Good day, everyone, and welcome to the Copart, Inc. Q1 Fiscal 2014 Earnings Call. Just a reminder, today's conference 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.

Thank you, Debbie. Good morning, everyone, and welcome to the first quarter conference call for Copart. Before I start, I'll turn it over to Will Franklin, our CFO for Safe Harbor statement and then we'll go ahead and give you an update on operations and some G&A and other factors before Q&A. Will?

All right. Thank you, Jay, and good morning, everyone. Before we begin our comments, I'd 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 statements and comments. The company expressly disclaims any obligation to update or revise these 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 risk factors contained in our 10-Q, 10-K and other SEC filings. With that, I'll turn the call back to you, Jay, for additional comments on our first quarter's results.

Thank you, Will. Well, good morning again. As we talked about in the fourth quarter year, Copart completed the acquisition of Quad City Salvage Auctions, QCSA, and had our first full quarter in the first quarter. So I want to jump into some of the increases that you've seen in both G&A expense and in revenue and operating costs, so you can get some clarity about where we think will be in the second, third and fourth quarter of the year. Let's look at G&A. We finished Q1 with $38.5 million in G&A expense as opposed to $27.3 million for the same quarter a year ago. That's an increase of $11.2 million. That $11.2 million is basically divided into 3 buckets. International is up $1.7 million and that is associated with our expansion in the last year into Spain, Germany, Dubai and Brazil. That expense will be ongoing as we develop those markets further and grow further in those markets as part of our strategy for growth. On the -- as we look at the next bucket, let's look at information technology. On the IT side, Copart had an increase in the quarter of $4.7 million. This is associated with our move, our file move out of California. As we talked about in 2011, we began a project called Overdrive. And the whole concept was about really transforming our company, both from an operational, from a services level, moving out of California to Texas and upgrading our operating computer systems. That Project Overdrive will come to completion in July of 2014. And with it comes a brand-new website, with it comes a mobile application and we are continuing to work on a new operating system that will run the company. That has been delayed. So we are currently really have…

Thank you, Jay. As you can see, total revenue grew by $41 million. Purchased car revenue grew by $9.8 million. The Spain and QCSA acquisitions, both of which closed on our fourth quarter of last year, contributed $6.4 million to that growth. Purchased car revenue in the U.K. and the U.S. grew by $2.1 million and $1.3 million, respectively. The increase has resulted primarily from growth in our direct purchase program. In this program, we purchased cars primarily from the general public and resell them for our own accounts. Service revenue increased by $31.2 million. The increase resulted from growth in our international operations, which included acquisitions last year in Germany, Spain, the United Arab Emirates and Brazil. These totaled approximately $4.1 million; growth in the U.K. of approximately $500,000; our QCSA acquisition of $12.2 million; and growth in Copart U.S. of $14.4 million. The growth in Copart U.S. came primarily from increased volume, resulting from growth in both market share and overall market size, as we have seen an increase in salvage frequency. In the U.S., volume grew by almost 7% as we saw increases from both our insurance and our noninsurance suppliers. Noninsurance car volume represented approximately 20% of our total Copart U.S. volume. In the U.K., total volume grew by approximately 10% and resulted primarily from market share gains. Yard operations expenses were up $27.9 million. The growth came as a result of our international expansion, the QCSA acquisition and its associated integration costs, which totaled approximately $9.1 million, the growth in Copart U.S. volume and the growth in Copart U.S. inventory. Copart U.S. inventory was up 20% on a year-over-year basis. Included in the yard operation expenses for the quarter are approximately $800,000 in severance and lease termination and relocation costs. These costs will continue into…

[Operator Instructions] We'll take our first question today from Robert Labick with CJS Securities.

I wanted to start with sales. Both this quarter and last, you discussed that total inventories are up about 20%. And last quarter, we talked a little bit about the apples-to-apples inventory growth as part of it and then also some cars staying on the yards a little bit longer due to processing time from the insurance company side. Can you give us a sense of the organic or apples-to-apples inventory growth in the quarter and how is the processing time? Is it normalizing yet? Where does that stand? Do you expect that excess inventory to flow through at any point? How should we think about that?

Well, as we said on the last quarter, we felt about 1/2 of it was associated with improvements in inventory and 1/2 of it was associated with the cycle times on those vehicles. That -- I don't think there's an inherent trend. The cycle times are just getting longer and longer. There's some reasons why some of those vehicles hadn't moved based on the supply where they came from. And I expect those vehicles to start moving in the quarter that we're in and subsequent quarters Q3 and Q4. So we want to think about real inventory growth. It's probably closer to the 10% number.

