Copart Inc (CPRT) 2005 Q3 法說會逐字稿

Good day, everyone and welcome to the Copart Incorporated third quarter fiscal 2005 earnings call. As a reminder, today's call is being recorded, and for opening remarks and introductions, I would like to turn the conference over to Mr. Jay Adair, President of Copart Incorporated. Please go ahead.

Thanks, Millicent. Good morning, everyone. I'm in New York today, I'm actually in Leroy, which is the home office for the town for our Rochester location and Buffalo. It's also the home town of Jell-O I have found that as I have been here, and Will Franklin is back in California. So we'll be doing this call from two different locations, and I'm just bringing you up-to-date on that in case there's a little difficulty in some of the Q & A. With that, I'll turn it over to Will Franklin, our CFO and he'll give you just a disclaimer, and then I'll go ahead and go through an update on the quarter.

Thank you, Jay. During this conference we will be making forward-looking statements within the meaning of section 27-A of the Securities Act of 1933 and section 21-E the Securities and Exchange Act of 1934. These forward-looking statements may include projections about our future revenue and earnings growth, which are subject to numerous risks, including weather conditions that are adverse to our business, our ability to increase market share in an increasingly competitive market, and our ability to secure favorable supply agreements with the suppliers of our salvage vehicles.

In addition, we face risk arising from our increased dependence on proprietary technologies to conduct our auctions. Our VB2 internet sales model was introduced on a company-wide basis during the prior fiscal year and we cannot predict whether it will continue to have favorable impact on our results of operations in future periods. For more discussions of these and other risks that could affect our business, I would direct you to review the management's discussion analysis and the factors affecting future results contained in the Company's 10-Q and other SEC filings. Jay, I'll turn the call back to you.

Thanks, Will. Again, good morning, everyone, and welcome to the third quarter conference call, earnings release for Copart, Inc. During the quarter we earned net income of 30.9 million during the quarter on revenues of 130.4 million. For the same period last year that was roughly 25 million on revenues of 116 million. This represents an increase in net income of 24% and in revenue of 12%. Of course, same-store sales for the quarter ended up at 10%. Fully-diluted EPS for the quarter was $0.33 per share compared to $0.27 a share last year or an increase of 22%.

Also, during the quarter we opened Ocala, Florida, which is north of Orlando. We'll be servicing the area between Orlando and Jacksonville. We opened up Knoxville, Tennessee, which will be servicing the Eastern Tennessee area, and then Loganville, Georgia, which is outside of Atlanta, will serve the Atlanta, Georgia market. We also acquired a facility in Lexington, Kentucky, and that will help us additionally in that market.

Looking at the year, we now have a full quarter comparison from February, March, and April. We have also not only record revenue, but record returns, comparing this quarter, Q3, finished with Q3 of 2004. We are looking at record returns on a per-car basis and on a percentage of ACV basis as well and we're very excited about that. And you can see that results in the financial performance for the Company.

Also, in the last quarter I just mentioned that we were in the process of rolling out VB2, and I wanted to give a little bit more color on that product and where we're at with that. VB2 just finished in this last month rolling that out to all of our VB2 independent dealer public auctions, and so we did not have a full run for the quarter, February, March, April, but what we did get was enough of a sampling to see some of the things we need to improve. Now, obviously this is a product-- VB2-- that came from the Copart, salvage auction business, and so now we are looking at ways of making this more adaptable for the dealer auction business. In the quarter we worked on products like our Live Rep, where we could rep vehicles during the auction, and that allows us to, you know, basically improve the way that we handle our bid to be approved cars or "if" cars, the cars that are on a minimum.

We did a number of other changes because it is a different business at the end of the day. Modifications for the way we handle arbitration and modifications to the way that we take care or the way that we process condition reports. So we've learned a lot in the quarter and I think that's the most important thing. At this time, I wouldn't expect, being that it is such a brand new product, I wouldn't expect it to have really any material impact on the short-term financial performance of Copart, and it is definitely a long-term play for us. We're looking at this as one, two, three years out. We're excited about the product, we're excited about the results we've had thus far, and we have been successful in interstate and not only interstate, but selling to other countries as well when we liquidate product through that VB2 auction.

