Copart Earnings Call Insights: Share Repurchases, United Kingdom

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On Wednesday, Copart, Inc. (NASDAQ:CPRT) reported its third quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Share Repurchases

John Lovallo – Bank of America Merrill Lynch: I guess starting off with the share repurchases, you’ve been pretty consistent with buying back shares in the past and this quarter you didn’t. I mean, is there any change in philosophy there or is it just kind of a timing issue?

A. Jayson Adair – CEO: No, I’ll comment on that, John. No, no change in philosophy. We have been obviously very aggressive in buying back stock in the past. We look at our options that are out there. So, we’re sitting on today a little over $200 million in cash and the options that are out there either buying our stock back or buying other companies. At this time, we’ve got some opportunities that exists. So we don’t want to – not have the ability to do that. So, it’s important that we keep some cash on hand to be able to make acquisitions going forward. In the future if we end up building again a really heavy cash position and we feel that the stock is a better opportunity than we go into the market and buy the stock.

John Lovallo – Bank of America Merrill Lynch: Next, realizing that the accounting change shifted some of the seasonality in margin. Of course, the inventory build is going to dictate some of the margin level. I mean, are you still thinking – I mean, historically speaking, the fourth quarter has been a pretty good margin quarter. I mean, outside of any large inventory build, would you still think that that would be the case?

William E. Franklin – SVP and CFO: I don’t see any change in that trend, John.

John Lovallo – Bank of America Merrill Lynch: Final, if I can sneak one more in here. I think Jay, you mentioned on the last call there were 12 facilities in the pipeline. I was just curious, are these new facilities being built or these just kind of already built in kind of just waiting to come online as demand…?

A. Jayson Adair – CEO: Some of these are facilities that we own and we’re going to be turning on that where we’ve got capacity issues in those markets, and so we’ve got to take those facilities and turn them on. They have been facilities maybe in the past and they have been mothballed and now we’re going to light them backup. Some of them are properties that we have acquired and we have to build out. So there’ll be capital expense to get those online and then some of them will be acquisitions that most likely will happen. So, we’re comfortable with that number at this time and we’re working on that. It’s really a timing thing. Our goal is to try to get all that done in the next fiscal year. There may be some that gets pushed into the next year, but the odds are we will get them online, and we’ll get those facilities turned on. The timing is just that – the spend rather is just a timing issue. So, as we’re developing those yards and spending cash to build buildings and rock facilities and get them online, you are going to see the CapEx move. So, Will and I actually talked prior to the call, John, about whether or not we should try and give some CapEx numbers and we felt it was easier to let us finish the fourth quarter. We’ll report CapEx in the fourth quarter and then we will put an estimate. This is what we’ve done in the past. We tried to give you a range of what we think CapEx will be in the next fiscal year. So we are going to stick with that. We decided not to try and guess, because we are in the middle of doing some deals right now on buying some land and getting some facilities brought online. So, it’s just easier to report it at the end of the fourth quarter and then give you an estimate for the new fiscal year.

United Kingdom

Scott Stember – Sidoti & Company: Could you maybe talk about how we should be looking at pricing on this new nationwide account. Just coming back to Allstate if I remember correctly, initially in order to get the account there was some sessions on pricing and initially in the first year we saw some margin compression. Could you tell me how that could play out with regards to the new account?

A. Jayson Adair – CEO: Well, I can’t go back in my head on Allstate. I can just tell you that this is an account we are really excited about gaining. They’re a very well respected Company in the industry as was Allstate, as is Allstate. To be able to sign something like it, it really confirms the model that we got and validates what we are doing as a Company in terms of service and returns and all the things that insurers care about. We were competitive in our bid, but not overly competitive. I mean it’s not like we are unhappy with what we will be making on the contracts. I can’t give you specific numbers. We will report those earnings as they come out in the next fiscal year, but we are happy with the deal. That’s the key. I mean the key here is that we didn’t do a deal that was to end up not being happy with how the returns would be or the margins would be. We are really happy with how we are going to be looking going forward.

Scott Stember – Sidoti & Company: Maybe you could just talk or flush out a little bit what’s going in the U.K. You talked about some weakness just given the overall economy. Could you just talk about how the business is trending over there?

A. Jayson Adair – CEO: Yeah. They are doing a great job. I mean Nigel and the team that’s over there that are working on running that business. They are doing a fantastic job in terms of picking up vehicles in prospect, but we’ll talk about it in our opening remarks. I mean, the U.K. has definitely felt the effects of the economy and the recession. You’ve got high fuel prices, so to some extent I think people are driving less, and you had an unseasonably low winter. My goodness, I mean the winter was just low across the U.S. and the U.K. So, volumes are down and the accounts that we’ve got are there. There’s no meaningful loss of business. There is nothing material what we’ve lost if any business that’s been lost. We are continuing to gain business in that market. They are continuing to convert sellers over from purchase model to agency which we believe long-term is the right thing to do. There’s some compression on margins when we do that or I should say on profitability, no margins because obviously we don’t book the vehicle that we’re selling but we make less per car when we do it on an agency model. But it’s the right long-term move. You want to be aligned with your customers’ interest and we’re buying the car – we’re trying to buy as low as we can and sell for as much as we can and that puts us at odds. We’d rather be agency where we get a fee and then we and the insurer both on the same side trying to get as much as we can for the car and it’s very transparent exactly what we make. So, we’re doing a great job, very happy with the market and I would expect as we see a normal winner a year from now that things will come back and eventually you’d expect that the economy will improve; at least you hope that right?

Scott Stember – Sidoti & Company: Yes, on many fronts, yes.

A. Jayson Adair – CEO: Yeah.

Scott Stember – Sidoti & Company: And just last question, more of a big picture. Now that we’ve been in the U.K. for quite some time now, could you talk about your general thoughts about moving into Continental Europe, where we are with that and just some general comments?

A. Jayson Adair – CEO: Sure. I mean, it’s something that we intend to do and we talked about that on prior calls. We have every intent to expand internationally and that will be something that we’ll be doing. I can’t tell you it’s this quarter, the next quarter. There’s opportunities around the globe and we have to seize those opportunities that make sense first and I’m not willing to lay that out on a conference call and just tell you that we’re going to go in the markets that are going to be most welcoming first. Then the second piece will be where we’ve got a technology that we’re implementing in the next fiscal year and we’re not going to let that technology hold us off from moving into markets; but at the same time, eventually you want to integrate just like when we bought the major company in London, we ran it on their platform for six months to a year, but eventually we want to integrate it to Copart and have the VB2 technology and all the other benefits that we’ve got. So, we’re happy to buy a company out and run it on their systems for a while; but eventually it needs to be integrated. So, once those systems go into play in the next fiscal year, it allows us to speed up the process in terms of expanding internationally compared to where we’ve been in the past. So, it’s going to happen. It’s just a matter of ticking the boxes and getting everything done, and when we do that then we’ll start a more aggressive expansion into some of those countries. But like I said on the last call, you’re going to see some international expansion like you just did. You just saw the two facilities in Canada, but you’re going to see more international expansion in the coming fiscal year. If you guys could ask for Will and myself too that would help just so we know who you want to answer the questions, that’d be great.

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