Copart Inc (CPRT) 2003 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Copart Inc. Fiscal Year 2003 Fourth Quarter and Year Ending Conference Call. At this time 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 0 on your keypad. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jay Adair, President of Copart, Inc. Thank you, Mr. Adair, you may begin.

Good morning everyone. My pleasure to welcome you to the 2003 earnings release and Q4 earnings release for Copart, Inc. We're going to go ahead and turn it over to Simon Rote. He'll give you a couple of words and then get the show on the road.

Thank you, Jay. Good morning. During this conference call we will be making forward-looking statements within the meaning is section 27 A of the Securities Act of 1933 and section 21 E of the Securities and Exchange Act of 1934. These forward-looking statements may include, among other statements, projections about our future revenue and earnings growth, which are subject to numerous risks, including weather conditions that are unfavorable to our business and our ability to increase market share in an increasingly competitive market. For more discussion on these and other risks that could affect our business I would direct to you review management's discussion and analysis and the factors affecting future results section, contained in the company's 10-K and other SEC filings, for a full discussion of factors that could affect future performance.

Our agenda has three item this morning. First off, 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 and year. 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 everyone.

As you know we reported net income for the quarter of 13.3 million on revenues of 87.2 million. For the same quarter a year ago we reported earnings of 15.5 million on revenues of 82.6 million. That is 15 cents this quarter compared to 17 cents a year ago.

For the fiscal year we reported 57.2 million in earnings, or 62 cents per share on 347.4 million in revenues. One year ago we reported net income of 57.4 million or 63 cents per share on 316,455,000, in revenues.

Revenue increased for the quarter approximately 10%. Yard and fleet expense increased approximately 8%. We finished the year with cash of 116.7 million versus 132.7 million a year ago or a decrease of 16 million dollars for the quarter.

Simon will walk you through the financials. I'm not going to break out too much more of that. I will go over some accomplishments of the year.

We added nine locations this year, six start-up locations, three acquisitions. Also in Q3 as many of you though we purchased 2.7 million shares of stock back, and most recently we announced the opening of our facility in Toronto, Canada. We've had a lot of success in Toronto, already. We believe that market to be about 10% the size of the U.S. market, and as I said we've had a very, very warm welcome in that market, and we look forward to future locations in Canada.

We are no longer giving earnings forecasts for the year or for the quarter. And as I said, I would give you Capex estimates for the year, including maintenance Capex. We believe the company will spend somewhere in the range of 35 to 45 million dollars in capital, and that includes opportunities that we think may arise that are not yet board approved. So that number may come in less than that, and if something came along that was a terrific opportunity, it could end up coming in more than that. But the budgeted range by management is in the 35 to 45 million range.

With that I will turn it over to Simon, he'll give you a financial update, then open it up for questions. Thank you.

Thank you. As Jay discussed financial performance was in line with expectations. Revenues for the quarter were approximately 87.2 million, an increase of 4.6 million, or 6% over the prior year's quarter. Revenues for the year were approximately 347.4 million, an increase of 31 million, or 10% over prior year.

The increase in revenues was due both to new and existing facilities. New stores contributed approximately 2.6 million of new revenue and same stores contributed approximately 2 million, or 2% for the quarter. New stores contributed approximately 6.9 million of new revenue and same stores contributed approximately 24.1 million or 8% for the year.

Yard and fleet expenses were approximately 51.3 million for quarter an increase of approximately 3.8 million or 8% over the prior year's quarter. The increase is due principally to the cost of new facilities which contributed approximately 2.5 million of yard and fleet expenses for the quarter. Yard and fleet expenses from existing facilities increased by approximately 1.2 million or 2.5% for the quarter. Yard and fleet expenses increased to 59% of revenues during the fourth quarter of fiscal 2003 compared to 58% of revenues for the fourth quarter of fiscal 2002.

Yard and fleet expenses were approximately 202.4 million for the year, an increase of approximately 15.5 million or 8% over prior year. Increase is due primarily to the cost of new facilities and increased volume at existing locations. Approximately 7.3 million of yard and fleet expenses were due to new facilities for the year. Yard and fleet expenses from existing facilities increased by approximately 8.2 million or 4.4% for the year. Yard and fleet expenses decreased to 58% of revenues during fiscal 2003 compared to 59% during fiscal 2002.

General and administrative expenses were approximately 7.7 million for the quarter, increase of approximately 1.9 million or 32% over the comparable period in fiscal 2002. For the year, general and administrative expenses were approximately 28.7 million, an increase of approximately 5.4 million or 23% over prior year. These increases were due primarily to increased payroll and other operating expenses for both the quarterly and year to date results.

