Copart Inc (CPRT) 2012 Q2 法說會逐字稿

Good day everyone and welcome to the Copart, Incorporated second quarter fiscal 2012 Earnings Conference Call. As a reminder today's call is being recorded. For openings remarks and introduction I would now like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart, Incorporated. Please go ahead, sir.

Thank you, Lisa. Good morning everyone. We are going to change things up a little this morning. Will and are in two different locations, and so he is going to run through the disclaimer, go through his update on the Company, turn it over to me, and then he will open it up for question-and-answer. So with that it is my pleasure to introduce Will Franklin.

Thank you, Jay. Before I begin my comments I would like to remind everyone on the call that our remarks will contain Forward-looking statements including statements concerning our views of trends in our business. These statement are neither promises nor guarantees and are subject to certain risks and uncertainties that could cause the time results to differ substantially from those projected or implied by our statements and comments. These risks include trends in average selling price for cars and factors that can affect our gross margin. For a more completion discussion of the risks that could affect our business please review the Management's discussion analysis and the Risk Factors contained in our 10-Q, 10-K and other SEC filings.

I will now provide some brief comments on the financial performance in our second quarter. Yesterday we reported our results for the second quarter of our 2012 fiscal year. Consolidated revenue was $227.9 million compared to $207.4 million for the same quarter last year, an increase of 9.9%.

Included in our second quarter of last fiscal year was a beneficial settlement with the UK tax authorities respecting the proper apportionment of auction sales proceeds between revenue and VAT. As a result of the settlement, we recognized in that quarter $1.8 million in purchased car revenue relating to prior period's activity. Excluding the settlement revenue growth would have been 10.8%. The growth in revenue was driven primarily by growth in unit volume which increased 7.1%. On a same-store sales basis unit volume grew by 5.2%.

In North America insurance volume grew by 6% and was driven by market wins and by the severe weather we experienced last summer. Noninsurance volume grew by 8.1% and was driven primarily by growth in supply from franchise and independent car dealers and from individual consigners. Noninsurance volume represented 19.8% of our total North American volume. While the total number of purchased units sold increased by 2%, the decline is a percentage of our total units sold as we continue to migrate contracts in the UK and the principal model to the agency model.

The art and fleet expenses grew from $85.1 million to $86.4 million and reflect a higher volume of cars processed. Our gross margin grew from $85.9 million to $99.7 million or [16.1%].

Excluding the impact of the beneficial settlement in the UK in our second quarter of last year, our gross margin would have grown 18.5%. General and administrative costs excluding depreciation were $23.4 million compared to $23.7 million for the same quarter last year and included approximately $500,000 in headquarter relocation costs. In the current quarter, we determined that certain assets primarily our fleet of private airplanes will be removed from operations and disposed. Consequently these assets which also include certain real estate and computer hardware were written down to the fair value resulting in an impairment of $8.8 million.

Our operating income excluding the impairment increased from $60.2 million to $72.3 million or 20.1%. Excluding the beneficial settlement in the UK in the second quarter of last year operating income grew by 23.8%.

We ended the quarter with $127.6 million in cash Accounts Receivable grew as we increased inventory. During the quarter we generated $26.2 million

in operating cash flow, we expended $7.8 million for capital assets and $91.4 million for the repurchase of 1.97 million shares of our common stock. At the end of the quarter we had 63.3 million shares outstanding on an undiluted basis and we had 25.5 million shares remaining in our share repurchase authorization. In the quarter we fixed our interest rate -- in the previous quarter we fixed our interest rate with respect to 75% of our outstanding term debt at 2.35%.

During this quarter we fixed the interest rate with respect to the remaining 25% of our debt at 2.19% all through interest rate swap arrangements. Our outstanding term debt obligation is $481 million, and we have $100 million available on our revolver.

Now that concludes my short comments. We will now turn the call over to Jay, Adair our CEO for further discussion of the second quarter's results.

Thank you, Will. Thank you, Will. Again, good morning everyone and welcome to the second quarter call.

I have got seven points that I want to go over with you this morning. We will talk about CapEx, facilities, costs, ASPs, the impairment, give you a little more color on that, the transition and overdrive. Looking at CapEx for the second quarter was less than $10 million. Will's already discussed with you some of the details of that.

