following table summarizes total other income (expense) for the three months ended October 31, 2025 and 2024:
|
|
Three Months Ended October 31, |
|
|||||||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|
% |
|
||||
Total other income |
|
$ |
56,429 |
|
|
$ |
44,951 |
|
|
$ |
11,478 |
|
|
|
25.5 |
% |
Other Income (Expense). The increase in total other income for the three months ended October 31, 2025 of $11.5 million, or 25.5%, as compared to the same period last year was due to higher interest income earned from U.S. Treasury Bills, realized currency gain, and gain on sale of fixed assets.
The following table summarizes income taxes for the three months ended October 31, 2025 and 2024:
|
|
Three Months Ended October 31, |
|
|||||||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|
% |
|
||||
Income taxes |
|
$ |
84,913 |
|
|
$ |
90,142 |
|
|
$ |
(5,229 |
) |
|
|
(5.8 |
)% |
Income Taxes. See the Note to Unaudited Consolidated Financial Statements, NOTE 6 – Income Taxes in this Quarterly Report on Form 10-Q.
Liquidity and Capital Resources
The following table presents a comparison of key components of our liquidity and capital resources at October 31, 2025 and July 31, 2025 and for the three months ended October 31, 2025 and 2024, respectively, excluding additional funds available to us through our Revolving Loan Facility:
(In thousands) |
|
October 31, 2025 |
|
|
July 31, 2025 |
|
|
Change |
|
|
% Change |
|
||||
Cash, cash equivalents, and restricted cash |
|
$ |
5,233,590 |
|
|
$ |
2,780,531 |
|
|
$ |
2,453,059 |
|
|
|
88.2 |
% |
Working capital |
|
|
5,420,938 |
|
|
|
5,071,347 |
|
|
|
349,591 |
|
|
|
6.9 |
% |
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|
|
Three Months Ended October 31, |
|
|||||||||||||
(In thousands) |
|
2025 |
|
|
2024 |
|
|
Change |
|
|
% Change |
|
||||
Operating cash flows |
|
$ |
535,253 |
|
|
$ |
482,274 |
|
|
$ |
52,979 |
|
|
|
11.0 |
% |
Investing cash flows |
|
|
1,916,306 |
|
|
|
1,702,228 |
|
|
|
214,078 |
|
|
|
12.6 |
% |
Financing cash flows |
|
|
450 |
|
|
|
2,137 |
|
|
|
(1,687 |
) |
|
|
(78.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capital expenditures and acquisitions |
|
$ |
(112,741 |
) |
|
$ |
(238,015 |
) |
|
$ |
125,274 |
|
|
|
(52.6 |
)% |
Cash, cash equivalents, and restricted cash and working capital increased $2,453.1 million and $349.6 million at October 31, 2025, respectively, as compared to July 31, 2025. Cash, cash equivalents, and restricted cash increased due to cash generated from operations, maturity of held to maturity securities as a result of maximizing our return on U.S. Treasury Bills, and proceeds from stock option exercises not fully offset by capital expenditures. Working capital increased primarily from cash generated from operations and timing of cash receipts, partially offset by capital expenditures, and timing of cash payments. Cash equivalents consisted of bank deposits, U.S. Treasury Bills, and funds invested in money market accounts, which bear interest at variable rates.
Historically, we have financed our growth through cash generated from operations, public offerings of common stock, equity issued in conjunction with certain acquisitions and debt financing. Our primary source of cash generated by operations is from the collection of service fees and funds received from the sale of vehicles. We expect to continue to use cash flows from operations to finance our working capital needs and to develop and grow our business. In addition to our stock repurchase program, we are considering a variety of alternative potential uses for our remaining cash balances and our cash flows from operations. These alternative potential uses include additional stock repurchases, acquisitions and the payment of dividends. For further detail, see Note to Unaudited Consolidated Financial Statements, NOTE 2 – Long-Term Debt and under the subheading “Credit Agreement” below.
Our business is seasonal as inclement weather during the winter months increases the frequency of accidents and consequently, the number of cars involved in accidents which the insurance companies salvage rather than repair. During the winter months, most of our facilities process 5% to 20% more vehicles than at other times of the year. Severe weather events, including but not limited to hurricanes, tornadoes, and hailstorms, can also impact our volumes. These increased volumes require the increased use of our cash to pay out advances and handling costs of the additional business.
We believe that our currently available cash and cash equivalents and cash generated from operations will be sufficient to satisfy our operating and working capital requirements for the foreseeable future. We expect to acquire or develop additional locations and expand some of our current facilities in the foreseeable future. We may raise additional cash through drawdowns on our Revolving Loan Facility or potentially issue equity to fund this expansion. Although the timing and magnitude of growth through expansion and acquisitions are not predictable, the opening of new greenfield facilities is contingent upon our ability to locate property that (i) is in an area in which we have a need for more capacity; (ii) has adequate size given the capacity needs; (iii) has the appropriate shape and topography for our operations; (iv) is reasonably close to a major road or highway; and (v) most importantly, has the appropriate zoning for our business.
As of October 31, 2025, $287.8 million of the $5.2 billion of cash, cash equivalents, and restricted cash was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., the repatriation of these funds could be subject to the foreign withholding tax. However, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not require repatriation to fund our U.S. operations.
Net cash provided by operating activities increased for the three months ended October 31, 2025 as compared to the same period in 2024 due to higher revenue per car. The change in operating assets and liabilities was primarily the result of an increase in cash provided by an increase in income tax payable of $52.6 million, a decrease in accounts receivable of $23.9 million, a decrease in vehicle pooling costs of $13.3 million. This was offset by cash used due to decrease in accounts payable and accrued liabilities of $38.4 million, and a decrease in prepaid expenses, other current and non current assets of $51.1 million.
Net cash provided by investing activities increased for the three months ended October 31, 2025 as compared to the same period in 2024 due primarily to an increase in proceeds from maturing held to maturity securities and decrease in capital expenditures. Our capital expenditures are primarily related to lease buyouts of certain facilities, acquiring land, opening and improving facilities, capitalized software development costs for new software for internal use and major software enhancements, and acquiring facility equipment. We continue to develop, expand and invest in new and existing facilities.
Net cash provided by financing activities decreased for the three months ended October 31, 2025 as compared to the same period in 2024 due primarily to a decrease in the receipt of proceeds from the exercise of stock options.
