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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                         to                        
Commission file number: 000-23255
COPART, INC.
(Exact name of registrant as specified in its charter)
Delaware
000-23255
94-2867490
(State or other jurisdiction of incorporation or organization)
(Commission File Number)
(I.R.S. Employer Identification No.)
14185 Dallas ParkwaySuite 300
Dallas
Texas
75254
        (Address of principal executive offices) (zip code)
(972) 391-5000
(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
As of November 17, 2023, 960,231,442 shares of the registrant’s common stock were outstanding.



Copart, Inc.
Index to the Quarterly Report on Form 10-Q
October 31, 2023
Table of ContentsPage Number
2

Table of Contents


Copart, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)October 31, 2023July 31, 2023
ASSETS
Current assets:
Cash, cash equivalents, and restricted cash$2,581,567 $957,395 
Investment in held to maturity securities48,982 1,406,589 
Accounts receivable, net755,635 702,038 
Vehicle pooling costs127,512 123,725 
Inventories42,631 39,973 
Income taxes receivable418 6,574 
Prepaid expenses and other assets28,145 26,310 
Total current assets3,584,890 3,262,604 
Property and equipment, net2,943,537 2,844,339 
Operating lease right-of-use assets121,690 108,139 
Intangibles, net81,832 62,702 
Goodwill500,926 394,289 
Other assets100,911 65,806 
Total assets$7,333,786 $6,737,879 
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities$495,201 $440,810 
Deferred revenue27,174 26,117 
Income taxes payable80,106 4,374 
Current portion of operating and finance lease liabilities21,936 21,468 
Total current liabilities624,417 492,769 
Deferred income taxes91,821 89,492 
Income taxes payable69,982 69,193 
Operating and finance lease liabilities, net of current portion101,465 88,082 
Long-term debt and other liabilities9,462 10,903 
Total liabilities897,147 750,439 
Commitments and contingencies
Redeemable non-controlling interest25,222  
Stockholders’ equity:
Preferred stock: $0.0001 par value - 5,000,000 shares authorized; none issued
  
Common stock: $0.0001 par value - 1,600,000,000 shares authorized; 960,208,274 and 957,344,162 shares issued and outstanding, respectively.
96 96 
Additional paid-in capital1,067,424 938,910 
Accumulated other comprehensive loss(177,359)(141,006)
Retained earnings5,521,256 5,189,440 
Total stockholders’ equity6,411,417 5,987,440 
Total liabilities, redeemable noncontrolling interests and stockholders’ equity$7,333,786 $6,737,879 
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
Copart, Inc.
Consolidated Statements of Income
(Unaudited)
Three Months Ended October 31,
(In thousands, except per share amounts)20232022
Service revenues and vehicle sales:
Service revenues$859,536 $726,840 
Vehicle sales160,880 166,532 
Total service revenues and vehicle sales1,020,416 893,372 
Operating expenses:
Yard operations408,501 372,777 
Cost of vehicle sales147,896 151,112 
General and administrative68,643 57,980 
Total operating expenses625,040 581,869 
Operating income395,376 311,503 
Other income (expense):
Interest income, net32,005 4,422 
Other expense, net(4,072)(2,822)
Total other income 27,933 1,600 
Income before income taxes423,309 313,103 
Income tax expense90,777 67,255 
Net income$332,532 $245,848 
Less: Net income attributable to redeemable noncontrolling interest5  
Net income attributable to Copart, Inc.$332,527 $245,848 
Basic net income per common share$0.35 $0.26 
Weighted average common shares outstanding958,127 952,198 
Diluted net income per common share$0.34 $0.25 
Diluted weighted average common shares outstanding971,682 964,336 
The accompanying notes are an integral part of these consolidated financial statements.
4

Table of Contents
Copart, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three Months Ended October 31,
(In thousands)20232022
Comprehensive income, net of tax:
Net income$332,532 $245,848 
Other comprehensive income:
Foreign currency translation adjustments(36,353)(29,571)
Comprehensive income296,179 216,277 
Less: Comprehensive income attributable to redeemable noncontrolling interest5  
Comprehensive income attributable to Copart, Inc.$296,174 $216,277 
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 Interests and Stockholders’ Equity
(Unaudited)
Common StockAccumulated
Other
Comprehensive
Income (Loss)
Redeemable Noncontrolling Interest
Additional
Paid-in
Capital
Total Stockholders’
Equity
(In thousands, except share amounts)Outstanding
Shares
AmountRetained
Earnings
Balances at July 31, 2023957,344,162 $96 $938,910 $(141,006)$5,189,440 $5,987,440 $ 
Net income— — — — 332,527 332,527 5 
Currency translation adjustment— — — (36,353)— (36,353)— 
Acquisition of noncontrolling interest2,499,993 — 112,075 — — 112,075 25,217 
Exercise of stock options, net of repurchased shares331,358 — 8,123 — (711)7,412 — 
Stock-based compensation32,761 — 8,316 — — 8,316 — 
Balances at October 31, 2023960,208,274 96 1,067,424 (177,359)5,521,256 6,411,417 25,222 


Common StockAccumulated
Other
Comprehensive
Income (Loss)
Additional
Paid-in
Capital
Total Stockholders’
Equity
(In thousands, except share amounts)Outstanding
Shares
AmountRetained
Earnings
Balances at July 31, 2022952,163,896 $96 $838,460 $(169,365)$3,956,408 $4,625,599 
Net income— — — — 245,848 245,848 
Currency translation adjustment— — — (29,571)— (29,571)
Exercise of stock options, net of repurchased shares151,108 — 1,061 — (295)766 
Stock-based compensation76,624 — 10,192 — — 10,192 
Balances at October 31, 2022952,391,628 96 849,713 (198,936)4,201,961 4,852,834 
The accompanying notes are an integral part of these consolidated financial statements.
6

Table of Contents
Copart, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended October 31,
(In thousands)20232022
Cash flows from operating activities:
Net income$332,532 $245,848 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including debt cost43,350 39,327 
Allowance for credit loss1,049 1,396 
Equity in (earnings) losses of unconsolidated affiliates(4,764)2,122 
Stock-based compensation8,317 10,192 
Gain on sale of property and equipment(1,050)(113)
Deferred income taxes(988)(1,780)
Changes in operating assets and liabilities:
Accounts receivable(77,086)(53,837)
Vehicle pooling costs(4,377)(4,643)
Inventories(3,669)4,020 
Prepaid expenses, other current and non-current assets(40,543)(35,303)
Operating lease right-of-use assets and lease liabilities366 52 
Accounts payable and accrued liabilities38,153 40,372 
Deferred revenue1,101 (588)
Income taxes receivable6,135 44,595 
Income taxes payable76,720 19,899 
Net cash provided by operating activities375,246 311,559 
Cash flows from investing activities:
Purchases of property and equipment(162,260)(152,655)
Cash acquired in connection with acquisition17,662  
Proceeds from sale of property and equipment924 185 
Proceeds from the sale of held to maturity securities1,380,000  
Investment in unconsolidated affiliate(1,001) 
Net cash provided by (used in) investing activities1,235,325 (152,470)
Cash flows from financing activities:
Proceeds from the exercise of stock options8,123 1,061 
Payments for employee stock-based tax withholdings(711)(295)
Payments of finance lease obligations(5)(7)
Net cash provided by financing activities7,407 759 
Effect of foreign currency translation6,194 (4,693)
Net increase in cash, cash equivalents, and restricted cash1,624,172 155,155 
Cash, cash equivalents, and restricted cash at beginning of period957,395 1,384,236 
Cash, cash equivalents, and restricted cash at end of period2,581,567 $1,539,391 
Supplemental disclosure of cash flow information:
Interest paid$96 $64 
Income taxes paid, net of refunds$9,066 $5,700 
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, 2023
(Unaudited)
NOTE 1 – Summary of Significant Accounting Policies
Basis of Presentation and Description of Business
Copart, Inc. (“the Company”) provides vehicle sellers with a full range of services to process and sell vehicles over the internet through the Company’s Virtual Bidding Third Generation (“VB3”) internet auction-style sales technology. Vehicle sellers consist primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers, vehicle rental companies, and individuals. The Company sells principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and directly to the general public. The majority of vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss or not economically repairable by the insurance companies or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. The Company offers vehicle sellers a full range of services that expedite each stage of the vehicle sales process, minimize administrative and processing costs and maximize the ultimate sales price through the online auction process. In the United States (“U.S.”), Canada, Brazil, the Republic of Ireland, Finland, the United Arab Emirates (“U.A.E.”), Oman, and Bahrain, the Company sells vehicles primarily as an agent and derives revenue primarily from auction and auction related sales transaction fees charged for vehicle remarketing services as well as fees for services subsequent to the auction, such as delivery and storage. In the United Kingdom (“U.K.”), Germany, and Spain, the Company operates both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the vehicles for its own account. In Germany and Spain, the Company also derives revenue from listing vehicles on behalf of insurance companies and insurance experts to determine the vehicle’s residual value and/or to facilitate a sale for the insured.
Principles of Consolidation
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments of a normal recurring nature considered necessary for fair presentation of the Company’s financial position as of October 31, 2023 and July 31, 2023, its consolidated statements of income, comprehensive income and changes in redeemable noncontrolling interests and stockholders’ equity for the three months ended October 31, 2023 and 2022, and its cash flows for the three months ended October 31, 2023 and 2022. Interim results for the three months ended October 31, 2023 are not necessarily indicative of the results that may be expected for any future period, or for the entire year ending July 31, 2024. These consolidated financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2023. Certain prior year amounts have been reclassified to conform to current year presentation.
The consolidated financial statements of the Company include the accounts of the parent company and its wholly-owned subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation.
On October 3, 2022, the Company’s Board of Directors approved a two-for-one common stock split effected in the form of a stock dividend subject to and contingent upon, among other things, obtaining stockholder approval of an amendment to the Company’s certificate of incorporation to increase the number of authorized shares of common stock. On October 31, 2022, the Company’s stockholders approved such increase at a special meeting of stockholders. As such, on November 3, 2022, the Company effected the two-for-one stock dividend to stockholders of record as of October 6, 2022.
On August 4, 2023, the Company’s Board of Directors approved a two-for-one common stock split effected in the form of a stock dividend entitling each stockholder of record to receive one additional share of common stock for every one share owned. On August 21, 2023, the Company effected the two-for-one stock dividend to stockholders of record as of August 14, 2023.
Both stock dividends increased the number of shares of common stock outstanding and all share and per share amounts have been retroactively adjusted for the stock dividend, as of the date earliest presented in these financial statements to conform to current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates include, but are not limited to, vehicle pooling costs; income taxes; stock-based compensation; and contingencies. Actual results may differ from these estimates.
8