My goal here is to explain the third quarter and fourth quarter trends. We do anticipate that CapEx will be higher in the third and fourth quarters of this year. That is primarily driven to my second point, facilities. We have currently over 12 facilities in the pipeline that will either be opening or expanding in the next year, and so there will be some capital requirements associated with that.

We attend to give capital goals or trends that we think the amount will be towards the end of the fiscal year. So we will not be doing that on today's call, just tell you that the trend will be higher in Q3 and Q4. This is primarily due to market share gains across the Company and increased volume associated with noninsurance Company gains as Will discussed in his opening remarks.

Also as we stated in the first quarter, we believe that the strategy that we had in fiscals 2009, 2010 and 2011 to take advantage of growing revenue by spending and further deploying our team and building up a network of sales people and operations teams has worked. As you have seen we held costs down relative in Q1 and that has happened again relative in Q2.

We anticipate this trend to continue that we will grow revenue going forward and as we grow revenue we will be able to leverage that and hold costs rather steady relative to the revenue growth as a percentage. Looking at our fourth point ASPs, the average selling price in Q2 was high, but in Q3 we are now on the last day of the first month of the quarter, and we are looking at record average selling prices for the Company.

So that has continued to trend through the second quarter up and it is doing so as we now come to the final day of the first month in the third quarter. We anticipate that that will continue throughout the quarter at this time. Also we discussed the impairment in the opening remarks from Will. We are selling off both airplanes that the Company currently owns.

We have had an aviation department for well over a decade now being a California company it is almost imperative when you are running a business that has so many locations across the country. A typical day for Team Copart when we travel is to leave either on Sunday or very, very early on Monday morning and at best you will still end up reaching the East Coast by 2 or 3 in the afternoon maybe with enough time for one meeting and then potentially dinner. And then what you will also do is you will attend to stay out. The road the whole week because of the traveltime to go out and come back.

So having an aviation department was part and parcel and critical to being as efficient as possible so that you were not wasting time in airports. Being in Dallas, Texas changes all that. It now allows us to be a couple of hours from the majority of the country whether it be New York, Chicago, Miami. There are nights in and out of Dallas on a regular basis, and so the ability to jump a plane and -- head out to a market and come back is not only efficient, but it also can be done in a day or two as opposed to staying all week.

Again another one our reasons for moving out -- moving the Company to Dallas, Texas that we talked about before. There will be a savings of not having those planes going forward obviously and currently we have got those planes held for -- held as assets for sale. We anticipate that we will be selling those planes off in the next year. Let us talk about transition.

We have talked as Will mentioned, the headquarters relocation had a $500,000 cost associated with it in the quarter. We anticipate the move to Dallas will be complete by the end of the fiscal year, and you will not hear us talking about transition costs associated with that in the next fiscal year fiscal 2013. So we anticipate being completely done and finished with our transition as we reach the end of the fiscal year which is July 31. We have already reincorporated in to Delaware, and we are now in our seventh month of project Overdrive. My last point.

Project Overdrive is a all encompassing experience for the Company. We are replacing our operating systems, our financial systems, our CRM, our online experience. Everything that is technology in Copart is being overhauled, and that is simply to make us a faster and easier more comprehensive and more transparent company to do business with. It will change the user experience at the facilities. It will change the user experience online. It will change the user experience when on the phone calling in to talk to our team.

Most of these systems we think will be happening -- most of these system changes some of them have already taken place, but the ones that have not most of them will be happening in calendar 2012, and so we anticipate being fully complete with that in the end of fiscal 2013. We have talked about that on some previous calls, but I wanted to give you an update and let you know that it is going very well. We are excited about how the team is doing on that, and we have just got a lot of good stuff going on at Copart. So right now what I will do is I will turn it over to Lisa, and a Lisa, we would like to open it up for any questions that we may have. Thanks.

Thank you. (Operator Instructions). We will pause for just a moment to give everyone to an opportunity to signal for a question. We will now take our first question from John Laval what with Merrill Lynch.

Hey, guys. Thanks for taking the call.

Good morning, John.

