Copart Inc (CPRT) 2003 Q3 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Copart Incorporated fiscal 2003 earnings conference call. It all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone key pad. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Mr. Jay Adair, president of Copart Incorporated. Thank you, you may begin.

Good morning, all before I start I'll turn it over to Simon Rote acting CFO and he'll give you an update on legal introductions.

Thank you, Jay. Good morning everyone. During this conference call we'll be making forward-looking statements within the meaning of section 27 A of the securities act of 1933 at section 21 E of the securities and exchange act of 1934. I would direct you to review the management discussion review and analysis and the factors affecting future results contained in the company's 10-K and other SEC filings for full discussion of factors that could affect future performance. Our agenda has three items this morning. First, Jay Adair our president will go over highlights of the quarter and recap some important accomplishments. Second, I will be discussing financial details of the quarter. Finally we'll open up for your questions. Now it is my privilege to turn you over to Jay Adair.

Thank you, Simon. Good morning. Welcome to the third quarter conference call earnings release. We as you know reported net income of $15.4 million on revenues of $93.9 million for the quarter. Same quarter a year ago the company reported $16.6 million on $90.1 million in revenues. Fully diluted earnings per share for the quarter was 17 cents, compared to 18 cents same period a year ago. For the nine month period net income was $43.9 million, on $260 million in revenues or 47 cents per share and for the same period a year ago net income was $41.8 million, or 46 cents per share on $233 million in revenues.

What I'm going to do right now is walk you through the statement of cash flows. That seems to be the most common questions that I get anymore from the investment community. The company generated $44.993 or $45 million dollars in cash provided from operating activities. Cash primarily came from the net income of $15.4 million. Depreciation of $6.4 million, and the reversal of accounts receivable for the quarter. In Q2, as you know we build inventories, the company used roughly $19 million in cash, billing inventories. That inventory flips out in Q3 as we sell vehicles off and we generated $15.2 million in cash as we sold off the inventory. In addition, vehicle proving costs reversed out about $2.1 million in cash for the quarter. And then lastly we had income taxes due but not yet paid and that represents $4.6 million in cash. Out of the $45 million in cash generated, we spent $7.7 million in property and equipment for the quarter. Significantly down from prior quarters, as I stated before. Q1, we spent $27 million in cash. Q2, spent $33 million in cash. For a total of $60 million, $60.4 million in cash. Q3, right at $7.7 million in property and equipment. We are currently spending, [inaudible] finish up jobs in the pipeline.

Going forward we'll be analyzing new acquisitions against stock price, of course. We've done that in the past but given our current stock price I think it makes it even more relevant. And with respect to new start-ups and openings, we'll be looking at capacity since we're not growing quite at the speed that we have in the past. With respect to finance activities, the company spent $20.4 million in cash on the repurchase of its stock. And so the net increase in cash for the quarter was $16.9 million. The company started the quarter with $94 million in cash. We finished the quarter with $110.9 million in cash. As I said, that $20.4 million spent on shares repurchased a total of $2.695 million shares of the company's common stock. We purchased that stock at an average price of $7.59 a share. And we are currently authorized to repurchase an additional 6.3 million shares under the company's current stock repurchase program.

Weighted average shares outstanding for the quarter finished at 92.6 million. Shareholders equity for the quarter finished at 511.4 million, down from 516.3 million. Obviously this is due to the repurchase of company stock. Capital budgets for Q4, I gave capital budgets at the end of Q2, we are revising those again we believe capital budgets in Q4 will be in the range of 10 to 15 million dollars. Maintenance cap ex budgets for next year are still 10 to 15 million. We currently do not have a budget on what investment capital spending will be. At this time we're finishing projects that are in the pipeline and we do not have any current projects out there other than those. As we get a better visual on what we're doing there, we'll report that to the street. There were no new stores in Q3. However, as you know, we announced Richmond, Virginia this month. This will serve between Waldorf facility and Danville, Virginia facility. This brings us up to 102 locations company-wide. We currently have four new stores in the pipeline that will be opening in the future.

In addition, we no longer report gross proceeds. You'll see that in the press release. We do not report gross proceeds or Internet sales. This is due to the effort to comply with section 401 B of Sarbanes Oxley and items that are non-GAAP related. Those proceeds with non-GAAP item, and Internet, of course, was a percentage of gross proceeds. We'll be reviewing how we can report Internet sales going forward in some other fashion other than gross proceeds. Lastly, the company is making public its diluted earnings forecast of 14 and 15 cents. 14 to 15 cents per share range for Q4. That's no change from what we announced in Q3. And for the fiscal year of '04 we're currently not giving per share forecasts. Thank you very much. At this time I'll turn it over to Simon Rote acting CFO.

As Jay discussed financial performance was in line with expectations 67 percent of the cars sold were processed under PIP agreements and the remaining 33 percent were processed under fixed E programs. This is consistent with the prior year's quarter. Revenues were approximately $93.9 million for the quarter an increase of approximately $3.8 million or four percent over the prior year's quarter. The increase in revenues was due primarily to new facilities which contributed approximately $5.3 million in new revenue. This increase was offset by a decrease of $1.5 million from same stores. This decrease was the result of the opening of seven green fields in close proximity to existing facilities which cannibalized from the existing facilities.

