Copart - Earnings Call - Q1 2012
November 29, 2011
Transcript
Speaker 1
Good day, everyone, and welcome to the Copart, Inc. first 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, Inc. Please go ahead, sir.
Speaker 3
Thank you, Roxanne. Good morning, everyone. It's great to have you on the call. Welcome to our first quarter conference call for fiscal 2012. We've got some updates this morning. I'm going to turn it over to Will Franklin first for a brief outline, and then we'll go through our prepared remarks and open it up for questions.
Speaker 2
Thank you, Jay. I would like to remind everyone on the call that our remarks will contain forward-looking statements. These statements are neither promises nor guarantees and are subject to certain risks and uncertainties that could cause the final 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 and the factors affecting future results contained in our 10-Q, 10-K, and other SEC filings. With that, I'll turn the call back over to Jay Adair, our CEO, to begin the discussion on our first quarter results.
Speaker 3
Thank you, Will. Good morning. As you can see, we're happy to report the quarter. We're very pleased to see the growth in revenue to $225 million, growth in operating income to $65 million, and growth in net income to $41 million. EPS saw very large growth year over year due to earnings improvement and due to the share buyback going from $0.45 to $0.62 in the quarter. Just looking at saving cash flows for a minute, I would want to point out the accounts receivable build that took place this quarter compared to the quarter last year. We talked about that a little bit in the last call, in the Q4 call, that we saw a lot of volume coming in.
We continued to build inventories in this quarter and burn cash in the process, and that inventory will be selling off in the second quarter that we're in now. Will will also talk about our debt and the fact that we fixed our debt, so I won't go over that. He'll elaborate on that. I did want to comment on the fact that we finished the quarter with over $200 million, $212 million in cash on the balance sheet, and we bought back over a million shares in the quarter. Just some other points that I thought I'd focus on operationally. In the quarter, we did see some increased costs associated with fuel and sub-haul, but in addition to new development and new development costs, new business that we're developing in the company. The company has been very focused on increasing segments that are non-insurance.
We've done a lot of investment in that process, and we believe we're at that point now. We believe we've been able to achieve that growth at the current run rate from a cost standpoint. As we look forward into the year, we're comfortable that we're going to be able to hold our operational costs relatively flat as associated with on a per-car basis and that we won't be putting a lot of money into some of these new biz, new development portions of the company. As we add more units, just like any business, you've got your initial costs that you've got to, your initial cost investment that you've got to make in a business. Now what we're thinking as we look forward is that we'll be able to add units to the company without seeing a lot of additional costs in that area.
We'll be focusing on the home office, the G&A costs. We'll be focusing on operational costs as well. The reality is that we're heavy right now into Project Overdrive. It is doing exactly as we planned. It continues to push on all the fronts that we talked about in prior calls. The Texas relocation is well underway. The processing centers are well underway. We'll be moving and transitioning into some of those in the quarter that we're in now, in Q2, and we'll be continuing to move into the Dallas market throughout the rest of this fiscal year. Our goal is that we would have most of that transition and move completed by the end of the fiscal year, July 31, 2012. There'll be some transition, I'm sure, of some portions of that that may get delayed a little bit.
For the most part, the vast majority of that move will take place. The folks that'll be working in Dallas will be moved, including myself and the rest of the Senior Management team. We'll be working on the next fronts that are part of Project Overdrive, both in technology and in marketing. I also want to talk about our marketing efforts. We've seen continued improvement in the ability to bring on additional members, converting those members to becoming buyers of product, continued growth in units on the supply side. We also made a decision in the quarter that we're in now that we will not be progressing and going forward with NHRA drag racing in calendar 2012. This was a decision that was based on our team owner, Kenny Bernstein, deciding that he wanted to retire.
We had a conversation about that, and based on that desire to retire, we said, "That's fine. Let's go ahead and not do racing into the next year." That money that won't be spent on racing will either be brought to the bottom line or we'll be deploying some of that into additional marketing efforts. We're focusing across the board on a lot of marketing, and we've been very, very happy with the returns that we've gotten on that marketing spend in the past. We've learned a lot. We look forward to, as we're spending marketing dollars going forward, to even get a greater return on that. We wish Kenny and the rest of the team, we thank them for what they've done, and we wish Kenny well in his retirement.
