Welcome to the Copart incorporated first quarter fiscal 2015 earnings call. Just as 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.

Welcome to the first quarter call for fiscal 2015. I’m going to pass it over to Will Franklin who will give you an update on the financials and then he’ll pass it back to me for some quick remarks and then we’ll open it up for questions. With that, it’s my pleasure to introduce Will Franklin.

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 or comments. For a more complete discussion of the risks that could affect our business, please review the management’s discussion analysis and the risk factors contained in our 10K, 10Q and other SEC filings. With that I’ll begin with a few brief comments about our financial results for the quarter. Total revenue grew by $10.5 million or 3.8%. Purchase car revenue declined by $9.7 million driven by a reduction in both volume and in revenue per car. The reduction in volume resulted from lower direct purchase activity in both the UK and North America as well as fewer cars processed for insurance companies on a principle basis in the UK. Service revenue increased by $20.2 million or 8.9%. The increase resulted from growth in our international operations which included Germany, Spain, the United Arab Emirates, and Brazil of approximately $1.7 million, growth in the UK of $6.2 million, and growth in North America of $12.3 million. Growth in North America and the UK was driven by both an increase in volume and an increase in revenue per car. Purchased car volume represented 6% of total volume in the current quarter versus 7.3% in the same quarter last year. Overall volume grew by almost 4% while inventory grew by over 9%. In North America non-insurance car volume grew by almost 2% and represented almost 21% of the total volume sold. Yard operation expenses increased by $6.3 million. The growth was driven by the increased volume as we saw a drop in average cost to process each car, reflecting our efforts to eliminate operational inefficiencies. General and administrative costs declined by approximately $1.4 million as the same quarter last year contained $2.9 million in severance, lease termination and relocation costs associated with our QCSA acquisition and the move of our technology team from California to Texas. We expect to see a reduction in our quarterly G&A expenses on an absolute basis by the end of this fiscal year as we rationalize costs associated with our prior technology strategy. Finally, during the quarter we generated over $83 million in operational cash flow and we expanded $23.4 million for yard expansion, technology, equipment, and three lease buyouts. That concludes my brief comments, I’ll turn the call back over to our CEO Jay Adair.

As we said in the beginning, we’re going to be pretty brief with the comments. We spoke last year about the rationalizing of cost in fiscal ’15. We’re starting to see that in the first quarter and we’ll continue to see that in the second, third, and fourth quarter of the year. As previously stated we expect that rationalizing of cost to be completed at the end of fiscal ’15. There are a number of costs in last year that were associated with the integration of QCSA, CrashedToys, DVAA, and a number of one-time costs that existed in the prior year that will not exist in the current year. In addition to that, Will spoke to the technology strategy that we had previously. We are now going through a process of eliminating all inefficiencies that exist from our prior strategy and seeing some improvements there as well at the G&A level. So, you’re going to see improvements in the second quarter, third quarter, and fourth quarter both in G&A costs and you’re going to see improvements in operational costs. We are focused right now on seeing total dollars reduced but also percentage of G&A as a whole as we continue to see increases in sales. So we’ll be focused on the cost side and then we’re going to see increased sales as well due to increased inventory. So as will talked about, there’s some timing that exists currently with respect to sales that occurred in the quarter and then the inventory build that took place again in the quarter. We have seen a consistent build in inventory for the last three years, year after year, after year increase and we expect that inventory to be sold off in the year that we’re in now. Looking at the current month of…

[Operator Instructions] Your first question comes from Bob Labick – CJ Securities.

Just back to Jay’s last comments on inventory there, you said it grew 9% I guess in the quarter and your sales were up 9%. Last quarter inventory was only up 5%, was there new business wins or other drivers? Jay you alluded to timing but could you just clarify what that refers to as opposed to seasonality?

We’ve had some wins in the past year that candidly, some of the accounts don’t move their cars as quickly as our normal book of business, if you took the average for how fast vehicles move. We had some insurance company wins that don’t move their vehicles as quickly so we got some inventory deals in the last year that we’re now starting to see sell off and we think that’s going to happen in the next quarter. The seasonality piece is that you don’t have – regardless of the mix of business inventories are going to build in the quarter we’re in now November, December, and January and then we’re going to be selling of that inventory February, March, and April. Typically the peak happens sometime in February and then there’s a big sell off of inventory March, April, and May. That’s all I was referring to, there’s a timing component and we’ve just seen inventory continue to build. It built last quarter, it built this quarter, and you’d normally expect in the fourth quarter to see some of that inventory dropping off but it just seems like we keep building and building inventory.

