Copart Inc (CPRT) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to today's Copart Inc. first-quarter fiscal 2009 earnings conference call. As a reminder, today's conference is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, President of Copart Inc. Please go ahead, sir.

Thank you. Good morning. Welcome to the first-quarter conference call for Copart. We will go ahead and give you an update on what's happening in the quarter in the Company after we do the intro by Will. So I would like to turn it over to Will at this time.

Thank you, Jay, and good morning. Before we begin our discussion of our first-quarter results, I would like to remind you that during this call we will make forward-looking statements within the meaning of securities laws. These forward-looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected or implied by our statements and comments.

For a more complete discussion of the 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, I will turn the call over to Jay Adair to begin the discussion of our first-quarter performance.

Thank you, Will. Good morning again, everyone, and thank you for attending this call. I think we've got a record turnout on the call. Clearly I will just state the obvious to start.

We are in a recession and the recession is impacting everybody in the country including Copart. The good news is, and this may not be so obvious, is that we are in the best competitive position that we have ever been as a Company. Copart has no debt. We have $50 million in cash. We have 145 locations across the country. We've got the best network of facilities and we've spent the last decade building that network.

Just in the last four years, we spent over $500 million securing our future, securing over 6000 acres of property that we control. We are currently as a company at 50% capacity on a national level. And I'm going to talk to you a lot about why we think we are in a growing environment, why we think we are going to see a lot more volume coming in, and why that is important to be in that position.

Two-thirds of that property that we currently control we own and in the last quarter, we generated over $50 million in operating cash. So the good news is and we will go through a lot of the details here, but we can spend whatever money we need to to ensure the future of the security of this Company, to ensure that we take care of our clients, both buyers and sellers alike. And I want to talk a little about that and we can do that through the internal cash generated and internal cash on the balance sheet and not the need to go to banks in the future.

Now, in the last two years, we have invested heavily in our G&A. You have seen increases there and that is because we have built a lot of new products. We currently have over 200 people in our IT department building products for the future, building products for our buyers and our sellers. An example of that would be a new website that we will be launching in Q2.

If you go to copart.com, at the top of the page you can click on the banner that will show you our new beta site. That is a beta site, so you will see feedback information. We received hundreds of e-mails already from customers telling us ways to improve the site and we will be making a number of improvements before we launch in this quarter. So it may not look entirely the same as it does today when we actually go live with the product. But the point is you can check it out.

It's fundamentally a different site. It's fundamentally different in the sense that it is an open navigation site. Today if you tell your friends about Copart and they want to go to the website and they want to surf and check it out, they have to have an ID and a password. We are members-only site today. The future is not -- that is not the case in the future. In the future with our new website, you will see that anyone can navigate. Anyone can come in and look at vehicles, see over 70,000 vehicles that are currently for sale. They can watch the actual virtual auctions through VB2.

So they will have the complete ability to really get to know Copart and learn about Copart if you are not currently a buyer and want to become a buyer. I think this will change the sheer traffic that will be coming to our site, and so we've prepared for that as well in the last year by investing in all-new backend systems for Copart. We have the ability today because of new hardware and new code and new systems to handle this additional capacity and this additional traffic on our site.

If you want to check out just some of the hits that Copart gets, some of the traffic, you can go to a site called Quantcast. It's www.Quantcast.com and it will just show you some of the sheer volume of hits that come into our sites, some of the traffic that we do, and you can compare us to other companies if you like.

So I think this would be just an example of the investments that we will be making going forward in building better products, easier to navigate products, and we've come out with a ton of new reporting functionality, the ability to allow buyers and sellers to see information and data mine and look at better ways to run their business. So I think that's a great thing. And like I said, I think that this environment really improves our competitive position and we expect to grow. And I will give you a little story of why I think we will be growing.

On my way to work this morning I went by a gas station and they had -- fuel listed at $1.77 a gallon. Diesel was at $2.55 a gallon. It was just months ago that we were looking at diesel fuel over $5 a gallon. And when you think about that, it's amazing to think that it's changed so quickly literally I was looking at the price of oil and thinking we are nearing $150 a barrel. I looked yesterday and we are under $50 a barrel for oil.

So how does that impact Copart? First of all, at the peak we saw models driven down 6%. Now obviously when fuel got to that level, we saw that decrease. Today in the most recent month that I've got, we are down to 4.2%, so we've seen it go from 6% to 4.2% and it could very well start to increase. We could actually start to see an increase in models driven. We've seen that in the past with a bad environment. Bad economies cause people to fly less and drive and with the cost of fuel where it is at today, we expect people will continue to drive and most likely drive more given this environment.

I think the other thing to point out here with fuel prices coming down is our costs have been up in the past, our subhaul costs; the cost of moving vehicles across the country have been up because of fuel increasing so quickly. But with the precipitous decline we've seen in the recent months, we will be out lowering those costs of transportation company wide.

The other thing that everyone is clearly aware of is used car pricing. Both new car and used car pricing is down. There is a recent index that came out that shows that that pricing is down as much as 7% in one month and I have been asked and I think that's why we want to try and explain some of this, what is the effect of that? How does used car pricing affect Copart? And I think the answer there you have to start with talking about actual cash values.

Actual cash values are the pre-accident values of cars before they get into the accident. Now insurance companies have two options. When your vehicle is damaged, they can either buy that car from you and that's the actual cash value, the ACV, the value of the car prior to the loss. Or they can repair it.

And if we go back six months ago, let's just say that ACV on a particular car was $8,000. If that car got into an accident, let's say the damage was $6,000. That vehicle is a borderline total loss. They may repair it. They may total that vehicle. That's an unknown, but with this precipitous decline in used car valuations, ACVs are derived from used car values. So as cars become worth less, the ACV valuations change and as those ACV valuations come down, insurance companies will be revaluing cars as they get in accidents today, they will be putting ACV values out there that reflect the true value of the car.

So that same car today because of the decline we've seen may have an actual cash value of $7,300. Well with an actual cash value of $7,300 and the repair cost of $6,000, that car is clearly a total loss vehicle. So this is why as we see a decline in used car values, we see a decline in ACV, actual cash values. Therefore, we see an increase in total loss frequency and the number of cars that will become totaled.

The other thing I think I want to point out here is that these cars are the better quality cars. The probable total loss is the $5,000 value car that gets in an accent in an accident and costs $10,000 to fix. Clearly that car is going to be totaled. It doesn't make economic sense to fix that car. And in that example, that's the lower quality car. This is the better quality car. This is the car with less damage that will be sold as a rebuilder.

