Copart Inc (CPRT) 2008 Q3 法說會逐字稿

Good day, everyone, and welcome to the Copart Inc. third-quarter fiscal 2008 earnings call. As a reminder, today's call is being recorded. For opening remarks and introductions I would like to turn the call over to Mr. Jay Adair, President of Copart. Please go ahead, sir.

Thank you, David. Good morning, everyone. Welcome to the third-quarter results and conference call for Copart. Before we start I will turn it over to Will Franklin for some brief remarks.

Thank you, Jay. During this call we may make forward-looking statements within the meaning of securities laws. These forward-looking statements may include comments about our future revenue and earnings growth which are subject to various risk, 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 also face risk arising from an increased dependence on proprietary technologies to conduct our auctions. Finally, our recent acquisitions in the UK expose us to new risk 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-Q, 10-K and other SEC filings. With that, Jay, I will turn the call back to you to begin comments on the quarter.

Thank you, Will. Again, good morning. As you saw from the press release, we had revenue and net income of $221 million and $46.5 million and EPS for the quarter of $0.52 a share. Will will talk about the EPS and revenue and expense analysis and balance sheet, stock repurchase that we made in the quarter and a number of those items.

I want to talk to you this morning about some of the things that are occurring within the Company and the US, Canada and the UK. We had new stores in the US, three for the quarter; Alabama, Minnesota and Missouri. In the UK we had two locations that we acquired in Scotland and three new locations in England. This brings our total for the Company to 128 locations in the US, 2 locations in Canada and 15 in the UK, so 145 locations total.

We completed the integration of another site in Q3, and we will complete the integration of all the sites in Q4 with respect to the United Kingdom. That gives us a total of 15 locations currently that will be fully integrated by July. We are in a -- and I get a lot of questions with respect to the UK, and we've been there almost a year now. We are fully expecting a lot of change in the next year or two. It's a very emerging market for us; we're putting in lot of new systems, new procedures, looking at new technologies like VB2 and the way that we are selling cars. We have seen record results in the last two months, both in April and in May in that market. So VB2 has continued to improve, continued to generate higher returns and that is obviously very exciting for us. It was expected. It is something that we fortunately had hindsight with respect to doing it in the US five years ago and seeing the same affect as returns have gone up year after year after year in the US; we are seeing that same impact in the UK now.

So all I can say to you is that there will be a lot of change. I would expect the market to be in that change mode for the next couple years. It is not going to be mature for this time period while we are in the midst of doing integrations and having nonrecurring expenses and that kind of stuff. So you will see a lot of change and I think it is all good right now. We will be opening new stores in the UK in the next 12 months as we complete our network of facilities. We've said 15 to 20 locations in that market, and I expect that that will be the same.

Looking at the US for a moment to tell you that fuel is up, I think as we were talking this morning in the group here is about as obvious as telling you the sun rose today, so yes, fuel is up. And it is probably just as obvious to everyone on the call that scrap price is up for shredded autos and that while scrap is up that is going to have some impact in our industry and while fuel is up that's going to have an impact. The impact right out the gate is the towing expenses is up and I expect the towing expense will continue to rise. I can't control fuel costs and thus am limited to what I can do with respect to the control in towing expense.

However, there is some things that we can do as a company. In the UK we are picking up cars in just over a day. Our goal in that market is to be below a day. I think the proof that that can happen is that in the US we are picking up cars today in less than a day nationally across the US from Florida, Washington, from Connecticut to San Diego. Less than a day in pickup times means that cities are seeing customers calling in a car at 8:00 in the morning and it is picked up obviously the same day.

Shop storage is up. This is where we pick vehicles up at tow companies. Their expense, their storage costs are up. And so for us, if we look at our controllable cycle time, the impact to cycle time that we have control, we don't have control over how quickly a car is assigned to us. We don't have control over how fast the state converts the title to a salvage certificate. We do have control over how fast and clear the car, how fast we pick that up.

