Copart Inc (CPRT) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the Copart Inc. fourth-quarter fiscal 2007 earnings call. As a reminder, today's call is being recorded.

For opening remarks and introductions, I would now like to turn the call over to Mr. Jay Adair, President of Copart Inc. Please go ahead, sir.

Thank you, Matt. Well, good morning to everyone out there in the U.S., and good afternoon to those of you in the UK. We are going to be discussing today our fourth-quarter results and our year-end results. And so with that, I've got Will Franklin on the phone. He is at a different location than I am. I am in the UK; he is in Dallas. So there will be a little delay, possibly, in answering the questions, but we will do our best. And Will, go ahead.

These forward-looking statements may include projections about our revenue and earnings growth which are subject to various risks, including weather conditions that are adverse to our business, our ability to increase market share in a competitive market and our ability to secure beneficial supply agreements. We face risks arising from our increased dependence on proprietary technologies to conduct our auctions. Finally, our recent acquisitions of Universal Salvage and Century Salvage Sales Limited in the UK expose us to new risks relating to international operations. For more discussions of these and other risks that could affect our business, please review the Management's Discussion and Analysis and the Factors Affecting Future Results contained in our 10-K and SEC filings.

With that, I will begin my formal comments. In our fourth quarter, revenue grew by $16.8 million to $154 million. The growth included $14.8 million in revenue from Universal Salvage, our UK subsidiary, which we acquired June 14. Growth in North America was approximately $2 million. Included in the same quarter last year was incremental hurricane revenue of approximately $10 million.

In North America, we act primarily as an agent for the seller, remarketing the car on their behalf. We are not considered the owner, nor do we have risk of ownership. For cars sold in this manner, we recognize only the service fees in revenue. In the UK, we operate primarily as a principal, purchasing the salvage cars from the insurance companies and selling them for our own account. Accordingly, when cars are sold in this manner, we recognize the entire amount of the gross proceeds as revenue and the cost of the car in yard expense.

In the quarter, same-store sales grew by 1%. The growth in same-store sales was affected by the extraordinary revenue associated with the hurricanes recognized in Q4 of last year, which if excluded would indicate a same-store sales growth of 8.5%. This increase in same-store sales was due primarily to growth in units, driven by recent market wins. The three stores opened in North America and the seven stores acquired in the UK in the last 12 months contributed $1.1 million and $14.8 million in revenue, respectively, during the quarter and were profitable.

Consolidated yard expense and cost of sales for the quarter was $82.5 million and included $10.4 million from our Universal subsidiary. Also included was depreciation expense of $7.8 million, of which approximately $300,000 was attributable to the UK subsidiary.

In North America, yard costs declined from $74.2 million to $72 million. The decline was driven primarily by the absence in the current quarter of abnormal hurricane costs incurred in Q4 of last year.

Gross margin was $71.5 million for the quarter and gross margin percentage was 46.4%. Yard margin percentage was and in the future will be negatively impacted by the consolidation of the UK operations due to the principal method of sales. Gross margin percentage for North America was 48.2%.

Consolidated general and administrative costs for the quarter were $17.7 million and included $3 million from Universal. Also included was depreciation expense of $1.9 million, of which approximately $700,000 was attributable to our UK subsidiary.

In North America, G&A declined from $15.8 million to $14.7 million, due primarily to the buyout of certain computer leases and a reduction in certain payroll costs. Total depreciation and amortization expense for the quarter was $9.7 million, of which $1.1 million was attributable to Universal.

Operating income from continuing operations was $53.9 million and operating margin was 35%. The operating margin and the operating margin percentage for North America were $52.5 million and 37.7%, respectively.

Income tax expense for the period was $21.6 million for an effective tax rate of 37%. Net income from continuing operations was $36.7 million and net income percentage was 23.9%.

We have discussed on this call and we have presented in our press release the revenue, operating costs, and general and administrative costs of our UK acquisition from the date of acquisition to the end of our fiscal year, a period of approximately six weeks. We caution you that the nature and the composition of these revenues and expenses are not necessarily representative of what we would expect for an entire annual period, nor do the amounts of the revenues and expenses necessarily represent a pro rata portion of what we would expect for an entire annual period. Accordingly, the results of the UK operations for this six-week period are not necessarily a valid run rate or an estimate of future results.