Now, when you think about used car valuations and the effect they have on Copart, because used car values are down, then rebuilders that we sell are down slightly. But they are not down to the extent that used car values are down because when you sell a used car and it declines the full $700, it takes that full decline. It takes that full hit of a $700 decline. Whereas a damaged car has to be bought, has to be repaired. They've got the cost of labor. They've got the cost of parts. Then they've got to resell that vehicle at a discount to what used car values are because it carries a salvage title. So it takes a percentage of that decline and that is what we are seeing today.

On the other hand, because ACVs are coming down and we will see this increase in the number of total losses and these are the better quality cars, we may actually see an increase in the average selling price as we start to generate better quality vehicles through the sales.

Now all of this is just starting and we've got to go through -- there is these counterbalances you are seeing where used car values come down and that hurts the average selling price of the car that we sell, but then that generates a lower ACV, which generates additional volume into the company. And those are the borderline totals that are better quality that are coming in. So all of this is going to counterbalance and we are going to see this happening in the next year.

I can just tell you from past experiences when economies slowed, we saw this -- these effects that I'm talking about today take place.

The other thing that I think is very important here to point out is that body shops are in the business of repairing cars, not seeing them become totaled. So as this decline takes place, body shops are going to see vehicles that get totaled and they are going to say -- wait a minute, we want to repair that car.

So rather than write the estimate with new parts or OE parts, they are going to look at alternative parts. Alternative means of getting that vehicle to become a total loss. Obviously that's used parts and they will do that to try to reduce the total cost of the estimate because if you can't reduce your estimate, that vehicle is going to be totaled.

As you reduce ATV, if estimates don't come down and costs, then you're going to see a lot more totals and so they're going to react by using more used parts. As they go out into the marketplace and react by using more used parts, they increase demand for the parts cars that we sell. And I kind of break Copart out into three cat categories. We have the buildable product. We have the parts cars and then we have just pure junk that's really just scrap.

So when we talk about scrap, it's a relatively small component in the big picture of what the dismantler is paying for the car, but it is a piece of the component. And so because scrap in the last year, we started in October with scrap at $164 a ton. We had peak of $313 a ton in July and we finished November at $52 a ton for flattened car bodies.

Because the dismantler is buying a car that he intends to recoup the majority of his revenue from the parts, the impact of scrap is felt, but it's not felt as much as we think potentially the demand for parts. So as we see this shift and we see shops trying to write more estimates with used parts trying to get more used parts usage into the mix so that we end up not totaling those vehicles, we think we increase demand -- that increased demand may offset the actual decrease that we see from scrap and the scrap that exists today.

I think the other thing to point out here -- I know I'm going kind of -- there is a lot of information here, it is a lot to digest. And of course we live this every day and so as everyone's not probably familiar with this the way we are. But the other thing to point out here is that we talk about older cars and the fleet in the US aging well. Well, we started the year from the data I've seen the average model year of 1999. It looks like we are going to be starting 2009 with an average model year of 1999. That means that the average vehicle in the US is getting older.

I guess what we need to talk about here is the impact of that. How does that affect Copart? Well first of all, people keep their car longer. That car is going to need repair. It's going to need to be fixed when it breaks down. The longer you keep a car, the more probability of that car breaking down. Obviously if cars break down and people go out and buy new cars, then the odds of having repair on a new car are a lot less than the odds of repairing an older car. If the average car in the US is 10 years old, I think you're going to see a lot more repairs taking place.

A lot of recyclers sells their parts through automotive repair facilities. There's a very simple example I think I can give people that probably most likely relate to is the idea if you take your car in, you're having a problem with the transmission. You take it in, they give you a price to repair that transmission and it may be prohibitive. You may look and say, well, it's not worth it. The car is not worth that kind of money. In an effort to get the repair work, the shop may offer alternative parts, i.e., a used transmission so that that work at the repair facility can be done. That's the incentive that they have. The individual who owns a car says, oh, well that's a lot lower price to repair the car. I'll go ahead and fix it.

So again, we think what we see in an environment with older cars is that more parts usage again from the recycling industry. Again, more parts demand for those cars that they purchase from Copart.

The second thing to point out about older cars is older cars are easier to total. I think this is pretty intuitive. I think people get this. But I will give you an example because I think it kind of sells the point. And that is if you went out today and you bought a brand-new television or you went out and you bought yourself a brand-new computer and that item breaks in the next six months, the odds are you're going to fix it. If that item breaks six years from now, the odds are you are going to go out and get another new computer or new TV.

Cars are very much the same. If you buy a brand-new car and that car gets into an accident, the odds are it takes a lot of damage to total it. The odds are you can do some pretty severe damage to that car and it will be repaired. But if you take a 10-year-old car, the value of that car has come down now so much that it doesn't take a lot of damage. A front end, side collision, rear-end collision at low speed will total that vehicle out.

So as vehicles get older, the probability of those vehicles becoming total loss goes up. So as we sit back and we kind of reflect on this, there's a number of things happening. I'm going to summarize this towards the end, but clearly it looks like a lot more units could be coming in and we may even see an average selling price that is lower for a period of time. But that average selling price may come up over time as we are getting better quality, total losses from the borderline total loss category and as we see increased demand for parts from the recycling industry.

So again let me talk -- before we summarize, let me just talk real quickly about cash flow, cash flow needs. We generated over $50 million in operating cash in the first quarter. In Q1, we spent $29 million in CapEx and in Q2, we are going to spend approximately $25 million in CapEx. This is primarily for the purchase of land in hurricane-affected areas. We will be making some large acquisitions to secure capacity in basically the Southeast so that if there is another hurricane in that marketplace, we will not have an issue of storing 20,000, 25,000, 30,000 additional cars in that environment.

That's key. That's very important. Because our clients have come to recognize us as doing a terrific job when it comes to handling catastrophes. We've recently had a cat in Houston and we did a great job in servicing our customers in that. And so it's key that we do that. But really don't have a lot of capital needs going forward. So in Q3, we will spend approximately $5 million in CapEx; in Q4, approximately another $5 million in CapEx; and then we really have no capital budget for 2010.

I think the good news is here is that we have a lot of capacity. We've got a 145 location network. So from the standpoint of being able to service our customers today, we think we've got it covered and we really don't see the need to spend capital for the rest of the year much and for the coming year. And again, we've got $50 million in cash on hand and if we need to spend the money, if we need to grow the network, we have the ability to do that without going to banks, but we don't think that that will be the case at this time.

So summarizing very quickly, older cars, they are easier to total. They require more repair, they increase demand for used parts. Used car prices coming down causes the pre-accident value of cars, the ACV, to fall. As the ACV falls, we see total loss frequency increase. Models driven has been down in the past. We think that that will be coming back due to the current low cost of fuel and the current environment, people flying less, driving more, etc.