All in all, before I turn it over to Will Franklin for just some of the financial performance, we're very excited about the performance we've had for the year thus far and for the quarter. I think that shows in the financial performance that you've seen and at end of the day, I've been spending a lot of time on the road. I'm on the road this week and meeting with people, and I just want to give a lot of credit, if not all of the credit to my people out there on the road that are making this happen.

We have really had a great time just visiting with all of you that we've met as we've been out and we're today in Leroy, we'll be in Hartford tonight, and it's been a great experience to go out and visit with everyone and see the results that we're all performing, that we're all making happen for Copart. So, with that, I will turn it over to Will and then we'll open it up for questions and answers. Thank you.

Thank you, Jay. As Jay said, we're pleased with the results for the quarter. This is the first quarter in which we anniversary the complete rollout of VB2 and VB2 continues to drive revenue. For the quarter, revenue was $130.4 million, an increase of $13.8 million or almost 12%. The drivers for growth and revenue continue to be growth in the number of cars sold, growth in new service revenues as the percentage of our salvage buyers that utilize the internet through VB2 continues to grow, and the impact on buyer and seller fees from our record-high gross sales proceeds, which we believe is the result of the expanded buyer base created by VB2.

Same-store sales, sales from stores owned or opened for more than 12 months increased by 10%. During the quarter 69% of our cars were sold under the percentage incentive program, up 4 percentage points from Q3 of last year. This increase is in part the result of the increase in dealer cars being sold. Dealer cars are sold primarily under the pit program and dealer unit sales were up 34% over the same quarter last year.

Yard expenses were $61.9 million for the quarter, an increase of $3.9 million over Q3 of last year. The increase was due primarily to higher vehicle sales volume and the additional expense associated with the seven new yards added since Q3 of last year. Yard margin for the quarter was 52.5%, an increase of 2.3 percentage points over the same quarter last year. The seven yards added after Q3 of last year contributed approximately $2.2 million in revenue and were profitable.

General and administrative costs for the quarter were $11.7 million, an increase of $2.1 million over the same quarter last year. The increase was due primarily to additional costs related to Sox compliance, increases in software development costs, technology hardware leasing costs, telco costs and IT and development payroll costs, all directly related to the continued development and deployment of VB2 and additional administrative and support head count.

Depreciation was $9.1 million for the quarter and includes an adjustment to the useful lives of certain real property and improvements. This adjustment added $1.4 million to depreciation expense for the quarter. We expect next quarter's depreciation expense to be approximately $7.7 million. Operating income was $47.8 million for the quarter or almost 37% of revenue. This is an increase of $7.4 million, or as a percentage of revenue, an increase of 2 percentage points.

Income tax expense for the quarter after certain adjustments to estimates affecting deferred tax liabilities and tax evaluation allowances was approximately $18.8 million or an effective tax rate of 37.8%. We expect a more normal tax rate to be approximately 38.5% going forward. Copart's balance sheet remains healthy with approximately $244 million in cash. Our current ratio, current assets divided by current liabilities, was 4.7 to 1.

During the quarter, accounts receivable, vehicle pulling costs and deferred revenue all decreased due to the decline in cars on hand. This is the normal, seasonal movement in the number of cars on hand as salvage car inventories generally peak during late January or early February, due to the impact of weather on asset frequency. Total equity has grown to over $682 million, an after-tax return on equity on a trailing 12-month basis has been 14.5%.

Cash generated from operations for the quarter was approximately $56.6 million. Net income adjusted for non-cash expenses and revenue generated approximately $40.1 million. Further movement in the balance sheet, primarily reductions in accounts receivable, vehicle pulling costs and deferred revenue added $16.5 million. The Company had capital expenditures in the quarter of $19.6 million, primarily for yard expansion and acquisitions. Maintenance CapEx remains well below 10% of total CapEx.

With that, Millicent, I'll turn the call back to the operator to you to entertain questions.