Our cash and short-term investments declined to $201 million as we expended $120 million to acquire Universal Salvage; $89.6 million to repurchase stock; and we placed $9.1 million into escrow to fund the future UK acquisition of Century Salvage Sales, which we completed on August 1. Generally, balance sheet accounts grew due to the consolidation of the UK acquisition. Specifically, we recorded $47.8 million in goodwill, $26.1 million in intangible assets and $13.9 million in deferred tax liabilities in conjunction with the acquisition. After-tax return on equity on a trailing 12-month basis was 15.5%.

Cash generated from continuing operations was $53.1 million as cash generated by net income and depreciation was $46.9 million. Movement in the current assets and liability accounts provided the balance.

Capital expenditures for the quarter were $17.5 million and included $7.4 million for the buyout of two leases. For the year, we expended $76.6 million on capital items. Included in that amount was $7.9 million to purchase our airplane, which we immediately resold for a small gain; $5.8 million for the purchase of yard equipment, which we immediately sold and leased back on operating leases; and $23 million for the buyout of existing real property leases. Finally, we estimate our maintenance CapEx for 2007 to be approximately $12.7 million. Excluding these items, our CapEx in 2007 was approximately $27.3 million.

We currently have a full portfolio of existing capital projects, primarily new yards and yard expansions. We also have a full queue of targets for both new locations and possible lease buyouts. However, because of the timing of the actual expenditure for these items is surrounded by so much uncertainty, like our ability to pay needed permits on a timely basis, our ability to find zoned and properly located sites in a desired area, and our ability to negotiate a reasonable price for a targeted location before a lease buyout, we feel it is inappropriate to provide guidance on our expected CapEx for 2008 as providing guidance may establish expectations for future growth which may not be appropriate, given the uncertainties we have just discussed.

With that, Jay, I will turn the call over to you.

Thank you, Will. Well, as you heard from Will, we have had a great year. We had a great quarter. And what I want to talk about today was just some of the exciting things that, A., happened in the year, but also some of the things that are already happening in our new fiscal year 2008.

So just looking back for a minute, we had new stores in the year -- we opened up Portland, Oregon, which will service, obviously, the Portland market. This is part of our strategy that we have had really from day one, which is build a network of facilities where we can pick the vehicles up quicker. This will reduce costs. This will, obviously, if we've got more stores, using Portland as an example, we've got one in the north, one in the south of Portland. We are closer to the cars, reducing costs associated with towing. Also picking the cars up quicker reduces costs associated with storage.

We had another facility in Baltimore, Maryland, that we opened up. This facility was being serviced prior by the DC facility. And so they are about 50, 60 miles apart. And again, just a prime example of what we have done in the past that has worked so well to build capacity and yet build a better network and allow us to reduce costs and pick cars up quicker.

And then of course, Fort Myers in Florida, which is really on the other side of Florida, was previously serviced by Tampa primarily, and partially by Miami. And so now that market will be serviced by the facility that is down there.

Also in the quarter, as Will mentioned, we did acquire seven locations in the UK with the acquisition of Universal Salvage. They were the premier company in the UK. They are the largest in the UK. And we are really, really excited about some of the things that are happening there. I will talk about that in a minute. I just wanted to give you an update on the current quarter because we recently announced the acquisition of Century Salvage in the UK. Those are three locations; they are very complementary locations with respect to Universal, meaning that the locations are not in the same areas. So it gives us a better geographic footprint, and again goes back to what I talked about -- it is all about picking the car up quicker, building a better capacity model and passing on those savings to our customer base.

In addition, we opened up our second location in Canada. This one is in London, Canada, between Toronto and Detroit.

Will mentioned the stock buyback. We did acquire 3 million shares at $89.6 million, roughly $90 million purchased worth of stock. We have slightly below 2 million shares still authorized under an existing Board approval plan. And so, as we've said in the past, we will look at that, and that is one of our options to deploy cash. We will probably also talk at the Board level about increasing the number of shares that will be authorized for stock buyout.

We also, as you know, most of our properties are owned, but there are a number of properties that we lease. When those leases come up, we sometimes extend the lease; we sometimes buy those leases out. So we also had lease buyouts for the year of $23 million. And there will probably be some opportunity in the year that we are in now to acquire additional land that is currently in lease that will be coming due. And we are not opposed to extending those leases; it is really just a matter of economics and maintaining control of the property because of zoning.