Then you’ve been very successful in continuing to increase your non-insurance cars as well, because you’ve had a lot of insurance wins. Can you talk about the levers that you’re pulling and your thoughts on non-insurance car growth and what you’re pursuing on a go forward basis?

Yes, we’re going to continue to focus on it. It’s been a big growth driver for us over the last five years and I don’t anticipate that that’ll change. We’re going to continue to push for that book of business to grow. The fact that it’s been able to maintain while we’ve grown market – there’s two things that have happened on the insurance side, big market share gains for Copart and then the second thing is it’s the 80% of the pie that grows and so obviously if the two grew at the same rate, you’d expect the non-insurance to fall behind because it’s a fifth of the size and yet it’s been able to maintain basically that one fifth push. We see a big trend right now in older vehicles. We talked about that six years ago when we saw new car sales fall off in ’08 and that older mix allows vehicles to total easier and so we’re seeing unit volumes up every single quarter and yet we’ve been able to maintain that 80/20 mix on the non-insurance side and so we’ll keep pushing in that area.

On cost to process car, you saw nice leverage this quarter but it’s been a couple of quarters in a row where you had faster cost to process a car than revenue per car. What changed in the quarter and do you think you’ve kind of turned the corner in terms of getting back to that yard leverage?

We had a lot of costs that were associated with – it’s hard to define for everyone how much costs we have associated with an integration like Quad Cities and integrating a business like that has a number of costs that have to be taken in in that year we did the integration and now we’re going to see that number coming down. The other side is we’re very focused on making sure we have the optimal expense per car. So, there’s two pushes, one is that we’re rationalizing expenses and the other side is that we’ve got a year now where we don’t have those expenses baked into the model and so both of those are going to drive our cost per car down. That’s our goal for the year.

Your next question comes from John Lovallo – Merrill Lynch.

Two quick questions for you Will and then one strategic question for Jay. Will, first on the purchased vehicle revenue and your strategy there for purchased vehicles, it seems like you’re focusing on fewer more profitable vehicles which has been working pretty well. Is this a strategy that you guys expect to maintain and if so do you think this kind of mid $40 million quarterly run rate is reasonable?

Well, you’re absolutely right with respect to our strategy, we’re focused on more profitable cars and the contribution on a per car basis is higher on a purchased car than it is a fee car. But, we can’t predict what the revenue will look like several quarters out. We can tell you what we’re focusing on in terms of our strategy and basically it’s that, look for the more profitable cars if it’s marginal in nature. If there’s any risk of loss at all we don’t pursue it.

Then the step down in general and administrative, depreciation and amortization in the quarter, is that largely due to the write down from the technology system, the SAP system?

Well, not that system specifically but that in general we’re very aggressive in writing off our technology and our capitalized development cost and so we put a short life span on it so it caused some fluctuations in our D&A as that technology reaches end of life and that’s exactly what happened this quarter. We had a lot of technology that reached its end of life.

Then Jay, one strategic question for you, as you guys push more into the non-insurance business, do you get the sense that customers would prefer having another kind of big player in the market for one? Then do you see the fact that you guys don’t have a physical auction presence as a potential road block? As the vehicles get higher in price do you sense that customers want to be able to get into the physical auction and kick the tires or is that not the case?

Well, I’ll answer the last question first. We do have a physical auction presence. We’ve got over 6,000 acres around the country, over 150 sites that we’re storing cars and the buyers today do come out and look at the vehicles, and can come out any time they want and look at the vehicles. They don’t have to be standing there during the auction, though they can. During the auction they can stand there in the lane and big on their iPhone, but the nice thing about our model is they don’t have to. They can do all the preinspection of the vehicle prior to the auction and they can be sitting at a Starbucks coffee shop and bidding. That’s really the magic of our product is we stripped out all the inefficiencies and the friction coming to the auction. But the physical facilities are there so they have the ability to completely inspect the vehicle, look it over and be 100% comfortable with their purchase. Your first question, I’m not sure I fully understood what you were driving at.

Manheim and ADESA are pretty big in the kind of whole car side of the business, do you get the sense that the market could support a third kind of sizeable player?

We’re not interested in doing that. We’re not going after their book of business typically. We go after dealer business that is in many ways neglected in the industry, but we’re not trying to go in and compete directly in the same space that they are. We’re much more trying to serve a market that we think is underserved.