That has been relatively flat and I think when you are picking up nationally in less than a day that that makes a lot of sense. I think people look at that and say, yes, how good can you get; but I think the answer to that is I think we can get better. I think we can improve.

So I'm happy to announce on this quarter that in the next 12 months we plan to add an additional 10 to 15 locations companywide. Those new locations in the US, talking US only -- we will obviously be adding locations in the UK, too, but those 10 to 15 new locations in the US we expect will be greenfield locations. The thinking here is very simple. We pick up in markets where we are currently driving 60 miles to get a vehicle. If we can put a location, an additional location in that market and now tow 30 miles to get that vehicle we will reduce towing expense.

Also because of that we will be able to pick cars up quicker. This will reduce controllable cycle time. This will allow us to get the vehicle without accruing maybe an additional day of storage for the insurance company at that shop. And as long as we keep focusing on picking those cars up quicker, that reduces our cost which we can pass on to our clients and that reduces their costs directly in that shop storage. At the same time this is going to increase our capacity as a company.

So we are currently with ample capacity across the country, but we are looking at markets where clearly we've got high numbers of towing cost and where we can add locations in those markets to obviously reduce towing, reduce shop storage, reduce cycle time and pass those benefits on to our sellers and our client base.

Okay, just some final comments before I turn it over to Will. For the quarter we ended up 83% of our product being sold, coming from the insurance industry; 17% of our product being sold being noninsurance, which is becoming a growing segment of our business. 25.1% of units were sold internationally -- in terms of gross proceeds or value of the vehicle, it was 29.8% or 30%. 25.2% of the units were sold interstate, and 35%, 35.2% of that was the actual value of the car. So obviously a lot more value going out in both international and interstate. I think this is just simple effect of higher scrap.

Again, to not notice that scrap is increased year after year after year for the last five years I think you would have to be not paying attention. So at this point higher scrap means that more low value vehicles are going to get processed locally. We are seeing that and the best news I can deliver this morning is that we are seeing a record high this quarter, an absolute record in the history of the Company from all the preceding quarters and our average selling price and in our gross return percentage. So not only are we selling vehicles for more money, but we are delivering a higher return to our sellers in terms of when we take the selling price and we divide it by the payout, the actual cash value, the money that they paid out to the insured, we are actually delivering them a higher percentage at the end of the day. So great, great quarter.

We are excited about that and with that I will turn it over to Will Franklin for financial review.

Thank you, Jay. In this, our third quarter, consolidated revenue grew to $221.2 million. In North America revenue grew by 10.2% or $14.9 million to $160.6 million. Growth in same-store sales was 9.2%. The increase was primarily due to volume growth driven by market share gains in the insurance segment, as well as growth in several noninsurance segments. We also, during the quarter, saw an increase in revenue per car.

Insurance cars represented approximately 83% of total cars processed, similar to our second quarter of this fiscal year. However, due to the seasonality of accident rates, our third quarter usually contains a higher percentage of insurance cars. In our Q3 of last year that percentage was 85.4%. During the quarter, as Jay said, in North America both gross proceeds per car and return percentages reached their highest level in any quarter.

In the United Kingdom revenue for the quarter was $60.6 million and included the results of the Watson acquisition, which we completed February 29th. All sales either deferred or otherwise delayed in our second quarter were processed during this current quarter. Consolidated operating expense and cost of sales for the quarter was $133 million and included depreciation expense of $8 million, of which $1.2 million was from the UK operations.

In North America operating costs for the quarter were $77.9 million, an increase of $5.3 million or 7.2%. The increase was driven solely by increased volume. We expect to see increased transportation costs in future periods due to the rise in the cost of fuel. Also included in operating costs for the quarter is an impairment to a value of a building of $1.1 million. In the UK operating costs were $55.1 million and included $40 million in the cost of purchased vehicles. As purchased cars grew to 73% of all sales. The increase was due to contract mix. Also included are costs associated with the Watson and Simpson acquisitions completed during the quarter. Combined gross margin was $88.2 million or 39.9% of revenue. Consolidated general and administrative costs for the quarter were $19.5 million and included $1.9 million in depreciation.