Looking at integration here in the UK, and that is really the big thing that we are talking about today, we really couldn't talk about it on the last call because of some of the statutory rules that existed. So today, I wanted to give you all an update on where we are at. We've got a fantastic team here. We've got some great people here that we have gotten to know really well. We have spent time here, obviously, as I am in the UK now. They have spent time back in San Francisco and our offices there. And like I said, this whole process, really, of integration starts with the people. And we will then go through a process of reorg-ing the company. We have done some of that now, trying to change some of the duties and made it a little bit more like the Copart structure.

But the next step will be having a full integration of systems, technology, procedures, and of course, our VB2 technology for selling the cars by year end. Our intent is that we will have that fully integrated with those technologies, with VB2, with the reporting, and I will talk about some of the things that we plan to see come out. But our intent is to have a full integration by year end, December 31. So going into calendar year 2008, we should be looking at some of these goals. And I'll talk about the goals for just a minute.

We want to build a bigger network. We have a current network of 10 locations. We would like to build a network of 15 to 20 facilities within the UK. Again, this allows us, instead of going 200 miles to pick up a vehicle, to pick a vehicle up sometimes going 60 miles to pick that vehicle up, and maybe instead of going 60 miles, sometimes we can go 10 miles. So it is really about traveling shorter distances, saving because of the towing costs associated with that, the logistics, costs associated with that. And it is all about picking cars up quicker. And that will be something that we are really, really focused on in the coming year.

We are going to raise the bar, and that is our goal, is to really pick vehicles up quicker at a national level, as we have done in the U.S. We want to improve returns, both at the gross and at the net level. So we are going to be looking at a gross increase in the average selling price of the car, but we're also going to be reporting, with all the technologies that we have, the cycle times, what the average advances are, the date of loss, from report date to pick-up, assignment -- all that information is going to allow our clients to reduce costs, and that is going to improve the net.

So the net is going to come up because we are going to get more for the cars through VB2. But the net is going to come up because we are going to better technology, better reporting. And we are going to do that the same way we have done it in the past, which means more frequent contact with our sellers. So we are going to do that contact personally. We are going to be out touching them. We are going to be showing them. We are going to be doing a lot of best-of-class. This is what the industry does. This is what some of the players in the industry do that have best-of-class practices and policies. And we want you to do the same thing, because this will reduce your costs.

So that will be a lot of what will be happening in the next year. All of this, as I said, will decrease cycle time, again, improving dispatch efficiency -- we have got a network of over 100 trucks -- improving those logistics, picking those cars up quicker. We currently have some XML interfaces built with our clients. And we will build further XML links across all the connectivity points.

So at the end of the day, what we want is the client to be able to sign that car electronically, report information from us to them, from them to us, all electronically, all the way down to the selling of the vehicle electronically through VB2 and passing the funds and the data right back electronically. And that will be the goal, as we have done in the past. We will be looking to do that here. And it is just very obvious -- it reduces costs, it makes everyone more efficient, it is much more transparent -- you can see where your improvement needs to be. You can set clearer goals. And it is really, at the end of the day, it is going to be across the spectrums, both buyer and seller.

An example on the buy side would be, today we take seven pictures in the UK of every vehicle that goes up for sale. Some of the vehicles are sold online. Some of the vehicles are sold through live auction. We will be taking 10 pictures of every vehicle in the UK. And so the buyer has more visibility of what they are buying. And we are going to be leveraging that buyer base that we have. Copart in the U.S. has 100,000-plus buyers. Copart in the UK has over 15,000 buyers. And we have thousands -- together, thousands of international buyers. And so we will be leveraging those Eastern European buyers that are already buying here in the U.S. and vice versa. And we will be doing that across the board with all of our buyers.

So there is a lot going on. It is really exciting. We are all very pumped up about it. I will try to cover as much information as I can for you in the Q&A, but it is really all about kind of finishing the year, getting the work that has got to be done -- we have got a lot of heavy lifting. We are going to do that. We are going to do what our customers want. And that is what it is all about, as we have talked in the past -- it is all about our customers. And so we are going to generate the result that we have talked about with them so far. And I think at this point, they have grown to expect some service-level increases. And that is what we plan on doing.

