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, may tend to reduce 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 9.6 years in 2002 to 12.2 years in 2022. 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, 2021 through April 30, 2023:

United States Locations						Geographic Service Area						Date
Mobile South						Alabama						August 2021
Madison						Wisconsin						October 2021
Augusta						Georgia						April 2022
Milwaukee South						Wisconsin						May 2022
Punta Gorda						Florida						June 2022
Anchorage						Alaska						August 2022
Rapid City						South Dakota						August 2022
Kansas City						Missouri						September 2022
Grenada						Mississippi						January 2023
Windham						New England						March 2023

International Locations						Geographic Service Area						Date
Barcelona, Spain						Spain						September 2021
Halifax, Novia Scotia						Canada						April 2022
Büdingen, Hesse						Germany						January 2023
Ottawa, Ontario						Canada						February 2023

The following table sets forth the operational facilities obtained through business acquisitions from August 1, 2021 through April 30, 2023:

Locations						Geographic Service Area						Date
Skelmersdale, England						United Kingdom						July 2022
Dumfries, England						United Kingdom						July 2022

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 and nine months ended April 30, 2023 and 2022:

						Three Months Ended April 30,												Nine Months Ended April 30,
(In percentages)						2023						2022						2023						2022
Service revenues and vehicle sales:
Service revenues						83		%				82		%				82		%				82		%
Vehicle sales						17		%				18		%				18		%				18		%
Total service revenues and vehicle sales						100		%				100		%				100		%				100		%
Operating expenses:
Yard operations						37		%				37		%				39		%				37		%
Cost of vehicle sales						16		%				17		%				16		%				16		%
General and administrative						6		%				7		%				7		%				7		%
Total operating expenses						59		%				61		%				62		%				60		%
Operating income						41		%				39		%				38		%				40		%
Other income (expense)						2		%				—		%				1		%				—		%
Income before income taxes						43		%				39		%				39		%				40		%
Income taxes						9		%				9		%				8		%				8		%
Net income						34		%				30		%				31		%				32		%

Comparison of the Three and Nine Months Ended April 30, 2023 and 2022

The following table presents a comparison of service revenues for the three and nine months ended April 30, 2023 and 2022:

									Three Months Ended April 30,																								Nine Months Ended April 30,
(In thousands)									2023						2022						Change						% Change						2023						2022						Change						% Change
Service revenues
			United States						$	752,077					$	678,865					$	73,212					10.8		%				$	2,109,467					$	1,900,330					$	209,137					11.0		%
			International						95,172						87,451						7,721						8.8		%				254,419						244,894						9,525						3.9		%
			Total service revenues						$	847,249					$	766,316					$	80,933					10.6		%				$	2,363,886					$	2,145,224					$	218,662					10.2		%

Service Revenues. The increase in service revenue during the three months ended April 30, 2023 of $80.9 million, or 10.6%, as compared to the same period last year resulted from (i) an increase in the U.S. of $73.2 million and (ii) an increase in International of $7.7 million. The growth in the U.S. was driven primarily by (i) an increase in revenue per car due to higher auction selling prices, driven by the relative scarcity of vehicles due to global supply chain disruptions and a change in the mix of vehicles sold and (ii) an increase in volume. Excluding the unfavorable impact of $6.3 million due to changes in foreign currency exchange rates, primarily from the change in the European Union euro, Canadian dollar, Brazilian real and British pound to U.S. dollar exchange rates, the growth in International was driven primarily by an increase in volume resulting from higher miles driven and an increase in revenue per car due to a change in mix of vehicles sold.

The increase in service revenues during the nine months ended April 30, 2023 of $218.7 million, or 10.2%, as compared to the same period last year resulted from (i) an increase in the U.S. of $209.1 million and (ii) an increase in International of $9.5 million. The growth in the U.S. was driven primarily by (i) 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 and restrictions within the global supply chain for automobiles and (ii) an increase in volume. Excluding the unfavorable impact of $24.3 million due to changes in foreign currency exchange rates, primarily from the change in the European Union euro, Canadian dollar and British pound to U.S. dollar exchange rates, net against a favorable impact of the Brazilian real to the U.S. dollar exchange rate, the growth in International was driven primarily by an increase in revenue per car due to a change in mix of vehicles sold and an increase in volume.