In the depreciation numbers for the quarter is a $900,000 downward adjustment resulting from revisions to the estimated value of certain intangible assets acquired in the Universal and Century acquisitions. Consolidated operating income was $68.7 million, and the operating margin was 31.1%.

Income tax expense for the period was $24.4 million and included a $1.7 million favorable adjustment to its income tax reserves. We expect the normal effective tax rate to be between 37% and 37.5%. Consolidated net income was $46.5 million and net margin was 21%. Our cash was approximately $96.3 million; accounts receivable, inventory, vehicle pulling cost and deferred revenue all declined as we sold off winter inventory. Taxes payable increased due to the timing of estimated tax payments and other payables increased due to the timing of seller and bad payments.

During the quarter we repurchased approximately 2.8 million of our own stock at a cost of $107.8 million for an average price of $38.77 per share. After tax return on equity on a trailing 12-month basis was 17%. In the quarter we generated $88.5 million from operations. Net income plus non cash expenses like depreciation and equity compensation accounted for $61.1 million of the increase. The remainder resulted from movement on the balance sheet as inventories and receivables declined as we sold off winter inventory and payables increased.

Capital expenditures for the quarter were $31.2 million and included one lease buyout. In addition we spent approximately$28 million for the acquisition of companies. Finally we consumed $106.6 million in financing activities for the quarter driven primarily by the share repurchase activity.

That concludes my comments, David, at this time I will turn the call back over to you for questions.

(OPERATOR INSTRUCTIONS) Bob Labick, CJS Securities.

Congratulations on a strong quarter. First question, you obviously touched on this in your opening remarks, but could you expand upon the towing cost and the impact of diesel fuel, and more I am just looking for how do you pass through, or can you pass through some of this cost to your -- you have the sub-hauling network. Who pays for what, when? Does it go straight to the insurance company? Does the sub-hauler pay it? Do you pay it? Just try to give us some clarity on that process, please.

Yes, well, we have a number -- we have hundreds of subs that work for us across the country, and obviously any expenses that they incur, whether it be workers comp, fuel, labor, maintenance, any of those expenses that they incur, they're going to directly incur those expenses. But then conversations -- if costs continue to go up as fuel has -- fuel is probably the biggest driver right now, more than any other expense. They are going to be as competitive as they can, and they have got to compete with other subs in their market, but costs are what they are. And if that eventually has to be passed on, it gets passed on to us. It does not go to the insurance industry. So we absorb that cost straight up. I mean, that is how it is.

So our goal is to try to minimize those costs the best we can, and the best way to do that is tow the car less distance. So if you are picking up cars 100 miles away from the store and you can put another location in, another yard in, then you cut that towing cost in half. And that's the kind of thing that we've always done and we've always looked at it. But it is becoming a bigger factor today simply because of the greater increase in costs.

Great. That's helpful. And then you mentioned obviously there is not a lot you can do about the price of fuel, but you could change your pricing either to buyers or sellers. Has there been any opportunity? We've heard from other sources that you may have --

Yes, we look at pricing all the time, whether it be buyers or sellers. And obviously it is something that we look at on a case-by-case basis, but I don't discuss it for competitive reasons.

Fair enough. Jumping over to the UK, obviously you showed the strong sales in the quarter. And it still appears to be in an investment phase.

Very much so.

Right. Could you give us a sense of the ultimate profitability on a per car basis, a year or two down the road as it relates to the US not on a dollar basis but is it going to be equal to the US, higher or lower, or how do you see it maturing, and how long should it take to mature?

It is a great market. I can't give you an idea in pounds or dollars what we're going to be in the future for that market, but it is a great market. Some of the dynamics that exist there today, the average selling price in that market is a little less than the US is today, and the cars are a little smaller than they are in the US. So you can store more cars, and the cycles turn a little quicker. So there is a lot of stuff that is going on, but it is a very similar marketplace.

