Copart Inc (CPRT) 2011 Q4 法說會逐字稿

Good day, everyone, and welcome to the Copart Incorporated fourth quarter fiscal 2011 earnings call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, CEO of Copart Incorporated. Please go ahead, sir.

Thank you, Matt. Good morning, everyone. And welcome to our fourth quarter for fiscal 2011. We've got a lot to talk about, and I know there will be a lot of questions. So before I start, I'll turn it over to Will Franklin, CFO, for a brief disclosure.

Thank you, Jay. Before we begin our comments, I would like to remind everyone on the 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 the final 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-K, 10-Qs and other SEC filings. With that, I will turn the call back to you, Jay, to begin discussion of our fourth quarter results.

Thanks, Will. Well, we were talking about it this morning. It seems like the year has just been extremely fast. And it was just a year ago that we were talking about fiscal 2010, and here we are in fiscal 2011, and a lot has taken place. It has been a year of very -- of great achievement, and a lot of change that's taking place in the Company. So we're really excited about that. But we're in a transition, and when you are in a transition and doing so much, it's much more than moving headquarters, it's new systems that we're integrating in the Company. It's some allocation of how we look at Ops expense versus G&A expense, so it's a number of things that are happening in the business. But the first thing I want to talk about this morning was our G&A.

For the quarter, G&A was $23.7 million versus $27 million, and that includes transition costs of around $800,000 that we absorbed in the quarter. For the year, it was $98.9 million versus $106 million, and that includes roughly $2.2 million in transition costs. That will continue in the next year. Our goal is to continue to refine how we operate and run the business. And in that refinement, we'll be looking for obvious savings, but there will be costs associated with all the different things that we are doing in the Company.

Will will talk to you about all the stock we repurchased in the year. We just love this Company. We think that we've got a wonderful future, and we believe that. And so as the old saying goes, we put our money where our mouth is. So he'll talk about the stock we bought back, not only in the quarter, but in the year. I just want to note that we have 8.5 million shares authorized for buyback at this time.

We finished the quarter with $74 million in cash. If you recall last year, we made a large purchase of stock in Q1, and finished the quarter with relatively the same amount of cash that we came into the quarter. So this is a quarter where we generate -- in fact I'd say, it's one of our largest, if not the largest quarter, where we generate a lot of cash. And that's Q1 - -and that is August, September, October. So there will be a lot of cash that we'll be generating in Q1. So this $74 million in cash, obviously, it depends on what we do with cash in the quarter, but if all things stay constant, there will be a lot of cash that's generated, nonetheless, in the quarter.

The Dallas move for the Company is on track. The plans are the same. We still are looking at process centers, where we'll be placing a lot of the functions that are -- from payments to receiving, call center, et cetera, et cetera. And then the HQ, will be all the folks that are associated with either integration, growth, buying companies, expanding. We're looking at a lot of different areas company-wide for expansion into other markets, and we're also continuing to push hard on our US and UK operations. I should say North America and UK operations, to expand not only insurance, but outside of the insurance market.

The Dallas move, as I said, is on track, and we should be relocated with our HQ by the summer of 2012. Got a little delay in our integration of our new technology systems. The system that we've got in the Company was implemented over a decade ago, so it's time to take advantage of the new technologies that are out there in our enterprise system. Our auction inventory management OS, we were expecting it to be done sometime in fiscal 2012. That will probably take place now sometime in fiscal 2013.

So it's not a huge delay by any stretch. It's about doing it right anyway, and this is all about the future. It's not about something that we have to have today, it's about making these changes, the same way that we did this back in the late '90s. By making these changes, it will give us the ability to catapult over the next decade with all the new technologies that are out there.

And then finally, I would just say that we launched Project Overdrive in fiscal 2012 in August, at the beginning of the year with all of our Company. Project Overdrive is all about changing the experience at Copart for everyone, internal and external customers. And we're going to be pushing really, really hard on that program this year to make it faster, easier company to do business with for everyone. So we look forward to seeing the technology changes come into place. And we also look forward to seeing just the changes in our service, and the quality and the speed at which we deliver that service for all of our customers. So with that, I'll turn it over to Will, and then we'll open it up for questions.