First question for you. Looking at the yard margin seemed to be a little bit lighter than I was expecting in the quarter. Were there any factors that you could point to on that?

Will.

It seemed to be lighter than you expected?

A little bit, yes.

No. I think this is in line with our expectations. And actually we had a nice growth in yard margin on a year-over-year basis expressed as a percentage, and that is the result of simply more volume going through our system, which is primarily fixed cost.

Okay. Fair enough. Maybe I am off on my calculations. Second question is given where the stock price is today, I mean do you guys still consider yourselves to be -- to be buyers of the stock?

We talked about that in the past. The Company generates a significant amount of cash, and that will be used to expand facilities, add new facilities to the Company, the potential to buy stock back is there, the potential to acquire companies is there, and we do not on the calls break out how we are going to do that and lay out a strategy, but that is definitely one of the options, and you have seen the trend in the past. That is probably the best way to think about it.

Great. And if I could just one last one in here. It looks like the tax rate was a little bit lower than historical quarters. I mean is that a reasonable rates to use going forward around 35%?

It is. We are fairly efficient in our tax strategy. We have been able to source a lot of our -- revenue to states with preferential take rates. We are able to source some of our revenue internationally at lower tax rates. So I think going forward 35% is probably fair.

Great. Thanks very much, guys.

Thank you, John.

And we will go next to Jason Ursaner with CJS securities.

Good morning.

Good morning.

Congrats on a very strong quarter. Thanks for taking my questions.

Thank you.

Will, I think you mentioned you continue to build inventory in the quarter. I was just wondering what the typical inventory growth in total units, agency and principal during November through January would be and then given you were starting from a high base with the summer and are now dealing with an unseasonable warm winter, how did you actually fair in inventory growth compared to that historical.

Well, our inventory grew as it always does due to the seasonality of our business. You are right the growth this year is -- more modest than the growth it was the same quarter last year, but without getting into specific numbers which we do not do I can, I can just address the trend which I think I just did so -- and that has somewhat beneficial impact on the margins as well as now with the accounting we do not capitalize all those costs of recovery in inventory. They flow through. So at this point we had a little bit smaller amount of recovery cost expressed in our yard and fleet cost.

Okay. And just on the cash flow statement where does sort of the towing and title change where does that exactly flow through if it is not a principal loan unit.

In inventory and vehicle towing costs.

Okay. And then just a quick question on sourcing vehicle supply. Within the insurance salvage I realize the overall pool is driven by these exogenous factors, but do you have any influence over volume from nonexclusive customers through your own incentives to get more volume through you through pricing or other ways.

You are always trying to grow market share, and you are always working with clients at the local level in addition to a national ,and we are very aggressive. I mean we are very a very competitive Company, and so yes, I think we definitely have influence on driving market share. As most companies I would say do. I am also a little bit confused by the question to be curious.

Well, I guess I am asking if there are less vehicles coming in the winter period because of the weather. if you could continue to fill your yards with incentives or if - -

Oh, it has been a lighter winter. I mean everyone knows that. It has been a lighter winter than normal years, but we have continued to build inventory in the quarter, and we have continued to have significant market share gains, and so we anticipate volumes going forward are going to be up.

Okay. Great. Thanks a lot.

And we will now go next to Scott Ciccarelli with RBC Capital Markets.

Hello guys.

Hello, Scott.

I guess one of the questions is probably follow-up to that last answer you just quantify. We could see a nice improvement in units volume. Can we be any more specific regarding where the unit growth came from, and how should we think about the sustainability of the improvement going forward?

Will gave you some pretty good specifics of 6% insurance, 8.1% noninsurance. So we are growing units across the Company. The noninsurance business is growing a little faster than the insurance business, which is to be expected. But we are continuing to grow volume across the Company. I think there is a conception out there that it is a shrinking industry, and we just do not believe that is the case.

We have talked about it in the Annual Report, We have talked about it on prior calls. This is a market where ASPs are increasing. There is a demand for vehicles out there due to a short supply of new vehicles over the last three years, and the average vehicle in America is aging, and when vehicles age they are more likely to be total loss. It is much easier to total a five-year old car than it is to total a one-year car with similar damage. So we do not view it the way alot of the analysts view it, and I do not know what to tell you other than that. I mean the results I think are showing at this point.

