Copart Inc (CPRT) 2017 Q1 法說會逐字稿

Ladies and gentlemen, good day, everyone, and welcome to the Copart Incorporated first-quarter FY17 earnings call. Just a reminder, today's conference is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart, Inc. Please go ahead, sir.

Thank you, David. Good morning, everyone, and welcome to the first-quarter call for Copart. I am going to turn it over to Jeff Liaw, our CFO, who will give you an update on the financial performance for the quarter, and then he will pass it over to Will Franklin, our Executive Vice President who will talk about some of the operational effects that we had in the quarter.

With that, it is my pleasure to introduce you all to Jeff.

Good morning, everyone. I will start with the Safe Harbor.

During today's call, we will discuss certain non-GAAP measures, including non-GAAP net income per diluted share, which excludes the impact of foreign currency-related gains and the tax effective recent executive stock option exercises. We have provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our website under the Investor Relation's link and in our press release issued yesterday.

We believe the presentation of these non-GAAP measures, together with our corresponding GAAP measures, is relevant in assessing Copart's business trends and financial performance. Copart Management analyzes its results on both a GAAP and non-GAAP basis described above.

A cautionary note about our forward-looking statements; this call contains forward-looking statements within the meaning of federal securities laws, which are subject to substantial risks and uncertainties that could cause actual results to differ materially from those projected or implied by our statements and comments. For a more complete discussion of the risks that could affect our business, please review the Management's Discussion and Analysis portions in our latest periodic reports filed with the SEC. We do not undertake to update any forward-looking statement that may be made from time to time on our behalf.

Per our custom, I will start with a brief review of our income statement and then progress to the balance sheet and cash flow statement, as well. We are pleased with the results of our first-quarter FY17. We have continued the basis of presentation that we shared with you in the last quarter with a non-GAAP presentation to account for certain foreign currency-related gains as well as stock options exercises. I will provide more color on both of those to come.

Starting with the headlines, we experienced global revenue growth of 19.8%. And that is after accounting for the detrimental currency effect on revenue of approximately $9 million, largely due to the depreciation of the pound relative to the dollar. We grew unit sales volume worldwide at approximately 19%, with US unit growth of approximately 20% and international unit growth of approximately 14%.

Global inventory growth was 25%, of which 5% is as attributable to catastrophic weather events. Service revenue growth outpaced that of purchased-car revenue growth, with $56 million of our growth attributable to service revenue and $1 million attributable to purchased car revenue growth. This is largely due to a proactive shift on our part from purchased-car volumes to agency arrangements instead. We experienced gross profit growth from $120.9 million to $145.3 million.

A couple of points of color. We did experience year-over-year scrap-price improvement of approximately 26%. We continue to cite the same American Recycler index averaging five different regions over the three months in the quarter.

On an absolute-dollar basis, of course, the scrap portion of the value in our auctions remains relatively small, but we did experience year-over-year improvement in that important index. Year over year, used-car values are approximately flat or up 1% using the Manheim index, again averaged over the three relevant months.

Our G&A expenditures on a GAAP basis increased by $3.8 million ex depreciation and amortization. However, it is worth noting that $5.2 million of G&A expenses are attributable to payroll taxes due to stock options exercised. We, of course, view these as nonrecurring expenditures or episodic expenditures tied to stock option exercises, not incurred in the ordinary course of running the business.

Our depreciation and amortization increased slightly as we placed more software assets into service. As always, we provide the general framework that G&A will continue to grow on an absolute-dollar basis over time, though, with reasonable growth rates, we should expect to achieve operating leverage.

I want to take a minute to pause on the non-GAAP compensation-related adjustment. This is again due to exercises by certain Copart Executives of outstanding vested options. In effect, what happens is this creates a tax deduction for Copart with an excess tax benefit to Copart of approximately $101 million.

As a result, you will note that Copart's GAAP tax provision for the quarter was actually a substantial tax benefit instead. In practice, we withhold a portion of the shares the executives are exercising, retire those shares for cash, and remit the payment to the IRS. In reality, we have effectively prepaid a majority of our US federal income tax liability for FY17 already by remitting that cash to the IRS.

We experienced EBIT growth of 21.5% from $86 million to $104.8 million. However, please do note that $104.8 million is burdened by $5.2 million of the payroll taxes I described a moment ago, which we believe are generally not occurring and episodic expenditures.

Interest expense for the quarter was approximately flat year over year due to a higher revolver balance, again due to the cash tax payment on stock options exercises, offset by lower drawn rates. GAAP net income, of course, increased substantially as a result of the negative tax provision.

On a non-GAAP basis, the only other matter I haven't already mentioned is the reversal in our adjustments of foreign currency-related gain of $2.8 million post tax. We hold certain cash balances in our overseas businesses, and when the US dollar appreciates, we experience positive gain that shows up in other income. We have unwound that gain for the purposes of calculating our non-GAAP adjusted net income. The bottom line, then, is an adjusted non-GAAP EPS of $0.57.

Turning our attention than to the balance sheet and cash flow statement, cash flow is again impacted by that same cash tax payment we made on behalf of the stock options exercises. We nevertheless experienced operating cash flow for the quarter of $74 million, a reflection, first, of course of increased earnings or increased EBIT. We also experienced substantial accounts receivable growth of just shy of $30 million.

As you know, these are primarily advanced charges paid out on behalf of our customers so that when we pick up the cars, we can access them. The growth, therefore, in AR corresponds to the inventory growth we described previously.

The increase in deferred and current income tax assets net is approximately $70 million. That is, again, the same tax issue I described a few moments ago. We had capital expenditures of $38 million for the quarter, of which approximately 75% to 80% is attributable to land and development and lease buyouts. With that, I will turn the call over to our EVP, Will Franklin.

Thank you, Jeff. As Jeff said, we are very pleased with the results of our first-quarter FY17. The growth in revenue of 19.8% mirrors our growth in volume of 19.4%. This is the third-successive quarter in which revenue has grown by 17% or more, and the fourth-successive quarter in which volume has grown by 13% or more. In fact, we have averaged growth in our inventory of over 15% over the last nine quarters.

I'll start with a few comments on US operations, where year-over-year volume increase by 20%. As we have discussed in our previous earnings calls, we believe the overall size of the US total loss market is increasing in size at an annual rate of between 8% and 10%. While the growth of the US salvage market is marginally attributed to growth in both car park and accident frequency, the largest contributor to growth is growth in total loss frequency.

Total loss frequency continues to rise as repair costs continue to grow due to consolidation in the collision repair industry, more severe accidents, greater complexity of newer cars, and longer average replacement car rental times. On top of the organic growth, we have layered on an increase in our share of the market and growth in our non-insurance volume. Non-insurance volume grew by 18.4% and in total represented 18.6% of our volume. The growth was led by increases in shared and donation cars and in broker cars.

At the end of the quarter, our US inventory was up 26.1%, of which approximately 5.4% was attributed to CAT activity.

Now, I will turn to revenue in the UK where we saw a growth in units sold of 12.4%. Insurance volume grew to increases in both the size and our share of the insurance salvage market. Non-insurance growth was 20% as the dealer and the direct-purchase programs continued to expand in both volume and in profitability.

Measured in GBP, UK revenue grew by 16.4% and its EBIT grew by over 40%. However, after translation into USD, revenue was down marginally and the EBIT grew by only 18.1% due to the strengthening of the dollar to the pound.

On a consolidated basis, we experienced an increase in average cost to process each car, due primarily to operating in an environment of general growth, the extra expenses associated with operating in CAT environments and due to the growth in inventory.

We remain focused on controlling G&A expenses. G&A spend for the quarter was $35.2 million. As Jeff mentioned, included in that total is $5.2 million for the Company portion of payroll taxes associated with exercise of stock options. We consider this to be an extraordinary and unique item due to its magnitude. This expense averaged less than $60,000 per quarter in FY16.

Excluding this item, G&A was $30 million, marginally lower than the same quarter last year. We expect G&A to grow as we continue to expand our international efforts and increase our IT resources.

Finally, our capacity-expansion efforts continue. During the quarter, we added two yards and we expanded five existing yards, increasing our total capacity by approximately 140 acres. In our second fiscal quarter, we expect to add another five yards, five sub lots, and to expand nine existing yards, increasing capacity by another 529 acres. That concludes my comments. David, now I will turn the call back over to you for the Q&A session.

(Operator Instructions)

John Healy, Northcoast Research.

Thank you. I wanted to ask just a big picture question about your buyer base. I was wondering if you could give us some color in terms of the number of vehicles that are probably leaving the US and maybe the amount that are headed to Latin America, maybe the amount that are headed to Europe and the Middle East. I'm just trying to conceptualize what some of the volatile movements in the global currency market, what those could mean to ASPs and buying behavior by your customers.