[Operator instructions] Our first question this morning will come from Bob Labick, CJS Security.

Good morning.

Good morning, Bob. Hi, Bob.

First question, could you just update us a little on I guess the competitive marketplace with the purchase of IAA and how the overall landscape has changed, if anything, if there's been-- I understand they may have put some price increases in last quarter-- how will that affect you? And what do you see in the marketplace in general?

Well, if they have put price increases in in the last quarter, I think that's just normal business for us. I mean, we dealt with them raising or lowering prices in different markets and it depends what markets they've raised them and what markets they've lowered them, et cetera, across the Company and across the country. So I don't think that really changes much from what we've dealt with in the past with respect to the fact that they're not a public company now that, they're a private company. I don't think that there's a whole lot of change that's really occurred.

It's the same management team from what I can see, and you know, at the end of the day, I can't say that when we go in and we meet with prospect customers and with existing customers that we spend a lot of time, if any really, talking about competitive landscape. We talk about the services that we have and what products that we can offer and how we can make an impact in providing a legendary customer experience for them and generating a higher return then, then what they've seen in the past. So that's kind of' our focus and not so much going down some kind of process on where the competitive landscape's at.

Okay, great. Shifting gears, then, can you maybe tell us a little about your capacity utilization at your yards on an overall scale, where your room is for continued margin expansions? You showed once again some great , you know, margin growth. How much more opportunity do you have going forward and I guess just ending that as well, how are inventory turns-- is there any opportunity--

Am I disconnected or?

No. Bob can you re-state that question?

Just-- just the last five seconds there.

Sir, I'm sorry, you may have-- would you press star -- the star key followed by the digit 1 once again, please.

Can you hear me now?

Yeah.

Okay, great. It was just shifting gears to capacity utilization at your yards overall. If you could give us an opportun -- an idea of where you stand, because you've shown great margin growth in this quarter and is there opportunity to continue that margin growth? What else would be driving that?

Sure. Well, some of the negative impacts of margin growth are additional locations, right? Because as we add more stores and we don't process as many vehicles until we gain that new business, that can -- that can reduce margin. And we'll be adding in the next year, 6 to 10 locations again, and as we do that, that's going to have a downward pressure on margin. Now, the positive side is that gives us additional expansion, allows for future growth, and that's something we've done forever.

That's why, you know, I remember in the 90's, people saying well you're -- I don't know where you're going grow, you've got 60 locations now and today we have 113 locations and we'll keep on adding those facilities. One of the things we've seen with respect to increasing the margin is the sale price of the car. And we just continue to generate a higher return every quarter. This quarter we just finished was record in the history of the Company for returns. And, including up until the last month of the quarter, up until April we saw some record results again. So I don't know where that's going to level off, Bob.

I wouldn't have thought it'd be this high today, and so it's definitely exceeded my expectations and we'll see if it levels off in the coming quarters or if it continues to increase on a per-car basis and what impact that will have with respect to margin. As far as capacity goes, we've got significant capacity across the Company, but we don't have capacity at every location, and where we don't have capacity, we'll be adding locations and we'll be improving our network of facilities to allow us to handle more vehicles and service more customers in those markets, but if we were to -- if we were to sign some major accounts today, some major volume, I'd be comfortable with bringing that business on.

Company-wide with respect to the Company, except for maybe you know, half a dozen markets that we still need to expand and we still need to -- to give ourselves some additional room. So we look good. Going forward, we should be able to bring in some significant volume in the door. And of course, look, we don't have capacity at every yard today, but we'll be expanding and we'll be making sure that we do have capacity going forward, and that's just a big unknown. It depends how fast we gain cars and what markets we gain cars in.

Great, thanks. I'll get back in queue.

Okay. Thanks, Bob.

Once again, as a reminder to our audience, that is star 1 on your touch-tone phone to signal for questions. Star 1 to signal. We'll take our next question from Steve Balog, Cedar Creek Management.

Thank you. Could you go more into these new features and modifications, this Live Rep changes to the arbitration and all that? Explain that to us novices?