We talked about accident frequency today. This is the frequency of accidents, again models driven coming back. I think that will probably start to trend up. It has been down in the past. Accident severity, which is the total cost of claims in the past, it has been up. We think that is now going to be trending down because ACVs are coming down so precipitously.

We've talked about total loss frequency and we've talked about ACV values and those ACV values have already decreased from the data we've seen and we think those ACV values will continue to decrease.

So before I turn it over to Will, let me just tell you that again in this environment we are strong. We are stable. We are generating a lot of free cash and we think our buyers and our sellers will recognize the advantages. They have recognized the advantage of doing business and we think that we have the ability to show prospective clients the advantages and the benefits of doing business with a strong business partner like Copart.

I'd like to thank all of our customers, our buyers and sellers for their support during this environment. I'd like to thank all of our employees for their hard work in the last year and I would especially like to thank those employees that helped out during the hurricane and the catastrophe that took place in Houston. A lot of people worked a lot of long hours and really did a good job.

So at this time, I would like to turn over to Will Franklin for a financial update.

Thank you, Jay. During the quarter, principally in the month of October, we saw the convergence of several changes in our industry and in the overall economy that impacted our business. Jay has discussed the more important of these issues; the effect of miles driven, accident rates, commodity pricing, and used car pricing. I will cover two others.

First, we have been asked what direct impact if any we have experienced as a result of the systemic lack of credit. The response is that we have felt very little impact. We have no debt and we generate cash and working capital. We do have a credit line of $200 million, which we have never drawn upon. From fiscal 2005 through fiscal 2008, we generated approximately $653 million in cash through operating activities. During that same period, we expended approximately $490 million in acquisitions and expansions.

The key is that expansion and acquisitions are discretionary and as Jay has already indicated, we will in the short term make only those capital investments needed to fully service our customers. With respect to our buyers, we believe the lack of credit has had little impact on their buying trends as less than 0.4% of the cars we sell are financed or floored at the time of the purchase.

Second, I will address the impact we are seeing as a result of the stronger dollar. In North America, we sell a meaningful percentage of our cars to international buyers. We have seen the marginal change in the percentage of the value of cars sold to international buyers going from 30.9% of total gross proceeds in the prior quarter to 30% in the current quarter.

The primary driver was the reduction in purchases from our Mexican buyers primarily in the month of October when the peso reached its lowest level, 14.3 pesos to the dollar in at least the last four years. However in the month of November, we have seen a rebound in sales to Mexican buyers.

Now I will talk about the financial performance for the quarter. In our first quarter, we posted consolidated revenue of $191.6 million compared to $184 million for the same quarter last year, an increase of 4.1%. The increase was driven primarily by growth in revenue per car as volume remained relatively flat. In North America, we posted revenue of $152.2 million for the quarter compared to $140.2 million for the same quarter last year. Same-store sales in North America was up 6.7%.

In the UK, revenue was $39.4 million for the quarter compared to $43.8 million for the same quarter last year. The decline resulted from the change in the dollar to pound exchange rate, which was 2.02 in our first quarter of last year and 1.79 in our first quarter of this fiscal year. At a constant exchange rate, UK revenue would have increased 1.9%.

Our gross margin for the quarter was $79.6 million compared to $78.4 million for the same quarter last year, an increase of 1.5%. Gross margin percentage declined from 42.6% in the first quarter of last year to 41.5% in our current quarter. The decline in gross margin percentage was due to the higher cost to process these vehicles. This was driven by higher subhauling costs, higher payroll and facilities costs, and the incremental costs associated with servicing our customers in Texas that were affected by Hurricanes Ike and Gustav.

We want to convey that we are operating well below capacity. Within the last 12 months, we increased our network by over 7%. While this possessions us to handle new business, it also introduced additional fixed cost to our model, which increased our average cost to purchase -- to process each car.

Included in yard operating expenses is the cost to purchase cars. The percentage of cars purchased declined from 8.3% in our first quarter of last year to 8.1% our current quarter. Operations, depreciation expense was $8.3 million compared to $8.2 million for the same quarter last year. Please note that we will no longer address the UK's operations separately. We will continue to address specific issues that affect the UK if meaningful and material to the understanding of the overall operations of the consolidated group, like for example, the impact of the change in currency conversion rates discussed in this quarter.

We have provided financial information from the UK separately through the gross margin line for five quarters. At this time, most of the major changes to the UK business have been completed. All locations are selling on our Internet selling platform, DB2, our network of facilities is complete based on current volumes. We have completed the buildout of the strong leadership team as during the last three quarters, we have filled the positions of Managing Director, Financial Director, Director of Marketing, and the Director of Operations. And we have eliminated redundant positions created by the multiple acquisitions.

On a consolidated basis, general and administrative costs excluding depreciation were $17.5 million compared to $18.9 million for the same quarter last year. Included in G&A costs in the first quarter of last year, our expenses associated with modification of certain options for retiring directors and costs relating to employee separations. These costs were non recovering and totaled $2.3 million. Included in G&A costs for the current quarter is the beneficial legal settlement of $1 million.

Excluding the effect of these items, G&A costs increased by $1.9 million. The increase was driven primarily by additional development and network resources and the expansion of our IT systems to accommodate anticipated increased traffic and to continue the development of the enhancements of VB2 and our seller interfaces. The average headcount for development and support increased by over 54 individuals over the same quarter last year. General and administrative depreciation was $2.5 million compared to $2.8 million for the same quarter last year.

Our operating income increased from $56.6 million to $59.9 million or 5%. However, due to the reduction in interest income as both the average cash balance and interest rate yields were down from the same quarter last year and due to the higher effective tax rate this fiscal quarter, net income declined by $400,000. Last year we expended approximately $269 million to repurchase over 6.6 million shares of our own stock.

Diluted EPS was $0.44 per share compared to $0.41 per share over the same quarter last year, an increase of 7.3%. In addition to the accretive impact the share buyback had on EPS, after-tax cash return on assets and equity also increased. After-tax return on assets on a trailing 12-month basis was 15.7% compared to 14% last year and after-tax return on equity on the same basis was 18.5% compared to 15.8% last year. Income tax expense for the period was $24.1 million for an effective tax rate of 39.2% and included certain negative adjustments for stated issues.

Our cash was approximately $50.8 million. Accounts receivable, inventory, vehicle pulling cost, and deferred revenue all grew as we increased our inventory on hand. Accounts payable and accrued liabilities declined primarily to the payment during the quarter of yearly bonuses. Net taxes payable increased as we make no estimated tax payments during the first quarter of our fiscal year.

