Copart Inc (CPRT) 2014 Q2 法說會逐字稿

Good day. (Operator Instructions). For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, CEO of Copart, Inc. Please go ahead, sir.

Thank you, David. Good morning, everyone. It is my pleasure to welcome you to our second quarter conference call for fiscal 2014. I will turn it over to Will Franklin who will do Safe Harbor, go through his prepared remarks, the turn it back to me for some brief remarks and then we'll do Q&A. Will?

Thank you, Jay. Good morning, everyone. Before we begin our comments I would like to remind everyone on our call that our remarks will include forward-looking statements, including statements concerning our views of trends in our business. These are not promises nor guarantees and subject to certain risks and uncertainties that could cause the final results to differ substantially from those projected or implied by our statements comments. The Company expressly disclaims any obligation to update or revise these 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 risk factors in our 10-Q and 10-K and other SEC filings.

With that, I will begin with a few brief comments about the financial results of our quarter. Total revenue grew by $20.2 million. Purchase car revenue grew by $1.4 milliondriven primarily by growth in Europe. Service revenue increased by $18.8 million. The increase resulted from growth in our international operations which included the acquisitions in Germany, Spain, United Arab Emirates, and Brazil, for approximately $1.1 million. Growth in the UK of $5.2 million which wastied to recent market share gains, and $12.5 million in Copart US.

In the second quarter last fiscal year we had an additional extraordinary revenue as a result of hurricane Sandy. Excluding the Sandy impact, we calculate Copart US service grew $29.3 million, or 16.5 %.

Total worldwide sales volume increased 10.9%. In the US total volume increased 10.1%. Excluding the Sandy impact, total US sales volume grew by 18.3%. In the UK volume increased over 22%. In the US on a same store sales basis, and excluding the impact hurricane Sandy, volume grew by almost 8% as we are seeing growth in both our market share as well as growth in overall market size. A salvage frequency we believe is increasing. In the UK, our same store sales volume increased 22% as all growth came from market share wins and market growth. In North America non insurance car volume grew by over 22% and represented 19.5% of the total volume.

Sales continue to lag behind the build in inventory. On a year-over-year basis our North America inventory grew 14.2% excluding the Sandy impact, it grew by 27.3%. In the UK our inventory grew by 17%.

Yard operation expenses were up $5.3 million. The growth was driven by increased volume and, excluding the impact of Sandy which added approximately $20 million in extraordinary costs in our results in the same quarter last year, we saw an increase in overall cost to process each car. The growth and processing cost, excluding Sandy, were driven by the growth in our international activity outside of the UK as these operations are in their developmental stages without the benefit of scale. The additional costs associated with the QCSA migration, with it's inefficiencies, and which included lease terminations, severance and relocation costs of $2.2 million. And a general increase of our sub haul employee costs. The growth in employee costs were lead primarily by increased medical insurance costs.

We expect to continue to rationalize existing QCSA costs as we adopt the most efficient plan for processing its volume. We expect lease termination, relocation and severance cost to continue into our fourth quarter.

General administrative costs grew $6.3 million over the same quarter last year. The increase was due primarily to additional costs tied to our international expansion which a totalled $900,000 which will continue,a $3.7 million increase associated with the QCSA acquisition of which $500,000 was for severance and relocation. These restructuring costs will continue into our third and fourth quarters. We expect the QCSA G&A costs to be approximately $1.5 million per quarter when fully rationalized. And approximately $1.8 million in relocation of severance costs associated with relocation of our technology group from California to Texas.

In total we incurred approximately $4.5 million in severance , lease termination and relocation costs of which $2.2 million was reflect in our yard and fleet costs, and $2.3 millionwas reflected in our G&A costs for the quarter.

We ended the quarter with over $46 million in cash. We expanded approximately $30 million for capital assets. Primarily for the expansion of the existing facilities to accommodate the growth in inventory. Also included in the $30 million is the buyout of two of our existing leases.

Finally, we expended approximately $14 million for two acquisitions. During the quarter we had no open market share repurchases. We have almost $48 million remaining in our current repurchase authorization. That's concludes my comments. I will now turn the call back to Jay Adair for more color on the quarter.

Thank you, will. Again, good morning, everyone. As you can see we had a really, really big year and a really big quarter.

The first thing I will talk about this morning is just inventory builds. The Company would typically seeing winter inventory peaking sometime in mid-January. We have peaked right now at February 12th and as of Monday, the 24th, that inventory is down about 1% from the peak. So we would typically expect to be down significantly, but we continue to see large, large volumes. The volume that was assigned Monday and Tuesday this week already far away exceeds what we would normally be doing. So it is a combination, as Will already discussed, of volume coming in from increasing market share, from increasing market size, from QCSA and from weather. I'm sure there will be some questions on the breakout of those mixes.

Some of it is easy to tell because we had the acquisition of QCSA. Some is hard to tell like weather and market size or market size growth.

We did see some large improvements in market share last year. The industry consolidated more toward two players, and we saw a number of smaller companies in the industry lose business to both us and our competitor. It has been a good year from that perspective and it has been a big year for transitions.

As Will discussed, we have completely moved our operations from California and we are completely focused on getting the team that is running in Dallas at optimal performance. We are really enjoying having everybody in one building again and having the transition we talked about back in 2011 with project overdrive behind us.

When I think about where we are going to be in this quarter, we are going to have record number of units being sold, record revenues with respect to the same quarter a year ago even though we had Sandy involved, and then Q4 is just going to be a very, very big, big quarter as well because inventory we've got does have to go out.

We've got existing locations of 183 locations currently. We acquired QCSA back in may with 39 locations. I wanted to give you an update on that.

We added out of the 39 locations, we have taken advantage of using 20 of those locations , but in doing that we only have 11 new stores. The way that we handled that basically was we turned nine of those locations into sub lots. These are yards that are for instance 10 acres we take that facility and store cars at that facility, but we don't put a building on it, we don't staff it as a full on operating facility with all of the costs associated.

We have a number of sub lots across the company at various locations as we expand. Often you will see CapEx for acquired land and improvement of that land, but we don't necessarily add additional locations and that's because we handled that through sub lot expansions. Sometimes we do that through adjacent expansion of property right next to our yard. Out of the 39 locations we utilize 20 stores, 20 locations, 11 of those are new locations for the Company. Nine are sub lots, and roughly 19 of those locations have been eliminated. We have gone through the process of exiting leases and moving cars and doing that. There is a lot of cost in this quarter and next quarter associated with that transformation.

We have also got the process of moving the home office functionality to Copart and eliminating the HQ for QCSA. That business or that division, that HQ, is reduced to about 20% from 100% in May in this quarter. There is a little that will trail into Q3, and a small bit that will trail into Q4, both in G&A and in operational expense. But we expect to have the integration of QCSA completed by the end of the fiscal year.

Also in the quarter we made an acquisition in Montreal, Canada bringing our total locations in Canada now to five. That really concludes my remarks. I am going to open it up for questions because I believe there will be a number of questions around the growth we have seen in the quarter. David?

Thank you. (Operator Instructions). Our first question comes from Phil Armstrong, with CL King & Associates.

Good morning, Jay, and Will. Would you happen to have the same store inventory growth for North America? That may clarify things a little bit for us.

It is in excess of the same store sales. It is around 10%, I believe. Let me get that number and confirm it before we exit the call.

And to clarify, that inventory, That's not balance sheet inventory. That's just the number of vehicles you have in your lots, right? Whether they are owned. And most of them obviously being consigned?

That's correct.

Okay.

I've got that number. It is closer to 14% same store sales basis. And what I was referring to the 10%, a part of that 14% growth is is attributed to delayed cycling time, processing time. So our days of inventory increased. So the part of that growth that is ascribed to the market share growth is 10%, or 11%.

I see, okay. And on QCSA, just so I have this straight, you bought 39 locations,19 have been eliminated,9 have been turned into sub lots and then 11 are operating as they were? Do I have that right?

As actual new stores. I will give you Sacramento as a prime example. They had a location in Sacramento, and we had a location in Sacramento. We were able to move over to that location and not have an additional store and have an additional sub lot. That would be the one's where haven't done away with the property in Sacramento. 19 locations have been given back to the landlords, 11 locations are new actual yards for the Company, and nine of the locations we kept because we needed the capacity, and the land. They have been turned into sub lots.

Got it. Thanks very much, guys.

You're welcome.

Our next question comes from Bob Labick, from CJS Securities.

Good morning.

Hi, good morning.

I wanted to start on the ITside. Maybe you can remind us of the scope of the projects, and the timing of the projects you are working on. I am talking about the out sourcing of your internal ERP, and also about moving to a VB3 and foreign languages and stuff like that. Give us a sense of the goals there, the costs you have ahead of you and the future benefits you expect to get when these are all wrapped up.

Sure. Well, that project started at the beginning of overdrive. There was a delay that was caused because of the move, making the decision to move the Company. There was another delay caused by them finally moving the technology team to Dallas. I hate hindsight because I didn't have hindsight three years ago, but in hindsight I would have moved everybody up front and not put off that move. But that team has been successful in delivering the new third generation technology on the mobile platform, the new third gen, VB3 technology on Copart.com, on our new website. The website has been in data for six months. If you go back to Copart ten years ago we would have launched a new website and put it in. We can't do that kind of stuff today. We do way too much volume and have too many transactions to just hotshot something in. That's been in beta. We have modified, my goodness, over a hundred new things on the site in the last six months and we are coming out of beta now. We expect to close beta down next month. We would expect to close beta down next month. We would expect that our current website be replaced in Q3, no later than Q4 with the new website. That new website has a number of new functions. Third generation option technology and multi language capabilities. Much more user friendly. I would encourage you to go to both sites . It is obvious why we are rolling out the new site. It is a much better product. That will be taking place this fiscal year. There will be some enhancements coming in the new fiscal year, to build mobile, and to Copart.com and that will continue . It is written in the most modern lapping and the most modern architecture. It really is a state-of-the-art system. That's exciting.

The ERP side, we will be launching our expectations in this calendar year, not fiscal, but calendar year and have that system in place. And then we will be rolling one yard at a time the same way we implemented the new system in 1997. We are not going to do a hard cut over and convert 183 locations. We will be going one yard at a time. Having costs associated with that you have to carry the cost of a legacy system and a new system as you do it. We feel that's the right way to handle a transition like that . So there won't be any material improvements to operating costs in this fiscal year or the next fiscal year with respect to technology as we are rolling that technology in and transferring from legacy to the new ERP system. And then what you will see is the elimination of duplicate costs and having a beta website and a duplicate cost of having a legacy system. That I suspect will happen fiscal 2016. Right now our focus is getting quad city's and DBAAintegrated. We will have that done by end of the year. As I said, we have really already done QCSA, that's integrated with a small bit we have to do on the G&A front. DBAA will come in toward the end of the fiscal year. That's been the focus because that large acquisition we made in May , and the large market share gains we have been spending a lot on expanding yards and existing locations, and integrating all of these facilities that we talked about. Volumes are up significantly as you heard from inventory and current sales.

The fact that we are selling more volume and higher revenues this year when we had hurricane Sandy a year ago , if you would have asked me that on a call a year ago I would say that is not going to happen. For us to be in that position was definitely unexpected. Our focus has been on existing volumes, existing customers , integrations of those companies, transition of the Company from California to Dallas, and then this transformation piece of technology. That has been delayed a bit, but it will be coming. You can expect us to talk about it in fiscal 2015. We will talk about technology and transformation in fiscal 2015 and 2016.

And let me add another comment on that issues. We will be utilizing the ERP system for not only operations but for financial reporting. The roll out of those two functions are not necessarily linked. In fact, we have had a successful installation of the financial system financials in Germany and we expect to be rolling that out in the course of the next four quarters.

Great. That is very helpful color. I appreciate that. And one more question, back to the volume increase in the inventory increase you talked about the last couple quarters, the cycle time difference, has there been any change there, or do you expect that to catch back up at some point? Have you identified what has caused it? Put a little color on that and when you think you will get more bringing cars in and getting them out at the same pace you used to?

The cycle times are not up. We can look that up when we are sitting here chatting and come back. They are not up in some huge, huge way, but I will quantify it for you in a minute by looking it up. The vast majority of the volume increase or the inventory increase is assignments. We are doing record assignments through November, December, January and now February. The numbers I looked at for Monday and Tuesday are way ahead of what we thought we would be seeing by now. Volumes should be dropping off. Inventory should be selling. That's the normal part of the business. We are not seeing that right now. We are seeing a continued increase in volume. We are selling the cars. We had a record month in January, but we had a record inventory because so many assignments are coming in. Let me quantify for you in a minute what the cycle time change has been so you can get a feel for that. I'm just telling you the majority of the inventory build is volume.

That's fantastic. Thanks so much.

Our next question comes from Ryan Brinkman from JPMorgan.

Hi, thanks for taking my question. I wanted to focus on the 23.7% year-over-year increase in inventories ex-Sandy because I know that's a very large increase and also has the potential to depress your earnings during the quarter, but boost your earnings in subsequent quarters. I presume the 27.3% increase includes the impact.

Ryan?

Yes, can you hear me?

Yes. I'm sorry we got chatting on the very beginning. I wanted to make sure we were talking to the right guy.

I presume the 27.3% increase includes the impact of QCSA. Can you say how many inventory would have increased ex-QCSA?

We did. It was the same store sales inventory growth asked earlier. It was between 10% and 11%. My calculations of the impact of cycle time and QCSA, and excluding Sandy , it is between 10% and 11%.

So still very strong. Do you know how much the overall industry might have increased during that period of time?

That's the question we have and it is hard to put your hands around that. The inventory is increasing because the average age of vehicles is increasing. The number of units that are totaling we believe is going up. We believe it is going up because vehicles are aging, but it is also going up right now because of weather. The US is seeing some significant weather and it is creating an environment where we are getting volumes way late in the year. To peak on February 12th, just doesn't happen. We peak in January. I can just tell you that Q3 and Q4 are going to have record revenues associated with selling off that inventory.

So maybe we can't say how much it rose, but it is safe to conclude it rose substantially less than 10% to 11%?

What is the conclusion? What is the question you just asked?

We may not be able to say how much the overall industry rose, but it is safe to say it rose substantially less than 10 to 11%.

I think that is safe.

You mentioned there was a salvage auction market share consolidation in 2013. Can you just state the reasons why the industry consolidated in 2013 benefiting you and your competitor? Was this a trend?

I was going to answer. There was just a benefit to having scale in this business. There is a benefit with respect to pricing. There is a benefit with respect to returns. Looking at options yesterday and we had 1500 members watching and bidding on the auctions. You are not going to get 1500 people to show up to a location when you are a single operator. It is a benefit of being the portal. You are going to find your product at the biggest players in the market. When you are an independent, small guy you will struggle to get the returns and you are not getting any scale. We are talking about investing tens of of millions of dollars in technology. The amount we invest in technology in a quarter is more than these guys generate in revenue in a year. That's not a boastful statement by any stretch. That's a factual statement. How do you compete with the investment and generating the technology and the returns and being competitive on price? It becomes very, very difficult to do that.

So that seems more like a longer term trend. Was there maybe a purposeful scaling back by a specific competitor that benefited you in a step change fashion?

There was a number of RFP's that took place last year. We gained in the RFP's and candidly our competitor gained in the RFP's. It was much more consolidation of the market. There were a number of RFP's that took place with large carriers, with large suppliers. That's just the reality of what happened.

And are you able to say when in the year you began to benefit from this because I'm trying to figure out when you will anniversarize for modeling purposes?

There were a number of RFP's that took place I'm thinking of over five off the top of my head and they happened throughout the year. Part of this is that, and part is the weather and part is the improvement in the market. The best indicator to me of what we will be selling in the future is look at accounts receivable, and you can see sequentially for the last eight quarters what has happened with accounts receivable for the Company , and it has gone up and up and up . We are sitting on a record number of cars. Right now those cars have to sell. They are starting to sell. Monday and Tuesday we saw record sales. They are starting to sell now and they are going to be going out in the third and fourth quarter.

Great. And then very last question, is there anything you can say about your newer operations outside the US and the UK during the quarter outside north of America and UK? I know after you made your initial acquisition of universal in the UK you were on the ground and learned the markets and decided you wanted to fill in different areas. As you are on the ground in those markets now, are you learning anything different?

It is the same strategy that we deployed in the UK. We entered the UK 2007 and you saw a good a few years before we really started to acquire and integrate and implement our process. That's the same kind of scenario we have got in these other markets. We entered them in the last year and it will be a few years before we see us going out and building the network and doing the things we need to do, no different in the UK. As you heard from the numbers the UK is a booming market for us as is the US. These other markets will be similar as we go out and as we start to deploy our suite of services we expect to be successful in those markets the same way we have in the US and the UK.

Great. Thanks for all of the color.