Sure. I think the best way for me to explain is to tell you guys to go to VB2.com and take a virtual tour. You'll see it there on the website and you can go through and you can see how the product works, but the root of the whole discussion that I started with, just focuses on the fact that the product was built for the salvage industry and it's a completely different industry than whole cars, and dealer auctions, and so we've had to make a number of modifications and we've built products now where we can have an interactive session between the buyer and the seller, where they can counter each other on their bids.

So once they've achieved a high bid situation, they can then counter back and forth, you know, I'll go up a little, the seller will say well, I'll go down a little and they can see if they can come to a point there. We've had to make modifications in the way we do our condition reports because it's a different business. The arbitration policies, all of that. So at the end of the day, it's just, it's a very early process that we're in here on a very new product and it's a process of trying to figure out the industry and make modifications and we've been very successful so far, and we've been very happy with the results and we're still excited about where that product's going to go, but I don't expect this to be something like you know that, we're going see some kind of material movement in the next quarter or two.

This is something that's a long-term strategy, where we'll be continuing to invest and making modifications to the product and then growing that product further through additional auctions and additional markets where we can sell cars.

Thank you.

Sure.

And our next question will come from Fran Okinuski (ph).

Hey, Fran, how are you doing?

Hey, Jay, how are you? Congratulations on a good quarter. yeah--

Yeah, haven't talked to you in a while.

Just a question on the supplier or vendor environment as it relates to the insurance companies and Copart's ability to get at increased volume and/or market share. What's the environment like right now? How competitive is it? What kinds of pressures, if any, are you seeing from the insurance companies on fees and things like that?

Well, I think it's the best the -- I think we're in the best market I've ever seen in the 16 years I've been doing this. I mean, I've never seen us in a better strategic position with respect to people. We've got the best people in the Company and in the industry, and with respect to facilities, we've got the best network of locations to offer regional and national proposals to the insurance industry and then we've got the best technology. We're sitting here with the technology is just basically blowing me away.

I can't even, I would have not even have been able to imagine that we'd see the kind of results two years ago that we're seeing today, and it floors me. And so for us to go in there and communicate that to the insurance industry, we are in a position today that is better than we've ever been in, and you know, at the end of the day, that's what we've got to do. We've got to communicate the benefits of doing business with Copart and the benefits of using revolutionary technology like VB2, and I mean, that's why we've basically been able to achieve this 22%. When you think about more than one out of every five vehicles we sell ends up going to a buyer outside of the country, and we've interviewed a number of buyers from as close as Canada to as far away as Lithuania and Iceland, and it's amazing the stories behind why they're purchasing cars and how they're buying them and repairing them and selling them at their local shops, and one of the fellas we were talking to in Lithuania has kind of a flee market and that's what they do there, they bring all the cars in.

And he's now put VB2 on a big screen and people watch the auctions as he bids for them. It's amazing to me that that kind of commerce is occurring today, and I'm just thinking you know, I can go back 16 years ago when we only had live auction and some sealed bid, but I go back five years ago and I think about the impact and changes that have occurred. It's just amazing. So, we're in the best competitive position we've been at ever in our history.

So are you gaining market share, then? How do you define your market share within you know, the top three, four, five vendors, you know, suppliers of vehicles? And what kind of pricing environment is it?

Well, pricing, I mean, it's a competitive industry, so I don't think pricing has really changed from the last three or four years. I think that's about the same with respect to how we're, you know, how we price product and how we stay competitive within the market. With respect to volume, it's, you know, it's an unknown. We are today, I would estimate, 35 to 40% of the market, somewhere in that range. I didn't mention VIX (ph) on my opening remarks and I talked about that last quarter, just because it literally went live in the beta test mode June 1, and so with VIX being our virtual insured exchange.

With that product going live, we estimate that about 20% of the total market is owner retention vehicles, vehicles that are retained by owners, and the insurance industry deals with trying to retain those vehicles and getting a favorable price on them, and now we've opened those vehicles up to all of our buyer base, and that's going to make tremendous increases or improvements, I believe, in their returns with respect to their owner retains and it's going to allow us to offer more products and offer more products to our buyers. Vehicles that our buyers never saw in the past, we estimate that's about 600,000 units.