And our goal is to continue to roll our products. That is where our focus has been is that we haven't got the full functionality of the products that we have in the US in the UK yet, so we've got to get that down. We've got to roll those products out and get those out to our clients. We've got to build those interfaces, reduce their costs, and throw out ideas to them and better ways to do it. At the end of the day the biggest push for us is to get VB2 in that market, and that was to see an increase in returns. And that is what we've seen. And that is what we are excited but we will continue to push products, and we will continue to push service in that market and then we will just see how it goes.

Great. Last question, and I will get back in queue. Your G&A was down sequentially on a dollar basis and significantly as a percent of sales. I know you've had some redundant expenses in the past. Where do you stand in terms of the G&A in absolute dollar basis? Is there still room to cut? Is this a sustainable level, or was there anything unusual in the quarter?

No, G&A -- I think Will and I can both comment on this. G&A is going to increase in the future; we're going to be making some significant investments in products and some of the things that we do. And again for competitive reasons I don't want to tell the world what I am doing, some of the things I am working on. But we are going to be delivering some products to our sellers that I think will change the way they do business and that will reduce their costs and will impact the industry significantly. So there will be an increase in G&A, both as a percent and as whole dollars. Did you want to add to that?

No, I think you covered it.

Great. Well, thank you very much. I will get back in queue.

Scott Stember, Sidoti & Co.

Last quarter you had some cars that were hung up on the balance sheet and you had said that they were flowing through in the current quarter. Do we still have any of those vehicles that are left on your lots?

No, as I mentioned in my comments, they have all been processed.

Okay, and as far as these bottlenecks everything is running smoothly right now, and those are totally history right now, right?

In the UK?

In the UK, yes.

Our team is doing a terrific job. We are really excited about just how well things are running at this point so we have room for improvement, and we have room to see -- we think VB2 will continue to increase but yes, we are doing a great job and everything is right on target.

And were there any onetime costs that stood out that are worth mentioning related to integrating the UK?

I think we mentioned them in the last quarter in the last conference call.

Well, we quantified them in the last conference call. We still have continuing integration costs, and we will for a few quarters to come, but we haven't quantified them on the call.

So there was nothing sort of the magnitude of last quarter, I guess?

No, No.

All right. And Jay, you had talked about I guess in April and May the assignments of cars coming in and the returns are up nicely. Could you maybe quantify like you did last quarter?

How did I quantify last quarter?

I think you might have quantified the return and a percentage basis.

Yes, as a percent it is up, I don't think I have actually gone out there and said the actual per car or percent. But as a percent and as in a per car basis it is up, and it is at a record level. So just from that standpoint it is very exciting.

Okay, and Will, you had mentioned the percentage of cars coming from insurance companies this year. Could you talk about that versus last year just so we can get a framework of the mix?

Yes, what I did is I reflected upon the change between the Q3 of last year and the current quarter this year, because the seasonality of our business you can't look at them sequentially. And like I said, we were down from 85.4% to 83%, which -- and, but that doesn't mean that we are getting a lower volume. We are still getting significantly higher volume in the insurance companies, which means we are going to noninsurance segments at a faster pace.

Okay, and last question. Will, do you have free cash flow numbers year-to-date through the third quarter?

I don't. We can talk to you after the call on that. I would like to know how you want to measure that. (multiple speakers) minus CapEx?

Yes, exactly. Operating cash flow minus CapEx.

And acquisitions, as well. So however you want to measure it; we can go through the numbers and we'll arrive at your -- however you want to measure it. So why don't we talk after the call?

Sounds good. Thanks a lot.

Tony Cristello, BB&T Capital Markets.

Good morning, Jay. Good morning, Will. Jay, just a clarification. You said 10 to 15 new locations. Is that companywide North America, or did you say that is inclusive of what you might add to the UK?

It is exclusive of the UK.

Okay.

That is companywide North America.