So with that, it is my pleasure to turn it over to you, Matt, for the Q&A.

(OPERATOR INSTRUCTIONS). Bob Labick, CJS Securities.

Congratulations on an excellent quarter. A couple of questions. I will start in North America. Obviously, same-store sales were very strong and a very good rebound from last quarter. You mentioned recent market wins that drove growth in units. Could you expand upon that?

Well, we have never gotten into a habit of talking about which clients we have actually gained. We will just tell you that we have gained some clients. As we have done that in the past, and we have said that, and sometimes it is hard to track it because you've got year-over-year events that occur, like Hurricane Katrina, and sometimes things that are not quite that dramatic. But 8% was a pretty big number. So we thought we'd better give you some visibility on that. So it is market share gains from additional accounts coming on board.

Perfect. So we should expect this, obviously, to continue.

You know, I go through my life expecting it. We will just see what happens. I hope it occurs, man. Maybe we will get a new account before I get my voice back. I don't know.

Great. And then in terms of just overall market, any change in the -- you have discussed before a 3% to 5% targeted industry growth rate -- any changes out there that you are seeing, or how does the overall market look for the next year or two or three?

Well, the market I think in general, everyone knows the market, it seems to be -- it depends state by state, but it seems to be a little bit flat to down as far as growth of the market. It is not growing as it has in the past. But our growth isn't driven purely by market. So we're going to look at, again, additional cars, and of course servicing customers and just trying to increase volume.

Great. Sticking with North America, you mentioned G&A was benefited from computer lease buyouts and reduction of other costs. Is this a reasonable starting base for next year's G&A, and then just assume whatever growth we are going to normally assume, or were there any other one-time benefits in the quarter? It was very good cost control.

Yes, Bob, our G&A will be obviously impacted by the integration costs and efforts. As you know, we don't give guidance on specific numbers; just be aware that we will do everything we can to control those costs.

Yes, we will. And as Will said, there is going to be some costs associated with getting all this integration work done.

Okay, great. In terms of the UK now, well, first you mentioned in the press release that Universal is about $0.01 accretive. Is that before the, quote, lost interest income? Or is that after the interest income from the--?

That is stand-alone, Bob. You can calculate what $120 million would have earned over that six weeks. Our return on the UK acquisitions was greater than that.

Okay, terrific. And can you give us any sense of the size of Century versus Universal or give us I guess a little more color on the Century acquisition?

Yes. It is a really good acquisition from the standpoint of the people that are coming on board, logistically, where the locations are at, the volume that is there. But the reality is that Universal was considerably larger from a share volume, and we haven't broken out units in the past, and I don't think we should go down that path at this point.

Okay, well, congratulations on a great quarter. I'll get back in queue.

Scott Stember, Sidoti & Co.

Could you maybe talk about, in the UK, you mentioned that it is mostly a purchase type of business or principal business. Could you give the exact figure? Is it 100%?

And also, obviously back in the 1990s, that was an issue for you guys and the industry. Could you talk about the pricing environment in the UK right now, things that could go wrong, just to take a worst-case scenario?

Yes, I can guess at the volume. Will, do you have the actual numbers in front of you?

Yes, I do. It is between 60% and 70%.

Yes, principal, so it is about one-third/two-thirds, one-third nonprincipal and two-thirds principal. This market obviously is a lot different than the U.S. market. For one, they have a categorization policy. So they have been doing it this way for a number of years. The market has recently started to change from this. As we have talked about before, you can handle cars this way. Our goal is to align our interests with our customers'. And at the end of the day, if we're trying to get as much for the car as we can and sharing in the upside, so as we install VB2, we are sharing in that upside, then we think that is a better long-term approach than if we start making more money and then our client looks at that and says, well, that doesn't make sense, let's renegotiate the pricing. Then if the market turns down, we are back to the client saying, well, this doesn't make sense. Let's renegotiate the pricing.

So really we think the right long-term strategy is to try to align our interests so that when the market goes up, we get a piece, they get the majority of it, and at the end of the day, we are going to do whatever they want, but we are going to show what we have done in the past and what we think makes sense.

