CPRT

Copart, Inc. (CPRT)

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Copart, Inc. (CPRT)

Q4 2012 Earnings Call

September 26, 2012 11:00 am ET

Executives

Jay Adair - Chief Executive Officer, Director

Will Franklin - Chief Financial Officer, Senior Vice President

Analysts

Bob Labick - CJS Securities

John Lovallo - Merrill Lynch

Scott Stember - Sidoti & Company

Craig Kennison - Robert W. Baird

Bret Jordan - BB&T Capital Markets

Edward Hemmelgarn - Shaker Investments

Presentation

Operator

Good day, everyone. Welcome to the Copart Incorporated Fourth Quarter Fiscal 2012 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

Good morning, everyone. Welcome to the fourth quarter call for Copart and a wrap up on our fiscal year 2012. Will and I are in two separate locations today. As we have done in the past, I'm going to turn it over to Will now for opening remarks and he will pass it back to me. Then we'll open it up for question-and-answer.

With that, it's my pleasure to turn it over to Will Franklin, CFO.

Will Franklin

Thank you, Jay, and good morning. 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 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 affect our business, the management's discussion and analysis, and the risk factors contained in our 10-K, 10-Q and other SEC filings.

I will now provide a few brief comments about our financial performance in this, our fourth quarter of the fiscal year.

Consolidated revenue was $226.6 million, compared to $215.4 million for the same quarter last year, an increase of 5.2%. The growth in revenue was driven primarily by increased unit volume in North America.

Volume in U.K. remained flat and continued to be challenged by the lingering recession in the region. The growth in North America was broad based. We began to see the incremental volume associated with our exclusive contract with nationwide, which we entered into in our previous fiscal quarter. We expect incremental volume for this contract to reach full run rate by the end of our first quarter of fiscal 2013, and to be fully reflected in our second quarter's results. Volume from non-insurance cars grew by almost 5% over the same quarter last year, and represented 21% of all cars sold during the quarter.

Same-store sales on a consolidated basis and expressed in units was up 6.6%. Excluding the impact of nationwide, it would have been up 4.4%. In North America, same-store sales in units was up 8%. Excluding nationwide, it would have been up 5.4%. The increase was driven, we believe, 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 up modestly as the detrimental impact of lower used car pricing and commodity pricing on a year-over-year basis was by a beneficial mix of products sold and seller contracts.

The total number of purchased cars sold decreased by 14%, as we continue to migrate contracts in the U.K., from the principal model to the agency model. In the U.K., purchased cars represented 29% of the total volume in the current quarter, compared to 39% during the same quarter last year.

Yard and fleet expenses grew from $81.8 million to $85.9 million, or 5%. The increase was driven by the growth in the volume of cars sold. Our gross margin grew from $89.6 million to $99.4 million, or 11%, and our gross margin percentage grew by 230 basis points.

General and administrative costs excluding depreciation were $26.4 million, compared to $23.7 million for the same quarter last year. The growth was due to increased costs associated with expanded international operations which will continue and the incremental cost associated with the rollout of the new ERP system.

During the quarter we estimate those costs to be approximately $2.4 million. We expect to incur incremental cost associated with the rollout throughout fiscal 2013, and the first part of fiscal 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 2013 at which time these costs will abate.

Our operating income increased from $63.5 million to $69.5 million, or 9.5%. Our diluted earnings per share increased from $0.29 to $0.35 per share or almost 21%. Our operating margin increased by 120 basis points over the same quarter last year. We ended the quarter with over $140 million in cash. Accounts receivable, inventory and vehicle pooling costs all increased on a sequential basis as we grew inventory.

During the quarter, we generated over $32 million in operating cash flow as net income and non-cash expenses generated approximately $64.3 million in cash. That was offset by cash consumed in our balance sheet primarily for the growth in inventory and the payment of deferred taxes.

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