Copart, Inc. · NASDAQ:CPRT
Copart — Investor Presentation (April 2016)
51 slides from Copart's investor presentation, April 2016
Slide 1: Copart Informational Supplement
Copart Informational Supplement April 2016
Slide 2: Safe Harbor
Safe Harbor This presentation contains forward-looking statements that are based on management’s current expectations and beliefs and are subject to a number of risks, uncertainties and assumptions that could cause actual results to differ materially from those described. All statements, other than
Slide 3: Highlights
Highlights Investment Thesis • Profitable, growing industry with positive underlying drivers – miles driven, fleet age, vehicle complexity, salvage rates • Demonstrated ability to grow the business internationally • Limited exposure to economic cycles • Cash flow generation • Consistent returns on i
Slide 4: Key Questions
Key Questions Accident Avoidance / Self-Driving Technologies • Accident rate has declined moderately in the past, but has increased in recent years • Future effect of new safety technologies is mitigated by the size of the installed base – 250mm+ base vs. 15mm – 17mm annual units – and by consumer b
Slide 5: Domestic Revenue
DOMESTIC REVENUE
Slide 6: The Salvage Equation
The Salvage Equation Inputs • Pre-accident vehicle value (PAV) • Repair cost • Supplemental costs (rental) • Salvage value of damaged car Equation • If PAV minus repair and supplemental costs is greater than salvage value, the vehicle is repaired. • If PAV minus repair costs is less than salvage val
Slide 7: Demand Drivers
Demand Drivers Accident Rate Miles Driven x x Salvage Rates / Mile - Population - Road congestion - Aging fleet - Low Fuel Prices - Distracted driving - Vehicle complexity - CAFE standards (aluminum/composites) - Body shop consolidation - Unemployment - Technology (ABS, etc.) - Low scrap values - Re
Slide 8: Steady Increase in Miles Driven Over Time
Steady Increase in Miles Driven Over Time 4,000 3,500 3,137 3,012 3,039 2,975 3,028 2,958 2,989 2,959 2,966 2,942 2,975 2,986 3,000 2,851 2,886 2,750 2,784 2,674 2,616 2,555 2,474 2,500 2,423 2,351 2,291 2,239 2,146 2,168 2,104 2,016 2,000 1,500 1,000 500 - 1988 1989 1990 1991 1992 1993 1994 1995 19
Slide 9: Accident Rates Declined Gradually in the Past, But Have Increased Since 2011
Accident Rates Declined Gradually in the Past, But Have Increased Since 2011 Crash Rate per Million Miles Driven 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Source: NHTSA “Smartphone penetration has also coincided with a significant uptick in social media usage and texting activity, and according to the National Sa
Slide 10: Substantial Historical Increase in Vehicle Age, Projected to Remain Elevated
Substantial Historical Increase in Vehicle Age, Projected to Remain Elevated Mean Vehicle Age (Historical and Forecasted) 12 11.5 11.6 11.4 11.5 11.5 11.5 11.5 11.2 10.9 11 11 10.6 10.3 10 10.1 9.8 9.8 9.9 10 9.6 9.7 8.8 8.8 8.9 8.9 9 8.6 8.5 Years 8.4 8 7 6 5 Source: Jefferies estimates, AutoCare A
Slide 11: Growth in Population of Very Old Vehicles Projected to Continue
Growth in Population of Very Old Vehicles Projected to Continue Vehicle 11+ Year Total Millions 140 133.4 130.9 127.4 123.6 118.4 120 113.2 107.5 103.5 97.8 100 91.5 92.8 87.3 89.9 80 60 40 20 - 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E Source: Jefferies estimates, AutoCar
Slide 12: Older Vehicles More Prone to Salvage
Older Vehicles More Prone to Salvage Salvage Rate by Vehicle Age 25% 22.6% 20% 15% 10% 9.2% 5.0% 5% 3.3% 0% Current Model Year 1-3 Yrs 4-6 Yrs 7+ Yrs Source: CCC 2014 Crash Report; excludes vehicles for which no appraisal was written (CCC estimates additional 5% on average) 12
