Thank you. I'd now like to turn the conference over to Jay Adaire. Sir, you may begin.
Thank you, Josh. Good morning, everyone, and again, welcome to the Q1 call for 2016. I'm going to transfer it to Will first. He'll go over the financials, and then I'll have some closing remarks, and we'll open it up for questions. So with that, it's my pleasure to introduce Will Franklin, our Executive Vice President.
Thank you, Jay. Before we
begin our comments, I'd like to remind everyone on the call that our remarks will contain forward looking statements, including statements concerning our views of trends in our business. These statements from those projected or implied by our statements or comments. The company expressly disclaims any obligation to update or revise these statements or comments. For a discussion of the risks that could affect our business, please review the risk factors contained in our most recent 10 ks, 10 Qs and other SEC filings. Also this morning Copart filed a Schedule TO offer to purchase and certain other documents with the SEC relating to a tender offer to purchase outstanding shares of common stock.
These documents are available at the SEC website. Copart is also mailing the offer to purchase, letter of transmittal and related documents to all shareholders. We do not intend to respond to questions concerning the terms and conditions of the tender offer on this call. The offer is made solely pursuant to the offer to purchase as may be amended from time to time, the associated letter of Transmetto and the related documents. We encourage shareholders to review them carefully.
With that, I will begin with a few brief comments on the financial results for our Q1. Toll volume was offset by reduced ASPs and consequently reduced revenue per car. ASPs were driven lower by the continuing decline
in
The $900,000 or 13.5 percent. The decline resulted from the reduced ASPs, a change in mix and the negative impact of FX. In the current quarter, a higher percentage of purchased cars came from our direct purchase program, which has a lower ASP than cars purchased from insurance companies. In our direct purchase program, we buy and sell cars for our own account. Service revenue increased by $4,400,000 or 1.8 percent as the increase in agency car volume was offset by a reduction in revenue per car.
The decline in the and administrative costs declined by $5,600,000 The reduction came primarily from the rationalization of technology resources and the beneficial impact of FX. On an overall basis, the change in FX reduced revenues by $4,600,000 and EBIT by approximately $900,000 During the quarter, we expanded $19,200,000 to accommodate the growth in accounts receivable and inventory, 20 point $2,000,000 for yard expansion, equipment and technology and $21,100,000 in marketable securities. We exited the quarter with $473,000,000 in cash and $226,700,000
in total bank and private placement debt.
That concludes my brief comments. Now I will turn the call back over to our CEO, Jay Adair, to conclude comments on the quarter before we turn it over to Q and A. Jay?
Thank you, Will. Again, good morning, Looking at sales for the quarter, as Will mentioned, we saw a decline in ASPs due to strong dollar and also due to the low value of scrap at this time. And that revenue was offset because of sales increase of 5.1% in the quarter for North America. Looking at cycle times, because we often talk about inventory increases and the impact that they will have in subsequent quarters, typically in the next quarter. We want to talk about cycle time that was flat for the quarter, that was 0.
So we don't see the increase in inventory associated with cycle time expanding, but rather just through additional volume coming in. And then finally, as Will mentioned, international sales are down because of the strong dollar situation. A year ago, in North America, we were approximately 21%. And today, we are just a tad below 20% on international sales. These are vehicles that are sold in North America and exported to countries outside the U.
S. With that, I'd like to now turn it over to Josh, and we'll open up for any questions that you may have.
Our first question comes from Bob Labick from CJS Securities. I want to start off, first question.
You had one other announcement last night as well. You announced a new Senior Vice President and CFO to come on early next year. I was wondering if you could tell us a little bit more about his background. We obviously read the release and stuff, but any more color around that? And additionally, talk a little bit about Will's new role and the growth opportunities in the U.
S. That are likely to come with that. Sure.
Well, Jeff is a great guy. We've known him for a couple of years here in Dallas. He has been with FleetPride and prior to that FleetPride is owned by TPG. Prior to that, he was with TPG in a corporate role. And we have been talking to him for a while about a CFO position.
Will started the EVP or took over the EVP role approximately 18 months ago. And the biggest improvement that he's made that you can see is the reduction in G and A. So that has been a big push to have a focus on measuring outputs and reducing expenses where we felt we weren't getting a return. And you've seen that. We talked about that a year ago.
We felt very confident a year ago that we were going to be able to see those types of results and we'll execute it on that in the last year. At the same time, he's been carrying the CFO title, but we've been having a lot of that work done by Vic Bhatia on our team. And so and that wasn't the intent for Vic to do that, but we want to make sure that Will is focused on the G and A reductions and other G and A performance pieces that we've got, areas that we measure and areas that we focus on. So Jeff will start in January, and we brought him on as CFO based on his experience previously and our knowledge of him. So we're looking forward to having him on the team.
Great. That's helpful color. I appreciate that. And then to the quarter, I guess, last quarter, you did an excellent job on the cost to process a car. It was down materially and you were able to hold it flat again after previously there had been a number of quarters where it had been going up.
Can you talk a little bit about expected trends in cost to process a car and what you're doing maybe differently now to flatten that or bring it down slightly?
Well, part of it has been execution and the team's ability to focus on cost. Part of it has been the benefit of fuel. And fuel is off significantly year over year and that's helped us control transportation costs. Part of our cost going up, if you recall, was related to Sandy and then it was related to an acquisition large acquisition we made, QCSA. And there was a whole to reduce sub haul expenses that shot up through Sandy.
So there are a couple of years of having costs that were increased because of those two factors and then we also moved the company from California to Dallas. So I feel strongly at this point we're at a normalized run rate. I don't see any reason at point why fuel is going to skyrocket back up. I think that's pretty much understood throughout the industry. So I think we'll be able to maintain our current cost per car.
And the only thing that would increase that a little bit is we are looking at adding some additional facilities in the U. S. In the next year because of volumes that are up. And as we add stores, they have a cost they increase the cost in the beginning. And as we fill the stores with cars and start to sell those cars off, then it reduces the cost.
But for the most part, I don't think we're going to see a real big increase in our operating costs at the yard, Bob.
And then last one, I'll get back in queue. In terms of the international expansion, you've kind of given us updates on a quarterly basis. Just wondering how things are going in the key markets you're focused on and when we might hear more?
Yes. We're happy with what we're seeing now in terms of our results, both in the U. K. And in the rest of the world. The U.
K. Obviously the vast majority of the international. The U. K. Is a much more mature market as opposed to the other markets that we're doing business in.
We will be in a far better place to report on some of the But as we approach the end of the year, we should have some results and some color that we can give you on how we're doing internationally. Okay. Thanks very much. Thank you.
Thank you. Our next question comes from Elizabeth Suzuki from Bank of America.
Good morning. Can you break out how volume, price and mix
year? I think we
talked we addressed that directionally. The volume was up and Jay gave the statistics on that. ASP is down. We didn't give an exact percentage to that. And I think we'll just leave it ASPs were down, ASPs down, that drives revenue down.
And the last Inventory was up. Inventory was up.
And I think, yes, about mix. We are roughly eightytwenty.
Yeah. So most of are you talking
between insurance and non insurance? In North America, we're slightly under 20% in non insurance. And that's basically because of the significant growth we have on the insurance side. In terms of total units, it's remained relatively flat.
Okay. Thanks. And do you have data on the average age of vehicle that were sold in the quarter?
No, I'm sorry, I don't.
It's going to be not too far from where it was the prior quarters, which is about 11.5%, give or take.
Okay. So no material change there.
That's not it's going to be within a few 10ths.
And are you seeing any market share shifts or any market share being taken by smaller independent companies getting new insurance contracts or any other of the majors taking some share by reducing pricing or fees? No. Okay. That's helpful. Thank you.
Thank you. Thank you. Our next question comes from John Healy from Northcoast Research.
I wanted to ask a
little bit about the U. K. Market. One of the stories of this year is a big competitor here in the U. S.
Entering in that market. And I was curious to know if you see anything change in that marketplace, if you are watching anything more closely than you have in the past and any sort of feel you could give for how that landscape is evolving?
Yes. No, I'm happy to do that. United Kingdom inventory was up 14.5%, so a little bit more than North America. Sales in the U. K.
Were up 5.6%, so a little more than the U. S. As well. So it's from an international standpoint, it's about it's taken about the same trend. They are off a couple of points from or a little over a point from what used to sell internationally in that market.
So it is doing well and really got nothing negative to report from the U. K. They're doing very well. Got And I wanted to
ask kind of more of a comparison issue. If you look over the last few quarters, your volume numbers have been healthy, but maybe quite as healthy as what's going on with insurance auto auctions. And I
was wondering if you guys could help us understand kind
of the difference in the growth rates. I don't know if it's associated maybe with the market share amongst the insurance customers you have or if it has to do with maybe the charity business. But any color that you could give us to help us understand kind of the difference in growth rates there?
Yes, I really can't. I can't talk to my competitor. I can just tell you that from our perspective, to grow 5% year over year when you're our size is a big growth rate. To have an inventory build of almost 15% is a big number. So I really can't talk to what they're doing and how they're doing it.
I can really just answer any questions
from a share standpoint, have there been any changes in kind of the makeup of your customer base? Are you seeing certain insurance companies grow at a faster rate maybe than others? I mean, is there anything that you see that would maybe explain the behavior change?
Yes. We've had a recent market share gain, but it's really that's not going to show up until probably the 3rd Q4 of the year. You have to start bringing the vehicles in and building inventory and then sell the vehicles off. So in the industry expand because of the age of vehicles. But as the numbers we've reported the numbers historically on the quarters.
And so I won't try to restate them all. I mean, the numbers are out there.
Got you. Our next question comes from Gary Prestonello from Research. Jay, did you guys give
the total volume growth in the quarter? I think you gave 5.1% increase in North America. But did you give the total volume growth?
No, I didn't. I can give you total volume for the whole globally, for the U. K, for North America, the whole company was 4 0.9%.
Okay. That's fine. Thanks. And then
in terms
of your line of credit or your debt or whatever, what rate are you currently paying now on that debt or the line if you need to borrow?
Well, we are
paying on the fixed fee. We have a blended rate that's about $400,000,000 of about 4.22 percent. Term Loan A, we are at about a little over 2% and the amount of that is $225,000,000 at this point.
Okay.
Good. And then just a couple of other things. In your proxy, you guys put forth something where you're trying to increase the shares outstanding from $180,000,000 to $400,000,000 But yet you're just announced made an announcement today of the self tender. What's the rationale for doing that, Jay?
That's interesting. I wasn't expecting I
want to get you with one question per quarter, right?
I'm going to look to my attorney for a minute. I'll put you on hold one sec.
I think the best
answer I can give you, Gary, is that we have a limited number of shares currently and we could have asked for less shares in the proxy and then we might have to come out later and ask for more again. So we asked for a number that we felt was sufficient that we wouldn't have to go back and ask for And yes, and as my attorney is sitting here telling me, the explanation is in the proxy and he would prefer that we go with that. So we just felt like we were asking for enough that we wouldn't have to go back and it gives us the flexibility for the future.
Okay. That's fine. And then lastly, it looks like year over year your gross margin on agency was down about 124 basis points. Was there anything in there that's driving that? Was there something one time?
Or was there
some benefit last
year that would not make
decline in revenue per car, while our costs stayed the same. So our costs have really fluctuated. They fairly consistent in the last 4, 5 quarters. They fluctuate less than 4%. It's
all really tricky to see your decline in ASPs then.
Yes, it's all decline in ASPs. And in fact, last quarter, while we're flat on our cost to process each car, we also had a negative impact of Hurricane which had a significant amount of cost. And we absorb that and still maintain a flat cost basis to process the car. So we are pretty happy with the efficiency of our operations.
Thanks. Have a happy Thanksgiving both of you.
You. Thanks, Gary. You too. You too. Thank you.
Our next question comes from Ben Bienvenu from Stephens Inc. Yes. Thanks.