Table of Contents
Revenue Recognition
The Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process. Service revenue and vehicle sales revenue are recognized at the date the vehicles are sold at auction, excluding annual registration fees. Costs to prepare the vehicles for auction, including inbound transportation costs and titling fees, are deferred and recognized at the time of revenue recognition at auction.
The Company’s disaggregation between service revenues and vehicle sales at the segment level reflects how the nature, timing, amount and uncertainty of its revenues and cash flows are impacted by economic factors. The Company reports sales taxes on relevant transactions on a net basis in the Company’s consolidated results of operations, and therefore does not include sales taxes in revenues or costs.
Service revenues
The Company’s service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing services. Within this revenue category, the Company’s primary performance obligation is the auctioning of consigned vehicles through an online auction process. These auction and auction related services may include a combination of vehicle purchasing fees, vehicle listing fees, and vehicle selling fees that can be based on a predetermined percentage of the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of the selling price of the vehicle; transportation fees for the cost of transporting the vehicle to or from the Company’s facility; title processing and preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These services are not distinct within the context of the contract. Accordingly, revenue for these services is recognized when the single performance obligation is satisfied at the completion of the auction process. The Company does not take ownership of these consigned vehicles, which are stored at the Company’s facilities located throughout the U.S. and at its international locations. These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged.
The Company has a separate performance obligation related to providing access to its online auction platform as the Company charges members an annual registration fee for the right to participate in its online auctions and access the Company’s bidding platform. This fee is recognized ratably over the term of the arrangement, generally one year, as each day of access to the online auction platform represents the best depiction of the transfer of the service.
No provision for returns has been established, as all sales are final with no right of return or warranty, except for separately identified vehicles subject to the arbitration policy, although the Company provides for credit loss expense in the case of non-performance by its buyers or sellers.
Three Months Ended October 31,
(In thousands)20232022
Service revenues
United States$762,524 $651,657 
International97,012 75,183 
Total service revenues$859,536 $726,840 
Vehicle sales
Certain vehicles are purchased and remarketed on the Company’s own behalf. The Company has a single performance obligation related to the sale of these vehicles, which is the completion of the online auction process. Vehicle sales revenue is recognized on the auction date. As the Company acts as a principal in vehicle sales transactions, the gross sales price at auction is recorded as revenue.
Three Months Ended October 31,
(In thousands)20232022
Vehicle sales
United States$78,382 $97,192 
International82,498 69,340 
Total vehicle sales$160,880 $166,532 
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Contract assets
The Company capitalizes certain contract assets related to obtaining a contract, where the amortization period for the related asset is greater than one year. These assets are amortized over the expected life of the customer relationship. Contract assets are classified as current or long-term other assets, based on the timing of when the Company expects to recognize the related revenues and are amortized as an offset to the associated revenues on a straight-line basis. The Company assesses these costs for impairment at least quarterly and as “triggering” events occur that indicate it is more likely than not that an impairment exists. The contract asset costs where the amortization period for the related asset is one year or less are expensed as incurred and recorded within general and administrative expenses in the accompanying consolidated statements of income.
The change in the carrying amount of contract assets was as follows (In thousands):
Balance as of July 31, 2023$25,726 
Capitalized contract assets during the period32,000 
Costs amortized during the period(1,814)
Effect of foreign currency exchange rates(52)
Balance as of October 31, 2023$55,860 
Vehicle Pooling Costs
The Company defers costs that relate directly to the fulfillment of its contracts associated with vehicles consigned to and received by the Company, but not sold as of the end of the period. The Company quantifies the deferred costs using a calculation that includes the number of vehicles at its facilities at the beginning and end of the period, the number of vehicles sold during the period, and an allocation of certain yard operation costs of the period. The primary expenses allocated and deferred are inbound transportation costs, titling fees, certain facility costs, labor, and vehicle processing. If the allocation factors change, then yard operation expenses could increase or decrease correspondingly in the future. These costs are expensed into yard operations expenses as vehicles are sold in subsequent periods on an average cost basis.
Foreign Currency Translation
The Company records foreign currency translation adjustments from the process of translating the functional currency of the financial statements of its foreign subsidiaries into the U.S. dollar reporting currency. The British pound, Canadian dollar, Brazilian real, European Union euro, U.A.E. dirham, Omani rial, and Bahraini dinar are the functional currencies of the Company’s foreign subsidiaries as they are the primary currencies within the economic environment in which each subsidiary operates. The original equity investment in the respective subsidiaries is translated at historical rates. Assets and liabilities of the respective subsidiary’s operations are translated into U.S. dollars at period-end exchange rates, and revenues and expenses are translated into U.S. dollars at average exchange rates in effect during each reporting period. Adjustments resulting from the translation of each subsidiary’s financial statements are reported in other comprehensive income.
The cumulative effects of foreign currency exchange rate fluctuations were as follows (In thousands):
Cumulative loss on foreign currency translation as of July 31, 2022$(169,365)
Loss on foreign currency translation28,359 
Cumulative loss on foreign currency translation as of July 31, 2023$(141,006)
Gain on foreign currency translation(36,353)
Cumulative loss on foreign currency translation as of October 31, 2023$(177,359)
Fair Value of Financial Instruments
The Company records its financial assets and liabilities at fair value in accordance with the framework for measuring fair value in U.S. GAAP. In accordance with Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, the Company considers fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. This framework establishes a fair value hierarchy that prioritizes the inputs used to measure fair value:
Level I    Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets.
Level II    Inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly.
Level III    Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate.
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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, 2023 and July 31, 2023, 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.
Redeemable Noncontrolling Interest
Redeemable noncontrolling interests represent a 20% noncontrolling ownership in Purple Wave, Inc., a consolidated subsidiary of the Company. Redeemable noncontrolling interests are presented outside of permanent equity on the consolidated balance sheet as they are redeemable by the holders of the noncontrolling interest and the redemption is outside the control of the Company. The redeemable noncontrolling interests were initially recorded at their issuance date fair value of $25.2 million. We record the carrying amount of the redeemable noncontrolling interests at the greater of (i) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss and its share of other comprehensive income or loss, and dividends or (ii) the redemption value. For interests that are redeemable in the future, we recognize changes in the redemption value immediately as they occur.
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 has held to maturity securities comprised of U.S. Treasury Bills. These investments are classified as held to maturity as the Company has the intent and ability to hold these investments until they mature. The held to maturity securities mature within the next 12 months. The table below shows the amortized cost, associated gross unrealized gains and associated fair value of held to maturity securities.
(In thousands)October 31, 2023
Amortized CostGross Unrealized Gains Fair Value
Investment in held to maturity securities$48,982 $731 $49,713 
(In thousands)July 31, 2023
Amortized CostGross Unrealized Gains Fair Value
Investment in held to maturity securities$1,406,589 $8,314 $1,414,903 
NOTE 2 — Acquisitions
Fiscal Year 2024 Transactions
On October 6, 2023, the Company acquired an 80% controlling ownership in Purple Wave, Inc., an online offsite heavy equipment auction company. The Company acquired the controlling ownership by issuing 2.5 million shares of the Company’s common stock which was equal to the $108.0 million acquisition price divided by the 10-day volume average weighted price of the Company’s common stock prior to closing. Under U.S. GAAP, the fair value of the merger consideration paid for Purple Wave, Inc. was $112.1 million and was determined on the basis of the closing price of the Company’s common stock on October 6, 2023. Substantially all of the merger consideration has preliminarily been allocated to intangible assets, including goodwill. The fair value of the 20% redeemable noncontrolling interest in Purple Wave, Inc. was $25.2 million, and was estimated by applying the transaction method. Refer to Note 1 – Summary of Significant Accounting Policies for more details regarding the redeemable noncontrolling interests. Acquisition costs reflected in the general administrative line on the income statement were $1.2 million.
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NOTE 3 — Accounts Receivable, Net
Accounts receivable, net consisted of:
(In thousands)October 31, 2023July 31, 2023
Advance charges receivable$581,475 $537,261 
Trade accounts receivable171,497 157,083 
Other receivables12,254 16,334 
765,226 710,678 
Less: Allowance for credit loss(9,591)(8,640)
Accounts receivable, net$755,635 $702,038 
Advance charges receivable represents amounts paid to third parties on behalf of insurance companies for which the Company will be reimbursed when the vehicle is sold. As advance charges are recovered within one year, the Company has not adjusted the amount of consideration received from the customer for a significant financing component. Trade accounts receivable includes fees and gross auction proceeds to be collected from insurance companies and buyers.
NOTE 4 — Property and Equipment, Net
Property and equipment, net consisted of the following:
(In thousands)October 31, 2023July 31, 2023
Land$1,896,396 $1,812,001 
Buildings and improvements1,365,786 1,339,820 
Transportation and other equipment506,959 490,136 
Office furniture and equipment91,436 91,031 
Software92,580 89,575 
 3,953,157 3,822,563 
Less: Accumulated depreciation and amortization(1,009,620)(978,224)
Property and equipment, net$2,943,537 $2,844,339 
Depreciation expense on property and equipment was $40.0 million and $37.2 million for the three months ended October 31, 2023 and 2022, respectively.
NOTE 5 – Leases
The Company has both lessee and lessor arrangements. The Company determines whether a contract is or contains a lease at the inception of the contract or at any subsequent modification. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and equipment. Depending on the terms, leases are classified as either operating or finance leases if the Company is the lessee, or as operating, sales-type, or direct financing leases if the Company is the lessor. Certain of the Company’s lessee and lessor leases have renewal options to extend the leases for additional periods at the Company’s discretion.
Leases - Lessee
The Company leases certain facilities and certain equipment under non-cancelable finance and operating leases, which are recorded as right-of-use assets and lease liabilities. Certain leases provide the Company with either a right of first refusal to acquire or an option to purchase a facility at fair value. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the right-of-use asset and the lease liabilities. The effects of these escalation clauses or concessions have been reflected in lease expense on a straight-line basis over the expected lease term and any variable lease payments subsequent to establishing the lease liability are expensed as incurred. The lease term commences on the date when the Company has the right to control the use of the leased property, which is typically before lease payments are due under the terms of the lease. Certain of the Company’s leases have renewal periods up to 40 years, exercisable at the Company’s option, and generally require the Company to pay property taxes, insurance and maintenance costs, in addition to the lease payments. At lease inception, the Company includes all renewals or option periods that are reasonably certain to exercise when determining the expected lease term, as failure to renew the lease would impose an economic penalty.
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Operating lease assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the expected lease term. To determine the present value of lease payments not yet paid, the Company estimates incremental borrowing rates based on the information available at lease commencement date, as rates are not implicitly stated in the Company’s leases.
Components of lease expense were as follows:
Three Months Ended October 31,
(In thousands)20232022
Operating lease expense$6,669 $6,860 
Finance lease expense:
Amortization of right-of-use assets5 7 
Interest on finance lease liabilities  
Short-term lease expense929 1,169 
Variable lease expense213 239 
Total lease expense$7,816 $8,275 