Credit Agreement
On December 21, 2021, we entered into a Second Amended and Restated Credit Agreement by and among Copart, certain subsidiaries of Copart party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent (the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement provides for a revolving loan facility of $1,250.0 million maturing on December 21, 2026 (including up to $550.0 million equivalent of borrowings in the Pounds Sterling, European Union Euro and Canadian dollars) with a $150.0 million equivalent sub-facility available to CPRT GmbH, a $150.0 million equivalent sub-facility available to Copart Autos España, S.L.U. and a $250.0 million sub-facility available to Copart UK Limited. The
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proceeds may be used for general corporate purposes, including working capital, capital expenditures, potential share repurchases, acquisition, or other investments relating to the Company’s expansion strategies in domestic and international markets.
We had no outstanding borrowings under the Revolving Loan Facility as of October 31, 2025 and July 31, 2025. The Credit Agreement contains customary affirmative and negative covenants and we were in compliance with all covenants related to the Credit Agreement as of October 31, 2025.
Stock Repurchases
On September 22, 2011, our Board of Directors approved a 320 million share increase in our stock repurchase program, bringing the total current authorization to 784 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 we deem appropriate and may be discontinued at any time. We did not repurchase any shares of our common stock under the program during the three months ended October 31, 2025 or 2024. As of October 31, 2025, the total number of shares repurchased under the program was 458 million, and subject to applicable limitations under Delaware law, 326 million shares were available for repurchase under the program.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
Management has discussed the selection of critical accounting policies and estimates with the Audit Committee of the Board of Directors and the Audit Committee has reviewed our disclosure relating to critical accounting policies and estimates in this Quarterly Report on Form 10-Q. There have been no material changes to the critical accounting policies and estimates from what was disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025 filed with the SEC on September 26, 2025. Our significant accounting policies are described in the Notes to Unaudited Consolidated Financial Statements, NOTE 1 – Summary of Significant Accounting Policies in this Quarterly Report on Form 10-Q.
Recently Issued Accounting Standards
For a description of new accounting standards that affect us, refer to the Notes to Unaudited Consolidated Financial Statements, NOTE 7 – Recent Accounting Pronouncements in this Quarterly Report on Form 10-Q.
Contractual Obligations and Commitments
There have been no material changes during the three months ended October 31, 2025 to our contractual obligations disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025, filed with the SEC on September 26, 2025.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the information required under this Item from what was disclosed in our Annual Report on Form 10-K for the fiscal year ended July 31, 2025, filed with the SEC on September 26, 2025.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), or (“Disclosure Controls”), as of the end of the period covered by this Quarterly Report on Form 10-Q. This evaluation (the Controls Evaluation), was performed under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and our Chief Financial Officer (“CFO”). Disclosure Controls are controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. Disclosure Controls include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Based upon the Controls Evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our Disclosure Controls were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is accumulated and communicated to management, including the CEO and CFO, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized, and reported within the time periods specified by the SEC.
Changes in Internal Control Over Financial Reporting
In the ordinary course of business, we make changes to our systems and processes to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems and automating manual processes. In the first quarter of fiscal 2025, we began implementing a new financial system, which will be completed in stages. The first stage of the system implementation included our member billing in the United States. This new financial system is a significant component of our internal control over financial reporting. We will continue to implement our new financial system, in stages, and each implementation will become a significant component of our internal control over financial reporting.
Except for the new financial system implementation noted above, there have been no changes in our internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably like to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of Legal Proceedings that affect us, refer to the Notes to Unaudited Consolidated Financial Statements, NOTE 8 – Legal Proceedings included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
Risks Related to Our Business and Industry
We depend on a limited number of major vehicle sellers for a substantial portion of our revenues. The loss of one or more of these major sellers could adversely affect our consolidated results of operations and financial position, and an inability to increase our sources of vehicle supply could adversely affect our growth rates.
Although no single customer accounted for more than 10% of our consolidated revenues during three months ended October 31, 2025, a limited number of vehicle sellers historically have collectively accounted for a substantial portion of our revenues. Vehicle sellers have terminated agreements with us in the past in particular markets, which has affected revenues in those markets. There can be no assurance that our existing agreements will not be canceled. Furthermore, there can be no assurance that we will be able to enter into future agreements with vehicle sellers or that we will be able to retain our existing supply of salvage vehicles. A reduction in vehicles from a significant vehicle seller or any material changes in the terms of an arrangement with a significant vehicle seller could have a material adverse effect on our consolidated results of operations and financial position. In addition, a failure to increase our sources of vehicle supply could adversely affect our earnings and revenue growth rates.
Our expansion into markets outside the U.S., including expansions in the U.K., Canada, Europe, Brazil, and the Middle East expose us to risks arising from operating in international markets. Any failure to successfully integrate businesses acquired or
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operational capabilities established outside the U.S. could have an adverse effect on our consolidated results of operations, financial position, or cash flows.
We first expanded our operations outside the U.S. in fiscal 2003 with an acquisition in Canada. Subsequently, in fiscal 2007 and fiscal 2008 we made significant acquisitions in the U.K., followed by acquisitions in the U.A.E., Brazil, Germany, and Spain in fiscal 2013, expansions into Bahrain and Oman in fiscal 2015, expansion into the Republic of Ireland and India in fiscal 2016, an acquisition in Finland in fiscal 2018, and an acquisition of a parts recycler in the U.K. in fiscal 2022. We continue to evaluate acquisitions and other opportunities outside of the U.S. Acquisitions or other strategies to expand our operations outside of the U.S. pose substantial risks and uncertainties that could have an adverse effect on our future operating results. In particular, we may not be successful in realizing anticipated synergies from these acquisitions, or we may experience unanticipated costs or expenses integrating the acquired operations into our existing business. We have and may continue to incur substantial expenses establishing new facilities and operations, acquiring buyers and sellers, and implementing shared services capabilities in international markets. Among other things, we plan to ultimately deploy our proprietary auction technologies at all of our foreign operations, and we cannot predict whether this deployment will be successful or will result in increases in the revenues or operating efficiencies of any acquired companies relative to their historic operating performance. Integration of our respective operations, including information technology and financial and administrative functions, may not proceed as anticipated and could result in unanticipated costs or expenses such as capital expenditures that could have an adverse effect on our future operating results. We cannot provide any assurance that we will achieve our business and financial objectives in connection with these acquisitions or our strategic decision to expand our operations internationally.
As we continue to expand our business internationally, we will need to develop policies and procedures to manage our business on a global scale. Operationally, acquired businesses typically depend on key seller relationships, and our failure to maintain those relationships would have an adverse effect on our consolidated results of operations and could have an adverse effect on our future operating results. Moreover, success in opening and operating facilities in new markets can be dependent upon establishing new relationships with buyers and sellers, and our failure to establish those relationships could have an adverse effect on our consolidated results of operations and future operating results.
In addition, we anticipate our international operations will continue to subject us to a variety of risks associated with operating on an international basis, including:
As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Our failure to manage any of these risks successfully could harm our international operations and have an adverse effect on our operating results.