Slide 13: Growth in Repair Costs and Consolidation Among Repair Providers
Growth in Repair Costs and Consolidation Among Repair Providers Rolling Twelve Month Avg Repair Cost 3,200 3,000 2,800 Consolidation of Collision Repair Shops 2,600 70 65.0 Thousands 2,400 60 52.0 2,200 50 45.0 43.0 41.5 39.5 40 37.7 36.8 2,000 35.2 34.4 33.5 30 Source: Mitchell International, Jeffe
Slide 14: Federal CAFE Standards Accelerating, Increased Use of Aluminum and Composites
Federal CAFE Standards Accelerating and Will Compel Increased Use of Aluminum and Composites—With Higher Repair Costs and Salvage Rates as a Result Fleet MPG 60 52 50 40 Front and Rear Repair Cost Estimate 30 (10mph) 20 5,000 4,738 18 4,500 4,147 10 3,759 4,000 3,500 3,275 0 1978 1980 1982 1984 1986
Slide 15: Ongoing Increase in Vehicle Complexity Raises Repair Costs
Ongoing Increase in Vehicle Complexity Raises Repair Costs Parts per Repair by Model Year, Honda Accord 14 12.5 12 11.6 10.0 10 8 Microprocessors per Vehicle 6 70 60 4 60 2 50 0 40 2003-2007 2008-2012 2013 30 Source: CCC Crash Report 2015 20 15 10 0 2005 2015 Source: CCC Crash Report 2015 15
Slide 16: Salvage Rate has Increased Steadily
Salvage Rate has Increased Steadily Vehicle Salvage Rate % 25.0% 20.0% 19.3% 15.0% 14.4% 13.4% 13.0% 13.5% 13.7% 14.0% 13.8% 13.8% 14.0% 12.9% 14.3% 12.1% 11.3% 10.6% 10.0% 8.5% 5.0% 0.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Vehicle Salvage Rate Non-Appraised Sa
Slide 17: 20/20/20
20/20/20 To address projected demand, Copart intends to pursue: • 20 expansions + 20 new yards in 20 months • Approximately $100mm of related capital expenditures in calendar 2016 17
Slide 18: International Growth
INTERNATIONAL GROWTH
Slide 19: UK Case Study
UK Case Study June-August: Acquired Universal March: Salvage and February: Majority of Early 2013: Century Acquired business Copart sells 1 2014 – 2015: Salvage to Simpson converted millionth car Three facilities August 2016: bring Copart Brothers and from principal in the UK expand via Newbury faci
Slide 20: Additional International Markets
Additional International Markets Car Parc Comparison 300 Near-term Priorities: Millions - Germany 250 - Brazil - Spain 200 Long-term Strategic Investments 150 - China - India 100 50 - India UK Brazil China Eurozone United States Eurozone New Mkt United States Legacy Mkt Source: Copart analysis 20
Slide 21: Barriers to Entry
BARRIERS TO ENTRY
Slide 22: Barriers to Entry: Robust Buyer Base for US Auctions
Barriers to Entry: Robust Buyer Base for US Auctions New Member Registrations 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2012 2013 2014 2015 22
Slide 23: Barriers to Entry: Domestic Yards
Barriers to Entry: Domestic Yards US Yards 160 140 120 100 80 60 40 20 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 23
Slide 24: Barriers to Entry: 150+ permitted yards in the United States
Barriers to Entry: 150+ permitted yards in the United States Requirements: - Proximity to major metro areas - Permitted zoning for storing salvage vehicles - Multiple yards across a region to provide required scale to sellers Example: - In Southern California, pursued plot of land for 20+ years 24
Slide 25: Yard 30: 1983 Montauk Highway (NYC)
Yard 30: 1983 Montauk Highway (NYC) Background: - 50 acres, 50 miles from New York City - Approximately 5,000 units in inventory 25
Slide 26: Yard 36: 1475 Bluff City Blvd (Chicago)
Yard 36: 1475 Bluff City Blvd (Chicago) Background: - 42 acres, 25 miles from Chicago - Approximately 7,500 units in inventory 26
Slide 27: Yard 43: 7519 Woodman Ave (Los Angeles)
Yard 43: 7519 Woodman Ave (Los Angeles) Background: - 40 acres, within Los Angeles city limits - Approximately 6,000 units in inventory 27