In the quarter, we generated $52.4 million from operations. Net income less non-cash expenses like depreciation and equity compensation accounted for $49.9 million. The balance resulted from movement in the balance sheet as the build up of inventories and receivables was offset by the lack of estimated tax payments.

Finally, capital expenditures for the quarter were $29.2 million and included one lease buyout and expenditures for the new yards in hurricane areas which Jay has already addressed.

That concludes my comments. I will now turn the call over to Peter to moderate the question-and-answer portion of this call.

(Operator Instructions) Bob Labick, CJS Securities.

Good morning. Congratulations on a strong quarter. First question, I noticed obviously in the release and, Will, you just mentioned is that you have changed your breakup for the UK to just include revenues. Could you maybe give us an update on the progress there anyway? Where you stand in the investment phase and when you anticipate seeing profits in terms of the EBIT per car? Do you have two quarters more, three quarters, one quarter? Where do you expect to see the growth that we should eventually see from the profitability in the UK?

Well, in terms of investment, we think we've made all that's needed at this point based on current volumes. In terms of our migration of customers to the agency model, that will take place as our customers view the benefit of making that change. Obviously we are not going to force that on anyone. The introduction of VB2 has at least last quarter -- this quarter is an anomaly, but last quarter we saw the increase in returns based on the utilization of our Internet selling platform. And we will use that as a tool to deal with the insurance companies and entice them to migrate to the agency model.

If you are asking me to give you some kind of timetable for that, I really can't. It depends on the results of the migration, the results of the change in our gross proceeds, and the willingness of the insurance companies to make that move.

In terms of controlling our costs, I think we've done just about everything we can. We've eliminated redundant positions. We have mothballed or are eliminating facilities that are excessive and to the extent we can, we are migrating to a subcontract, subhaul model.

Okay, great. That was very helpful. Then obviously gave some good details in the beginning about some of the G&A initiatives including obviously the beta testament, the soon-to-be new website. You also I think just mentioned that you had a beneficial legal settlement in the third quarter. Even with that legal settlement, G&A was I think down sequentially in year-over-year. Is this an appropriate run rate if we add back the $1 million in this quarter or should we expect --? In the past, you've said you want to continue to invest in growth initiatives including obviously the site, the Copart dealer services and other things. Where should we expect G&A to trend?

We think that if you add back the million dollars, you're still going to be slightly below the trend of our G&A cost.

Going forward, Bob, just to add a little flavor to that, too, is we are -- the investment that we've made, we are holding at this time. So we won't be adding additional expense and we've got the team in place now. We're going to use that team to keep generating improvements to our products and sites in rolling out -- going from beta to an actual rolled out website and then all the different functionality and improvements to that site.

Okay, great. And then also you've discussed, well, two things. One thing on the call you obviously said that you have a lot of capacity still in your existing yards. You have also talked about potentially opening green fields in '09. Is that still a priority in the current time or is that maybe going to be pushed out a little longer? Where do you think stand on that?

No, not at this time. Obviously in the past we were going to do that. We will be opening up a few more facilities in 2009 because we as I said, have committed capital in Q1 and Q2 but then that's it. We are going to hold off and just process vehicles based on the model that we've got.

Great. Well, we look forward to seeing you at our conference. Thanks very much and I'll talk to you soon.

Tony Cristello, BB&T Capital Markets.

Good morning, gentlemen. Jay, one of the things in the past you talked about is some subhaul, tow cost being a high expense in terms of total yard fleet. And is it fair to assume there's been some headwind with where gas prices have been and the demand for scrapping cars over recent months or quarters? Now as you sort of see gas prices come in, is there a potential benefit? I know you talked a little bit about transportation expense, but is there a benefit that you could actually see come through in sort of that gross margin line as a result of that?

Yes, we've already seen in Q2 -- I won't say Q1 -- but we have already seen in Q2 a benefit associated with the fuel. If it stays at these rates, at these levels, then we are going to see continued improvement because fuel is -- subhaul is a big component of our cost. Fuel is a big component of our sub's cost, and so we end up paying additional to have vehicles move when fuel is up and we are going to be getting that back now that fuel is down.

Okay, and when you look at -- you talked about the cash flow and sort of the free cash flow and sort of how you are allocating capital at least in the first half and it will be sort of much more minimal in the second half. With reduced capital outlay certainly relative to prior years and as you focus, are you looking to just preserve the capital? Do you think that with the current share price you are more inclined to maybe be a bit more of an aggressive buyer? Or how should we think about your free cash flow if we're not going out aggressively and opening new locations and/or acquisitions?

Right, well I mean obviously we generate a lot more cash than we need in the business based on our current visibility and we think that obviously we are looking at the stock price today. We think that's definitely an option for us. And the question is finishing up the expenditures that we've got in Q2 and we're going to have a lot more visibility in three months in terms of volumes, it's really -- we've seen this in the past. When used car pricing comes down, total losses increase. Part demand increases in poor economies. We saw this in '90, '91, '92. We saw this towards the end of 2001.

And so the question I guess is we've never seen it to this extent. Nobody has ever seen used car pricing fall off 7% in a month. So how much additional volume can it generate? We don't know. And so it would be nice to have the visibility of three months from now and six months from now to see what the impact is. And Copart is going to make sure we take care of our customers and the Company first, but buying back stock is definitely an option for us in terms of making investment.

Okay, and you opened your commentary with a lot of important and --

(inaudible)

No, no, I think it was very, very value add, very helpful to kind of put everything in perspective. The one thing I guess if you look at us -- and you in a recession right now, how do we take sort of the positives that you talk about versus some of the negatives? How does that translate into growth this year of your business?

Yes, well I think the negative we are seeing right out of the gate. There's no question about that. You immediately see the negative impact of used car pricing coming down. So done. You immediately see the negative impact of scrap values coming down, done. Now what happens is these counterbalancing changes where we see increased units, we see better quality products coming in, those borderline total losses that will become total. We see more demand for parts. We see more parts usage, used parts usage with the shops in an effort to fix the cars.

So all of this is going to counterbalance and we are going to sit back here and watch and see what the effect of that is. But I think -- do I have a crystal ball? No, but I think that it gets better going forward because of all these counterbalances because initially -- I guess the question is how bad does used car pricing go? And then the question is based on how bad used car pricing goes, what the impact of that is on -- the biggest impact to used car pricing is going to be actual cash values.