Our business is exposed to risks associated with online commerce security and credit card fraud.
Consumer concerns over the security of transactions conducted on the internet or the privacy of users may inhibit the growth of the internet and online commerce. To securely transmit confidential information such as customer credit card numbers, we rely on encryption and authentication technology. Unanticipated events or developments could result in a compromise or breach of the systems
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we use to protect customer transaction data. Furthermore, our servers may also be vulnerable to viruses transmitted via the internet and other points of access. While we proactively check for intrusions into our infrastructure, a new or undetected virus could cause a service disruption.
We maintain an information security program and our processing systems incorporate multiple levels of protection in order to address or otherwise mitigate these risks. Despite these mitigation efforts, there can be no assurance that we will be immune to these risks and not suffer losses in the future. Under current credit card practices, we may be held liable for fraudulent credit card transactions and other payment disputes with customers. As such, we have implemented certain anti-fraud measures, including credit card verification procedures. However, a failure to adequately prevent fraudulent credit card transactions could adversely affect our consolidated financial position and results of operations.
Our security measures may also be breached due to employee error, malfeasance, insufficiency, or defective design. Additionally, outside parties may attempt to fraudulently induce employees, users, or customers to disclose sensitive information in order to gain access to our data or our users’ or customers’ data. Any such breach or unauthorized access could result in significant legal and financial exposure, damage to our reputation, and a loss of confidence in the security of our products and services that could have an adverse effect on our consolidated financial position and results of operations.
Implementation of our online auction model in new markets may not result in the same synergies and benefits that we achieved when we implemented the model in the U.S., Canada, and the U.K.
We believe that the implementation of our proprietary auction technologies across our operations had a favorable impact on our results of operations by increasing the size and geographic scope of our buyer base, increasing the average selling price for vehicles sold through our sales, and lowering expenses associated with vehicle sales.
For example, we implemented our online system across all of our U.S., Canada, and the U.K. salvage facilities between fiscal 2004 and fiscal 2008 and experienced increases in revenues and average selling prices, as well as improved operating efficiencies in those markets. In considering new markets, we consider the potential synergies from the implementation of our model based in large part on our experience in the U.S., Canada, and the U.K. However, we cannot predict whether these synergies will also be realized in new markets.
Failure to maintain sufficient capacity to accept additional vehicles at one or more of our storage facilities could adversely affect our relationships with insurance companies or other sellers of vehicles.
Capacity at our storage facilities varies from period to period and from region to region. For example, following adverse weather conditions in a particular area, our facilities in that area may fill and limit our ability to accept additional salvage vehicles while we process existing inventories. For example, Hurricanes Helene and Milton had, in certain quarters, an adverse effect on our operating results, in part because of facility capacity constraints in the impacted areas of the U.S. We regularly evaluate our capacity in all our markets and where appropriate, seek to increase capacity through the acquisition of additional land and facilities. We may not be able to reach agreements to purchase independent storage facilities in markets where we have limited excess capacity, zoning restrictions or difficulties obtaining and maintaining use permits, which may limit our ability to sustain and expand our capacity through acquisitions of new land. Failure to have sufficient capacity at one or more of our facilities could adversely affect our relationships with insurance companies or other sellers of vehicles, which could have an adverse effect on our consolidated results of operations and financial position.
Because the growth of our business has been due in large part to acquisitions and development of new facilities, the rate of growth of our business and revenues may decline if we are not able to successfully complete acquisitions and develop new facilities.
We seek to increase our sales and profitability through the acquisition of complementary businesses, additional facilities and the development of new facilities. Historically, the acquisition and development of new facilities has both enabled and resulted from market share gains in our core salvage vehicle remarketing business. In fiscal 2023, we opened one new operational facility in Brazil, one new operational facility in Germany, one new operational facility in Canada, and eight new operational facilities in the U.S. In fiscal 2024, we opened three new operational facilities in the U.K., one new operational facility in Spain, one new operational facility in Canada, and four new operational facility in the U.S. In fiscal 2025, we opened one new operational facility in the U.K., two new operational facilities in Spain, and three new operational facilities in the U.S. As for strategic acquisitions of complementary businesses, we acquired National Powersport Auctions in fiscal 2017, we acquired Hills Motors in fiscal 2022, a used, or “green” parts recycler in the U.K. that has four operating facilities and in fiscal 2024, we acquired Purple Wave, Inc. an online offsite heavy equipment auction company. Acquisitions are difficult to identify and complete for a number of reasons, including competition among prospective buyers, the availability of affordable financing in the capital markets, if necessary, and the need to satisfy applicable closing conditions and obtain antitrust and other regulatory approvals on acceptable terms. There can be no assurance that we will be able to:
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Acquisitions typically will increase our sales and profitability, although given the typical size of our acquisitions to date, most acquisitions will not individually have a material impact on our consolidated results of operations and financial position. We may not always be able to introduce our processes and selling platform to acquired companies due to different operating models in international jurisdictions or other facts. As a result, the associated benefits of acquisitions may be delayed for years. During this period, the acquisitions may operate at a loss and certain acquisitions, while profitable, may operate at a margin percentage that is below our overall operating margin percentage and, accordingly, have an adverse impact on our consolidated results of operations and financial position. Hence, the conversion periods vary from weeks to years and cannot be predicted.
In addition, certain of the acquisition agreements under which we have acquired companies require the former owners to indemnify us against certain liabilities related to the operation of the company before we acquired it. In most of these agreements, however, the liability of the former owners is limited and certain former owners may be unable to meet their indemnification responsibilities. We cannot assure that these indemnification provisions will protect us fully or at all, and as a result we may face unexpected liabilities that adversely affect our financial statements. Any failure to continue to successfully identify and complete acquisitions and develop new facilities could have a material adverse effect on our consolidated results of operations and financial position.
As we continue to expand our operations, our failure to manage growth could harm our business and adversely affect our consolidated results of operations and financial position.
Our ability to manage growth depends not only on our ability to successfully integrate new facilities, but also on our ability to:
Our inability to control or manage these growth factors effectively could have a material adverse effect on our consolidated results of operations and financial position.
If we experience problems with our subhaulers and trucking fleet operations, our business could be harmed.
We rely primarily upon independent subhaulers to pick up and deliver vehicles to and from our storage facilities in the U.S., Canada, Brazil, the Republic of Ireland, Germany, Finland, the U.A.E., Oman, Bahrain, and Spain. We also utilize, to a lesser extent, independent subhaulers in the U.K. Our failure to pick up and deliver vehicles in a timely and accurate manner could harm our reputation and brand, which could have a material adverse effect on our business. Further, an increase in fuel cost may lead to increased prices charged by our independent subhaulers, which may significantly increase our cost. We may not be able to pass these costs on to our sellers or buyers.