Slide 28: Barriers to Entry: Process Complexity
Barriers to Entry: Process Complexity Systems • Manage online auction platform to process 200,000+ bids per week • Provide dynamic reporting to sellers Capacity • Absorb demand spikes from natural disasters – e.g., $26mm in extraordinary expenditures during Hurricane Sandy in FY13 Logistics • Manage
Slide 29: Copart Technology Timeline
Copart Technology Timeline 1982: 2003: Founder 1997: Introduced 2013: Willis Copart 1999: VB2 and Launched iOS Johnson buys Auction Pioneered transitioned 2007: app for mobile first auction System (CAS) online vehicle to online Deployed CAS bidding facility Launched images only bidding in UK 1982 19
Slide 30: Key Questions: Accident Avoidance Tech/Self-Driving Cars
KEY QUESTIONS: ACCIDENT AVOIDANCE TECH/SELF-DRIVING CARS
Slide 31: Even at 100% Penetration, Collision Avoidance Expected to Reduce Accidents by 10%-15%
Even at 100% Penetration, Collision Avoidance Technologies Expected to Reduce Accidents by 10% - 15% “If all vehicles had been equipped with autobrake that worked as well as the systems studied, there would have been at least 700,000 fewer police-reported rear-end crashes in 2013. That number repres
Slide 32: Complete Penetration of New Technologies Likely a Multiple-Decade Process
Complete Penetration of New Technologies Likely a Multiple-Decade Process % of Fleet With New Technology Over Time 100% 90% Note: Autonomous forward 80% braking offered as standard 70% on 1% of new vehicle models Source IIHS, August 2015 60% 50% Assumptions: - 256mm car parc (fixed) 40% - 17mm new c
Slide 33: Consumer Resistance to Adoption of Accident Avoidance Mitigates Effectiveness
Consumer Resistance to Adoption of Accident Avoidance Mitigates Effectiveness of Technology “…Only a third of vehicles had lane departure warning activated…vehicle owners found lane departure warning more annoying than other crash avoidance technologies…They also may help explain why studies so far
Slide 34: Autonomous Cars Not Yet Surpassing Human Driving Abilities
Autonomous Cars Not Yet Surpassing Human Driving Abilities “The self-driving car, that cutting-edge creation that’s supposed to lead to a world without accidents, is achieving the exact opposite right now: The vehicles have racked up a crash rate double that of those with human drivers. Google has a
Slide 35: Security Concerns Represent a Barrier to Widespread Adoption
Security Concerns Represent a Barrier to Widespread Adoption “Direct attacks are possible in both theory and practice, as was demonstrated when two “white hat” hackers (computer-adept individuals who use their advanced skills to render hardware and software more, not less, secure) used a cellular ba
Slide 36: Repair Costs Expected to Be Higher for Self-Driving Cars
Repair Costs Are Expected to Be Higher for Self-Driving Cars; Increased Severity a Natural Offset to Reduced Frequency Insurer Response: “How Do You Think the Cost of Vehicle Parts Replacement Will Change Due to Driverless Vehicles? 80% 71% 70% 60% 50% 40% 30% 19% 20% 10% 10% 0% Increase Stay the Sa
Slide 37: Financials
FINANCIALS
Slide 38: Same Store Sales Have Grown in 9 of Past 10 Years (North America Only)
Same Store Sales Have Grown in 9 of Past 10 Years (North America Only) YoY Same Store Sales Growth (FY Revenue) Drivers 18.00% - Unit volume 15.9% 16.00% - Used car prices - Scrap values 14.00% 13.3% - FX 11.7% 12.00% - Fee schedule 10.5% 10.00% 8.6% 8.00% 6.8% Avg: 6.7% 6.00% 5.4% 4.00% 2.8% 2.8% 2
Slide 39: Consistent Growth with Limited Exposure to Economic Cycles