Thank you, Jay. Yesterday, we reported our financial results for the fourth quarter of our 2011 fiscal year. Consolidated revenue was $215.4 million, compared to $190.5 million for the same quarter last year. Volume increased in both North America and the UK. Total volume increased over 7%. Purchased car revenue as a percentage of total revenue grew from 16.8% to 19.2%, as both volume and ASP increased. The yield per purchased car remained relatively constant with the same quarter last year, however, because the ASP increased, the yield as a percentage of the selling price declined.

Percentage of cars sold on the principal basis in the UK declined on a year-over-year basis from 44% to 39%, but increased on a sequential basis due to the contracts inherited with the acquisition in our previous quarter. Per car revenue for fee-based transactions were up, both in North America and the UK. The change in accounting rules, which became effective in our first quarter of this fiscal year, altered the period in which we recognize certain revenues.

Revenues generated for recovering a car, when converting a title with the state, and for cleaning, washing and protecting a car are now recognized when performed. These services are generally performed near the time the car is assigned to us. Last year these revenues were recognized when the car was sold, usually around two months after the assignment date. Because these revenues are low in margin, in quarters in which we grow inventory, revenue is increased and margin percentage is decreased.

The total revenue for the quarter associated with this change in accounting was approximately $3.4 million. Yard and fleet expenses grew from $68.5 million to $81.8 million, and reflect the higher volume of cars processed, a significant increase in the cost to recover a car due to the increase in the cost of diesel, and the increase in costs associated with developing new markets, including the public dealer markets. Our gross margin grew from -- excuse me, $86.2 million to $89.6 million.

General, and administrative costs, excluding depreciation were $23.7 million, compared to $27 million for the same quarter last year. The decline was due primarily to reduced marketing and reduced head count. Our operating income increased from $57.2 million to $63.5 million, and operating margin was 29.5% compared to 30% in the same quarter last year.

Diluted EPS from continuing operations was $0.59 compared to $0.43 for the same quarter last year. We ended the quarter with over $74 million in cash. Sequentially, accounts receivable, vehicle pulling costs and inventory costs increased as inventory grew. In the quarter, we generated over $42 million in operating cash flow, and for the year we generated almost $243 million. Capital expenditures for the quarter were approximately $14 million, primarily for land, facilities improvements and software development costs.

Finally, during the quarter, we expended approximately $135 million to repurchase 2.99 million shares of our common stock. For the year, we have repurchased over 18.8 million shares at an average price of $39 per share. At the end of the quarter, we have -- had approximately 66 million shares outstanding on an undiluted basis. This concludes my comments. Matt, we'll turn the call over to you to field questions.

Okay. Thank you, ladies and gentlemen. (Operator Instructions).

And first we will go to Bill Armstrong with CL King & Associates. Please go ahead.

Good morning, Jay and Will. The vehicle sales were up about, I think, 28% year-over-year. I was wondering if you could just maybe flesh that out a little bit more for us, what was driving that particularly -- I was surprised because you're transitioning to an agency model in the UK, so what was driving the vehicle sales increase?

Yes, sure. Well, good morning, Bill. I would just tell you that that's really 2 things. One is that we are -- we did make an acquisition in the UK that brought in a lot more purchased cars, and we are buying more cars in the US. We've got a business called Copart Direct that buys cars from anywhere, and that model is a pure purchase model. It's not a model where we offer the auction method. We go principal on those cars, and we make a higher margin in doing that. So there's a number of reasons why we do it, but that's probably the biggest reason.

Okay. Was that UK acquisition done during the fourth quarter, or was that earlier in the year?

No, it was done during the third quarter.

Okay. Could you discuss trends in average selling prices in the US?

Yes, sure. ASP is up. It's been a good year compared to -- comparing Q1 all the way to Q4, it's been a nice trend in the way that ASPs have moved.

And, Will, I don't know if you've got something --?

No, that's exactly right.

Okay.

Yes, I would caution, I wouldn't anticipate them to increase going forward.

Yes, they are at an all-time high. We are looking at really high ASPs right now.

Got it. And then finally, what were same-store revenues for the quarter?

It's getting more difficult to express the same-store sales or same-store movement in terms of revenue, just because of a number of different factors. And you've touched on a few of those -- the transitioning of contracts in the UK, the movement into purchasing cars in the US, FX. That causes us to make a number of assumptions, if we want to talk about same-store sales in terms of revenue. So, for this quarter, let me express it just in terms of units. So, on a same-store sales basis, units were up 6%.