In addition to using independent subhaulers, in the U.S., the U.K., and Germany, we utilize a fleet of company trucks to pick up and deliver vehicles to and from our storage facilities in those geographies. In connection therewith, we are subject to the risks associated with providing trucking services, including but not limited to inclement weather, disruptions in transportation infrastructure, accidents and related injury claims, availability and price of fuel, any of which could result in an increase in our operating expenses and reduction in our net income.
New member programs could impact our operating results.
We have initiated and intend to continue to initiate programs to open our auctions to the general public. These programs include the Registered Broker program through which the public can purchase vehicles through a registered member, and Copart Lounge programs through which registered members can open Copart storefronts in foreign markets with internet kiosks enabling the general public to search our inventory and purchase vehicles. Initiating programs that allow access to our online auctions to the general public will involve material expenditures and we cannot predict what future benefit, if any, will be derived. These programs could also create additional risks, including heightened regulation and litigation risk related to vehicle sales to the general public, and heightened branding, reputational, and intellectual property risk associated with allowing Copart registered members to establish Copart-branded storefronts in foreign jurisdictions.
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Factors such as mild weather conditions can have an adverse effect on our revenues and operating results, as well as our revenue and earnings growth rates, by reducing the available supply of salvage vehicles. Conversely, extreme weather conditions can result in an oversupply of salvage vehicles that requires us to incur abnormal expenses to respond to market demands.
Mild weather conditions tend to result in a decrease in the available supply of salvage vehicles because traffic accidents decrease and fewer automobiles are damaged. Accordingly, mild weather can have an adverse effect on our salvage vehicle supply, which would be expected to have an adverse effect on our revenue and operating results and related growth rates. Conversely, our salvage vehicle supply will tend to increase in poor weather such as a harsh winter or as a result of adverse weather-related conditions such as flooding. During periods of mild weather conditions, our ability to increase our revenues and improve our operating results and related growth will be increasingly dependent on our ability to obtain additional vehicle sellers and to compete more effectively in the market, each of which is subject to the other risks and uncertainties described in these sections. In addition, extreme weather conditions, although they increase the available supply of salvage cars, can have an adverse effect on our operating results. For example, during fiscal 2025, we recognized substantial additional costs associated with Hurricanes Helene and Milton. Weather events have had, in certain quarters, an adverse effect on our operating results, in part because of facility capacity constraints in the impacted areas of the U.S.
If we lose key management or are unable to attract and retain the talent required for our business, we may not be able to successfully manage our business or achieve our objectives.
Our future success depends in large part upon the leadership and performance of our executive management team, all of whom are employed on an at-will basis and none of whom are subject to any agreements not to compete. If we lose the service of one or more of our senior executives or key employees, or if one or more of the senior executives or key employees decide to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives.
More generally, our future success also depends on our ability to attract and retain a talented workforce. The labor market is highly competitive, and our business could be adversely affected if we are unable to attract and retain talented personnel in our organization at appropriate staffing levels. In addition, because our core technology platform is internally developed, we face heightened risks relating to workforce recruitment and retention of key personnel with subject matter expertise relating to our technology platform.
The vehicle sales industry is highly competitive, and we may not be able to compete successfully.
We face significant competition for the supply of salvage and other vehicles and for the buyers of those vehicles. We believe our principal competitors include other auction and vehicle remarketing service companies with whom we compete directly in obtaining vehicles from insurance companies and other sellers, and large vehicle dismantlers, who may buy salvage vehicles directly from insurance companies, bypassing the salvage sales process. Many of the insurance companies have established relationships with competitive remarketing companies and large dismantlers. Certain of our competitors may currently or in the future have greater financial resources than we do. Due to the limited number of vehicle sellers, particularly in the U.K., and other foreign markets, the absence of long-term contractual commitments between us and our sellers and the increasingly competitive market environment, there can be no assurance that our competitors will not gain market share at our expense.
We may also encounter significant competition for local, regional, and national supply agreements with vehicle sellers. There can be no assurance that the existence of other local, regional, or national contracts entered into by our competitors will not have a material adverse effect on our business or our expansion plans. Furthermore, we are likely to face competition from major competitors in the acquisition of vehicle storage facilities, which could significantly increase the cost of such acquisitions and thereby materially impede our expansion objectives or have a material adverse effect on our consolidated results of operations. These potential new competitors may include consolidators of automobile dismantling businesses, organized salvage vehicle buying groups, automobile manufacturers, automobile auctioneers and software companies. While most vehicle sellers have abandoned or reduced efforts to sell salvage vehicles directly without the use of service providers such as us, there can be no assurance that this trend will continue, which could adversely affect our market share, consolidated results of operations and financial position. Additionally, existing or new competitors may be significantly larger and have greater financial and marketing resources than us; therefore, there can be no assurance that we will be able to compete successfully in the future.
Risks Related to Regulatory Compliance and Legal Matters
Our business activities and public policy interests expose us to political, regulatory, economic, and reputational risks.
Our business activities, facilities expansions, and civic and public policy interests may be unpopular in certain communities, exposing us to reputational and political risk. For example, public opposition in some communities to different aspects of our business operations has impacted our ability to obtain required business use permits. Additionally, our interests in legislative and regulatory processes at different levels of government in the geographies in which we operate have been opposed by competitors and other interest groups. Although we believe we generally enjoy positive community relationships and political support in our range of operations, shifting public opinion sentiments and sociopolitical dynamics could have an adverse effect on our business and reputation.
Our operations and acquisitions in the U.S. and certain foreign areas expose us to political, regulatory, economic, and reputational risks.
Although we have implemented policies, procedures, and training designed to ensure compliance with anti-bribery laws, trade controls and economic sanctions, and similar regulations, our employees or agents may take actions in violation of our policies. We may
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incur costs or other penalties in the event that any such violations occur, which could have an adverse effect on our business and reputation.
In some cases, the enforcement practices of governmental regulators in certain foreign areas and the procedural and substantive rights and remedies available to us may vary significantly from those in the U.S., which could have an adverse effect on our business.
Although we face risks associated with international expansion in each of the non-U.S. markets where we operate, recent regulatory proposals in Brazil heighten the risks we face relating to our Brazil operations.
In addition, some of our recent acquisitions have required us to integrate non-U.S. companies which had not previously been subject to U.S. law. In many countries outside of the U.S., particularly in those with developing economies, it may be common for persons to engage in business practices prohibited by laws and regulations applicable to us, such as the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, Brazil Clean Companies Act, India’s Prevention of Corruption Act, 1988 or similar local anti-bribery laws. These laws generally prohibit companies and their employees or agents from making improper payments for the purpose of obtaining or retaining business. Failure by us and our subsidiaries to comply with these laws could subject us to civil and criminal penalties that could have a material adverse effect on our consolidated operating results and financial position.