So, we're, you know, I don't know if we're going to end up being able to bring 10% or 50% of that market to our buyer base, but at the end of the day, we're going to bring more product to the buyers, it's going to allow them to bid on more vehicles, that benefits the buyers, that benefits us, and it benefits the insurance industry the insurance industry. It's really a win, win, win. So again, from a market position or a market share perspective, we're you know, we're sitting at a 35 to 40% position, but I think there's significant growth available to us because we've got another product that we can offer now that will generate a higher return for our sellers and put more money in their pocket.

Again, congratulations on a great quarter.

Yeah, thanks, Fran.

Our next question will come from Gilbert Alexandra (ph) with Garfield Associates.

Good morning, congratulations...

Good morning, Gilbert.

One looks at your general and administrative costs, can one assume that as a percentage of sale, it will stay under 9% in the future? And I'm just thinking your IT efforts. Are they flattening out now?

Well, they are starting to flatten out a little bit because we ramped up pretty heavy in the last year. I would anticipate a little bit more growth. I'll be very frank with you that I don't have those numbers in front of me because I'm not at my home office right now, so I don't know what they are in terms of percentage. Will, if you want to comment on that?

Yeah, they were there at about 9% this quarter and the last quarter, when our revenue was substantially less, they were over 9%, so --

Right.

-- you know our revenue fluctuates quarter-to-quarter based on seasonality.

Right.

On an absolute basis like Jay said, we might see some growth in our G&A, but I wouldn't see a significant increase over our current run rate.

And I'm just trying to measure the effect of the VB2 effect. Are you getting something like 150 to $200 more per car?

Well, comparing it prior to VB2, yeah, prior to VB2, we're over $200 a car increase.

I'm taking this off a chart you used in some presentation, so it's over $200?

Yeah, it's over $200 a car today.

And how many cars did you sell in the quarter?

We don't disclose that information.

Okay. And can you give us any more color where in the next 12 months you want to expand the VB2 or you're not ready at this point to do that?

No, we're continuing to expand. I mean, we're going to be open to that, but you've got to be careful in any new enterprise like this that you start rolling something out that isn't robust enough to handle all of the different potential situations that you're going face. So right now our goal from Willis down is to make sure that we get this product right and that we get the right enhancements designed and built into the core business, and then once we've got those kinds of features, we can look at all sorts of other market potentials, but, you know, you've got to walk before you run.

Right. And can you give us your first cut of what you think your capital expenditures could be for next year?

No. We'll do that in the fourth quarter, Gilbert.

I thank you very much and congratulations.

You're welcome. Thanks.

We'll go next to Mikhail Cominsky (ph), Neuberger Berman (ph).

Hi, this is Michael Cominsky. Hey, Mike, how're you doing?

Good, guys, congratulations.

We were just wondering if you had any update in terms of the balance sheet and using the cash, doing creative ways to doing things with the cash.

Well, I think we finished the quarter at $244 million, didn't we, Will?

That's right.

In cash, and I love that. I like having a large cash position. As you know, we've talked about that before. Going forward we'll use that cash depending on what the opportunities so it will either be through acquisition or maybe through repurchase of shares. It just depends what the options are what the potential benefits are for the Company.

Okay, thank you.

You bet.

We'll go next to Chris Blackman, Imperical Capital.

Yeah, thank you. Congratulations. How many spaces did you all finish the quarter with?

How many what?

Spaces.

Like locations?

No, like spaces where you'd park your cars.

Oh, capacity? We don't break out capacity company-wide as in terms of how much potential capacity we've got because it really is a misleading number, simply because some stores are at zero capacity and some locations are you know, have 50% capacity, but as I was saying earlier in the call, we've got room it handle vehicles. We've got room to handle national deals today and there's a handful of narcotics we need to-- handful of markets that we need to expand into to service our customers because we have capacity constraints and we're working on that and we'll get to a point where we don't have that -- that issue going forward.

Okay, and the number of registered buyers? Can you update us how many you have?