If they fall another 7% and another 7%, I don't know how low they can go. I know scrap can only go to zero. At 52, it can't go beyond there. You know, you're not going to walk in and pay a guy $2 to get rid of the car. So we know what the bottom is there. The question is how far can used car pricing go? And based on that fall in used car pricing, we will see an increase every time that falls, we will see an increase in total loss volumes.

So it will be -- it's an interesting period. We're going to sit here and watch it. Again, the good news is we've got the right people. We've got the right team. We've got the most experience in the industry and we are going to the same way we've been doing this for over 20 years now as a Company, we are going to be sitting here and managing all of these different opportunities as they come along. And we are -- we like to say at Copart we are change-centric and we will react positively to the changes as they come up.

But there's enough that it sounds like positives to outweigh the sort of negatives that you've incurred to where you should still be able to grow and see positive growth even in a recessionary environment?

I don't know. I always think of Copart as being one of the better companies in a recession because of the model and the way that our business operates. But I don't know simply because I don't know the impact of used car pricing falling, the demand for rebuildable vehicles. As Will said, I think it's good news that our international sales are where they are at and I think it's good news that recyclers are going to see demand. So I think those are all good news. I just don't know if they are going to offset or what's going to happen. We will be watching month-to-month, quarter-to-quarter in seeing how things go.

Okay, great. Thanks, guys.

Scott Stember, Sidoti & Co.

Good morning, guys. Could you talk about some of the noninsurance businesses? Last couple of quarters we've seen some nice growth with the Copart Dealer Services. I imagine that has probably slowed a little bit given the overall economics for the dealers.

Yes, Copart Dealer Services, Copart Direct had their best quarter of growth in Q1 and we are excited about that. There's a lot of good stuff going on. It's really an opportune time for us again. I hate to be the eternal optimist here on the call, but you walk into a dealership three years ago, they may not be interested in hearing what you've got to say. Today they are pretty much all ears. People want to know what are my alternatives? What are different ways I can try and generate more income?

So we are received with open arms often when we walk in and so we've been able to grow those businesses quarter after quarter. I don't know if that would be the case in Q2 simply because it's the holidays, Thanksgiving, Christmas, things slow down obviously. CDS is a component of trades and so if we are selling less new cars, there is going to be less trade-ins coming in. So it will probably slow in Q2 but it's still doing well. Looking at November, I was very happy with the results that we saw in those areas.

As of last quarter, you said it was in 60% of your locations. What percentage is it in now?

I don't have the number off the top of my head. It depends what we are talking about. I think Copart Direct we are doing it at every location I think.

I was talking about Copart Dealer Services.

Yes, I don't think CDS -- I'm not sure. I don't know the number off the top of my head (multiple speakers) But we are continuing to grow it, Scott, and eventually the goal will be to have it rolled out companywide so we will continue to push that.

Okay, so that's still a nice growth driver for you guys?

It's going to continue to be a gross driver. There's no question. I mean alternative vehicles, alternative to the insurance-only vehicles is a great move for all of our customers. It brings -- every time we go out and bring a dealer into Copart to sell their trades, we are bringing a buyer in at the same time. They immediately start looking at recovered bests and other vehicles that we've got for sale. A lot of these dealers have body shops, so they are looking at buying the vehicles to repair them.

So it's a very -- we call it a cross pollination where we are not only getting a seller but a buyer and it's a really good move for us. So it will continue to roll.

Okay and how about with the financial institutions? I imagine with the repo companies, (multiple speakers) this is going to be a big --

Yes, it's clearly up. It's been a up obviously because of what's happening and I think it will just continue to increase in this environment.

Okay and I missed some of the comments on the CapEx. You said $5 million apiece for the last two quarters?

Yes, just going to my notes here so I make sure to give you the same numbers. It was $29 million in Q1, $25 million approximately that we will spend in Q2. This finishes up the land purchases in primarily hurricane affected areas that we want to make sure we have excess, kind of beyond excess capacity. But if you have a really tough hurricane hit, and you don't got the space, you are in a pretty bad situations. So it's better to have the land, have it sitting there and be able to service our clients if that's the case. Then for the rest of the year, it's $10 million so $5 million per quarter.

Okay, great. Will, you mentioned share repurchases. Did you give a figure for the quarter?

No, we had no repurchases during the quarter. The figures I gave you were for last fiscal year.

And what was that figure again?

We spent about $269 million last year and we bought back about 6.6 million shares.

All right, that's all I have right now. Thank you.

Bill Armstrong, C.L. King & Associates.

Good morning. Maybe just revisiting the scrap price impact a little bit. Your exposure to noninsurance vehicles has risen and we heard LKQ, one of your biggest buyers a month ago talking about the impact of the lower scrap prices. So is that impacting either the demand for certain types of your vehicles or the prices that you are able to sell them for?

Yes and yes, so it is impacting the demand curve. Obviously there's a real lot of junk cars and then also impacts the demand for your parts cars. These are cars that are primarily bought for their parts resale, not just to be crushed and scrapped. The primary value in that car is parts, but there's a secondary value in scrap, which is primarily LKQ. I mean LKQ has a number of different businesses within the company, so they do buy scrap cars just for the purpose of scrapping. But I would say the majority of the cars they are buying our parts cars.

So there is a component of steel value in the car and obviously when that steel value falls, they're going to pay less for that car. So it is impacting the sale price of those low-end cars. Once you get above that kind of arena, the scrap doesn't hold value anymore. Because obviously nobody is buying a re-buildable car with the intent to sell the steel one day.

So I've given the analogy probably 10 years ago. I don't know if it works anymore, but I will give it again. It is like buying a high-end watch and doing it for the gold value. You don't care what the price of gold is today when you buy a high-end watch. You're buying a watch to keep it and it's the same way with the car. Nobody buys a car looking for scrap value. So it does affect the cars that eventually will be crushed. It doesn't affect the cars that will eventually be rebuilt.

Is there any way to maybe quantify the impact on earnings to you guys?

It's difficult. It's very difficult to do and we before the call sat down and tried to come up with maybe an average value and tried to quantify it and we came to the conclusion that we shouldn't try to quantify it at this time. It's just too difficult to really tell.

Do you think it's material?

Yes, I think it's material. Yes, I think we would have had a better quarter if scrap hadn't fallen.

Okay. With foreign buyers between strengthening dollar and possible credits issues, are you seeing any reduced traffic from foreign buyers? I know you mentioned Mexican buyers earlier. How about some of Eastern European buyers?

Yes, I mean it's moved a little bit, but as we said from quarter to quarter, it went from 30.9 to 30. So we've got a really dynamic model. We are doing a lot of things. You will see a lot of changes, I'll put it that way. I try not to make kind of crystal ball predictions on these calls. So I will just tell you that we are doing a lot of things to improve the amount of buyers that are coming to Copart, the ease of using our products, the ease of finding cars and bidding on cars, etc.

