Jayson Adair - CEO William E. Franklin - EVP and CFO.

Robert Labick - CJS Securities Elizabeth Suzuki - Bank of America Merrill Lynch John Healy - Northcoast Research Gary Prestopino - Barrington Research Ben Bienvenu - Stephens Craig Kennison - Robert W. Baird.

We now have all of our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you'd like to ask a question. Thank you.

I would now like to turn the conference over to Jay Adair. Sir, you may begin..

Thank you, Josh. Good morning everyone and again welcome to the first quarter call for 2016. I'm going to transfer it to Will first who will go over the financials, and then I'll have some closing remarks, and we'll open it up for questions. So with that, it's my pleasure to introduce Will Franklin, our Executive Vice President..

Thank you, Jay. Before we begin our comments, I would 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 risks and uncertainties that could cause the actual 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 discussion of the risks that could affect our business, please review the risk factors contained in our most recent 10-K, 10-Qs and other SEC filings. Also, this morning Copart filed a Schedule TO Offer to Purchase and certain other documents with SEC relating to a tender offer to purchase outstanding shares of common stock.

These documents are available at the SEC Web-site. Copart is also mailing the Offer to Purchase, Letter of Transmittal and related documents to all shareholders. We do not intend to respond to questions concerning the terms and conditions with the tender offer on this call.

The offer is made solely pursuant to the Offer to Purchase as may be amended from time to time, the associated Letter of Transmittal and the related documents. We encourage shareholders to review them carefully. With that, I'll begin with a few brief comments on the financial results for our first quarter.

Total revenue remained relatively flat declining by $1.5 million or 53 basis points, as the increased volume was offset by reduced ASPs and consequently reduced revenue per car. ASPs were driven lower by the continuing decline in scrap metal pricing, which we believe to be highly correlated to junk and dismantler buyer behavior.

The index for crushed car bodies in North America declined by over 48% year-over-year. We believe the ASPs were also negatively impacted by the stronger dollar as a significant portion of our North American sales are to international buyers and the stronger dollar continued to inhibit their auction participation.

Purchased car revenue declined by $5.9 million or 13.5%. The decline resulted from the reduced ASPs, a change in mix and the negative impact of FX. In the current quarter, a higher percentage of purchased cars came from our direct purchase program which has a lower ASP than cars purchased from insurance companies.

In our direct purchase program, we buy and sell cars for our own account. Service revenue increased by $4.4 million or 1.8%, as the increase in agency car volume was offset by a reduction in revenue per car. The decline in the revenue per car was tied to the lower ASPs.

Yard operation expense increased by $5.4 million and was driven almost completely by volume as the average cost to process each car remained relatively flat. General and administrative cost declined by $5.6 million. The reduction came primarily from the rationalization of technology resources and the beneficial impact of FX.

On an overall basis, the change in FX reduced revenues by $4.6 million and EBIT by approximately $0.9 million. During the quarter, we expended $19.2 million to accommodate the growth in accounts receivable and inventory, $20.2 million for yard expansion, equipment and technology, and $21.1 million in marketable securities.

We exited the quarter with $473 million in cash and $226.7 million in total bank and private placement debt. That concludes my brief comments. Now I'll turn the call back over to our CEO, Jay Adair, to conclude comments on the quarter before we turn it over to Q&A.

Jay?.

Thank you, Will. Again, good morning, everyone. First I'd like to talk about inventory. In the quarter, inventory in North America increased 14.4%.

Looking at sales for the quarter, as Will mentioned, we saw a decline in ASPs due to strong dollar and also due to the low value of scrap at this time, and that revenue was offset because of sales increase of 5.1% in the quarter for North America.

Looking at cycle times, because we often talk about inventory increases and the impact that they will have in subsequent quarters, typically in the next quarter, we want to talk about cycle time that was flat for the quarter, that was zero.

So we don't see the increase in inventory associated with cycle time expanding but rather just through additional volume coming in. And then finally, as Will mentioned, international sales are down because of the strong dollar situation.

A year ago in North America we were approximately 21%, and today we are just a tad below 20% on international sales. These are vehicles that are sold in North America and exported to countries outside the U.S. With that, I'd like to now turn it over to Josh and we'll open it up for any questions that you may have..

[Operator Instructions] Our first question comes from Bob Labick from CJS Securities..

I wanted to start off, first question, you had one other announcement last night as well. You announced a new Senior Vice President and CFO to come on early next year. I was wondering if you could tell us a little bit more about his background.