Great. Thank you very much.

Thanks, Bill.

And moving along, we will go to Tony Cristello with BB&T Capital Markets.

Hi, Tony.

Hi. Thanks, good morning, guys.

Good morning.

I guess 1 question, you talked about sort of a delay or a push out of the system into 2013. And I'm just wondering, is that your sort of timing, is that sort of the third party that's helping you in that timing? Or is there just something you need to get fixed internally before you can roll that out?

Yes, the answers are, yes, to all of that. I mean, we're sitting here looking at an enterprise system that is very different than the system we've got today -- I mean, in so many ways. And this is a Company that has a great system now, and has great technology now. And so we're going to be making changes to the enterprise system, making changes to our website going forward. And those are things that need to be done gently. And they need to be things that are brought along in a fashion that works for everyone, not something we try to push or set a date.

So, we made a decision in the last month when we hit a bit of a road block with some things going on, on the IT side, that we said -- let's not try to keep to these dates, let's push it out a little further. So, it's going to be a little bit of a delay. But like I said in the beginning of the call, the year just goes by boom, boom, boom. It seems like you report on each quarter, and the next thing you know, the year is over. We've got our hands full right now with the Dallas move, and the process center moves, and Project Overdrive, and all the other things that we're doing. So having systems going into fiscal 2013, quite frankly, just makes it easier than trying to do 2 things at once.

Okay. And is that the system also, that sort of will ultimately allow you to have multiple languages, and sort of expand --?

Yes.

Okay. All right.

Yes, that's the system.

Will, maybe a point of clarification on the accounting change, because I guess a couple of quarters back -- and I went back and sort of reread the transcript from the call. And I thought that the accounting change would have the effect, more on the first and second quarters on to the margin side, and less into the third and fourth quarters. And it seems like you saw that certainly in the April quarter, but then you sort of stepped back a little bit in terms of where I would have expected margins to have been for this. Can you maybe discuss a little bit on how that -- how we should now think about seasonality? Has something changed, or is it just going to be volatile as the year progresses?

Well, it does introduce some volatility to our margin percentage. When I referenced those quarters, it's because normally that's when we have movement in our inventory. It so happens that in this quarter, we had a growth in inventory of about 8%. So any time you have a growth in inventory, you are going to advance those low margin revenues, and decrease your margin expense. And that's exactly what happened this quarter.

Okay. And now going into your first and second quarters, we should expect that -- you've anniversaried it, but you're still going to see some seasonality to that impact? I guess maybe the better question is -- when we think about how margins were in the first quarter and second quarter of this year, is that the basis or framework we should think about when we're modeling on a go-forward basis today?

No, not the first quarter, because the first quarter we introduced this accounting change, and recognized, I believe it was about a $9 million adjustment, based on that. Second quarter, I think it's appropriate. Now what we can't predict is the magnitude. I think we're fairly comfortable in telling you that it will be effective in this same nature, but once again I refer back to just -- it depends on how much inventory grows on a quarter-over basis.

Okay. All right. And then maybe just 1 last question. How is the migration now looking from principal agency over in the UK? Are we now sort of at a plateau, or do we still think that there's further to go in terms of acceptability over there?

Well, it's a continuing effort. Like I -- I referenced some trends in my comments. In our third quarter, we were at 36% of total volume on the principal model, and that grew to 39%. I would expect, over the course of the next 16, 20 quarters, that that will come down, but I don't think it will come down at a really strong or precipitous rate. I think we'll just manage that down as we can.

Is there any reason for us to think about the macro situation and what's going on in Europe, and does that have any impact on your business operations? Or are they sort of defensive in nature that you don't see much fluctuation?

Well, I'll comment, if that's okay. I'll comment on that one, because as the economy changes, it obviously changes average selling prices for non-damaged cars. That effects ACVs. There is some -- self regulating, if you want to look at it that way. There is a big piece of this where, as the demand for used cars goes up, ACVs goes up. As demand for used cars goes down, ACVs goes down. So when you're buying cars, you're buying them off a percentage of ACVs.