Supplemental cash flow information related to leases as of October 31, 2023 were as follows:
Three Months Ended October 31,
(In thousands)20232022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows related to operating leases$6,215 $6,635 
Operating cash flows related to finance leases  
Financing cash flows related to finance leases5 7 
Right-of-use assets obtained in exchange for new operating lease liabilities24,312 7,667 
Right-of-use assets obtained in exchange for new finance lease liabilities  
Leases - Lessor
The Company’s lessor arrangements include certain facilities and various land locations, of which each qualifies as an operating lease. Certain leases also contain escalation clauses and renewal option clauses calling for increased rents. Where a lease contains an escalation clause or a concession, such as a rent holiday or tenant improvement allowance, the Company includes these items in the determination of the straight-line rental income. The effects of these escalation clauses or concessions have been reflected in lease payments receivable on a straight-line basis over the expected lease term and any variable lease income subsequent to establishing the receivable will be recognized as earned.
The cost of the leased space as of October 31, 2023 and July 31, 2023 was $50.3 million and $51.2 million, respectively. The accumulated depreciation associated with the leased assets as of October 31, 2023 and July 31, 2023 was $3.9 million and $3.8 million, respectively. Both the leased assets and accumulated depreciation are included in Property and equipment, net on the consolidated balance sheet. Rental income from these operating leases was $4.4 million and $4.1 million for the three months ended October 31, 2023 and 2022, respectively.
NOTE 6 – Goodwill and Intangible Assets
The following table sets forth amortizable intangible assets by major asset class:
(In thousands)October 31, 2023July 31, 2023
Amortized intangibles:
Supply contracts and customer relationships$82,904 $84,614 
Trade names18,875 19,304 
Licenses and databases16,526 682 
Indefinite-lived intangibles:
Trade names:15,443 7,443 
Accumulated amortization(51,916)(49,341)
Intangibles, net$81,832 $62,702 
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Aggregate amortization expense on amortizable intangible assets was $3.1 million and $1.9 million for the three months ended October 31, 2023 and 2022, respectively.
The change in the carrying amount of goodwill was as follows:
(In thousands)
Balance as of July 31, 2023$394,289 
Acquisitions during the period113,063 
Effect of foreign currency exchange rates(6,426)
Balance as of October 31, 2023$500,926 
NOTE 7 – Long-Term Debt
Credit Agreement
On December 21, 2021, the Company entered into a Second Amended and Restated Credit Agreement by and among Copart, certain subsidiaries of Copart party thereto, the lenders party thereto, and Bank of America, N.A., as administrative agent (the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement amends and restates certain terms of the First Amended and Restated Credit Agreement, dated as of July 21, 2020, by and among Copart, the lenders party thereto, and Bank of America, N.A., as administrative agent (as successor in interest to Wells Fargo Bank, National Association) (the “Existing Credit Agreement”). The Second Amended and Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by $200.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Second Amended and Restated Credit Agreement (the “Revolving Loan Facility”) to $1,250.0 million, (b) an increase in the letter of credit sublimit from $60.0 million to $100.0 million, (c) addition of Copart UK Limited, CPRT GmbH and Copart Autos España, S.L.U., each a wholly-owned direct or indirect foreign subsidiary of Copart, as borrowers, (d) addition of the ability to borrow under the Second and Amended and Restated Credit Agreement in certain foreign currencies including Pounds Sterling, Euro and Canadian Dollars, (e) extension of the maturity date of the revolving credit facility under the Existing Credit Agreement from July 21, 2023 to December 21, 2026, (f) replacing the LIBOR interest rate applicable to U.S. Dollar denominated borrowings with a SOFR-based interest rate, and (g) changing the pricing levels with respect to the revolving loans as further described below.
The Second and Amended and Restated Credit Agreement provides for the Revolving Loan Facility of $1,250.0 million maturing on December 21, 2026 (including up to $550.0 million equivalent of borrowings in Pounds Sterling, Euro and Canadian Dollars) with a $150.0 million equivalent sub-facility available to CPRT GmbH, a $150.0 million equivalent sub-facility available to Copart Autos España, S.L.U. and a $250.0 million equivalent sub-facility available to Copart UK Limited. The proceeds may be used for general corporate purposes, including working capital and capital expenditures, potential share repurchases, acquisitions, or other investments relating to the Company’s expansion strategies in domestic and international markets.
Borrowings under the Second Amended and Restated Credit Agreement bear interest based on, at our option, either (1) the applicable fixed rate plus 1.00% to 1.75% or (2) the daily rate plus 0.0% to 0.75%, in each case, depending on Copart’s consolidated total net leverage ratio. Additionally, the unused revolving commitments under the Second Amended and Restated Credit Agreement are subject to the payment of a customary commitment fee at a range of 0.175% to 0.275%, depending on Copart’s consolidated total net leverage ratio. The applicable fixed rates described above with respect to borrowings denominated in (1) U.S. Dollars is SOFR plus certain “spread adjustments” described in the Second Amended and Restated Credit Agreement, (2) Pounds Sterling is SONIA plus certain “spread adjustments” described in the Second Amended and Restated Credit Agreement, (3) Euro is EURIBOR, and (4) Canadian Dollars is CDOR. The Company had $10.6 million and $11.0 million outstanding borrowings under the Revolving Loan Facility as of October 31, 2023 and July 31, 2023, respectively.
The Company’s obligations under the Second Amended and Restated Credit Agreement are guaranteed by certain of the Company’s domestic subsidiaries meeting materiality thresholds set forth in the Second Amended and Restated Credit Agreement. Such obligations, including the guaranties, are secured by substantially all of the assets of the Company and the assets of the subsidiary guarantors pursuant to a Security Documents Confirmation Agreement as part of the Second Amended and Restated Credit Agreement.
The Second Amended and Restated Credit Agreement contains customary affirmative and negative covenants, including covenants that limit or restrict the Company and its subsidiaries’ ability to, among other things, incur indebtedness, grant liens, merge or consolidate, dispose of assets, make investments, make acquisitions, enter into transactions with affiliates, pay dividends, or make distributions on and repurchase stock, in each case subject to certain exceptions. The Company is also required to maintain compliance, measured at the end of each fiscal quarter, with a consolidated total net leverage ratio and a consolidated interest coverage ratio. The Second Amended and Restated Credit Agreement contains no restrictions on the payment of dividends and other restricted payments, as defined, as long as (1) the consolidated total net leverage ratio, as defined, both before and after giving effect to any such dividend or restricted payment on a pro forma basis, is less than 3.25:1, in an unlimited amount, (2) if clause (1) is not available, so
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long as the consolidated total net leverage ratio both before and after giving effect to any such dividend on a pro forma basis is less than 3.50:1, in an aggregate amount not to exceed the available amount, as defined, and (3) if clauses (1) and (2) are not available, in an aggregate amount not to exceed $50.0 million; provided, that, minimum liquidity, as defined, shall be not less than $75.0 million both before and after giving effect to any such dividend or restricted payment. As of October 31, 2023, the consolidated total net leverage ratio was (1.37):1. Minimum liquidity available as of October 31, 2023 was $3.8 billion. Accordingly, the Company does not believe that the provisions of the Second Amended and Restated Credit Agreement represent a significant restriction to its ability to pay dividends or to the successful future operations of the business. The Company has not paid a cash dividend since becoming a public company in 1994. The Company was in compliance with all covenants related to the Second Amended and Restated Credit Agreement as of October 31, 2023.
Related to execution of the Second Amended and Restated Credit Agreement, the Company incurred $2.7 million in costs, which were capitalized as debt issuance fees. The debt discount is amortized to interest expense over the term of the respective debt instruments and is included in long-term debt and other liabilities on the consolidated balance sheet.
NOTE 8 – 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, 2023July 31, 2023
(In thousands)Carrying Value TotalFair Value TotalCarrying Value TotalFair Value Total
Assets
Cash equivalents$2,269,623 $2,275,103 $674,980 $677,515 
Investment in held to maturity securities48,982 49,713 1,406,589 1,414,903 
Total Assets$2,318,605 $2,324,816 $2,081,569 $2,092,418 
Liabilities
Long-term fixed rate debt, including current portion$10,578 $10,578 $11,006 $11,006 
Total Liabilities$10,578 $10,578 $11,006 $11,006 
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 classified within Level I of the fair value hierarchy.