The [inaudible] Expenses were approximately $55 million for the quarter an increase of approximately two million or four percent over the prior year's quarter. The increase in yard and fleet expenses was due principally to the cost of new facilities. Approximately $4.4 million of yard and fleet expenses was due to new facilities. Yard and fleet expenses from existing facilities decreased by approximately $2.4 million, or four and a half percent. Yard and fleet expenses remained consistent at 59 percent of revenues during the third quarter of fiscal 2003 and 2002. General and administrative expenses were approximately $7.9 million for the quarter, an increase of approximately one million or 15 percent over the comparable period in fiscal 2002. This increase was due primarily to increased payroll and other operating expenses. General and administrative expenses remain consistent at eight percent of revenues during the third quarter of fiscal 2003 and 2002. Depreciation and amortization expense was approximately 6.4 million for the quarter. An increase of approximately $2.2 million or 51 percent over the comparable period in fiscal 2002. This increase was due primarily to depreciation and amortization of capital expenditures, covenants not to compete and acquired assets resulting from the acquisition and expansion of auction facilities. Operating income was approximately $24.6 million for the quarter. A decrease of approximately $1.4 million or five percent from the comparable period in fiscal 2002.

Total other income was approximately $900,000 for the quarter, a decrease of approximately $100,000 from the prior year's quarter. The decrease is due principally to lower interest income. Our effective combined tax rate of 39 and a half percent for the quarter was slightly higher than combined tax rate of 38 and a half for the prior year's quarter due to changes in estimated state income tax rates. Due to the foregoing factors we realized net income of approximately 15.4 million for the quarter, compared to net income of approximately 16.6 million for the three months ended April 30th, 2002. Now we'll discuss new store information.

The 12 new facilities added approximately $5.3 million of new revenue, and as I noted earlier the direct costs were approximately $4.4 million. Depreciation and amortization is an additional $638,000. The effect of new acquisitions and openings on the current quarter is an operating gain of approximately $242,000. Please keep in mind these new facilities are an investment in the future. Some new facilities will show losses for the first 12 to 18 months. Finally, let's look at the balance sheet and cash flow.

We started the fiscal year in August with cash and cash equivalents of $133 million. As of April 30th, 2003, that balance was $111 million, a decrease of approximately $22 million from the start of the year. Operating cash flow for year-to-date is $65.2 million from net income of $43.9 million. Please recall this is the period where we sell off inventories and accounts receivables declined quarter over quarter as a majority of the AR balance relates to advanced charges for cars we picked up during the winter. AR at the beginning of the quarter was approximately $83.3 million, versus $68.1 million at April 30th, 2003. A decrease of approximately $15.2 million. AR is up approximately six percent from $64.1 million to $68.1 million as compared with the beginning of the fiscal year. Year-to-date capital spending was approximately $69 million. Also during the quarter the company spent approximately $20.4 million for the repurchase of two million 695,000 shares of common stock. This concludes the prepared portion of this call. We now welcome your questions. Shamar please join us and tell us how the questions work.

Our first question comes from Mr. Michael Braig(ph) at AG Edwards. Please state your question.

I can't hear him on this end.

Mr. Braig, your line is open if you have a question at this time.

Thank you. Could you elaborate a bit more on the $2.4 million decline in yard and fleet costs at existing operations? What's behind that kind of decline?

Part of it has to do with the opening of new green field locations, therefore our trucks aren't traveling as far, reducing the cost of travel. The distance they have to go, to pick up the vehicles.

Okay. Would it be then appropriate to see that as a transfer of costs?

I'm sorry I didn't mean to interrupt you. I want to make sure what part of the question you were referring to. We opened up, as you know we had 12 same store facilities. And I believe seven of those are related directly to markets where we already were in. As we pull cars from those existing locations and bring them into the new stores, obviously their yard and fleet expenses will drop down the same as the revenue drops down.

Just as a follow-up, what portion of yard and fleet pooling capability is in-house or part of Copart's direct income statement costs and what part would be variable in the sense that it might be outsourced?

With respect to you mean towing. You say pooling you mean the actual handling of the vehicle?

Maybe I'm not familiar with the way you use both terms. But I understand that you do outsource

Towing. Yes. We do. In essence it all can be outsourced.

All towing

All towing could be outsourced today we don't break out what percentage is handled internally or outsourced. Currently we handle 150 carriers. We do a significant amount of it ourselves

What is a carrier a tow truck or --

Carrier would represent two car, four car, five car, seven car.

Okay and does the portion of towing that is outsourced vary seasonally?

Yeah, we tend to staff trucking for summer levels, which is less. And that way you're busy year-round with your trucks. As you go into the winter volumes you sub that out with [inaudible] Dollars.

Thank you.

Once again, if there are any further questions, please press star 1 on your telephone keypad. Keep in mind if you're using speaker equipment it may be necessary to pick up your handset before pressing the star keys. Our next question comes from Mr. Bill Gibson with Banc of America Securities. Please state your question.