Okay, great. Well, I mean, that's still obviously a fantastic number. And the primary drivers, I think you said, were both share gains and then the industry itself growing? Is there anything else behind that?

I think it's important to understand the 20% number. We've got all the costs associated with that inventory build. So when that number does become more indicative of our growth more towards the 10%, we're going to have all the revenue associated without the expense when we sell those vehicles off. So that will be the improvement. And then to your second point, Bob, it really is just that it's an environment where the market is. We're seeing some market share gain and we're seeing some improvement in the overall market. Vehicles are older today than they were 5 years ago. New car sales have been down for the last 5 years. They're now starting to trend up but all those factors, as we talked about back in '09, if you recall in some of those conversations back in '09 after the '08 crash of the market, when we talked about in '09, vehicle sales stayed at these low ratios which they did that we see vehicles aging, which they have, and then we would see vehicles becoming more probable total losses, which is what we're seeing today. So the overall market, we believe, is just expanding.

Okay great. And then on the QCSA side, the revenues were strong in the quarter, certainly versus I guess what we're looking for there. And I know you're going to begin the transitioning going forward. Can you talk a little bit about some of the best practices that will be transferred between Copart and QCSA, the things you've learned from them and things you can impart on some of the yards you might keep of theirs if they're in the right places?

Sure. Well, we're not going to be breaking out QCSA in every quarter, just so you know. The integration will start this quarter and then into Q3 and we'll just be talking about revenue. This is a -- you can see at $17.2 million you've got a real run rate of the revenues, so you've got that visibility. We won't be breaking that out in subsequent quarters. We'll be talking about the company as a whole as we integrate. The one I talked about in the call was towing; another one would just be all the duplicate facility expenses. I mean, they're running over 20 facilities that are right next door to our facilities, or I shouldn't say next door, but in the same markets as ours. So we may be driving right past one of our facilities to go to their facilities. That's the towing side, the other side is that you've got all the benefit of not having that facility expense, so there is that component. We've learned from both sides. They had some technology functions that we've now integrated into our company and will be launching at the integration on our website for our sellers. So there's been improvements there. There's been some improvements in just the way that they interact with the sellers. It's been new from some of the ways that we've done it. We've implemented some of those and then we've got a number of things that we do from a best class or best practices standpoint. We've got better cycle times and more efficient on the tows. We've got a much larger buyer base by a much bigger factor, so we expect higher returns on those vehicles as they get integrated. So it's just a number of areas where we've seen benefit on both sides and we've been able to integrate those benefits on Copart. When they've got something that they do better, we've taken advantage of that, so like I said, the technology piece. So really happy about it. I mean, I think I really -- I know we're going to be very pleased as we get into Q3. Q2 is still going to have a lot of costs in it but you'll start to see some of these benefits coming in, and Q3 and Q4 are going to look really good compared -- once we've got all these integrations completed.

We'll take our next question from John Lovallo with Bank of America Merrill Lynch.

The first question is just a point of clarification in terms of the revenue -- sorry, the inventory build. Are you guys seeing more pressure from -- are you guys seeing more pressure from insurance companies to pick up vehicles more quickly to save them costs at the impound yard?

That's always been the case. We tease because 20 years ago, it was -- the standard was 4-day pickup. And today, they want 24-hour pick up. Now they push for same-day pick up. So yes, we're always seeing push towards that and we've been able to improve year-after-year on cycle time and I suspect there's a point where you can't improve anymore, right? You can't go to 0. So at some point, we'll stop seeing that improvement. But with technology, it's allowed us to improve even further so we've got some tools that we use on the technology front that allows us to pick up vehicles in hours as opposed to next day, even. So that's -- we're always going to see a need for that because you have the impound yard as a big expense.

Okay, that's very helpful. And then on the pricing front, if we do see a pull-back in used vehicle prices, is there an opportunity to potentially raise auction fee prices to kind of keep the fee revenue flat, if you will?

Yes, we don't talk about pricing on calls, John.

Okay, fair enough. If I can just end with one other. In the past you guys have clearly repurchased a lot of your shares. There's been a little bit of a lull, I mean, partly due to the REIT situation I would imagine, and then maybe QCSA. But going forward, I mean, do you see yourself going back into the market to repurchase a fair number of shares?

Yes. Well, we don't talk about share repurchase on calls, either. You're 0 for 2 there, buddy. But no, we don't talk about share repurchase. We -- historically, you can see where we bought, we do have an authorization to buy plenty of stock and we have had a history of doing it. But as said on calls before, we tend not to lay our playbook out on when we think we should be buying stock back.

We'll go next to Ryan Brinkman with JPMorgan. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: So I understand you don't talk about share repurchases. Perhaps I could try to approach it from a different angle. How do you currently feel about your financial leverage, which has been declining as you continue to make contractual payments on your debt and your earnings expand?