Looking forward on system improvements, we've got a number of things that we're working on, whether it be copart.com, whether it be our enterprise system that runs the company today. Those are all on schedule. We're happy with the plans that we've got right now. We anticipate that you'll see in future calls that I'll be able to talk about and to some of the things that are happening on the technology front. In Q3, Q4, and then into fiscal 2013, we look forward to talking about some of the improvements we've made to the process, whether it be online, whether it be at our facilities, the technology changes that we've made. We're continuing to focus on better service. That's all part of Project Overdrive, improved service and experience for our customers, both internal and external. I've got a lot going on.
At this point, it's my pleasure to turn it over to Will Franklin for a financial update, and then we'll open it up for questions.
Speaker 2
Thank you, Jay. Yesterday, we reported our financial results for the first quarter of our 2012 fiscal year. Consolidated revenue was $225.6 million compared to $212.7 million for the same quarter of last year, an increase of 6.1%. In the first quarter of our fiscal 2011 year, we adopted new accounting rules regarding the recognition of certain revenues. Beginning in that quarter, revenue generated for recovering a car, for converting a title with the state, and for cleaning, washing, and protecting a car are recognized when performed. Prior to that quarter, these revenues were recognized when the car was sold. We booked a one-time adjustment of approximately $9.1 million to accelerate that revenue in Q1 of fiscal 2011. Excluding the impact of that change in revenue recognition, revenue growth would have been $19.9 million or 9.8%. On a same-store sales basis, revenue grew 3.4%.
Excluding the impact of the revenue recognition adjustment in our first quarter of last year, same-store sales grew 7%. Volume grew in both North America and the UK. Total volume increased over 4%. Purchased car revenue, as a percentage of total revenue, grew from 15.6% to 17.7% year over year due to increase in average selling price. Purchased car volume declined from 5.8% to 5.3% of total volume as we continued to migrate contracts in the UK from the principal model to the agency model. Yard and fleet expenses grew from $86.2 million to $88 million and reflect the higher volume of cars processed, a significant increase in the cost of recovery car due to the year-over-year increase in the cost of diesel, and the increase in costs associated with developing new markets, including the public and dealer markets.
Our gross margin grew from $88.9 million to $95.2 million or 7.2%. General and administrative costs, excluding depreciation, were $26 million compared to $27 million for the same quarter last year. The decline was due primarily to reduced marketing and reduced headcount and was offset by approximately $800,000 of extra expense associated with the transition of our corporate headquarters to Dallas. Our operating income increased from $59.6 million to $55.4 million, and operating margin grew from 28% to 29%. The diluted EPS was $0.52 compared to $0.45 for the same quarter last year. On a sequential basis, we ended the quarter with over $212 million in cash. Accounts receivable grew as inventory increased. During the quarter, we modified our credit facility, increasing the borrowing limit to $500 million on the term loan and $100 million on the revolver.
We drew $125 million on the term loan with an ending balance at the end of the quarter of $500 million. We have fixed our interest expense with respect to 75% of our outstanding term debt at 2.34% through an interest rate swap arrangement. Capital expenditures for the quarter were approximately $7 million, of which approximately $4.5 million was expended for a lease buyout. Finally, during the quarter, we expended approximately $44 million to repurchase 1.07 million shares of our common stock. At the end of the quarter, we had approximately 65.1 million shares outstanding on an undiluted basis. That concludes my comments. Now we'll open the call for questions and responses. Roxanne?
Speaker 1
Thank you. If you would like to ask a question, please signal by pressing the star key followed by the digit one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, please press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. Our first question is from Craig Kennison with Robert W. Baird.
Speaker 4
Good morning. Thanks for taking my questions. Jay, you had mentioned the NHRA spending, which will not be renewed. How much was the spend in calendar 2011?
Speaker 3
We talked about this before the call, and there's a number of costs that are associated with the spend. There's a couple of things. One, I can't really talk about the spend due to confidentiality agreements that we've signed. The second piece is that some of the spend that we've got, Craig, is going to be moved over to other parts of marketing, and some of the spend genuinely won't take place. There'll be some benefit associated in terms of us not having to spend, and we'll bring that money to the bottom line. We'll also be deploying that on other marketing efforts that we're continuing to get a return and get additional cars on. The point I was trying to make on the call is that we've done a lot of loading up to get cars in, a lot of marketing spend to bring vehicles in.
What we're going to be seeing going forward is a trend of increased revenues without the expense increasing at quite the same pace as we're now getting the benefit of bringing those volumes in at a lower per-car cost. That was really the point I was trying to communicate on the opening remarks.