Your next question comes from Bret Jordan – BB&T Capital Markets.

If we’re looking at the inventory and I guess as we’ve seen some extended cycle times with some of your insurance customers have those cycle times improved or are we just sort of normalizing inventory levels around these new customers? I guess as we think about working inventory down, is it a more efficient processing system or are we just going to anniversary what is a slower turn customer and we’ll work down from there?

In general, the days inventory is improving, is declining, but there are some customers that still – some suppliers that have an opposite trend and we’re working with those suppliers to help them improve their processes. One of the most idle assets we have is our land and to consume it with old inventory is not in our best interest nor in their so we work with them to try to make those processes as efficient as possible.

Is there a way we can look at North America insurance inventory and carve out the non-insurance business and the non-US business and sort of look on a quarterly basis to measure the efficiency of that turn or is that a number you’d care to share?

Will is looking but I don’t think it’s too important. At the end of the day their incentivized to move that inventory. The vehicle is going to depreciate that sits in the yard next to 30 days so it’s to their advantage to move the vehicle and we’re working – it’s one of the services we provide, is to move that vehicle. We’ve seen that number coming down now so we believe that the peak in terms of inventory due to cycle time, we’ve reached that. Now we’re going to see inventories build so I don’t want you to think the opposite, we’re going to see inventories build but that’s due to seasonality now as we enter the second and third quarter. But we think we’re past that, we think that’s over Bret so we think at this point that inventory is going to be coming down in the future.

One last question around that of same theme. I guess the average unit selling price as vehicle values are coming in a little bit and maybe inventory has built up, what’s been the trend there? Where are we in maybe deflation on the units?

Well actually, on a year-over-year basis our ASPs are higher.

But are you expecting that we’re going to see any deflation because used vehicle values are declining and you sort of build that into your expectations or is the quality of the vehicle going up where it offsets?

No, I would say that there’s been a very tight correlation between ASPs and used vehicle pricing. I expect that to continue.

Used vehicle pricing comes down and then that means the ACV, the actual cash value that an insurance company pays for cars comes down. As that happens you’ll see sale price come down but you’ll see volumes go up.

Your next question comes from Bill Armstrong – C. L. King & Associates.

Will, in your opening remarks you did cite higher revenue per car so is that a pricing issue or are there other drivers behind that?

Primarily it’s other drivers. It’s a higher ASP on a year-over-year basis, it’s also mix. We generally have more revenue per car on non-insurance cars.

The Manhiem is slightly lower than it was a year ago, so I would have expected your ASP all other things being equal to be down maybe 1% but not the case apparently?

No, like I said we have different contracts and we have different supplier types. We have banks, repossessions, we have charities, we have title loans, all those have a different type of revenue profile so the mix has an impact on our revenue per car.

Your next question comes from Gary Prestopino – Barrington Research.

Will, you said your volumes processed were up 4% in the quarter, is that correct?

That is correct.

That is also a same store number because we’ve anniversaried all the acquisitions?

We have one small acquisition in Canada but the numbers are virtually the same.

Can you break it down between North America and UK?

The UK had a higher volume growth than the US. I don’t have the exact percentage in front of me.

Then a couple of other questions here. I just want to dig into the vehicle sales versus service revenues. On the vehicle sales side I was kind of writing as I was listening, was there any material shift and a change in programs for some of the purchased cars going to fee based cars for what you’re doing for insurers in UK this quarter or was this just a function of ebb and flow of purchased vehicles coming to market?

No, there’s been no change in the program. In a response to a question earlier, there’s been a change in focus internally so we’re not pursuing the cars that are only marginally profitable or cars that there’s any risk in a loss. So while the volume is coming down the revenue and the contribution per car is going up.

So you’re not pursuing the cars on the insurance side or the public dealer side? My understanding of it is with the insurance companies you can sometimes get hit with adverse selection because they’re giving you a whole bunch of cars in bulk, or am I wrong there?

What I was referring to in being more selective it was in respect to our direct purchase programs. We don’t have that option with the insurance companies. We haven’t seen any wild fluctuation in the contribution from the insurance cars in the UK.

A couple of more questions here. Towing, obviously with the price of fuel coming down are the towers still hitting you with fuel surcharges and do you expect the price of your tows to start coming down given that fuels cascading downward here.

We’re very aggressively managing our subhaul fleet and yes, we’re pointing out the fact that two things are in our favor, the average tow zones is coming down and the cost of fuel is coming down and we’re managing that to control our subhaul cost on a per car basis.

