Copart Inc (CPRT) 2010 Q1 法說會逐字稿

Good day, everyone, and welcome to the Copart Incorporated first quarter fiscal 2010 earnings call. As a reminder, today's call is being recorded.

For opening remarks and introductions, it is now my pleasure to turn the call over to Mr. Jay Adair, President of Copart Incorporated. Please go ahead, sir.

Thank you, Andrea. Good morning, and welcome to the call. It's great to have everyone here. Before we start, I'll turn it over to Will for just a brief disclaimer and then we'll go ahead and give you an update on the Company and the financials and open it up to questions.

Thank you, Jay, and good morning, everyone. Before we begin, I would like to remind everyone on the call that our remarks will contain forward-looking statements made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

These statements are neither promises nor guarantees and 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, Jay, I'll turn the call over to you to begin the discussion of our first quarter's performance.

Thank you, Will. Again, good morning, everyone. First of all, I thought we'd start off by just letting you know we launched a brand new version of our website this week, and we discussed a year ago about the fact that we'd be, in Q1 of last year, that we'd be making major changes to our website in the year, and we have done a few of those.

We've had a few versions that we've released. The latest one being the one that I think is really worth talking about. The improvements that we've made to the site are just enormous.

If you were to go to our website, I know a lot of the investors go to our site on a regular basis, but if you were to go to Copart.com, you'll see that there are basically two navigation bars that run up the top, across the top, horizontally and then vertically down the left-hand side. I'm going to focus on the vertical top picks bar right now because if you were to look at that you'd see we have 59,103 vehicles or lots that are for sale.

That's great, but at the same time, that poses the challenge of sorting through so many lots to try to find the particular item that fits you or item that you're wanting to buy. Now, out of those 59,000 lots, we've then broken them down kind of into major headings, automobiles, 36,000; SUVs, 10,000; trucks, 6,000; industrial, 1,100; motorcycles, 1,300. So you can go down the list and actually pick on the items that you're wanting.

Just as an example, I'm going to click on trucks, so we've got 6,700 trucks available. When I do that, what's interesting now is we've got the ability for you to filter through those 6,727 trucks. You can do that by clicking on the filter next to make. And as you click into those filters, you can see we have 1,680 Chevrolets, 1,081 Dodge.

I'm going to click Dodge for the purpose of this example and then from there you can go into the model and you can start sorting through the actual models that you're looking for. So you could go in and you could say I want to look at Dakotas, I want to look at Ram trucks, 1500 series, 2500 series. You could simply sort from the 1,081, so, again, from 6,700 trucks down to 1,081 that are actually Dodge trucks.

I can then go in and say on a particular filter or I could pick a particular year. So in this case, I'm going to say I want to look at 2009s, we've got 13 2009s and we've got 63 2008s. So I've now broken that search all the way down to 76. So 6,700 all the way down to 76.

I could then sort by title, damage type. I can look at particular facilities. I could, again, go into the model segment and say I want to look at 3/4 ton or 1 ton or 1/2 ton trucks based on the model filter. So that just gives you a feel for how far you can break it down.

Another thing that's really, really great about the product is the quick search at the very top. This is brand new. We just launched this this week. So now because of the quick search you could also go in and say I want to look at 2008 Dodge Ram and I want to look at red. And I click on that, we have 11 that meet that.

So we've just filtered through 59,103 items to find out that we have 11 2008 Dodge Ram trucks that are red. I could also click on that and say I just want to look at everything that's yellow. If I do that, we have 377 items that fit yellow, obviously, a pretty rare color, so that's why I chose it because it sorts it down pretty lean.

You may be a buyer that's interested in clean title product. From that quick search tab you can type clean title and I'm doing that literally as we speak. Clean title and we have 6,227 items that fit in that clean title search. From clean title, I could say I want to look at Pontiacs.

I break that 6,000 down to 219 Pontiacs that fit in that search. I'm going to click on the year. That's going to sort it in year order from 1969 all the way up. I clicked it again, it's going to sort it from 2009 all the way back to 1969.

From there, I can click on the left-hand side, is a compare box. I click on those four vehicles as an example that are on the left side. I have four 2009 Pontiacs, two Vibes, a G8 and a G6. I'm a G8 guy, so I click on that particular lot, I delete the others from the comparison. By clicking on the G8, I can now bid it, I can look at it.

I can see that the vehicle has a 6 liter V-8 in it. That was the reason I picked it. So I have literally sorted through 59,000 vehicles to find out we have one 2009 Pontiac G8 in the Company, which is pretty cool. So all that can be done literally from the quick search and the ability for customers to come in and from our home page, search and navigate through the quick search or just come in through the quick picks and look. We have currently 2,177 "no damage" vehicles as an example.

No license required, 8,906. So those are cars that would sell to the public. That has a lot to do with our marketing campaign, which is a good segue. So we're really focusing on the advertising and marketing because so much of our product -- as I said, 8,906 right now -- don't even have to go through one of our broker buyers for you to access the vehicle. You can go direct because of the different state laws.

So with so much product available, it's that much more important that we get our name out. So we've really focused on the advertising. This was our first quarter. Will, I think he's going to talk a little bit about what we've spent on the advertising budget, so I be won't get into any of the numbers, just trying to focus on some of the big picture changes.

This is really a game changer for us. This website is so far superior to the site that we had up last year and basically that site was -- was modified and changed and evolved for the last five years. The site we've got now is really a next generation site. It is a completely different language, format and so the functionality of this site is night and day. Hence, we're really focusing on the advertising and the marketing.

We've really had a great campaign in Q1, August, September and October. Anyone who's gone to Google Trends or any of those sites can see the enormous uptick we've had comparing the last five years to this year and the enormous uptick we've had in this quarter compared to the rest of the year. So we're getting a ton of visibility to our site.

That, obviously, is changing the fundamentals of the Company and we want to become the place to go to for people to get access to vehicles, whether those be perfectly good vehicles, whether they be builders, we want to be the site that you come to. Now the impact of that have is returns.

For August, September, and October, we saw returns improve from August to September and from September to October, and the returns in this quarter were higher than they were for the rest of the year. So I can say that we have literally seen month after month after month average selling price increase. So average selling price was highest in October and we just finished November, and I can tell you November was higher than every other month this year.

So the November, at the rate we're going right now, the November, December, January quarter that we're in now is going to be quite a bit ahead of the quarter of a year ago, Q2 of 2009 fiscal year versus 2010. So, again, January to November, increase. As a return, those are ASPs, average selling price. In terms of return percentage, which is the sale price divided by the ACV, the payout on the vehicle, we've seen records there as well.

It increased in August, as compared, in September it increased, September to August, and then, again, in October, and, of course, November was the same scenario where we've got a record return for the year and we've got a return that actually is beating returns of last year. And the reason for that return being so high is that we've seen sale prices come up so quickly. I mean, they're really aggressive.

Considering how aggressively they decreased a year ago, they've really aggressively increased this year and yet ACVs have not tracked in the same format. So ACVs are still trending lower. Returns are up, so our return percentage is at a record high. And, again, in November it was a record high compared to the quarter, August, September and October. So that's good stuff.

Looking at the UK, it's even better. The U.S. took a huge hit in terms of average selling price and returns last year. The UK really didn't see that. We continued to see increased returns and moving into calendar year 2009, January to November, the UK has just had one month after month after month of improvements in both ASPs and in terms of return percentage.

We believe that's because of the VB2 effect. We saw that in 2003 to 2004 to 2005 to 2006 to 2007, all the way up until 2008 until we saw the economy come down. We think that's the VB2 effect. The same reason we saw it relatively from 1998 to 2003 returns were flat. From 2003 to 2008 they were up dramatically.

We're seeing the same impact in the UK where returns are up dramatically as compared to 2007 when we (inaudible) move into that market. It's a more efficient product. We've got a ton of domestic and international bidding, and that is -- again, it's a supply/demand game. So volumes are up. Will will talk about that.

But at the end of the day we're just getting that many more members to come into the site. And our goal is to get to you become a member. From becoming a member we want to get you to become a bidder, and from becoming a bidder, we want to you become a buyer. And that's really -- there's a little more to the chain than that, but in a nut shell that's really the evolutionary cycle we're trying to get you to go down.

So things are really good. We're happy with our technology. We're really excited about not just the technology that we've got but some of the technology we'll be launching in the coming year again. But I said a year ago that we would be making major changes to the technology. We've done that. It's implemented.

The bulk of the major changes are in place. So now we'll be improving those changes and we'll be making -- and this is on the public site. On the member site we'll be making a number of changes in the coming year to improve that product as well.

But we're excited about the technology we have, the changes we'll be making to the technology, the advertising and marketing campaign that we've got, the visibility that we're recognizing and the improvements that's having on our business with respect to average selling prices and percentages.

And the rest, I think you'll hear in Will's presentation, and then we can just open up for Q&A. So from here, I'll just turn it over to Will and he'll give you an update on some of the numbers.

Thank you, Jay. Yesterday, we reported the financial results for our first quarter of our 2010 fiscal year. Consolidated revenue was $185.5 million compared to $191.6 million for the same quarter last year.

The decline in revenue resulted from a decline in revenue per transaction in North America, the decline of the number of purchased cars we sold in UK, as we continue to migrate contracts to the agency model, and the impact from the change in the dollar-to-pound and exchange rate which had a negative impact on revenue for the quarter of approximately $3.6 million.

In North America, the average selling price for vehicle was impacted by the decline in commodity pricing, as the average price per ton of crushed car bodies was approximately 27% below the average price for the same quarter last year leading to a decline in service fee revenue from $156.3 million to $153.8 million quarter over.

In the UK, the average price per vehicle grew as VB2, our Internet selling platform, continued to influence the selling prices through a larger buyer base and a more efficient buying process. Despite the growth in revenue per transaction in the UK, total vehicle sales revenue declined from $35.2 million to $31.7 million due to a decline in volume as certain seller contracts migrated to the agency model and to the negative impact of the change in the dollar-to-pound exchange rate.

Unit volume was up both in North America and the UK. In North America, the increase in unit volume was driven primarily by growth in the non-insurance segment including public consigners, fleets, and franchise and independent dealerships. The percentage of units sold during the quarter from non-insurance company company sources represented over 20% of the total units sold.

On a same-store sales basis, unit volume was up 2.2% and 1.7% in North America and the UK respectively. Gross margin was $82.6 million and the gross margin percentage increased to 44.5% from 41.5% due primarily to the migration of the contracts in the UK to the agency model.

General and administrative costs, excluding depreciation, were $23.9 million compared to $17.5 million for the same quarter last year. The growth was driven primarily by the increased investment in marketing, a detrimental insurance -- excuse me, legal settlement of the $800,000, and the impact of the new compensation structure for our CEO and President approved by the shareholders last April.

In our first quarter of last year, we had a beneficial legal settlement of $1 million. Our operating income decreased from $59.5 million to $56.5 million. Income tax expense for the period was $21.8 million for an effective tax rate of 38.2%. We expect normal tax rates going forward to be between 38.5% and 39%. Diluted EPS was $0.42 per share compared to $0.44 per share the same quarter last year.

Our net cash grew by over $55 million to over $218 million. Our current ratio remained at approximately 3 to 1. In the quarter, we generated approximately $77.7 million in operating cash flow. Net income plus non-cash expenses like depreciation and equity compensation generated approximately $47.8 million while movement in the balance sheet generated approximately $29.9 million.

We generated cash in the balance sheet primarily from increases in accounts payable and income taxes payables. We make no estimated tax payments in our first fiscal quarter, however, we make two in our second fiscal quarter.

Capital expenditures for the quarter were $23.5 million and included $10.9 million for the buyout of three facilities leases. During the quarter, we repurchased approximately 96,000 shares at an average price of $36.89 per share.

This repurchase was made in connection with the -- a net settlement of an option exercised by an officer and did not affect the repurchase authorization which remains at approximately 15.4 million shares. That concludes my comments. I'll turn the call back over to you, Andrea, to moderate the Q&A portion of the call.

Thank you, so much, gentlemen. (Operator Instructions) And we will take our first question from Robert Labick with CJS Securities.

Good morning. Congratulations on a nice quarter.

Good morning, Bob.

Hi, Bob.

Hi. First question I wanted to ask was, could you expand upon the NASCAR relationship that you have and the marketing that you spent or committed to? Last quarter you introduced the idea to us. Could you just tell us the early returns, if you can quantify new buyers or if they are bidding, or however you want to talk about it.

But just expand upon it a little? And then also, Jay, just for you, are you going to be on the TV show on Speed TV?

(laughter) I hadn't planned on it. We are planning on having a special guest on the show, though. We are -- we think about our advertising and our marketing campaign in really a multi-pronged approach. So it's not just NASCAR, it's the fact that we advertise on ESPN and Speed and a number of grass roots, racing and shows, [Pink Sole Out], things of that nature. So you'll see us all over the place.

You'll see us in NHRA, you'll see us in NASCAR, but a lot of grass roots as well. World of Outlaws, things of that nature. What we're trying to do is reach out to a small slice of America. We're not trying to get all 300 million people to be aware of us.

We're happy with reaching out to three million of the 300 million. And if that ends up turning into 30 million, that would be great. But the reality is we're really looking for a very small slice of car enthusiasts and automotive professionals, people that are either full-on technicians or mechanics, to people that are just into, heavily into cars, heavily skilled in the sense of maybe they can buy a 1953 Ford and can actually do a frame-off restoration.

We want them to realize, I've closed my website now since I've gone through the presentation, but I think off the top of my head, we had 300 something classics available today. I was talking to the guys at Speed the other day about Barrett Jackson. I think we sell more classics every year than Barrett Jackson does. Now with that said, Barrett Jackson is selling some pretty nice stuff.

Some of the stuff we're selling is racked and some of the stuff we're selling are old and rusty. But that's great. That's the source. We're the place to go for that classic enthusiast to buy. We're the place to go for that person that wants to buy that motorcycle and replace the forks and the tank and repair the bike.

Most of the motorcycles, if you go in there and look at them, most of them don't have any kind of engine damage. The vast majority of them are not basket cases. They've got very little damage.

It just doesn't take a lot of damage when you lay a bike over to total it, fairing damage, fork damage. That kind of thing can take the bike and push it over the line. We want to be that source and that location and so we probably spent about $2.2 million in advertising, is that right?

Total marketing increased about $2.2 million of which $1.7 million of that was racing associated.

Racing related, okay. But that will change next year. You'll see -- you may see where as a percentage, the racing -- we started with racing, Bob, that was kind of our entrance into finding out where the grass roots community's at and now we're modifying in of that approach. So we feel like we're doing a good job of that. I think the results there are.

You can see it in both the ASPs and you can see it in terms of the hits to our website and the consecutive or the consistent, I should say, returning hits to our website, the fact that we consistently get return customers that are coming back to the site. We're averaging over 20 clicks on a visitor. That's over 20 page views. That's unheard of.

Most people come to a site, they click once or twice, three or four times and they're out of there. This isn't what we want. We're reaching the right customer because they're coming in and going, wow, this is cool, what is this? Let me learn more about this. So I think we're doing a great job there.

The Speed, the TV show you mentioned is just another great example. The guys from Speed came out here and saw Copart and saw the VB2 technology and the options and they said oh, my gosh, we've got to do this, this would make a great show. So it's going to be a real time opportunity for people to see vehicles selling. Those vehicles will be coming up.

We'll interview some buyers that have bought product and how they've modified that product or repaired that product. But there will just be some great opportunities to watch real live vehicles sell that are unique, vehicles that are, maybe recovered theft vehicles that were, have been gone for 30 years and been recently recovered, that kind of thing.

Or they've got other interesting stories. Maybe it's a million or $2 million car that ends up being totaled and it's got a really great story behind it. It will be something that is designed to entertain. It's not really designed to sell cars, it's designed to entertain, but that entertainment factor obviously has a nice side effect in that it's a Copart show.

So "Sold In Seconds" on Speed airing March 2, not that I'm going to plug the show, but I just did. I think it's going to be a great show, it will be a great opportunity for people to see real time what we're doing and what the Company's all about and again, it's all about awareness. Awareness turns you into a member, membership eventually turns you into a bidder and a buyer.

Great. And then focused on the market dynamics, I think Will just said, I just want to verify, 2.2% rise in same-store unit volume for North America? Was that right?

That's correct.

Okay. Great. Could you talk about -- obviously there's been a significant rise in used car pricing until you mentioned ACVs haven't followed as much.

What do you see as the drivers over the next fiscal year in terms of unit volume as ACVs do rise? On the other side, miles driven has increased as well, so how do you see volumes over the next year? What are the key drivers?

Well, we gave everybody an update on auction dynamics 101 and the salvage industry 101 about a year when everything came tumbling down. I always give extremes because I think it helps people understand. If ACVs were $1, then every time a car got a chipped windshield it would be totaled. So as ACVs go down, cars become more probable to total it. As ACVs go up, they become less likely to total.

At the same time, so, where ACV is going to be in the future, I don't know. The average vehicle is aging. We're not selling as many new vehicles as we have over the last five years. We were averaging over 15 million new cars a year for the last five years. We may be averaging 10 million cars a year for the next five years as a country.

If that happens, the average age is going to increase. That's going to lower ACVs, obviously, as vehicles get older the ACVs come down. If the mix gets older, we're going to see more total losses. But again, there's so many moving -- there's a lot of moving parts to this puzzle. As vehicles get older, they total out easier which means they've got less damage, typically.

Again, where we've seen the international markets step up and buy a lot of 15-year-old product, I think we're going to see a lot of the domestic players stepping up and buying that product because of our awareness that we're doing. But we're also working international. We get into the NASCAR and the rest of this discussion, we never get into much of what we do internationally.

But as a Company, we've got a very strong marketing push to kind of continue to build that piece of it as well. So I'm not sure. Miles driven may continue to increase. It may come down. ACVs may stay where they're at, they may go down a little bit.

You'd think they'd go up when used car prices have come back. But, again, we're used to pumping 15 million to 17 million new cars into that mix on a regular basis and we're not doing that right now. ACV's may continue to fall, but your crystal ball probably is as clear as mine at this point, Bob.

Okay. Great. One last one and I'll get back into queue. Obviously, you've built a lot of cash on the balance sheet, and other than the options-related purchase, you had no share repurchase in the quarter. Could you just update us on your thoughts the balance sheet with over $200 million in net cash?

Well, sure. Right now in the environment that we're in, we think a strong balance sheet is advantageous, more now than ever. As a Company I think we're known for always believing in having a strong balance sheet.

But clearly in the last year, the impact of what we've seen economically -- would anybody have predicted what's happened in Dubai recently? I don't know. We don't know where the future is going to be with respect to the economy. We don't know what's going to happen in the financial markets, and so our feeling today as we sit here is a really strong, iron-clad balance sheet is smart and our customers think it's a good idea.

We think, they may look at a number of decisions when they choose to do business with us. We don't think one of those decisions will be well, what about their balance sheet in a negative term or a negative sense. We think they'll look at our balance sheet and say, hey, these guys are solid, that's not an issue. We want it make sure we have that competitive advantage as we sit here today.

We're not trying to raise money. We're not trying to restructure our balance sheet or do anything else like that. We're just building cash and leaving it on the balance sheet today.

Okay, great. Thanks very much.

Thank you.

Our next question will come from Scot Ciccarelli from RBC Capital Markets.

Hey, guys. How are you?

Hi, Scot.

I guess one of my questions is as you guys move towards more products like Class 6 or even higher end dealer product, Jay, how does that product sell over the Internet when the buyer really doesn't have an opportunity to kick the tires? Do you have some resistance to that?

I'm glad you asked the question, because it's a funny rumor or misconception that's existed ever since Copart went from the live auction method we had in 2003 to VB2 that you can't kick the tires. All of our locations are open. All of our locations allow the buyers to come in and touch the cars and kick the tires and go through all those experiences if they so wish. We never wanted to eliminate that.

And in fact, you can submit your bid at the location without going online. So you don't have to be connected to the Internet to bid through Copart and you don't miss out on the opportunity to touch the car and go through that experience.

What's happened over the last six years is buyers just found, hey, I can eliminate travel, eliminate hotels, eliminate all that cost and look at the vehicle online, submit the bid online and not have to go to the yard and do all that. So what we've seen in terms of the migration, it's been towards not doing that. But we've never eliminated that portion.

And in fact, every single yard to this day has a -- though it be a relatively small contingent -- has a contingent that comes out to the yard and still looks at the cars and kicks the tires and goes through that experience. So you gave me a chance to get on my soap box there because it really is just one of those things where people feel like they can't do it and they can. So it shouldn't -- that obviously won't be an issue for us going forward.

All right. So people can come in and check it out. They just can't be there for the actual bidding process. Do you see most people, especially for that kind of product, coming in and actually looking at it?

I think what we are seeing so far is that, yes, the people that are brand new to Copart are definitely coming in. And that's because it's a -- it's new. They don't get it. I'll give you a statistic that I think's important since, from January to October, over 19% of our product has either been purchased or pushed by a new buyer, a buyer that came in this year. That's a big number. That's an impressive number.

If you sat back a year ago, we were watching for the first time that I can remember a decrease in buyers, a decrease in membership because people are going out of business. The economy came down so hard on the auto industry it crushed sale prices. People, customers of ours that were principals in these cars lost their shirt, went out of business, couldn't bid anymore, couldn't buy, couldn't be part of the process.

We've gone out now and recultivated this group and brought people in. When you're new to Copart, yes, you physically show up, you come out, and we view that as an opportunity having them come out and allowing our team. We've had a number of meetings at the operational level on how to explain the business.

It's an interesting Company because it's not that easy and I'm sure you've explained it to friends and clients and the rest, it's not that easy a business sometimes to explain. So we have to explain to people who we are and how we work and how long we've been around and get them comfortable with, again, that's another thing, you're going to be buying product and here's how it works.

So there's a real opportunity to indoctrinate them to the Company and the team and who we are. And I think we've done a great job that have this year. Looking at next year in terms of not just insurance, but fleet and dealer business and all the rest, I see all the arrows going up right now because I think we're going to be able to go out and use this to our advantage and gain business as a Company.

I know we're gaining buyers and members, that goes without saying, as I said. When you got over 19% of your product being impacted, and that's just as of October, that's not counting November, when you've got that big a number impacting all of your product, that's, for a company of our size, that's enormous and it's a very impressive number that our clients, I think, are really focusing on.

All right. That's very helpful. I guess to follow-up on the marketing spend, I guess it was a bit lower than you might expect given kind of $10 million to $20 million for the full year. Should we expect that marketing spend to increase during the balance of the year or has the total targets there changed at all?

It's going to be similar, I would say in Q2?

Yes, it would be similar in Q2 but it will back end loaded. So we'll recognize the majority of the expense in our Qs 3 and 4, because that's when the race season begins and we haven't changed our targets at all.

Okay. All right. Thanks a lot, guys.

You're welcome.

Thank you.

Our next question will come from Scott Stember with Sidoti & Company.

Good morning.

Hi, Scott.

Good morning, Scott.

You talked about how the ASPs are going up because you've broadened your customer base on the buying side. Could you talk about what's going to happen to the ACVs and the ASPs as we anniversary the collapse of the scrap metal markets and how that could possibly be impacted on your numbers going forward?

Sure.

Sure. Our Q2 is going to be a better comp for us in terms of average selling price. Like I said, this -- it was really not the entire first quarter of last year but the very end of the first quarter of last year when things started to collapse. So we had a relatively strong quarter to compare against.

Especially compared to Q2.

Yes. Q2 will be a much easier comp for us because the full effect of the impact was recognized throughout the entire quarter.

In fact, I would say that Q2 last year was the worst quarter of the year in terms of ASP. Obviously, as we said that the average sale price has gone up month after month. So from January to February to March to April it improves, when you look at the quarter as being November, December, January, it was the lowest average selling price quarter for the Company.

Okay. And, Will, do you have what the same-store revenue was by region in the quarter?

It was actually down in North America and in UK in terms of revenue it was up as well.

Okay. And as far as, can you talk about some of these, AutoIMS, and is Copart direct benefiting from your increasing the buyer base?

Absolutely. Again, Copart gets benefit from awareness, so not only are we bringing in additional members that can buy from us. they can sell through us. And the same thing with AutoIMS with the link.

We've got a major client that has recently signed up with us and I'm not going to get in the habit of breaking out who our clients are, because we haven't done that in the past, but we've done that and they came on specifically because we're linked with AutoIMS now. So we knew it was going to be a a benefit to us. I have no regrets in making that decision. That was a good decision we made as a Company and it will continue to benefit us.

It's one of those benefits you get forever because you'll just continue to gain business in that segment. And but I'll just say on the advertising and marketing piece, it's geared towards awareness and that awareness being become a member and start to buy. It's really not geared to become a member and start to sell.

We will roll out a separate campaign and that's part of our marketing campaign, the $10 million to $20 million that we talked about, but we'll be rolling out a separate campaign in the year that is much more geared toward let us sell your vehicle.

We've been doing Copart direct now for a couple years. It's been a lot slower to take off than our dealer side, CDS, but nonetheless, it's been successful and it's doing well and it's given us the opportunity to really learn what our segment is so that when we do get into more of that marketing and advertising that we focus on the right piece. You want to spend your dollars where they're going to have the most impact.

So the volume increase from the same-store basis that we saw in the quarter was strictly from AutoIMS and non-insurance sources?

We had an increase in insurance volume as well but not to the extent that we had from the non-insurance. I mean this is the first time that the non-insurance business exceeded 20% of our total volume in North America. So you can see the results of some of these initiatives, particularly the CDS, Copart direct, and some of the fleet relationships that we have.

Okay, and just the last question, maybe talking about how the mechanics are working for when you have somebody that's a non-professional wanting to come in and buy a vehicle. I know that there are certain states that have certain laws. Can you go through how that works? What kind of car do you not have to go through a buyer broker and maybe just flesh it out a little bit?

Well, it depends on the states. Some states it's clean title cars and some states it's every car, they don't have any kind of restriction. It really depends on the state and the state laws, but what we try to communicate is that buy direct and if you cannot buy directly through us, then go through one of our brokers that we've got and buy through the broker so you have access to every single vehicle you want.

It's existed since I got in the business, it's existed since before I got in the business. For years, buyers have bought, if not forever, buyers have bought product from us and then they turn around and resell it. So what we're trying to do is make that connection virtually.

Instead of you buying the vehicle, taking it down to your lot and selling it in the parking lot, what we want you to do is buy the vehicle through that broker or through us directly and pick it up from us. So we're just trying to virtually make the process more efficient, make it more transparent and do what's been done forever.

At the end of the day, the best way to think about it is, you become a member, you have access to every single vehicle we have. You're either going to do that directly or you're going to do it through a broker.

Great. That's all I have. Thank you, guys.

Thank you.

Thanks, Scott.

Our next question will come from Gary Prestopino with Barrington Research.

Good morning, guys. How are you doing?

Good morning.

Good morning, Gary.

Could you just clear up something? I was writing real fast. Will, did you say your non-insurance vehicles in North America were more than 20% of the mix this quarter?

I did, I did.

Do you have an exact percentage or not?

Is that an exact percentage?

Yes, is that an exact -- when you say more than 20%, where was it exactly versus where was it last year?

Well, give me a second and I'll get that for you.

All right. The other thing, Jay, can you also -- you mentioned something about visitors to the site.

Can you give us some idea of just what some of these efforts have done, how much have you seen in uptake in visitors to the site, just in the first quarter here? So, and then the second question would be is that relative to these visitors, how much actually have been getting converted to, say, registered buyers? Can you share that with us?

Got the data. Some of what we have we don't necessarily like to give out there simply for competitive reasons. We're very happy with our conversion of visitors to the site and those visitors becoming members. In terms of hits to the site, internally we track that and it was 60-something million back in January and February. Today, it's over 400 million.

So it's -- we've seen obviously a pretty big improvement there in terms of repeat customers coming back and looking and -- we're like a treasure hunt. You come in, you look, you search around and it's just kind of a fun experience and then eventually you go, that's it, I want that, I'm going to bid on that. I want to become a member.

It's all about really a long-term cycle. I gave that you over 19% of our product sold or pushed this year was from new customers this year. The majority of that is from the first six months of the year because of the cycle. You become a member and you buy one car and you buy another car and before you know you're buying five cars a month. It's about learning the business and then finding out how you fit in in that experience.

Okay, I appreciate that that you don't -- the statistics the you don't want to give them out. Maybe I could ask it this way. You said the conversion from hits to registered buyers you're very happy with.

Internally when you started this whole process, I mean you probably had a number in your head as to what that conversion would be. From what you're saying on the phone here, has that number exceeded your expectations?

I would have never dreamed in a million years we'd be seeing the numbers we're seeing.

Okay. On the conversion side, two registered buyers, but then drilling down further, those registered buyers as far as actually buying a car, how has that shaped out for you?

Yes, I mean, I would have never thought we'd see the kind of hits to our site, the kind of registration or membership that's occurring and then the kind of conversion that we're seeing from membership to buyers. So, like I said before, in the last quarter, we're happy enough in the last quarter to say whether everybody likes it or not, we're going to be -- we're going to be making a big push towards spending $10 million to $20 million in advertising and marketing next year because we see the impact this is having.

This is a forever impact. At the end of the year, if we stop spending completely, that benefit sticks with you forever. You've now got people who know you, they talk about you, they tell their friends about you. So it's the same way, Copart in 1993 was known by very few people. And Copart went public in 1994 and overnight, there was a segment of Wall Street that knew who Copart was.

By 1995, we were on the East Coast. There was a segment of East Coast companies that knew Copart. Now we're a national player. Everyone in our industry knows who we are and we are opening up hundreds of thousands of people are becoming aware of Copart on a regular basis and that's got a long-term ramification that's enormous.

But we're happy. If we weren't happy with the results, you guys have probably done the math, if you back out the actual advertising and expense in the month, I think the month might have been -- or in the quarter rather, I think the quarter might have been better than a year ago. We believe in the short term it's very beneficial, but it's extremely beneficial in the long term.

Okay. That's fine. And, Will, do you have that number as far as the percentage?

Yes, I do. Let me add one more thing. We talked about the elements and what we're looking for in this new program. We talked about the number of new buyers or new members and we've talked about their activity, are they bidding. What we haven't talked about is what they're bidding on and that we measure also.

From what we've tracked so far is they're looking more at the clean title cars, more the run-and-drive cars which is actually the type of market we're trying to develop. Getting back to your question, our first quarter of last year we were 19% non-insurance, first quarter of this year we're 20.7% non-insurance. But as I'm looking through my notes, what's interesting is in fiscal 2005 we were 13% non-insurance. You can see the way our Company is developing here.

Okay, thanks, guys. Appreciate it.

Thank you, Gary.

Our next question comes from Mark Altschwager with Robert W. Baird.

Great. Thank you. Starting off here does the buyer fee structure for consumers differ from the fee structure for the traditional buyers?

No, we have, it doesn't because you can choose to be a consumer, you can be a professional. It doesn't matter. We have different buyer fees based on whether or not you're -- what membership level you choose. But you can be a professional auto dismantler and be a basic member or not. So it's -- there's nothing to do with the license type, just has everything to do with what membership you choose.

Okay, thanks. And then following up again on the NASCAR spending, what signals are you looking for or should we look at to determine if the 2010 number is going to be at the low end or high end of the $10 million to $20 million range and then how should we maybe think about that going forward into 2011?

Well, I can tell you right now it will be towards the higher end. We've already entered into commitments for the racing season, which will be reflected in the financials in our third and fourth quarter. We have no commitments for the next season.

Some of the commitments we entered into this year will carry over and impact our fiscal 2011, but in terms of the racing season we have no further commitments. So we'll evaluate that and make the decision in probably our fourth quarter of next year as to how we'll continue with our racing sponsorships.

And just to add to that, we're tracking every single lead so we know how you heard about us. That's why, as Will said, we're only committed out this year because we want to be able to adjust and make changes where we see the biggest impact.

Great. Thanks. And then, finally, was there any volume related to "Cash for Clunkers" in the quarter?

There was. It was not meaningful, but there were -- there were a couple thousand cars.

Great. That's all I have. Thank you.

(Operator Instructions) Our next question comes from Bill Armstrong with C.L. King & Associates.

Good morning. Question on consumers. If they use a broker do they pay an extra fee to the broker?

Yes. It's up to the broker to decide what they want to charge. Obviously, the broker has to be independent completely from Copart, so the broker can do it for free or they can charge as much as they want. It's completely up to them.

And if you go into the site and look for a vehicle and go through the process and you need to become or you need to purchase it rather through a broker, you'll see there's, I don't know, over 20 brokers you can choose from. You can sort it by cost. That's just something we'll be improving over time because we want you to be able to understand the value.

Today we're not presenting as much as we could with respect to the value that the broker provides. Maybe the broker is willing it locate used parts for you from an auto recycler. Maybe the broker is willing to hook you up with a body shop to do repair work.

We need to get better at showing you that data and allowing to you rate the broker and those kinds of things. That will be coming this year. The broker can charge whatever fee or don't have to. That's completely their decision.

Okay. So Copart has no influence or no impact on that?

No. Copart makes nothing off of it and has no impact on it. We can't. We're completely independent.

Right. Understood.

Again, so all we're doing virtually is connecting you to someone with a license that will then go through the paperwork that needs to be done. That depends by state. They may have to smog the vehicle in the state. They may have to collect sales tax. It completely depends on the state. All we're doing is what has occurred for years through a physical brick and mortar location, we're doing it virtually now.

Got it. Okay. With average selling prices in the United States, I just want to clarify there, they've been up sequentially but still in the first quarter they were down year--over-year?

That's correct. On the calendar year they're up sequentially. In fact, every month from December on they've gone up. As Jay said, in the month of November we had -- we were matching last year's ASP and our return percentage is the highest it's ever been.

The November ASP is flat year-over-year. So will we start it see a positive comparison, year-over-year comparison beginning in December?

Well, no. I'm talking about if you look at our Q2 of next year as well down. So we'll have a beneficial impact on a comparison basis relative to our second quarter of last year.

Right. That's what I mean, it will be higher than second quarter last year?

Absolutely.

Bill, hold on one second, please.

Hello?

Yes, we had you muted for a minute. We just want to make sure we don't give you any information that's incorrect. I thought I heard Will tell you that November this year was similar to November of last year.

No, I'm sorry, and I did. What I meant to say was that our ASPs peaked in our -- last summer and we're matching those numbers in November of this year.

Right. So we're far ahead of November last year in terms of what November looks like right now in terms of ASP.

Okay.

And maybe I'm wrong. I don't know. I just want to make sure we didn't give you the wrong data. I'm not sure. What I heard Will say and what maybe was said are maybe two different things.

Okay.

I just want to make sure that you understand that.

Yes, appreciate that. One last question. On the cars that you sell out of principal basis for your own account, your gross margin was almost 23%, way up year-over-year and about flat with the fourth quarter. Is that the type of gross margin we ought to be looking forward, that kind of 22% to 23% change?

I think, if we are talking principal cars are we talking specifically UK in this conversation? Is that what we're referring to?

No, that's combined.

It's combined. Okay. Well, the majority that have's going to be UK and those clients are at a very rapid rate moving out of that purchase model. We've said that for the last two or three quarters. I think you're going to see continued revenue decrease, so to speak, in that category and in margin improvement because there's obviously less revenue associated.

But you will see clients moving off of the purchase going into next year. There's already commitments that I'm aware of that we haven't switched yet, but they're going to be.

Right, understood.

Very difficult for me to know what that number is going to be if -- I don't know if anybody by the next year will be on purchase.

You think you'll have a full migration that quickly?

I wouldn't be surprised at all. The benefits of not being on a purchase program are far superior and that's why clients are switching away from it.

Okay. So you're getting -- you're definitely getting some converts then, or it sounds like that process is really starting to accelerate then in the UK?

Yes. We've discussed that on the call. We said we have dropped below 50%, I think, in the last call.

Yes.

Didn't we?

Yes.

Yes, you did. You did.

We said we were going to.

We have commitments from three contracts to convert now and once those convert, we'll be approaching 70%.

I see.

Non-purchase?

Non-purchase, agency.

Okay, great. Okay. Thank you.

You're welcome.

We'll move to our next question from Tony Cristello with BB&T Capital Markets.

Thank you. Good morning, gentlemen.

Good morning, Tony.

A couple questions. Most of them have been answered. But one thing I wanted to understand, when you look at the clean title or the run-and-drive vehicles as you referred to, it seems like that basket of vehicles today represents a greater percentage than maybe it did five years ago or even 10 years ago, and is that really sort of one of the underlying factors towards getting these buyers, in terms of the NASCAR and some of the other programs, because there's a larger pool of vehicles that you think they now can go after?

For sure. No question. As Will said, I think he said 13% to over 20%.

Non-insurance, right?

Non-insurance and insurance companies have recovered thefts, but the non-insurance business, the vast majority of that is non-damaged or very little damage.

If you looked at your mix of vehicles that you send through auction, what do you think the percentage would be of vehicles that have clean titles and/or are run drivable?

I don't know what the percentage is off the top of my head. I know -- I think if you went in and clicked on, in the presentation I did, opening remarks, I think was 6,000 just clean title alone available to bid on. It's a meaningful amount of vehicles.

And the migration -- let me back up, the awareness plan is to get you in and looking at that product which obviously makes it that much easier for us to bring people into the Company. But the migration then is to get you to go from looking at some of the clean title stuff to maybe some of the lightly damaged product. Maybe we've got a 15-year-old Jeep Cherokee or something that you are looking at with a dented fender and you think, hey, that would be a great item to buy.

Will, you can certainly correct me, but if I recall the fourth quarter number I thought insurance vehicles represented somewhere in the neighborhood of 85% or 86%. So from Q4 to Q1, it seems like there was a large increase in non-insurance vehicles. Was that a direct result of advertising? Is there something seasonal or am I thinking about that incorrectly?

Yes, actually, that was the third quarter that it was 85% insurance. That's due to the seasonality of the insurance business. So we'll -- accidents occur in November and December and there's a 62-month -- well, there's a two-month delay in the time, between the time it's assigned to us and the time we sell it. Most of our sales are in our third quarter and that's why the percentage increase is so much during that quarter.

Okay. So what was the number for the fourth quarter? I'm sorry, I mean I can go back and look and see if there's a transcript. I'm not sure if you mentioned it.

It was 82%.

82%. Okay. And then one last sort of question here and we haven't talked as much about international as we've talked about the domestic business, but it sounds like the UK is -- Copart UK -- is running extremely well.

And what I'm wondering is at what point now have you built enough brand recognition or enough awareness with your partners there that gives you comfort to be able to expand that, and is the expansion of that easily done with the organic growth or will you have to then pursue an acquisition to do that?

Well, see if I can give you a short answer to a pretty -- pretty lengthy question.

I finished up on a pretty tough question.

(laughter) There's a lot there. Yes, we've got great brand awareness. We've got a fantastic team. They are doing a wonderful job. And, yes, our customers that are supplying us volume in the UK also do business in mainland Europe. So the potential to leverage that is definitely there, but we would never rule out acquisition opportunities.

If there's an opportunity to make an acquisition, that is something we would look at as well. And I think I've talked about it on calls before, it's eventually going to happen. When it happens is -- I'm not willing to say on the call, but when everything is kind of aligned and right, then we'll be making the next step outside of the UK and into those markets.

Okay. And one last question when you look at the 9% same-store sales decline that you had in the July quarter, what's the apples comparison, Will, that we should think about for this quarter? Was it around 2% or 2.5%?

I don't understand the question.

Total North American same-store sales for last year, I believe in the fourth quarter were down 9%, mostly driven by price volume (inaudible).

Yes, pricing.

Right. If I looked at what that number would be for this quarter, did you give that number on this call?

Oh, I did. On overall, no, I didn't give the exact percentage other than to say expressed in revenue our same-store sales is down.

Correct.

And that continues to be caused by the decline in the revenue per transaction.

Okay. And I guess what I was asking is it down 2% or 4%? I mean I was assuming it's sort of was in the realm of 2% to 3% range? Is that a fair number to be using?

Tony, let me see if I can give it to you.

Mr. Cristello, was there anything else?

Yes, it's actually down less than 4% on a revenue basis.

Okay. Perfect. Thank you, guys.

Thanks, Tony.

And with that, we'll take our final question from Justin Boisseau with Gates Capital.

Thanks. Just a housekeeping question. What was the revenue in the UK and in North America for the first quarter, please?

Maybe while you're looking that up I just wanted to make sure I heard you correctly on the last question, you said units in North America were up 2.2% on a same-store basis, but you're saying that revenue was down less than 4%?

That's correct. That's correct. So the total revenue in the UK was $38 million.

Perfect. Thanks so much.

Welcome.

And with that, there are no further questions. I would now like to turn the conference back over to our speakers for any final and closing remarks.

Okay, thank you, Andrea. Appreciate everyone coming on the call and like we said, I think this is a great example of how 2010 is shaping up and we look forward to reporting on Q2 next year.

Have a wonderful new year, we'll see you then. Thanks. Bye.

This does conclude today's conference. Thank you for your participation.