We saw this in 2008, when the 2008 crash, so to speak, hit. We looked at a huge drop off in ASP. And then that followed with a huge decline in ACVs, and now those are coming back because there's been a big improvement, huge improvement in ASPs again. So there is -- I'm not going tell you, you shouldn't be concerned about it, because we're always concerned about all of those things. But there is a process there that -- where we would adjust and correct the pricing.

Okay. That's very helpful. Thanks, guys. I appreciate it.

You're welcome.

Thanks, Tony.

And moving along, we will go to Jason Ursaner with CJS Securities.

Good morning.

Good morning, Jay.

Good morning, Jay.

You mentioned selling prices being way up. Can you talk about the impact this is having on salvage frequency in North America? And as buyer fees in North America increase as a percentage of your overall transaction revenue, can you talk about the trade-off of volume for higher car pricing, and is it 1 you would view favorably for Copart?

Yes, salvage frequencies right now are trended down a little bit. One of the things that we've got going on right now, and it's very hard to sit here and poke at severity and frequency, because the economy is horrible. And when you've got an economy that's like it is right now, and unemployment like it is, people start dropping policies, and go with liability only. And then they also choose to raise deductibles.

And so, the frequency and severity are very much tied to cost and coverage, and all those kinds of things. There's a lot of factors that are going on right now. I would tell you, based on all the numbers I've looked at, that as the economy turns around, we're going to see a lot more volume coming through this industry. Because right now, it's definitely being impacted. While it's not enormous, it is being impacted by the fact that there's less people out there right now that are either insured or that have lower deductibles.

Got it. And the expansion outside the insurance market with Copart Direct, how fast is this business actually growing now in terms of volume? And can you broadly discuss some of the initiatives you're planning to increase success with sourcing low car volume?

Yes, I mean -- I can. It's one of these things where it is growing at a very high rate, but it's a small, relatively small book of business. And so, while it generates a large amount of revenue, the fact is you're buying the cars, as opposed to just handling it as an agent. When we get into -- what are we doing on initiatives, we've got some great people on the team that are working on that. I don't like to get into specifics because obviously we think some of the things we do are unique to Copart, but we are focused heavily on this. It's a nice market, it's a great upside for us. There's a great opportunity.

And do you know where we finished the quarter, as far as insurance versus non-insurance business?

Non-insurance was up, but as a percentage of total sales, it was 21%; same quarter last year was 22%.

Yes, okay.

So, we're seeing a nice growth in the non-insurance, but we're also seeing a ton of cars coming in on the insurance side. And as Will said, the inventories are up quite a bit. So when we look at next quarter, I wouldn't be surprised if the trend that Will just gave continues, because we're going to be selling off a lot of damaged vehicles in the next quarter associated with inventory builds right now.

Okay. And the Copart -- or the move to whole car, is the plan still to keep that with the Copart brand? I know we talked the last quarter about what's synonymous with a wrecked car versus a whole car?

Yes, right now it is, because we sell so many non-damaged vehicles in the Company that, yes, Copart is synonymous with that damaged vehicle, that damaged vehicle brand. But we've got a -- thousands of customers out there, that send non-damaged vehicles to us that are aware of the fact that we sell non-damaged product, and we just continue to improve in that segment. So for right now, we don't see a reason to change the name. Now, that may shift in the future, but I guess I'll use the NetFlix example. We're not thinking NetFlix and Qwikster right now, we're just thinking Copart.

All right. Well, that's good news. Thanks a lot for taking my questions, guys.

Okay.

Thank you, Jason.

Thanks, Jason.

And next in queue, we'll go to Craig Kennison with Robert W. Baird.

Hi, guys. Thanks for taking my question.

Hello, Craig.

On yard margin, Will, on the last call I think you mentioned you thought that yard expense might be flat on a per unit basis. First, I'm wondering whether that panned out? And then second, maybe you could help me understand the major buckets in that line item, and identify which of those are volume dependent?

Sure. Probably the one that had the most impact this quarter was, just the cost of fuel. I mean, we measure the distance for pick ups in terms of zones, and zone was roughly about 5 miles. And our average zones are about 8, a little over 8. So it's about 40 miles for the average tow-in for a car.

And we looked at our sub haulers, and they're getting about 5 miles to the gallon. So it's about another -- and the change in diesel fuel is $0.98 quarter-over. So you have another $1 for every zone. So it cost our sub haulers an extra $8 on a quarter-over basis, to pick up a car and bring it in to us. And that's reflected in the increase in yard margin this quarter.