Depreciation and amortization expense was approximately 7.2 million for the quarter, an increase of approximately 2.2 million or 46% over the comparable period in fiscal 2002. Depreciation and amortization was approximately 25.5 million, an increase of approximately 9.2 million or 57% over the prior year. This increase was due primarily to depreciation and amortization of capital expenditures, covenants not to compete and acquired assets resulting from acquisition and expansion of auction facilities.

Operating income was 21 million for the quarter, a decrease of approximately 3.3 million or 14% from the comparable period in fiscal 2002. Operating income was approximately 90.8 million for the year, an increase of approximately 0.8 million or 1% over prior year.

Total other income was approximately 900,000 for the quarter, a decrease of approximately 300,000 from the prior year's quarter. Total other income was approximately 3.4 million for the year, a decrease of approximately 300,000 from the the prior year. The decrease is due principally to lower interest income due to lower interest rates.

Our effective combined tax rate was approximately 39% for the fourth quarters and fiscal year ending July 3st 2003 and 2002. Due to the foregoing factors we realized net income of billion 13.2 million and 57.2 million for the quarter and year respectively. In 2002 net income was billion 15.5 million and 57.5 million for the quarter and year respectively.

I will now expand on new store information for the quarter. The nine new facilities added approximately 2.6 million in new revenue and as I noted earlier the direct costs were approximately 2.5 million. Depreciation and amortization an additional 400,000. The effect of new acquisitions and openings on the current quarter is an operating loss of approximately 300,000. Please keep in mind that 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 our company's cash flows. We started the fiscal year in August with cash and cash equivalents of approximately 133 million. As of July 31st, 2003, that balance was approximately 117 million, a decrease of 16 million from start of year. Operating cash flow for the year is 79.1 million, from net income of 57.2 million. Year to date capital spending was approximately 77 million. During the year, as Jay mentioned the company spent approximately 20.4 million for repurchase of 2.7 million shares of common stocks. In addition the company issued approximately 1.9 million in common stock for employee stock purchase plan. Total net cash used in financing activities was 18.5 million.

This concludes the prepared portion of this call. We now welcome your questions. Please join us and explain how the questions will work.

Sure thing. Thank you, gentlemen. At this time we will be conducting a question-and-answer session. If you would like to ask a question please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. To remove your question from the queue please press star 2. For participants using speaker equipment it may be necessary to pick up your hand set before pressing the star key. Our first question comes from Scott Stember with is Sidoti and Company. Please state your question.

Good afternoon, or good morning, guys.

Good morning.

Can you give the break out between PIP and the fixed?

PIP for the quarter is about 65%, 35 in fixed.

Okay. And Simon, I believe you said that the same store revenue I guess was about 2% growth there. Can you maybe just touch on what you're seeing, or Jay, about maybe some pricing issues due to overcapacity or if you've seen some due to the fact that used car pricing has started to firm up across the board here, if you've seen that help you on that end.

Well, we haven't seen a whole lot of change in pricing in the industry. In the last quarter or two. I mean, the major change I would say that we saw to pricing was over a year ago now. And nothing has really changed recently. With respect to used car pricing we're seeing that starting to tick up now. I think most people that follow the industry are aware of that. We get a lot of our data from NADA and from auction data that's reported from the large wholesale auctions. And it appears that used car pricing is now coming back somewhat. So nothing really for me to report to you, Scott on pricing, and as far as used car pricing, it's up, and we think that's going to help the industry going forward.

Okay. And maybe you can talk about the public auction. Is there anything going on there, or is the idea to leave that status quo and let the salvage business kind of right-size itself?

No, that business is doing very well. Got some really sharp people that are managing that business today. Got six locations that fall under Motors Auction Group and I would expect us to look towards opening or acquiring one or two facilities in the next year as we start to expand that business. But we've spent the last year getting things consolidated and getting things, you know, really making sure we've got control over what we've got, making sure we understand our model and what's the right model, and I think we're -- well, I know we're closer than what we've ever been and coming to the end of that cycle and it will be a process of doing some growth, again. We doubled the size of the company in the last year, went from three to six stores, and it doesn't sound like a lot, but when you're in a new business you've got to get used to what you've got, you've got to make sure you've got it under control. The next step going forward for MAG would be to grow some more.

And that would be included within your forecast of capital expenditures?

Yes.

Last question. Last couple of calls you highlighted virtual bidding and how it's helped you guys a bit. Can you talk about that a little bit?

Yeah, virtual bidding is doing terrific. We've had further penetration again in the quarter and we've got over 70 facilities now that are on virtual bidding, so we've been extremely happy with the product. The more the product has matured, the longer that the product has been out there the more we've seen buyers that migrate over to using the product. Again, that is terrific because that increases the amount of buyers we've got at the auction, that increases returns. So we're very excited with virtual bidding and how it's doing.

