Copart Inc (CPRT) 2009 Q3 法說會逐字稿

Good day everyone and welcome to the Copart, Inc. third quarter fiscal 2009 earning 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, Inc. Please go ahead, sir.

Thank you Deanna. Good morning, everyone. Welcome to the third quarter conference call for Copart. Before we start, I will turn it over to Will for some brief announcements and then we'll give you an update on how we're doing for the quarter. Will?

Thank you, Jay. And good morning, everyone.

Before we begin, I would like to remind everyone on the call that our remarks and comments will contain forward-looking statements within the meaning of securities laws. These statements are neither promises or guarantees and are subject to certain risks, trends, and uncertainties that could cause actual results to materially differ from those projected or implied by our statements or 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 Jay, I'll return the call to you to begin the discussion of our third quarter's performance.

Thanks Will. Well, good morning, again. I just would start by telling you that Will and I are in two different locations today. As we've done in the past, we have to travel so sometimes we can't be together on the call. So, there may be some confusion on whether Will is answering the question or I am, so if you could just who you want to clarify who you want to answer it, sometimes that helps out.

We had a good quarter, we're excited about how things are looking. Just give you a number of updates. We'll start with new stores in the quarter. We opened up Montgomery, Alabama, and Greer, South Carolina. You all know where Montgomery is. Greer services Charlotte and western South Carolina. Also Monday we opened up and we have not done the announcement yet -- but we opened up our West Warren, Massachusetts yard that will service Central Mass. and Western Mass. And we'll be doing a press release on that very soon, but we thought we'd get that on the call so you're aware over it.

Looking at returns, I think everyone is excited about that. From -- start with the US and we'll talk USA -- UK. From the US perspective, the low really was in December. We saw returns first turn down in October, so September was kind of the high. October we saw this enormous drop in returns, following worse in November and then falling even worse in December. By the end of December we hit the actual bottom. In January, returns came back and I reported in the last quarter that we continued to see those returns go up January, February, to March. We have seen that in this quarter as well.

Sequentially, we are up quarter over quarter. And from a month by month perspective -- January, February, March, April, May -- we are up and looking at June and it's not a lot of data. It's June 4th. But we are on a record return again so far in June compared to the prior five months. So things look good there. I think there's a number of things affecting it. I think we talked about that in prior calls with [ACBs] decreasing or to get some better product that's coming in. And I think the market is coming back with respect to some demand on used car pricing. Things are not back where they were originally last year, but they're getting really close. So we're happy about that.

Looking at the UK, it's even better news. The UK is up year-over-year and sequentially. So, we can only attribute that to the same experience we had with converting Copart in 2003 to VB2. We saw in 2004, 2005, '06, '07, and '08, just year after year after year increases in returns. And the fact that the UK has not been impacted negatively and in fact is up year-over-year and sequentially we believe is the VB2 effect and the -- basically the elimination of any ability to collude the elimination of any friction. It's so easy now for buyers both in the UK and in Europe to access the vehicles and bid and we've really done I think a pretty bangup job on getting the word out about Copart in that market and cross pollinating buyers that we had in the US model into the UK model and buyers in the UK model into the US model.

So it's good stuff. It's nice to see returns up in the US. It's especially nice to see them up in the UK. And when we get into units sold for the quarter, units sold were up. In fact, we had a record quarter. This is the highest quarter we've ever had. We sold more units this quarter than we've ever sold in our past. Again, I think that's the drivers we talked about in the last quarter and the quarter before. So I won't get into every single detail on that because we don't want to sit there and cover things two and three times. If there are some questions on them, I can hit them, but otherwise, I think everyone was expecting units to come up and they've done that.

A lot of questions regarding cash for clunkers and I can sum it up for you pretty quickly. There's two Senate versions out there currently and there's one house bill that is before Congress. The two senate versions are Senator Stabenow from Michigan and Senator Feinstein from California and the representative is Representative Sutton from Ohio.

They're all very similar bills. They basically focus on older vehicles or vehicles with high mile per gallon usage. And they typically show budgeted numbers around $4 billion with an average of $3000 to $4000 for rebate money. So you're talking about maybe a million cars is our guess on those numbers. They're going to be old because when you talk about high miles per gallon vehicles you're talking SUVs and trucks. Those vehicles are not going to be vehicles that someone would bring in at five years old because they're going to have too high of a value. Nobody is going to bring a vehicle in and get a $4000 rebate on a vehicle that's worth $10,000 or $12,000. So, our guess or our belief is that the high MPG vehicles are going to be older vehicles. And then of course the bill that shows eight years or older, obviously, those are older vehicles as well.

The problem is you get to an eight, nine, or 10 year vehicle and the current process that we've seen is that the federal government does not want that vehicle to be recycled in the typical format that is done in the US today -- ie, Copart would sell it, it ends up going to a recycler who sells the motor and the transmission, and the running gear. They're wanting the motor, transmission, et cetera to be scrapped so you can only sell panels. And that basically creates an environment where you're really going to be looking at self-service product.