Speaker 4
That's helpful, Jay. Thank you. Will, any comments on volume trends in the salvage business as it might relate to market share? What kind of momentum are you seeing in the non-insurance business?
Speaker 2
I am seeing a significant change with respect to the salvage volumes. I think it's relatively flat. We've increased our salvage numbers. When we look at our contracts, we're happy with what is taking place in the market. On the non-salvage side, there's probably six different segments that are composed of the non-insurance side of our business. The one that continues to grow at the greatest rate would be the Copart Direct (CDS) business. We're continuing to add agents to that business, and we're optimistic that that trend will continue. Other segments, we're in the initial stages of developing, and we're likewise optimistic in the future of those as well.
Speaker 4
With respect to the aggressive buyback plan you have underway, how much more appetite do you have for your stock here? Thank you.
Speaker 2
Yeah, it's always going to be an option for us, Craig. I mean, we're generating more cash than we consume in CapEx. We just don't talk to the timing of that. Over the course of time, over the next 10 years, we'll continue to be a buyer of our own stock.
Speaker 4
Very good. I'll get back in the queue. Thank you.
Speaker 2
Thanks, Craig.
Speaker 1
Thank you. Our next question comes from Jason Ursiner with CJS Securities.
Speaker 4
Good morning.
Speaker 3
Good morning, Jay.
Speaker 2
How are you?
Speaker 4
The marketing spend to bring vehicles in, is this primarily the domestic whole car that you're talking about?
Speaker 3
No, the marketing spend to bring in vehicles domestically tends to be non-insurance volume. We often talk about the cross-pollination benefit because when you market, you bring in members, and you also get the opportunity to bring in cars. You're really getting a benefit on both sides of the equation. Obviously, the members will buy everything. They'll be bidding on insurance volume to non-insurance volume. When we focus on a marketing spend in terms of supply, it tends to be vehicles that have nothing to do with the insurance industry simply because those are contracts that are set up, there are agreements that are made. The volume that comes from the insurance industry is going to be based on a number of factors from accident frequency, the weather, the economy.
Speaker 4
Right. If I look at the vehicle sales, can you help at least try and break out the UK principal versus what the domestic whole car, you know, the non-insurance piece is right now?
Speaker 3
What portion of that volume on the purchased cars is domestic versus UK?
Speaker 2
Yeah, the vast majority of the volume is UK, Jason.
Speaker 4
Okay. In the UK, on the principal autos, are you still getting a similar gross profit per vehicle even as price bounces around there?
Speaker 2
Yeah, actually, we saw a little increase. The margin stayed about the same, but that ASP increased, so the absolute return on a per-car basis actually grew a little bit this quarter.
Speaker 4
Okay. On the sequential gross margin, you know, in fiscal Q4, you'd been building inventory, and then you said you continued to build inventory this quarter.
Speaker 3
I don't mean to interrupt you, but we'll continue to build inventory in the quarter we're in. What typically happens is as soon as daylight savings time changes and you lose that hour of daylight, you start to see volumes increase. That happens all the way through winter till about February. Inventory starts to drop in February because you're just selling more cars than you're bringing in. What we saw this year was an increase in inventories in Q4, Q1, and Q2. It's much earlier. I'm not going to talk to the accounting. Will can talk to the accounting of it. In the old way that we did accounting, we offset the costs associated with vehicle inventory builds. Today, as we build inventories, it tends to hurt our margins. We won't sell those vehicles off, and obviously, we're going to see the upside of that.
That should be happening in Q2 and Q3 of next year, or current year we're in, meaning when we report Q2 and Q3 next year.
Speaker 4
Okay, that makes more sense. I thought you had said you were going to reverse it even as you go into the winter. Okay, I think that's it for me. I'll jump back. Thanks.
Speaker 2
Thanks, Jason.
Speaker 3
Thank you.
Speaker 1
Our next question comes from Ryan Brinkman with Goldman Sachs.
Speaker 4
Good morning. Congratulations on the quarter. I was curious as to the cash build. Given the term loan draw, I thought perhaps you would have repurchased more stock. It was a strong free cash flow quarter. You said in the last call it would be a strong free cash flow quarter. I am not sure why you would have drawn $125 million. Have you since put this cash to work repurchasing shares subsequent to the quarter close, or do you have plans to do so?