We face risks associated with transacting on a principal rather than agent basis, which may have an adverse impact on our gross margin percentages and expose us to inventory risks.
Certain of the vehicles that we remarket in the U.S. and foreign markets may be transacted either wholly or partially on the principal model, in which the vehicle is purchased and then resold for our own account, rather than the agency model, in which we generally act as a sales agent for the legal owner of vehicles. Further, operating on a principal basis exposes us to inventory risks, including losses from theft, damage, and obsolescence. In addition, our business in the U.S., Canada, and the U.K. has been established and grown based largely on our ability to build relationships with insurance carriers. In other markets, including Germany, insurers have traditionally been less involved in the disposition of vehicles. As we expand into markets outside the U.S., Canada, and the U.K., including Germany in particular, we cannot predict whether markets will readily adapt to our strategy of online auctions of automobiles sourced principally through vehicle insurers. Any failure of new markets to adopt our business model could adversely affect our consolidated results of operations and financial position.
Our business is subject to a variety of domestic and international laws and other obligations regarding privacy and data protection.
We are subject to federal, state and international laws, directives, and regulations relating to the collection, use, retention, disclosure, security, and transfer of personal data. These laws, directives, and regulations, and their interpretation and enforcement continue to evolve and may be inconsistent from jurisdiction to jurisdiction. For example, the General Data Protection Regulation (“GDPR”), which went into effect in the European Union on May 25, 2018, applies to all of our activities conducted from an establishment in the European Union and may also apply to related products and services that we offer to European Union users. Similarly, the California Consumer Privacy Act, or AB375 as amended (“CCPA”), the Brazilian General Data Protection Law (“LGPD”), and similar recently enacted laws create new data privacy rights for individuals. Complying with the GDPR, the CCPA, the LGPD, and similar emerging and changing privacy and data protection requirements may cause us to incur substantial costs or require us to change our business practices. Noncompliance with our legal obligations relating to privacy and data protection could result in penalties, legal proceedings by governmental entities or others, and significant legal and financial exposure and could affect our ability to retain and attract customers. Any of the risks described above could adversely affect our consolidated results of operations and financial position.
Regulation of the vehicle sales industry may impair our operations, increase our costs of doing business, and create potential liability.
Participants in the vehicle sales industry are subject to, and may be required to expend funds to ensure compliance with a variety of laws, regulations, and ordinances. These include, without limitation, land use ordinances, business and occupational licensure requirements and procedures, vehicle titling, sales, and registration rules and procedures, and laws and regulations relating to the environment, anti-money laundering, anti-corruption, exporting, and reporting and notification requirements to agencies and law enforcement relating to vehicle transfers. Many of these laws and regulations are frequently complex and subject to interpretation, and failure to comply with present or future regulations or changes in interpretations of existing laws or regulations may result in government investigation or proceedings, which could lead to impairment or suspension of our operations and the imposition of penalties and other liabilities. At various times, we may be involved in disputes with local governmental officials regarding the development and/or operation of our business facilities. We may be subject to similar types of regulations by governmental agencies in new markets. In addition, new legal or regulatory requirements or changes in existing requirements may delay or increase the cost of opening new facilities, may limit our base of vehicle buyers, may decrease demand for our vehicles, and may adversely impact our ability to conduct business. As described under NOTE 8 – Legal Proceedings, the U.S. Department of Justice, Consumer Protection Branch is conducting an ongoing investigation into potential violations by the Company of certain money laundering laws related to its practices and procedures for preventing and detecting money-laundering activity by its auction platform members. The Company is cooperating with the DOJ’s investigation. The Company may receive additional regulatory or governmental inquiries related to the matters that are the subject of the DOJ’s investigation. Any such inquiries or investigations may be time-consuming, costly, divert management resources, or otherwise have a material adverse effect on our business, financial condition or results of operation. These or other governmental
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investigations, inquiries, or lawsuits could lead to our incurring liability for damages or other costs, a criminal or civil proceeding, the imposition of fines and penalties, and/or other remedies, and reputational harm to our business, which can impact our ability to attract and retain customers and qualified personnel, as well as restrictions on or added costs for our business operations going forward.
Changes in laws or the interpretation of laws, including foreign laws and regulations, affecting the import and export of vehicles may have an adverse effect on our business and financial condition.
Our internet-based auction-style model has allowed us to offer our products and services to international markets and has increased our international buyer base. As a result, foreign importers of vehicles now represent a significant part of our total buyer base. Our foreign buyers may be subject to a variety of foreign laws and regulations, including the imposition of import duties by foreign countries. Changes in laws, regulations, and treaties that restrict or impede or negatively affect the economics surrounding the importation of vehicles into foreign countries may reduce the demand for vehicles and impact our ability to maintain or increase our international buyer base. In addition, we and our vehicle buyers must work with foreign customs agencies and other non-U.S. governmental officials, who are responsible for the interpretation, application, and enforcement of these laws, regulations, and treaties. Any inability to obtain requisite approvals or agreements from such authorities could adversely impact the ability of our buyers to import vehicles into foreign countries. In addition, any disputes or disagreements with foreign agencies or officials over import duties, tariffs, or similar matters, including disagreements over the value assigned to imported vehicles, could adversely affect our costs and the ability and costs of our buyers to import vehicles into foreign countries. For example, in March 2008, a decree issued by the president of Mexico became effective that placed restrictions on the types of vehicles that can be imported into Mexico from the U.S. The adoption of similar laws or regulations in other jurisdictions that have the effect of reducing or curtailing our activities abroad, changes in the interpretation, application, and enforcement of laws, regulations, or treaties, any failure to comply with non-U.S. laws or regulatory interpretations, or any legal or regulatory interpretations or governmental actions that significantly increase our costs or the costs of our buyers could have a material adverse effect on our consolidated results of operations and financial position by reducing the demand for our products and services and our ability to compete in non-U.S. markets.
The operation of our storage facilities poses certain environmental risks, which could adversely affect our consolidated results of operations, financial position, or cash flows.