This is going to be older vehicles that are primarily junk. They're going to be vehicles that are not going to have any real residual value. Obviously, if we try to sell something and the buyer of that vehicle knows they cannot put it back on the road, it has to be junked, but even worse, they cannot sell any running gear off of that vehicle. They're not going to pay anything for it. So, it's definitely a no effect for Copart. We're looking at this as minimal if anything positive impact. Obviously, no negative impact that we can see.

It's an irrelevant amount of vehicles. You're talking about a million vehicles that by the time they go through the chain, it would be something much smaller than that in over the time period. And by the time you factor in that the vehicles are going to sell for basically no value. Our guess is they'd be $50 to $100 vehicles. There's nothing there. I wouldn't get too excited about it. I definitely wouldn't get worried about it. It's just something that if it passes, we may see some stimulation of new vehicle sales and I think that's good overall for everybody if we see new car sales kick up a little. But, again, it's not going to make a big impact on that as well. It's just really a nothing experience for us.

Looking at Auto IMS, we're excited about what's going on there. We've got the link between Copart and Auto IMS completed. We've taken assignments through Auto IMS. We're working on really fine tuning some portions of that. So we've not done a press release. We've not announced that we're turned on. And the reason for that is we have not turned on every single account we've got yet. We don't want to do that yet until we've worked out all the kinks in the process.

That'll be happening this quarter. So we'll make a couple more changes and then we'll fully turn it on and do a press release so everybody is aware of Auto IMS being turned on for Copart and we're excited about that. We're still taking vehicles. The majority of the vehicles are coming in manually. And obviously we're big believers in no friction models and the ability to click a button and assign the car to Copart. And we think it's going to be a nice improvement. So we'll let you all know when we're fully turned on and we'll do a press release so it's very clear to everybody.

A lot of changes in the market, a lot of things that are happening, we get a lot of questions about GM, Chrysler filing bankruptcy. There's two things that are happening here. Let's focus on GM for a minute. GM is closing facilities. They've obviously filed bankruptcy. But I don't want to focus on the bankruptcy portion there, we'll talk about that over on Chrysler. What I want to focus on the discontinued brands that they've got. So GM in the past shut down Oldsmobile. They've currently announced that they're shutting down Pontiac. And, the impact of that is real simple.

When you announce that you're going to discontinue a brand, everybody who holds that brand, everybody who is driving a Pontiac today, immediately sees a decrease in the value of their vehicle. Obviously, people are not real excited about going out and buying a used vehicle when it's being discontinued as a brand. You'll see an immediate drop in resale value on those vehicles which obviously is the actual cash value on the vehicles so you'll see an immediate drop in ACV and then you'll see a continued drop in ACV over the next year, two, three.

We've seen this in the past. We saw it with Oldsmobile, I mean, it just makes sense. It's obvious. I don't think I have to spend too much time explaining it. It just makes sense and the effect of that is we'll see a lot more of those units being totaled. As they get totaled, we'll sell those off. A large component of them will be rebuilders because they'll have obviously in some cases pretty minimal damage.

It's just that the value's come down so hard. And there'll be a number of parts availability. There will be significant parts availability on those cars because of the increased total loss frequency on them. A number of the units we sell go to recyclers to sell parts. And, in many cases, those recyclers will be selling the parts back to builders to repair the cars. So it actually just increases volume for us.

Looking at Chrysler, Chrysler did the same thing as GM. They both filed bankruptcy. The effect of that is pretty simple. It's an image thing. And as people out there are looking at new cars to buy, whether they are considering a Chrysler or a GM or a Toyota or a Honda, from an image perspective when you file bankruptcy, it hurts your brand, it hurts your resale on the vehicle, again, it hurts ACV, it will cause more of those vehicles to become totaled.

There was an article on May 12th that talked about Chrysler's average resale value dropping 6% since it filed bankruptcy. And we've seen this before in the past with other brands that have come and gone. The Yugo pops to mind. There's a number of brands that we've seen before that have come and gone or filed bankruptcy and when that happens, it obviously just hurts the brand and you end up seeing more total loss on those vehicles.

There's a company out there called ALG -- Auto Leasing Guide. They're at www.alg.com. You can check that out. They basically provide the residual values on lease vehicles for the leasing industry. And it'll basically tell you -- it'll show you exactly what I'm basically talking about which is that when you file bankruptcy, when you discontinue brands that you hurt resale value and of course that will cause more of those vehicles to become a total loss.

Looking at CapEx for the quarter, Copart had predicted that we'd be somewhere around $5 million. We finished out the quarter about $12 million in CapEx. The reason for this is we have a number of facilities that we own that we have not disclosed or announced. We've not opened them yet. We buy the land well in advance and then we wait for growth to occur. And then we develop the properties and press release that we've opened that new location. A great example of that would be West Warren, Mass. We have some significant volumes increasing in the Massachusetts market. So we expedited that facility, cranked it up, spent the money to get it developed. And as I just said, open that up on Monday. So that facility used a significant amount of cash.

