Copart Inc (CPRT) 2010 Q4 法說會逐字稿

Good day, everyone, and welcome to the Copart, Inc. fourth-quarter fiscal 2010 earnings call. As a reminder, today's call is being recorded. For opening remarks and introductions I'd like to turn the call over to Mr. Jay Adair, CEO of Copart, Inc. Please go ahead, sir.

Thank you. Well, good morning; it's my pleasure to welcome you all to the fourth-quarter call and fiscal call for 2010. Before we start I'll be turning it over to Will Franklin for brief remarks and then we'll give you a quick update and open it up for questions and answers. Thank you.

Thank you, Jay. Before we begin our comments I would like to remind everyone on this call that our remarks will contain forward-looking statements. These statements are neither promises nor guarantees and are subject to certain risks, trends and uncertainties that could cause actual results to differ substantially from those projected or implied by our statements and comments.

For a more complete discussion of the risks that could affect our business, please refer to the management's discussion and analysis and the factors affecting future results contained in our 10-Q, 10-K and other SEC filings. With that I'll turn the call back over to you, Jay, to begin the discussion of our quarterly results.

Thanks, Will. So for the year 2010 we added 278,000 members to Copart. As many of you will recall, we initiated a strong marketing campaign in 2009, pushed that into 2010; so we're extremely happy with the results of that, wanted to give you some feedback on that.

International bidding in 2009 was at 21.5% for the year and for 2010 that number moved to 22.7%. That -- actually that surprises us that that has happened because of the amount of domestic bidding that has taken place. We have expanded both international and domestic members, but more so by far on the domestic front. So that's good.

In addition to that, returns have leveled off in the quarter, which is great because they were very strong in Q3, Q4 and so far for the first month in the quarter that we're in now that starts August. So looking at all three quarters, all of Q3, Q4 and a piece of Q1 2011, we can tell you today that returns are strong and that they have leveled off in a strong position, which bodes well for the year.

Looking at G&A -- in 2010 total G&A spend was $100.6 million, of that $17.6 million was non-cash expense, so total cash expense of $83 million. Looking at 2009 same numbers, total G&A was $77.9 million, non-cash expense in 2009 was $8.8 million, so total spend net of non-cash was $69.1 million.

So we saw quite an increase in total cash expense between 2009 and 2010. The majority of that was in development -- systems development and in marketing. We will be tailoring that back a little in 2011. So we expect G&A to actually reduce year over year from 2010 to 2011 as we get more precise in some of the things we're doing both on the IT and marketing fronts.

Let's talk about inventory builds for a moment in Q4. Typically what happens is that inventory builds in Q2; we sell off that inventory in Q3 and we continue to sell that inventory off in Q4 ending July 31. We had some significant gains in business in 2010, the majority of that business didn't come on until the fourth quarter.

What that causes is an effect where we have to build inventories, we have the costs associated with getting those vehicles and none of the revenue associated with selling them because it typically takes 90 days to sell off inventory.

So, looking at Q4, we consumed approximately $3.6 million in cash and that's evident and due to vehicle pooling costs. Will can talk more on that. I'm trying to give you more of an overview of the year, but specifically I'm referring to Q4 in that just because it was such a build. Typically we generate cash in Q4 from vehicle pooling; in this quarter we actually burned $3.6 million in cash. So we had quite an inventory build.

A little bit of timing going on here in terms of what vehicles are sold, what vehicles were sold in Q4 versus what will be sold in Q1. So, we expect selling off a substantial amount of that inventory in Q1, the current quarter we're in. We finished the year with $268 million in cash, no debt and a $150 million line.

Let's talk about capital spending for a moment. In the year excluding acquisitions we spent approximately $76 million of which $19.2 million was for lease buyouts. Total CapEx including acquisitions was $96.8 million. We have four locations in the UK, one location in the US giving us a total of 153 locations. Today as you probably saw in the recent press release, Homestead, Florida coming on this week, servicing the southern tip of Miami and Southern Florida.

Moving over to 2011, just to give you a feel for where we think we'll be on CapEx. We estimate approximately $70 million in capital spending for 2011, that is excluding acquisitions. It is just too difficult to determine what acquisitions will come up. So excluding acquisitions approximately $70 million of that is including software development and lease buyouts.

Let's talk about mix for a moment. In 2009, 83% of the vehicles sold in the fiscal year were from insurance companies, sourced from the insurance industry; that number in 2010 has moved to 79.7% for the fiscal year. Will will give you the quarterly numbers. Non-insurance was 17% in 2009 moving to 20.3% in 2010.

We've seen double-digit growth in non-insurance volume and the insurance volume is slightly down specifically because of the economy, unemployment leads to uninsured motorists and in addition to that we've also seen higher used car pricing, higher used car pricing leads to less total loss frequency. So a couple of factors there, not a big deal, I say slightly down, practically flat.

So not a big deal there, but not typical growth that you're accustomed to or that we're accustomed to seeing as more population, more drivers you just expect to see a growth in units that are totaled and that hasn't been the case in the last year.

In 2011 we expect that mix to go above 80% again as some recent wins in the last fiscal year will be selling off and coming through in 2011. I gave some estimates in fiscal 2010 on the second-largest carrier in the US, Allstate, that business that we have recently announced that it would take somewhere between 12 and 18 months for that business to fully integrate in with Copart.

I'm happy to say that that process is completed now and we will be on almost a normalized run rate for sales in Q1, not quite but almost. A lot of the inventory builds associated with Q4 were due to that count but not 100%. Obviously we've had some other wins that recently came on in Q3 as well and that inventory started to build in Q4.

So Q4 and has been a nice indicator of how the year is shaping up and, again, due to large volumes in inventory, I'm looking forward to seeing how Q1 will be. And what that I'll turn it over to Will for a little sharper look at the quarter and then we'll open it up for questions.

Thank you, Jay. I'll make a few brief comments and then we'll turn it over for Q&A. Yesterday we reported our financial results for the fourth quarter of our 2010 fiscal year, consolidated revenue was $190.5 million compared to $184.3 million for the same quarter last year.

The growth in revenue was driven by increased yield per transaction as higher commodity pricing in North America and the UK, higher used car pricing primarily in North America, and the continued impact of VB2 and our recent marketing efforts that have led to an increase in the number of unique bidders that participate in our online auctions.

Total unit volume was relatively flat as we continue to see the affects of the high rate of uninsured motorists, which was almost 18%, and the impact on salvage frequency from the high used car values and the higher payoff amounts. However, this decline in the salvage market was offset by the growth in units from non-insurance sources which in North America grew by almost 17%. Cars supplied by insurance companies were slightly over 78% for the quarter compared to over 82% for the same quarter last year.

In North America revenue grew from $145.7 million to $149.2 million. In the UK revenue grew from $38.7 million to $41.3 million despite the negative impact on revenue of the continued migration of seller contracts from the principal model to the agency model and the movement in the pound to dollar exchange rate, which we estimate to be $10.8 million and $3.1 million respectively.

During the quarter (technical difficulty) 44% of the units sold were sold as principal, while that number same quarter last year was 67%. Same-store sales declined by 3%. Excluding the impact of the migration of seller contracts in the UK from principal to agency and the impact of the change in the dollar to pound exchange-rate same-store sales would have increased approximately 4.6%.

[Following what] would appear to be a modest growth in revenue, consolidated gross margin grew by 7.9% from $79.9 million to $86.2 million and the gross margin percentage grew by 190 basis points to 45.3%. The growth in gross margin and gross margin percentage reflects the migration of contracts in the UK from principal to agency as well as the overall growth in revenue yield.

General and administrative costs, excluding depreciation, were $27 million compared to $22.4 million in the same quarter last year. The growth was driven primarily by increased investment in marketing to buyers which has resulted in the growth of registered buyers of almost 278,000 during the year. Our operating income increased from $55.4 million to $57.2 million. Our tax rate was 37.2% for the quarter.

Diluted EPS from continuing operations was $0.43 compared to $0.41 for the same quarter last year. We ended the quarter with over $268 million in cash. Accounts receivable and vehicle pooling costs both grew as inventory increased.

In the quarter we generated approximately $25.4 million in operating cash flow, net income plus non-cash expenses like depreciation and equity compensation generated approximately $52 million while movement in the balance sheet consumed $26.6 million as Accounts Receivable and vehicle pooling costs grew. Net capital expenditures for the quarter were $16.9 million and included the buyout of one facility's lease.

That concludes my comments. I will turn the call back over to you, James, to moderate the question-and-answer portion of the call.

(Operator Instructions). Bob Labick, CJS Securities.

Good morning. I think probably a year ago on the call you mentioned that marketing for the year would probably be an increase of $15 million to $20 million, somewhere in that range and you gave us those numbers that support that. Could you just expand on your comments a little bit and tell us the impact of that spending versus your expectations? And maybe the return on investment or any color you want to give there. And then -- sure, please.

Yes, well I can just comment right out of the gate by saying that when you're trying something new like that you're going to have varied positive impacts, some more positive than others. There's no negative impact, there will only be areas where you get greater return.

And so what we've done is we've looked at that now and said, okay, we're going to be honing in on the areas that are more effective than other areas and because of that obviously two things really are happening. One is we got out to a very large audience and we brought in 278,000 members that we're now working with to become aware of the process in Copart and they're buying cars and we've got some very positive numbers with that. So we're happy.

But now it's a process of trying other markets, trying existing markets that you're using and seeing if you can hone in a little better. So the analogy I give people is we took much more of a shotgun approach in 2010 and we're going to be taking much more of a rifled approach in 2011. So I can't give you a number, Bob, as far as where we'll end up with our marketing budget for the year, I can just tell you it's going to be coming down along with some other G&A expenses.

So, overall G&A will be coming down, which I believe is the first time that's happened if ever. But definitely the first time it's happened in the last seven years just looking back since we initiated online auctions and went to VB2 in 2003. G&A has had to grow every year since then just trying to manage the software costs associated with being an online company. So this will be the first year that we'll actually see a drop in G&A expense.

Great, thanks for that color. And then just expanding on (multiple speakers) sure.

Bob -- let me add just a little color to that. So it's not only a matter of adding registered buyers, it's trying to add buyers that are looking for the higher end cars. And as an example, if you look at the buyers that registered during our fourth quarter for fiscal year, of all the purchases they made, 27% of those purchases were clean title cars as opposed to an overall clean title sales percentage of about 17%. So, we're looking for buyers that have an appetite for the higher end cars to help us in our strategy to attract the sellers of non-salvaged cars.

Okay, great. Now that's exactly where I was going with my next question. Can you discuss a little bit more the drivers of the non-insurance business I guess both from the buyer and seller perspective and how that all ties in? Obviously that's a big part of it right there with the new people coming in.

Well, sure, I mean what we bring to the table is a platform that will allow them to generate higher returns. If they're not going to get a higher return than what they're currently getting they wouldn't use us, of course. And so again, you go back to we've had double-digit growth in the year in the non-insurance segment and that's because we're demonstrating a higher return.

We give them the ability -- we've got a network of 137 locations domestically. So when you think just from a domestic standpoint we've got over 6,000 acres and a lot of capacity. So we can go out there, pick that vehicle up, get it off their lot. And it's all of those pieces from high return to quick pickup to great service, all of that put together that they're the compelling points as to why switch from whatever method they're currently using.

So those are the drivers. We go out, we push that, we'll continue to market because it's working. We'll just get a little bit more refined in how we do it. And then again, as I said, some of the cost will be coming down just because we took a much more broad approach and some of our projects are completed, some of the things that we're doing today we think we can change and become a little more efficient in the process. So, overall, I can't tell you how much costs will come down but they will come down a bit.

Okay, great. And then looking at the UK, you discussed the change to agency from principal. It appeared faster in this quarter than we had expected. Could you just give us a little sense of where you think it's going to go through fiscal 2011?

I don't know where we're going to end up. I mean, the fundamental -- you have to get back to the fundamental concept of why buy cars versus not buying cars. And in that market they use the purchasing of cars to determine whether or not to total loss the vehicle. And so now you're taking averages and saying, well, for these model years we're going to give you X percent.

And that means you're totaling some cars you should have fixed and you're fixing some cars you should have totaled. And what we want to do is give them the accurate valuation on the car, what the car is really worth at auction. So an Audi is going to bring more than a Vauxhall at auction, we want to be able to demonstrate those numbers to them.

In essence by doing that they're going to total the right product and fix the right product and they're going to be getting the right returns. We sell the car the same way whether we buy the car or whether we don't. And so we sit down with them and say, look, here's the fundamental change that we think should exist in the way that you do your process.

And because of that, if you change, then you're going to generate the same return except that we're going to pass on all of the sales price minus a fee versus today, if there's any upside like we've seen in the last year we get the gain of that.

So the last piece I'll mention about it is you are aligning your interests and the last thing we want to do is be in a situation where we are trying to work them down on the price of what we paid for the product so that we can turn around and sell it for a higher price and get the gain. We would just as soon do everything from a marketing perspective, a sales perspective to get the most we can for the car and then show that to them and demonstrate the value there.

That's builds a much longer lasting relationship between the two business partners. So, fundamentally I think if you look at it you can see why doing it under the purchase model isn't as good of a method as doing it under a fee-based model. Clients get that, that's why it's converting and I don't know where it will end up because I don't have commitments right now that say guaranteed we're going to do it this year. But from what we've seen in the last three years I can only anticipate that we're going to see further conversion in 2011 as customers move from principal to agency.

Okay, great. And then last one and I'll get in queue. You obviously have built a lot of cash on the balance sheet, no debt. Can you discuss it there are acquisition opportunities out there for you? And if not what are your thoughts with the cash?

Yes, there are definitely acquisition opportunities out there. And I tried to give -- I actually did give numbers on what our capital spending will be excluding acquisition. I can't put the acquisition estimates out there because you just never know until the deal is done, until it's signed on the dotted line. But they're out there, there will be -- the odds are there will be some acquisitions that are done this year and we'll report on them as each quarter comes up and explain why we thought it made sense.

Great, thanks very much. I'll get back in queue.

Tony Cristello, BB&T Capital Markets.

Thank you, good morning. One question I want to ask, and you talked about the volume side of the business and some of the factors that are perhaps negatively impacting what we're seeing on that side. Conversely I wanted to talk a little bit about the pricing side or the earned revenue per unit.

I guess intuitively you would think as the auction environment tightens up from a supply standpoint, we've heard this from some of the large bidders or dismantlers that are out there, you tend to pay a lot more for that vehicle at auction and as the average selling price goes up then that tiering on that buyer fee continues to rise.

If we look at what is sort of the earned revenue per unit on your vehicles, it seems like you might not perhaps be benefiting as much as from what we're seeing in the industry in general. And I just wanted to have you help me understand a little bit about some of the dynamics that might be going on right now with respect to that.

Sure. Well, it's -- from a revenue on a per car basis versus just looking at revenue for the whole quarter. And when you get quarterly you have a lot of factors that are in play. You start to look at what events took place, weather and how many calendar days, actual sale days were in the quarter and there are a number of things from a quarterly perspective.

When you just look at the actual per car, we're not -- we're definitely not getting the percentage of yield that we've gotten in the past as sale prices have come up. But that's simply is because we pushed the average sale price from X to over the last seven, eight years over 50% higher than X. There's been just a massive movement. I mean I think about 1998 to 2003 and it was relatively flat to down in terms of sale price and then what has happened in 2003 to 2010 excluding the blip of 2008 and 2009.

But if I look at that from 2003 to 2010, we've seen this big ramping up and as the sale price has gone up we haven't gotten as much of that sale price because we pass the majority of it on to our clients. In addition, we're bringing in cars that are non-insurance and non-insurance -- insurance cars are damaged so a lot of clients want the vehicle shrink-wrapped, they want the vehicle cleaned before auction.

When you're taking in a vehicle that is non-insurance, it's just the opposite, there's clean title, no damage, it's already washed when it comes in, they just want it run through. Those cars are selling and cycle time on those vehicles is a couple of weeks versus in excess of a couple of months.

So, the yield on those is different. You tend to get a percentage when you're selling a damaged vehicle, you tend not to when you're sending a non-insurance vehicle. So based on the mix the fact that we've gone from 83% fiscally to 79.7% in this fiscal year, that's even more so for the quarter, that's going to have an impact on what piece of the increased sale price we get.

Okay, no, that's very helpful. You talked a little bit about the -- I think around a $10.8 million difference on the agency principal in the UK I think for the quarter. What I'm wondering is the first 66%, how will that differ for the last 44% in terms of our thinking from a revenue conversion to a -- from principal to agency? Will it look any different in terms of how we should prepare or model going out in terms of what vehicles are left to convert from principal to agency?

Yes, I think it's important to understand, this is another element of mix that has an impact on our revenue yield. So, we actually have a higher yield on the principal model than we do on the agency model, as you would expect as we're eliminating risk.

And so as -- despite the fact that both types of contracts increase in revenue per transaction, because of the change in mix the overall revenue per transaction did not increase correspondingly. And so as you see that going forward that will have a negative impact on our yield per transaction.

Okay. And is it harder then to get the last 25% or 30% converted than it was the first 35% or 40% converted?

Sure it is, sure it is. The last 15% to 20% would be very difficult.

Okay. So from a run rate standpoint you make more progress, but then as we get the last 15% to 20% you may be there for a while?

We may be there forever, in fact, because at the end of the day we want to make sure we do what the customer wants. We just -- again, it was kind of the fundamental layout I gave Bob. It really boils down to you should be fixing and totaling the right cars and we're going to sell it the same way anyway, so why not give you the upside. But if a customer's perspective is I don't care, I want to do it the way I want to do it, we'll do just that. We're not going to make them go down this path, of course.

Okay. All right, very helpful. Thanks, guys.

Scott Ciccarelli, RBC Capital Markets.

Hey, guys, Scott Ciccarelli. I'm still a little confused. Can you help us understand the volume versus pricing a little bit? And what I guess I'm struggling with is how can units be flat? Because I would think that ASPs and returns would have been up a lot year over year, I'm guessing kind of at the double-digit range, which is kind of what you guys talked about last quarter, to what your biggest competitor just talked about. So, I'm a little confused why we wouldn't see a big improvement in returns in which case how could units be flat?

Well, we are seeing a big improvement in returns. Returns year over year are definitely up, they're up a lot. But that has nothing to do with units in terms of just because returns are up doesn't mean units are going to be up. Used car pricing is up, that is causing -- let's just do the extremes, I think it helps people understand if used car pricing, if the average car was worth $1 million we're not going to total anything, we're going to fix everything.

So as used car pricing moves up then you're going to see less frequency of total loss, you're going to see more vehicles being repaired. The other thing we've got is there are just less insured vehicles out there. So the insurance industry as a whole -- and we've got additional cars, we're processing more cars as compared to what we were in prior quarters.

What we've got though is a situation where the insurance industry as a whole is shrinking right now and it's shrinking because of all those factors. More unemployment leads to more uninsured motorists. We are finally seeing miles driven coming up again, that looks like the trend, but in the past we've seen miles driven down, that's going to obviously impact the number of total accidents. Severity, or total loss frequency rather, is down because of used car pricing being up.

So across the board the average return is up, the average sale price is up. But the total number of units coming from the insurance industry is down; that volume is being offset by total number of units coming from non-insurance being up. The other piece you've got is we had a lot of volume that came in that committed in Q3 and that volume was picked up but not sold in Q4. So we've got the costs associated with that business across the board, yet we don't have any of the revenue associated with it.

So what -- but you talked last quarter, if I remember right, about bringing in a lot of inventory from Allstate that you were going to sell through in the fourth quarter. Did that not actually transpire?

Now, we haven't seen the sale through of significant inventory in Q4, that's exactly what we're talking about. So, my anticipation today is that that will happen in Q1.

Okay. And then just to follow up one more time on the first question. And I think this relates to what I think Tony was trying to get to. When we're talking returns, just so we're all clear, maybe I'm misunderstanding it -- are we talking about just the -- what I would think of as ASP or is it also the revenue you capture? Because I'm assuming that your fees would be up in kind of double digits on a per unit basis and maybe I'm just way off base on that assumption.

No, they're not up double-digit. On an absolute basis they're up mid-single digits. When you add back in the impact of the transition and the contracts in the UK and FX, it would be up high single digits.

Okay, got it. All right, thanks a lot, guys.

Scott Stember, Sidoti & Company.

Good morning. Jay, so you were saying that basically last quarter we were talking about Allstate, you were building I guess inventory and cost without the associated revenue so we have two quarters in a row. So we should see in the first quarter at least a pretty big shift of sales. And can you maybe just talk about the magnitude of some of those sales that will get shifted over?

Well, we're almost -- I'll just say it this way, we're almost at a complete run rate. From what I can see from August it looks like August, September, October will be nearly a full run rate, but not completely. And we've got some other clients that committed in Q3 as well and Q4 that will not be at a full run rate.

So, Q1 will be a quarter that's going to be selling off a big piece of that but it's not going to be the full run rate. Let's face it, we're never at a full run rate, there's always an account coming in here or there. Where do I think it's stabilizing? I think we're going to be seeing it pretty stable in about Q2.

So the first half of the year should definitely benefit from what might have left the fourth quarter -- was left on the table in the fourth quarter?

For sure.

Okay, and back to the G&A question. Did you give the exact amount on NASCAR that was spent this year?

No, we did not. We just -- I can just tell you we gave estimates of $15 million to $20 million in terms of total marketing budget. That's everything from websites to ESPN to activation at the track, to speed TV, every single thing we did. And I don't like to break it out just because there are a lot of moving components there as to where we're putting our dollars.

But you were within -- I'm sorry, go ahead.

(multiple speakers) low end of that range.

Low-end? Okay. And back to G&A. When you were talking about that G&A would be down year over year, are you talking in absolute terms for the full year in absolute dollars or on a percentage basis of sales?

On an absolute.

Okay. And as far as marketshare goes, could you just talk about -- I mean, obviously you've gained a lot of business this last year that we should see in the first half of 2011. But at the same time I'm sure there is a fair amount of business that gets lost. Net-net for the full year, can you basically comment on where you stood from an overall marketshare basis or just quantitatively?

Well, I don't have the numbers in front of me, but if I did -- we don't give them out anyway. At the end of the day we don't disclose unit sales. And so we start to get into that -- these questions start to go down a path of information that we don't give out.

So, I feel like I've given a lot of color commentary on it. And at this point I'm just going to finish it with that one. Because we really have given you guys a good feel for where we're going to be in the next couple of quarters.

Okay, I was just trying to get at obviously you guys are on the upswing here with share.

We are.

Good. That's all I have right now. Thank you.

Bill Armstrong, C.L. King & Associates.

Good morning. Not to beat a dead horse, I just wanted to clarify then, you're seeing a higher percentage of non-insurance vehicles. In general do you get a lower yield per vehicle on non-insurance versus insurance vehicles?

That depends and that's why we're not both answering quickly because it depends on where that volume comes from. And so there are times where we get a lower yield and there are times where we get a higher yield, it just depends on where the volume is actually -- what segment that volume is coming from.

Okay, so that mix shift won't necessarily push your blended average yield per unit in one direction or another?

Well, it just depends where the volume is coming from. So if we were to bring in a low value account and I could use a dealership as an example, some of the dealerships have very low value cars, some of the dealerships have very high value cars. And just depending on where that volume comes in is going to change the yield. And off the top of my head I don't know for the year or the quarter where we ended up with that segment of business.

Was the -- if you strip out the clunker vehicles from a year ago, what would the trend have been in yield per vehicle year over year?

I don't know because we didn't do a lot of clunker vehicles. I mean, we --.

(Inaudible).

Yes, right, 3,000, 2,500, 3,000 cars; it was not a book of business we went after. The reason for that, there are a couple of reasons. One, it's low return volume, number one. Number two, it's volume that's not recurring and we're very much focused on business that we can create that's recurring. We're not big on going after business that's a one-time thing. So I really don't know what -- I don't think the clunker volume is really enough to even talk about in terms of volume.

Got it, okay. And then one final point of clarification on the G&A, it's going to be a lower on a dollar basis year over year. Is that mostly coming from lower marketing or are there other areas where you'll be lowering expenses?

We're lowering G&A across the board. So it's not just a factor of marketing but marketing will be a very large component of it, obviously.

I see, okay, thank you.

Craig Kennison, Robert W. Baird.

Thanks for taking my question. It appears that the Allstate volume simply didn't process as quickly as you might have thought in the third-quarter conference call. Why would that be?

Well, there are a number of factors when you're handling insurance volume -- it could be lean payoffs, it could be the type of volume. There are a number of reasons for it. A, you're told we think we're going to do -- our team looks at it and thinks we're going to do X number of volume coming in and we think it will sell by a certain amount of time. And some of that volume didn't come in in Q3, it came in in Q4.

And then there's just a lag; it takes 90 days roughly to sell inventory off. So, it's a number of reasons across the board. It's not a big deal to us. We don't look at the Company quarter to quarter, we look at the Company over a long -- not even year to year, we look at it over a five-year horizon.

And they're a great business partners, they're happy with what we're doing. Everything that we're hearing is positive and that is what we're concerned with. We're concerned with that we're doing everything that they want and that we're meeting their goals. And whether the cars came in in Q3 and sold in Q4 or come in in Q4 and sell in Q1 is definitely not our big concern.

Thank you and I want to get back to that five-year plan in just a second. But in terms of the competitive response to your Allstate win, have you seen any? Have you seen any discounting or any other indicators that your competitors are struggling to get some volume back?

Well, I mean we're in a very competitive market and we respect that, we respect our competitors and we feel they feel the same way about us. I can't say that I see anything that's out of the norm and, quite frankly, we don't get into pricing discussions on conference calls anyway just for competitive reasons. They don't do it, we don't do it. But as far as I'm sitting here today, we're both out there trying to compel customers and we'll continue to do that.

Good, and then you mentioned the five-year plan and I'd love to talk about that. What would -- Jay, what would your goals be for the next three to five years whether it's revenue growth, EPS growth or just your share of the non-salvage market, for example?

Well, I mean we don't give out -- that's like asking me for earnings guidance. And we don't give guidance in terms of revenue or units or any of that. So I really can't comment on that. I can tell you that we believe that we'll be opening up additional facilities both internationally and domestically.

We know for a fact that what we're doing on the (technical difficulty) marketing front works and we'll continue to market, that will increase returns across the board on all vehicles. But again, it gives us a very compelling reason to go out and handle additional non-insurance volume.

So, when I look out three to five years, just like the decisions we made in 2009 and 2010 to make some significant investments both in IT and in marketing, we feel those were really, really good decisions long term. There's a cost to doing that, that cost has been beared, you can see that in the G&A. But there's going to be a payoff associated with that that goes out beyond five years in our view.

Copart is a very unique company because as large as we are, as many cars as we sell, the majority of people have never heard of the Company. So as we get more awareness, more awareness just -- it creates an environment where we get to sell more cars, where we get higher returns, higher returns create a more -- a larger market because obviously we gave the $1 million payoff example, but if tomorrow we were selling cars for $1 million they'd total everything.

So, as we can generate a higher return it creates a larger market as well out of the vehicles that have accidents. So three to five years we're looking at a company that is obviously processing more units, has a larger footprint, is processing more insurance but also more non-insurance product. And the two benefit each other. I mean, you're talking about cross-pollination of buyers.

So you bring dealers in and sell their product they start buying from you as well. So there are a lot of benefits to what we're doing and there's quite a long term -- there's a payoff that's coming in the next couple of years, but there's quite a long-term payoff that is compounded and it's hard to quantify.

So, I can just leave you with a finishing comment on this is that we're very happy with how 2010 finished up, we're excited about how we're going to look in 2011 and we think we're going to be growing across all those segments.

But then you would not consider paying a dividend because your growth plans are substantial enough that you'd need that cash?

We don't rule out anything. So whether it's a dividend or buying stock back or buying additional companies -- those are all options that we look out. So I'm not going to say we wouldn't do it, I'm not saying that we would do it. It's something that we look at as an option.

Terrific. Thanks for taking my question.

(Operator Instructions). Gary Prestopino, Barrington Research.

Good morning, guys. Jay, could you possibly -- you started the call off saying you added 278,000 members. Could you just tell us what constitutes a member? Is that someone that just signs on to the website and establishes an account and does no activity or is that someone that actually bids?

Yes, that's someone that signs up, gives us an e-mail, gives us contact information and then from there they can bid, they can search, they can buy, they can do all those functions. It doesn't necessarily mean that they have to; we differentiate members from bidders, bidders from buyers or second high bidders, second high bidders from buyers. So (multiple speakers).

That 278,000 is just people that have visited and registered. So the obvious question is, can you tell is what the conversion rate is on these new members as to whether they actually are bidding or maybe even becoming a supplier of vehicle to do?

Well, they are doing both. I'm trying to think off the top of my head which is always a little spooky.

That's dangerous.

It can be real dangerous. But I believe members, since we started the marketing campaign, have bought over 10% of our product. So I'll say that. And if that's not the case I'll retract the comment later. But I believe that is correct, that members since we started the marketing campaign in 2009 have bought over 10% other product that we sell.

And do you -- off the top of your head do you know how many members have been suppliers too or is that not applicable?

No, I mean, it is. I don't know the number off the top of my head. But, no, once we've got you signed up with us -- now, look, we're doing millions of unique hits to the website, but most people are coming into the website, they look around, they see stuff and they don't do anything. The next step is to become a member and to sign up. That allows us to communicate with you, work with you, to get you to supply cars or to buy cars. Typically it's buy -- much more buy than supply. But we're working every angle we can, obviously.

Okay. And are you starting to see a lot of repeat users within these members that have come in and actually purchased a product? Do you have any idea what the (multiple speakers) is?

Yes, we are, but that's nothing new. A member that bids eventually will buy. And a member who buys ends up becoming a return customer. And again, part of it is the experience, part of it is the unique nature of the product that we've got for sale, the fact that it's not a household name, though we'd love it to be. So it's one of these experiences where as a member comes in and becomes a buyer of product they do return and become return buyers, that's pretty common.

Okay, and are you able to differentiate with these individuals whether they are, represent a business, represent just a private buyer? I guess what I'm trying to get at is are you starting to penetrate maybe that dealer market in a deeper way where there's allegedly triple the size of the salvage business where there are cars that are applicable for you to sell?

Well, I mean, yes, we do. We have the information on how they come in and what type of member they are if they supply that. They don't always have to; you can come in as a dealer and up and not supply that information. And in a lot of states it wouldn't matter, there is no difference.

So we do have that information where it's provided. We don't focus on that as much as we focus on supply, how we're growing non-insurance and returns both for insurance and non-insurance, what does ASP look like and -- we don't get into percentages as much because we don't really have control over actual cash values and used car pricing. What we have control over is the actual sale price of the car. We really tend to focus on that.

That's fair. And then in terms of the supply of these non-insurance vehicles, can you -- you look at it and you say, okay, there are dealers, individuals, where is -- can you kind of rank order where the supply growth is coming from and give us an idea of that? I mean, is there a third category? I guess charity cars are in there too, but --?

Well, sure, you've got charities and you've got dealers and you've got individuals, those are all in there. I would break it out this way, that is you're looking at non-insurance does the majority of that non-insurance come from institutions or businesses versus individuals? The answer to that is that the majority comes from businesses and institutions. Individuals is the lesser component of that. But they're all across the board, they're all growth drivers right now.

Okay, and then just lastly -- with your G&A you talk about it's going to be lower. Where will you be focusing the bulk of that spending? Is it still going to be in the NASCAR and the -- I forget what the other ones were -- the drag racers or are there any other markets that you're going to be focusing on?

Yes, I mean, we're looking at all those options right now. And there will be -- the way that we've done advertising in the past we're tweaking some of that. The way that we've done keyword search, we're changing some of that. I mean, this is what we do. I can't sit on the call today and tell you that we're going to do X, Y or Z or we're going to use more Google and less Yahoo! or how we're going to actually --.

I think people tend to focus on our marketing as very NASCAR and very NHRA related, but it is not just those components. There was a heavy spend in keyword search, a heavy spend in advertising on cable. So we're looking at all these avenues and then just tweaking. Some things we may not do any more, some things we'll tweak and then some things we'll do that are new that we haven't tried in the past.

Okay, thanks, guys.

There are no further questions. I'll turn the conference over to Mr. Adair for any additional or closing comments.

Thank you. Well, we appreciate you all coming on the call. And it was our pleasure to give you some color on how the quarter and the year shaped up and we look forward to reporting on Q1. Thanks again.

This does conclude today's conference. Thank you for your participation and have a nice day.