But to be fair I mean the insurance volumes certainly I think -- I will have to go back and check my notes was better than what we have seen the last two quarters. So I am just wondering if there was any kind of change that helped propel that.

Well, we have continued to see growth in our core business, and we had some very big wins back in calendar 2010, fiscal 2011 that we talked about and some large market share gains in unit growth back then. I honestly do not think about the business quarter to quarter. I think of it much more over -- a year to five year horizon, but the volumes are continuing to come up, and as we said, we want to make sure that we are giving as much information to the investment community as possible, and we have had market share gains in the past, and we have had market share gains going forward. The Company at this point we believe will be doing more volume over the next year.

Okay. And then I guess my second question is are you all -- at all concerned that you are trying to touch so many different systems in a short period of time with project Overdrive, and if you guys were to have an area of concern where you are maybe pushing the envelope too much in terms of change for the organization? Could you kind of highlight that for us.

Sure. We internally talk about ourselves as change centric, and that is an internal term that we use about Copart. I talk about the system piece of overdrive because I think it is something that the street can see, and it is a very tangible thing, but we are changing alot more than that right now. The move to Texas alone is a big deal as well. So there is alot of change happening at Copart right now. We are always concerned about making change and how we address change, and how we handle change, and when we do things that make sense we are happy, and when we do things that do not make sense we do not continue with them. We change them, and we fine tune, and sometimes we even go back.

So we know how to manage change. I feel very confident in the team. They are really, really good when it comes to managing change. So I am definitely of the mindset that it is something that we need to watch. We are as a team doing that, and so am I concerned about how we implement that change? Yes, I have concerns, but I am not worried. If that gives you any feel for it.

Yes. No. That is helpful. Alright. Thanks a lot, guys.

Thank you.

And we will go next to Scott Stember with Sidoti & Company.

Hey Scott.

Hey Jay. How are you?

Good.

Will, could you just remind us with the new accounting rules that are in place how we should look at the yard margin on a seasonal basis, particularly for the back half the year versus the first half of the year?

Sure. It has to do with growth in inventory. So in quarters in which you grow inventory it has a suppressive impact on your margin percentage because you have to plush through much of the recovery cost as opposed to formerly we capitalized that in the balance sheet and recognized that at the time we sold it. And so consequently, you will see nice growth in our margins percentage in our third quarter when we sell off the inventory that we have accumulated in our first and second quarters. If you look at last year, I think there was about a 460 basis points increase on margin percentages between our second and our third quarters, and you will see that same movement, maybe not that magnitude, but that same movement this year.

Okay. But to that point if you are having -- if there was less weather and less cars that possibly came in the inventory they might be an offset with lower volume coming through but higher margin is pretty much what you are saying?

That's right. It has that effect on your financials. So - -

okay.

Because there is a difference in the period in which you collect a car and which you recognize the revenue, I will just restate what I have said previously. When you grow inventory, you have lower margin percentages.

Got you. Okay. And as far as G&A goes could you just talk about what the move costs again are expected to be at the end of the day, and as far as the new IT system and this project Overdrive it seams like most of it will be capitalized at this point and how much, if any, will come through to the income statement?

Right. We havealways said that we anticipate the costs of relocation to be around $5 million. It may be a little less then that. So far we have recognized $3 million. The timing of the balance of recognition of that is uncertain because it has to do with when people decide to move.

In terms of the S A P project, we still think those total costs to be around $35 million range, and once we start to utilize that system, which we think will be towards the last half of fiscal 2013, those costs will roll through our income statement as amortization. So depending on the life that we ascribe to it if it is seven or ten years it could be anywhere between $1.2 million and $1.6 million of extra amortization per quarter.

Got you. Alright. So moving back to Jay's comment about the SG&A leverage we should see similar range for the back half of the year, but I guess it depends on the timing of when the balance of those relocation costs.

That is correct.

Okay. Last question. Jay, could you talk about the UK, the trends that you saw there and if anything has slowed down whatsoever?

Yes. Sure. No. The UK is doing fantastic. As we have talked about in previous calls, we have got all of our locations fully integrated, and we have continued to see growth in that market. We have got high ASPs, high average selling prices in the UK as well as high unit volumes. So our team there is doing a fantastic job, and if there is anything specifically that you want me to comment on, I can, but in general they're doing very, very well and we are happy with the results.

Got you. That is it. Thank you so much.

All right.

And now I will go next to Gary Prestopino with Barrington Research.

Hello. Good afternoon or good morning, Jay and Will.

Good morning.

Couple things here. Number one, Jay, you know, that large contract that you took a year or so ago or two years ago have you lapped that in terms of full implementation on a quarter to quarter basis , and what I am getting at are we looking at an apples to apples comparison

Yes. Yes, we are. Yes. We had a full run of that account back in the second quarter of 2011 and a full run today in Q3.

Okay. So - -

Or Q2.

Ok That is volume. That's great. And then could you maybe address -- I am looking at the gross margin in the UK, and I am using sales minus cost of vehicles and, it looks like it was running in the 14%, 15% throughout fiscal 2011, 14.5 in first quarter and now it dropped to 12%, 10%. Could you maybe address what is going o on there?

Yes. The -- again, you have got rising ACVs right now both in the US and in the UK, and we pay a percentage of ACV, and so when ACVs drop we get a significant benefit of that under purchase because the cars typically do not drop at the same rate, and when ACVs go up it has a negative effect and, again, because vehicles do not go up at the same rate, and then parts of it is just mix. It is the type of cars that we are selling as well, but primarily it is ACV.

Okay. So in the UK what percentage of the cars are you still purchasing,I do not know if you mentioned that in the report.

Will, can you comment on that ?

Yes.

It is in the high 20% and let me add to this, Jay. The absolute amount of contribution for the purchase cars on a per-unit basis is higher this quarter than it was the same quarter last year despite the fact that on a percentage basis it is lower. Does that make sense, Gary.

Yes. Got it. All right. A couple of more questions here. The price of your ASPs you said they are up at record levels, but as looking at least the wholesale car data, it looks like prices have flattened out over the last say six months. So obviously there is probably increased demand there for the cars that you are selling. Could you help us out.

Yes. No. We believe that is exactly the case. We have been -- due to our marketing efforts, and we have made a number of changes in our strategy since we implemented a very aggressive marketing campaign in 2009, but we have deployed alot of money towards bringing in additional members that eventually become additional buyers, and we have seen alot of success in that. So we definitely believe in our technology and our auction platform and our ability to drive demand and that is the case.

We are -- again, that is another reason for the increased market share on the insurance side, it is another reason for the increased market share on the noninsurance. It is -- this is all supply/demand, and if you cannot drive demand, you are not going to build ASPs. And so we think we are outperforming the market at this time. We are doing -- we have got a team that is really, really knocking the cover off the ball right now, and that is a good thing.

So you are seeing the network effect. Could you give us any idea of just over the last two years or so just how much you have increased your members on the buy-side?

Oh, yesIt is six digits. I mean it is over -- it is well over 200,000 new members a year. We are doing some very aggressive marketing to bring in additional members, and we are expanding that member base a big way. The last decade was about interstate selling, and then eventually that became out of country bidding, and today I would tell you we are in the third chapter, which is really just being very dynamic in our approach to bringing in members, and the way that we put cars up on the web, the way that we reach out to members to make sure that they see cars that maybe they missed so that they bid on them before the auction comes up, that kind of thing. We have got a lot of analytics that we are working, a lot of metrics that we are working and yes, we are seeing some big, big improvement there.

Well, could you -- I mean I do not know if you make this public, but do you talk about just how many members are buyers are your buyer base?

Oh, yes, I do not have the number off the top of my head, but the member base is well over 20,000 new members a month, and then our conversion ratios could just continue to go up. Our goal is to get them to bid. I have talked about the process before where you want to sign up a member then you want to get a member to browse the website and bid on a vehicle and then become second high bidder, then become high bidder and actually buy a vehicle. So you have got to walk through that process, and we are just continuing to improve there, and I think we will continue. That is really the question is are we going to on it to improve in the area, and I believe fundamentally we will.

This is an important part of what you are doing. Could you talk about what the conversion rates is are is that something you cannot share with us.

Yes. I can tell you that the converse rate is improving dramatically month to month to month, but no, we do not give out all the simply because there is a lot of what we do, not just in a inquiring a member and converting a member to becoming a buyer, but there is a lot in what we do in the interaction with members in the data sharing with members. There is a lot of things we do that we think are special sauce for the Company, and we will continue to do that, and the results will continue to reflect that, and we do share that information with customers obviously, with sellers, and we have had market share gains in the past, and we think we will continue to have market share gains because of that.

Okay. And then one last question. You talk about you are going to step up your CapEx. Did you give a number for what that is going to be for the year?

We may have given a range, but I am not sure. Will?

No, we did not.

Okay. And I prefer not to right now. We have got plenty of cash. So I will tell you that we are not worried about not having enough cash to manage the CapEx. I just wanted to talk about in the call because CapEx was below $10 million last quarter, and we are very confident at this point that it will trends above that. We have got some deals in the works that are coming out. We have got capacity across the organization, but we have had some significant market share gains recently and there is going to have to be some cash deployed towards expanding existing locations and even added some l locations to the Company.

So does that change your thoughts as on capital allocation maybe where you were six months ago to now the fact that you have got these facilities that you need to spend some money on and/or is there an appetite to add more depth to the balance sheet?

Well, okay. I was going to try and give you a quick answer, but that evolved into more than one question. As far as our outlook on stock buyback I wouldn't say it changes it. I would say that we all through fiscal 2010 and fiscal 2011 saw this growth that was coming down the line. We created it by spending more than we had previously, and basically priming that pump, and now at this point what we feel internally is that we can hold costs while growing revenues, but there will be -- we knew that back then. We have got over a dozen facilities that we own that we do not even talk about. They are not listed as one of the Copart facilities. We consider them in holding, and so that the day that we need to add another location in that market we will just turn that facility back on, and so we have got a. of those scenarios.

We have got hundreds and hundreds if not thousands of acres that have not been developed yet, but are adjoining the yards that we own. We are very long-term in our view, and if there is an opportunity to buy land next to a facility that is at 80% capacity, we will buy it knowing that two, three, four, five years from now we are going to need to expand that, and we would prefer to have 150-100 acre locations than to have a 1000-15-acre locations obviously. So our goal is very much geared and driven towards expanding existing facilities before we add additional facilities, but nonetheless we are going to be doing both. In the next year we are going to have to do both, and we will continue to look at our stock as another growth driver for the Company as we have done in the past.

Thank you, Jay.

Thanks, Gary.

And we will go next to Ryan Brinkman with Goldman Sachs.

Hello, Good morning and congratulations on an excellent quarter

Thanks, Ryan.

Obviously you had a very strong gross margin rate quarter on the agency side. One way at that look at this is you were able to grow your agency revenues by $15.9 million year-over-year while growing your yard and fleet expenses by just $0.1 million. That seems really surprising. I would say that -- I would have thought that there would be more variable expenses associated with the increased volumes. So my question is how are you able to achieve 99% incremental margins at the gross profit line? Is that at all sustainable.

Yes. I am just going to jump in there for you because we said in the past, in fiscal 2011 calendar 2010 and calendar 2011 that we were gearing up. You have seen big increases in operations expense, you have seen big increases in G&A expense, and so we have geared up in a lot of markets to be able to handle additional volume that we believed at the time was going to come in, and we will be increasing it. We are not going to hold it that tight. There will be some increases. We had a recent large market share gain that came onboard, and so we are going to be adding additional people to the Company. So you will see some additional costs, but as I said in the opening remarks, we will be able to hold our expenses down relative. You will see a margin improvement relative to the revenue growth in the Company because of prior investment in the past and because it is the nature of a fixed cost business.

That's great. In regards to this business when -- is this the first time you have referred to it, and how does it compare like in terms of scale to for example the Allstate's business one which was fairly transformative.

Right. Well, it is similar in size. And it is similar in size in terms of new units to the Company. Obviously, we are a bigger Company today. So as a percentage the total Company it will be smaller in that regards, but yes, it is similar in size.

Okay. Because I note that a caller on their call yesterday suggest that they recently lost R&P. so -- okay. So it is going to be very significant in size. Okay. And then just my last question in trying to understand the gross margin a little bit more obviously you answered it very well. It seems like you are taking off some of the more discretionary expenses. There were some very well expenses, but you are taking off some investments that you can now lever.

What about the building of inventory during the quarter? I mean there is an idea out there that that were fewer accidents in the month of December. A lot of companies have talked about the warmer weather, and I think K Q on their call even mentioned there were fewer accidents. So you mentioned that you are building inventory, I guess that is because of your business wins, but was there less building of inventory because there were fewer accidents in December and could that have somehow helped explain the awesome margin performance, or am I just barking up the wrong tree there.

The awesome margin performance is the additional units going through a company where we are holding costs. Why are those additional units taking place? Why those additional units are taking place? Well it is definitely not weather. We have seen the mildest winter I have seen in a long, long time.

Very, very mild winter, and so it is not winter, and it is market share gains, and the only way we can break that out is look at where we have 100% of the business and then look at contracts where we are adding volume and trying to break that out, but I would attribute our unit growth to some seasonality even though it is a mild winter it is seasonally going to be more volume in second and third quarters than in the first quarter. So some of it is seasonality, but the majority of our growth going forward is going to be market share gains. I mean it is just the nature of where we are at right now as a Company.

Okay. And then just very, very last question. What is your latest thinking this long dates, but in terms of the timing of when you would actually build the physical yard in an emerging market?

I do not understand the question.

When would you expand your operations, not to sell to people in emerge markets, but to actually build yards salvage facilities in an emerging market.

Emerging markets like other countries International?

Yes.

Yes. We talked about that in prior calls. That could happen as early as this fiscal year. And will definitely happen in fiscal 2013. That will be something we will be pushing hard. So how much that growth will we see, and that is all to be seen, but Copart has not been shy about the fact that we are going to have an International expansion. There is -- this is a unique business. I do not think when Wal-mart opens up in England and has that they get additional buyers in England that help their Wal-Mart stores in the US. Copart is the exact opposite of that experience.

As we open up other locations in other countries it is every bit a - - an accumulator of members and buyers, and so as we open up in other markets, we not only do business in those markets, but we bring additional buyers into the Company, and then course that makes it a much more competitive environment. This is a complete supply demand story if there ever was one, and so as we bring additional volume in through increasing the market through market share gains, through weather whatever the scenario is that is causing additional volume you have got to have additional members, and so as we expand internationally that will be the case. It has been in the past, and we know it will be going forward. Everytime you open up a location in another market they learn about you, and then they start to buy from you. This is very much an interstate business today.

Somewhere around half of the cars t hat are sold in any given state on average will either end up being pushed by a buyer from another state or pushed by a buyer -- or bought by a buyer from another state. And let us just excluded the International stuff for a minute. You do not - - this is not a localized market. When I got into the business back in the day it was very localized. You saw buyers in the city that the auction was in buying in that market. They may drive 100 or 150 miles to another market. So it was a very localized market. Today it is very much not only a national marketplace on what products selling, but it is very International, and so there is no question in our mind as a team we view the success of Copart as expanding that network of facilities across the globe and increasing the marketplace and making it much more of an International business.

Interesting. Thank you very much.

Okay. Thanks, Ryan.

And we will go next to Bill Armstrong with CL King and Associates.

Good morning Jay and Will. Most of my questions have been answered, but did you give out the same store revenue increase for the quarter?

No, Bill, we stopped giving that because it was just too complex and there was too many variables when you have got CapEx and migration of contracts between agency and revenue. so in the last oh, probably three or four quarters, we have just talked about same-store sales in terms of units. Which we gave out. It was 5.2%.

Got it. And then on the volume growth on the vehicle sales side for where you are purchasing and buying for your own accounts what was the volume growth there? I am not sure if you gave that out.

I did. It is 2%.

2%.

Primarily resulted from an acquisition that we made last March in the UK.

Got it. Okay. Thank you.

Thanks, Bill.

(Operator Instructions). We will now take our next question from Craig Kennison with Robert W. Baird.

Hey Jay and Will. Thanks for taking my question. Many have been asked so I will shift gears and ask more of a cultural question, but how much of your staff in California has sort of turned over in the move to Texas and has that been a challenge to manage -- or to really preserve your culture in that move?

Yes. We have got an amazing culture. I will not go into specifics, Craig, on the and numbers and that portion of it, but I will just tell you we have an amazing culture of folks, and we are maintaining the culture, but we are changing it. Copart has and through Overdrive we have talked about being a faster, and easier more comprehensive more trans parent Company, but if I were to -- if I were to sum it up into a couple points, we want to be much more of a yes, we can Company. If you want us to do something we want to be aisle to do. We do not want to find the reasons why it is a difficult process. We want to find the reasons why we can definitely do it, and we want to be scrapie, and I say pun intended, but it really is in the term in the true sense of the -- of the word.

We want to be as nimble as possible. We want to be a company that we can change direction quickly, we can deliver rproducts quickly, and that culture is stronger today than it was six months ago. We are pushing harder and harder and harder to be a faster, more responsive company to our customers to innovate at a quicker pace, to develop products at a quicker pace, and I do not just mean technology. I mean products at the locations, I mean the -- way that we interact with the customer, the way that we service the customer. So the culture is stronger than it has ever been. It is definitely changing. There is no question about that.

We are definitely in an evolutionary, In fact we had a meeting, and Allhand's meeting last week, and I told the team that Copart has gone through an evolution in the last decade. We are now in arevolution. We are really, really changing the core of our company and how we are thinking about our market and our customers, and how we interact twith those customers, and we are here to serve. We are here to please and we have got a great team, and we are going to do that, and the folks that are staying with the Company will do it, the folks that are coming onboard will be geared towards that culture for sure without question.

Thank you. And then a different question on the topic of China one of your competitors has a partnership there. It sounds relatively small today, but it is a deal to move end of life vehicles to that scrap market. Is that an opportunity for you?

Yes. We have the same partnership with that company. So we did not feel like it was really something that we would talk about simply because you have not seen us talk about the customers that buy from us in Abu Dhabi or Dubai or Lithuania, Guana, or any of the other countries that we sell to. So it is just another customer, another marketplace that we have got, and we quite frankly have been selling to Asia now for quite a few years through Taiwan and through some of the other nations in that marketplace. So we are comfortable with it, we like it, it's a good thing, and that is really the story.

And then last question. Has there been anything to your fee-structure or pricing ladder or is all the growth driven by other factors?

Yes, You know we do not talk about pricing on the calls. So I am just going to move right on from that one, buddy.

Thank you. Appreciate it

Okay. Thanks.

And we will now take our last question from Jason Ursaner with CJS Securities.

Thanks for letting me take a follow-up here. Just on the inventory growth and the impact on margin, you mentioned that insurance volume was stronger than normal seasonality since it was helped by the summer and that inventory did grow -- it grew but more slowly than normal because of the winter, but then I thought you also mentioned year-over-year volume growth in salvage being sustainable. So I am just a little - -

You are a little confused?

Yes.

So if I look at September right now, September will be more units sold -- I am sorry. September. February will be more units sold this year than last year. It is a leap year, so I have not broken it out on a per day. I just looked at it for the month so far and we have got one more day to go here, but it will be bigger. A number of things could happen between now and the end of the quarter. We have got two more in the quarter, but at this point yes, we have had a soft winter. There is no question, but we have had a lot gains on the insurance and noninsurance side, and so we anticipate going forward not just Q3 or Q4, but going forward into the next year that we will be selling more volume year-over-year.

Okay. And then I guess maybe just a different way. The inventory growth I mean can you put a number on it.

No.

You mentioned in your filings the typically do 10% to 30% more there .

No. We do not give numbers in terms of inventory or units sold or any of that. We can just give you the trends.

Okay. Thanks.

Alright. Thanks, Jason.

And that concludes today's question-and-answer session. Mr. Adair, at this time I would turn the conference back to you for any additional or closing remarks.

All right. Thank you, Lisa, and thank you to everyone else who came on the call and for asking the questions. We were pleased obviously with being able to report the quarter to you. We look forward to reporting Q3 and four and then giving you some update son how we think we will be doing in fiscal 2013. That concludes our call. Thank you muchBye, bye.

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