We bought a building in the quarter for some corporate functions and IT related needs. And so we're a little over from what we expected, but those are the reasons for it. It makes a lot of sense and it's all good from a position and a growth perspective.

So just in summing it up before I turn it over to Will, returns are up. Volume is up. We have a strong balance sheet. We're sitting here today with no debt, generated a lot of cash in the quarter and finished is quarter at approximately $119 million in cash. So again, no debt, strong balance sheet and things look good from our perspective.

So with that, Will, I'll turn it over to you.

Thank you Jay. Yesterday, we reported our financial results for the third quarter of our 2009 fiscal year. While consolidated revenue was $197.3 million, down $23.8 million or 10.8%, we sold our highest quarterly unit volume. The primary factors that led to the decline in total revenue were the decline in the number of purchased units sold, the decline in revenue per unit for cars sold on the agency model. And the impact from the change in the dollar to pound exchange rate.

Vehicle sales revenue represents cars bought by us and resold for our own account and occur almost entirely in the UK. This revenue declined from $52.2 million to $32.3 million due to the migration of certain seller contracts in the UK to the agency model, the deferral of sales in our second quarter of last year to the third quarter of last year as a response to system integration concerns. We estimate this deferral to be approximately 5000 to 6000 units. And finally, the impact of the decline in the pound to dollar exchange rate which was $1.44 to the pound in our current quarter and $1.98 to the pound in the same quarter last year.

This change in FX reduced recognized revenue from vehicle sales by approximately $10.7 million. It should be noted and Jay pointed this out that despite the decline in the UK economy relative to the third quarter of last year, gross proceeds and return percentages are both up as VB2, our internet selling platform made the selling process more efficient and collusion free and has introduced more international buyers to the remarketing process.

Service revenue declined from $169 million to $165 million despite the growth in units sold. Over half of our service fee revenue is tied in some fashion to the ultimate selling price of the vehicle. The decline in used car pricing and commodity pricing relative to the same quarter last year suppressed our average selling price and consequently led to a decline in our revenue yield for a transaction. In addition, the change in the pound to dollar exchange rate reduced recognized service revenue by approximately $3.4 million.

The increase in total units sold during the quarter was driven by market wins in both North America and the UK and we believe an increase in salvage frequency. Salvage frequency is the percentage of cars involved in an accident that are deemed total losses by the insurance companies. And we believe has increased as a result of the decline in used car pricing. In North America, insurance units increased by almost 6% and more than offset the decline in the noninsurance segments which we believe was impacted by the down economy.

In North America, same store sales expressed in revenue was down 1.5%. However, expressed in units, same store sales increased as we experienced organic growth of approximately 2%. In total, the impact of -- on revenue of the decline in the pound to the dollar exchange rate was approximately $14.1 million. Despite the decline in net revenue per transaction, our consolidated gross margin percentage grew from 39.9% to 43-point -- excuse me 43.3% or 340 basis points. The growth resulted from a reduction in vehicle sales revenue as a percentage of total revenue declining from 23.6% to 16.4%. An increase in vehicle sales margin which grew from 16.2% to 17.3% and the decline in the average cost to process each vehicle led by overall increases in efficiencies in the UK and by reductions in subhauling costs in North America.

General and administrative costs excluding depreciation were $18.5 million compared to $17.6 million for the same quarter last year. The growth was driven by additional costs associated with the increased head count, primarily in the technology and development areas that was mitigated by the beneficial impact of currency exchange rates of $0.7 million. Our operating income decreased from $68.7 million to $64.9 million or 5.5%.

During the quarter we received a $12 million payment for a note receivable created as part of the sale of MAG business assets and real estate. We exited the MAG business in our fiscal 2006 year. The gain on the sale of the real estate was deferred until payment was received. The $1.6 million shown as income from discontinued operation represents this gain net of taxes. Income tax expense for the period was $25.4 million for an effective tax rate of 38.5%. The effective tax rate for the same quarter last year was 34.4% due to adjustments related to state tax reserves during that quarter.

Diluted EPS from continuing operations was $0.48 per share compared to $0.52 in the same quarter last year. Our net cash grew by over $106 million to almost $119 million. Relative to our second quarter, accounts receivable, inventory and vehicle pulling costs, and deferred revenue all declined as we sold off winter inventory. In addition, we recovered tax overpayments through the adjustment of our current quarter's estimates and we received a $12 million payment in the settlement of a note receivable.

We continue to have a strong sheet with no debt and a current ratio of over 2.5 to 1. In the quarter, we generated approximately $106 million in operating cash flow. Net income plus noncash expenses like depreciation and equity compensation generated approximately $45 million while reductions in primarily inventories, accounts receivable, and prepaid taxes generated almost $61 million. Capital expenditures for the quarter were $12 million.

That concludes my comments. I'll now turn the call over to Diana to moderate the question and answer session of this call.

Thank you sir. (Operator Instructions)

We'll take our first question from Bob Labick with CJS Securities.

Good morning. Thank you.

Good morning, Bob.