Okay, and when I am looking at the UK I know I understand the adjacency benefit from adding facilities here in the US. Can you just talk a little bit about geography in the UK, and is that an opportunity, or do you get those towing efficiencies through other processes?

We're just over a day in pickup times right now, which is really, really performing in that market. It is yes, I guess at the end of the day I am feeling pretty good about my knowledge of geography in the UK. I almost feel like I can comment on a little if there are not too many Brits listening right now. But yes, I think it is a market where we need -- there are some key places we can see where we need additional locations. And often in the UK -- you may be able to compare to some of the congested states in the US -- you can look at the markets and say well that is only 60 miles away, but that may be two hours drive because of congestion and traffic etc. So it is not just simply looking on the map and plugging kind of every 60 miles put a spot in. It is more trying to figure out where the population is at and where the congestion is at and how long does it take to get trucks in. And so we are doing that. We will be adding some additional locations and we fully intend to see the average pickup time of a vehicle go below a day, just like it is in the US.

Okay, and I guess on the UK theme here, it looks like you made a good strategic hire now that is going to sort of represent --

We are.

Okay. Can you maybe talking little bit about what the rationale -- and you usually take a lot of this on yourself and I am wondering do you feel comfortable with where you are in the process, and does this now free you up to go do some other things or maybe just give some more color on the hiring.

Nigel is a great guy, comes from the industry, worked for one of the largest insurance companies there, worked for the RAC there, which is like an auto club in the US. So he has got a very diverse background, but it is all automotive. Very well-known within the industry, and at the end of the day I have spent a lot of time there as well as the rest of the team. They will spend a lot of time and it has been a collective effort in making these acquisitions and the integrations and finding land and everything that we've done, expanding locations. The team over in the UK is going to run that business, and that team is going to be led by someone from the UK and someone that is British. And that is what we've done, and I think it is a great. And we are excited about it. We're looking forward to seeing how we do and how we succeed in the next 12 months.

You mentioned he has history with one of the larger insurance customers in the UK. Are they an existing client of yours now, and if you look at the top players, have you picked up any new customers since you've rolled out and you're going to say here is the top ten, we now have relationships with five of them? I don't know if you could --

We have a relationship with every one of the players there, every one of the top ten. Do we handle business for all of them? No, and the company that he worked for we do not handle cars for. So maybe there is an opportunity there in the future, as well. Right now our goal has been building a network and servicing the volume that we've got. And yes, we've taken on some new accounts but that is quite to be really frank, that has not been our goal. One of our top four goals over there has not been go get additional business. It has been logistics, locations, technology, service.

It has been those things where we are focusing on making sure that we operate our business and service our clients better and not try to go out and get another 20,000 cars when you are not taking care of everything else at home. So if you take care of what is at home and then the future will be after we are picking up cars in less than a day and we do have these integrated technologies, and VB2 continues to get stronger, then you walk in and start to show the results of what you've done to existing customers over there that are prospects.

And one last question, maybe this is a better question for Will. When you look at the expense classification, or the P&L of the North America versus the UK, is there anything that is brought up from the G&A up into the yard expense in the UK that you wouldn't necessarily see in North America? And I guess what I am wondering is will there continue to be opportunity to improve gross margins but SG&A is going to be a higher fix until that moves to more of an agency model?

No, I mean we characterize the expenses the same whether they are in the UK or in the US, so we don't -- we haven't moved anything above the line or into operations that would normally be in the G&A on the US side. The biggest difference obviously is the fact that we are primarily based in the UK which drives down our margin percentage.

Thanks, guys. I appreciate it.

Craig Kennison, Robert W. Baird.

This is actually Ryan Kelly for Craig. A couple questions. Vehicle miles driven has been down more than unusual. Can you talk about anything you are seeing industrywide as it relates to accident frequency and severity?

