Good day, everyone, and welcome to the Copart Incorporated First Quarter Fiscal twenty eleven 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 Adair, Chief Executive Officer of Copart Incorporated. Please go ahead, sir.
Thank you, Melissa. Good morning, everyone. Welcome to the Q1 call for fiscal 2011. Before we start, we'll turn it over to Will for some brief statements and we'll give you an update on the company.
Thank you, Jay. Before we begin our comments, I would like to remind everyone on this call that our remarks will contain forward looking statements. These statements are neither promises nor guarantees and are subject to certain risks, trends and uncertainties that could cause actual results to differ significantly from those projected or implied by our statements and comments. For a more complete discussion of the risks that could affect our business, please review the management's discussion and analysis and the factors affecting future results contained in our 10 ks, 10 Q and other SEC filings. With that, I'll turn the call back over to Jay and Derek to begin the discussion of our quarterly results.
Thank you, Will. Good morning again, folks. Just wanted to report on international bidding for the quarter. As a starting comment, we finished the quarter with 22.5% of units selling internationally that represented 26.6 percent of gross proceeds. Looking at North American mix, we finished with a higher than normal insurance sales ratio, but still under 80%, finished at 79.7% insurance, 20.3% non insurance supply.
Looking at G and A and I reported in the last quarter that we would be reducing G and A year over year. So obviously, anyone who has ever been through that experience before of cutting back some costs, you're going to have initially some actually increased costs in doing that. So we don't expect it to be this quarter, even the next, but as we approach the end of the year, we do expect year over year G and A to be down 2011 as opposed to 2010 G and A costs. We finished the quarter with $27,000,000 in total G and A expense as opposed to 23,900,000 dollars for the prior quarter Q1 in 2010. All right, let's look at capital spending.
In the last quarter, we also spoke about a $70,000,000 budget for the year in capital spending. That's excluding any large acquisitions, but acquisitions that we've got planned along with lease buyouts and along with some capital spending for development costs. Total capital spending for the quarter was $14,800,000 dollars Out of that number, dollars 4,300,000 was associated with lease buyouts on facilities. New yards for the quarter, we opened a new facility in Homestead, Florida that will service obviously Southern Florida Miami area. And in the quarter, we purchased approximately 2,250,000 shares in our stock buyback.
We currently have authorized 29,000,000 shares to be purchased. We have bought so far approximately 16,000,000 shares and we have approximately 13,000,000 shares remaining in the buyback in the authorization. Approximately $76,000,000 was spent on that stock and we finished with cash of approximately $260,000,000 on our balance sheet. That's all the update I am going to give for now because I am sure there will be questions. I will turn it over to Will and after his comments, we will be happy to answer any questions that you have.
Thank you, Jay. Yesterday, we reported our financial results for the Q1 of our 2011 fiscal year. Consolidated revenue was $212,700,000 compared to $185,500,000 for the same quarter last year. During the quarter, we adopted a new accounting policy that changed the way we recognize certain revenues. Before this quarter, we deferred the recognition of the revenues from towing a car into the yard and the revenue from converting a title to a salvaged or branded title until the car associated with these services was sold.
We now recognize this revenue as the service is performed. The acceleration in the recognition of these revenues resulted in a one time increase in total revenue of approximately $9,100,000 and a total increase in yard operations expense of approximately $8,800,000 Excluding the impact of this change, revenue would have been $203,500,000 This represents an increase over the same quarter last year of 9.8%. The growth in revenue came primarily from increased volume. On a same store sales basis and excluding the impact of the change in the accounting policy, revenue increased 6.1% and was driven by volume. During the quarter and in the UK, 41% of the cars were sold on the principled model compared to 60% for the same quarter last year.
The transition to the agency model had the effect of reducing revenue by approximately $9,500,000 Excluding this impact, same store sales would have increased 11.3%. The gross margin percentage on purchased cars declined as both the average selling price and average cost increased at similar amounts. Our operating margin grew Our operating margin grew from $82,600,000 to $89,900,000 or 7.6 percent. Included in yard and fleet cost in the quarter was the impairment of certain operating assets totaling approximately $1,300,000 and $8,800,000 in costs associated with the revenues, whose recognition was accelerated due to the accounting change. Excluding the impact of these items, yard operations expense would have been $76,100,000 gross margin would have been $89,900,000 and the gross margin percentage would have been 44.2%.
General and administrative costs, excluding depreciation, were $27,000,000 compared to $23,900,000 for the same quarter last year. The growth was driven primarily by the increased investment in marketing to buyers. Our operating income increased from $56,500,000 to $59,600,000 or 5.5 percent. Our effective tax rate was 37.1 percent for the quarter. Diluted EPS from continuing operations was $0.45 per share compared to $0.42 per share for the same quarter last year.
We ended the quarter with $260,500,000 in cash. Vehicle pulling costs and deferred revenue declined and accounts receivable grew as we accelerated the recognition of certain revenues in compliance with the accounting rules changes. In the quarter, we generated approximately $77,500,000 in operating cash flow. We expended approximately $75,700,000 for the repurchase of approximately 2,250,000 shares of our own stock. Capital expenditures in the quarter were $14,800,000 and included the buyout of 1 facilities lease for $4,300,000 That concludes my comments.
Melissa, we'll now turn the call back over to you for the Q and A portion of this call.
Thank you. And our first question will come from Bob Levesque from PJS Securities.
Good morning. Good morning, Bob. Hi. A couple of questions. On the last call you elaborated on your marketing, you said you had taken a big broad brush last year in marketing, you do more rifle shooting this year.
Is there an opportunity for you now to update us on your marketing plans and your plans to drive more traffic to the Copart website and more buyers?
Yes. I mean, we're happy. We're very happy with what we've done so far. We'll be repositioning some of the dollars in some new areas that will drive more traffic that have been more effective in the past than others. And in some areas where we've matured to some extent, we've kind of worked that area and now it's time to find some new sources.
And then some of it will just be a reduction in total cost as well. So we're actually going to be reducing some marketing spend at the same time.
Okay, great. And then on a bigger picture question, over the next several quarters, we should see a continued solid ramp in your insurance business related to the Allstate new business. Could you tell us about your plans for top line growth drivers beyond this new Allstate business once you get to the higher plateau? What do you think will be the key drivers for 2012 and beyond to get past 3% to 5% top line growth? Well, I don't think the drivers have changed.
I mean, we're still going to
be focusing on non insurance business, business that is dealer trade in vehicles and other sources. I mean, I could go into all the details, but I think everyone's aware of what sources we get, where we get our vehicles from. And that will also be insurance business, the existing book of business that's out there that is attainable that will go we believe in the future we'll be bringing on more clients and more customers just as we did with Allstate. I think that's a a it's a great example of a company that a large company that's made a decision to go with Copart and anyone who's talked to them knows that they're very happy. So those are that's a good thing.
And quite possibly be more deals like that in the future, you never know. But yes, we look we feel really good about 2012, 2013 and on in terms of getting additional clients both from the insurance segment and from the non insurance segment.
Okay, great. And one last question, I'll get back in queue. Obviously, you made a big statement with a fairly sizable share repurchase in the quarter, it was the first time in 3 years or so. Can you just once again just update us on your thoughts? You're generating a lot of cash, your priorities for that cash and will there be additional share repurchases in the future?
Well, we bought stock in 'eight calendar year. I'm not thinking fiscally, I'm thinking calendar year. We bought stock in 'eight and I don't have it in front of me, but I think we bought in 'nine and a little in 'nine and we bought a fair amount in 'ten. Not open market. Not open market though, right.
So yes, this is the first open market purchase we've had since 2,008. But a lot of that's because of what we've seen in the past and the economy. And at the time we had a cash position somewhere below $50,000,000 by the end of calendar year 'eight. We were sitting on and currently are sitting on a lot of cash. And without getting into how we value the stock, Bob, I think at the end of the day, actions speak louder than words.
We've made a decision to buy a little over 2,000,000 shares in the quarter. We thought the stock was undervalued, so we did that. And we'll be looking at quarters ahead and seeing whether or not we think that that's an option for us. It's always going to go back to where's the best place for us to deploy our capital. And last quarter, we felt that was the right move and we'll see on the quarters ahead.
Great. Thanks very much. Thank you.
Next, we'll go to Tony Cristello with BB and T Capital Markets.
Thanks. Good morning, gentlemen.
Hey, Tony. Good morning.
Couple of questions. First, just to be clear, when we look at SG and A, and there's you talked about it being down, but then you had some incremental upfront cost. If we look at fiscal year 2011 versus fiscal year 2010, should we see G and A expense be down on that basis?
Yes, total year, yes.
Okay, perfect. The second question is when you look at sort of the upfront cost that you talked about that maybe caused a little bit of an increase in SG and A. Can you maybe give a little bit more color? Are those automation costs? Are those costs associated with gaining efficiencies?
And are those going to bring you further ability to drive SG and A lower subsequent to the additional marketing expense that you can take out?
Yes. The answer to that is you actually hit it. Yes, there are some costs that you've got associated with technology and automation and the rest. So and will they drive reductions in costs into 'eleven, 'twelve and 'thirteen, of course. So without predicting where the G and A spend will be in 'twelve, as we're just at the beginning of fiscal 'eleven, my guess is that we'll see the effects of what we are doing today in subsequent years.
And it's not going to be something that is just this year. It's something I think will happen in years to come. I think we'll see additional drops in G and A. But look, we'll see what happens. I just from the visibility that Will and I have today looking at the numbers, looking at the year, we anticipate the total spend for this year to be down.
And then, of course, there's a lagging effect. Some of these things take time to implement. So as we get to the end of this fiscal year, we'll then comment on what we think G and A spend will be in fiscal 2012.
Okay. And maybe just one more question. This was sort of the Q1 where you had been that big Allstate volume finally come through. I mean, and I'm assuming that a big percentage of that 6.1% comp was related to that. Can you tell me a little bit about the profitability and how we look at Allstate contributing in what is a seasonally weaker quarter, such as the October or the January quarter or what impact that might have on profitability from a contribution standpoint in an April or perhaps a July, which are seasonally stronger quarters.
Is there a difference? And how should we think about the Allstate overall to your business now that you've had a quarter in?
Let me give it to you this way, Tony, because I obviously don't want to give you earnings guidance. So when we think about this quarter as opposed to Q3, Q4, this is a lighter volume quarter. So as we get into Q2, we'll be building inventory. Q3 and Q4, we'll be selling off some very large volumes. So the impact is going to be much greater in Q3 and Q4 than it is in Q1 and Q2.
And I'll say that, but I don't want to really get into any other specifics just because we've had a history and we want to continue to tell you about what we're doing in the company and not tell you what's coming in terms of earnings guidance.
That's fair. And is there any reason why I still shouldn't think about January as still being a little bit seasonally weaker than October? Or has something changed given the macro and everything that's been going on in terms of how we should look at the overall seasonality of your business.
No, I think that's a fair way to look at it. Do you agree? Yes. Yes, absolutely.
Okay. Thanks guys. I appreciate it.
We'll now go to Craig Kennison with Robert W. Baird.
Hi. This is actually Mark in for Craig. Thanks for taking the question. Hi, Mark. How is it going?
Right now, about 20% of the business is non insurance. Now there are several sources here, which you touched on, but could you maybe rank the top 2 or 3 and talk about how those have evolved over time?
Well, yes, without sitting here and going through every segment that got, the top 2 are probably dealer, all dealer, whether that's dealer trades or dealer broker or regardless, all dealer is 1 lump and then the next is probably vehicle donation program cars. So those are the 2 largest outside of that. In addition, you've got a number of other supplies, whether it be bank repos, whether it be rental, etcetera. But those are the 2 largest, that we've got. And they're the largest growth drivers.
They're the largest pieces with the availability for growth going out there and it's a huge market. I mean when you get into vehicle dealer trade in vehicles, it's just an enormous market compared to the insurance industry. And they're incremental units. They're vehicles that turn in a lot less time. And I've given the analogy before, so I'll give it again.
It's kind of like the mall has the large Nordstrom stores, but they really make all their money off the little stores that are on the Strip and that's really the same scenario here. This is a business where we've got large clients, large customers, the insurance companies that are providing a steady stream of volume and then the real gains and additional revenue and profit can come through finding alternate sources of product to move through the auctions that don't have to be stored 60 to 90 days and that can be turned relatively quickly. So that's where we anticipate a lot of the growth will be in the next couple of years as well. Okay.
And then what is the status of Auto IMS? Has that platform been as productive as you had hoped?
Yes, it's in place and we're happy with it. We're glad we're connected to it. And I've got nothing negative to say. I think it's all from that perspective, it's all good. We get volume through it now and we've been able to gain additional customers through it.
So it was a win win.
Great. And then finally, one more here. Could you just give us an update on the Copart Europe strategy? Are there any acquisition opportunities in new markets that may make sense?
Yes, there are. We're without and again, I feel like without going through the playbook, so to speak, we've got plans that are in the works and some of those plans are going to be achieved this year. You'll see some of the things that we'll be announcing, some of the acquisitions we'll be announcing this year. Some of the plans will be coming down in 2012 2013, but it's a great market. We've got a great customer base.
We've got a fantastic team that is running it. And so we fully intend to be expanding over in that market. Everything so far has just been all thumbs up.
Great. I'll jump back in the queue. Thanks again.
All right. Thanks.
And our next question will come from Bill Armstrong from CL King and Associates.
Good morning. A couple of questions here. The same store sales growth mainly was from higher volume. Could you discuss the trends in revenue per transaction? That up, down, kind of flat?
No. If you exclude the impact of the transition, revenue per transaction was up mid single digits.
It was? Yes. Okay.
Could you tell us what
the U. K. Revenues were? Could you break that out for us?
Sure. U. K. Revenues, Q1 of last year was about $38,000,000 in USD. It's $42,800,000 this quarter.
Okay.
We had about a $1,800,000 negative impact on FX during the quarter.
Got it.
The $9,100,000 revenue adjustment, was that all North America or was any of that in the UK?
It was virtually all North America.
Okay. Tax rate was 37%. Is that a rate we ought to look at, you kind of assume when we're modeling going forward?
I think to be safe, perhaps maybe 30 below 37.5%. I think it's safe to say we won't exceed that.
Okay. So low 37s then? Right. Okay. That's all I had.
Thank you.
All right. Thanks.
And next we'll go to Scot Ciccarelli from RBC Capital Markets.
Hey, guys. How are you? Hey, Scot. Good, buddy. Good.
I guess I was a little confused by Will's comment regarding the revenue per unit. When you say excluding the change, are you talking about the accounting change, Will?
No. I'm talking about well, yes, I excluded both those. When I quoted the 11.1%, I excluded the accounting change. Yes. And I excluded the impact of the transition from the principal model to the agency model in the U.
K. I got it. Okay. Fine. And I know you guys don't want to give too many details about the Allstate deal, but would volume have increased without the incremental volume from Allstate?
We know the answer. The question is do we want to get down to this kind of detail. The answer is yes.
Well, it's a pretty big change to the model, right? Yes. The answer
is yes. We would have done more volume year over year had we not achieved the Allstate business.
Okay. That's helpful. And I guess the last question is this is a little bigger picture. I'm just interested in your perspective. We have the SAAR starting to pick up a little bit, miles driven starting to get a little bit better.
What are you guys thinking about, just generally speaking, in terms of kind of ASPs and pricing as we look out through the balance of the year here?
It's hard well, for the balance of the year, geez, it's just so hard to predict what ASPs are going to do. Right now, they look great. Right now, what we're achieving in the Q2, what we achieved in the Q1, ASPs look great for the year or they look great right now. Who knows what it's going to look like in June, July? My guess today would be that I don't see anything that's out there.
With that said, my crystal ball didn't predict what happened at the end of 'eight either. So we don't see anything really that's out there right now that would dramatically change the fundamentals of how vehicles are totaled, how they're repaired, the demand for used parts, the demand for exports, the demand for rebuilders. You put all those factors together, vehicle sales seem to be kind of hovering at the same amount, trade ins are coming in at about the right rate. So from every standpoint that we can see, it looks like the ASPs will continue to be where they're at today throughout the year. I guess, you just don't know what 2012 is going to be like, but you have to sit back and think, here's an industry that was selling 50% more new units every year than it is today.
And if you we're about a couple of years into this now and if you take this out another 3 years, we should have a vehicle mix in the U. S. That's missing about 25,000,000 new vehicles as opposed to the prior 5 years where a lot more new vehicles were being sold and a lot more what I consider better quality vehicles, the SUVs, the trucks, those are vehicles that are less they're getting less demand today, more of the small cars, Priuses and those types of vehicles. And the big deal about that is it takes a lot more to total a truck or an SUV than it does to total out a small car. So if you take the fact that we've got an aging population because we're not selling as many new cars and then you take the mix of vehicle, we're going to see, in my opinion, a lot more vehicles in 2013, 2014, 2015 as we look out.
With that said, I would think the ASP on those vehicles would start to drop a little because they're not the quality of units. They won't be the larger vehicles, the trucks, the SUV. They'll be more of the cars and hybrids and those types of things. So as we sit here and we look at this year, we think this is ASPs are going to stay where they're at. And as we look out into the future, we think volumes will go up and ASP will probably soften a little.
Okay. So kind of what we've seen recently, so sluggish volumes, but strong ASPs in the near term and that kind of reverses as we get out, call it, 8 quarters or so from here?
I would think so.
Okay. All right. That's helpful.
Again, it's a guess, but that's what we would think. Yes, if you look at the data, that seems to make sense.
Right. Okay. Thanks a lot, guys. Thank you.
And that concludes our question and answer session for today. And at this time, I'd like to turn the call over back to Mr. Jay Adair for any closing remarks.
All right. Thank you, Melissa. Again, thanks folks for attending the call. We look forward to reporting on Q2 next year. Happy New Year and we'll see you then.
Thanks. Bye.
That does conclude our conference for today. Thank you for your participation.