We obviously read the release and stuff, but any more color around that, and additionally talk a little bit about Will's new role and the growth opportunities in the U.S.

that are likely to come with that?.

Sure. Jeff is a great guy. We've known him for a couple of years here in Dallas. He has been with FleetPride. FleetPride is owned by TPG. Prior to that, he was with TPG in a corporate role. And we have been talking to him for a while about a CFO position.

Will started the EVP or took over the EVP role approximately 18 months ago, and the biggest improvement that he has made that you can clearly see is the reduction in G&A. So that has been a big push to have a focus on measuring output and reducing expenses where we felt we weren't getting a return. And you've seen that.

We talked about that a year ago, we felt very confident a year ago that we were going to be able to see those types of results and Will executed on that in the last year. At the same time, he's been carrying the CFO title but we've been having a lot of that work done by Vik Bhatia on our team.

And that wasn't the intent for Vik to do that but we wanted to make sure that Will was focused on the G&A reductions and other G&A performance pieces that we have got, areas that we measure and areas that we focus on. So Jeff will start in January and we brought him on as CFO based on his experience previously and our knowledge of him.

So we are looking forward to having him on the team..

Great, that was helpful color. I appreciate that. And then into the quarter, I guess last quarter you did an excellent job and the cost to process a car was down materially, and you were able to hold it flat again after – previously there's been a number of quarters where it had been going up.

Can you talk a little bit about expected trends in cost to process a car and what you're doing maybe differently now to flatten that or bring it down slightly?.

Part of it has been execution and the team's ability to focus on cost, part of it has been the benefit of fuel, and fuel has dropped significantly year-over-year and that's helped us control transportation cost. Part of our cost going up, if you recall, was related to Sandy and then it was related to an acquisition, barge acquisition we made, QCSA.

And there was a whole process we had to go through to eliminate implicative costs and to try to reduce subhaul expense that had shot up through Sandy. So there were a couple of years of having costs that were increased because of those two factors, and then we also moved the Company from California to Dallas.

So I feel strongly at this point we're at a normalized run rate. I don't see any reason at this point why fuel is going to skyrocket back up. I think that's pretty much understood throughout the industry.

So I think we'll be able to maintain our current cost per car, and the only thing that would increase that a little bit is that we are looking at adding some additional facilities in the U.S.

in the next year because of volumes that are up, and as we add stores, they have a cost, they increase the cost in the beginning and as we fill the stores with cars and start to sell those cars off, then it reduces the cost. But for the most part, I don't think we're going to see a real big increase in our operating costs at the yard, Bob..

Okay, great. And then last one and I'll get back in queue, in terms of the international expansion you've kind of given us updates on a quarterly basis. Just wondering how things are going in the key markets you're focused on and when we might hear more..

We're happy with what we're seeing right now in terms of our results both in the U.K. and in the rest of the world. U.K. is obviously the vast majority of the international. U.K. is a much more mature market as opposed to the other markets that we're doing business in.

We will be in a far better place to report on some of the results towards the end of this fiscal year. For now, I don't think I can add a lot more color than we added in the last quarterly call, but as we approach the end of the year, we should have some results and some color that we can give you on how we're doing internationally..

Okay, thanks very much..

Our next question comes from Elizabeth Suzuki from Bank of America..

Can you break out how volume, price and mix trended in the quarter in terms of year-over-year change for each, and what was the average age of vehicles sold in the quarter and how is that compared to this time last year?.

I think we addressed that directionally. The volume was up, and Jay gave the statistics on that. ASP is down, we didn't give an exact percentage to that, and I think we'll just leave it at that. ASPs were down. ASPs were down, so that drives revenue down.

And the last question?.

Inventory was up..

And inventory was up..

And I guess about mix, 80-20..

Yes, between insurance and non-insurance. In North America we're slightly under 20% in non-insurance, and that's basically because of the significant growth we have on the insurance side. In terms of total units, it's remained relatively flat..

Okay, thanks.

And do you have data on the average age of vehicles that were sold in the quarter?.

No, I'm sorry, I don't..

It's going to be not too far from where it was the prior quarters, which is about 11.5, give or take..

Okay, so no material change there..

That's not exact. It's going to be within a few tens..

Okay.

And are you seeing any market share shifts or any market share being taken by smaller independent companies getting new insurance contracts or any other of the major seeking some share by reducing pricing or fees?.

No..