Speaker 3
Yeah. Let me just comment on that a little bit. The volume, if you look at the number of shares to trade on Copart and following all the rules that you have to follow when buying your own stock back, there's just a limit to how much stock you can buy back in a quarter without tendering. The second point being the increase in cash on the balance sheet. If you look historically, we've kept about a couple hundred million dollars in cash on the balance sheet throughout the last fiscal year as we bought stock back. We've talked about this on previous conference calls, and that's simply that you just don't know what's going to happen in the market. You don't know how Wall Street's going to react to your stock price.
We let the cash balance dip in the fourth quarter because Will had already lined up the additional financing. Quite frankly, by the time we reported the quarter, it was days later that we secured the loan. The point of that is that we want to have a large cash position to take advantage of opportunities. That may be buying stock back. That may be buying companies. We do have plans for growth. We've got some systems that we're working on right now that we'd like to install first. Obviously, that's not the only way we can grow. We've gone into Canada. We've gone into the UK with the existing systems we have. At some point, you have to cut over and say, "We're going to move to new technology and new systems that'll take us out the next decade." We're in that mode right now.
If there is an opportunity that comes along on the acquisition front, we're literally months away from deploying new technology, not years away from deploying that technology. If we see an opportunity to buy a company, we're going to do that as well. We need to have that cash on the balance sheet so that we have all our options in front of us.
Speaker 4
I see. Is there a dollar amount, a minimum dollar amount that you're comfortable with?
Speaker 3
Not something I'd state on a call. I mean, sure, if that makes sense, right?
Speaker 4
Okay. What is your sense of how the overall salvage market is performing, given the decline in miles driven out there? How do you think you are performing on a relative basis?
Speaker 2
Yeah, I think I was asked in a different fashion earlier. We think the market's flat, the salvage market. The fact that we're growing volume is because we're performing well in the market. We're competing well.
Speaker 3
If you analyze the market, Ryan, and think about the economy, miles driven, uninsured motorists, if the economy comes back, we're all of the belief that we've gone through the last three years now, through a period of at least the lowest I've seen the insurance market in my career. We're of the mindset that if the economy comes back, you're going to see more people driving more insured vehicles, and it will have a very positive effect on the overall market as a whole. In the meantime, we're focused on obviously continuing to grow the company besides, you know, regardless of the fact that it's a relatively flat market.
Speaker 4
Okay. My last question is just a little housekeeping question. It seemed that yard and fleet D&A tracked lower year over year, whereas there was a spike in general administrative D&A. I thought perhaps this might relate to your systems change. I didn't think you'd be, you know, depreciating that until after it was fully implemented. Can you speak to, you know, the shift in D&A and how we should think about that going forward?
Speaker 2
Sure. I mean, it's fairly simple. We had a number of operating assets that had reached their end of the useful life or the depreciable life, and so they fell off the depreciation schedule. On the G&A side, we have other IT projects besides this SAP migration. As we start to utilize those developed projects, we start to amortize them. That's exactly what happened.
Speaker 4
Okay. Thanks, Dan, guys. Congratulations.
Speaker 3
Thanks, guys.
Speaker 1
Our next question comes from Tony Cristello with BB&T Capital Markets.
Speaker 4
Thank you. Good morning, gentlemen.
Speaker 3
Morning.
Speaker 0
Morning.
Speaker 4
First question, I just want to ask a little bit about the UK and Universal. When we look at operationally, it seems like things are going extremely well. If you go back two or three years during the sort of financial crisis and the slowdown in the global markets, you certainly weren't running on all cylinders, if you will, like you are today. Is there anything you see in that business that would be cause for concern? Should the UK and/or Europe just slide back into some type of recessionary environment, what would be the impact to that business?
Speaker 3
That's a pretty broad question, buddy. When we think about the UK, it's very similar to the North American markets, whether it be Canada or the U.S. It's a market where they embrace trains and travel that is non-auto associated, but it's still a market that functions on cars. I mean, if they're going to have an economy and have people working, people have got to get into cars and drive. The vast majority of our business in the UK, unlike the U.S., where a whole fifth of the business in the U.S. is non-insurance, the vast majority of the business in the UK is insurance-related. If the economy were to dodge down and spike down in a big way, what's going to hurt us is people have to stop driving. I've just not seen where that's been the case.
The vast majority of the autos, even if unemployment is over 10% like we see today, the vast majority of the people have jobs and they drive cars and they're accurate. It might flatten out the market and it might drop it a little bit, but it's going to continue to be a market that exists. I don't really see anything on that front that draws too much concern. It's, you know, like I said, a pretty broad question. Who knows what's going to happen globally to the markets and economies? I just, we feel good about the UK market the same way we feel good about the U.S. market or the Canadian market. These are very strong economies in the global picture.