Our operations are subject to international, federal, provincial, state and local laws and regulations regarding the protection of the environment in the countries in which we have storage facilities. In some cases, we may acquire land with existing environmental issues, including landfills as an example. In the salvage vehicle remarketing industry, large numbers of wrecked vehicles are stored at storage facilities, requiring us to actively monitor and manage potential environmental impacts. In the U.K., we provide vehicle de-pollution and crushing services for end-of-life vehicles. We could incur substantial expenditures for preventative, investigative, or remedial action and could be exposed to liability arising from our operations, contamination by previous users of certain of our acquired facilities or facilities which we may acquire in the future, or the disposal of our waste at off-site locations. In addition to conducting environmental diligence on new site acquisitions, we also take such appropriate actions as may be necessary to avoid liability for activities of prior owners, and we have from time to time acquired insurance with respect to acquired facilities with known environmental risks. There can be no assurances, however, that these efforts to mitigate environmental risk will prove sufficient if we were to face material liabilities. We have incurred expenses for environmental remediation in the past, and environmental laws and regulations could become more stringent over time. There can be no assurance that we or our operations will not be subject to significant costs in the future or that environmental enforcement agencies at the state and federal level will not pursue enforcement actions against us. In addition to acquiring insurance in connection with certain acquisitions, we have also obtained indemnification for pre-existing environmental liabilities from many of the persons and entities from whom we have acquired facilities, but there can be no assurance that such indemnifications will be available or sufficient. In addition, increased focus by the U.S. and other governmental authorities on climate change and other environmental matters may lead to enhanced regulation in these areas, which could also result in increased compliance costs and subject us to additional potential liabilities. The extent of these costs and risks is difficult to predict and will depend in large part on the extent of new regulations and the ways in which those regulations are enforced. Any such expenditures or liabilities could have a material adverse effect on our consolidated results of operations, financial position, or cash flows.
Changes in federal, state and local, or foreign tax laws, changing interpretations of existing tax laws, or adverse determinations by tax authorities could increase our tax burden or otherwise adversely affect our results of operations, and financial condition.
We are subject to taxation at the federal, state, provincial, and local levels in the U.S., the U.K., and various other countries and jurisdictions in which we operate, including income taxes, sales taxes, value-added (“VAT”) taxes, and similar taxes and assessments. The laws and regulations related to tax matters are extremely complex and subject to varying interpretations. Although we believe our tax positions are reasonable, we are subject to audit by the Internal Revenue Service, in the United States, HM Revenue and Customs in the United Kingdom, state tax authorities in the states in which we operate, and other similar tax authorities in international jurisdictions. We have been subject to audits and challenges from applicable federal, state, or foreign tax authorities in the past, and may be subject to similar audits and challenges in the future. While we believe we comply with all applicable tax laws, rules, and regulations in the relevant jurisdictions, tax authorities may elect to audit us and determine that we owe additional taxes, which could result in a significant increase in our liabilities for taxes, interest, and penalties in excess of our accrued liabilities.
New tax legislative initiatives may be proposed from time to time, such as proposals for comprehensive tax reform in the United States, which may impact our effective tax rate and which could adversely affect our tax positions or tax liabilities. Our future effective tax rate could be adversely affected by, among other things, changes in the composition of earnings in jurisdictions with differing tax
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rates, changes in statutory rates and other legislative changes, changes in interpretations of existing tax laws, or changes in determinations regarding the jurisdictions in which we are subject to tax. From time to time, U.S. federal, state and local, and foreign governments make substantive changes to tax rules and their application, which could result in materially higher taxes than would be incurred under existing tax law and which could adversely affect our financial condition or results of operations.
Risks Related to Our Intellectual Property and Technology
Disruptions to our information technology systems, including failure to prevent outages, maintain security, and prevent unauthorized access to our information technology systems and other confidential information, could disrupt our business and materially and adversely affect our reputation, consolidated results of operations, and financial condition.
Information availability and security risks for online commerce companies have significantly increased in recent years because of, in addition to other factors, the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct financial transactions, and the increased sophistication and activities of organized crime, hackers, terrorists, and other external parties. These threats may derive from fraud or malice on the part of third parties or current or former employees. In addition, human error or accidental technological failure could make us vulnerable to information technology system disruptions and/or cyber-attacks, including the introduction of malicious computer viruses or code into our system, phishing attacks, ransomware attacks, or other cyber security incidents. For example, in March 2023, one of our immaterial subsidiaries suffered a ransomware attack. Although the impacted subsidiary successfully maintained its operations during this event and the attack did not affect the rest of our business, future cyber-attacks could result in material adverse impacts to our business and our consolidated results of operations.
Our operations rely on the secure processing, transmission, and storage of confidential, proprietary and other information in our computer systems and networks. Our customers and other parties in the payments value chain rely on our digital technologies, computer and email systems, software, and networks to conduct their operations. In addition, to access our products and services, our customers increasingly use personal smartphones, tablet PCs, and other mobile devices that may be beyond our control.
Information technology system disruptions, cyber-attacks, ransomware attacks, or other cyber security incidents could materially and adversely affect our reputation, operating results, or financial condition by, among other things, making our auction platform inoperable for a period of time, damaging our reputation with buyers, sellers, and insurance companies as a result of the unauthorized disclosure of confidential information (including account data information), or resulting in governmental investigations, litigation, liability, fines, or penalties against us. If such attacks are not detected immediately, their effect could be compounded. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of these cyber risks, an insurer may deny or exclude from coverage certain types of claims or our insurance coverage may be insufficient to cover all losses and would not remedy damage to our reputation.
We regularly evaluate and implement new technologies and processes to manage risks relating to cyber-attacks and system and network disruptions, including but not limited to usage errors by our employees, power outages, and catastrophic events such as fires, tornadoes, floods, hurricanes, and earthquakes. We have also enhanced our security protocols based on the investigation we conducted and in response to our prior attacks and service interruptions. Nevertheless, we cannot provide assurances that our efforts to address cyber security incidents and mitigate against the risk of future cyber security incidents or system disruptions will be successful. The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and are often not recognized immediately. We may be unable to anticipate these techniques or implement adequate preventative measures and believe that cyber-attacks and threats against us have occurred in the past and are likely to continue in the future. If our systems are compromised, become inoperable for extended periods of time, or cease to function properly, we may have to make a significant investment to fix or replace them, and our ability to provide many of our electronic and online solutions to our customers may be impaired. In the event of another, more serious ransomware attack, we could suffer significant financial and reputational harm, regardless of whether we choose to pay the ransom amount. In addition, as cyber-threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. Any of the risks described above could materially and adversely affect our consolidated results of operations and financial position.
Our internet-based sales model has increased the relative importance of intellectual property assets to our business, and any inability to protect those rights could have a material adverse effect on our business, results of operations, or financial position.
Our intellectual property rights include patents relating to our auction technologies, as well as trademarks, trade secrets, copyrights, and other intellectual property rights. In addition, we may enter into agreements with third parties regarding the license or other use of our intellectual property. Effective intellectual property protection may not be available in every country in which our products and services are distributed, deployed, or made available. We seek to maintain certain intellectual property rights as trade secrets. The secrecy could be compromised by third parties, or intentionally or accidentally by our employees, which would cause us to lose the competitive advantage resulting from those trade secrets. Any significant impairment of our intellectual property rights, or any inability to protect our intellectual property rights, could have a material adverse effect on our consolidated results of operations and financial position.
We also may not be able to acquire or maintain appropriate domain names in all countries in which we do business. Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights.
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We have in the past been, and may in the future be, subject to intellectual property rights claims, which are costly to defend, could require us to pay damages, and could limit our ability to use certain technologies in the future.
Litigation based on allegations of infringement or other violations of intellectual property rights are common among companies who rely heavily on intellectual property rights. Our reliance on intellectual property rights has increased significantly in recent years as we have implemented our auction-style sales technologies across our business and ceased conducting live auctions. Recent U.S. Supreme Court precedent potentially restricts patentability of software inventions by affirming that patent claims merely requiring application of an abstract idea on standard computers utilizing generic computer functions are patent ineligible, which may impact our ability to enforce our issued patent and obtain new patents. As we face increasing competition, the possibility of intellectual property rights claims against us increases. Litigation and any other intellectual property claims, whether with or without merit, can be time-consuming, expensive to litigate and settle, and can divert management resources and attention from our core business. An adverse determination in current or future litigation could prevent us from offering our products and services in the manner currently conducted. We may also have to pay damages or seek a license for the technology, which may not be available on reasonable terms and which may significantly increase our operating expenses, if it is available for us to license at all. We could also be required to develop alternative non-infringing technology, which could require significant effort and expense.
We have developed a proprietary enterprise operating system, and we may experience difficulties operating our business as we continue to design and develop this system.
We have developed a proprietary enterprise operating system to address our international expansion needs. The ongoing design, development, and implementation of our enterprise operating systems carries certain risks, including the risk of significant design or deployment errors causing disruptions, delays or deficiencies, which may make our website and services unavailable. This type of interruption could prevent us from processing vehicles for our sellers and may prevent us from selling vehicles through our internet bidding platform, VB3, which would adversely affect our consolidated results of operations and financial position. In addition, the transition to our internally developed proprietary system will continue to require us to commit substantial financial, operational and technical resources before the volume of business increases, without assurance that the volume of business will increase.
We may also implement additional or enhanced information systems in the future to accommodate our growth and to provide additional capabilities and functionality. The implementation of new systems and enhancements is frequently disruptive to the underlying business of an enterprise and can be time-consuming and expensive, increase management responsibilities and divert management attention. Any disruptions relating to our system enhancements or any problems with the implementation, particularly any disruptions impacting our operations or our ability to accurately report our financial performance on a timely basis during the implementation period, could materially and adversely affect our business. Even if we do not encounter these material and adverse effects, the implementation of these enhancements may be much more costly than we anticipated. If we are unable to successfully implement the information systems enhancements as planned, our financial position, results of operations, and cash flows could be negatively impacted.
Our success depends on maintaining the integrity of our systems and infrastructure. As our operations continue to grow in both size and scope, domestically and internationally, we must continue to provide reliable, real-time access to our systems by our customers through improving and upgrading our systems and infrastructure for enhanced products, services, features and functionality. Any failure to maintain the integrity of our systems and infrastructure may result in loss of customers due, among other things, to slow delivery times, unreliable service levels, or insufficient capacity, any of which could have a material adverse effect on our business, consolidated results of operations, and financial position.
Rapid technological changes may render our technology obsolete or decrease the competitiveness of our services.
To remain competitive, we must continue to enhance and improve the functionality and features of our websites and software. The internet and the online commerce industry are rapidly changing. In particular, the online commerce industry is characterized by increasingly complex systems and infrastructures. If competitors introduce new services embodying new technologies or if new industry standards and practices emerge such as the increased use of artificial intelligence, machine learning and generative artificial intelligence, our existing websites and proprietary technology and systems may become obsolete. Our future success will depend on our ability to:
Developing our websites and other proprietary technology entails significant technical and business risks. We may use new technologies ineffectively or we may fail to adapt our websites, transaction-processing systems, and network infrastructure to customer requirements or emerging industry standards. If we face material delays in introducing new services, products, and enhancements, our customers and suppliers may forego the use of our services and use those of our competitors.
We continue to evaluate emerging technologies like artificial intelligence, machine learning, and generative artificial intelligence for incorporation into our business to augment our products and services. Such technologies present unique business opportunities along with ever-changing legal and regulatory risks. Both state and federal regulations relating to these emerging technologies are quickly and constantly evolving and may require significant resources to modify and maintain business practices to comply with laws, the nature of
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which cannot be determined at this time. Our failure to accurately identify and address our responsibilities and liabilities in this new environment could negatively affect any solutions we develop incorporating such technology and could subject us to reputational harm, regulatory action, or litigation, which may harm our financial condition and operating results. These same risks apply to our third-party service providers who are implementing these tools into the products or services they provide to us. Any failures to manage and mitigate these risks by these third-party service providers may negatively affect the products and services we provide our clients.
Risks Related to Ownership of Our Common Stock
Our annual and quarterly performance may fluctuate, causing the price of our stock to decline.
Our revenues and operating results have fluctuated in the past and can be expected to continue to fluctuate in the future on a quarterly and annual basis as a result of a number of factors, many of which are beyond our control. Factors that may affect our operating results include, but are not limited to, the following:
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Due to the foregoing factors, our operating results in one or more future periods can be expected to fluctuate. As a result, we believe that period-to-period comparisons of our results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance. In the event such fluctuations result in our financial performance being below the expectations of public market analysts and investors, the price of our common stock could decline substantially.
Our executive officers, directors, and their affiliates hold a large percentage of our stock and their interests may differ from other stockholders.
Our executive officers, directors and their affiliates beneficially own, in the aggregate, more than 10% of our issued and outstanding common stock as of October 31, 2025. If they were to act together, these stockholders would have significant influence over most matters requiring approval by stockholders, including the election of directors, any amendments to our amended and restated certificate of incorporation and certain significant corporate transactions, including potential merger or acquisition transactions. In addition, without the consent of these stockholders, we could be delayed or prevented from entering into transactions that could be beneficial to us or our other investors. These stockholders may take these actions even if they are opposed by our other investors.
We have certain provisions in our amended and restated certificate of incorporation and bylaws which may have an anti-takeover effect or that may delay, defer or prevent acquisition bids for us that a stockholder might consider favorable and limit attempts by our stockholders to replace or remove our current management.