Sure. We've got over 45,000 registered buyers on the salvage side, simply salvage buyers that are registered with Copart. We've got over 100,000 buyers total, putting Copart and VB2 buyers together. And so the reason I break those out separately is the salvage buyers are going to be interested in, you know, complete burns all the way to rebuildable salvage. The wholesale buyers are interested in recovered thefts for Copart, but the odds are they're not going want to buy -- they're not going want to buy heavy -- heavily damaged vehicles, et cetera.

All right, thank you. Your VB2 auctions, have you actually had sales in all 40 sites at this point?

I don't know that we have off the top of my head, simply because we, we -- we're just finishing rolling the very last facilities at the end of May, and being it's what June 2nd? I don't know that we've actually completed an auction at every single location, but we're close, if we haven't.

Have you had any factory sales in those -- at those sites nd what kind of potential does that offer going forward?

Well, I don't know. At this point, I mean, we've sold some vehicles for Honda. I think everyone is pretty much aware about that. We talked a bit about that on the call. It's a huge market, it's a huge potential, but right now my focus is really getting the product built where it will work for the book of business that we've got complete across their spectrum, and then we can go out and look at processing specific types of volumes, whether it be rental car industry or factory cars or whatever type of vehicles they're going be.

So, is that something we should expect updates each quarter as far as what you're rolling out or am I thinking too short-term--

No, I think we'll talk about it on a quarterly basis. It's just , you know, again, it's not going to be something I would expect any kind of short-term material impact in our financials. It's something that's definitely a long-term play.

Okay. And then finally, your -- or actually two final questions. Your patent application, any update there at all?

Sure, yeah. We finally did get response on our patent and we got what we expected. It's normal when you're filing for a business process patent to get immediate rejection on the first response, and then of course from there, what we will do is rebut all of the different points that they've made. Our feeling from a counsel perspective that is the -- that a), it's normal and typical for your first response to be a rejection and then you have to defend why you feel that that's not the case and why you should get a patent on the product; and b), we've analyzed their response already compared to our patent and we feel that they're incorrect in a number of areas.

So we'll be going through the process of explaining to them how our product is significantly different from what their thinking is already in existence, and as I've said before, I think that we have a product unlike anything I've seen out there and I think that's the number one reason or justification for getting a patent and we'll continue to update you guys as we get you know, further response from the government on that.

I think prior conversations you really didn't expect to have a resolution on that, at least until the end of this year anyway.

It's going take significant time because you've got to go through this process. I mean, it's nice that we got the response, but now we've got to go back and rebut and get all the additional information on it.

Okay, and then finally, are you seeing Mannheim make any move into the salvage market at all?

Well, nothing different than from what they've done in the past. I mean, they've got pockets of different locations where they process some salvage vehicles. I mean, at the end of the day, these guys are processing something north of 6 million vehicles a year through the whole car side of their business. I don't think they handle enough salvage cars to even register on their balance sheet. I don't think they'd even break it out it's such a small number of vehicles.

So, you -- I think you understand the competitive landscape we live with and the other public company that we compete with and some of the other independents we compete with, and Mannheim is you know, salvage has been a very insignificant function for them. I think at the end of the day they probably handle it in some markets because, you know, they've been requested to, but other than that, I don't think it's a high priority for them.

So on the competitive landscape you really haven't seen any significant shift in strategy?

I haven't, I'm unaware of any situation where I've bid against them -- any -- and I've got my finger on the pulse when it comes to where we're competing and where we're trying to get additional business in the company and I know who my competitors are, I know who I'm bidding against every day and I haven't bid against them at all on any deals that I'm aware of.

Perfect. Thank you very much.

Sure.

Congratulations.

And our next question is from Bob Litel (ph), of [inaudible] Investor Services.

Thank you. A moment ago you mentioned VIX , the virtual insurance exchange. I wonder if you could tell us a little bit more about that?