Well, with respect to severity, it is actually up, and so is frequency. I don't think that we can -- Will and I could sit here and spout off what we are seeing in average miles driven and those kinds of things but I don't think we've really seen an impact in our industry from that. And I don't know that we will. It may be occurring and we just can't measure it. It is difficult when you've got clients and you are growing business with them, to try to measure how much of what would the business spend if you had not gained an account, that kind of thing, and what would have the -- would the growth have actually declined.

So right now we're sitting in a position where we are very happy with the volumes that are coming in. Very happy with the organic growth and the continued gains and existing business and growth in the insurance and noninsurance markets.

Good, and separately, you talk about the growth in the noninsurance business. Is that primarily the older vehicle market you've talked about, and can you talk about how that business strategy is evolving?

I would say it is both. It is older vehicle markets. It is also -- we've had quite a bit of growth in banks and going out there and processing repossessed, damaged vehicles. So it is across the board. You name it, from dealers to banks, to fleet, to charities -- you name it, I think we've just been increasing across the board in our volume.

And last question, given your comments on the 15 new US facilities, can you talk a little bit about your CapEx expectations going forwards?

It would be tough, but I tell you what, it would be easier for me to do it in Q4 since we've done that in the past. I think last year we were so off in what our estimates were and what we really did in fiscal year '06. I think in fiscal year '07 we didn't give any guidance, and in fiscal year '08 we can try in Q4 to give you next year's guidance for those locations. But I would have to say that would be exclusive but I would have to say that would be exclusive of the major land purchases in key markets, things like that. It is just a really tough number to do.

You can put, if you want, kind of a $4 million number on a new location, and you can try to extrapolate that out on 10 to 15 locations, but then there will be the purchase of property in L.A. that cost you $15 million and that kind of throws that number away. So we will do our best to try to give you a flavor for it, but I guess at the end of the day you all have to have comfort that we're going to make smart capital improvements and investments in key markets where we know we have potential to gain business more, and/or where we know we have the ability to reduce costs significantly because of the current network that we've got there.

When you add the 15 sites or the full-service sites, are you doing any kind of just like staging areas?

No, full-service.

All right, great. Thanks a lot, guys.

Thanks, Ryan.

Scot Ciccarelli, RBC Capital Markets.

Scot Ciccarelli, a couple questions for you. First of all, can you talk about the difference in the salvage vehicle buyer base in the UK? How is that maybe a little bit different than what you have in the US?

Well you don't have the South American and North American influence in the UK that you have here. You have much more of a European and Middle Eastern influence in that market. So where your big buyer, your big buyers in the US would be Europe, would be Lithuania, Russia, United Arab Emirates, but also and even more so would be Guatemala, Honduras, Mexico. In those markets you're not going to see Mexico and Guatemala and Honduras as big buyers. You're going to see Poland and Russia and Lithuania and UAE in those markets, as well as Ireland, the Republic of Ireland and some of the other markets France, Germany, they are all buyers of us. So it is much more European when you think about out of country buyers, it is much more European related than it is the South American or Central American influence that we have here.

Does that have any kind of impact on profitability? I guess what I am trying to get at is, I'm trying to figure out the best way to think about the future profitability in the UK. I know right now it's still a fundamentally different model, but you guys had a huge surge in revenue but gross profit was maybe a little bit less than I was looking for. I am just trying to figure out the right way to think about the UK business.

Well, I think the other thing you have to look at right now is we have a lot of expenses in that market, and there is a lot going on to build that network and to get things incorporated and a lot of trips over there and a lot of US support that over time will diminish. It is a very different market. At the same time you got to look at that market is it just got maybe VB2. And if you look at the US market five years ago, off the top of my head international sales were like 11%. They weren't what they are today, and this product is changed this industry and this market over here. And we expect that that will be the same over there as we continue to grow and get our arms out there to our client base in all those different markets. And that will improve returns, and you will see that improvement. It is just not going to happen in the next year or two. It will be a long-term, five-year approach in that market for us.

And then the last question is do you guys have any kind of approximate revenue impact from the deferred sales you had in the UK? Because obviously you tried to not flood the market with vehicles. Trying to get a feel for what might not be recurring in the revenue you reported during the quarter.