That's all I have for now. Thanks.

Thanks.

Our next question comes from Jerry Prestopino with Barrington Research. Please state your question.

Hey, Jay.

Good morning, Gary.

How are you doing?

Good. How about you?

Good. Couple of questions. As a percentage of sales, well, actually, the yard and fleet expenses were up in excess of revenue growth in this latest quarter. That's the first time we've seen that in awhile here. What do you attribute that to? The whole idea of opening some of these adjacent sites was that you were going to be able to lower the yard and fleet as a percentage of sales.

Initially it does increase yard and fleet because you've got the cost of land and building and all the expenses attributed to that new location. When you first invest in that facility it doesn't necessarily mean you're going to get any additional cars. So you're transferring cars, as we've referred to in the past, you cannibalize existing locations and you move those cars from an existing location to a new location, and you have all the additional staff at that location, you have all the additional cost of that location, but not necessarily any new cars. So it can raise yard and fleet in the short term. Long term, or looking forward, looking out to the future, you're going to add additional cars and that's an incremental business, so you will see additional revenues with not a whole lot of expense added to it. But in the short term it actually can have a negative impact.

Can you share with us what your plans are for the excess cash flow, and specifically looking at share repurchases, as well as what are your plans for new sites this year?

Well, yeah, I can. As I said, Capex estimates are 35 to 45 million, including maintenance. We will be looking at a number of markets where we think we've got to either relocate existing facilities, like Sacramento and Chicago are both markets where we're out of space, we've got to move those locations to new location, we're in the process of doing that. There will be other markets where we think we need to add additional locations, and we will be looking at those markets as well. What was the other question that you had?

Well, I mean, you didn't purchase --.

Oh, share repurchase. The board has authorized a 9 million share repurchase. We've bought back about 2.7 million shares. We will be looking at that on a quarterly basis, no different than we did last quarter and the quarter before.

Okay. Thanks. I'll let somebody else go.

Sure.

Our next question comes from Todd Lamb at Waybostet Research. Please state your question.

Good morning, Jason.

Good morning.

Couple of quarters ago, in light of your still strong cash flow, we talked about the possibility that you might pay a dividend. I was wondering what your thinking is on that now.

I think most investors are aware of the fact that I'm not a big fan of dividends. Not to say that we won't issue a dividend. Not to say that the board wouldn't authorize that. I've just always been in favor of either holding the cash or baying back shares.

Does your growth scenario or plan for MAG, and for the future, would that conflict with paying a dividend or continuing share repurchases?

I think, you know, the dividends is going to be the last -- put that to the side because I don't see that really being one of the decisions that's going to come out in the next year. The company would be focused on first growing the business and, you know, utilizing cash to do that, and if there isn't an opportunity, to use that cash in growing the business, the next opportunity would be do we have an opportunity to buy the stock back, if we don't feel that basically the price is right to buy the stock back, then the next goal would be to hold the cash. If we get to a position we feel we've got too much surplus cash, then we could look at buying stock back or a dividend.

And you can't give us a sense of what too much cash is?

I could, but I'm not going to.

Okay. Appreciate it. Thanks a lot.

Sure. Candid Jay.

You got it. Thank you.

Our next question comes from Mr. Michael Braig with A.G. Edwards. Please state your question.

First some numbers verification. Do I understand that you did not buy shares back in the fourth quarter?

Correct.

And can you verify that you have 109 active sites currently?

No, 104.

104. That's salvage only?

No, that's salvage and Motors Auction Group.

Okay.

There's six MAG locations, Michael.

Okay. And you mentioned the increase in G&A as being partly related to payroll. Is that payroll all at headquarters, or is some of that regional field management?

The vast majority of G&A payroll is here in corporate. We're very centralized in the way we run our operation.

Okay. And then finally, has there been any increase in buyer fees in the past year?

No.

Okay. Thank you.

Sure.

Our next question comes from Bill Pitchy with Fidell Capital Management.

Thanks. I just was wondering about your CFO search, how that's going, and if there have been any other additions to management that might be meaningful.

Yeah, we are doing -- I mean, yes, to answer your question, there's always some changes occurring in management. And, you know, we've been spending a lot of time the last year looking at succession and redesigning management, redesigning the org charts, the structure that we're reporting. I think we're strengthened our management tremendously this year. We've done a lot of what we call OD, or OD development with our team. We are close, I think, to making a decision on choosing a CFO. I would anticipate that, you know, we'll make that decision in either Q1 or Q2.

Okay. Thank you.

Sure.

Once again, if there are any further questions, please press star 1 on your telephone keypad, keeping in mind that if you are using speaker equipment it may be necessary to pick up your handset before pressing the star keys. Our next question comes from John Bloomberg with Burgundy Asset Management.