First question I wanted to ask you, you just discussed insurance unit sales were up I think you said 6% in North America. Was that one individual win of a new customer or could you just elaborate on the growth on that side?

No, it wasn't one win. There were a few -- multiple wins that we had in the quarter. So, I would say it was just increased volume across the board. I mean, we had some nice wins that were there. We never specifically break out one company or another.

Okay, fair enough. And, I think Will just touched on this, but vehicle pulling costs were down year-over-year and sequentially.

On the year-over-year basis, if you're winning new units, are there other factors or drivers in that? Is there FX impacting it? How are volumes in general? How should we think of volumes on a go-forward basis?

I can't address the volumes, but I will tell you FX does impact it. But also in the UK we have -- our operations have become more efficient which means our costs per unit are down which means we capitalize less costs per unit in our vehicle pulling costs. And the turns are faster in the UK. Our days in inventory are down. So all that leads to a reduction in our vehicle pulling cost.

In April you lapped a buyer fee increase. Are there any opportunities to have another increase? Or how should we think about that as an impact to comps for the coming quarters?

No, A, we don't talk about pricing on the calls, Bob. But, B, in this environment, everybody is just kind of going to keep things the way they are.

Okay, great. Last one and I'll get back in queue. You mentioned turning on Auto IMS in the current quarter. Can you give us expectations for the potential volume impact?

We don't know. I've been asked that question a number of times. We really just don't know what the volume is going to be. We just know that we handle a material amount of volume today from that industry. So it's not like it's new to us. It's a big part of our business already.

And we have to do it all manually. If we can do it automated through their system and eliminate the friction, it just makes sense to everybody that they'll click the button and assign more cars to Copart when they don't have to pick up the phone and call it in.

Great. Thank you very much.

We'll take our next question from Scott Stember with Sidoti & Company.

Good morning.

Good morning, Scott.

Could you talk about in the UK you mentioned you're doing more fee based business versus purchasing. Can you talk about where the percentages are right now versus a year ago and just talk about the positive benefit that that had on the yard margin this quarter?

It's continued to move that direction. And I mean, quite frankly, as we -- often as we switch from purchase to fee base, we'll make less margin because we're currently -- we keep seeing prices increase and increase and increase. I think the impetus for doing it is to align our interest as we've talked about before.

I fundamentally believe that insurers will -- over time as we articulate the benefits and they understand pro quote -- the model right now utilizes those purchase numbers to decide whether to fix or total the car. So you have to really implement ProQuote and ProQuote didn't exist before Copart was there. Obviously, there wasn't enough volume in the market that one company had to be able to show the actual empirical numbers of what the vehicles would sell for. So we've got that data now. We're utilizing that and there's a number of other benefits I could go into.

But the point is at the end of the day is you're going to continue to see that trend and continue to see revenue decline in that market as we go from purchase to fee base. We think that's the right direction. It's what we did in the US and we think it's the right move for the market and for our clients and our customers and the relationship long term.

Recently, there was legislation in Utah and Nevada where basically consumers are going to be allowed to start buying vehicles at auction. Can you talk about what you're hearing on that and how that could potentially help your business?

I don't know that it's going to be a real game changer in that market. It didn't restrict out of state. You're just talking about in state. There wasn't any real out of state restriction. Already customers in California or Arizona can buy in that market. So it may free up some local buying in that market.

But there wasn't any real restriction. You just had to buy the bid card locally. The bid card becomes a problem when it's out of state because now the state buyer won't go through the process. But it didn't restrict out of state, it just restricted in state. And in state customers -- it's easy for them to go through the process. So there may be some improvement in that market. We'll wait and we'll see. I doubt it's going to be a real game changer like removing bid cards that are really egregious in some states.

Okay, and CopartDirect -- any update on that please?

Yes, CopartDirect is doing well, CDS is doing well. I think everybody in the auto world saw some tough times in the fourth quarter of '08. And we've just come in the first quarter and the second quarter calendar quarters, it's just gotten better and better and better. They continue to improve. And I think we'll be seeing that.

We've got some modifications we'll be releasing on our website here in the month. So we've got some really fun stuff coming and we'll be talking about that on the next quarter.

Do you have a general time line for some of these initiatives that you have out there regarding CopartDirect? Middle of 2010, would you expect this to be ramping up significantly higher than it is right now.

It's been improving every single quarter. It's a great product. And I won't say that -- that we wouldn't want to grow it quicker. But we'll be deploying money towards advertising and improving awareness and watching that improve over time. We're not going to do anything drastic so to speak. We'll go at it in a nice pragmatic and thought out approach. And if tomorrow we thought we could 10 times the volume, then by doing something, we'd do it.

But obviously that's not the case. We're just looking at it, improving the product, increasing it and trying to reduce some of the friction points that are there. It's a brand new business. It didn't exist three years ago. In fact, it almost didn't exist two years ago. It's just past its two year anniversary.

So, when you think about it in those terms, new concept, new business, and we'll continue to improve on it like we've done on other products.

Okay, last question. CapEx -- do you have an updated figure for 2009 and 2010?