During the three months ended October 31, 2023, no transfers were made between any levels within the fair value hierarchy.
NOTE 9 – 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)20232022
Weighted average common shares outstanding958,127 952,198 
Effect of dilutive securities13,555 12,138 
Weighted average common and dilutive potential common shares outstanding
971,682 964,336 
There were no material adjustments to net income required in calculating diluted net income per share. Excluded from the dilutive earnings per share calculation were 300,000 and 3,285,600 options to purchase the Company’s common stock for the three months ended October 31, 2023 and 2022, respectively, because their inclusion would have been anti-dilutive.
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NOTE 10 – Stock-based Compensation
The Company recognizes compensation expense for stock option awards without a market condition on a straight-line basis over the requisite service period of the award. The following is a summary of activity for the Company’s stock options for the three months ended October 31, 2023:
(In thousands, except per share and term data)SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (In years)Aggregate Intrinsic Value
Outstanding as of July 31, 202317,825 $15.47 4.67$512,045 
Grants of options  
Exercises(331)24.54 
Forfeitures or expirations  
Outstanding as of October 31, 202317,494 $15.30 4.44$493,722 
Exercisable as of October 31, 202315,132 $13.51 3.96$454,066 
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock. The number of options that were in-the-money was 23,413,866 at October 31, 2023.
The Company grants option awards to certain executives that contain service and market conditions. The options will become exercisable over five years, subject to continued service by the executive, with 20% vesting on the first anniversary of the grant date and the balance vesting monthly over the subsequent four years. Separate and apart from the time-based vesting schedule, the options are also subject to a market condition requiring the trading price of Copart, Inc. common stock on the NASDAQ Global Select Market to be greater than or equal to 125% of the exercise price of the options, determined both (i) at the time of any exercise, and (ii) based on the closing price on each of the twenty consecutive trading days preceding the date of any exercise. The exercise price of the options is equivalent to the closing price of the Company’s common stock on the grant date. The fair value of the awards is determined at the grant date using either Lattice or Monte Carlo model, risk-free interest rates ranging from 0.71% to 3.57%, estimated volatility ranging from 25.2% to 29.3%, and no expected dividends. The total estimated compensation expense to be recognized by the Company over the five-year service period for these options is $48.4 million and will be recognized using the accelerated attribution method over each vesting tranche of the award. The Company recognized $2.2 million and $3.2 million in compensation expense related to these awards in the three months ended October 31, 2023 and 2022, respectively.

The following is a summary of activity for the Company’s stock option awards subject to market conditions for the three months ended October 31, 2023:
(In thousands, except per share and term data)SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (In years)Aggregate Intrinsic Value
Outstanding as of July 31, 20235,920 $24.37 7.43$117,389 
Grants of options  
Exercises  
Forfeitures or expirations  
Outstanding as of October 31, 20235,920 $24.37 7.17$113,393 
Exercisable as of October 31, 20233,222 $22.76 6.87$66,880 

The table below sets forth the stock-based compensation recognized by the Company for stock options, restricted stock, and restricted unit awards:
Three Months Ended October 31,
(In thousands)20232022
General and administrative$6,951 $8,747 
Yard operations1,556 1,445 
Total stock-based compensation$8,507 $10,192 
Additionally, Purple Wave, Inc. maintains an equity-based compensation plan for certain executives. Compensation cost attributable to Purple Wave, Inc. equity-based compensation plan was $0.2 million and $0 included in stock based compensation for the three months ended October 31, 2023 and 2022, respectively.