Our Board of Directors is authorized to create and issue from time to time, without stockholder approval, up to an aggregate of 5,000,000 shares of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval, and which may include rights superior to the rights of the holders of common stock. In addition, our bylaws establish advance notice requirements for nominations for elections to our Board of Directors or for proposing matters that can be acted upon by stockholders at stockholder meetings. These anti-takeover provisions and other provisions under Delaware law could discourage, delay or prevent a transaction involving a change in control of our company, even if doing so would benefit our stockholders. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and cause us to take other corporate actions the stockholders desire.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to choose the judicial forum for disputes with us or our directors, officers, or employees.
Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action or proceeding asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, or other employees to us or our stockholders, (iii) any action or proceeding asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws, or (iv) any action or proceeding asserting a claim that is governed by the internal affairs doctrine, shall be the Court of Chancery of the State of Delaware.
This provision does not apply to suits brought to enforce a duty or liability created by the Exchange Act, for which the U.S. federal courts have exclusive jurisdiction, or the Securities Act.
Any person or entity purchasing or otherwise acquiring or holding or owning (or continuing to hold or own) any interest in any of our securities shall be deemed to have notice of and consented to the foregoing provisions. Although we believe this exclusive forum provision benefits us by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the exclusive forum provision may (i) increase the costs for a stockholder, and/or (ii) limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or any of our directors, officers, other employees, stockholders, or others which may discourage lawsuits with respect to such claims. Our stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder as a result of our exclusive forum provision. Further, in the event a court finds the exclusive forum provision contained in our amended and restated certificate of incorporation to be unenforceable or inapplicable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our results of operations.
General Risk Factors
Cash investments are subject to risks.
We may invest our excess cash in securities or money market funds backed by securities, which may include U.S. treasuries, other federal, state and municipal debt, bonds, preferred stock, commercial paper, insurance contracts and other securities both privately and publicly traded. All securities are subject to risk, including fluctuations in interest rates, credit risk, market risk, and systemic economic risk. Changes or movements in any of these investment-related risk items may result in a loss or impairment to our invested cash and may have a material effect on our consolidated results of operations and financial position.
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We are partially self-insured for certain losses and if our estimates of the cost of future claims differ from actual trends, our results of operations could be harmed.
We are partially self-insured for certain losses related to our different lines of insurance coverage including, without limitation, medical insurance, general liability, workers’ compensation, and auto liability. Our liability represents an estimate of the ultimate cost of claims incurred as of the balance sheet date. The estimated liability is not discounted and is established based upon analysis of historical data and actuarial estimates. Further, we utilize independent actuaries to assist us in establishing the proper amount of reserves for anticipated payouts associated with these self-insured exposures. While we believe these estimates are reasonable based on the information currently available, if actual trends, including the severity of claims and medical cost inflation, differ from our estimates, our results of operations could be impacted.
Macroeconomic factors such as fluctuations in fuel prices, commodities as well as used car prices, and vehicle-related technological advances may have an adverse effect on our revenues and operating results, as well as our earnings growth rates.
Macroeconomic factors that affect oil prices and the automobile and commodity markets can have adverse effects on our revenues, revenue growth rates, and operating results. Significant increases in the cost of fuel or heightened level of inflation could lead to a reduction in miles driven per car and a reduction in accident rates. A material reduction in accident rates, whether due to, among other things, a reduction in miles driven per car, vehicle-related technological advances such as accident avoidance systems and, to the extent widely adopted, the advent of autonomous vehicles, could have a material impact on revenue growth. Similarly, a reduction in total loss frequency rates, due to among other things, sharp increases in used car prices that make it less economical for insurance company sellers to declare a vehicle involved in an accident a total loss, could also have a material impact on revenue growth. In addition, under our PIP contracts, the cost of transporting the vehicle to one of our facilities is included in the PIP fee. We may incur increased fees, which we may not be able to pass on to our vehicle sellers. A material increase in transportation rates could have a material impact on our operating results. Volatility in fuel, commodity, and used car prices could have a material adverse effect on our revenues and revenue growth rates in future periods.
Adverse U.S. and international economic conditions may negatively affect our business, operating results, and financial condition.
The capital and credit markets have historically experienced extreme volatility and disruption, which has in the past and may in the future lead to economic downturns in the U.S. and abroad. As a result of any economic downturn, economic uncertainty or rising inflation, the number of miles driven may decrease, which may lead to fewer accident claims, a reduction of vehicle repairs, and fewer salvage vehicles. Increases in unemployment, as a result of any economic downturn, may lead to an increase in the number of uninsured motorists. Uninsured motorists are responsible for disposition of their vehicle if involved in an accident. Disposition generally is either the repair or disposal of the vehicle. In the situation where the owner of the wrecked vehicle, and not an insurance company, is responsible for its disposition, we believe it is more likely that vehicle will be repaired or, if disposed, disposed through channels other than us. Adverse credit markets may also affect the ability of members to secure financing to purchase salvaged vehicles which may adversely affect demand. In addition, if the banking system or the financial markets deteriorate or are volatile, our credit facility or our ability to obtain additional debt or equity financing may be affected. These adverse economic conditions and events may have a negative effect on our business, consolidated results of operations, and financial position.
Fluctuations in foreign currency exchange rates could result in declines in our reported revenues and earnings.
Our reported revenues and earnings are subject to fluctuations in currency exchange rates. We do not engage in foreign currency hedging arrangements; consequently, foreign currency fluctuations may adversely affect our revenues and earnings. Should we choose to engage in hedging activities in the future we cannot be assured our hedges will be effective or that the costs of the hedges will not exceed their benefits. Fluctuations in the rate of exchange between the U.S. dollar and foreign currencies, primarily Pounds Sterling, Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, and Bahraini dinar could adversely affect our consolidated results of operations and financial position.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
None.
Issuer Purchases of Equity Securities
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5. OTHER INFORMATION
Securities Trading Plans of Directors and Executive Officers
During the fiscal quarter ended October 31, 2025, no director or officer of the Company
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ITEM 6. EXHIBITS
3.1 |
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Amended and Restated Certificate of Incorporation of Copart, Inc. (incorporated by reference from Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on November 2, 2022) |
3.2 |
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Amended and Restated Bylaws of Copart, Inc. (incorporated by reference from Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed on March 12, 2024) |
31.1* |
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Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* |
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Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1** |
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Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2** |
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Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101.INS |
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XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
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Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* |
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Filed herewith |
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** |
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The certifications furnished in Exhibits 32.1 and 32.2 hereto are deemed to accompany this Quarterly Report on Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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COPART, INC. |
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/s/ LEAH STEARNS |
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Leah Stearns, Chief Financial Officer |
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(Principal Financial and Accounting Officer and duly Authorized Officer) |
Date: November 21, 2025
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