So I think we will see improvement there. But yes, I mean we've seen kind of a movement. The Middle East is kind of up and the Eastern Bloc countries are down a little bit. Mexico is down. Mexico is back. There's a lot of movement going on. At the end of the day, I look at it like this. We've gone from 30.9 to 30.

Right. Moving to the UK, what percentage of vehicles were purchased versus an agency model during the quarter?

We didn't talk about it in terms of just the UK. We discussed it in terms of overall volume and on an overall volume basis, it was 8.1% of our total units were purchased versus 8.3%

I'll give you a little flavor on the UK. It's an environment where there are contracts that are made. There are contracts that are made for a year or two or three and obviously you live by those contracts. Can they be changed? Sure, but typically you tend to just complete those contracts and then what we are doing is just simply showing, look, to do an average, to say okay on this type of year/make/model car, we pay 20% regardless of what the car is really worth. It doesn't make sense and the reason it doesn't make sense is on one car we will make a killing. On another car, we won't make anything.

And so what they're doing is they're totaling cars based on an average. You've got 20%. That's the average. Fix the car, total the car based on that number. Yet that car may be worth 40%, another car may be worth 10% of the actual cash value. And so what we want to do is -- and we are doing it now -- showing [pro-quo], the real values.

We've got over 200,000 cars in our database now in the UK. So we can show this enormous amount of information as to what vehicles are bringing and what they are worth and we will show that information to our clients and say now that particular car because it's this year/make/model is worth 35%. This other particular car is worth 15%. Fix that car, total that car, instead of it being an average across the board based on a purchase number. That will cause the right cars to be fixed and the right cars to be totaled and that's how we basically will migrate over to a non-principal model because it just makes sense.

Copart is going to get what we are going to get for the car. We are running it through VB2. None of that is going to change and Copart is not going to handle a car and do anything different under a purchase model than we would do as an agent handling the car. We do everything the same. We don't treat one agent, client different than we would a principal client.

And so at the end of the day, it's really the right model for our client is to be totaling the right cars and fixing the right cars based on real quantitative and empirical evidence that comes out of our system and then selling the car through VB2 and getting as much as you can for it. That's why very confident that as we progress in that market, we will be migrating over to that model.

Okay, I will just say that from an outside analyst perspective, it's a lot more difficult to sort of evaluate or track what your progress in the UK without the breakout that you used to give us.

Well, I guess you've got to have faith that we will progress and we will do well and just as we've done everywhere else. I'm confident of that. We've got a great team there. We've got great people and we've got great clients and we've got the best national network and footprint there. We've got the best technology and so over time it will happen. That's our belief.

Okay, one final question is just a clarification. Jay, did I hear you say that you've got no CapEx budget for fiscal 2010?

Yes, we don't right now. So we don't see any capital needs at this time for 2010. So what will impact that is increased volumes. Obviously we've got a 50% capacity ratio nationally. That was just to say look, gang, we have got -- we've spent a lot of money. We've built one hell of a network and we've got the ability to run a lot of cars through that network.

With that said, we may gain a new account, some large account in the market where now we don't have room. We will have to buy land or lease a location or do something in that market so there may be some capital requirements that come up in 2010. But for right now based on the capital we spent in Q1 and the capital we are going to spend in Q2, we don't see it.

There must be some minimal level of maintenance CapEx, no?

Yes, there is a maintenance number and that will --

Yes, Bill, we figure that number is between $15 million and $20 million a year.

Okay, great. Thanks very much.

Scot Ciccarelli, RBC Capital Markets.

First question is obviously one of your biggest competitors talks about pretty pronounced slowdown as your quarter progressed and given some of your commentary regarding what's going on in the business, is it fair to assume that I guess the trends of the business kind of what were somewhat similar in terms of the challenges became more pronounced as the quarter progressed?

Yes, that's fair. Yes, it became more pronounced in October than in September. I think August and September were pretty much the same, pretty close. And October came down a lot more those two months. So yes.

Okay, fine. That's helpful and then did you guys mention the size of the noninsurance business this quarter? If you did, I missed it.

I didn't.

No, we didn't. It's just about the same as it was last quarter. Right around 81%, so that's the insurance, it would be 19% noninsurance.

Right, now I would assume that that business is growing faster than the insurance business because you have the multiple programs, the Copart Direct and the Dealer Services, etc. (multiple speakers)

I don't know that that will be the case this year. That business is going to grow without question but the insurance business may see some pretty significant growth. That would offset that.

Okay.

And there are some segments in the noninsurance category that will be affected by the economy. We are seeing charities hit a little bit and we are seeing some of the dealers that buy and sell these -- buy and rebuild these cars come off a little bit. But that's been offset by our volume supplied by the financial institutions, which are up tremendously.

Okay, then the last question is, Jay, you had mentioned I think on the last conference call that you were able to move one of your top insurance customers in the UK over to an agency model. I know you guys are hesitant to push the insurance companies too far, but any progress or update you could give us on kind of that business transition?

Yes, well, there's benefits. I mean I've talked about the model benefit in that you want to fix and total the right cars. Otherwise you're just wasting money, basically. If you total a car that you should have fixed, or you fix a car that he should've totaled, you're leaving money on the table. And we've probably spent 20 minutes on that because it can be quite complicated. And then there's some other advantages too in the UK to selling on an agency versus selling on a principal method.

So everyone who switched has been happy. I haven't seen anybody switch and then say I don't like this. I don't want to go back. And I think -- I just think that's going to be in the end I think that's the model that our clients will want to go to because it just makes more sense. Every time they sell a car, they get the gain instead of they total a car today, Copart buys it, then we get the upside or the downside. They may not total a car today because they go wow, I know that car is worth $8,000 but Copart is only going to pay me $4,000, and so let's go ahead and fix it.

Well, they would be better off to pay us an agency fee and then get the 8,000 pounds for the car. And so I think that's going to be -- it's very intuitive to me of course I'm doing this every day but I think they will over time looking at the evidence and seeing the numbers will convert and will switch over.

So it sounds like there's been more than just the one top-five insurance company that you previously mentioned.

Yes, we've had some. You'll just see it over time. You are going to see the number drop over time. I think it's probably the best thing just to comment on it. We feel that way anyway. We believe that will be the case and the trend.

Okay. Thanks a lot, guys.

Matt Nemer, Thomas Weisel Partners.

So my first question is I'm wondering if you can help us understand the impact of falling selling prices on the fee structure. If prices would fall another 10%, obviously it doesn't mean your fees are down 10%, but can you help us kind of work through the [variability] of that?

