Presentation Outline
Macroeconomic Review Current market conditions Industry Overview Copart Overview Historical Performance Recent Events/Performance Portfolio Positioning Financial Projections
Macroeconomic review
• High oil prices, credit market turmoil and weakness in financial sector has dragged markets down in the recent months
• The market is down 17% this year
• Copart’s revenues however, are not materially affected by economic slowdowns
Source: Yahoo Finance, Company filings
Current market conditions Non-cyclical companies trading at a
premiumRepresents insulation for economic
uncertainty Volatility at a high (VIX below)
Source: Yahoo Finance
Industry Overview
Industry benefits with increasing demand for cars, More More cars = More accidents = More auctions = More revenuecars = More accidents = More auctions = More revenue Current economic conditions are not conducive to car purchasing
Insurance companies are facing shrinking premium margins and in order to cuts costs are purchasing recycled parts from salvaged vehicles. More demand for More demand for Copart’s auctionsCopart’s auctions
Rising global oil prices have driven people to find alternatives to driving, Less car accidents = fewer Less car accidents = fewer opportunities for revenueopportunities for revenue
Copart Overview
Runs a proprietary online auction system for salvaged vehicles Damaged cars often termed by Insurance Companies as
“Total Loss”
Provides vehicle suppliers a full range of re-marketing services to process and sell these vehicles
Earns Revenue from both buyers and sellers at the auction (not dissimilar to StubHub or Ebay)
Source: Company filings
Copart Business Model - US
Accident totally destroys car
Insurance Co. deems car too costly to repair
Copart auctions car to buyers all around the globeand earns income from both parties
Dismantlers Exporters RebuildersUsed car dealers
Source: Company filings
Copart Business Model - UK
Accident totally destroys car
Insurance Co. deems car too costly to repair
Copart purchases car from Insurance company andremarkets it to potential buyers
Risk ofdevaluation
Dismantlers Exporters RebuildersUsed car dealers
Source: Company filings
North American Facilities Copart Plans to add 10-15
North American Facilities in the next year
Management sees potential for 150-200 facilities over time
~35% market share
Source: R.W. Baird
U.K. Facilities In 2008, increased
facilities from 10 to 15 Projected to acquire 5
more facilities in the next year
30% market share by the end of next year in U.K.
Source: R.W. Baird
Historical financial performance
Historically strong financial performance Driven by outstanding margins
2003 2004 2005 2006 2007Total Revenue 347.4 391.0 447.7 528.5 560.7
Y-2-Y growth rate - 12.5% 14.5% 18.0% 6.1%
Gross Profit 145.0 163.4 202.0 230.5 266.8Gross margin 41.7% 41.8% 45.1% 43.6% 47.6%
EBITDA 116.3 124.5 186.9 203.0 240.3EBITDA margin 33.5% 31.8% 41.7% 38.4% 42.8%
Net Income 57.3 49.7 102.1 96.9 136.3Net margin 16.5% 12.7% 22.8% 18.3% 25.0%
Source: Company filings
Recent events
September 18, 2008- Copart adds a new facility in Kentucky due to growing demand
April 14, 2008- Copart acquires fourth facility in Missouri
March 7, 2008- Revenues declined after company declared UK expansion had not gone according to plan
March 6, 2008- Copart entered into a $200 million revolving line of credit with Bank of America.
Source: Company filings, Reuters
Correlation
Source: Yahoo Finance
C PR T AE E AE O DO FR J KHY KMB WFR S R C L WAGC PR T 1.0000AE E 0.1442 1.0000AE O 0.3105 0.2184 1.0000DO 0.0279 0.2051 0.0266 1.0000FR 0.1958 0.3076 0.3313 0.1409 1.0000J KHY 0.1885 0.5134 0.3828 0.0333 0.3620 1.0000KMB 0.1858 0.5137 0.2930 0.0852 0.2836 0.4602 1.0000WFR 0.3078 0.1972 0.2604 0.3172 0.1965 0.2135 0.1995 1.0000S R C L 0.1535 0.1635 0.1995 0.0903 0.2293 0.1451 0.3501 0.2454 1.0000WAG 0.2659 0.2537 0.4046 0.1101 0.1153 0.2410 0.3138 0.1702 0.2821 1.0000
Base case
In-line with management projections Gross PP&E to remain at 95% of sales
historically 90-104% Net goodwill at 38% of net PP&E
historically 33-45% Tax rate: 38%2008 E 2009 E 2010 E 2011 E 2012 E 2013 E 2014 E 2015 E
US & CA revenue growth 7.5% 7.0% 7.0% 7.0% 7.0% 7.0% 6.0% 5.0%UK revenue growth 1177.2% 20.0% 14.0% 12.0% 10.0% 8.0% 7.0% 6.0%Total Revenue 776.0 854.9 930.7 1,008.7 1,088.0 1,167.4 1,240.9 1,306.6
Y-2-Y growth rate 38.4% 10.2% 8.9% 8.4% 7.9% 7.3% 6.3% 5.3%
COGS % of sales 52.0% 52.0% 52.0% 52.0% 52.0% 52.0% 52.0% 52.0%SG&A % of sales 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3% 11.3%
Base case
With relatively optimistic assumptions our model yielded a value well below market
DCF Valuation ($MM)Sum of P.V. of FCF $2,177Minus outstanding debt $0Equity value $2,177CPRT value per share 23.29Equals Value +/- 10% 25.62 / 20.96
Free Cash Flows ($MM) 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E Terminal ValueFree Cash Flows 16.6 186.8 213.1 231.6 252.0 273.9 284.7 312.1 $3,855
Present Value of Cash Flows $15 $148 $150 $145 $140 $136 $125 $122 $1,196
Beta 1.06RF 5.0%Rm 12%Re 12.4%Rd n/a
MVE $3,899MVD $0VF $3,899g 4%
Tax Rate 38%Debt/TV 0.0%Equity/TV 100.0%WACC 12.42%
Base case- sensitivity
Sensitivity Analysis- WACC/GrowthWACC
23.29 9.0% 10.0% 11.0% 12.0% 12.4% 13.0% 14.0% 15.0% 16.0%2.0% 32.76 28.08 24.49 21.66 20.64 19.37 17.48 15.90 14.572.5% 34.45 29.26 25.35 22.29 21.20 19.85 17.85 16.20 14.803.0% 36.42 30.61 26.31 23.00 21.82 20.38 18.26 16.51 15.053.5% 38.75 32.17 27.40 23.78 22.52 20.96 18.70 16.86 15.32
Growth 4.0% 41.54 33.98 28.64 24.67 23.29 21.61 19.19 17.23 15.614.5% 44.96 36.13 30.07 25.67 24.17 22.34 19.73 17.64 15.935.0% 49.23 38.71 31.75 26.82 25.16 23.16 20.33 18.09 16.285.5% 54.72 41.85 33.72 28.14 26.29 24.08 21.00 18.59 16.666.0% 62.04 45.79 36.10 29.69 27.60 25.14 21.76 19.15 17.08
RCMP Historical Transactions
Date Buy/Sell Price Shares Value
Feb 28, 2003 Buy $7.82 (1000) $7,820
Nov 15, 2007 Sell $36.20 (300) ($10,860)
Apr 30, 2008 Sell $41.30 (300) ($12,390)
Date Shares Price Market Value
Sep 22, 2008 400 $43.34 $17,336
Current Holdings