No, no, I really don't. Obviously our third quarter in the UK similar to the US is our highest quarter as we sell off inventory. And we really are not prepared to quantify the amount of revenue that was shifted from Q2 to Q3 at this point.

Thanks a lot, guys.

(OPERATOR INSTRUCTIONS) Bill Armstrong, C.L. King & Associates.

Most of my questions are answered, but just to clarify, in the UK is VB2 still in only 10 locations or is it in all 15 at this point?

It is in 12 locations currently and will be in all locations by the end of the quarter.

Now you are adding about 10 to 15 new locations in North America over the next 12 months, so obviously the reduction in towing costs and turnaround time more than offsets the additional cost of building and then maintaining these facilities. What sort of payback period do you get out of these new facilities?

I do not think that is actually so obvious, I don't think that will be the case. I think that will be the majority of the sites will be opening up with an expense that exceeds the savings in towing. So it won't be this offset that is purely driven towards that, it is just that we will be utilizing to try to reduce the increased cost of putting those locations in, but the primary driver of putting that store in is to reduce the actual cycle time and reduce the pickup time further to pick that location, to pick that vehicle up quicker, reducing cost to our seller. And giving us more capacity in other key markets. So you take a market that maybe did 80% capacity, you open a new store, now they are at 60% capacity. Those are really the drivers behind doing that. Every time we pick that vehicle up quicker we reduce storage for our client at the tow company.

So how do you get a return out of that or how would you measure that?

We always anticipate two things when we open a new location, that there will be a reduction in towing cost because we're going to be closer to the vehicle there, and we anticipate new business. We're going to grow in that market, and that's how we've done this for the last 15 years. We open up locations. We've opened up a number of greenfields over the years with the anticipation of gaining business in that market and reducing costs from the yards that are servicing that market. And it is tough to put a number on it. We look for a return in 12 to 18 months but we may hit that. We may not.

And finally, just a housekeeping balance sheet question for Will. How -- what was the inventory number, not including the vehicle towing cost, just the UK inventory number for the end of the quarter?

Hold on one second, Bill. Do we have that? I'll have to get it to you on the -- let's talk after the call and I will give that number to you.

That's all I have. Thanks.

Justin Boisseau, Gates Capital Management.

It's actually Jeff Gates in for Justin. You talked about -- and I just wanted to clarify, you said 15 to 20 additional locations in the UK during the next 12 months, correct?

No, not additional, total. We have said for the last couple of quarters that our goal is to be 15 to 20 total locations, and we are currently at 15.

So an additional five in the next 12 months?

Maybe two or three or five, who knows, so that is why we're giving you a range; 15 to 20 locations is where we want to end up.

Okay, and based on what you have on your plate today, how soon if the opportunity came up would you be prepared to enter another country?

I think we've got plenty on our plate right now, so we are focusing on taking care of the markets that we are in and when we are ready to go outside, then we will do that.

Can you just remind us again the size of the market in the UK versus the size of the market in the US?

It is estimated somewhere around 4 million vehicles from the insurance industry in the US; when you go noninsurance it is hard to get your hands around how big that market is. And in the UK looking at insurance only it is 600?

A little over 600,000.

A little over 600,000 units.

Okay, thank you.

Edward Hemmelgarn, Shaker Investments.

Just one question. Your tax rate for the year now is about 36%. Is that what you expect for the fourth quarter, too?

No, like I said our normal tax rate, excluding any discrete items is between 37 and 37.5%. Now that could grow a little bit over the next year as we reduce our cash and reduce our tax-exempt interest, but I think that is a fair estimate for the next quarter.

Gentlemen, there are no further questions in the queue at this time. I will turn the conference back over to you for any additional or closing remarks.

All right. Thanks again for attending the call, and we are excited about our future. And we will be reporting on our success in Q4. Take care.

That does conclude today's conference. We appreciate everybody's participation, and have a good day.