Yes, I talked about if in the last call. What we did, in the industry today, just to give you guys kind of the quick down and dirty on it, in the industry today when an insured has an accident, they have the option of retaining their vehicle, and the reason they would do this is on a lot of older model vehicles, I give the analogy it's like a throw away television. You buy a 10-year-old TV and if it stops working, you throw it out, you don't go fix, you don't have a TV repairman and you don't go down to the thrifty store and buy tubes for it. Those days are over.

With the vehicles, it's the same type of situation. You take a 10-year-old vehicle that has a $3500 ACV on it and you come, you're driving through a parking lot and somebody backs out and hits you in the door, that vehicle's a total loss because the cost of repair, the labor involved, the parts replacement is going total that vehicle, yet the door may just have a dent in it and have minimal damage. The vehicle's still drivable, et cetera. So the insured will have the option of retaining that vehicle and getting a check or getting a check and giving up the car and then it comes to the auction to be sold.

What we find today is that we don't get the light damaged vehicles, so we don't have a database that accurately shows what those vehicles are worth, so we end up in the industry and the other bidding sources that insurance companies have end up bidding those vehicles, we believe, too low, and what happens is that the insured ends up retaining them at a price that's really much lower than what the vehicle's worth. So what we've done is developed a product whereby the insurance company can put that vehicle on the internet, on Copart's site.

We will run a VB2 auction daily. This will allow all of our buyers to bid on that product and now where that vehicle might have had $150 or $200 salvage bid, we may be able to run that through our auction and achieve a $1,000 bid because we've got real buyers bidding on it. The insurance company will now offer to the insured $1,000, so that $3500 will be, you can have a check for $3500 and we'll take your car or you can have a check for $2500 and you can keep the vehicle.

Well in that scenario, the insured is going be much more likely to say A, I don't want the vehicle now, give me the check for $3500; or they may say fine, I'll keep the car still and now they're generating a higher return, because they're out $2500, instead of, you know, $3500 minus $200 or $3300. So it's going put more money into the insurance company's pocket by generating a higher return on what they're currently settling those owner-retained salvage vehicles for. It's also going give my buyers access to a lot of vehicles they never had access to before.

I think that's going to be a big deal, especially when you look at some of the international bids. Like I said, over one in five vehicles is going international. So we have a tremendous Mexican and central American contingent out there that I think will be all over 10-year-old vehicles with minimal damage that are drivable. And I think everyone understands that whole access. So that'll, that'll be-- I think that's going to be a big deal for us and we're excited about it. We'll find out how it does in this quarter, since it's you know it just went live. We'll see how it does and we'll report.

Very interesting. Thanks.

Sure.

And we'll take a follow-up from Gilbert Alexandra with Garfield Associates.

Hi, Gilbert.

Good morning, again.

Yes?

The total car market, if we look at it from 2000 through 2004, what's the growth in this market or what's the growth in your market in that period?

Well, you have to look at a number of factors with respect to trying to determine the size of the market. We estimate that the vehicle market is probably somewhere in the 3 to 4 million car range. It's hard to really know what that total number is, but that's our first estimate. Then you've got to look at severity and frequency, so frequency is the number of accidents. Frequency, as we can tell from the sources we talk to, is down, meaning there are less total accidents today than a year ago, but severity is up significantly. And which totally makes sense; they're making cars safer.

So when the vehicle gets in an accident today, there's backup beepers in the bumpers and motion detectors in the front bumpers and there's airbags in the vehicle. And all of that in an accident gets damaged and there's no real salvage value to it, from a recyclers perspective and from a rebuilders perspective, they've got to replace all of that when they repair the car. So, that continues to raise the cost at the body shop and again, that causes more vehicles out of the total pool, more vehicles to become total loss. If I had to guess, I'm going say that the industry grows something like 3 to 5% a year based on that first number, that 3 to 4 million cars that I gave you.

Thank you very much.

Sure.

And at this time we have no further questions standing by. I'd like to turn the conference back to our speakers for any additional or closing comments.

Thank you very much. Well, as I said before, we're very excited with the results for the quarter and I look forward to reporting on the fourth quarter and the year end with all of you in the coming months, so with that, we'll go ahead and close the call. Thank you very much.

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