I'm not sure if I know how to quantify that for you or to demonstrate it. We make a percentage of our revenue comes from the buyer, a percentage of the revenue comes from our seller. Depends if they are on a flat fee or a flat fee [PIP] and there's no change if they are on a PIP obviously there's a percentage that impacts us. On the buyer side, it obviously impacts us and I don't know what it equates to if we drop by 10% what it equates to Copart. I don't know.

Okay, we're just trying to understand. So the potential variability whether its steel or used vehicle prices or kind of other impacts in the short term to fee your structure (multiple speakers). The second question is on the international buying behavior, I realize that it doesn't sound that it's changed that much in the quarter that you just reported. Any chance that that's a lagging indicator that you've seen more of a decline recently in the current quarter in terms of international buying?

Do you have the current quarter?

Yes, I do. It's changed marginally downward. We've seen a rebound for Mexican buyers, but we've seen -- versus from the Eastern European buyers off slightly. We haven't seen a precipitous change.

Okay, that's helpful. And then on the CapEx plans, I understand that you are basically taking it to maintenance levels starting in the back half of this year. What does that mean in terms of your plan to roll out additional smaller sites in the US? Are you working on a plan to roll out green fields I think 10 top 15 per year to sort of fill in markets, reduce transportation expense. And it seems like there's benefits of that program for some of these new volume sources like CDS and Direct. So I was just curious if that is something you would restart later?

Yes, there is. It is something we'd restart later. It's on hold now because of the obvious change in the economy, the change in Copart's valuation, the change in price of fuel for transportation. So there's a number of changes, but you're right. Long-term it's the right thing to do. Eventually we will do it because we enroll CDS out into the rest of the locations that we've got but then eventually you want to be in all those kind of niche markets that you're talking about. In often case, it's because we are there, there's nobody else there. They are moving cars 100 miles to the local liquidation centers.

So I think long-term, it will be something that comes back online. It generates reduction expenses, like we said, and of course you have an initial fixed cost expense that occurs. That's why for one of the reasons that we will be holding off for now is it doesn't make sense currently to do it based on the environment we are in because of the additional costs. That's like Will commented in his notes that we saw an increase in costs because of the locations we rolled out. There's an initial cost over time that benefits you because you are closer to the cars and you reduced the towing and you improved your capacity.

So it's on hold for now and it's something that we can always go back to at a later date.

Okay, then lastly, you talked to CDS and Copart Direct but I didn't hear you mention the fleet opportunity. So I'm just wondering if you can give us an update there? I know you are waiting on a piece -- a key piece of software to kind of really break into that business, but just wondering what's going on there?

You know us. We've made the investment in our team and our people and so we will be building a lot of software that will be coming out in the next year. A lot of products that will help all of our business segments, all the different little industries that we are working in. And I think we are doing a great job in all of those areas. We will continue to grow. We are going to push and continue to roll those areas and grow them but it's very difficult to quantify where will I be today versus a year from now kind of thing? It's kind of hard to know where we will be.

But do you need resolution of this lawsuit that you are involved in before you can move forward on getting fleet?

Oh no, we are gaining fleet business today besides that, but sure, that would help.

Got it, okay, great. Thanks. Good quarter.

Gary Prestopino, Barrington Research.

How are you doing? Most of the questions have been answered, but Jay, maybe you could help us. From my notes, you mentioned that last recession and where car prices came down, you eventually started to see an increase in total loss volumes and a richer mix of cars coming through the pipe. What is the lead time for that? Are we looking at this on maybe a three- to six-month basis?

I don't know, Gary. I know there's a lag in APV, actual cash valuations, because especially in an environment where you see a 7% decline in one month. But the information providers go out and they review what cars are selling for to generate information to produce actual cash valuations for insurers when they are doing a total loss estimate.

So we know there's a lag there. I don't think there's much of a lag. It may be 30 days. It may be 90 days from the time that it takes them to produce the information and provide it up. I know we've already seen ACVs come down from the data we've seen in the last month. So actual cash values are falling and of course, as the example I gave you, I think it's very intuitive. I think people get it.

If repair costs aren't coming down out the gate and the value of the car falls 10% or an ACV falls 10%, you just took a loss of a vehicles that would've been repaired and pushed them into the total loss category. But again with timing, it's very difficult to know how long the timing will be because we are in such unique situation here. We have never -- what we have seen is a 1% decline, things like that. We've seen small declines.

I just -- I can tell you since our founder was a recycler for 25 years, that he has told me more stories than not of experiences in the '70s and '80s where the economy has turned down and his business started booming. So we believe that recyclers will do better in this environment and that means there will be more demand for the product we are selling to them.

Yes, I'm sorry, Jay, you kind of broke up there, so when you were talking -- but anyway, all right. And in terms of in the past on your buyer base, how has a recession impacted those individuals?

Well, I think we've covered the dismantler, the recycler. I think from a rebuilder's perspective, you've got to remember in a really strong economy and financing options, people go out and buy new cars. In an economy like this, I think what we will see is an environment where people don't go out and buy a new car, maybe don't have financing options, eventually want to buy a car and they are looking for a value proposition. They're looking for a car that potentially is less than the other cars. That's a salvage title car. That's a branded title car.

So when you open the paper and you see $18,000, $17,500, $18,500 and then there's one there for $16,000, often that is a car that's got a salvage title. So I think we're going to see consumers potentially increasing demand for a rebuildable car or a vehicle that's been rebuilt that carries a salvage title, whereas in the past they may not want to buy that car. They now want the savage title. Today they may say, yes, I'm going to keep the car five years. I don't care about the resale. I don't care about the salvage title, etc., etc. I want the value up front.

So Copart kind of -- the way I look at the business is in an economy that's headed down, we are the guys that are selling value proposition cars. We are the ones that are selling cars that will become parts and those parts are used parts. Again, alternative ways to repair your car, whether it be a do-it-yourselfer, whether it be someone who takes it to an automotive repair facility or whether it be a body shop trying to keep a car from becoming a total.

Thanks.

Edward Hemmelgarn, Schaffer Investments.

Yes, just one question. You gave the mix overall for your Company of the insurance to noninsurance. Do you have that for the UK alone?

No, we don't.

Is that -- I'm assuming it's less than it is in the US?

(multiple speakers) as the insurance mix?

No, I would expect it to be more as a percentage of the total business.

Talking about the insurance would be more than the noninsurance in the UK segment.

I expect that to be the case.

Okay, thanks.

Craig Kennison, Robert W. Baird.