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The Company’s restricted stock awards (“RSA”) and restricted stock unit awards (“RSU”) have generally been issued with vesting periods ranging from two years to five years and vest solely on service conditions. Accordingly, the Company recognizes compensation expense for RSA and RSU awards on a straight-line basis over the requisite service period of the award.

The following is a summary of activity for the Company’s RSA and RSU for the three months ended October 31, 2023:
(In thousands, except per share data)Restricted SharesWeighted Average Grant Date Fair Value
Outstanding as of July 31, 2023800 $31.77 
Grants   
Vested(50)28.35 
Forfeitures or expirations(5)31.92 
Outstanding as of October 31, 2023745 $32.00 
NOTE 11 – Stock Repurchases
On September 22, 2011, the Company’s Board of Directors approved a 320 million share increase in the 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 the Company deems appropriate and may be discontinued at any time. The Company did not repurchase any shares of its common stock under the program during the three months ended October 31, 2023 or 2022. As of October 31, 2023, 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.
NOTE 12 – Income Taxes
The Company’s effective income tax rates were 21.4% and 21.5% for the three months ended October 31, 2023 and 2022, respectively, which differs from the U.S. statutory rate of 21% primarily due to state income taxes, deduction for Foreign Derived Intangible Income, and excess tax benefits associated with equity-based compensation.
The Company applies the provisions of the accounting standard for uncertain tax positions to its income taxes. For benefits to be realized, a tax position must be more likely than not to be sustained upon examination. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.
The Company files income tax returns in the U.S. federal jurisdiction, various states and foreign jurisdictions. The Company is currently under examination by certain taxing authorities in the U.S. for fiscal years between 2016 and 2022. At this time, the Company does not believe that the outcome of any examination will have a material impact on the Company’s consolidated results of operations and financial position.
NOTE 13 – Legal Proceedings
The Company is subject to threats of litigation and is involved in actual litigation and damage claims arising in the ordinary course of business, such as actions related to injuries, property damage, contract disputes, and handling or disposal of vehicles. Except as otherwise noted in this Note 13, there are no material pending legal proceedings to which the Company is a party, or with respect to which any of the Company’s property is subject.

The Company provides for an accrual 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.

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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 members. In connection with this investigation, the Company received a letter from the DOJ in October 2023 in which they indicated the Company may have exposure as a result of potential violations to 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.
NOTE 14 – Segments and Other Geographic Reporting
The Company’s U.S. and International regions are considered two separate operating segments and are disclosed as two reportable segments. The segments represent geographic areas and reflect how the chief operating decision maker allocates resources and measures results, including total revenues and operating income.
The following table presents financial information by segment:
Three Months Ended October 31, 2023Three Months Ended October 31, 2022
(In thousands)United StatesInternationalTotalUnited StatesInternationalTotal
Service revenues$762,524 $97,012 $859,536 $651,657 $75,183 $726,840 
Vehicle sales78,382 82,498 160,880 97,192 69,340 166,532 
Total service revenues and vehicle sales840,906 179,510 1,020,416 748,849 144,523 893,372 
Yard operations349,594 58,907 408,501 326,244 46,533 372,777 
Cost of vehicle sales72,021 75,875 147,896 92,439 58,673 151,112 
General and administrative57,000 11,643 68,643 47,538 10,442 57,980 
Operating income$362,291 $33,085 $395,376 $282,628 $28,875 $311,503 
Depreciation and amortization$36,936 $6,228 $43,164 $34,935 $4,123 $39,058 
Capital expenditures and acquisitions216,131 40,542 256,673 136,283 16,372 152,655 