Can you give us a comment on the increase in G&A from 5.7 to 7.7?

Sure, I'll talk about it. I'm probably most responsible for the increase in G&A. I have spent a lot of time this year developing some new products, developing some new services that we're going to be offering our industry. We've invested significantly in IT, both on the software side and on the hardware side. We've made some significant improvements, as I said, in the structure of our company, developing a succession plan. We brought in some new AVP's that will be the future of the company and that will be working towards, you know, taking us, you know, out over the next five to ten years.

And, you know, Copart has always run the company on that kind of an outlook. We don't run it on a quarter to quarter basis. We run it on a five- to ten-year plan. I would say the majority of the G&A costs would be development for future. I.e., systems technology, infrastructure, that type of expense.

Okay. Thank you.

Sure.

Our next question comes from Gene Vidal with Southfield Investment Advisors.

I was just wondering, back on G&A costs, if those increases are all permanent increases or whether there were some one-time costs.

I think they're permanent.

Okay.

Our next question comes from Mr. Bob Lido with M.D. Sacks. Please state your question.

I wonder, falling short of giving earnings guidance, as you said you weren't going to do, I wonder if you could comment on the general level of business activity that you're seeing, the most recent quarter, and how it looks for the upcoming quarter. Has there been a strengthening, a stabilization? Give us an idea as to how strong business is currently.

Well, I think if you look at the last year, a lot of what the last year had to do was, I think, the fact that frequency of claims is down in the industry. I don't think that that's going to continue. Who knows? I think part of it's economy driven. So from that standpoint, I think we're optimistic. I can't tell you how we're going to do in the next quarter, or the second quarter, but the company is optimistic about, you know, going forward and how we're going to do in the year.

Okay. Thank you.

Gentlemen, we'll now be taking follow-up questions. Mr. Prestopino, please state your question.

My question kind of was answered as far as the industry goes. Just in this G&A, D&A, and yard and fleet expenses, Jay, since you've basically got nine sites this year and, you know, you've made a lot of Capex for this year, or this past year, would you expect that as a percentage of sales to start trending down going into fiscal '04?

The depreciation, the yard and fleet, the G&A, or all of them?

All of them.

I would think as a percentage that G&A might be flat, may go down. Depreciation, I don't necessarily think is going to go down. We've still got investments to make, and as we go forward in this year spending, you know, 35 to 45 million, that's going to impact depreciation. I don't know that revenues are going to outgrow that number. And yard and fleet, I would anticipate will go down.

Thanks.

Mr. Lamb, please state your question.

Yeah, hi. Jay, could you give us a little note on why you're no longer providing guidance? And then I have a follow-up.

Sure. I think you guys have seen that in the industry. A number of companies have made decisions not to report guidance going forward. The company at this time, due to the difficulty in trying to forecast what earnings are going to be, we had an option of, you know, giving a range or basically not giving earnings forecasts, and we felt at this time in the benefit of -- to the benefit of the shareholder, to the benefit of the company, that it was better not to give earnings guidance than to give some kind of range that would be confusing.

Okay. Fair enough. A more general question. You're seeing the frequency of claims down industry-wide. I'm curious, over the long term, has the frequency of accident claims gone up or stayed the same, and is your model built, your business model, built on a -- on the frequency of accidents going up or staying the same, or is it more a market penetration model?

I can't say I've ever tracked frequency in the past. We have looked at it in the last year. We've gotten data from a number of sources in the industry that we think are accurate. Frequency is down industry-wide, we're told, 3 to 5%. Why that is the case, I would imagine is anyone's guess. We think it has to do with people driving less and a number of other factors like that. I don't think going forward that frequency is going to continue to drop. But then again I don't have a crystal ball, so we'll see. I would anticipate that frequency, you know, is where -- has done what it's going to do, and I would expect that it would even come back some in the next year.

Have you seen further consolidation in your industry, perhaps that we can't see, or people leaving the industry? The salvage industry.

By people, you mean businesses?

Yeah, businesses.

I'm not aware of anything off the top of my head. I mean, there is some consolidation in the industry. I think everyone knows who the players are in the industry. We just made an acquisition in this quarter in Eugene, Oregon, and I'm sure the competition has made some acquisitions, so there is going to be some consolidation as we go.

Thank you.

Gentlemen, there are no further questions at this time.

All right. Well, as is customary for us, we answer the questions and when t hey're done, we say goodbye. So thanks to everyone for attending the Q4 earnings release for fiscal 2003. Good-bye.

Thank you, gentlemen. This concludes today's conference. Thank you again for your participation. All lines may now disconnect.