We don't have the 2010 number. Will, do you have revised numbers for fourth quarter of '09?

Our target once again is between $5 million and $10 million for the fourth quarter. We were in the 20s -- I think we were $27 million and $29 million in the first two quarters, $12 million last quarter. And we'll continue the target of the $5 million range for the fourth quarter.

And you had said a couple of calls ago that you'd be at maintenance levels for 2010. Is that still part of the deal?

Well, we'll discuss that in the fourth quarter. We go through a process every year. It gives us a little bit more visibility three months from now to see what units continue to build and how they grow.

We've got some unique times. You've got GM and Chrysler going through this process. We have to see what the impact will be in terms of units. We've got great capacity across the organization. There's always -- you'd like another yard in LA kind of an experience.

We'll take a look at that in a quarter and give you that data at that time, Scott.

That would be great. Thanks a lot, guys.

We'll hear next from Tony Cristello with BB&T Capital Markets.

Thanks, good morning, gentlemen.

Good morning Tony.

When you look at the UK and where you are now, having a fair amount of time into the process. How has your sales pitch evolved to the customer base today versus -- when you go in are there examples that you site or things you show them that are tangible enough to say -- hey wow, I have to be doing this on a fee-based basis

There really are. It's three steps. When you first step into a market and you're putting a number of companies together and building a network and we've got 12 locations now and we're picking up in 24 hours in that market. It wasn't uncommon to be picking up in three or four days before. So, you've got all that cycle time reduction.

The first thing we were doing is saying look, this is what we're doing. Here's the plan, here's the goal. Here's why we're doing it. And here will be the benefits. And then you integrate. Once you've integrated, you always have some friction pain and integration pain. that you get through. And once you've completed the integration then it's about saying we're on our website, we've got VB2 in place, we have all these procedures and systems in place.

So step two is really about communicating the different value that Coparts bring and the different products we've got. And then you'll see some customers start to make some changes and switches.

And then step three is really throwing empirical evidence in front of them and saying , here it is. Look. Here's the results. Here's someone who switched. He's what they did. They're willing to talk about it and give them a call. There's nothing more powerful -- we can talk until we're blue in the face but there's nothing more powerful than one of our customers communicating their results to another customer. That's really step three -- you do that and you start to see more switching.

I continue to believe that we'll eventually see that market switch. Just because of the value of switching. There's a number of reasons for doing it. We don't get into every single reason on the call, but we do get into all the reasons with our clients. And there's a number of financial reasons for doing it that benefit them.

And one of the biggest of that is probably the fact that it's very clear what we're making. We show you what we're making. We negotiate a arrangement where we actually make less than what we're making on the purchase program. But now, we're in a situation where you've got total transparency, total visibility. And as we've talked in the past, the ability to total the right car. You're not using purchase numbers as the average. You're now using empirical ProQuote data. These are the cars, this is what they sell for. This is the car you should be totaling. That car you should be fixing. Today you may be totaling a car you should have fixed. You may be fixing a car you should have totaled.

It's really about doing the right thing. Fixing and totaling the right cars based on what they are not based on averages, not based on will I get 23% across the board on all cars and I total out an Audi at the same rate I would total out a [Voxbo]. I mean, it's crazy. You can't compare an Audi compared to a GM product in that market. The car is going to break the bank and the GM is not.

It's really about doing that and we'll continue to show that evidence. And we'll continue to I think see conversion in that

Are you still running -- and I think it was either last call or the call before, you cited being close to 50% principal agent mix. Is that still consistent?

Yes, I think we're pretty close to that.

Is that a unit basis. When you're think about -- and maybe I should rephrase this -- when you're going into new customers -- and I'm assuming, do you have business relationships with most of the major insurance places. Are there still new customers over there --?

We have relationships but we don't handle all their cars. There's some very large companies there that we don't handle business for. There's definitely -- if you're talking about opportunity to grow that market, there's significant opportunity to grow that market.

That has made the difference before -- was it a situation where they said -- well, we want to see what you're going to do and how it's going to look before we're willing to --?

We really didn't go down a path of trying to convert anyone for the first year because the first was about building the network and we're two years into this game. If you take the first year off, we're really one year into it. And as I said, step two is showing the products and educating them on the Company.

So we looked at this as a three to five year decision when we went to the UK in terms of building the network and switching the model and all that kind of stuff. I think it's tracking just like we thought it would. We may be a little ahead of schedule. But in terms of -- are we happy with how things are going? We're very happy.

Okay. And I'm shifting gears to domestically and more North America. Obviously, opportunistic capacity additions where you see fit.

What in your mind would get you to say and you also on one of the prior calls -- talked about being at a 50% utilization or a 50%. What gets you to 75%? Or what gets you to 80%? What changes the market dynamics to get you to a level --

A number of things could happen. We could see major swings in large accounts where they give us a lot more business. We could see frequency increase, total loss frequency increase dramatically. We could see enormous growth overnight in non-insurance business, ie, dealer trades and leasing and that side of the house.

So we're on a promotion campaign right now where we're spending a lot of time educating car minded people about Copart. People that like cars, that like working on cars, that are interested in buying vehicles.

Copart is a unique company. We sell everything from fixers to Ferrari's, so we've got this opportunity to really educate the country and the public about what we do and who we are. And a friend of mine that I recently met has a repair facility -- a NAPA repair facility -- didn't even know who Copart is. That kind of stuff is crazy.

We've done a great job of marketing to foreign markets. Obviously. We've got this huge percentage of out of country sales. We've done a great job of marketing to direct clients we had in the pas which would be your auto recyclers, your tow companies, your body shops. It's really now about taking it to the next level, which is getting mechanics, repair facilities and gearheads to really know who we really are.

And one last question on Auto IMS. Is there anything -- now that you're rolling out the interface, is there anything structurally you need to do to your yards to handle that vehicle which may differ from your traditional salvage vehicle?

No, not at all. We handle tens of thousands of those vehicles today already. t's not as though we don't handle that book of business. We do. And, it's really about -- you've got a client who says -- I'd love to use you but I can't go outside of the Auto IMS system. Now they can click the button, they can assign a car to us. And, we're already geared for it, we know how to handle these cars. And it's about getting those customers to view the us as an option now that is on their system and click the button and start assigning product to us.

Great. Thanks, guys.

We'll take our next question from Scott Ciccarelli with RBC Capital Markets.

Hi guys, Scott Ciccarelli.

Hi Scott.

A couple of questions and this is a follow-up on Tony's last question. Can you help me better understand exactly how the Auto IMS inventory gets allocated. Who's making that channel and what are the key determinants there and how does Copart compete in that marketplace?

Well, companies have remarketing divisions. And a leasing company will make a decision to send it to an auto auction or to send it another direction. And what we do, we walk in and say look, anything that's got any damage at all. Anything that's old or anything that's high mileage, that's just stuff we do really, really well with.

We'll go in there and just basically pitch the benefit of diversifying and maybe moving some product around. And try to get some business. No different than going in and trying to get dealer business and to try to show that there's a better model than maybe taking it to a dealer auction. But, you can take that car to Copart. It's the same kind of approach.

And upon them saying that maybe that makes sense to them or them wanting to try it, they'll start assigning some product to Copart. And the numbers prove everything. They see the return. They see the improvement. You get more volume.

Okay. Thanks for that. And another question kind of related to the same concept. And, some of the facility managers we've spoken to seem like they're pretty excited about the dealer service business. Acknowledging that it's still young. Obviously, you have much better unit economics on typically a trade-in car than a salvage vehicle.

Can you talk about your yields versus some of the traditional players there because it sounds like you guys in a very short period of time have filled up a pricing advantage against some of those competitors. What could that mean looking out?

Well, it's a huge market. There's obviously millions and millions and millions of trades. So it's an enormous market. And we have been fairly successful at going in and tapping those markets in certain areas and we'll continue to improve that. And it is young, like you said.

The benefit -- the yields are higher. The average selling price is higher. The vehicle moves in two weeks instead of two months. So obviously you don't have the space, but what I love about it is it's a cross pollination story. When you get a dealer to start bringing you product, you inevitably get a dealer to start buying from you. They'll watch their cars selling through VB2 because you don't have to be in at a live auction, you don't have to physically show up to see what's going on. You open up your browser, you click on the sale, you start to watch your vehicle sell, you see people bid on them. And then the next thing you know you start watching other product that's selling and you say -- why am I not bidding on that, why don't I buy that particular car, why don't I buy that (inaudible).

So, that's one of the things I love about it. It's a story where we get a lot of cross pollination. We just don't get a seller. We get a buyer when we bring in a CDS customer.

Great, thanks a lot.

We'll take our next question from Bill Armstrong with CL King & Associates.

Good morning. I had a question on the UK vehicle revenues or vehicle sales. About half of the decrease was due to foreign exchange. Was the other half basically due to your shifting from the principal to the agency model or was there fewer units going through the UK auctions.

There was a decline in units as well. I tried to point out the fact that in our third quarter of last year, we had an extraordinarily high number of units because we deferred about 5000 or 6000 units from our second quarter into our third quarter.

In addition to that, we did actually migrate a few contracts -- one a very major contract -- which reduced the units. And then the balance of that was primarily FX.

Got it. Okay. Earlier, Jay, you said units sold were up during the quarter. Is that sequentially or year-over-year or both.

It's both. It's the best quarter we've ever had in terms of units.

Got it. Miles driven on US highways, the latest data is through March and that's still down year-over-year. Are you guys seeing any data or anecdotal evidence that after March that may indicate that that may be turning around?

I think what's causing it is unemployment. I think you've got -- we notice it. You've got a little bit better driving environment today on the highways because you don't have as many people going to work. Unemployment is up. And I think unemployment goes up and you see miles driven down.

As unemployment decreases, as employment goes back up, I think we'll see miles driven increase again. As we've said, it does impact us. And if I look at Copart in the big picture of everything going on in our world, returns are going up, used car prices are going up. Miles driven is going down. Frequency is going up. So in terms of everything that's out there, I would say miles driven is the only negative I can see today.

And, it is a negative, because obviously, if miles driven went up, it would make things even better. I don't know that it would go down much more. But I think when the economy starts to come back and unemployment numbers go down, I think we'll see miles driven go back up.

Got it. And just to clarify. When you talk about returns, are you talking about income per vehicle?

Yes, sales price per vehicle.

Selling price per vehicle.

And not just sale price, the ACVs are down, sale prices are up, so we're seeing the gross percent go up. Pretty dramatically in the last quarter.

I see. Okay thank you.

Thank you.

We'll take our next question from Craig Kennison with Robert W. Baird & Company.

Good morning, guys.

Hi, Craig.

Will, you had mentioned that same store sales metrics for the quarter in the terms of the US I believe, is that correct?

Yes, I have.

Do you have that data going back a quarter or two?

I don't have it available. I can certainly give it to you after the call. I've given that information on every call we've had.

I'll check my notes for that. And Jay, for you, just big picture. I've seen bigger picture discussion of your Company and your long term vision. Obviously, you have a terrific online platform that's been very useful in salvage cars and now you've extended your addressable market into non-insurance vehicles.

What's on the three to five year plan as you think about other asset categories where you realistically have a shot of making a difference.

Well I think we'll continue focusing domestically on the CDS model, Copart Direct model, leasing, going after all the other non-insurance related business whether that's charities or rental cars or whatever. But I think we'll continue to go on that. I think we're going to see -- my guess is we're just going to see a market where there's going to be a lot more total losses going forward. You've got -- the average year of vehicles is getting older. It's continuing to see that. They're not selling enough new cars currently. So it's going to continue.

You're going to see -- with less new car sales, you're going to see more of the vehicles on the road being held longer. They're going to get older, the older a vehicle is the more probable it is for total loss. A lot easier to total out a 10-year-old car than it is a one year-old car. One can be dented in the fender and it's totaled, the other one has to be completely -- it has to be hit pretty hard on the nose before it actually totals it.

No I think we'll continue to see that. I think abroad we have not even begun to go non-insurance. We're almost all insurance in the UK. We haven't even begun to go after any of the non-insurance lines. That will happen. That will be chapter two, chapter three as we complete other areas that we're focused on. We'll probably add a few more locations in the UK. We'll be adding quite a few more locations in the US over -- you're talking three to five years. I think five to ten. Five to ten years, we have to add a number of locations in the US.

If the growth is going to be what we think it will be then we'll be expanding just like we've done in the past. Over in the UK, I think we won't have to be as aggressive in adding locations because we've got some pretty significant capacity now. Just building the locations so that we'd have a footprint. You want to be close to the cars, you want to pick them up quicker and you want to have less costs associated with hauling the vehicles.

And then the next step is really just looking outside of the UK into the European market. There's no question in our mind that eventually at some point we'll be stepping into that market and rolling out our model in that area. So that's kind of -- there's more to it. There's more out there today.

There's promoting the Company and enlightening the world about Copart. We're a pretty unknown, in the dark Company. Most people don't know about us. I would say more people know about WD40 than they do Copart. And that's a lot smaller company.

So, our goal will be making people aware of who we are, really pushing that campaign. Getting people that are excited about buying an RV or a boat or a truck or an SUV or new snowmobile or jetski or whatever we're selling. Getting them to look at Copart and we'll be building some really interesting web products in the future that'll make that easier to do, more fun. As I said in the last call, we opened up the website so that anyone could browse now.

And I want Copart to be one of those companies where people have the website open and they look at it on a daily basis and just browse around for fun and see if there's anything there and if there's not, that's fine, and if there is, then maybe they get involved and step up. So that's really what we've got planned for the future. And it's a lot of exciting stuff.

And you talked about your cash which grew in the quarter. Can you talk about your plans for cash as that builds and whether there are acquisition opportunities out there today at valuations that you haven't seen in some time?

Right, it's a different time today than it was a year ago. If you'd have told me some of the companies that are going bankrupt -- if you'd had told me a year ago, I just don't know if I would have believed it. I think everyone understands that we're in different times than we were in the past.

So, Copart feels today that having a significant cash position, showing a real strong balance sheet, is very advantageous. That's not the case with some of the companies we compete with. They don't have the kind of capital structure that we have. They have got a very different capital structure. And so we feel it's important for us to maintain that position and have cash. So we're going to do that. Of course at some point if we end up with just a significant amount of excess cash, then we'll use it for either buying companies, buying land, opening locations, buying stock back -- those are all options.

And then last question relating to GM. They've sold a lot of cars through I think it's SmartAuction. Any change with the bankruptcy there to that dynamic? Is that perhaps up for grabs in a way that it wasn't before?

Well, SmartAuction is part of GMAC. I'm not sure -- I'm not totally sure what's going to happen. But I don't think too much has changed thus far. I think it's pretty much business as usual over on that side of the house with respect to those players.

Very good, congratulations.

Okay, thanks Craig.

We'll take our next question from Gary Prestopino with Barrington Research.

Hi Jay, Will, how are you doing?

Good Gary.

Did you give any statistics on the percentage breakdown between insurance and non-insurance? Are you still giving that?

Yes, Will's got it.

Sure, yes, because of the growth in the insurance segment, it reached the 85% level of our total North American units.

Okay, so it's 85% insurance, all right. What about percentage sold out of state or internationally?

I didn't provide that. It's down primarily because of the strength of the dollar.

Okay.

Let me give that to you. In terms of gross proceeds, international sales are under 25%.

Okay.

And in terms of units, it's around 20%.

Okay 20% units. And then with all of the new things you're doing on the dealer's side, direct side, international, with the UK business, can you give us an idea of how much your buyer base has increased over the last couple of years? Because that's a key issue here, I would say is that the more buyers you get at an auction market obviously, it's going to help drive your returns.

Yes, it's dramatically increased. I'm shooting from the hip here. I don't have the numbers in front of me.

I can tell you in 1989 it was about 400 or 500 buyers. Today, it's over 100,000 buyers. Probably, five years ago I would have guessed it was around 20,000 buyers, something like that.

So we've seen an enormous increase from -- let's go from 2003 to 2009. Over that six year period, we've probably seen it go from something like 20,000 to 100,000 buyers in terms of registered and with us.

Right. And then in terms of returns, Jay, you were driving record returns say two years ago. Where are you returns now relative to where they were in terms of percentage below where they were when they were at a record?

In terms of percentage, they're almost back. I looked this morning. They're very close, very close. In terms of dollars, we're still a little ways away from being back. But at the rate we're heading if the improvement goes month after month after month the way it is right now, if it continues at this trend, we'll be there by the end of the year. But who knows if it continues. So, we'll see.

Part of it was just the economy just shut down so quickly that everybody just stepped out of buying cars. As now as everyone is stepping back in and buying cars and seeing there's a need for used vehicles in the marketplace -- especially as new car sales have not just snapped back -- we continue to see the average sale price come up.

Thanks.

You're welcome.

We'll hear next from [Jordan Hymowitz] with Smith Financial.

Hi guys.

Hi Jordan.

Most of my questions have been answered. My two questions are -- you say you want five or six new insurance contracts this quarter. Was one of the mean benefits of that that you're competitors have a substantially weakened balance sheet? And is that an increasing competitive advantage given the uncertainty in the stock market in general?

I think everything helps you when you're out there competing, I think they look at everything as a whole. Some companies will be more focused on the technology. Some will be more focused on the footprint of the service. Some companies will be focused on the strength of your balance sheet. So it's really -- it's a company by company scenario, but I think everyone understands viscerally that you're better off having a strong balance sheet than not.

And then is that one of the reasons why you're going to keep the cash balances higher than otherwise?

I think definitely in this environment. We let cash at one point get down below $30 million. And in this environment, I just don't think that makes sense. So, we're not going to do that. We're going to definitely build cash and make sure we've got a nice strong balance sheet.

Can you disclose the percent -- and if not exact, within a range -- of how much CopartDirect is of your total business?

No, we're not disclosing it yet. If it gets to a point that it's a real material number, then we'll go ahead and disclose it.

Define real material is it under 10%, is it under 5%?

10% -- if it gets to 10%, we'll disclose it.

Okay, and final question, you talked about a decrease in value of vehicles on a residual basis. And you've said down 6% for price line and you were particularly negative on the Pontiac value which was disappointing.

Yes, because you drive a '76?

Five.

Seventy five, yes.

Can you talk about that more specifically? I would think newer used cars would decline much more precipitously than older used cars which might actually find a floor with the tax credit.

You think that newer used cars are going to drop more precipitously than older used cars.

As a percentage because --

Yes, I think that's accurate. I don't think your '75 is going down in value buddy. I think you're okay.

We're definitely talking about late model Pontiacs and late model GM and late model Chrysler product. You're talking about, when you start to get things -- you get to the point where you're driving a classic around, I don't think the price is coming down at that point.

Packards are still doing good. So it's just late model stuff that we're focused on.

What I'm saying is the decline in one or two-year-old cars is going to be much more precipitous than the decline in six or seven-year-old cars.

Yes. Yes, that's accurate.

Okay.

We'll take a follow-up question from Scott Stember with Sidoti & Co.

Yes, I don't know if you touched on this but with everything going on with GM and Chrysler, have you seen an increase of CDS business maybe from some of those dealerships?

Well, CDS had a record month so they'll probably have another record month this month the way things look. I haven't gone through and broken out whether its GM or Chrysler. I really haven't looked at it at that level Scott.

Okay, and just one last question Will. Did you guys buy back any stock in the quarter?

No. No we didn't.

All right. Thank you.

All right, thanks.

And it appears there are no further questions at this time.

All right. Well, great to have all the questions. And thanks for attending the call. And we look forward to reporting on the fourth quarter and the year. Thanks so much.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation.