Exchange: NASDAQ | Sector: Consumer Cyclical | Industry: Auto Dealerships
Q3 2024
Published: May 23, 2024
Earnings Highlights
Revenue of $1.13B up 10.3% year-over-year
EPS of $0.39 increased by 8.1% from previous year
Gross margin of 46.2%
Net income of 382.29M
"International bidders are instrumental in driving the value of every car sold at Copart. They today speak for a majority of the value of U.S. auctions, and international bidding activity for cars they buy or for cars for which they are the push bid is approaching 90% of the cars we sell." - Jeff Liaw
Copart Inc (CPRT) Q3 FY2024 Earnings Analysis: Accelerating Unit Volumes, International Expansion, and Strong Free Cash Flow Amid Margin Pressures
Executive Summary
Copart delivered a solid QQ3 2024 with a 10% year-over-year revenue uplift to $1.128 billion, driven by a broad-based increase in global unit sales and a meaningful contribution from the Purple Wave integration. Global service revenue rose ~12% year over year on higher volumes, while international activity surged (unit growth >21%), underscoring Copart’s expanding international footprint and diversified buyer base. Gross profit expanded to ~$520.6 million, with gross margin at ~46.6%, while GAAP operating income was ~$437 million and net income ~$382 million (EPS $0.39). Despite a slight compression in gross margin (primarily in the U.S. DNA-related mix) and a ~3% decline in global ASPs, Copart’s volume leverage and higher-value dealer cars have helped offset ASP declines versus the broader Manheim Used Vehicle Index (down ~14% YoY). Free cash flow reached ~$408.5 million and operating cash flow ~$496.3 million, supported by a robust liquidity position (nearly $4.3 billion in liquidity; cash and short-term investments ~ $3.09 billion; net debt is negative). Management reaffirmed a long-term investment horizon, emphasizing continued capital allocation to real estate, fleet, and technology to enable scalable growth. Management also highlighted the ongoing importance of international buyers, a widening dealer-cars opportunity, and the Purple Wave integration as growth accelerants, while noting the absence of formal near-term guidance. Investors should monitor balance sheet strength, international mix and ASP trends, total loss frequency dynamics, insurance versus non-insurance mix, and the progress of capital investments that enable operating leverage over time.
Management insights and themes from the QQ3 2024 earnings call:
- Strategy and market positioning: Jeff Liaw emphasized Copart’s auction liquidity and global buyer base, noting that international bidders now account for a majority of value in U.S. auctions and that international bidding activity approaches 90% of cars sold. He underscored the importance of international buyers for driving price and liquidity, and highlighted ongoing investments in technology and real estate to sustain long-term growth. Quote: 'International bidders are instrumental in driving the value of every car sold at Copart... they today speak for a majority of the value of U.S. auctions' (Jeff Liaw).
- Insurance vs. non-insurance mix and total loss dynamics: Leah Stearns highlighted solid volume growth in both segments, with non-insurance volumes growing faster (U.S. non-insurance up >9% YoY; dealer units up ~18%; fleet/rental up >23%), while U.S. insurance volumes grew ~7% YoY. She noted ASPs in the U.S. down <2% and international ASPs down ~5%, against a Manheim Used Vehicle Index decline of ~14% YoY. Quote: 'Manheim is down about 14% year-over-year. Our dealer units are down just a little over 5%.' (Leah Stearns).
- Margin dynamics and focus on leverage: The call highlighted a 70 bps gross-margin compression primarily in the U.S. due to DNA-related factors, while international gross margin expanded to 27.6%. Management emphasized that ongoing investments in yard infrastructure, technology, and third-party projects are intended to yield longer-term operating leverage. Quote: 'Global gross profit margin decreased to 46.6%... in the U.S. our gross profit margin decreased to 50.9% with DNA being the most impactful driver of margin compression.' (Leah Stearns).
- Purple Wave and capital allocation: Management described Purple Wave as a growing growth engine with GMV strength, geographic expansion, and the objective of expanding addressable inventory. They noted deployment of over $540M in real estate, fleet, and technology in the last 12 months to build scale. Quote: 'Purple Wave... GMV very well year-over-year... growth opportunities include both geographic expansion' (Jeff Liaw).
- Capital structure and risk management: The team stressed substantial liquidity and conservative capitalization as a competitive advantage, with $4.3B in liquidity and a net cash position, enabling long-term strategic investments and resilience in catastrophe events. Quote: 'As of the end of April, we had $4.3 billion of liquidity... ability to operate with a horizon that prioritizes long-term success' (Leah Stearns).
- Guidance stance and risk factors: The company reiterated it does not provide formal near-term earnings guidance; management framed the long-term growth thesis around data-driven decisioning for total loss optimization and scalable operating leverage, while acknowledging risks from total loss frequency trends and catastrophe activity. Quote: 'We do not provide forward-looking guidance' (Jeff Liaw).
International bidders are instrumental in driving the value of every car sold at Copart. They today speak for a majority of the value of U.S. auctions, and international bidding activity for cars they buy or for cars for which they are the push bid is approaching 90% of the cars we sell.
— Jeff Liaw
Manheim is down about 14% year-over-year. Our dealer units are down just a little over 5%.