You're welcome.

Our next question comes from Brett Jordan, from BB&T Capital Markets.

Good morning. A couple of quick questions. If we looked at the comp inventory growth, did it grow sequentially in the quarter I guess as we take out Sandy and new points of sale?

It always grows in our second quarter.

Okay. And as we look at the slowing processing, and I might have missed this earlier, is that related to the high rate of inventory growth that we would normalize the process and pace as we decelerate inventory growth?

What slowing process are you referring to?

The cycle time you were discussing earlier.

There is a lot of reasons for the increase in cycle times. A lot of it is because of increased volume and the number of resources that the companies have to clear the cars. At some point they will catch up with the resources to the volume.

And then one last question on quad city. Is the integration of quad city taking longer than expected? We are looking at the fourth quarter, is that something that was factored into your model or is that a slower process?

Not at all. It is going perfectly . We said in the last quarter there would be costs associated with QCSA in Q2 and Q3 and that is still the case. There will be the majority of the expenses will be at Q2 and Q3 and we won't be discussing in Q4 any of the nonrecurring expenses. There will be a tail. There will be some nonrecurring expense in Q4. It won't be a perfectly clean quarter like Q1. That was the point of the opening remarks and the press release. To let you know therewill be some impact in Q4, but it is relatively small compared to Q2 and Q3.

Thank you.

You are welcome.

Our next question comes from John Lawrence, with Stephens, Inc.

Last quarter you gave us the buckets of how those charges would fall and start rolling off. Will, you just mentioned on quad cities . Systems related , does there seem there is a little extension on that time frame and could you quantify that a little bit, please?

It is difficult to quantify on a quarterly basis because they are contingent on certain events, particularly with the severance and relocation costs. I think we will just leave it at what we have said so far. We have gone through the majority of those costs and identified in the last two quarters. We will have tail in our third quarter and perhaps to our fourth. But we would not expect them to be near the size we incurred so far.

And secondly, you have mentioned towing costs, anything there on these contracts with all of this volume.

Towing goes up with the volume, that's a normal part of the business. If tomorrow the volumes have, you would have a lot more towers than you have cars and the cost of towing would come down. When the volume goes up so dramatically, you have towers working a lot harder and you have to bring new towers in. A big part is just that, the volume increase. I want to make sure we are clear on something. It is not going up materially. A material increase in towing costs would be hurricane Sandy. Hurricane Sandy we were paying out silly rates to get cars picked up because you flood the northeast with 80,000 cars in a month and it is a market that does 80,000 cars in two years. That kind of experience is what we saw a year ago. What we are seeing now is just a modest increase in costs as we see increased volume.

Thanks for that color . The last question, any thoughts or can you comment at all on the stock buy back here?

No, no comments at this time.

Great, thanks, good luck.

Thank you.

Our next question comes from Gary Prestopino, with Barrington Research.

A lot of my questions have been answered , but, Will, do you have in front of you what the revenues you derived last year in Q3 from Sandy as well as Q4?

No, I don't have them in front of me. I can provide that off line.

I will circle back to you. Jay, any comments on what is going on with returns and pricing in the market? The index has come down a little bit from the start of the year. Used car values are slipping, albeit not that dramatically, but are you still deriving record return on salvage at this juncture?

Yes, returns started to dip toward the end of the calendar year. They have gone up week after week of a week in a row since exiting the holidays. So from the beginning of the year until where we are at today we keep saying record weeks. This week again is producing record return on pricing. So that is indicative of the last four years. 2008 we saw a dramatic drop. We know what happened in 2008. 2009 was a year of trying to recover. Since 2010 we have seen this increase , this up tick in returns that happens in February. This year it started in January, and again the sales we had this week have continued to be the highest returns we have seen all year.

Do you feel there is further consolidation opportunities for you in terms of what ever little is left in the industry being divvied up between the two major players?

Want to make sure I understand the question. We were passing some notes when you started on that.

In terms of further consolidation, one large come competitor, we lost some business on RFP's. As you talk to the insurance companies are they more in tune with dealing with companies like yourself where your larger competitor versus being with these smaller regional or two-sided players.

There is no question that is the case. As I said in some of the earlier remarks, when you are in a small player in this market you can't get the scale. You don't have the revenues to generate if they invest in technology. You don't have the ability to facilitate improvements. You don't have the ability to bring the buyers in. You can't get enough eyes to look at your product. You can't generate a return. By and large there may be a tiny, tiny contingent of clients that don't see that. I am not aware of who they are. Everybody recognizes that the scale is critical to generating returns and having the best products.

Could you maybe give a comment if you could, given the last year and a half how much you have increased your buyer base in salvage? Is that possible?

I can run next door real quick and get some of those numbers. I don't have them off the top of my head. We are trying to get the cycle time number for I think Bob asked that one earlier. Let me hold on that and see if we can't get it before the call ends and talk about growth in number. I know off the top of my head we are selling a lot more product to a much more distributed buyer base . Meaning buyers that haven't been here a year or less than two years. We'll find out what that is and I will announce that on the call.

I have the answer to your previous question about Sandy revenue. In Q3 it was about $12.7 million . Q4 was about $2.7 million.

Our next question comes from John Healy, from Northcoast Research.

Good morning, guys.

John, if I could just touch on one of these points before we get into your question .

No problem.

We talked about cycle time and the fact that cycle times increase. We have to get another data point, but I will give this one out. Our cycle time right now is the same as the cycle time was year to date for the Company. So year to date 2013 . The cycle time we are running right now is the same for that. That number is a little artificially high because of Sandy. I am going to find out what our cycle time was in Sandy, find out what our cycle time was mid-year, and then we'll get that data out to you guys.

Wanted to ask a little about the vehicle sales line. The revenue growth there slowed a little bit. I was wondering, I guess, two parts. Was that by design? And potentially if I take some of your other comments, looks like you invested a lot into real estate this quarter including converting the QCSA operations. Are we at a point where maybe the Company needs to undergo more investment into yards? You have garnered shares increasing and might we expect that CapEx number to be somewhat higher than we have seen over the next few quarters?

Right now as we are sitting right now in this quarter we are not spending a lot on CapEx . A lot of that was deployed in the second quarter. But we have authorized the improvement of a dozen facilities in the fourth quarter in the next fiscal year. I wouldn't say it is abnormally high from what I have looked at. We expect this inventory to come out. We expect this inventory to sell off, and that will give us further capacity. Look, as I am sitting here looking at the business today, I don't see some huge need to spend a lot of capital on facilities baring the fact that the industry starts to grow at a much faster rate. We know the industry is growing because the cars are older. But the majority of what we are seeing is weather-related. In the next year if we see the industrial the industry growing at a stronger rate. If that happens we will discuss it and let you know. I hope that happens. If we deploy capital expanding 50 locations because we have that volume coming up, that would be a dramatic improvement for the company.

I would agree. I wanted to follow-up on the vehicle sales line. Is there anything to call out there that caused the growth rate to come down there?

No, it is the normal fluctuations. It was primarily in North America so we had a reduction at the Copart level , an increase we inherited from QCSA and they pretty much mitigated each other. What it left us with was growth out of primarily Spain.

And I just wanted to ask, I might have missed this, but is there a way to quantify how much revenue you got from QCSA this quarter and what the operating profit contribution was including some of the severance and integration costs?

We will stay away from that because QCSA frankly is starting to lose its identity. We are starting to process a lot of its costs of two different systems. To give you a number is to make assumptions I don't think we want to do in the call.

Let me add a little color on that as well. We have integrated the QCSA team into Copart. We've got some really, really fantastic people now that are part of our sales group , our maintenance group, our operations group. We are really happy about that component of it. The costs we are eliminating here are not the value adds. They are the processing costs of moving a vehicle a long distance into a facility. They may have a facility 80 miles away and Copart is 20 meals away. The costs we are ripping out of the system are duplicate costs. Paying rent on a facility when we already have a facility, towing a car too far. There is lack of sale in having duplicate facilities. All of the great people that came through the acquisition, most of the folks have relocated to Dallas and those that have not are still in Iowa which was the home office. We kept that facility as a processing center for the Company. We staffed up that facility and moved some jobs into that market as well. From that perspective, we are really, really happy. We have the integration where we want it and we have people on our team that are bringing value. Things that QCSA did that we feel were better we have implemented at Copart. It is becoming the Copart brand, but the Copart brand is shifting toward what the QCSA brand was like, if that makes any sense.

Thank you, guys.

(Operator Instructions). Our next question comes from Craig Kennison, with Robert W. Baird.

Good morning. Thanks for taking my questions. Many of the quarterly-related questions have been taken so, Jay, maybe I will switch to some longer term questions. There is certainly some big trends related to industry consolidation, the aging vehicle population and even accident avoidance technology. I'm curious what you think five years from now all of those trends mean for industry volume and your share of it?

Yes, we have talked so much about that trying to get our hands around it. I have even shared with some CEO's in the body shop industry, some of the large body shop groups and the CEO of LKQ. We have all tried to understand what we think it means for the market. In the interim we don't believe it has a negative effect. I clearly think having the beepers and the backing up your car and you have a camera on your car stops you from bumping into things potentially, but of course those are not off vehicles. When I talk to the body shops they are doing record volume and that may be the consolidation of the industry moving more to MSO's. But I just don't see it. I don't see a big reduction in vehicles especially since it is going to take a number of years for those to get into play. Right now we are just not saying that frequency.

Thank you. And how open are you to considering some non automotive categories for your services?

Well, I gave you the cycle time numbers so you have them. I will put some color around this so you get it. In March over average cycle time was 59 days. That was a high because of all of those hurricane Sandy cars that came in. By June we had an average of 59 days. So why didn't it dropoff? Well, there is a lot move volume coming in toward the middle of the year . A lot of these consolidations were taking place. As we sit here today , it is 62 days. We have a good 5% if you will, increase in cycle time moving from 59 to 62 days today. There is no doubt that number is coming off this quarter. I really don't want to get into a habit of every call talking about cycle times. The question came up and we responded and of course we are running to get the data to do it on the call. I don't want to get into cycle times. I wanted to show thank you doesn't move that much. Will said, 14%, it's probably 11%. That is the math. That's how it works out. The reality is cycle times don't go from 60 to 90. That doesn't happen. They go from 59 to 62. We are talking about hundreds of thousands of cars that we have on the ground right now. When you move something 5% , it is a lot of cars. Every car costs about a thousand bucks. That's how we think about it. We've got revenue associated with the car and the costs associated. When we sell these cars off , we are going to be generate August lot of cash in Q3 and Q4. So I apologize. I wanted to get that out, Craig. What was the question again?

Just curious outside of salvage, how open are you to pursuing growth in some non salvage automotive categories ? Are you then getting outside of automotive altogether in terms of the auction services you provide?

Well, we provide a lot of growth in the automotive non salvage. Will disclosed those numbers in his opening remarks. We will continue to do that. That's been a big boom for us. As we have grown with units and some major suppliers that chose Copart to go 100% with their business, consolidation in the market place between two players, all of that has caused growth, and yet we have been pretty consistent about maintaining our percentage of non insurance volume. So we are going to continue to go down that path. We have a great team that work every day in the growth of that sector. We already work non-auto. I was watching an auction yesterday and we were selling a number of 40-foot trailers at one of our locations. When it comes to large equipment, crash toys that came to us through QCSA, the selling of Jet skis and motorcycles and all of the fun stuff, the fun vehicles like that or units, that's already a big growth for us. I don't know if you are specifically asking another question or if you just weren't aware we were growing in those sectors.

I am definitely aware of what you are doing especially on the non-salvage side. I was curious about thinking more broadly as the salvage trends unfold over the next decade even.

I would say if you ask where is our focus, aside from all of that we just mentioned, we are focused this year on completing the integration of QCSA and DVAA and we are focused on finishing up. Everybody has moved out of California. Some of the people didn't move, not everyone has been re-hired. We are finishing up the recruiting process here in the home office , and then we are expanding yards and deploying capital right now to make sure we have volume because of so many vehicles. We are sitting on near 50% more cars than we did two years ago. I mean that's just unbelievable volume to be up that much. We've got more cars than we did when we had hurricane Sandy. It is like, wow. We are focused on making sure we have capacity, service and all of those levels up. And then in the next year the calls will be , I suspect the calls will be focused around a technology discussions as we are deploying some of those new technology platforms in the next fiscal year. We will be updating you on how we are doing in that space.

That's great. Thanks, guys.

Thanks, Craig.

At this time we have no other questioners in the queue.

All right, thank you, David. Again, thanks, everyone for come together call and we look forward to reporting on Q3 when we sell off this inventory.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference. Have a great rest of your day. Thank you.