Tell us what percentage of it would – it would be in yard operations is that towing expense?

It is.

What is the percentage that is towing within yard expense?

We don’t break that out Gary.

Lastly, on the balance sheet there’s a big movement on something called accumulated comprehensive loss from $20 million to almost $44 million. Can you tell us what that is?

Sure. With the [striking] of the dollar, the value of the foreign assets is reduced and the way that’s accounted for as we consolidate those foreign assets is to recognize that reduction and their relative value through the equity section.

Your next question comes from Craig Kennison – Robert W. Baird.

I wanted to understand better the impact of used price volatility if you will. Could you remember us what percentage of your business is on straight commission versus the PIP program you have?

The percentage of contracts on the PIP program has gone down significantly but I’ll tell you over the course of the last five years the difference in the contribution between the contracts has almost disappeared so we really stopped quoting that number a few years ago.

So is the model less sensitive to volatility in used prices?

It is.

Will, you quoted a number, average tow zone, could you just clarify the meaning of that? Is that just the distance to travel?

Yes, that’s exactly what it is.

Then Jay, on the international front obviously it makes a lot of sense, a lot of cars internationally that need to be insured and ultimately serviced by someone like you, but the economics tend to be unfavorable until you achieve some level of scale. What markets do you think are close to inflecting from a scale perspective?

Well, I think we’ll be there in all of our facilities this year. I don’t think we’ll have any international operations this year that aren’t profitable.

That’s true in India as well?

India is not up and running. India hasn’t sold one car yet so that doesn’t count in markets where we’ve got people on the ground and we haven’t processed a car yet. I’m talking about where we’ve got physical facilities and we’re selling cars.

Any way to quantify sort of the profit drag of those operations last year versus even if you get it back to neutral, what the impact would be financially?

I don’t think it’s necessary from the standpoint of we’re expecting to see G&A come down this year. We’re not going to be adding a material amount of cost internationally. So we’ve got our footprint, we’ll be seeing G&A come down this year and then we’ll be expecting those international operations to become profitable this year. As that happens, we’ll be expanding further in those markets. But as we expand that’s profit driven, that’s not going to bring the company down. If we have markets like India, to your example, where we end up adding additional costs, then we’ll talk to that on the calls.

[Operator Instructions] Your next question comes from John Lawrence – Stephens, Inc.

Just real quick, if you look back two or three years Quad Cities and some of the other integration moves, can you just talk about obviously progressing to get to this point as far as the plan of reducing costs, all-in-all this is what you started to see and there’s no real changes into that plan from that time point of basically when you moved to Dallas. Is that fair?

Well, I’d say this, we started the move from California which had a lot of costs baked into the company. You saw revenues increase in fiscal ’11 when we started that move, you saw revenues increase in ’12, ’13, and ’14 subsequent to that move. You then saw the cost of Hurricane Sandy come into the company, you then saw costs associated with Quad Cities, so we’ve had I’d say three years in a row of cost and then you can throw technology onto that as well, so we had three years in a row of technology costs and this will be the year clearly where we anticipate having record revenues and then rationalizing our costs this year as we talked about in the last call.

At the end of the day the only thing market driven that’s really from a market standpoint that has impacted your progress has been a little bit of these tow costs and a little incremental services that it appears you’re going to leverage on the other side anyways?

Yes, we’ve had some increase towing costs that came after Hurricane Sandy and Will said that earlier, we’re going to rationalize that down. We’ve opened up more locations so we’ve seen the average tow zone or the distance we go to tow a vehicle, we’ve seen that decrease. Part of that is mix, part of that is we’ve got additional facilities that came through QCSA and some other stores that we opened up like ,we talked about Wheeling last quarter in Chicago. So yes, to your point, we’ve had – there’s been reasons for all this. We’ve talked about why the reasons exist for the costs and now we’re going to be seeing the benefits of higher revenue and then lowering those costs.

Your next question comes from David Karnofsky – JP Morgan.

Maybe just a quick housekeeping question on the tax rate, I think it was running at 36% in the quarter, could we still expect for the full year a little over 34%?

Yes, I think it will be the high end of 34%. Our cash rate is seasonal, in our third quarter we always have true ups for 1048 reserves. But I think on an annual basis I think mid to high 34% is about right.

Thank you Mr. Franklin and Mr. Adair, there are no further questions in the queue at this time.

Thank you everyone for attending the call and we look forward to reporting on the second quarter and wish everyone a happy Thanksgiving.