Good morning and congratulations. Most of my questions have been addressed in what has been a very productive call, but could you help me understand -- I think you said about one-third of your property is leased typically in a normal year. You'll take the option to purchase some of that land. Is that part of your plan for the next 12 months or would you --?

We've got options, Craig, on our property. We believe the long-term -- again Copart is a very long-term approach, long-term thinking Company. We think the right long-term approach for the Company and to secure our locations, to secure our viability for our customers is to own that property. And so in the past, you have seen us exercise our options and buy property. We've got options that are now pushed out on our property and we shouldn't have to go in and buy that property.

Now, something may come up. To be very frank with you, if there's an opportunity if somebody is distressed, if there's an opportunity to buy a piece of land, we are going to do it because again, we do think the long-term benefit to the Company is to own that property. But out of the one-third that is not owned, it's leased, it's got options. It's got first rights. So we have got the ability to secure that property over the long haul.

Can you just help me understand --? Has your thinking changed a little bit with respect to growth? Would you be more inclined to pull back on investment and begin to harvest cash now, whereas maybe a quarter ago you were more keen on making investments? Is that just something you want to do given the economy?

Well, I mean, it is a unique environment we are in. I don't think anybody -- a friend of mine is 80 years old said he's never seen anything like this in his lifetime. So that means something to me. That says something to me. I am of the mind set and I think the Board is of the mindset that we need to review our investments on a regular basis. And if there's an opportunity there that we do it.

But with respect to are we going to be changing the way that we've invested cash in the past? I would say yes because it is a different environment and that's why our capital spending will be coming down significantly. The good news is we've made such investments in the past and I think we can do that for a while. We can sit back and not have to make a lot of investments in network. We've got a lot of capacity. We've got the ability to sit here and generate cash and as we do that, we will be looking at stock repurchase or other options with that cash.

Thank you and last question. Will, I think you mentioned that G&A would begin to -- or continue to trend lower. To what extent is that simply the elimination of some one-time UK costs and to what extent is it something other structural?

No, I didn't suggest or intend to suggest that G&A was going to trend down. I think actually it should be consistent with what we've done this quarter including the $1 million one-time beneficial impact of that settlement and maybe slightly up going forward.

It won't be up at the level it has been. I think that's the message we were trying to give you, Craig. It won't be up at the level it's been in the past because as Will said, we brought on over 50 people in the last year. We've made a lot of investments in our G&A to be able to produce products and services for our clients. But we are holding right now at where we are at and we will ahead and use the team we've got to generate the services and the products going forward.

Is there a way to quantify the one-time costs related to the UK last year that won't recur this year?

I did, it was $2.3 million.

Okay, good. Congratulations. Thanks again.

[Jordan Smith], Philadelphia Financial.

Very good quarter and congratulations on substantially outperforming your competitors. I have two main questions. One is have you thought about -- there was one price increase about nine months ago I think it was. Have there been any more talks of price increases or instituted any among yourself or your major competitors?

No, I don't think anybody is looking at price increases right now in this environment.

Okay, second is there's been a huge increase in repossessions just in the past three or four months. Is there any way to quantify what percent of your auctions cars are now be repo cars and what that trend has been?

No, we don't break it out. We break out the actual insurance versus noninsurance, Jordan, but we don't actually break out what portion comes from all the different components.

Would you say that repos are substantially more in the past few months, say, than in the past?

Yes, I think we said earlier that repos are up.

Okay and last question is on the UK side, I'm sorry, I must be missing, but you said you given your gross margin between US and UK and I don't see that in your press release.

No, we said that we have the prior five quarters but that we would no longer be doing that.

Okay, so you are no longer breaking out US versus UK either gross or net margins?

That's correct.

Okay. Is there any commentary on the increased or lack of increased profitability in the UK?

Certainly. We will discuss that if it's meaningful to the understanding of our business on a consolidated basis. But in terms of materiality, if it is material to the UK, it doesn't necessarily mean it will be material to our consolidated group. If not, then we won't talk about it.

Okay. I guess my last question is with just next year's cash flow alone and cash on the balance sheet, you could repurchase 10% of your entire flow in just one year. So in 10 years, you could be purchasing the entire company. How do you think about that versus going into France or Spain or other places like that?

I think -- I thought we kind of commented. Maybe we didn't, but yes at this time from an expansion standpoint, we are going to be holding where we are at. There's no desire to expand into other markets or additional facilities. That's what we are saying. Right now we will finish up the facilities we've got and we're going to hold because obviously I think you see the opportunity that exists with the Company. And obviously, we are going to be looking at that instead of trying to go to -- I don't think I ever said we were going to France. But since you did, we will be looking at that instead of any other options.

Okay, thank you.

Justin Boisseau, Gates Capital.

Can you talk for a second about your mix of PIP business in North America versus the fixed fee?

Sure we can. It hasn't changed materially over the last four or five quarters. More than one half of our business on the seller side is PIP.

I was just unclear. That -- those fees would fluctuate based on average vehicle selling prices, right?

That's correct.

Is a portion of that PIP fixed and a portion floating or is it all floating?

You know, every contract is different and we categorize them by not only the rate but also the services we provide. And so there are a certain amount of PIP contracts that the rates are relatively fixed.

Okay, then in the UK, am I right to think that under the proprietary model you all obviously take ownership of the vehicles and so you assume some risk in an environment of declining auction values that risk would be shifted to you guys? Is that right?

That's correct. We do retain the risk of ownership and to the extent that there is simply a decline in the selling price, then that impacts our revenue.

And how quickly are you able to renegotiate the purchase prices of those vehicles? As you see pricing decline in the marketplace, are you able to quickly change the purchase price that you are paying to the insurance companies to adjust for that or are there long lag times?

We've never been in that position yet, so I don't know if I know the answer. We are not in a situation where we are losing money on cars in the UK. So our position has been as we've talked about on the call to move from principle to an agency because of the benefits to the seller. Now if we get a situation where we are losing money, you can bet that we would be sitting down and having a conversation because Copart is not in the business of losing money.

Very good, thanks so much.

This now concludes our question-and-answer session. I'd like to turn the conference back over to Jay Adair for any additional or closing remarks.

Let me make one more point with respect to our UK contracts. The price that we pay for the car is a percentage of the preaccident value, so as the value of the car goes down, what we pay for that car also goes down, which mitigates our risk in terms of our net return on that sale. So with that, let me turn it over to Jay.

Thank you, Will. Again, thank you for attending the call and we look forward to reporting our results in the next quarter and again, I want to thank all of our customers, thank all of our investors and all of our employees for all of their work. Thank you.

Now we conclude today's Copart teleconference. Thank you again for joining us today.