CPRT

Copart, Inc. (CPRT)

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Industry: Consumer Durables
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Copart, Inc. (CPRT)

F2Q12 Earnings Call

February 29, 2012, 11:00 a.m. ET

Executives

Jayson Adair - Chief Executive Officer and Director

William Franklin - Senior Vice President and Chief Financial Officer

Analysts

John Lovallo - Bank of America Merrill Lynch

Jason Ursaner - CJS Securities

Scott Ciccarelli – RBC Capital Markets

Scott Stember - Sidoti & Company

Gary Prestopino - Barrington Research

Ryan Brinkman - Goldman Sachs

William Armstrong - C.L. King & Associates

Craig Kennison - Robert W. Baird

Presentation

Operator

Good day, everyone, and welcome to the Copart Incorporated Second Quarter Fiscal 2012 Earnings Call. As a reminder today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart Incorporated. Please go ahead, sir.

Jayson Adair

Thank you, Lisa. Good morning everyone. We’re going to change things up a little this morning; Will and I are in two different locations, and so he’s going run through the disclaimer, go through his update on the company, turn it over to me and then we’ll open it up for question and answers. So with that, it’s my pleasure to introduce Will Franklin.

William Franklin

Thank you, Jay. Before I begin our comments, I’d like to remind everyone on the call that our remarks will contain forward-looking statements, including the statements concerning our views and trends in our business. These statements are neither promises nor guarantees and are subject to certain risk and uncertainties that could cause the final results to differ substantially from those projected or implied by our statements and comments. The key risks includes trends and average selling prices for cars, and factors that can affect our gross margins. For a more complete discussion of the risk that could affect our business, please review the management's discussion analysis and the factors contained in our 10-Qs, 10-K and other SEC filings.

I’ll 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, there’s a beneficial settlement with the U.K. 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 purchase car revenue relating to prior period’s activities.

Excluding this 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. Non-insurance volume grew by 8.1% and was driven primarily by growth and supply from franchise and independent car dealers, and from individual consigners. Non-insurance volume represented 19.8% of our total North America 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 U.K. and the principal model to the agency model.

Yard and fleet expenses grew from $85.1 million to $86.4 million, and reflect the 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 U.K. in our second of last year, our gross margin would have grown 18.5%.

General and Administrative cost, 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 cost.

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 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 U.K. 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 53.3 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% 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 a revolver.

That concludes my short comments; we’ll now turn the call over to Jayson Adair, our CEO for further discussion of our second quarter’s results.

Jayson Adair

Thank you, Will. Thank you, Will. Again, good morning everyone, and welcome to the second quarter call. I’ve got seven points that I want to go over with you this morning. We’ll talk about CapEx, facilities, costs, ASPs, the impairment, give you a little more color on that, the transition and Overdrive.

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