— Leah Stearns
Forward Guidance
Guidance stance and outlook assessment: Copart did not issue formal near-term earnings guidance for QQ4 2024 or beyond. Management signaled a continued emphasis on scalable growth through technology, real estate, and fleet investments, with a focus on expanding high-value dealer cars, international markets, and the Purple Wave platform. The long-term trend of rising total loss frequency appears persisting, suggesting continued demand for Copart’s data-driven total-loss and remarketing tools. Key factors for investors to monitor include:
- Total loss frequency trajectory and insurance cycle dynamics; potential shifts in repair versus total loss decisions as insurer practices evolve.
- International growth trajectory and ASP evolution by region, especially Germany and other high-margin markets; impact of currency movements and regulatory changes.
- Progress and profitability of the dealer-car initiative, including arbitration, condition reporting, and title processing services, and their effect on mix and margins.
- Acceleration of Purple Wave’s scale and cross-segment synergy; geographic expansion and potential internationalization of Purple Wave assets.
- Capital allocation efficiency and operating leverage from ongoing capex in real estate, fleet, and technology; expected long-term returns from these investments given Copart’s structurally high gross margins and cash flow generation.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
CPRT Focus
46.18%
38.80%
5.33%
34.16%
AN
18.00%
5.32%
7.84%
9.61%
ANSS
88.50%
26.80%
2.20%
54.31%
CDW
21.80%
8.73%
13.50%
23.87%
CTAS
47.70%
21.60%
9.39%
40.11%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Copart’s QQ3 2024 results validate a resilient and scalable model: disciplined growth in unit volumes, strong international expansion, and a robust liquidity position support a favorable long-term investment thesis. The absence of near-term guidance is offset by a clear strategic plan centered on international buyer access, higher-value dealer cars, and platform integrations (e.g., Purple Wave) that diversify and expand the addressable market. The company’s capital allocation stance—investing to expand real estate, fleet, and technology—should yield operating leverage over time given Copart’s high gross margins and cash-generating capabilities. Key risk monitors include: total loss frequency trajectory, ASP trends by region, performance and integration milestones of Purple Wave, and the evolution of the dealer-car penetration and service mix. Overall, Copart remains well-positioned to monetize data-driven total-loss decisions, expand its international footprint, and sustain double-digit revenue growth while maintaining substantial liquidity and minimal leverage.
Key Investment Factors
Growth Potential
- International expansion beyond the U.S., with solid double-digit unit growth in QQ3 2024 (+21% YoY internationally) driven by expanded buyer access and higher-value international assets.
- Higher-value dealer car initiatives, including condition reporting, arbitration, and title services, improving addressable inventory and expanding the fee-based (non-insurance) revenue mix.
- Purple Wave expansion, including geographic growth and deeper penetration of equipment sectors, delivering incremental GMV and cross-sell opportunities.
Profitability Risk
- Total loss frequency remains a long-run tailwind for total-loss auctions but could pressurize salvage values if insurer practices shift or if macro events reduce supply efficiency.
- ASP pressure in international markets (down ~5% YoY) and U.S. DNA-driven margin compression could impact near-term profitability; competitive dynamics with other remarketing channels could temper price realization.
- Catastrophic events and weather-related disruptions could increase claims volatility and working-capital needs; reliance on uptime of logistics and inventory capacity remains critical.
Financial Position
- Very strong liquidity and a net cash position (-$978M net debt) with total liquidity of ~$4.3B; comfortable lever of capital allocation for growth initiatives.
- Consistent free cash flow generation (~$408.5M in QQ3 2024) supports ongoing capex and potential buybacks or strategic investments.
- Balance sheet is conservatively capitalized with minimal long-term debt relative to equity, supporting resilience to industry cycles.
SWOT Analysis
Strengths
Scale and liquidity: Cash, equivalents, and short-term investments totaling approximately $3.09B with total liquidity around $4.3B provide a durable liquidity runway.
Global buyer base and auction liquidity: A digitally-enabled, exclusively online marketplace with a large, diversified international buyer base supporting strong sale execution and price discovery.
Diversified revenue mix: Strong non-insurance volume growth (dealer, fleet, and rental channels) reduces reliance on a single channel.
Strong cash flow profile: Operating cash flow of ~$496.3M and free cash flow of ~$408.5M in Q3 2024 enable scalable investment in growth initiatives.
Strategic investments: Purple Wave integration and capacity investments (real estate, fleet, technology) position Copart for higher-value assets and expanded geographic reach.
Weaknesses
Margin compression in the U.S. due to DNA and mix shifts; international margins still dependent on regional dynamics.
ASP declines, particularly in international markets (~5% YoY), could pressure near-term profitability if volume growth decelerates.
Concentration risk in insurance channel dynamics and catastrophe exposure; results can be sensitive to storm activity and regulatory changes.
Opportunities
Acceleration of dealer-car initiatives to broaden addressable inventory and improve fees and services tied to title, arbitration, and condition reporting.
Expansion of Purple Wave into new geographies and asset classes, unlocking additional GMV and cross-sell opportunities.
Enhanced data and AI-driven decisioning for total-loss optimization, potentially improving salvage yields and insurer adoption.