Well, yes, we've got less debt than we had a couple of years ago. Again, we just don't get into those types of discussions on a conference call because it's not a CEO decision, that's a board decision. And when we get into how much debt we think we should have, we talk about that at the board level and then we make a release and let everyone know what we're thinking and what we're doing. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay. Great. And could you maybe just give us an update on your international operations outside of United Kingdom, so how some of your recent acquisitions have been tracking relative to original expectation, for example, in Brazil or the United Arab Emirates?

Yes. We're really happy with them. There's a lot of opportunity in those markets and we want to move quickly, but you don't want to move too quickly or get too aggressive. So it's one of those things where we're integrating our process, our procedure and our systems. And it feels very similar to the U.K. When we came to the U.K. pickup times were triple what they are today. Returns were 30%, if not more than what -- less than what they are today. And so we see those markets as very similar to the U.K. and the potential and the opportunity being very similar to what we were able to do in the U.K. So we're happy about what's going on internationally. It's good stuff. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: I see. And so was your intention to sort of use these international acquisitions to form kind of a beachhead in some of these markets after which you will then expand organically, or do you see yourself continuing to make multiple acquisitions in the same international market? Or aren't there really people to acquire in some of these?

In some of the markets, there's no one to acquire, that's fair enough, and in other markets there's still acquisitions to be made and we would be open to that. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Last question this morning, at what time do you expect the QCSA margins to be up to the Copart levels and what are the steps that remain to get there?

Yes. Fourth quarter, we're going to be integrating second and third. The margins should be up to par at fourth quarter. And then as I said on the call, there'll be some carryover from expenses in the third quarter that could go into the fourth quarter. But if you take that nonrecurring factor out, we'll be there in the fourth. Come the first quarter of the year, there shouldn't be any carryover expenses.

We'll go next to Bret Jordan with BB&T Capital Markets. Bret David Jordan - BB&T Capital Markets, Research Division: A couple of quick questions. I guess, we're looking at QCSA in sort of how, in the future, when we've adjusted for the duplicative overhead and the buckets, could you give us some color on how the gross margin profile of the charity or toys business compares to the core insurance category? Is that diluted to the overall mix?

Yes, sure. I won't give you the actual numbers. The toys is better than salvage because they tend to be higher sale price, higher-margin units. Charity are less than insurance. If you think about the profitability of segments, if you will, or supply in our business, at the top of the food chain would be rental cars, dealer cars, non-damaged stuff. Then you'd move down into damaged vehicles, then you'd move down into charity vehicles, which typically are not damaged, but they just have really low valuations in terms of profitability per unit. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. And then a question on the market share comment. I guess I'm trying to figure out what a real inventory growth is versus share growth versus the underlying slowdown in the processing. Where do you see the share coming from? I guess what do you see being the driver of market share shifts right now at the market?

Well, there's been a consolidation in the market in the last year. Quite a few of the large suppliers, large insurance companies, have made a decision to go with 2 vendors or 3 vendors and eliminate doing business with 17 vendors as an example. So... Bret David Jordan - BB&T Capital Markets, Research Division: So this is the outcome of the RFP process we saw a year, 18 months ago?

Say that again? Bret David Jordan - BB&T Capital Markets, Research Division: So this is the result of the RFPs that were -- that we were seeing 12 or 18 months ago.

Sure. And we're always looking at RFPs, I mean that's pretty regular but there was a pretty major shift in the last year that pushed a lot of business towards 2 or 3 suppliers or auctions and eliminated -- where they eliminated doing business with some of the smaller players that are out there. The other side, just as we said, the markets -- the industry is expanding. It's getting bigger. Bret David Jordan - BB&T Capital Markets, Research Division: One question, I guess, on the QCSA, the charity volume is going through vehicle revenues or is that going through service revenues?

Both.

Goes to both. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. And then one last question. Your next board meeting, is that in the mid-December, I guess we're -- I was reading the proxy and it looks you may be extending your dollar-a-year contract. Is the next meeting the 16, for the board?

Shareholder meeting.

The shareholder meeting is yes, the 16th. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. When's the next board meeting?

The next board meeting is next week.

We'll go next to Gary Prestopino with Barrington Research.

Well, Will, did you give a total volume number for the year -- for the quarter year-over-year that you are up or do you ever give that number?

No, I didn't. I gave the U.S. and I gave the U.K. separately because...

If you don't give it, that's fine. There's just a lot of questions have been answered, but just could you maybe make some comments on how you're doing in the dealer and the public markets? Obviously, you're adding to QCSA, you've got a lot more salvaged vehicles in the mix, but yet you're still doing about 20%, was it non-salvage? So that's obviously growing at a pretty good clip, so maybe you could talk a little bit about that.

No, I mean you're spot on. I mean, that's exactly what's happened and they've continued to be able to improve that part of the business. And I anticipate that will be the case. The noninsurance business is a very large segment for us. We handle a very small piece of that. We've got a really good sales team that are working that now. That business has existed now, this is its sixth year that we've had the dealer division and a direct division, so I expect that they'll continue to do well for years ahead. I don't see that coming to maturity for a while.

Could you maybe share what the volume growth is there year-over-year? Is that too intrusive?

Yes, we don't break out volume, Gary, but we do break out the percentage of the business. As you said, it's about 20%.

Okay. And how many dealers are you dealing directly with now, can you tell us that?

Thousands. I don't know the exact number. It's thousands of dealers.

We'll go next to Craig Kennison with Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Just a follow on to Gary's question on the noninsurance side. Jay, I would think that your platform would be particularly strong in the buy here, pay here market. Do you have a specific initiative to get after opportunities there?

We are. We're -- I tend not to like to talk about all those segments because, again, we've got a lot of competition out there but we work all those angles. So rest assured now, I won't get into each market out there like buy here, pay here that we go after, but we're involved in all those markets as potential supply for vehicles. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And then I know you're investing in a new website. To what extent do you think that is a game changer on the consumer side, or you've maybe had a lot of hits on your new website, but maybe it's not as intuitive as you'd like it to be?

It's a big deal. I don't have the numbers in front of me, but I did talk about them on the last quarter. But it's double-digit growth year-over-year and people attending auctions, auction attendance, it's double-digit growth in new registration, so it's a big deal. The old site which is currently the existing site, you have to sign up, you have to register to join an auction. And the new site, which is currently beta and we will be replacing the old site in the coming months, once we've worked out everything. And we want to make sure it goes out completely bug-free and stronger than the existing site. But -- so in the months ahead as we launch that, you don't have to register to be -- attend an auction. You can jump in, watch an auction and so you learn much more about our business when you see the vehicles sell. We sold a Ferrari, an F50 Ferrari last, what, 2 weeks ago, something like that. It sold for $455,000. We put a video of it up on YouTube. It got over 100,000 views and you can just type in Copart F50 Ferrari, you can find it, it's really easy to find. And you can watch the auction. We've posted the auction up on YouTube as well. So that kind of stuff where the visibility of what we do and then being able to come in to our site and actually watch auctions and not have to register, that registration process for people can be a pretty big barrier and we've eliminated that. That's just one example on the new site. If you go back a year ago, we didn't have auction access on our mobile site. So today you can watch an auction from your phone. Over 10% of our auctions are attended via mobile. I know those are some big numbers, when you think about what we're selling every day, how many people are attending. Over 10% of the attendance is coming in through the mobile platform as opposed to the web. So those are just improvements that we think are going to be a big deal going forward, Craig. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And then the final question, just on the international strategy. It's my understanding your business really tends to flourish once you've achieved an upscale, like in the U.S. and the U.K. but your more recent international investments, you've got let's say subscale investments in Germany, Brazil, Spain, Dubai, Canada. Why spread it out like that instead of consolidating and really getting that scale that tends to drive that better economics?

Well, we've got the teams to do it. We've been investing in bringing people on over the last 4 years so that we'd have the personnel to expand in the multiple markets. We've got the cost associated with it. There's no question about it but we look at that as short-term pain, long-term gain. We'll have some of that expense that we're carrying while we are in markets without an upscale and your -- I think your point's well taken. We will then start to build scale in those markets. And instead of having one market come on and then go to another, we'll have 4 markets coming on and then we'll expand from there into multiple markets. So it's just -- we just feel like it's, in the long-term, a much better strategy to getting across the globe.

[Operator Instructions] We'll go next to Bill Armstrong with CL King & Associates. William R. Armstrong - CL King & Associates, Inc., Research Division: Most of mine have been answered, but can you remind me, do you disclose same-store sales anymore?

No, we didn't, but same-store sales are up 7%. William R. Armstrong - CL King & Associates, Inc., Research Division: Up 7%. Okay.

In North America, yes. William R. Armstrong - CL King & Associates, Inc., Research Division: That's just North America, not U.K.?

That's Copart U.S.

Gentlemen, with that, there are no other questions in queue.

All right. Thank you, Debbie. Again, thank you, everyone, for attending the call. We look forward to talking to you next quarter when we report on the second quarter for Copart. Happy Thanksgiving and we'll talk to you then.

Ladies and gentlemen, thank you for your participation. This does conclude today's conference. Have a great rest of your day.