Do you expect going forward, maybe two years out, to see a 50/50 split between --

I don't know what it will be as far as a ratio, Scott. It may be too early to guess at this point. But I fully expect some clients to look at the increases, the technology we are installing, and saying, yes, we are willing to have better visibility on what you make, see what you make. Under a principal, you don't report that. Under a fee base or a PIP, you actually are reporting -- what you sell the car for goes to them, minus service fees. So I would expect there will be a shift. I don't think it will be at the numbers it is at today, but it is hard to guess.

And if you could talk about the percentage side, how much of it would you say is the equivalent of your PIP or [Class C], or do they even have a PIP?

I don't think it exists.

It does exist or it does not? I'm sorry.

I do not think it exists. I am not aware of it. I know it doesn't exist with us. I am not aware of it in the industry here, nor am I aware of any real protective measures that are taking place. So again, that is going to be some of the discussion points we will be hitting on with our clients.

And as far as CapEx in the UK, you have -- I know that you have kind of shied away from those numbers for next year, but --

Well, our goal is going to be to build a network. So as Will shied away from the numbers because we don't know -- we are afraid to give out a large number; people anticipate big growth and then we end up not doing it. We are going to make decisions that are sensible, not decisions that we feel because we gave some kind of guidance on CapEx. So the point for us will be to try to get 15 to 20 locations. We'll obviously continue to grow in the U.S. as well. And the CapEx will end up being what it is. It is just too hard at this point to try to predict.

One last question, just circling back to the 15 to 20 locations -- was that by the end of fiscal '08 or were you just talking over the next couple years?

Over the next couple years.

Tony Cristello, BB&T Capital Markets.

Wondering, can you just maybe give, Jay, some color on what your UK customers are thinking about your approach versus what is traditionally done over there? How are they embracing your strategy, and just anything you can provide in terms of details with conversations?

Sure. They are very open to any new ways of doing it. They are going to obviously sit back and take a very objective view of, okay, let's look at the data. Let's see the results. My guess is they will want to test.

So it is similar to what we have seen in the past. The people that are running the companies here, that are running these insurance companies, are smart folks, just like they are at home. They know their business.

And it is just a matter of saying, look, this is something new, and taking a look at it and seeing if it makes sense. And I think it is all about dollars and cents. If you can reduce cycle time, if you can improve the quality of customer service and you can lower costs, who wouldn't do it? And if you do a test and that doesn't happen, then it is not going to go forward. But we have done that in the past, and I think the results speak for themselves. And if we do that in the future, I think that will be the trend; that will be the direction that the market heads.

And are you seeing your existing customer base versus -- I am assuming there's new customers you have talked to already about this, and are they equally thinking about the approach in the same way?

Yes, I think it is definitely an approach where everyone is willing to meet, to discuss, to talk about it. And obviously, I think the folks that are going to be trying it first will be my own client base, my own customer base -- there is a trust there and there is a relationship there. And then what will happen, I think, is over time, as this starts to occur, you'll see more of that with existing customers or existing insurance companies out there, rather, that I don't have or that we don't do business with, looking at Copart as an option and some of the practices or the best-of-class practices that we offer.

Is that something that may take 12 months or 24? I mean, what is involved with the testing process before it would be officially sort of --

Well, the first thing is to get our systems in, because they can't really do anything without the proper systems in place. And so we will put our systems in. That gives us the VB2 technology and the reporting and really full transparency. And once that takes place, then we can start reporting on the numbers and say, here they are, look, here is what we want to try, let's go for it -- that kind of approach.

So it may be 12 -- you get everything in by December, it may be six more months as you start to give them the data that they need. So this time next year, you might be talking about a change in how people are buying.

Yes, I think 12 months from now we will be looking at different numbers, sure. That is what I think will occur. There will be plenty of data at that point. A year from now, we will have 12 months of data. We will be able to look at the seasonality to the business. There is going to be a lot of dissecting of that data, and again, reporting on that data to our client base.

So then when I look at the contribution, I know you don't want to give guidance per se, but what they did for you in this period -- I'm assuming the seasonality of the businesses is similar over there as it is here in North America.

Well, it is similar to -- I would say more similar to the West Coast than it is the East Coast. We get a lot more volume in the East Coast as we go into winter than we do on the West Coast. And that is just the sheer fact that the weather is harsher with the snow. And the weather here -- plenty of rain, but I would say it is more of a rain phenomenon that exists here. So I would compare it more to the West Coast than I would the East.