October 31, 2023July 31, 2023
(In thousands)United StatesInternationalTotalUnited StatesInternationalTotal
Total assets$6,410,493 $923,293 $7,333,786 $5,825,064 $912,815 $6,737,879 
Goodwill383,329 117,597 500,926 270,269 124,020 394,289 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless the context otherwise requires, references in this Form 10-Q to “Copart,” the “Company,” “we,” “us,” or “our” refer to Copart, Inc.
This Quarterly Report on Form 10-Q, including the information incorporated by reference herein, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements other than statements of historical facts are statements that could be deemed forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terminology. The forward-looking statements contained in this Form 10-Q involve known and unknown risks, uncertainties and situations that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. These forward-looking statements are made in reliance upon the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These factors include those listed in Part II, Item 1A. under the caption entitled “Risk Factors” in this Form 10-Q and those discussed elsewhere in this Form 10-Q. We encourage investors to review these factors carefully together with the other matters referred to herein, as well as in the other documents we file with the Securities and Exchange Commission (the “SEC”). We may from time to time make additional written and oral forward-looking statements, including statements contained in our filings with the SEC. We do not undertake to update any forward-looking statement that may be made from time to time by or on behalf of us.
Although we believe that, based on information currently available to us and our management, the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements.
Overview
We are a leading provider of online auctions and vehicle remarketing services with operations in the United States (“U.S.”), Canada, the United Kingdom (“U.K.”), Brazil, the Republic of Ireland, Germany, Finland, the United Arab Emirates (“U.A.E.”), Oman, Bahrain, and Spain.
Our goals are to generate sustainable profits for our stockholders, while also providing environmental and social benefits for the world around us. With respect to our environmental stewardship, we believe our business is a critical enabler for the global re-use and recycling of vehicles, parts, and raw materials. We are not responsible for the carbon emissions resulting from new vehicle manufacturing, governmental fuel emissions standards or vehicle use by consumers. Each vehicle that enters our business operations already exists, with whatever fuel technology and efficiency it was designed and built to have, and the substantial carbon emissions associated with the vehicle’s manufacture have already occurred. However, upon our receipt of an existing vehicle, we help decrease its total environmental impact by extending its useful life and thereby avoiding the carbon emissions associated with the alternative of new vehicle and auto parts manufacturing. For example, many of the cars we process and remarket are subsequently restored to drivable condition, reducing the new vehicle manufacturing burden the world would otherwise face. Many of our cars are purchased by dismantlers, who recycle and refurbish parts for vehicle repairs, again reducing new and aftermarket parts manufacturing. And finally, some of our vehicles are returned to their raw material inputs through scrapping, reducing the need for further new resource extraction. In each of these cases, our business reduces the carbon and other environmental footprint of the global transportation industry.
Beyond our environmental stewardship, we also support the world’s communities in two important ways. First, we believe that we contribute to economic development and well-being by enabling more affordable access to mobility around the world. For example, many of the automobiles sold through our auction platform are purchased for use in developing countries where affordable transportation is a critical enabler of education, health care, and well-being more generally. Secondly, because of the special role we play in responding to catastrophic weather events, we believe we contribute to disaster recovery and resilience in the communities we serve. For example, we mobilized our people, and engaged with a multitude of service providers to timely retrieve, store, and remarket tens of thousands of flood-damaged vehicles in South Florida in the wake of Hurricane Ian in the fall of 2022.
We provide vehicle sellers with a full range of services to process and sell vehicles primarily over the internet through our Virtual Bidding Third Generation internet auction-style sales technology, which we refer to as VB3. Vehicle sellers consist primarily of insurance companies, but also include banks, finance companies, charities, fleet operators, dealers, vehicle rental companies, and individuals. We sell the vehicles principally to licensed vehicle dismantlers, rebuilders, repair licensees, used vehicle dealers, exporters, and to the general public. The majority of the vehicles sold on behalf of insurance companies are either damaged vehicles deemed a total loss; not economically repairable by the insurance companies; or are recovered stolen vehicles for which an insurance settlement with the vehicle owner has already been made. We offer vehicle sellers a full range of services that help expedite each stage of the vehicle sales process, minimize administrative and processing costs, and maximize the ultimate sales price through the online auction process.
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In the U.S., Canada, Brazil, the Republic of Ireland, Finland, the U.A.E., Oman, and Bahrain, we sell vehicles primarily as an agent and derive revenue primarily from auction and auction related sales transaction fees charged for vehicle remarketing services as well as fees for services subsequent to the auction, such as delivery and storage. In the U.K., Germany, and Spain we operate both as an agent and on a principal basis, in some cases purchasing salvage vehicles outright and reselling the vehicles for our own account. In Germany and Spain, we also derive revenue from listing vehicles on behalf of insurance companies and insurance experts to determine the vehicle’s residual value and/or to facilitate a sale for the insured.
We monitor and analyze a number of key financial performance indicators in order to manage our business and evaluate our financial and operating performance. Such indicators include:
Service and Vehicle Sales Revenue: Our service revenue consists of auction and auction related sales transaction fees charged for vehicle remarketing services. These auction and auction related services may include a combination of vehicle purchasing fees, vehicle listing fees, and vehicle selling fees that can be based on a predetermined percentage of the vehicle sales price, tiered vehicle sales price driven fees, or at a fixed fee based on the sale of each vehicle regardless of the selling price of the vehicle; transportation fees for the cost of transporting the vehicle to or from our facility; title processing and preparation fees; vehicle storage fees; bidding fees; and vehicle loading fees. These fees are recognized as net revenue (not gross vehicle selling price) at the time of auction in the amount of such fees charged. Purchased vehicle revenue includes the gross sales price of the vehicles which we have purchased or are otherwise considered to own. We have certain contracts with insurance companies, primarily in the U.K., in which we act as a principal, purchasing vehicles and reselling them for our own account. We also purchase vehicles in the open market, primarily from individuals, and resell them for our own account.
Our revenue is impacted by several factors, including total loss frequency and the average vehicle auction selling price, as a significant amount of our service revenue is associated in some manner with the ultimate selling price of the vehicle. Vehicle auction selling prices are driven primarily by: (i) market demand for rebuildable, driveable vehicles; (ii) used car pricing, which we also believe has an impact on total loss frequency; (iii) end market demand for recycled and refurbished parts as reflected in demand from dismantlers; (iv) the mix of cars sold; (v) changes in the U.S. dollar exchange rate to foreign currencies, which we believe has an impact on auction participation by international buyers; (vi) restrictions within the global supply chain; and (vii) changes in commodity prices, particularly the per ton price for crushed car bodies, as we believe this has an impact on the ultimate selling price of vehicles sold for scrap and vehicles sold for dismantling. We cannot specifically quantify the financial impact that commodity pricing, used car pricing, and product sales mix has on the selling price of vehicles, our service revenues, or financial results. Total loss frequency is the percentage of cars involved in accidents that insurance companies salvage rather than repair and is driven by the relationship between repair costs used car values, and auction returns. Over the past 30 years we believe there has been an increase in overall growth in the salvage market driven by an increase in total loss frequency. This increase in total loss frequency may have been driven by changes in used car values and repair costs over the same long-term horizon, which we believe are generally trending upward. Recently we have noted fluctuations in total loss frequency. Nonetheless, we believe the long-term trend of increases in total loss frequency will continue. In the near term changes in used car prices and repair cost, are inversely related but may impact total loss frequency and thereby affect our growth rate. Used car values are determined by many factors, including used car supply, which is tied directly to new car sales, and the average age of cars on the road. The average age of cars on the road has continued to increase, growing from 9.7 years in 2003 to 12.5 years in 2023. Repair costs are generally based on damage severity, vehicle complexity, repair parts availability, repair parts costs, labor costs, and repair shop lead times. The factors that can influence repair costs, used car pricing, and auction returns are many and varied and we cannot predict their movements with precision.
Operating Costs and Expenses: Yard operations expenses consist primarily of operating personnel (which includes yard management, clerical, and yard employees); rent; vehicle transportation; insurance; property related taxes; fuel; equipment maintenance and repair; marketing costs directly related to the auction process; and costs of vehicles sold under the purchase contracts. General and administrative expenses consist primarily of executive management; accounting; data processing; sales personnel; professional services; marketing expenses; and system maintenance and enhancements.
Other Income and Expense: Other income consists primarily of interest income on T-bills, foreign exchange rate gains and losses; gains and losses from the disposal of assets, which will fluctuate based on the nature of these activities each period; fees and interest expense on the credit facility, and earnings from unconsolidated affiliates.
Liquidity and Cash Flows: Our primary source of working capital is cash operating results. The primary source of our liquidity is our cash and cash equivalents and Revolving Loan Facility. The primary factors affecting cash operating results are: (i) seasonality; (ii) market wins and losses; (iii) supplier mix; (iv) accident frequency; (v) total loss frequency; (vi) volume from our existing suppliers; (vii) commodity pricing; (viii) used car pricing; (ix) foreign currency exchange rates; (x) product mix; (xi) contract mix to the extent applicable; (xii) our capital expenditures; and (xiii) other macroeconomic factors. These factors are further discussed in the Results of Operations and Risk Factors sections of this Quarterly Report on Form 10-Q.
Potential internal sources of additional working capital and liquidity are the sale of assets or the issuance of shares through option exercises and shares issued under our Employee Stock Purchase Plan. A potential external source of additional working capital and liquidity is the issuance of additional debt or equity. However, we cannot predict if these sources will be available in the future or on commercially acceptable terms.
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Acquisitions and New Operations
As part of our overall expansion strategy of offering integrated services to vehicle sellers, we anticipate acquiring and developing facilities in new regions, as well as the regions currently served by our facilities. We believe that these acquisitions and openings will strengthen our coverage, as we have facilities located in the U.S., Canada, the U.K., Brazil, the Republic of Ireland, Germany, Finland, the U.A.E., Oman, Bahrain, and Spain with the intention of providing global coverage for our sellers.
The following tables set forth operational facilities that we have opened and are now operational from August 1, 2022 through October 31, 2023:
United States LocationsGeographic Service AreaDate
AnchorageAlaskaAugust 2022
Rapid CitySouth DakotaAugust 2022
Kansas CityMissouriSeptember 2022
GrenadaMississippiJanuary 2023
WindhamNew EnglandMarch 2023
Las Vegas WestNevadaJune 2023
AkronOhioJuly 2023
WaylandMichiganJuly 2023
RutlandVermontAugust 2023
International LocationsGeographic Service AreaDate
Brasília, BrazilBrazilSeptember 2022
Büdingen, HesseGermanyJanuary 2023
Ottawa, OntarioCanadaFebruary 2023
Corby, EnglandUnited KingdomOctober 2023
In October 2023 the Company acquired a controlling interest in Purple Wave, Inc., an online offsite heavy equipment auction company.
The period-to-period comparability of our consolidated operating results and financial position is affected by business acquisitions, new openings, weather and product introductions during such periods.
In addition to growth through business acquisitions, we seek to increase revenues and profitability by, among other things, (i) acquiring and developing additional vehicle storage facilities in key markets, including foreign markets; (ii) pursuing global, national, and regional vehicle seller agreements; (iii) increasing our service offerings; and (iv) expanding the application of VB3 into new markets. In addition, we implement our pricing structure and auction procedures, and attempt to introduce cost efficiencies at each of our acquired facilities by implementing our operational procedures, integrating our management information systems, and redeploying personnel, when necessary.
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Results of Operations
The following table shows certain data from our consolidated statements of income expressed as a percentage of total service revenues and vehicle sales for the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
(In percentages)20232022
Service revenues and vehicle sales:
Service revenues84 %81 %
Vehicle sales16 %19 %
Total service revenues and vehicle sales100 %100 %
Operating expenses:
Yard operations40 %42 %
Cost of vehicle sales14 %17 %
General and administrative%%
Total operating expenses61 %65 %
Operating income39 %35 %
Other income (expense)%— %
Income before income taxes42 %35 %
Income taxes%%
Net income33 %27 %
Comparison of the Three Months Ended October 31, 2023 and 2022
The following table presents a comparison of service revenues for the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
(In thousands)20232022Change% Change
Service revenues
United States$762,524 $651,657 $110,867 17.0 %
International97,012 75,183 21,829 29.0 %
Total service revenues$859,536 $726,840 $132,696 18.3 %
Service Revenues. The increase in service revenues during the three months ended October 31, 2023 of $132.7 million, or 18.3%, as compared to the same period last year resulted from (i) an increase in the U.S. of $110.9 million and (ii) an increase in International of $21.8 million. The growth in the U.S. was driven primarily by (i) an increase in volume and (ii) an increase in revenue per car due to a change in a mix of vehicles sold, fee optimization, and continued restrictions within the global supply chain for automobiles. The growth in International, after excluding positive fluctuations in currency exchange rates of $5.7 million, was driven primarily by an increase in volume offset by a minor decrease in revenue per car.
The following table presents a comparison of vehicle sales for the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
(In thousands)20232022Change% Change
Vehicle sales
United States$78,382 $97,192 $(18,810)(19.4)%
International82,498 69,340 13,158 19.0 %
Total vehicle sales$160,880 $166,532 $(5,652)(3.4)%
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Vehicle Sales. The decrease in vehicle sales for the three months ended October 31, 2023 of $5.7 million, or 3.4%, as compared to the same period last year, resulted from (i) a decrease in the U.S. of $18.8 million and (ii) an increase in International of $13.2 million. The decrease in the U.S. was primarily driven by (i) a decrease in revenue per car due to lower auction selling prices, which we believe is due to change in mix of vehicles sold, and (ii) a decrease in volume as a result of a proactive approach to mitigate principle unit exposure. The growth in international, after excluding positive fluctuations in currency exchange rates of $5.9 million, was primarily driven by an increase in revenue per car due to higher auction selling prices, which we believe is due to a change in mix of vehicles sold.
The following table presents a comparison of yard operations expenses for the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
(In thousands)20232022Change% Change
Yard operations expenses
United States$349,594 $326,244 $23,350 7.2 %
International58,907 46,533 12,374 26.6 %
Total yard operations expenses$408,501 $372,777 $35,724 9.6 %
Yard operations expenses, excluding depreciation and amortization
United States$316,478 $295,850 $20,628 7.0 %
International52,920 42,567 10,353 24.3 %
Yard depreciation and amortization
United States$33,116 $30,394 $2,722 9.0 %
International5,987 3,966 2,021 51.0 %
Yard Operations Expenses. The increase in yard operations expense for the three months ended October 31, 2023 of $35.7 million, or 9.6%, as compared to the same period last year resulted from (i) an increase in the U.S. of $23.4 million, and (ii) an increase in International of $12.4 million. The increase in the U.S. compared to the same period last year relates to an increase in volume which is offset by a decrease in cost to process a car which is primarily the result of the first quarter of fiscal year 2023 bearing the associated cost of Hurricane Ian of $25 million. The increase in International, after excluding negative fluctuations in currency exchange rate of $3.2 million, is the result of an increase in volume which is offset by a decrease in cost to process a car. Included in yard operations expenses were depreciation and amortization expenses. The increase in yard operations depreciation and amortization expenses during the three months ended October 31, 2023 as compared to the same period last year resulted primarily from depreciating new and expanded facilities placed into service in the U.S.
The following table presents a comparison of cost of vehicle sales for the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
(In thousands)20232022Change% Change
Cost of vehicle sales
United States$72,021 $92,439 $(20,418)(22.1)%
International75,875 58,673 17,202 29.3 %
Total cost of vehicle sales$147,896 $151,112 $(3,216)(2.1)%
Cost of Vehicle Sales. The decrease in cost of vehicle sales for the three months ended October 31, 2023 of $3.2 million, or 2.1%, as compared to the same period last year resulted from (i) a decrease in the U.S. of $20.4 million and (ii) an increase in International of $17.2 million. The decrease in the U.S. was primarily the result of a decrease result of lower average purchase price due to change in mix of vehicles sold and decrease in volume. The increase in International of $17.2 million, after excluding the negative fluctuations of currency exchange rates of $5.5 million, was primarily due to higher average purchase prices due to the change in mix of vehicles sold.

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The following table presents a comparison of general and administrative expenses for the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
(In thousands)20232022Change% Change
General and administrative expenses
United States$57,000 $47,538 $9,462 19.9 %
International11,643 10,442 1,201 11.5 %
Total general and administrative expenses$68,643 $57,980 $10,663 18.4 %
General and administrative expenses, excluding depreciation and amortization
United States$53,180 $42,997 $10,183 23.7 %
International11,402 10,286 1,116 10.8 %
General and administrative depreciation and amortization
United States$3,820 $4,541 $(721)(15.9)%
International241 156 85 54.5 %
General and Administrative Expenses. The increase in general and administrative expenses for the three months ended October 31, 2023 of $10.7 million, or 18.4%, as compared to the same period last year resulted from (i) an increase in the U.S of $9.5 million and (ii) an increase in International of $1.2 million. Excluding depreciation and amortization, the increase in the U.S. of $10.2 million resulted primarily from increases in labor costs, and legal costs offset by a decrease in stock compensation. The increase in International of $1.1 million, after excluding the negative fluctuations in currency exchange rates of $0.6 million, resulted primarily from increase in labor costs offset by decrease in legal costs and bank charges. Depreciation and amortization expenses for the three months ended October 31, 2023 as compared to the same period last year declined slightly driven from fully depreciating certain intangible and technology assets in the U.S. and international locations.
The following table summarizes total other expense for the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
(In thousands)20232022Change% Change
Total other income $27,933 $1,600 $26,333 1,645.8 %
Other Expense. The increase in total other income for the three months ended October 31, 2023 of $26.3 million as compared to the same period last year was primarily due to higher interest income earned from T-bills and realized foreign currency gains offset by losses from equity method investments.
The following table summarizes income taxes for the three months ended October 31, 2023 and 2022:
Three Months Ended October 31,
(In thousands)20232022Change% Change
Income taxes90,777 67,255 23,522 35.0 %
Income Taxes. Our effective income tax rates were 21.4% and 21.5% for the three months ended October 31, 2023 and 2022, respectively. The effective tax rates in the current and prior year were impacted by the recognition of excess tax benefits from stock-based compensation. The recognition of excess tax benefits from the exercise of employee stock options is $0.8 million and $0.6 million for the three months ended October 31, 2023 and 2022, respectively.
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Liquidity and Capital Resources
The following table presents a comparison of key components of our liquidity and capital resources at October 31, 2023 and July 31, 2023 and for the three months ended October 31, 2023 and 2022, respectively, excluding additional funds available to us through our Revolving Loan Facility:
(In thousands)October 31, 2023July 31, 2023Change% Change
Cash, cash equivalents, and restricted cash$2,581,567 $957,395 $1,624,172 169.6 %
Working capital2,960,473 2,769,835 190,638 6.9 %
Three Months Ended October 31,
(In thousands)20232022Change% Change
Operating cash flows$375,246 $311,559 $63,687 20.4 %
Investing cash flows1,235,325 (152,470)1,387,795 910.2 %
Financing cash flows7,407 759 6,648 875.9 %
Capital expenditures and acquisitions$(256,673)$(152,655)$(104,018)(68.1)%