Sure. I can tell you that the trend is down. We were at one time up to 23%, 24% of cars sold to international buyers. That currently is below 20%. If you bear with me one second, I will get you the exact numbers.

No problem.

Like I said, expressed in units and expressed in value, about the same. It is slightly less than 20% of our volume, and about the same amount of value are sold to buyers that are registered internationally. I will say this, though, that understates the number of cars that are leaving the country because there is a number of buyers that are registered domestically that do nothing but export. And, obviously, because of the strengthening of the dollar, it has had a detrimental impact on their activity.

Is there a way to think about this, Mexico or Latin America, what percentage of the buyer base is represented by them?

In terms of activity, about 7% of our volume goes to Mexico currently. That is down from about 9% nine quarters ago. You are seeing a slight decline in their participation in our auctions. And they are by far the largest international buyer.

Okay. That is helpful. And then I wanted to ask, Will, you mentioned the acreage in addition to the number of yards and the expansion. Is there a way to think about acreage in the business today and maybe what an acre of land translates into, the amount of capacity in terms of vehicles you can store or marshal for the insurance folks?

Yes. It is generally 125 cars per acre. But that changes depending on the nature of the situation we find ourselves in. That is the most efficient layout for the operations of a yard. In times of a CAT, we can squeeze far more cars onto a yard, but we operate far less efficiently. And, in fact, you will see part of that expressed in our margins this quarter.

Okay. Thank you.

Bret Jordan, Jefferies.

Good morning, guys. Of the inventory growth, could you carve out what might have been a market share contribution to that, as well?

If you are talking about just insurance, you can back into that. Of the growth in inventory -- in terms of volume sold, of the growth, about a little less than 3% is from CAT. Like I said, we think 8% to 10% of that is just because of organic market growth. That leaves you about 7% in market share gains.

Okay. And is that a trend that is accelerating? Is there anything changing or any changes as far as insurance RFP activity going on now or maybe going on in the near future?

There is always activity. We are always out there competing aggressively to get new business. I can't say that what is going on now is any different than what was going on a year ago.

Okay. Could you give us an update on Germany as far as the international business goes?

Sure. As we announced, we had our first auction in September. Since then we have had two more auctions. I should distinguish or clarify the nature of these auctions. These are test auctions. The insurance companies are not participating in these auctions. And we have another one scheduled December 14.

We are taking a very measured approach to rolling this out to the insurance companies. We want to ensure that we have it right when we do introduce our product. We are very confident that will happen this fiscal year. And we are very optimistic and pleased with the interest that we have seen from the insurance companies. But, like I said, we're going to be measured in our rollout and, like I said, that may mean it will be a few months from now before we do introduce it to the insurance companies.

Bret, I am going to add to that. I was in Germany two weeks ago meeting with our team. We currently have a location that is north of Hanover and we are going to be opening up additional locations across Germany in the next 18 months.

We are very committed to the market. When we are done, it's going to take about half a dozen locations to service the market from a logistical standpoint. If we are mature in the market, it will take more like the UK, about 15 locations/ But in the interim, we just want to be in a position where you've got coverage and you can logistically pick the car up anywhere in the country. So, as Will stated, we expect to go live this year and then we will be expanding in FY18.

Okay great. Thank you.

Ben Bienvenu, Stephens Inc.

Thanks, good morning, guys. Really nice unit growth in the quarter. It looks like, from the inventory growth numbers, that should continue going forward. You called out 5.4% of the inventory growth was CAT volume. I am curious, are you able to quantify the amount of cost you may have incurred in the most recent quarter for units you have yet to sell that are sitting in inventory? Is that an easy number to carve out?

Yes. It is in the millions. In some of the CAT situations, we are spending as much as $500 a car to recover the car, and millions of dollars to locate new land and to bring people in from different parts of the country to man these operations. Very little of that gets put on the balance sheet. That is flushed through at the time that we recover the cars. And as I mentioned earlier, that suppresses our gross margin percentage.

Ben, just to give you just a sliver more color on that, broadly speaking, even ex-catastrophic events, when Copart grows inventory, in particular sequentially, as we have done this quarter, we incur a meaningful portion of the costs in the period in which we grow it even before we sell it. We also recognize a portion of the revenue due to certain revenue recognition requirements. The net effect of growing inventory is a depressive effect on gross margins. I think, to Will's point, that is further enhanced by catastrophic events in which the costs you incur in the current period are still higher.

