Good day, everyone, and welcome to the Copart Incorporated 4th Quarter Fiscal twenty twelve Earnings Call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Jay Abare, Chief Executive Officer of Copart Incorporated. Please go ahead, sir.
Thank you. Good morning everyone. Welcome to the Q4 call for Copart and a wrap up on our fiscal year 2012. Will and I are in 2 separate locations today as we've done in the past. I'm going to turn it over to Will now for opening remarks.
He'll pass it back to me and then we'll open it up for question and answer. So with that, it's my pleasure to turn it over to Will Franklin, CFO.
Thank you, Jay, and good morning. Before we begin our comments, I would 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 are neither promises nor guarantees and are subject to certain risk and uncertainties that could cause the final results to differ substantially from those projected or implied by our comments. These risks include trends in average selling prices for cars and other factors that can affect our gross margins. For a more complete discussion of the risks that could affect our business, the management's discussion and analysis and the risk factors contained in our 10 ks, 10 Q and other SEC filings.
I will now provide a few brief comments about our financial performance and this our Q4 of our fiscal year. Consolidated revenue was $226,600,000 compared to $215,400,000 for the same quarter last year, an increase of 5.2%. The growth in revenue was driven primarily by increased unit volume in North America. Volume in the U. K.
Remained flat and continued to be challenged by the lingering recession in the region. The growth in North America was broad based. We began to see the incremental volume associated with our exclusive contract with Nationwide, which we entered into our previous fiscal quarter. We expect incremental volume for this contract to reach full run rate by the end of our Q1 of fiscal 2013 and to be fully reflected in our 2nd quarter's results. Volume from non insurance cars grew by almost 5% over the same quarter last year and represented 21% of all cars sold during the quarter.
Same store sales on a consolidated basis and expressed in units was up 6.6%. Excluding the impact of Nationwide, it would have been up 4.4 percent. In North America, same store sales in units was up 8%. Excluding nationwide, it would have been up 5.4%. The increase was driven we believe by continued growth in our market share for salvage cars from insurance companies and our continued expansion into the domestic used car redistribution market.
On a consolidated basis, revenue per car was up modestly as the detrimental impacts of lower used car pricing and commodity pricing on a year over year basis was up by a beneficial mix of products sold and seller contracts. The total number of purchased cars sold decreased by 14% as we continue to migrate contracts in the U. K. From the principal model to the agency model. In the U.
K, purchased cars represented 29% of the total volume in the current quarter compared to 39% during the same quarter last year. Yard and fleet expenses grew from $81,800,000 to $85,900,000 or 5%. The increase was driven by the growth in the volume of cars sold. Our gross margin grew from $89,600,000 to $99,400,000 or 11 percent and our gross margin percentage grew by 2 30 basis points. General and administrative costs, excluding depreciation, were $26,400,000 compared to $23,700,000 for the same quarter last year.
The growth was due to increased costs associated with expanded international operations, which will continue and the incremental costs associated with the rollout of the new ERP system. During the quarter, we estimate those costs to be approximately $2,400,000 We expect to incur incremental costs associated with the rollout throughout fiscal 2013 and the 1st part of fiscal 2014. These costs will fluctuate from period to period depending on the phase of the rollout. We expect to be fully integrated by the end of calendar 2013, at which time these costs will abate. Our operating income increased from $63,500,000 to $69,500,000 or 9.5 percent and our diluted earnings per share increased from $0.29 to $0.35 per share or almost 21 percent.
Operating margin increased by 120 basis points over the same quarter last year. We ended the quarter with over $140,000,000 in accounts receivable, inventory and vehicle pulling costs all increased on a sequential basis as we grew inventory. During the quarter, we generated over $32,000,000 in operating cash flow, as net income and non cash expenses generated approximately $64,300,000 in cash and was offset by cash consumed in our balance sheet, primarily for the growth in inventory and the payment of deferred taxes. We expended $28,500,000 for the acquisition of businesses and other capital assets during the quarter. Finally, during the quarter, we expanded $65,600,000 for the repurchase of approximately 2,800,000 shares of our own stock.
That concludes my comments on the quarter. I'll now return the call back to Jay Ardagh, our CEO for further comments. Jay?
Thank you, Will. Again, good morning everyone and welcome to the call once more. We're really excited about the events and the things that took place Copart in fiscal 2012. At the beginning of the year, I announced the overdrive effort that we have undertaken. We are now 1 year into a 3 year process to transform our company.
Part of that overdrive experience was moving out of California. And I'm happy to announce that we have exited the headquarters that was in Fairfield, California completely and given the building back to the owners. We now have moved into our brand new headquarters in Dallas, Texas and are excited about that first part of the transition taking place. So if you have time, come see us in Dallas. We will be furthering our work in the next 2 years as we implement new technologies as Will discussed in his call.
We also in the year sold off both airplanes that we had. We've talked about that in previous calls, but by being based in that don't have the need now to have aviation. We can get everywhere we need to get from DFW. In the year, we took an $8,700,000 impairment associated with our move to Texas and that included the planes. In this quarter, we recognized an additional $1,200,000 loss and that is reflected below the line and not in G and A.
So I want to point that out, call that out for you because now that is the last of that since the planes are officially sold off. In the year, we acquired 40 locations. 2 of those locations were in Alberta, Canada, one location in Calgary and one location in Edmonton. And then we have a new location in the south end of Atlanta and a new location in Mevon, North Carolina, which is between Greensboro, Raleigh. On the expansion side, we bought out existing leases or purchased new land so that we can expand existing locations at 5 facilities.
And then finally, I just wanted to mention that for the year we purchased $203,300,000 worth of stock or approximately 9,000,000 shares. With that rather than going through any other points, we'll open up for questions and try to touch on any points that you may have on the call. Casey, if you'd please take questions at this time, would be great.
Thank We'll take our first question from Bob Labick with CJS Securities.
Good morning. Congratulations on a nice quarter year.
Thanks Bob.
First question, obviously international expansion has been a big theme for you guys recently and the move into the UAE looks like a nice location. Can you talk a little bit more broadly about what Copart can bring to a new geography? Obviously, your advantage in North America is the land, logistics, technology, supply base and buyers. But going into a new area, what are the big advantages Copart brings?
I'll go ahead and respond to that. If you don't mind too for folks that are asking questions, if you can point them out to whether the questions for Will or myself, that'd be great. But I'd be happy to comment on that Bob. Dubai is our 2nd largest market. The UAE is the 2nd largest sell to outside of the U.
S, the number one market being Mexico. And so for us to get a footprint in there, yes, we get to sell cars and we're holding. We've had 3 auctions now in that market. So that's great and that allows for growth. That allows for us to go out and reach out to all the insurers there and process their vehicles.
But it also allows for us to recruit buyers in that market to take payments in that market and to assist in the shipping process, which is something today. The logistics of that is being done through vendors to the buyer base or by buyers directly. And now that we've got a facility, we've got storage, we can actually assist and not necessarily the actual shipping, but once it is shipped from a U. S. Location to the Middle East, we can then take that vehicle and sort it our location for them and assist in that process.
So it just allows us now to expand throughout the Middle East into those markets and it's part of our strategy to deploy in a number of international markets, which I bring up the last point, which is really important. We're a unique company and that we get a benefit by having a global footprint. Give the analogy of when Walmart opens up in the U. K. And they've got ASSA, buyers at ASSA probably aren't going online and buying product at Walmart in the U.
S. But for Copart, when we open up in a market like the U. K, we start selling motorcycles in the U. S. So there's an
Okay, great. And then stick with you Jay. You've had a lot of success with the non insurance market growth, volume growth. What are the key areas going forward in that market? And how big can non insurance be for Copart?
Well, we've talked about those key points in the past. We go after all facets of the non insurance market, whether it be TPA or charity or dealer business. And we're going to continue to go after that. We have been successful. And really I think the limit is quite high.
It's an enormous market compared to the size of the total loss vehicles in the U. S. Or the U. K. Or Europe or any market.
So it's one of those books of business. What excites me about it is one of those books of business where we've had some really great growth in the last year on the insurance side and yet that business has been able to maintain a seventy nine-twenty one split. So they've been able to keep the growth going on even though the insurance side has been growing. So that's good stuff.
Okay, great. I'll let others ask questions. Thanks very much. Thanks, Bob.
Thank you. We'll take our next question from John Lovallo with Merrill Lynch.
Hey, guys. Thanks for taking the call. Hi, John. Jay, I'll start with you. I think over the past quarters you had mentioned potentially giving an outlook on CapEx.
I was wondering if you guys are in a position to do that?
Yes. John, it's funny because we met this week talking about it and we may give some CapEx guidance in the following quarter. It just felt way too difficult. The range was so wide for us. And really that world sounds you just don't know what deals are going to get done.
And so the range was so wide that we just felt like it wasn't a good idea. I'll leave you with this. We spent a little over $200,000,000 last year on buying our shares back. We look at our cash position and the return on our cash as a factor on the return we can get from buying our own company back. And so we're not going to go out there and deploy capital on things that are not a good use of capital.
We're not going to go after businesses that don't make sense. And we're not going to go out and expand yards that don't need the expansion. So we've got great capacity today, but we are expanding some yards just to maintain that capacity. And we are looking at targets out there. And if we can get a better feel for it in the next quarter or the quarter after that, then we'll give you guys some guidance on that.
But otherwise for now we've decided to hold off because the variance is so wide.
Okay. That's helpful. And Jay one more for you. G and A last quarter, I think you had mentioned that kind of the $25,000,000 $26,000,000 per quarter run rate. Is that still reasonable for 2013?
The fact that it will change in 2013 is our we are really transforming our company from a technology standpoint. We've got technology that will continue to run the company for the next year or 2 or 3. But for us the tonnage of the world we live in today both on a solo mo level and on a cloud based computing level, all the technology that's out there, we have got to really transform our company to that next point. So there's going to be G and A costs associated that are one time. And so we expect G and A to be higher than that this year.
But candidly, the good news is that that is time, duplicative cost that's associated with running systems at the same time. And once that one system is in and it's running and it's functioning, the other system would be shut down and those costs will go away.
Great. Very
helpful. And Will, one sorry. I will I'll just add to that. When that happens and we've got a feel for what that expense is going to be, Will is going to call that out so that you know exactly what parts of G and A are considered non recurring.
Very helpful. And Will I'll end with you. Just on the share repurchases in the quarter, I think it was 2,800,000 shares. The share count didn't drop by quite as much. I'm just wondering if a large portion of this was offsetting dilution from stock comp?
No. It's just that you don't get credit for the entire quarter. When you purchase a share during the middle of the quarter, you apportion the benefit throughout the quarter. So you'd only get 40 if it was purchased in the middle of the quarter, you'd only get 45 days benefit or half the benefit of the shares purchased during the quarter.
Got you. Thanks very much guys. Thank you, John.
Thank you. We'll take our next question from Scott Stember with Sidoti and Company.
Hi, Scott. Hey, how are you? Good. Jay, this question is for you. Going back when you got the exclusive Allstate contract, there was some margin compression right out of gate just given the reset on pricing on existing business.
Can you maybe talk about the potential impact on that on the nationwide contract in the quarters coming
up? Well, that should be past us now. I mean that happened in Q3 and Q4 with Nationwide because we you obviously you adjust on price and then you start handling additional volume and you've got the cost of increased receivables as you're picking up vehicles and not selling them. And as Will stated in the call, I didn't comment on it because he covered it pretty clearly that Q1 we will achieve by the end of the quarter a full run rate and in Q2 we'll be at what we believe a full run rate for that nationwide agreement. But we're handling additional cars now.
So that should be past us as far as the compression that's in Q3 and Q4.
All right. Great. And maybe just looking out, I know that there's a couple of large players in the industry and large contracts have gone back and forth. But could you talk about the future of gaining additional business from a large contract again?
Well, buddy, it's Kobal, I'd share it with you. I just those are just things you just don't know. And we're working really hard over on this end
and we
fully believe in our team and our technology and our people's ability to deliver.
And we're passionate
about what we do. I think people that need us figure that out pretty quickly. So we're kind of it's going to be around for a long time. We're not interested in doing something differently. This is what we do.
This is what we love. And hopefully over time that will generate additional business, but that's just a big unknown. You never know.
Okay. And just the last question. Maybe just touch base on Copart Direct trends that you're seeing there and the potential going forward?
Yes, trending up. And we've employed some new process on Copart Direct that is causing that to trend up and we believe that will trend up even further. That is part of the CDS business. It's part of the TPA business. It's part of the charity business.
So that is all considered non insurance volume, but it is trending up and so it's helping us maintain that spread even though we're gaining insurance cards.
Got you. That's all I have for now. Thank you.
All right. Thanks, buddy.
Thank you. We'll take our next question from Craig Kennison with Robert W. Baird.
Good morning. Thanks for taking my questions as well. Will, I'll start with you. The nationwide ramp, I appreciate the color you provided. Can you give us a sense for what percentage of the volume you had this quarter and what percent you might have next quarter before you're fully ramped in Q2?
Percent of what volume?
Percentage of your expected total nationwide volume?
No, I really can't. We're seeing the increase like we said in the assignments. I think the only color that we'll provide is what we've already said is that by the exit of our Q1, which is October, we expect to be at full run rate. And so there'll be some incremental benefit in our 2nd quarter. But right now I'm not going to express in terms of percentage.
Okay. Fair enough. And then Will also with you with Hurricane Isaac any material impact at all on volume or your cost structure?
Yes. I mean, there's a lot of things that affect our volume. Weather was not detrimental this quarter like it was last quarter. But remember we sell a lot of cars throughout the nation. So bad weather in one area doesn't necessarily indicate an increase an expected increase in volume nationwide.
So while we did have some benefit, it's not something we'd call out specifically.
Thank you. And then Jay, as you think about some of the international market opportunities you have, to what extent do you need to rely on your insurance partners to pull you into a market versus you choosing to get there and pulling your partners
in? That's actually a great question, Craig, because I mean you hit on a really important point there. If there's an opportunity to acquire an existing company in the market then we'll do that. But if there isn't and we have to start up in that market maybe convert the market over to our model and that relationship and relying on partners is paramount. And the good news is we've got really good relationships with our customers.
We've got their interests set as our number one priority. And so the only reason that we would invest in a market and spend capital in a market is because they believe and we believe that there's an opportunity to improve the returns in that market and go in and give it a shot. And so we fully expect that in the years ahead that will happen. There will be some but we're not going to be able to open up or to acquire existing locations. And when that's the case, we'll go in and provide our services from a start up position, which by the way we've opened up well over 30 locations across the country as startups and relied on existing customer relationships.
So we know how to do that part of it.
Great. Thanks. I'll quit while I'm ahead. Thanks.
Thanks, Craig.
Thank you. We'll go next to Bret Jordan with BB and T Capital Markets.
Hi, good morning. Good morning. I have a quick question. And I guess to put the UAE in perspective, it was the 2nd largest foreign market. But what kind of volume was being done in the UAE?
And I guess to some extent as we look at the incremental SG and A contribution this quarter, is that inflated because of transaction costs getting into that market? And does it moderate going forward into 2013?
Well, it's not just that market. We've got costs right now associated with international expansion in a number of markets that we've been carrying out for over a year. So part of it is UAE in the quarter, but it's not all UAE. And we've never made it a habit where breaking out units on a per market basis. So we won't start doing something different we've done in the past.
But as we said, it's the number 2 market internationally for us. So it's a big deal to be in that market.
Okay. I guess if you look at the UAE sort of shovel on the ground outside North America, does that preclude you from moving to other non North American markets in the near term? I mean, is Brazil sort of still on the concept stage? Or does this do we sit back and work on the UAE for a while before doing anything else?
No, I won't speak specifically to any other particular market, but they're all open right now. It doesn't preclude us from going into other markets.
Okay. And I guess, an unscrap pricing outlook into the early winter months here, just sort of big picture stuff maybe is that Will?
Well, I
was that for Will sorry?
It's either one of you. Whoever's got better whoever's got the better crystal ball.
Go ahead Will.
Yes. No, I don't have any information other than the market. So you can look at commodity futures and I agree with whatever they say.
Okay.
Brett, I speak to the smartest buyers out there and I know nothing right now about commodity pricing. It is absolutely impossible to figure out where it's headed. I mean, we talked to our friends out there and they're like, I have no idea.
Okay. I guess one last question and this is on the Project Overdrive. You talked about $1,200,000 of cost below the line. Was there anything still left in the quarter on SG and A related to that conversion that rolls off? I mean, is there anything above the line that was extraordinary this quarter?
No. I think
we called out the ones that we consider incremental and will go away in the future. All right. Great. Thanks. Welcome.
Thank you. We'll take our next question from Bill Armstrong with C. L. King and Associates.
Good morning, Jay and Will. I guess most of my questions would be for Will. On the SG and A you had $2,400,000 of international and VRP system costs. Were there any costs from the headquarters move during the quarter?
Not meaningful. Not meaningful. And we stopped calling those out. I mean it's in the low 100 of 1,000 of dollars. The $2,400,000 specifically for the ERP system and does not include anything for international because those costs will continue.
I see. Okay. And you might have said this in your opening comments and I might have missed it, but what were the average selling price trends for insurance during the quarter compared with the up, down, flat?
Yes. Well, they were down moderately.
Okay.
I mean, you can look at used car pricing, commodity pricing and that will be a fairly good indicator of where our ASPs are heading on a segment by segment basis. That ignores the impact of mix. So as we bring in more of the enter into more of the used car redistribution market, our overall ASPs are restatement
in done somewhat of a restatement in your breakout between service revenues and vehicle sales. I wonder if you could just walk us through that.
Sure. There's certain revenue and it's not a big number. It's $2,000,000 or $3,000,000 a quarter of revenue that as we reviewed it we thought was more appropriate to be reflected as purchased car sales. It has to do with scrapped cars and dismantled cars and parts sales in the U. K.
Okay. So the U. K. Vehicle? Yes.
Okay. It's not the whole cars. It's the parts and the crushed cars in the U. K.
Got it. Okay. All right. That's all I had. Thank you.
Thanks, Bill.
Thanks, Bill. Thank you. We'll go next to Edward Hemmelgarn with Shaker Investments.
Yes. Will, this is a question for you. Just do you expect any beneficial impact in terms of over the next year or 2 of reduced tax rate from the move of the corporate headquarters to Texas from California?
No, I don't. I think we're about as
efficient as you can be
on the state tax side. I think there are some benefits that will as we expand internationally and develop more of our revenue outside of the United States. But I'm certainly not at a position to quantify that going forward. I think using a 34.5% rate is probably appropriate for modeling purposes at this
point. Okay. Great. Thanks. Thank you.
And at this time, we have
no further questions. All right. Thanks, Casey. Appreciate everyone coming on the call and we look forward to reporting the Q1 to you very soon. And again, thanks for being on the call.
Will, I'm going to give you a ring at the end of this call, okay?
All right, Jay.
Thanks, guys. Bye.
Thank you. Goodbye.
Thank you.