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Copart's CEO Discusses F1Q2012 Results - Earnings Call Transcript

22.05.12

Copart, Inc. ( CPRT ) F1Q2012 Earnings Call November 29, 2011 11:00 AM ET

Manipulator

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

Jayson Adair

Thank you, Roxanne. Nice morning, everyone. It’s great to have you on the call. Welcome to our first quarter conference call for fiscal 2012. We have got some updates this morning, I am wealthy to turn it over to Will Franklin first for a brief outline and then we will go through our prepared remarks and open it up for questions

William Franklin

As a consequence of 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 enslave to certain risk and uncertainties that could cause the final results to differ substantially from those projected or implied by our statements and comments. For a more complete discussion of the risk that could move our business, please review the management's discussion and analysis and the factors affecting expected 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 set out on the discussion of our first quarter results.

Jayson Adair

Thank you, Will. Well again, good morning, and as you can see we are on top of the world to report the quarter. We are very pleased to see the growth in revenue to $225 million. Intumescence in operating income to $65 million and growth in net income to $41 million. EPS, very altogether growth year-over-year due to earnings improvement and due to the share buyback universal from $0.45 to $0.62 in the quarter.

Just looking at the statement of cash flows for a twinkling of an eye, I would want to point out the accounts receivable build that took place this post, 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 assemble inventories in this quarter and burn cash in the process and that inventory we will be selling off in the second spot that we are 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 will elaborate on that. I did want to elucidation on the fact that we finished the quarter with over $200 million -- $212 million in cash on the equal sheet, and we bought back over 1 million shares in the quarter. So just some other points that I sympathy I would focus on operationally.

In the quarter we did see some increase costs associated with fuel and sub-harvest but in addition to new development and new development costs. New business that we are developing in the company. So the crowd has been very focused on increasing segments that are non-insurance. We have done a lot of investment in that process and we believe we are at that bring up now. We believe we have been able to achieve that growth at the current run rate from a cost present oneself as a candidate for point.

So as we look forward into the year, we are comfortable that we are going to be able to hide our operational cost relatively flat, as associated with, on a per car basis. And that we won't be putting a lot of lettuce into some of these new biz, new development portions of the company.

So as we add more units, just like any business you have got your initial rate but you have got your initial cost investment that you have got to make in a business. And now what we are thinking as we look well-developed is that we will be able to add units to the company without seeing a lot of additional costs in that area. We will be focusing on the to the quick office, the G&A costs. We will be focusing on operational cost as well. But the reality is that we are heavy right-mindedness now into project overdrive. It is doing exactly as we planned. It continues to push on all the fronts that we talked about on former calls.

The Texas relocation is well underway. The processing centers are well under way. We will moving and transitioning into some of those in the domicile that we are in now in Q2 and we will 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 mutation move completed by the end of the fiscal year July 31, 2012. There will be some transition I am sure that, some portions of that that may get delayed a mini bit, but for the most part, the vast majority of that move will take place. The folks that will be working in Dallas will be moved, including myself, and the be placed of the senior management team, and then we will be working on the next fronts that are part of overdrive both in technology and in marketing.

Also, I wanted to talk about our marketing efforts. We have seen continued increase in the ability to bring on additional members, converting those members to becoming buyers of consequence, continued growth in units on the supply side. And we also made a decision in the quarter that we are in now that we will not be progressing and common forward with NHRA drag racing in calendar 2012. This was a decision that was based on our yoke owner, Kenny Bernstein, deciding that he wanted to retire and we had a conversation about that, and based on that urge 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 emit on racing will either be brought to the bottom line or we will be deploying some of that into additional marketing efforts. So we are focusing across the cabinet on a lot of marketing, and we have been very very happy with the returns that we have gotten on that marketing, spend in the past. And we have lettered a lot. So we look forward to, as we are spending marketing dollars going forward to even get a greater carry back on that. And we wish Kenny and the rest of the team. We thank them for what they have done and we wish Kenny well in his retirement.

Looking onward on system improvements. We have got a number of things that we are working on, whether it be Copart.com, whether it be our enterprise system that runs the circle today. And those are all on schedule. We are happy with the plans that we have got right now. We anticipate that you will see in future calls that I will be expert to talk about and to some of the things that are happening on the technology front.

So in Q3, 4 and then into fiscal ’13, we look advance to talking about some of the improvements we have made to the process, whether it be online, whether it be at our facilities, the technology changes that we have made. And we are continuing to target on better service, that’s all part of project overdrive. Improved service and experience for our customers, both internal and outside.

So, we’ve got a lot going on, and at this point it’s my pleasure to turn it over to Will Franklin for a financial update, then we'll gaping it for questions.

William Franklin

Thank you, Jay. Yesterday we reported our financial results for the first place of our 2012 fiscal year. Consolidated revenue was $225.6 million compared to $212.7 million for the same direction of last year, an increase of 6.1%. In the first quarter of our fiscal 2011 year, we adopted new accounting rules in any event the recognition of certain revenues. Beginning in that quarter, revenue generated for recovering a car or converting a title with this time 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-in days of yore adjustment of approximately $9.1 million to accelerate that revenue in Q1 of fiscal 2011.

Excluding the bumping of that change in revenue recognition, revenue growth would have been $19.9 million or 9.8%. On a same-bank sales basis, revenue grew 3.4%. Excluding the impact of the proceeds recognition adjustment of first quarter last year, same-store sales grew 7%. Book grew in both North America and the UK. Total volume increased over 4%. Purchased car receipts as a percentage of total revenue grew from 15.6% to 17.7% year-over-year.

Due to snowball in average selling price, purchased car volume declined from 5.8% to 5.3% of out-and-out volume, as we continue to migrate contracts in the UK from the principal model to the agency epitome. Yard and fleet expenses grew from $86.2 million to $88 million and over the higher volume in cars processed. The significant increase in the cost to salvage 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 Harry and dealer markets.

Our gross margin grew from $88.9 million to $95.2 million or 7.2%. Worldwide and administrative costs, excluding depreciation, were $26 million compared to $27 million for the same chambers last year. The decline was due primarily to reduced marketing and reduced headcount and was balance out by approximately $800,000 of extra expense associated with the transition of our corporate headquarters to Dallas. Our operating revenues increased from $59.6 million to $55.4 million, and operating margin grew from 28% to 29%.

Diluted EPS was $0.52 compared to $0.45 for the same casern last year. On a sequential basis, we ended the quarter with over $212 million in cash. Accounts receivable grew as inventory increased. During the leniency we modified our credit facility increasing the borrowing limit to $500 million on a assumptions agree loan and $100 million on the revolver. We drew $125 million on our sitting loan with an ending balance at the end of the quarter of $500 million. We have fixed our interest expense with admiration to 75% of our outstanding term debt at 2.34% through an interest rate swap construction.

Source: Seeking Alpha