Understood. That is really helpful. Maybe shifting gears a little bit to the yard expansions. Obviously, underscores your confidence in the structural step up in volume you expect to experience over the long term in the business. I am curious, how far along are you there? Have your goals around 20/20/20 changed from the last time you communicated them? As you are building out the yard expansions and adding new acreage, is there any material cost deleverage that results from that activity or is it negligible?

Let me address a few of those. The 20/20/20 program has changed. It's expanded significantly. The 20/20/20 referred to buying 20 new yards, opening 20 new yards, expanding 20 existing yards in the next 20 months.

We will exceed that significantly, which underscores our confidence not only in the growth of the market but perhaps a change in the way we approach how we operate. We look at land not only in an operational lens but also through a strategic lens. We intend to be able to offer excess capacity to our suppliers, our partners, in times of catastrophic needs. And in order to do that, you have to have a significant amount of excess capacity, particularly in the high risk areas.

I'll jump in, a couple of thoughts in response to your question. I would say, to your point about reflecting our confidence in the business, I think is true. Some of these land acquisitions and development projects are also, they are not speculative. They are responsive to existing cars on the ground, they are responsive to existing volume that we are facing. So, they are not just all prospective bets on growth to come.

I think that addresses your second question, which was deleveraging or deleveraging effects of these new yards. I think there are a few offsetting considerations. One is that our sub-haul expense per car typically goes down with the addition of new real estate. By definition, a yard is closer to some accidents than your old yard network was, so your sub-haul expenses should come down per car.

There also is a cost of congestion. This was Will's point of moment ago. Particularly in catastrophic events, when you have cars packed too tightly in yards, you have higher labor costs and higher handling costs than you otherwise might, which new yards helps to relieve.

The third point, I think, is the one you were getting at, which is when we do add new real estate, there is potentially some deleveraging of people costs as you staff a new yard, with a general manager, with the yard and office staff, forklifts, and the like. So, there's some offsetting effects. On balance, I think the effects are not huge. It obviously varies by yard and by circumstance.

That is great. Thank you very much. And then just one last very quick one, your normalized tax rate has been a little bit lower the last couple of quarters than we had seen in the past. I am curious what your expectation for tax rate might be on a normalized basis going forward.

I think we have previously said, or Will has said, our tax rate is in the 35% to 36% normalized level. If you exclude the noise that we experienced this quarter, we are about in line with that. Our forward expectations haven't changed, barring obviously a major policy shift by one or more of our major countries.

Great. Thanks and best of luck.

Craig Kennison, Baird.

Good morning. Thanks for taking my question. Jay, I wondered if you would simply review your IT priorities for the next 12 months or so.

Sure. We have got great systems domestically. Across the board we are extremely happy with our web services, our mobile services, and the systems that we operate our Company.

Without a doubt, the majority of the focus right now is on Germany. We always have some maintenance that will exist on existing operations, both UK and US and other countries that we are doing business in. But right now, if you are thinking from the standpoint of resource, energy, effort, dollars, time, we are putting the majority of that right now into Germany and our ability to get into that market and succeed.

Thanks. And then a second question on the election. Just wondering what the broad implications of the election results might be on your business, especially as it relates to repatriation. I am wondering whether or how much you have funds tied up overseas and whether you would be interested in repatriating them if tax policy were to change.

A substantial portion of our cash is, in fact, kept overseas. If there is a policy change, I think we evaluate it at that moment in time, whether the investments overseas justify keeping the cash there or bringing it back here for general corporate purposes here. At the moment, I think there are growth opportunities, Germany included, as you heard from Will, that could consume some of that cash.

And any concern about regulatory changes, NAFTA, things that?

No. I think the question earlier was about international exports, and off the top of my head, Will said it was just under 8% Mexico. Off the top of my head it's just a little over 10% to all Latin American countries. I don't, at this point, see why the export of used vehicles -- these aren't new products, so I don't see at this time why the export of used vehicles would be an issue.

We are constantly interacting with Mexico and have relationships with Mexico on shipping vehicles south of the border. I don't anticipate anything negative at this time.

Great. Thank you.

Elizabeth Suzuki, Bank of America Merrill Lynch.

Good morning. Can you guys give an update on your expected CapEx for 2017 given the investments that you are making in capacity growth?

Thanks, Elizabeth. We generally don't provide forward guidance on either our income statement or cash flow statement. What I will reiterate is this. When we talked about 20/20/20, the program initially, and that was in March of this year, we talked about spending an extra $100 million in the first calendar year, and it being approximately a two-year program, the 20 months representing the two years.

We believe, if anything, that our expectations have increased relative to the total investments that we will make over the relevant multiple-year horizon. At this moment, with real estate being episodic and lumpy as it is, it is difficult for us to pinpoint precisely how much we expect to invest over the course of this fiscal year, but the elevated capital expenditures we've observed in the last five quarters we believe will continue.

Great. Thank you. That is very helpful. And just one other quick one which is, what are your internal forecasts, if you can share them, for movement in the dollar commodity prices, et cetera, that could potentially change your strategy over the next couple of years?

I don't think we have any differential insight relative to what you or your colleagues at Bank of America might. We don't perform meaningful bottoms up currency forecasts at Copart.

Okay. Thank you.

Gary Prestopino, Barrington Research.

Hey, good morning everyone. In terms of the catastrophic events with the hurricanes and the floods, have you taken in the majority of the cars that you are going to get from both of those issues?

Yes. We have, Gary. When we look back they are all different in nature. We have had seven events and we characterize three of those as significant CAT events -- Matthew, the flooding in Baton Rouge, and the flooding in Houston -- which exerted an extraordinary burden on our operations and our cost structure. Those three CATs plus the hail storms in Dallas and Colorado Springs, we've received most of those cars already and most of those are in inventory.

Okay. Thanks. And then in terms of your share gains in the US, are there many independents left since you have been taking share? I know you have one big competitor but what does that landscape look like? Are these smaller independents gradually just going out of business?

At this point, I would just say that we have one major competitor, as you referred to. There is a secondary competitor out there that we compete with. As Will has commented in previous calls, the market has been growing and we foresee the market is going to continue to grow. Market share is an important part of our growth and we are always, as I think Jeff or Will referred to earlier, competitive and we are always eager to win new business.

But right now, we have our hands full, if you will, with the fact that total loss frequency is up. You've got a company the size of Copart and you are growing 10% a year just in the industry, there is a lot of work we have to do in terms of making sure we have capacity and people and the logistics in place to pick the vehicles up and store them and then sell them.

Okay. Lastly, the majority of what you process or sell in the UK, is that kept within the UK, or is some of that exported into the European continent?

It's very similar to the US. About 80% of it stays in the UK and about 20% leaves the country.

Okay. Thanks.

Matthew Paige, Gabelli & Company.

Good morning. My first question, how do you view your non-insurance revenue growth potential looking forward given the population of used cars coming back? And along those lines, how do you prioritize taking in those cars first, insurance cars from those?

It was hard to catch all of the question. I believe you asked what our growth strategy was for non-insurance cars?

Yes.

We are focused on insurance company cars. We're focused on insurance companies, period. That is our life. That is all we live and breathe around here.

So, to the extent that we can, without distracting from our ability to perform for the insurance companies, add these non-insurance cars, then we do so. But our focus is not on the non-insurance cars.

Okay. Similar to your acreage growth strategy in terms of that is focused more on the insurance companies, it's not on building capacity to be able to take on more non-insurance volume?

It absolutely is to take on more non-insurance volume as well as insurance. Will is being very clear that we are focused on handling insurance companies but Copart is not in the business of saying no. We take business in whether it comes from a dealer, a charity or an insurance company. Our goal is to say yes and take those cars in. We are building out that capacity for the whole organization, not just one component of the organization.

All right. I appreciate the time and good luck.

Bob Labick, CJS Securities.

Good morning. I wanted to dig a little deeper in some of the answers you have given, particularly in the yard expense. You have obviously been investing a lot in the yard; cost is up a lot year over year. I know you won't give us specific numbers but could you maybe rank the four or, if there's more, tell me more, causes for the growth? New fixed domestic yard costs? New fixed international yard costs? Increased sequential inventory growth? And then CAT expenses? Can you just rank those in terms of the year-over-year cost in the yard cost, please?

In this quarter, it would be the CAT expenses, would be the highest and the highest impact.

Bob, your question, I'd almost view it as you asked on two different planes. On the domestic versus international, much more domestic. On the question of what is causing growth within the domestic realm, I think it is volume growth broadly, with CAT, as Will pointed out, being a meaningful contributor in this past quarter.

Great. So the CAT theoretically, excluding another CAT next quarter, goes away, and the rest of the stuff, obviously depending on -- inventory and volume growth will stay, correct?

Bob, I just want to jump in there because Will mentioned three major CATs, but we have had something like nine CAT events that he mentioned. I would say two things to that. One is, we are building out capacity along a number of the coastal states for future CAT situations, because the second point is we don't think CATs are going away. There is enough weather, and we are national enough in our footprint that there is something happening, whether it is in Colorado Springs as a hailstorm or it's a flood in Houston or tornadoes in Oklahoma. There is always something going to be out there.

So, we think that CATs are a regular part of the business. And obviously the smaller the catastrophe, the better it is on our margins. The larger the CAT, the more negative it is in terms of profitability because of the sheer logistics of moving people in, picking all the vehicles up, the additional costs that you have, et cetera. But, just so you understand, we are thinking about CATs as being a more ongoing part of the Company.

Okay. Great. Thank you for your commentary on Germany earlier. I was wondering, we've also noticed you have had some new auctions in Spain. Could you talk about that market and what you have learned in each of those, and if there is other opportunities in continental Europe?

Sure. I think they are very similar. I went to Spain a couple of months ago, and, as I said, I went to Germany a couple of weeks ago. I think they are very similar in that you have the same problems in Europe that you have in the US.

If you are selling a vehicle and it is not going into an auction or it is being stored, you have to deal with the owner of the vehicle, which is the insured, having someone come to their home, typically, pick the vehicle up. That experience can be a pretty bad experience. There could be anywhere from showing up late at night to pick the vehicle up to wanting to renegotiate the purchase price on the auction platform.

So, we think from that standpoint, less friction. We think from the standpoint of logistically allowing a buyer to buy vehicles and swing in with a nine-car hauler and pick those vehicles up, and all the other benefits that we have provided in the US and the UK, as examples, we think that opportunity welcomes itself in Germany and Spain, as well.

Obviously, Germany is a much bigger market than Spain. And, culturally, I suppose I would say it this way -- culturally, the German market is very willing to test the model, and if that model ends up proving to be better, which we believe it will, then they are committed to moving forward. So, that is why at this time we are doing business in Spain as well as Germany, but there is more focus right now on our part to focus on Germany.

You don't want to be spread out and trying to do multiple countries on something like this. It is a large market. It is over a 0.5 million vehicles. And we want to make sure that as we test and then move forward with growth plans in Germany that we succeed. So, that is where our effort is at right now.

Okay, great. And then one last one -- I think, either last caller or maybe the one before that, you talked about a new retail location in Dallas for CrashedToys. Maybe if there is any update or what you have learned from that experience so far.

Sure. We have established a new brand in a new facility. It's called in CrashedToys. It is targeted to raising the returns on non-car assets. It is basically motorcycles, jet skis, it is boats. It can be recreational vehicles.

By giving a new brand and new emphasis, we are targeting more resale buyers and we are doing more marketing behind it. Once again, it is all in the effort to getting better returns for our insurance customers. We are happy with the results in Dallas. We're opening another location in Los Angeles and then we will evaluate that and determine what the next steps are afterwards.

Okay. Super. Thanks.

(Operator Instructions)

Bill Armstrong, CL King & Associates

Good morning, gentlemen. In terms of the CAT cars, the processing costs, could you remind us, are those costs recognized as incurred or as those cars get sold in your auctions?

As incurred. We put very little of the cost on the balance sheet. The reality is, and as Jeff has said, that principle holds true to even non-CAT cars. We recognize a portion of our revenue at the time we pick up the car, but that revenue has almost no margin. The majority of our costs associated with that car are at the time we pick it up and receive it and store it. There is a disproportional recognition of the profitability of that transaction at the time that the car is sold versus the time it is picked up.

Okay. In looking at those cars, like from the Louisiana floods and Hurricane Matthew in particular, have most of those cars already been sold? Will you get some of that volume benefit in the current quarter?

We have many cars yet to sell from those CAT events.

Okay. And in terms of pricing trends, excluding scrap which you addressed earlier, what average selling pricing trends are we seeing across the board?

Within the US, I would characterize them as stable. The offsetting considerations are that scrap has improved, used car prices are flat or up slightly. I think folks have asked about the currency effects. The peso is certainly down year over year which affects the selling prices of cars in the US. So, we are approximately flat.

Got it. Okay. Thank you.

We have no further questions at this time.

As we said earlier, we are very pleased with the results of the first quarter. Thank you all for attending the call. We look forward to reporting the second quarter in the new year. We wish you all a happy Thanksgiving. That concludes our call. Thank you.

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