CPRT

Copart, Inc. (CPRT)

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Copart Inc. (CPRT)

F1Q 2012 Earnings Call

November 28, 2012, 11:00 pm ET

Executives

Jay Adair - CEO

Will Franklin - CFO

Analysts

John Lovallo - Merrill Lynch

Bob Labick - CJS Securities

Bret Jordan - BB&T Capital Markets

Bill Armstrong - C.L. King & Associates

Gary Prestopino - Barrington Research

Presentation

Operator

Good day, everyone and welcome to the Copart Incorporated Q1 Fiscal 2013 Earnings Call. As a reminder, today's call is being recorded.

For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart Incorporated. Please go ahead, sir.

Jay Adair

Thank you, Jennifer. Good morning, everyone and welcome to the first quarter call for Copart. We've got some updates that we will give you this morning. I'm going to pass over to Will first for a financial update and then I'll go through some of the operational things happening within Copart. Will?

Will Franklin

Thank you, Jay, and good morning everyone. Before we begin our 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 statements are neither promises nor guarantees and are subject to certain risks and uncertainties that could cause the final results to differ substantially from those projected or implied by our statements and comments.

These risks include trends in average selling prices for cars and other factors that can affect our gross margins. 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 contained in our 10-Q, 10-K and other SEC filings.

With that, I will now provide a few brief comments about our financial performance for our first quarter of our 2013 fiscal year.

Consolidated revenue grew from $225.6 million, compared to $238.9 million or 5.9%. The growth was primarily driven by increased unit volume in North America.

Volume in U.K. remained flat despite the impact of the continuing recession which is leading to fewer accidents and a higher likelihood that cars involved in the accidents will be repaired rather than salvaged.

The growth in North America continues to be broad based. We benefited from the additional volume provided by the exclusive contract we entered into with nationwide in our third quarter last year. But we also saw growth in the insurance segment excluding nationwide as well as the non-insurance segments of our business.

Volume from non-insurance suppliers grew by almost 9% over the same quarter last year but remained at 20% of our total volume due to the overall growth in our insurance volume. By the end of the quarter, we saw the volume from the nationwide contract reach its full run rate.

Same-store sales on a consolidated basis and expressed in units was up 5.5%. In North America same-store sales in units was up 6.2%. The increase was driven by continued growth in our market share for salvage cars from insurance companies and our continued expansion into the domestic used car redistribution market.

On a consolidated basis, revenue per car was relatively flat as the detrimental impact of lower used car pricing and commodity pricing on a year-over-year basis was offset by a beneficial mix of products sold and supplier contracts.

Yard operations expense remains flat on a year-over-year basis at $88 million despite the growth in volume as we continue to reduce cost and to spend more efficiently particularly in the operations of our non-insurance segments.

Our gross margin grew from $95.2 million to $105.4 million or almost 11% and our gross margin percentage grew by 190 basis points illustrating an operational leverage in our business.

General and administrative costs were $27.3 million compared to $26 million for the same quarter last year. The growth was due to increased costs associated with expanded international operations and the incremental costs associated with the rollout of our new ERP system.

We expect to incur incremental costs associated with the rollout of the ERP system throughout fiscal 2013 and the first part of 2014. These costs will fluctuate from period-to-period depending on the phase of the rollout. We expect to be fully integrated by the end of calendar ‘13 at which time these costs should decline.

Our operating income increased from $65.4 million to $74.4 million or almost 14% and our operating margin percentage grew by 210 basis points. Our cash rate for the quarter was approximately 36%. We expect 36% to be the approximate rate for the entire year excluding discreet tax event.

The increase in our estimated tax rate is due to the change in our international structure, our revised expectations regarding the ultimate settlement of certain state tax issues and our uncertainty of the continuation of certain federal tax incentives.

We ended the quarter with over $131 million in cash, on a sequential basis accounts receivable increased as we grew inventory and income tax as payable grew as we make no estimated tax payments in our first fiscal quarter. During the quarter, we generated $75.3 million in operating cash flow as net income and non-cash expenses generated approximately $53.9 million in cash while movement in the balance sheet primarily growth in taxes and account payable generated another $11.4 million.

We expended $48.1 million for the acquisition of businesses and other capital assets, including $17.2 million for lease buyouts and $20.1 million for the purchase of land. We currently own approximately 75% of all of our land.

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