Just to be clear, was that versus the third quarter or the fourth quarter of last year?

That's year-over, fourth quarter of last year.

The other increase is -- as I've referred to, is just the increase in revenue recognition. So we've brought forward all those costs to recover the car, to title it, and to service it. And that increased about -- maybe $3.1 million in the quarter to that yard and fleet expense.

And then the third bucket would be our increase in cost, in operations, to grow these non-insurance markets. I guess there's probably a fourth bucket, and that's the increase in IT costs to support the transition, the SAP into Dallas.

So on a go-forward basis, Will, is it still fair to say -- relative to Q4 maybe a flattish on a per unit basis, is a decent assumption?

Well, no, it's not. And you have to look at -- it used to be that you could look at it, and it would be fairly static quarter-to-quarter, but that -- with the change in revenue recognition, it's going to fluctuate far more. And so in quarters in which you grow inventory, your cost per car will go up. Quarters in which you deplete inventory, your cost per car will go down.

Got it. That's helpful. Thank you.

And then we had a big hurricane come through the northeast. Copart is usually the insurance industry's best friend when a devastating hurricane hits. You proved that in Florida, and with Katrina. Any impact you're seeing from this hurricane season so far?

Well, definitely. That's a big reason why the inventories are up to the extent that they are right now. I mean, there's a lot of activity going on right now in the country. So, yes, the team is working really hard to address that. And we're picking up cars in a number of different states, and dealing with the cat losses that are out there. So, yes, it's definitely, definitely been a busy year in that -- with respect to the hurricane side.

And, Jay, in the past you've guided that usually expenses rise fairly dramatically with respect to all of the efforts you make on the hurricanes, so that it's not that profitable. Any change in that thought process?

No, I mean, that tends to be the scenario with a hurricane. There's a lot of expense associated with handling these cars in the quarter. Of course, we'll be selling those off, and, as Will just explained with the revenue recognition, so we'll be selling those off. In the past what would happen is, with the vehicle pooling, we'd handle a bunch of those cars and defer those costs, and then incur those cars -- those costs when we sell the cars. Now we're incurring car expense up front, and then selling the vehicles off in subsequent quarters.

So, yes, I mean it hasn't changed, Craig. We're working like crazy, and spent a lot of money to handle the cars, and the team's all doing a good job, but the way that we book the revenue and the expense has changed. So you'll be seeing those vehicles sold off September, October, the months we're in now, and next month, and then even into Q2, to be blunt. That's a -- there's just a lot of volume still coming in right now that we're picking up. So it's been a very active year, and it will definitely cause volume to be pushed out in Qs 1 and 2.

Helpful. I'll get back in the queue. Thanks.

Thank you.

Moving along, we'll hear from Scott Stember with Sidoti & Company.

Good morning.

Good morning, Scott.

Could you talk about Allstate? Are we up to full run rate right now, with the exclusive contract, and at the point where we can fully anniversary some of the lower margin assumptions that we had to deal with last year?

We are. Yes, we're full -- actually, we were at full run rate in our second quarter of this year, and probably 90% of run rate in our first quarter, if that gives you help in analyzing the quarter-over results.

Okay. And you guys talked about maybe slowing down or pushing out the -- some of these projects that you have in place, like the IT system. Last quarter, you gave some general thoughts on what the total costs could be. Have those changed whatsoever, or are we still in the same ballpark we talked about?

No, we're in the same ballpark. The numbers really haven't changed, it's just the -- as you're trying to put systems like this in place, you come up with dates, and -- I wouldn't call them optimistic, I would just say that they're realistic, and then you find speed bumps along the way. So where the time has been pushed out a little bit, the cost really hasn't.

Okay. And have you guys given any preliminary thoughts to CapEx for 2012?

Well, we talked about that. And last night, we're sitting here going through the numbers, and decided at this point we really couldn't give out any estimates, because there's just -- we've talked about what our CapEx belief is for systems, but there's just a lot of transition going on right now. We don't really foresee a lot of acquisition targets domestically. There are some acquisition opportunities that are outside of the US.