Consistent Growth with Limited Exposure to Economic Cycles Revenue Net Income 1,600 $mm $mm 1,400 250 220 1,163 1,146 1,200 1,046 200 182 180 179 166 1,000 872 924 157 141 152 785 743 773 150 136 800 529 561 97 600 100 400 50 200 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2
Slide 40: USD Near 10-Year Highs, Reducing the Buying Power of Our Foreign Buyers
USD Near 10-Year Highs, Reducing the Buying Power of Our Foreign Buyers USD/MXN 21 19 17 15 13 11 9 7 USD/EUR 5 1 0.95 0.9 0.85 Source: Oanda.com 0.8 0.75 0.7 0.65 0.6 0.55 0.5 Source: Oanda.com 40
Slide 41: Scrap Pricing Near Post-Recession Lows, Affecting ASPs
Scrap Pricing Near Post-Recession Lows, Affecting ASPs Average Scrap Price $400.0 $350.0 $300.0 $250.0 $200.0 $150.0 $100.0 $50.0 $0.0 Source: American Recycler News, Inc. 41
Slide 42: Consistent Growth in Inventory Levels (North America Only)
Consistent Growth in Inventory Levels (North America Only) Inventory (Units) 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 - Note: Inventory as presented here represents physical units on hand in Copart yards, the majority of which are held on consignment and not reflected a
Slide 43: Cash Flow Generation – EBITDA vs CapEx
Cash Flow Generation – EBITDA vs CapEx 450 $mm 393 400 358 343 340 350 311 300 281 282 267 250 240 203 200 187 130 150 138 97 100 65 79 62 63 51 50 45 37 43 78 45 47 35 20 32 22 30 26 0 16 5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 CapEx - Land CapEx - Non-Land EBITDA Note: CapEx inclu
Slide 44: Return on Invested Capital (FY – July)
Return on Invested Capital (FY – July) 25% 20% 19.3% 17.9% 17.4% 16.2% 16.5% 16.3% 14.9% 14.9% 14.9% 14.8% 15% 14.1% 10% 5% 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Capital IQ “Return on Capital” 44
Slide 45: Returning Capital via Share Buybacks
Returning Capital via Share Buybacks Share Repurchases (Fiscal Year, $mm) 800.0 735.4 700.0 600.0 500.0 400.0 325.0 300.0 269.3 233.5 200.5 200.0 89.6 100.0 8.9 4.5 13.9 0.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 1H 45
Slide 46: Copart Structural Protections
Copart Structural Protections Volume driven by installed base of vehicles, not new car purchases Limited credit exposure – accounts receivable largely netted against auction proceeds Low principal risk – substantial majority of vehicles sold on consignment Conservative capitalization Cash flow gener
Slide 47: Summary P&L ($mm)
Summary P&L ($mm) 2008 2009 2010 2011 2012 2013 2014 2015 2016 TTM Revenue 784.8 743.1 772.9 872.2 924.2 1,046.4 1,163.5 1,146.1 1,168.0 COGS (133.7) (106.0) (104.7) (125.2) (137.0) (167.2) (174.5) (136.4) (133.4) Ops Expense (328.9) (324.8) (320.2) (374.1) (377.6) (458.2) (520.4) (526.3) (542.9) Gr
Slide 48: Copart Management Team
Copart Management Team Name Title Copart Experience Experience Jay Adair CEO 27 Copart Vinnie Mitz President 21 NER Auction Systems, Copart Will Franklin EVP 12 Clifford Electronics, Ptek holdings, Copart Paul Styer SVP, Legal/GC 24 Independent Law Practice, Copart Sean Eldridge COO 26 Copart Rob Va
Slide 49: Appendix
APPENDIX
Slide 50: Income Reconciliations (thousands)
Income Reconciliations (thousands) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 TTM Operating income 156,436 171,562 203,145 237,917 225,325 239,070 265,290 286,353 282,992 274,934 344,401 359,863 Add back: Impairment expense - - - - - - - 8,771 - 29,104 - - Operating income, excludin
Slide 51: Capital Expenditures Reconciliation
Capital Expenditures Reconciliation 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Cash Flow From Investing Activities 107,448 (267,915) (135,561) (32,600) (59,904) (96,025) (84,480) (48,087) (208,021) (92,103) (81,915) Less: Net Cash Provided By (Used in) Investing Activities from Disc Ops