The following table presents a comparison of vehicle sales for the three and nine months ended April 30, 2023 and 2022:

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									Three Months Ended April 30,																								Nine Months Ended April 30,
(In thousands)									2023						2022						Change						% Change						2023						2022						Change						% Change
Vehicle sales
			United States						$	81,681					$	111,385					$	(29,704)					(26.7)		%				$	261,069					$	295,767					$	(34,698)					(11.7)		%
			International						92,901						62,240						30,661						49.3		%				246,972						176,542						70,430						39.9		%
			Total vehicle sales						$	174,582					$	173,625					$	957					0.6		%				$	508,041					$	472,309					$	35,732					7.6		%

Vehicle Sales. The increase in vehicle sales for the three months ended April 30, 2023 of $1.0 million, or 0.6%, as compared to the same period last year resulted from (i) a decrease in the U.S. of $29.7 million and an (ii) an increase in International of $30.7 million. The decrease in the U.S. was primarily driven by a decrease in volume as a result of a proactive approach to mitigate principle unit exposure offset by higher average auction selling prices, which was primarily due to a change in the mix of vehicles sold. Excluding an unfavorable impact of $4.8 million due to changes in foreign currency exchange rates, primarily from the unfavorable change in the European Union euro, Canadian dollar and British pound to U.S. dollar exchange rates, the increase in International was primarily the result of higher average auction selling prices, which primarily was due to a change in mix of vehicles sold and an increase in volume.

The increase in vehicle sales for the nine months ended April 30, 2023 of $35.7 million, or 7.6%, as compared to the same period last year, resulted from (i) a decrease in the U.S. of $34.7 million and (ii) an increase in International of $70.4 million. The decrease in the U.S. was primarily the result of a decrease in volume as a result of a proactive approach to mitigate principle unit exposure, offset by higher average auction selling prices, which was primarily due to a change in the mix of vehicles sold. Excluding an unfavorable impact of $25.6 million due to changes in foreign currency exchange rates, primarily from the unfavorable change in the European Union euro, Canadian dollar and British pound to U.S. dollar exchange rates, the increase in International was primarily the result of higher average auction selling prices, which primarily was due to a change in mix of vehicles sold combined with increased prices resulting from the restrictions within the global supply chain for automobiles and an increase in volume.

The following table presents a comparison of yard operations expenses for the three and nine months ended April 30, 2023 and 2022:

									Three Months Ended April 30,																								Nine Months Ended April 30,
(In thousands)									2023						2022						Change						% Change						2023						2022						Change						% Change
Yard operations expenses
			United States						$	323,426					$	295,326					$	28,100					9.5		%				$	973,067					$	830,040					$	143,027					17.2		%
			International						55,532						51,102						4,430						8.7		%				154,165						138,896						15,269						11.0		%
			Total yard operations expenses						$	378,958					$	346,428					$	32,530					9.4		%				$	1,127,232					$	968,936					$	158,296					16.3		%
Yard operations expenses, excluding depreciation and amortization
			United States						$	294,604					$	268,452					$	26,152					9.7		%				$	883,925					$	756,064					$	127,861					16.9		%
			International						51,264						46,330						4,934						10.6		%				141,787						126,489						15,298						12.1		%
Yard depreciation and amortization
			United States						$	28,822					$	26,874					$	1,948					7.2		%				$	89,142					$	73,976					$	15,166					20.5		%
			International						4,268						4,772						(504)						(10.6)		%				12,378						12,407						(29)						(0.2)		%

Yard Operations Expenses. The increase in yard operations expense for the three months ended April 30, 2023 of $32.5 million, or 9.4%, as compared to the same period last year resulted from (i) increase in the U.S. of $28.1 million and (ii) increase in International of $4.4 million. The increase in the U.S. compared to the same period last year relates to an increase in the cost to process each car combined with an increase in volume. The increase in cost to process each car was driven by increased subhaul costs primarily driven by inflationary pressures in the market place, and labor costs. The increase in International relates primarily to an increase in volume and labor costs. Excluding a favorable impact of $3.2 million due to changes in foreign currency exchange rates, primarily from the favorable change in the European Union euro, Canadian dollar, Brazilian real and British pound to U.S. dollar exchange rate. Included in yard operations expenses were depreciation and amortization expenses. The increase in yard operations depreciation and amortization expenses during the three months ended April 30, 2023 as compared to the same period last year resulted primarily from depreciating new and expanded facilities placed into service in the U.S.

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The increase in yard operations expense for the nine months ended April 30, 2023 of $158.3 million, or 16.3%, as compared to the same period last year resulted from (i) an increase in the U.S. of $143.0 million, and (ii) an increase in International of $15.3 million. The increase in the U.S. compared to the same period last year relates to an increase in the cost to process each car combined with an increase in volume. The increase in cost to process each car was driven by increased subhaul costs primarily related to the fluctuation of fuel costs, and labor costs, combined with an increase in premiums for catastrophic related subhaul, and labor costs incurred from overtime, and increased travel, lodging, and equipment lease cost associated with Hurricane Ian. Excluding a favorable impact of $13.5 million due to changes in foreign currency exchange rates, primarily from the favorable change in the European Union euro, Canadian dollar and British pound to U.S. dollar exchange rate offset by an unfavorable change in the Brazilian real to U.S. dollar exchange rate. The increase in International relates primarily to an increase in the cost to process each car which is driven by an increase in subhaul and labor costs combined with an increase in volume. Included in yard operations expenses were depreciation and amortization expenses. The increase in yard operations depreciation and amortization expenses during the nine months ended April 30, 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 and nine months ended April 30, 2023 and 2022:

									Three Months Ended April 30,																								Nine Months Ended April 30,
(In thousands)									2023						2022						Change						% Change						2023						2022						Change						% Change
Cost of vehicle sales
			United States						$	74,951					$	101,781					$	(26,830)					(26.4)		%				$	246,431					$	272,387					$	(25,956)					(9.5)		%
			International						84,492						55,455						29,037						52.4		%				218,851						151,561						67,290						44.4		%
			Total cost of vehicle sales						$	159,443					$	157,236					$	2,207					1.4		%				$	465,282					$	423,948					$	41,334					9.7		%

Cost of Vehicle Sales. The increase in cost of vehicle sales for the three months ended April 30, 2023 of $2.2 million, or 1.4%, as compared to the same period last year resulted from (i) a decrease in the U.S. of $26.8 million and (ii) an increase in International of $29.0 million. The decrease in the U.S. was primarily the result of a decrease in volume as a result of a proactive approach to mitigate principle unit exposure, offset by higher average purchase prices, which was primarily due to a change in the mix of vehicles sold, and increased demand. Excluding the favorable impact of $4.0 million due to changes in foreign currency exchange rates, primarily from the favorable change in the European Union euro, Canadian dollar and British pound to U.S. dollar exchange rates, the increase in International of $29.0 million was primarily driven by higher average purchase prices due to the change in mix of vehicles sold, increased demand, and an increase in volume.

The increase in cost of vehicle sales for the nine months ended April 30, 2023 of $41.3 million, or 9.7%, as compared to the same period last year resulted from (i) a decrease in the U.S. of $26.0 million and (ii) an increase in International of $67.3 million. The decrease in the U.S. was primarily the result of a decrease in volume as result of purchase price pressure offset by higher average purchase prices, which was primarily due to increased demand and a change in the mix of vehicles sold. Excluding the favorable impact of $21.6 million due to changes in foreign currency exchange rates, primarily from the favorable change in the European Union euro, Canadian dollar and British pound to U.S. dollar exchange rates, the increase in International of $67.3 million was primarily due to higher average purchase prices due to the change in mix of vehicles sold and higher volume.

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The following table presents a comparison of general and administrative expenses for the three and nine months ended April 30, 2023 and 2022:

									Three Months Ended April 30,																								Nine Months Ended April 30,
(In thousands)									2023						2022						Change						% Change						2023						2022						Change						% Change
General and administrative expenses
			United States						$	50,590					$	52,706					$	(2,116)					(4.0)		%				$	147,456					$	145,638					$	1,818					1.2		%
			International						13,916						10,816						3,100						28.7		%				36,005						28,807						7,198						25.0		%
			Total general and administrative expenses						$	64,506					$	63,522					$	984					1.5		%				$	183,461					$	174,445					$	9,016					5.2		%
General and administrative expenses, excluding depreciation and amortization
			United States						$	46,494					$	47,971					$	(1,477)					(3.1)		%				$	134,623					$	130,959					$	3,664					2.8		%
			International						13,731						10,618						3,113						29.3		%				35,515						28,217						7,298						25.9		%
General and administrative depreciation and amortization
			United States						$	4,096					$	4,735					$	(639)					(13.5)		%				$	12,833					$	14,679					$	(1,846)					(12.6)		%
			International						185						198						(13)						(6.6)		%				490						590						(100)						(16.9)		%

General and Administrative Expenses. The increase in general and administrative expenses for the three months ended April 30, 2023 of $1.0 million, or 1.5%, as compared to the same period last year resulted from (i) an increase in International of $3.1 million, and (ii) a decrease in the U.S. of $2.1 million. After excluding depreciation and amortization, the increase in International of $3.1 million resulted primarily from increases in legal costs and labor costs. The decrease in the U.S. of $1.5 million resulted primarily from a decrease in legal costs partially offset by increased labor costs, outside services and technology costs. Depreciation and amortization expenses for the three months ended April 30, 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 increase in general and administrative expenses for the nine months ended April 30, 2023 of $9.0 million, or 5.2%, as compared to the same period last year resulted from (i) an increase in International of $7.2 million and (ii) an increase in the U.S. of $1.8 million. Excluding depreciation and amortization, the increase in International of $7.3 million resulted primarily from increases in stock compensation, labor costs, legal costs, travel costs, outside services and marketing costs. The increase in the U.S. of $3.7 million resulted primarily from increases in stock compensation, labor costs, outside services and travel costs offset by a decrease in legal costs. Depreciation and amortization expenses for the nine months ended April 30, 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 and nine months ended April 30, 2023 and 2022:

						Three Months Ended April 30,																								Nine Months Ended April 30,
(In thousands)						2023						2022						Change						% Change						2023						2022						Change						% Change
Total other income (expense)						$	21,506					$	(3,150)					$	24,656					(782.7)		%				$	34,684					$	(12,718)					$	47,402					(372.7)		%

Other Expense. The increase in total other income for the three months ended April 30, 2023 of $24.7 million as compared to the same period last year was primarily due to higher interest income earned from T-bills and unrealized foreign currency gains offset by losses from equity method investments.

The increase in total other income for the nine months ended April 30, 2023 of $47.4 million as compared to the same period last year was primarily due to higher interest income earned from T-bills and unrealized foreign currency gains offset by losses from equity method investments.

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The following table summarizes income taxes for the three and nine months ended April 30, 2023 and 2022:

						Three Months Ended April 30,																								Nine Months Ended April 30,
(In thousands)						2023						2022						Change						% Change						2023						2022						Change						% Change
Income taxes						89,999						90,985						(986)						(1.1)		%				240,680						211,091						29,589						14.0		%

Income Taxes. Our effective income tax rates were 20.4% and 24.6% for the three months ended April 30, 2023 and 2022, respectively, and 21.3% and 20.3% for the nine months ended April 30, 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 $4.4 million and $2.2 million for the three months ended April 30, 2023 and 2022, respectively, and $5.1 million and $9.2 million for the nine months ended April 30, 2023 and 2022, respectively. The effective tax rate in the prior year was also impacted by the filing of amended returns in certain jurisdictions for a benefit of $17.5 million offset by additional tax expense associated with a change in estimate made in connection with finalizing the Company’s fiscal year 2021 tax return of $8.1 million.

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Liquidity and Capital Resources

The following table presents a comparison of key components of our liquidity and capital resources at April 30, 2023 and July 31, 2022 and for the nine months ended April 30, 2023 and 2022, respectively, excluding additional funds available to us through our Revolving Loan Facility:

(In thousands)						April 30, 2023						July 31, 2022						Change						% Change
Cash, cash equivalents, and restricted cash						$	2,114,183					$	1,384,236					$	729,947					52.7		%
Working capital						2,494,466						1,761,566						732,900						41.6		%

						Nine Months Ended April 30,
(In thousands)						2023						2022						Change						% Change
Operating cash flows						$	1,005,633					$	863,854					$	141,779					16.4		%
Investing cash flows						(328,759)						(457,570)						128,811						28.2		%
Financing cash flows						51,020						18,578						32,442						174.6		%
Capital expenditures and acquisitions						$	(346,524)					$	(235,303)					$	(111,221)					(47.3)		%
Proceeds from revolving loan facility						21,481						—						21,481						100.0		%

Cash, cash equivalents, and restricted cash and working capital increased $729.9 million and $732.9 million at April 30, 2023, respectively, as compared to July 31, 2022. Cash, cash equivalents, and restricted cash increased primarily due to 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 10 – Stock Repurchases and under the subheadings “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 April 30, 2023, $177.4 million of the $2.1 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 nine months ended April 30, 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 decrease in income tax receivable of $31.0 million, increase in income tax payable of $16.2 million, decrease in vehicle pooling cost of $12.7 million, and decrease in inventory of $28.2 million. This is offset by cash used by increase of accounts receivable of $5.5 million and decrease in accounts payable of $15.4 million.

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Net cash used in investing activities decreased for the nine months ended April 30, 2023 as compared to the same period in 2022 due primarily to 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 decreased for the nine months ended April 30, 2023 as compared to the same period in 2022 due primarily to a decrease 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 $22.6 million and $0 million outstanding borrowings under the Revolving Loan Facility as of April 30, 2023 and July 31, 2022, 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 April 30, 2023.

Stock Repurchases

On September 22, 2011, our Board of Directors approved a 160 million share increase in the stock repurchase program, bringing the total current authorization to 392 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 nine months ended April 30, 2023 or 2022. As of April 30, 2023, the total number of shares repurchased under the program was 229,098,396, and 162,901,604 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, 2022 filed with the SEC on September 27, 2022. 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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Recently Issued Accounting Standards

For a description of the new accounting standards that affect us, refer to the Notes to Unaudited Consolidated Financial Statements, Note 12 – Recent Accounting Pronouncements in this Quarterly Report on Form 10-Q.

Contractual Obligations and Commitments

There have been no material changes during the nine months ended April 30, 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, 2022, filed with the SEC on September 27, 2022.

Off-Balance Sheet Arrangements

As of April 30, 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.