And then there will be the occasional lease buy-out and new store, we might open up a store or 2 this year. But you can look historically, the range that we'd have to give you would just be such a wide range, it would be one of those -- really low to really high. And I'm sitting here right now almost doing it, and we just don't want to do it, because I don't want to mislead anyone on what the CapEx will be. So we'll report in Qs 1 and 2, and then we'll move into Q3. And by then we'll have relocated our HQ, and we'll have a lot of better visibility. It's just the fact of the matter is, Scott, we're in a transition right now, and it's really hard to come up with estimates when you're transitioning as much as we are.

Okay. And that's a tie-in to my last question. Could you just give any thoughts on how close we are to making another push into continental Europe?

Well, it's probably like Tony asked the question about the system piece, but one of the things our new system brings is multi-language. And so, while it's really got a lot of hooks for future bells and whistles for the existing business, it is key when it comes to expanding into foreign markets with foreign language, et cetera. So we do have to get that system in place before we start to do that.

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

Okay. Thanks, Scott.

Moving along, we'll go to Gary Prestopino with Barrington Research.

Hi, Gary.

Hi, Gary.

How are you doing?

Good. Jay, there's a lot of stuff going on here. I mean, you've got the Project Overdrive, the Dallas move, the process centers, the systems change. Could you maybe just kind of -- and this may have been answered or may have been asked, but kind of chronologically give us, when you think all of these milestones or these projects are going to be completed? So we have an idea of, when we're going to have your Company going from a transition to where you're where you want to be, in terms of all these issues?

Sure. Well, for the most part for the Street -- I'll answer it 2 ways, because for the Street, the integration of our auction inventory management operating system, the changes we're going to be making to www.Copart.com, the impact on moving home office, all of that should be finished by fiscal 2013.

When we get into Project Overdrive, that is a cultural thing. That is a service experience that we're implementing in the Company, and that's a 3-year plan. But that doesn't have the integration and costs and transitions, and all these other things that go along with the other items. So, when it comes down to moving to Dallas and process centers and AMOS, and all of those bits and pieces that we've got going on, it's going to be fiscal 2012 and 2013. A big chunk of that will be done in 2012, finished in 2013. So as we go into fiscal 2014, we really should be completely past these transition points.

What about the process centers? Is that part of Project Overdrive or is that --?

No, that's part of the -- it is part of Project Overdrive internally, but externally to the Street, we really look at them differently, because you all are so much more focused on what costs are going to be flowing through. Internally, we're looking at how we're going to be delivering service, et cetera, et cetera. So they are different, but, yes, it is part of Overdrive, but that will be happening in fiscal 2012. So, process centers should be complete, up, running, done, fiscal 2012. HQ move should be fiscal 2012. The ERP system should be more like fiscal 2013. And then there's some other things that we've got going on that will be pushing into 2013. And then, like I said, fiscal 2014 should be about as non-transition as you can get.

Okay. And then in terms of your marketing spend and all that, I would assume you're going to continue to do the sponsorship of the hot rods --?

Yes, right now --.

-- IHRA or whatever, but the NASCAR is not something you want to revisit?

Oh, we might revisit it. Right now, we've got a plan we're going to continue to market, and it's served us well. We've been happy with everything we've done, but we're always open to change. You know Copart is that way. So we're -- as we say, we're change-centric. So we'll look at any of the opportunities that are out there, see how they fit our business. And we're a very different Company than we were 4 years ago.

Four years ago, we were just coming out with these non-insurance programs, and just thinking about some of the major changes, and never thought we'd be going through new auction inventory management system changes and all the other stuff that's going on. So a very different Company today. And when you look out -- like I said, when it comes to the transition, really 2014 is probably the best year to think about us being kind of a straight move. But by then, we'll be expanding internationally and doing other things. So we're always going to be changing.

And then 1 last question. As far as the Copart Direct, what you're doing with the public, are you still using -- how are you getting the word out to the public, beyond what you're doing with the IHRA?

Yes, I mean, it is, it's NHRA, it's marketing, advertising, it's a number of methods that we go. So, I mean, you can Google us, and you'll see us on Google searches. There's a lot of things that we're doing to reach the public, and make them aware of who we are, and pick up their vehicle. And we'll continue to refine that. We're not -- we're definitely not perfect yet. We're doing a good job, and this was an invented business, it didn't exist 4 years ago.

We came up with it, and now it's a nice business. And it needs to be -- I want to see it grow into something that's material to the business, 10% of the business or more, something that is a major impact to the business. So right now, it's a great area. It's a proven product, because it works. And it continually works, month after month, quarter after quarter, and it's continued to grow. It's had growth ever since we implemented it. And so I would like to just see our team figure out the process to making that something that becomes even more meaningful to the Company.

Is this bigger than dealer services at this point?

No, dealer services is larger.

Okay. Thank you, Jay.

Sure. Thanks, Gary.

And moving along, we'll go to Scott Ciccarelli with RBC Capital Markets.

Hi, guys. This is Patrick Palfrey sitting in for Scott. Thanks for taking my question.

Hi, Patrick.

Hello, Patrick.

I guess just looking at the vehicle sales, (inaudible) the principal, could you talk a little bit more about the quality of the vehicles you're sourcing in the UK? I know last quarter you mentioned that you were sourcing more expensive cars.

Do you want to talk about it, or do you want me to?

Why don't you take it?

Okay (laughter).

I mean --.

Go ahead.

It's not that we're sourcing them. These are cars given to us by the insurance companies. So it has to do with the nature of the insured that these insurance companies deal with, and the ones that we hopefully will -- the contracts we've retained have the higher end cars.

I guess just looking at it, then, should we continue to see higher revenue and higher margin dollars from those vehicles, but a lower margin percentage, just based upon the make up?

That's been the trend. I don't expect that to change.

Okay. Thank you.

And then I guess just 1 last question. I guess thinking a little more higher level, with the average age of vehicles beyond 10 years, which should lead to more total losses, and new vehicle sales increasing over the next couple years, how do you see that affecting volumes out, over say, the next 5 to 10 years?

Well, the volumes decrease, as they don't produce new cars, because obviously ASPs go up, but then volumes increase because older vehicles are more likely to total. So you have to weigh both those. But at the end of the day, after you've weighed them both, the trend is going to be more units. It's just a fact.

Okay.

As we see vehicles getting older in America -- as we go from 2010 to 2011, cars become much more likely to total, and thus there will be more vehicles that are being totaled. Now the question is -- how many of those vehicles will come to us. That is a factor of how many people have liability only on the older vehicle, as opposed to comp/collision. So there's no doubt in my mind that as we go forward, because of what's happened in 2008, 2009, 2010 and 2011 with new car sales, we're going to see the average age go up, and we're going to see more units coming through.

The question is -- when will the economy turn around, so that more and more people actually have insurance like they did back in 2007, so those are both the factors. But you can see what 2008 -- how we reacted to 2008, what had -- economically how it affected us, and then 2009, 2010 and 2011, and how we've responded. So, it is a relatively recession-proof business from that standpoint.

Yes, let me add a couple of comments. So in terms of the uninsured motorist, I mean there is a direct correlation between unemployment and uninsured motorist. And I think if you -- I'll refer to CCC, the economist there suggests that for every 1 percentage point increase in unemployment or movement, there's a 0.75 point increase in -- or movement in uninsured motorist.

The other factor that Jay alluded to was used car pricing. And that's a function of new car sales, quite frankly. New car sales generate a trade-in, and a used car transaction in itself. And when used -- new car sales are down, you have a restricted supply of used cars, which increases their value. So we see the pricing of used cars tied to the sale of new cars. So as the economy improves, there's more new cars hitting the market, we think we'll see the pricing diminish, which we think will have a positive influence on our volume.

Okay. Thank you for taking my question, guys.

All right. Thank you.

(Operator Instructions).

Right now, we'll go to Ryan Brinkman with Goldman Sachs.

Hi, good morning.

Good morning, Ryan.

Good morning. Thanks for updating us on the progress of the headquarters move, and on the S&P implementation. I know that both initiatives should ultimately end up cutting costs over time, but it would be reasonable to think that there could be some sort of short-term increase as well. Last year at this time, I remember you giving us directional G&A guidance for fiscal 2011. I think you said then, that you expected overall dollars to be down year-over-year. Just given all the various puts and takes associated with the costs and the benefits of both the move and the systems change, are you able to maybe help us out more, in terms of how you're thinking about G&A expense shaking out for fiscal 2012?