And so that is a part of the reason of why not to extrapolate what you might be seeing to the first six weeks?

Yes.

The second part of that, then, would be, when you look at your -- where you see the margin improvement opportunities, will the first part of it be driven by simply getting in and running the business better, and then as you roll out the systems and then that obviously leads to the potential for higher pricing, is that how we should look at it in terms of --

Some of it is going to be synergies that exist because we are going to have some synergies between the two companies; that is just a fact of life. Universal was a PLC, now they are not, so they don't have reporting requirements, some of the other expenses that they had associated with that. Some of the benefit is going to be, as we see, an uplift in units that we are processing through our facilities. Some of it is going to be logistical improvement through facilities.

We are today towing cars past another yard because that yard does not have space. And we will be towing cars into that yard because of space, because we've got an additional three locations that have to be integrated. So there is a little of that that is going on. There is nine locations, of which six are on one system, three are on another. They have got to be combined -- I'm sorry, seven is on one, three on another. They have got to be combined. When all 10 locations are in place, then we do postal code logic, which allows us to look at the postal codes for the market and go closest yard and take those vehicles to the closest location.

All those kinds of things are going to take place. It's really hard to pinpoint every one of them. But there is going to be a lot of that going on in the next 12 months.

Craig Kennison, Robert W. Baird.

Just to clarify, Will, on the metric you provided earlier, that was a percentage of volume, not revenue, right?

Which metric?

The primary versus agency.

That was volume, yes.

And then other metrics here -- what percentage of your U.S. volume went to out-of-state buyers?

How do you want it, in value or units? In units, it is about the same. It is slightly less than 50% stays in state in units. In terms of value, it is down to about 35%.

Stayed in state -- okay, that's helpful. And a while back, you had talked about a strategy to get into the older used vehicles. Could you give us an update on that strategy?

Yes, we are working on it. We're testing that out now. And quite frankly, we are happy with it. But it is still a test; it is still a small beta test that we're doing. As we start to see it become more meaningful, we will talk about it. But we think it's still got potential. We're still testing it, and like I say, as it comes along, we will let you know.

Will, do you have the actual share count as of the end of the quarter?

Should be on the -- no, I don't. Why don't we synch up after the call and I will give that to you.

Then finally, I noticed two changes to the Board of Directors. Can you just give us an update as to whether that could allow the strategy to evolve or maybe what that change may entail?

Jim and Harold, who sat on our Board for -- geez, I think it was like 14 years -- it was a long time -- they are really good guys, still friends of the Company. And we had a couple other investors that both owned a significant amount of stock in the Company that we brought on the Board. We will see how all that goes. But we have laid out our strategy. We are going to keep growing. We will look at stock buybacks when it is an option. It is going to be the whole Board's decision. It won't be -- it wasn't two Board members before and it won't be two Board members going forward.

Great. Congratulations again.

Bill Armstrong, CL King & Associates.

A couple of questions. I got on the call a little late, so I apologize. Could you just repeat what the same-store sales growth was for the quarter?

It was 8.5%.

As far as migrating to VB2, I know you want to get that VB2 in place by calendar year end. Is it your plan to go to an Internet-only auction model like you have in the United States, or will it be a hybrid live and Internet model?

That is what VB2 is. So VB2 is a two-step process, a full Internet model utilizing preliminary bidding, and then it is followed by the virtual engine that basically allows real-time bidding of those units.

So you are going to limit live auctions, then, in the UK?

Yes.

I thought I heard you say before that you eventually would like to build up to 15 to 20 auctions in the UK. Just to give us a sense for how big that market is, how many salvage auctions are there in that market?

Well, I can't really tell you how many auctions there are total because it is done differently in this market. Sometimes it is auctioned; sometimes it is sold directly to dismantlers, similar to how it was done at one time in the U.S. So if I can tell you in units, it's about -- we estimate about 600,000 units in the UK. And we are 20%, 25% of the market today.

I didn't realize you had that big of a share.

Yes, we are the largest in the UK.

Wow, okay. I knew you were the biggest; I didn't realize the share was that big, though. And the insurance companies that you're dealing with over there -- sounds like they are pretty receptive to efforts to migrate to an agency versus principal model.

I think it is all dollars and cents. It is all going to be show me the money. And if we can offer a greater return and better service and reduce cycle time, I think, then, they are going to be down with it.

Edward Hemmelgarn, Shaker Investments.

Sorry for asking this again, but could you just, Will, could you just run through the information we had in the current quarter's UK revenue and why that isn't good to extrapolate it?

It's just too small of a period. I mean, things could change over the course of the year. What we had in inventory at the end of the year isn't necessarily representative of what we'd expect to handle during the course of the entire year. And also, there are some valuations that take place when you buy new acquisitions. So some of the inventories are necessarily carried to cost going into the period.

So you are just basically saying is that you could have ended up selling more from a timing difference standpoint?

Sure. I mean, we've got several different contracts. And so the percentage of the contracts that we sold during that six-week period may not be what we would expect over the entire year. In addition, on the G&A side, there's a number of expenses that you would expect to incur during the course of the year that may not have hit during that six-week period. It is too short of a sample size to draw a conclusion.

Tom Lamb, Weybosset Research.

Just a real basic question -- ultimately, Jayson and Will, is the profitability of the UK operation in the same league as the U.S. operation?

You want me to comment on that, Will?

Yes, why don't you [tell him].

Well, today, when you look at profitability, we tend to look at it as a percentage of revenue. So we are booking the revenue today based on purchasing the cars. So because of that, no, it is not.

But net profitability, wouldn't that be similar?

No, it wouldn't be, just because there's some things, efficiencies that don't exist, and some opportunities aren't there today that don't exist today. So as we go out and we market cars to a larger audience and the cars bring more money, then we are going to generate more profit on that.

And then 15 to 20 facilities in the UK over the next couple years -- is that the ultimate size of the network, or could that be bigger?

Well, I always thought the ultimate size for Copart in the U.S. was somewhere around 100. So you never know. I know today I can sit down on the map and I can count 15. It may end up 15, it may end up 20, it may end up a little more.

Fair enough. And I also thought that Universal Salvage had a couple of locations in France or on the continent, so to speak. If they do, would they also -- presumably they would also be integrated and presumably you would also be using those as a learning experience.

Well, we don't have anything in France. We don't have anything in mainland Europe. So it is all just UK right now.

I was going to tell you, haven't you heard about the English and the French? But I figured I'd better not.

Okay, I thought that was the French and the Americans, but I wasn't --

Well, it is the French and the Americans, too.

Great quarter, and this looks great, so keep up the good work.

(OPERATOR INSTRUCTIONS). Gary Prestopino, Barrington Research.

Can you comment on these competitive takeaways that you said you have recently won -- are they coming at the expense of the independents or some of your larger competitors?

I would have to say both.

In terms of Universal, my understanding, you did not have any sites on VB2 for the time period you have owned it?

We don't currently either. It will happen before the year end. But we currently do not have any facilities on VB2.

And then could you just comment in terms of geographic location where Century's sites are in relation to Universal's sites? Are they mainly in London or are they spread around other cities?

They service London, but it is probably better to -- if you were just to look at the island and say, okay, Century tends to be a little bit more on the east side and Universal tends to be a little bit more on the west side, and that is oversimplifying it. But that is one way of looking at it, if you were to put the dots on the map. Universal is in Scotland; Century is not. Universal is in Bristol; Century is not. So that is the good news. The good news is that they are both complementary.

And then a couple of other questions. With the insurance companies that you are processing for with Universal, do any of those companies also write insurance on the continent, in Europe, in Germany?

Yes, they do. Some do. Some write in Germany and Spain. Some write in the U.S.

Is the salvage market in Germany, Spain, France -- is it very similar to how it is in the UK, where you have the auction process to dispose of these cars?

I think I am probably at this point not educated enough to comment on it. So I am just going to plead the Fifth on that one. I really don't know the market well enough yet, Gary.

And then the last question is, relative to the cycle times that Universal was achieving, how much do you think you can cut those cycle times once you get your systems in?

Well, I'm going to know a lot better that question when I can see the actual -- see more of the data on our system. I have viewed the data from the existing UVS system, from the existing Universal system that we have. I see opportunity. And the question is going to be, once we get our systems in place, then we can see the data through that and we can track it, and we can change things. But, look, there's some obvious areas that we know will improve. But I think I will be better to report on that kind of stuff in the future.

Could you possibly just say relative to what you're doing in the U.S. now with Copart, what is the differential on the cycle times?

No, because some of it is not fair -- for instance, the cycle time for processing title in the UK is much quicker than the U.S., it is much better. They have got a better title system. They've got one title for the whole island. So you don't have to deal with 50 states. So it's really -- it is difficult to pinpoint it because you've got to break the cycle time up into probably 15 or 20 bits and then say, okay, here is from first notice of loss to assignment, here is from assignment to pick-up, all the way through the cycle time. So we are going to dissect it and we will do that over the next six months. And I can talk about it better then.

Dan Rutter, WHV.

Could you talk a little bit about the number of facilities you have?

In the U.S. or the UK or for the whole Company?

Well I'm assuming it's seven going to 10 in the UK, but I am thinking U.S.

Yes, seven going to 10 in the UK. And in the U.S., Will, do you have that number in front of you?

We have 123 in the U.S. and two in Canada. So we have 135 facilities in total.

Wonderful. Can you talk about acres?

Sure, we have approximately 5600 acres.

That is globally, then, not just --

That is global.

You mentioned the domestic market is slower. Can you elaborate on what the drivers are, and which ones have decelerated to cause that problem? And I guess I am interested in whether or not those are permanent.

Well, we've talked about it in the past. Accidents are an issue of looking at frequency and severity. And the reality is that we're seeing today some of the costs associated with the claims. You don't have a lot of deductibles that have been raised. And so you're seeing the cost on a per-claim basis go up, but you're seeing the frequency of claims kind of go down. So the reality is, when frequency goes down, we end up getting -- there is the potential for less vehicles. So we're seeing as a percentage of the market, it has increased. I think when I got in the business, it was closer to 10% of all claims was a total loss. And today, Will, would you say 15%?

I would say between 15% and 20%.

Yes, of all claims become a total loss. So we have said in the past that we think the market grows 3% to 5%. It is probably growing slower than that today as we sit here. That is kind of the best view of it that I can give you, because that is about the view I got.

Do you feel that 3% to 5% will return?

I don't know. As they make cars safer, that increases the amount of vehicles that become a total loss. Obviously, you've got more repair associated with a car with airbags and all the rest of the component parts -- crumple zones, etc. If rates go up, then that kind of reduces the amount of total losses. So it is really a question of what's going to happen in the future.

On Canada, should we think of that as an extension of the U.S. market?

I think so. We tend to look at it -- it is a different market. But it is a complementary market. A lot of the same insurance companies are in Canada that are in the U.S. And so we handle it, we operate it separately, we market it separately. We're dealing with a different currency. But there are some benefits that will overlap because of how close it is logistically.

I guess what I am trying to say, then, Jay is should we expect more development of yards in Canada?

Well, we have got two right now. And I don't know that we will open another one in the next year. But in the future, over a year out, I'm sure we'll open up more locations in Canada.

And can you talk a little bit about what costs, if any, have been removed so far in the first six weeks at Universal?

No, I cannot.

And then I guess last one real quickly -- do you have any kind of update or anything on lanelogic? Obviously they got a big financing done.

Will, you are there today. So I think it would be best for you to comment on that.

Maybe you want to get Bruce on. I'm kidding.

Bruce, why don't you say hello.

Hello. They won't let me talk, actually.

No, things are going well at lanelogic. Transaction count is up. And dealership signup is up. But they are concentrating mostly from basically Texas east. And so when the model is refined and the working capital is in place, then they will expand towards the west.

There is no change in your financial participation with that financing deal that was announced recently?

No, we have invested nothing after our $8.9 million original investment.

So that was all just pure debt as opposed to equity?

No, there were some converts involved, but we didn't participate.

Gentlemen, there are no further questions at this time.

Well, appreciate you all coming on the call. And we look forward to reporting in the next quarter. Obviously, we will have our integration work done and we can comment some more on that. And we look forward to reporting on the results for the Company at that time. Thank you very much.

And that does conclude today's teleconference. We'd like to thank everyone for their participation and wish everyone a great day.