Okay, that's helpful. Thank you..

Our next question comes from John Healy from Northcoast Research..

I wanted to ask a little bit about the U.K. market, [on the] [ph] starting to this year, you're a big competitor here in the U.S.

[and earning] [ph] in that market, and was curious to know if you've seen anything change in that marketplace, if you are watching anything more closely than you have in the past and any sort of feel you could give for how that landscape is evolving?.

No, I'm happy to do that. United Kingdom, inventory was up 14.5%, so a little bit more than North America. Sales in the U.K. were up 5.6%, so a little more than the U.S. as well. So from an international standpoint, it's taken about the same trend.

They are off a couple of points from or a little over 1 point from what used to sell internationally in that market. So it is doing well and I've really got nothing negative to report from the U.K. They are doing very well..

Got you. And I wanted to ask kind of more of a comparison issue. If you look over the last few quarters, your volume numbers have been healthy but maybe not quite as healthy as what's going on with the insurance auto auctions, and I was wondering if you guys could help us understand kind of the difference in the growth rate.

I don't know if it's associated maybe with the market share amongst the insurance customers you have or if it has to do with maybe your charity business, but any color that you could give us to help us understand having the difference in growth rates there?.

I really can't. I can't talk to my competitor. I can just tell you that from our perspective to grow 5% year-over-year when you are our size is a big growth rate, to have an inventory build of almost 15% is a big number. So I really can't talk to what they are doing and how they're doing it. I can really just answer any questions you have about Copart..

Sure.

I was just curious your thoughts along the lines from a share standpoint, have there been any changes in kind of the makeup of your customer base, are you seeing certain insurance companies grow at a faster rate maybe than others? I mean is there anything that you see that would maybe explain the behaviour change?.

Yes, we've had a recent market share gain, but it's really, that's not going to show up until probably the third and fourth quarter of the year. You have to start bringing the vehicles in and building inventory and then sell the vehicles off.

So in the past year we've had some market share gains, we've seen the industry expand because of the age of vehicles, but the numbers – we have reported the numbers historically on the quarters, and so I won't try to restate them all. I mean the numbers are out there..

Got you. Thank you so much..

Our next question is from Gary Prestopino from Barrington Research..

Jay, did you guys give the total volume growth in the quarter? I think you gave 5.1% increase in North America, but did you give the total volume growth?.

No, I didn't. I can give you total volume for the – globally, for the U.K., for North America, the whole Company was 4.9%..

Okay, that's fine, thanks.

And then in terms of your line of credit or your debt or whatever, what rate are you currently paying now on that debt or the line if you need to borrow?.

We're paying on the fixed fee we have a blended rate that's about $400 million of about 4.22%. On our Term Loan A we're at about a little over 2% and the amount of that is $225 million at this point..

Okay, good. And then just a couple of other things. In your proxy, you guys put forth something where you're trying to increase the shares outstanding from 180 million to 400 million, but yet you've just announced, maybe in an announcement today, of the sell tender.

What's the rationale for doing that, Jay?.

That's interesting. I wasn't expecting to be asked a question like that..

You know I want to get you with one question per quarter, right?.

I'm going to look to my attorney for a minute. I'll put you on hold one sec. I think the best answer I can give you, Gary, is that we have a limited number of shares currently and we could have asked for less shares in the proxy, and then we might have to come out later and ask for more shares again.

So we asked for a number that we felt was sufficient that we wouldn't have to go back and ask for again. And as my attorney is sitting here telling me, the explanation is in the proxy and he would prefer that we go with that.

So we just felt like we were asking for enough that we wouldn't have to go back and it gives us the flexibility for the future..

Okay, that's fine. And then lastly, it looks like year-over-year your gross margin on agency was down about 124 basis points.

Was there anything in there that's driving that, was there something one time or was there some benefit last year that would not make the comparison apples to apples?.

No, it's simply a decline in revenue per car while our cost stayed the same. So our cost didn't really fluctuate, they've been fairly consistent over the last four, five quarters. They fluctuate less than 4% I would say..

So it's all really attributing to your decline in ASPs then?.

Yes, it's all decline in ASPs. And in fact last quarter, while we were flat on our cost to process each car, we also had the negative impact of Hurricane Joaquin which had a significant amount of cost, and we absorbed that and still maintained a flat cost basis to process the car. So we're pretty happy with the efficiency of our operation..

Thanks. Have a happy Thanksgiving both of you..