Well, it's tough, because this year we're going to have some significant costs. Last year, the cost was $2.2 million associated with transaction -- or transition cost, rather. And it will be clearly more than that. So if I were to say, minus transition, I know we'll be down on G&A.

Okay.

Factoring in transition costs, it's hard to tell. And that's why we're -- last year we wanted to give you an idea of what our goal was, so we told you we'd be down year-over-year, and we were. That was entering the year with a $108 million run rate. And if anyone has ever run a Company, and gone through that process knows, there's spending and you've got to turn that around in 4 quarters, it's pretty tough.

So now we're on a run rate, finishing the quarter for something less than what last year's G&A was. And we're going to be as efficient and mindful of every $1 that we spend, going into the year. So we're going to try as tough as we can, it's just hard to predict and give estimates or an idea of what that's going to be, when you've got the transition costs that we've got right now.

Okay. Great. And you were asked earlier on the call about the potential to expand into continental Europe. And just regarding geographical opportunities in general, can you help us understand how you're thinking broadly about the potential that might exist outside both North America and Europe? So, for example, in emerging markets like Brazil or Mexico, where the car parks are exploding, and more people are insured, how do you weigh those opportunities, which are probably more tantalizing longer term versus the opportunity to expand further into developed markets?

Well, we don't really -- we don't go through a process of weighing them; we look at them as, we can do both. And once we've got our systems in place, we've got more than enough talent that can basically push on 2 fronts, and that's really the approach that we've been taking. We've got to get these system changes made. To do that, we're in the middle of a massive transition as a Company. So from this standpoint, we'd like to get the transition done. And we'd like to get the systems implemented in 2013, and then we can be expanding at a much faster pace.

In the interim, we can expand into some markets without those systems, because we can run them on the existing systems they have. But that's an option, and if there's an opportunity that comes along, and we need to seize it, we'll do that. But as you've seen with Copart in the past, we're big believers in integration, and taking advantage of our systems, VB2, our auction technology, and all the other benefits that Copart brings. So that's really -- when we get into, when are we going to be growing, and how fast are we going to be growing, I know that we can grow on multiple fronts. And I know that we need multi-language to do that with our systems, and so that will be a couple of years away to get all that put into place.

Okay. Great. And just last question, for those of us on the outside, it's harder for us to track the volume environment in the salvage market versus the whole car market, where we have the benefit of the National Auto Auction Association or something. And it might be difficult for you guys, too, but sitting where you are, and all the information available to you, obviously your volumes are [go-dated] by Allstate, but what do you think is happening overall in the market in volume? Is it up, is it down? How is miles driven affecting total industry volumes?

I would say, total industry is down a little. And that goes back to what we talked about before, the points that Will brought up about unemployment and how it affects people, with respect to either deductible or completely dropping coverage, or completely -- maintaining liability, but dropping comp and collision. So we think it's down a little bit. We think that -- obviously that comes back when the economy starts to turn the other direction, more people are employed, more people drive.

I don't know about you, but I notice, as I travel the country, that there's just a lot less traffic on the freeways. You just don't see the kind of congestion that you saw right around the summer of 2008, and prior to that. And so I'm convinced, from my perspective, that as people go back to work, they'll start driving more. They'll have to have coverage. They won't be driving uninsured, et cetera, et cetera. So it will help the industry as a whole, in terms of number of policies and number of total loss vehicles.

Okay. Thank you very much.

Ryan, let me add to that. So there's basically 3 factors that drive the market. There's the number of cars on the road. There's how often are those cars involved in an accident. And then, of the cars involved in accidents, how frequently are they salvaged. And the recent trend is all 3 of those factors are slightly down, but we don't expect that to continue. And so, when we say we've grown the non-insurance, the non-Allstate insurance market by 2%, we're fairly happy with those numbers.

Great. Thanks very much, guys.

All right.

Thanks.

And it appears we have no further questions in queue. At this time, we'll turn it back over to the speakers for any additional or closing remarks.

Okay. Thank you, Matt. Again, thank you, everyone, for attending the fourth quarter. We look forward to reporting Q1. And that will be happening in -- very soon, about a couple of months. So, look forward to telling you how we're doing, and look forward to having a really great fiscal 2012 for Copart. Thank you.

And again, this does conclude today's conference call. Thank you for your participation.