I've got, sounds like there's still uncertainty as to just general industry conditions. I mean in terms of your capital spending over and above maintenance cap ex. Now that you've had a few months since the last quarter, I'd love just a little more flavor on your sense of industry conditions and what's going on.

Sure. What I can tell you is that we currently have four facilities in the pipeline and we've got a number of facilities that were being either relocated or new buildings were being put up and those have to be finished. You can't halfway put up a building and decide not to finish it. So we're in the process of finishing those up this year, and we believe we're going to have a lot better visibility on the projects that will be completed. A number of the projects are going to be completed in Q4. We'll have a lot better visibility where we'll be with respect to finishing those facilities and finishing the new start-ups that we've been working on for the last year, two, three, four. In this quarter. And then we can report to the shareholders on where we believe investment cap ex would be going into '04. And investment cap ex we refer to as new stores, facilities where we would be opening up new locations or buying companies.

So it sounds like -- are you open minded as to whether to continue that strategy? I mean --

We don't have any more currently -- we don't have any more planned, Bill. So we're not currently out there searching for land and doing that kind of stuff. We're finishing up the jobs that we've, the facilities that we found over the last year or two or three. I mean you can't open up a salvage pool in six months. Some of them take as many as five years.

Understood

Some projects we've been working on for a long time we need to finish those up because of the effort we put in. And we know that's a market when things do speed up again we're going to do well in that market. But we don't currently -- we're not currently looking out into the future and saying that, you know, we've got another half a dozen new stores we're going to open up or three or four acquisitions. We're sitting here today with basically nothing on our plate so I can't report a capital budget if I don't have plans for any capital at this time. So what I've got to do is finish out this quarter, look at the market, look at capacity levels, look at opportunities that are out there and report at that time where we think capital spending will be. It's going to be significantly less than what it's been in the past. There's no question about that.

It's really a sense that in terms of marketing capacity levels that the incremental return on new investment from this point forward probably doesn't match historical numbers

It's not currently. We're did definitely seeing a slow down in our industry, in our business. So with that said, we are looking at, as I said a few minutes ago, we're looking at every single dollar we spend as, from the standpoint of returns. And we're comparing it against buying our own shares back as an example.

Okay. Good. Now, I appreciate that. And I can understand the -- buying the company you know is typically safer than a green field or something new.

Yeah, there so you understand there will be a need for us to open some new locations, simply because there's markets that we know were at 100 percent capacity. We know -- you know when you're in LA. LA is not a stagnant market. In the next ten years LA is going to continue to grow and grow and grow and we have to make some investments in those markets eventually. But yeah you definitely are not going to see Copart going out there and opening up in a number of new markets the way we have in the past until we see things turn around.

Got it. Good. Thank you.

Sure.

Our next question comes from Flay Louis(ph) from Waybostet Research and Management(ph).

It's Flay Louis.

Hi

What's your feel for what’s going on in pricing out there? I know it's gotten pretty competitive. Does it remain that way?

Yeah, we're both competitive right now on price. I can't say anything has changed from what it's been the last three, four quarters. It's the same as it's been. It hasn't gotten more aggressive or less aggressive.

Competitors continue to cut pretty aggressively is that your feel?

No different than what it's been in the past.

Good. Thanks very much.

Sure

Our next question comes from Terry O’Conner(ph) at Cedar Creek.

I noticed that G&A was flat sequentially When you finish up your investment on these last 4 facilities, what's the reasonable run rate for G&A?

We reported in the last quarter we thought this quarter would come in at seven million. It's come in less than that. I would anticipate that that's just timing and that will happen in Q4.

And once you're done, is the run rate higher than seven?

Yes, probably closer to seven and a half

Okay. Thank you.

Or higher. It might be as high as eight.

Okay.

Our next question comes from Ryan Modollo(ph) at Kanell Capital(ph). Please state your question

If I recall, thanks for the additional disclosure on the cash flow, I think that's helpful.

Sure

Just commend you guys for your focus on [inaudible] Your resources and allocating them against the price of your stock. I think that's very prudent. I guess my question is in regards to your SG&A. It appears to be upticking just a little bit. Can you give us a sense of your expectations over the next couple of quarters?

Yeah I would expect that G&A will continue to uptick to some extent. We're investing pretty heavily in that area. Some things that we're working on. So I would anticipate that G&A continue to grow. I think it was 15 percent year-over-year, is that the number?

Yes

But I believe it was still eight percent of total sales. You're not seeing -- we're not leveraging G&A against the rest of the company and the reason for that is that we're investing pretty heavily in some things that we're working on.

Fair enough. Is there a certain level at which point it will level off? Change?

I don't think I could give you that number, because that would all depend on the size of the company and the growth of the company, etc. But at this time I can't really tell you it's not going to keep growing, because we've got to continue to invest in that area.

All right. Thanks very much.

Sure.

Gentlemen, there are no further questions at this time.

Okay. Well, again, I want to thank you all for attending our Q3 earnings conference call. And we look forward to talking to you at the next earnings release. Thank you very much.

This concludes today's conference. Thank you again for your participation.