So on the mobile front, you guys have had quite a bit of success there adding the Android platform last year. I think you cited on the last call that about 12.5% of vehicle solar coming through the mobile platform. I'd be curious to know if are we still in that ballpark, how it's trending? And then I assume as you add capabilities and buyers or sellers become aware of that process that's skewed upwards over time, but just your thoughts on that capability?
Yes. I mean, it's we talked about it in the shareholder letter as well. So that if you want to look to that in the annual report, there's a maybe a more current stat on how we're doing. We are extremely happy with that result. We didn't know if many of our buyers like to bid on 5 to 10 auctions up on one screen at one time.
It's one of the benefits of our virtual bidding 3rd generation platform. So as opposed to having to physically attend an auction and have the different cadence and speed of human beings that are running the auction, our auctions are all much easier to follow when you've got 10 auctions open at once. And we didn't know candidly how many people would go to a mobile platform. We didn't know if there was going to be a scenario where they're out at our yard, they're looking at the car bidding on it or they're going to be at Starbucks bidding on it. And so to be near 15% in penetration, I would say, has already exceeded what we thought it would do.
I don't know if it will end up at a 5th of our unit selling over mobile or if it will stay where it's at. But I can just tell you from both the Android and from the Apple platforms, we are extremely happy with the results we have seen thus far.
Yes, let me add to that. There is other effort. So we have, I think, a robust strategy to develop our mobile and not only through apps, but through mobile optimizing our current website, which we haven't done, which will make
talked about adding incremental sites next year. Do you have
a sense of what your
site capacity utilization is today? And are those additional sites going to be broad based by geography within North America? Or are there specific regions? Yes.
I don't have the actual percentage in front of me, and I don't think it's relevant acres of capacity. So the reason we are constantly investing in expanding locations, we rarely talk about how many locations we've expanded in the year. And this year, we're going to actually have to add additional locations in markets and that's just because we've seen a consistent growth in inventories since Sandy. So since 2012, there's been a year over year increase in inventories. And yes, we do sell that inventory off in the Q3, but it has continued to year over year.
And so we're at a point now where we not only are we going to be expanding yards this year like we have last year, but we're going to be adding a number of locations and we'll talk about that in the year. I would guess it's in the half a dozen to a dozen locations that we'll be adding. And when that as we bring those locations online, we'll announce it so that everyone's aware of it.
Okay, great. Thanks.
Best of luck, guys. Thank you. Thank you. Our next question comes from Craig Kennison from
Jay, I think you hinted at this, but was there any important RFP activity in the quarter that could affect your share down the road?
Well, we did have a win in the quarter, but that's not uncommon for us to have wins or a win or multiple wins in a particular quarter. So we did have a win and that volume is some of that volume is coming on now and some of volume will be coming on in the subsequent in Q2 and Q3. And we'll be selling that inventory off Q3, Q4. We should be normalized, I would think, by the end of the fiscal year.
In the past, you've had similar wins where you've gained essentially exclusivity with a big insurance company. Is this that flavor or is something significant?
No, I mean, it's a top five carrier and it is an exclusive long term agreement. So yes, it's of that flavor.
And I'm guessing you already had significant share with that top 5 insurer?
We did. Yes, we had significant amount of their volume and now we'll be going 100%. And then just
a final follow-up on that. Will, if my notes are right, sometimes these big insurance wins can be dilutive upfront until you get all the volume expect to get over time. Is there any modeling nuance to this deal that we should be aware of?
No, I don't think so. I think this new volume will blend in very efficiently with our current capacity.
Thanks. And finally, not sure if you want to address this or not, but I'm curious what the attraction is of a Dutch tender offer versus other buyback alternatives? Thanks.
That's again another question I wasn't expecting. So I'll just say, yes, we can't comment on it because it's the tender.
So Yes, look at the documents for any information needed for the tender.
Okay. Thanks guys.
Thank you.
Thank you. At this time, I'd like to turn the call back over to Jay There for closing remarks.
All right. Thanks, Josh. Hey, thank you everybody for attending the Q1 call. We look forward to reporting a 2nd Q next year and we want to wish you all a Happy Thanksgiving and we'll see you then. Thanks.
Thank you,