Speaker 4
Okay. I apologize if I didn't hear the number. Did you break out sort of the agency-based numbers? You're sort of in the 20% to 30% principal over there, or is that, you know, maybe you haven't disclosed that number?
Speaker 2
We didn't. Within the UK, we're in the high 20%.
Speaker 4
Okay. Shifting gears then, if we look at, you know, you talked about marketing and you're talking about putting more emphasis or dollars into the Copart Direct, Copart dealers. Can you maybe discuss a little bit the pricing of used vehicles, the impact it has on those businesses, as well as new vehicle sales recovery? I'm just trying to understand the dynamics that we see today with sort of depressed new car sales, yet elevated used car prices. When those flip or they inverse, what is the impact, or is there any impact to those two initiatives? What should we expect as you continue to grow this?
Speaker 3
Copart is very much built around supply. You have to think about the business in terms of relationships and having supplier agreements to get vehicles. That's obvious in the insurance industry, but it is maybe less obvious on the dealer front, but just as critical. Those relationships and those supply agreements are part and parcel to volume coming in and volume being sold. Now, price goes up. One would argue that we have an easier time selling those cars, but it really doesn't change it much because the demand curve goes up everywhere. The ability for that dealer to go out and sell that vehicle somewhere else and get a higher price goes up as well. If price dips, their ability to sell it somewhere else goes down, and their ability to generate the return through us goes down.
Really, whether the price is up or down on the dealer side, we don't think it makes a whole lot of difference. On the insurance side, it's a whole different ballgame. Obviously, it affects how many vehicles will become total loss. There are a number of moving pieces to that model that we've talked about over the last five years on conference calls. I won't elaborate on all of them. To your question on dealer, it really shouldn't impact as much if those prices come down. Maybe the bigger question, Tony, is, are sale prices going to come down? At this point, we have seen the increase in the average vehicle we sell move significantly. In fact, we talked about it in the annual report this year.
As long as that tends to be the case, and we watch the average vehicle that we process go up, they get older, your probability of total loss is going to go up. We're having a hard time seeing how new car sales are going to rebound in the next two or three years. It's just not something that moves that quickly. It takes time for that to change. That's a pretty big moving target when you talk about new car sales. Used car sales, we think pricing is going to continue in the range that it's in going out the next year or two.
Speaker 4
Okay. Maybe one last quick question, follow-up for Will. On the accounting change, I'm assuming as we move into the next few quarters, we're not going to see much movement one way or another. I mean, unless you have really big volume swings one way or another. Should we just, I know you called it out to give us sort of apples to apples this year, but is that the appropriate way to think about it, Will?
Speaker 2
Yeah, I think that's right. When you look at it on a year-over basis, you probably won't see a lot of fluctuation. When you look at it on a sequential quarterly basis, you'll see now you'll see a tremendous fluctuation. If you look at our fiscal 2010 year, when we didn't have this revenue recognition policy, our average cost to process a car on a quarter-to-quarter comparison didn't vary more than $5. Last year, you saw that average cost to process a car fluctuated as much as $25. You'll see margins suppressed in our first and second quarters as we grow inventory. You'll see margins increase in our third quarter as we bleed that inventory off.
Speaker 4
Okay. That's very helpful. Thanks for your time.
Speaker 3
Thanks, buddy.
Speaker 1
Our next question comes from John Lovallo with Merrill Lynch.
Speaker 4
Hey, guys. Thanks for taking the call. A couple of questions for you. The first one being, how do you kind of measure or gauge internally the progress of Project Overdrive, seeing that it's kind of a softer customer experience type measure? I mean, are there metrics in place that you guys use?
Speaker 3
Yeah, that's a great question, actually. We think about Project Overdrive as really two fronts. We've got the user experience, and then we've got a much more nimble, scrappier approach to how we do business. There's so much I could elaborate on that. I mean, that's a big deal in itself. We measure all of this. The easiest way to measure the customer service side is NPS. We are constantly doing that and seeing improvement on our NPS score. By the way, when we think of customers, that's internal and external. It's not just sellers and members. It's also all the employees at Copart. We're looking at how fast we respond. It's really about a fast and easy experience that's more comprehensive and extremely transparent.
That is in the auction, that's on the website, that's whether you're dealing with us at the facility, whether the facilities are dealing with the home office. It's across the board. We think about Project Overdrive as really a three-year plan. It's not something that'll get done in the next year or two. It's a three-year plan. It'll be something fiscal 2012, 2013, and 2014. A number of changes that we're working on today will be in place from the way we process data to systems across the board. We'll be obviously looking at the next step in our evolution.
Speaker 4
Great. That's very helpful. Thank you. If I could sneak one more in here, what has been your ability historically to pass on higher fuel prices to either the buyers or sellers?
Speaker 3
Fuel fluctuates. The bigger question is the cost that gets passed on to us. Obviously, when the price of fuel goes up, it's passed on to us through subhaulers. We work effectively to try to keep those costs down. Pricing really is a market-driven thing. It's not going to be, "Hey, we're raising our prices this month because fuel's up." Whereas subhaulers, it's obviously that's the world they live in. Our pricing is much more what's the market doing and what's the market allowing us with respect to our members and our sellers.
Speaker 4
Great. Thanks very much, guys.
Speaker 3
Okay, thank you.
Speaker 1
We go next to Scott Stember with Barrington Research.
Speaker 4
Good morning.
Speaker 2
Morning, Scott.
Speaker 4
Today we talk about the system revamp that we have going on right now, how much has pretty much happened so far, and the cadence of higher expenses that we could expect throughout the year.
Speaker 3
Yeah, I'll let Will talk to the expenses. I won't go into too much detail. We've talked about it in subsequent calls. If you sit back and you think internally about Overdrive, there are systems evolutions that are taking place internally, enterprise systems that will run basically the back office, how we operate in our facilities. Some of these things I look at as some of the magic of the way that the company is run. We focus on everything from call management to payment processing. We're really fine-tuning and taking the company to another level internally. Externally, when you're dealing with us on the web, we're going to be doing the same thing. We're going to be taking advantage of a lot of new technology that's out there. The world's a very different place.
I think one of the calls I talked about, the iPhone didn't exist five years ago. Smartphones were kind of dumb phones. Today, you sit back and you think about what mobile technology has done, what web technology has done, and where we're going to be able to take the company in the next three years. It's a very different Copart as we look out into fiscal 2013 and 2014. The best way to respond to it, and I'll pass it to Will for the cost analysis, is really, as these products come to market, we're going to actually do that on the call.
During the call, rather than talking about some of the stuff we've done in the past, we'll be doing demos of the new technology as it comes up so that you can all see what we're doing on our web and some of the other platforms that we'll be launching.
Speaker 2
With respect to the impact that we'll have on the financial statements, we really don't anticipate it to have much of an influence on our G&A line. Most of the costs will be capitalized. We expect those capitalized costs to be probably in excess of $30 million. The expense side of the project is simply resources that we have anyway that are just directed towards this implementation as opposed to other projects.
Speaker 4
In the past, I think maybe a couple of calls ago, we talked about some of the total costs that could wind up in the next year or two. I think it was north of $25 million, $35 million. You're saying most of that will be capitalized.
Speaker 2
It'll flow through the income statement, probably the end of our fiscal 2013 through amortization.
Speaker 4
Okay, you don't expect much, if any, incremental expenditures from any of the stuff that's going on, even with the headquarter move within fiscal 2012?
Speaker 2
No, that's a different question. We'll have some incremental costs associated with the transition to Dallas. We probably incurred $2 million, $2.5 million so far. I would expect to incur another $2.5 million or so going forward.
Speaker 4
Okay. With regards to the processing centers, you know, the same thing cost-wise in the same vicinity?
Speaker 3
I thought your number included the processing centers. You're talking total G&A move, right?
Speaker 2
Yeah, total G&A move.
Speaker 3
Yeah.
Speaker 2
The cost of processing centers will be reflected in our yard and fleet cost. It shouldn't have much of an impact on a per-car basis.
Speaker 4
Gotcha. Hey, can we maybe talk about the UK a little bit? I know that you don't break out individual specifics about between the North America and the UK, but how is the UK performing if you want to, on a profitability basis versus North America and the size of the UK versus North America? Just give us a framework of how big that's become.
Speaker 3
The UK is doing great. I mean, they're operating as planned. They're utilizing most of the products and services that we have in the U.S. Some things are just different, and then some things haven't rolled out yet. We don't have, obviously, near the non-insurance segment growth over there that we have in the U.S., but that's been going on now for a few years here. The U.S. has been geared towards developing these segments. The UK has been geared towards putting all of the existing products and services that Copart has into that marketplace and not necessarily thinking outside of insurance right now. That'll eventually evolve. The team has done a fantastic job.
I mean, this is a market where we've only been, literally only been in the market now roughly four, five years at the most, and yet we've seen this monumental transformation in the way that vehicles are processed in that marketplace. When we got there, average pickup times in the UK were near four days, and today, we're picking up vehicles in less than a day. We've got, what, 15 locations across the country to do that, so we're closer to the cars. We reduce the costs associated with towing. Some cars were towed from Scotland and brought all the way down to Bristol. Today, vehicles in Scotland stay in Scotland. Vehicles in the West Country stay in the West Country. It's a much more efficient process, lower costs to handling vehicles, lower cycle times to handling vehicles. They've really just done a fantastic job.
The next step will be as we deploy some of the Overdrive technologies that we've talked about in the next year. That will be going into the UK as well as North America.
Speaker 4
With respect to the overall size of your UK business versus North America, 15%, 20% in that vicinity?
Speaker 2
I think expressive volume is closer to 15%.
Speaker 4
Okay. Gotcha. Just the last question. In North America, what is your PIP versus fixed percentage do you think?
Speaker 2
It's about 50/50 split.
Speaker 4
All right. That's all I have. Thank you.
Speaker 3
Thank you.
Speaker 1
We go next to Gary Prestopino with Barrington Research.
Speaker 4
Good morning.
Speaker 0
Good morning.
Speaker 4
Will, your current capacity to borrow right now based on your revolver in terms, I've got it at about $175 million. Is that correct, or is there some accordion on either of those two pieces of debt that could take it higher?
Speaker 2
Oh, under our current credit facility agreement, we have just $100 million left on the revolver. Now, we can go outside and get third-party debt. We're limited to $50 million in excess of that, so roughly $150 million under the current agreement.
Speaker 4
Okay. That's fine. Did you say volumes were up about 4% overall unit volumes?
Speaker 2
That's correct, worldwide.
Speaker 4
Okay. I think Craig asked this question. I don't know if you answered it or not. I may have missed it, but your percentage insurance, non-insurance, are you giving that out anymore?
Speaker 2
It hasn't been asked, but it's about the same. It's about 80% insurance and about 20% non-insurance.
Speaker 4
Okay. Thanks. Could you possibly, in terms of milestones, kind of lay out, you know, I know you talked about the Dallas move being completed, when the process centers are going to be completed, when the IT system is going to be out and be able to be fully utilized. Could you kind of give us some milestones as to when you think those would all occur?
Speaker 3
Process centers should be done this fiscal year. The move to Dallas should take place this fiscal year. If not this fiscal year, the move to Dallas would be the first quarter of next fiscal year. Technologies will be in the next fiscal year. We've got over five off the top of my head that I can think of, five major projects that we'll be rolling with. The majority, if not all of those, will come in the next fiscal year. There may be something we get done a little sooner than we planned. Like I said, as we launch these, I'll be talking to them on the call so that you're all very clear on what we're developing and what we're deploying.
Speaker 4
When you said next fiscal year, are we talking about fiscal 2013 or fiscal 2012 when you're saying?
Speaker 3
No, fiscal 2013. Next fiscal year, fiscal 2013.
Speaker 4
Fiscal 2013. Okay. Thanks. Just a kind of a question on this, you know, the marketing spend, Jay. Your driver retired on the NHRA drag racing side. You know, you're going to look at other areas to spend to grow. Do you feel was that a very effective way of spending money to attract buyers and sellers? What other areas would you be looking at to spend? Are you going to possibly go out and work with another driver or just other what are you going to do there?
Speaker 3
Sure. No, it was great. I mean, it was a fantastic move because, quite frankly, the name Copart was unknown in the auto segment. When you get into NASCAR and you get into NHRA, NASCAR is very much auto enthusiasts and auto fans. NHRA is just gearheads. I mean, that's just hardcore gearhead heaven. We were able to get into that marketplace, make people aware of who we are, and seeing tremendous improvement there. The opportunity that took place over the last three years, 2009, 2010, 2011, was to make a segment of the population that is heavy auto-related aware of Copart. We've done that. We could continue to invest dollars in that marketplace, but the return goes down significantly because they're aware of who you are now in that marketplace.
From a marketing standpoint, we're focused on deploying in other areas that are going to be different than racing going forward.
Speaker 4
Can you elaborate on that, or is that something you don't want to share with us right now?
Speaker 3
I could elaborate a little bit. Obviously, some of it, the decisions aren't made yet. It's not so much that it's a secret or it's super secret. We're going to be continuing to focus on web-related. A lot of our traffic comes into us through the web and through Google searches and that kind of thing. How we do that, the affiliated marketing that we do there can have enormous returns. More so than the fact that they're big numbers in terms of returns, they're measurable numbers. You can see exactly based on each deployment. That becomes much tougher when you go radio, TV, sponsorship. Those are things that you can ask. You can query. You can try and measure. The web is pretty doggone measurable at this point. We'll be focusing, as an example, more towards web-based economics where we're going to get customers coming in through those avenues.
There'll be some other areas that we'll focus on too that are auto-related. The key for us is that we're not a business that's trying to attract Oprah Winfrey's audience as an example. There's a demographic that buys at Copart. That demographic is very auto-related, loves cars, is passionate about cars. Our goal from a marketing perspective is to focus more on that area.
Speaker 4
Thanks, Jay.
Speaker 3
You're welcome.
Speaker 1
Next, we go to Bill Armstrong with CL King & Associates.
Speaker 0
Good morning, Jay and Will. Just to get back to a previous topic with systems rollout, I think in previous calls you talked about $30 to $50 million total costs when all is said and done. Are we still on track to be in that range?
Speaker 2
I think we are. I think it's the lower end of that range.
Speaker 0
Lower end. Okay. On your expenses, you mentioned increased fuel and petrol costs. On the yard expense ratio, the percentage of C revenue did go down year over year during the first quarter. Was there just some leveraging with some structure components there? Or were there any fee increases?
Speaker 2
Probably the one that had the biggest impact on that is we talked about the adjustment in our first quarter of revenue associated with the change in the revenue recognition policies. There was also an adjustment in yard and fleet.
Speaker 0
In the yard.
Speaker 2
Yeah, in Q1 of our fiscal 2011, that amount was about $8.8 million.
Speaker 0
Right. Okay. Thanks. How did your particular revenue return go during the quarter?
Speaker 2
On the purchase car side, I talked about that. The ASPs were up, the margins were constant, so the yield was slightly higher. We really never have discussed our average selling price or our revenue per vehicle specifically on the calls, and we'll continue to hold to that policy.
Speaker 0
For the fiscal XRA, I was wondering if it's been increasing, flat, or decreasing?
Speaker 2
You know, we point to the used car index, and we point to sky metal pricing. If you look at how that's moved in our fiscal quarters, it's down slightly this quarter. I think that's a fair indicator of what pricing is doing with us.
Speaker 0
Got it. Thanks very much.
Speaker 1
Thank you. At this time, we have one question remaining in the queue. Once again, if you would like to ask a question or if you have a follow-up question, please press star one. We'll take our next question from Scott Ciccarelli with RBC Capital Markets.
Speaker 4
Hi, guys. This is Patrick Crawford sitting in for Scott. I guess just touching on scrap prices again, you know, we've seen scrap pricing come down a fair amount over the past couple of weeks. We're just sort of wondering what your assumptions were for scrap pricing going forward, and could you remind us how it could potentially impact your business?
Speaker 2
Right. In terms of assumptions, we don't really.
Speaker 4
We don't have any.
Speaker 2
We don't have any assumptions. It has, in terms of the impact it has on us, obviously, you know, I called out the two major drivers in our average selling price. Scrap metal pricing on the low end of the cars we sell, used car pricing on the higher end. In terms of the two, the used car pricing has more influence on our ASP than scrap metal does.
Speaker 4
Okay. Thanks. I guess one final question, if I may, just a quick housekeeping. If looking at the Allstate contract, would it be safe to assume that you fully cycled Allstate volume, or was there still incremental volume from that contract in the current quarter?
Speaker 2
Yeah. No, we're fully anniversaried. In our first quarter of last year, we were probably 90% volume. There might be a slight benefit on a year-over comparison, but we certainly exited our first quarter of last year at full run rate.
Speaker 4
Okay, thanks a lot, guys.
Speaker 2
Thank you.
Speaker 3
Thank you.
Speaker 1
It appears we have no further questions at this time. Mr. Adair, I'd like to turn the conference back to you for any additional or closing remarks.
Speaker 3
All right. Thank you, Roxanne. Again, we appreciate everyone coming on the call, and we're excited by the results of the quarter. We look forward to talking to you about Q2 in three months. Merry Christmas. Happy New Year. Bye.
Speaker 1
Thank you. That does conclude today's conference.