Cash, cash equivalents, and restricted cash and working capital increased $1,624.2 million and $190.6 million at October 31, 2023, respectively, as compared to July 31, 2023. Cash, cash equivalents, and restricted cash increased primarily due to proceeds from the sale of held to maturity securities of $1,380 million and cash generated from operations 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 and payments, partially offset by capital expenditures, certain income tax benefits related to stock option exercises, 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 Notes to Unaudited Consolidated Financial Statements, Note 7 – Long-Term Debt and Note 11 – Stock Repurchases 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 tornadoes, hurricanes, 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 be required to 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 yards 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, 2023, $151.4 million of the $2.6 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 still be subject to the foreign withholding tax following the U.S. Tax Reform. 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, 2023 as compared to the same period in 2022 due to higher volume. 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 $56.8 million and an increase in deferred revenue of $1.7 million. This is offset by a cash used by increase of inventory of $7.7 million, an increase of prepaid assets of $5.2 million and a decrease of income tax receivable of $38.5 million.
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Net cash provided by investing activities increased for the three months ended October 31, 2023 as compared to the same period in 2022 due primarily to the sale of held to maturity investments offset by increased 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 yard equipment. We continue to develop, expand and invest in new and existing facilities.
Net cash provided by financing activities increased for the three months ended October 31, 2023 as compared to the same period in 2022 due primarily to an increase in proceeds from the exercise of stock options.
Credit Agreement
On July 21, 2020, we entered into a First Amended and Restated Credit Agreement with Wells Fargo Bank, National Association, Truist Bank (as successor by merger to Suntrust Bank), BMO Harris Bank N.A., Santander Bank, N.A., and Bank of America, N.A., as administrative agent (as amended from time to time, the “Credit Agreement”), bringing the aggregate principal amount of the revolving credit commitments under the Credit Agreement ( the “Revolving Loan Facility”) to $1,050.0 million.
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 amends and restates certain terms of the First Amended and Restated Credit Agreement, dated as of July 21, 2020, by and among Copart, the lenders party thereto, and Bank of America, N.A., as administrative agent (as successor in interest to Wells Fargo Bank, National Association) (the “Existing Credit Agreement”). The Second Amended and Restated Credit Agreement provides for, among other things, (a) an increase in the secured revolving credit commitments by $200.0 million, bringing the aggregate principal amount of the revolving credit commitments under the Second Amended and Restated Credit Agreement (the “Revolving Loan Facility”) to $1,250.0 million, (b) an increase in the letter of credit sublimit from $60.0 million to $100.0 million, (c) addition of Copart UK Limited, CPRT GmbH and Copart Autos España, S.L.U., each a wholly-owned direct or indirect foreign subsidiary of Copart, as borrowers, (d) addition of the ability to borrow under the Second and Amended and Restated Credit Agreement in certain foreign currencies including Pounds Sterling, Euro and Canadian Dollars, (e) extension of the maturity date of the revolving credit facility under the Existing Credit Agreement from July 21, 2023 to December 21, 2026, (f) replacing the LIBOR interest rate applicable to U.S. Dollar denominated borrowings with a Secured Overnight Financing Rate (“SOFR”) interest rate, and (g) changing the pricing levels with respect to the revolving loans as further described below.
We had $10.6 million and $11.0 million outstanding borrowings under the Revolving Loan Facility as of October 31, 2023 and July 31, 2023, respectively. 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, 2023.
Stock Repurchases
On September 22, 2011, our Board of Directors approved a 320 million share increase in the 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, 2023 or 2022. As of October 31, 2023, 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. On an ongoing basis, we evaluate our estimates, including costs related to vehicle pooling costs; income taxes; stock-based compensation; and contingencies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. 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, 2023 filed with the SEC on September 28, 2023. 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.
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Contractual Obligations and Commitments
There have been no material changes during the three months ended October 31, 2023 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, 2023, filed with the SEC on September 28, 2023.
Off-Balance Sheet Arrangements
As of October 31, 2023, we had no off-balance sheet arrangements other than a letter of credit and our funding commitments pursuant to surety bonds, none of which have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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, 2023, filed with the SEC on September 28, 2023.
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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, or Controls Evaluation, was performed under the supervision and with the participation of management, including our Co-Chief Executive Officer (“Co-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 Co-CEO and CFO, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Based upon the Controls Evaluation, our Co-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 Co-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 Securities and Exchange Commission.
Changes in Internal Control Over Financial Reporting
There have not been any changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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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 13 – Legal Proceedings included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
Set forth below and elsewhere in this Quarterly Report on Form 10-Q and in other documents we file with the SEC are descriptions of the risks and uncertainties that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this Quarterly Report on Form 10-Q. The descriptions below include any material changes to and supersede the description of the risk factors affecting our business previously disclosed in “Part I, Item 1A, Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended July 31, 2023.
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 the three months ended October 31, 2023, 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 Europe, Brazil, and the Middle East expose us to risks arising from operating in international markets. Any failure to successfully integrate businesses acquired or 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, and an acquisition in Finland in fiscal 2018, and a parts recycler in the U.K. in fiscal 2022. In addition, 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 yards 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. For example, although we continue to operate a technology and operations center in India for administrative support, we decided to suspend our salvage operations in India in fiscal 2018, until the Indian market develops in a manner better suited to our business model, which did not have a material effect on our consolidated results of operations and financial position.
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.
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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:
•    the difficulty of managing and staffing foreign offices;
•    the increased travel, infrastructure, and legal compliance costs associated with multiple international locations;
•    the need to localize our mix of product and service offerings in response to customer requirements, particularly the need to implement our online auction platform in foreign countries;
•    the need to comply with complex foreign and U.S. laws and regulations that apply to our international operations;
•    tariffs, trade barriers, trade disputes, and other regulatory or contractual limitations on our ability to operate in certain foreign markets;
•    exposure to foreign currency exchange rate risk, which may have an adverse impact on our revenues and revenue growth rates;
•    adapting to different business cultures, languages, and market structures, particularly where we seek to implement our auction model in markets where insurers have historically not played a substantial role in the disposition of salvage vehicles;
•    repatriation of funds currently held in foreign jurisdictions to the U.S., which may result in higher effective tax rates;
•    military conflicts, including the Russian invasion of Ukraine and recent events in the Middle East;
•    public health issues, including but not limited to the COVID-19 pandemic;
•    environmental issues;
•    natural and man-made disasters; and
•    political issues.
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 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 yards 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
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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 yards in that area may fill and limit our ability to accept additional salvage vehicles while we process existing inventories. For example, Hurricane Ida had, in certain quarters, an adverse effect on our operating results, in part because of yard 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 yards. We may not be able to reach agreements to purchase independent storage facilities in markets where we have limited excess capacity, and zoning restrictions or difficulties obtaining use permits may limit our ability to expand our capacity through acquisitions of new land. Failure to have sufficient capacity at one or more of our yards 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. For example, in fiscal 2021, we opened one new operational facility in Germany, one new operational facility in Spain, ten new operational facilities in the U.S., and acquired an operational facility in Des Moines, Iowa. In fiscal 2022, we opened one new operational facility in Canada, one new operational facility in Spain, and five new operational facilities in the U.S. 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. To date, in fiscal 2024, we have opened one new operational facility in the U.K. and one new operational facility in the U.S. As for strategic acquisitions of complementary businesses, we acquired National Powersport Auctions in fiscal 2017, and in fiscal 2022 we acquired Hills Motors (“Hills”) a used, or “green” parts recycler in the U.K. that has four operating facilities. In fiscal year 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 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:
•    continue to acquire additional facilities on favorable terms;
•    expand existing facilities in no-growth regulatory environments;
•    obtain or retain buyers, sellers, and sales volumes in new markets or facilities;
•    increase revenues and profitability at acquired and new facilities;
•    maintain the historical revenue and earnings growth rates we have been able to obtain through facility openings and strategic acquisitions;
•    create new vehicle storage facilities that meet our current revenue and profitability requirements; or
•    obtain necessary regulatory approvals under applicable antitrust and competition laws.
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:
•    hire, train and manage additional qualified personnel;
•    establish new relationships or expand existing relationships with vehicle sellers;
•    identify and acquire or lease suitable premises on competitive terms;
•    secure adequate capital;
•    identify productive uses for available capital reserves; and
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•    maintain the supply of vehicles from vehicle sellers.
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.
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, only a portion of which are referred to as inventory, 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 2023, we recognized substantial additional costs associated with Hurricane Ian. Weather events have had, in certain quarters, an adverse effect on our operating results, in part because of yard 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.
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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 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 United States, 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, our current focus on the German market heightens the risks we face relating to our expansion plans in Germany.
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 United States, 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 (“FCPA”), 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.
In addition, certain acquisitions in the U.K. may be reviewed by the CMA. If an inquiry is made by the CMA, we may be required to demonstrate that our acquisitions will not result, or be expected to result, in a substantial lessening of competition in the U.K. market. Although we believe that there will not be a substantial lessening of competition in U.K. market, based on our analysis of the relevant the U.K. markets, there can be no assurance that the CMA will agree with us if it decides to make an inquiry. If the CMA determines that by our acquisitions of certain assets, there is or likely will be a substantial lessening of competition in the U.K. market, we could be required to divest some portion of our U.K. assets. In the event of a divestiture order by the CMA, the assets disposed
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may be sold for substantially less than their carrying value. Accordingly, any divestiture could have a material adverse effect on our operating results in the period of the divestiture.
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.
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 in some international situations. 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.
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 (“CCPA”), the California Privacy Act (“CPRA”), the Colorado Privacy Act (“CPA”), the Virginia Consumer Data Protection Act (“VCDPA”) and the Brazilian General Data Protection Law (“LGPD”), were also recently enacted and became effective in 2020 and these laws create new data privacy rights for individuals. Complying with the GDPR, the CCPA, the CPRA, the CPA, the VCDPA, 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 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 13 — 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 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 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
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