Our next question comes from Ben Bienvenu from Stephens, Inc..

So on the mobile front, you guys have had quite a bit of success there adding the Android platform last year. I think you cited on the last call that about 12.5% of vehicles sold are coming through the mobile platform.

I'd be curious to know are we still in that ballpark how it's trending, and I assume as you add capabilities and buyers or sellers become aware of that process, that's skewed upward over time, but just your thoughts on that capability?.

I mean we talked about it in the shareholder letter as well. So if you want to look to that, in the annual report there is maybe a more current stab on how we're doing. We are extremely happy with that result. We didn't know – many of our buyers like to bid on 5 to 10 auctions up on one screen at one time.

It's one of the benefits of our Virtual Bidding Third Generation platform. So as opposed to have them physically attend an auction and have the different cadence and speed of human beings that are running the auction, our auctions are all much easier to follow when you've got 10 auctions open at once.

And we didn't know, candidly, how many people would go to a mobile platform. We didn't know if there's going to be a scenario where they are out at our yard, they are looking at the car, bidding on it, or they're going to be at Starbucks bidding on it. And so to be near 15% in penetration I would say has already exceeded what we thought it would do.

I don't know if it will end up at a fifth of our units selling over mobile or if it will stay where it's at, but I can just tell you, from both the Android and from the Apple platforms, we're extremely happy with the results we have seen thus far..

Let me add to that. There's other efforts. So we have I think a robust strategy to develop our mobile and not only through apps but through [mobily] [ph] optimizing our current Web-site, which we haven't done, which will make participation in our auctions through mobile devices much more attractive..

That's great color, thanks. And then just one last one for me. You guys talked about adding incremental sites next year.

Do you have a sense of what your site capacity utilization is today and are those additional sites going to be broad-based by geography, within North America or other specific regions?.

I don't have the actual percentage in front of me and I don't think it's relevant anyway. We've got some locations that have 50 acres of capacity and other locations that have 5 acres of capacity.

So the reason we're constantly investing in expanding locations, we rarely talk about how many locations we've expanded in the year, and this year we're going to actually have to add additional locations in markets and that's just because we've seen a consistent growth in inventory since Sandy.

So since 2012, there's been a year-over-year increase in inventories, and yes, we do sell that inventory off in the third quarter, but it has continued to grow year-over-year.

And so we're at a point now where we not only are we going to be expanding yards this year like we have last year, but we're going to be adding a number of locations, and we'll talk about that in the year. I would guess it's in the half-a-dozen to a dozen locations that we'll be adding.

And as we bring those locations online, we'll announce it so that everyone is aware of it..

Okay, great, thanks. Best of luck, guys..

[Operator Instructions] Our next question comes from Craig Kennison from Baird..

Thanks for taking my questions as well. Many have been addressed.

But, Jay, I think you hinted at this, but was there any important RFP activity in the quarter that could affect your share down the road?.

We did have a win in the quarter, but that's not uncommon for us to have a win or multiple wins in a particular quarter. So we did have a win and that volume is – some of that volume is coming on now and some of that volume will be coming on in the subsequent, in Q2 and Q3, and we'll be selling that inventory off Q3 and Q4.

We should be normalized I would think by the end of the fiscal year..

In the past, you've had similar wins where you have gained essentially exclusivity with a big insurance company.

Is this that flavor or is something less significant?.

I mean it's a top five carrier and it is an exclusive long-term agreement. So, yes, it's of that flavor..

And I'm guessing you already had significant share with that top five insurer?.

Yes, we had a significant amount of their volume and now we'll be going 100%..

And then just a final follow-up on that, Will, if my notes are right, sometimes these big insurance wins can be dilutive upfront until you get all the volume you expect to get over time.

Is there any modelling nuance to this deal that we should be aware of?.

No, I don't think so. I think this new volume will blend in very efficiently with our current capacity..

Thanks.

And finally, not sure if you want to address this or not, but I'm curious what the attraction is of a Dutch tender offer versus other buyback alternatives?.

That's again another question I wasn't expecting. So I'll just say….

We can't answer that..

Yes, we can't comment on it because it's the tender..

Look to the documents for any information you need for the tender..

Okay. Thanks guys..

At this time, I'd like to turn the call back over to Jay Adair for closing remarks..

All right, thanks, Josh. Thank you everybody for attending the first quarter call. We look forward to reporting the second Q next year and we want to wish you all a happy Thanksgiving, and we'll see you then. Thanks..

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect..