Copart Inc Q2 Earnings Call Transcript

123jump.com Staff
11 Mar, 2010
New York City

The junk car auctioneer second quarter revenue increased by 4% to $176.6 million and net profit zoomed by 32% helped by higher revenue and improved margins. Earnings per share were $0.42 against $0.32 in the year ago quarter.

Copart, Inc. ((CPRT))
Q2 2010 Earnings Call Transcript
March 5, 2010 11:00 a.m. ET

Executives

Jay Adair – Chairman & Chief Executive Officer
Will Franklin – Senior VP and Chief Financial Officer

Analysts

Scott Ciccarelli – RBC Capital Partners
Bob Labick – CJS Securities
William Armstrong – CL King & Associates
Gary Prestopino – Barrington Research
Scott Stember – Sidoti & Company
Justin Boisseau -- Gates Capital Management
Tony Cristello – BB&T Capital Markets
Edward Hemmelgarn – Shaker Investments
Christian Buss – Thomas Weisel Partners
Craig Kennison – Robert W. Baird

Operator

Please stand by. Good day, everyone, and welcome to the Copart Incorporated second quarter fiscal 2010 earnings call. As a reminder today''s call is being recorded. At this time for opening remarks and introductions I would like to turn the conference over to Mr. Jay Adair, CEO of Copart Incorporated. Please go ahead, sir.

Jay Adair – Chief Executive Officer

Thank you, Miranda. Good morning, everyone. Welcome to the second quarter call. Before we get started Will will give us a brief disclaimer and then we will go ahead and give you an update on the quarter and all the great news.

Will Franklin – Chief Financial Officer

Thank you, Jay, and good morning. Before we begin our comments 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, trends and uncertainties that could cause actual 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 managements'' 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 you Jay to begin the discussion of the results of our second fiscal quarter.

Jay Adair

Thank you, Will. Again, good morning everyone. It is a great time for Copart. 2010 both in the fiscal year and the calendar year is shaping up quite nicely. We have got a number of updates to talk to you about. I am sure you have a ton of questions. It is really funny because if you look back in 2008, and you think about how drastically that year changed from the middle of the year we were seeing some, well we were seeing some of the best results in the industry and for the company. By the end of 2008, we were looking at returns that were falling off quickly and both in the new car markets, used car pricing. Let us face it we remember the used car industry and the new car industry were really being pummeled. And that caused us to really to think differently about our business and about what we want to do in 2009.

Specifically we started focusing on our website. We had always been a closed website where you had to become a member to view the vehicles. We changed all that. We opened the website up. We changed the functionality. We changed the navigation. We made it an open website. At the same time we jumped into a full steam ahead marketing programs. So, that was really geared around changing the awareness of Copart, making people aware of Copart, eventually converting them to members and eventually converting them into bidders and buyers.

So, as we look at that you may think or I’ll look back and at least I think back in 2009 at the time it seemed like a very aggressive year, a year we were making a lot of changes, a year where we were focused across the organization like never before and the workers of Copart really worked hard in 2009 to effectively change the way we do business. And so I think the first real good news I’ll talk about is the Allstate announcement that we put out recently. As you can imagine we are all very excited about Allstate’s decision to select Copart as its exclusive national provider of vehicle sales and auction services. Allstate went through a very thorough RFP process in 2009. Again I wouldn’t be incorrect to say it is not only thorough but it is pretty rigorous process where they are looking at lot of different data points. It is a pretty confidential process but at the end of the day the decision was made by Allstate to pick Copart as its exclusive national provider. I think really that says it all in a nutshell. I can’t really talk about it because it is confidential but the results are there. So, I think the important things are maybe to answer some of the questions. There is a misinformation in the marketplace today. We have been asked a lot of questions about how much market share Copart has specifically how much of Allstate’s market share Copart had or how much business did we handle for them?

And to answer that question you have to look at a couple of data points. One, how many cars do we sell for Allstate prior to this year coming down and how many units does Allstate sell a year? And we reviewed that data with Allstate and we have confirmed that we have less than 50% of their volume. So, I am confident that I can tell you that and there is a lot of question about us having the majority of the business or a substantial majority of the business. That’s not the case.

Also there has been a lot of questions about the roll out and how long will the roll out take and right now we are in the process of hooking everybody up, working towards operational feature changes, working towards system changes, integrations, and so that’s going to take probably six months before we really start seeing any movement, could happen sooner but probably won’t and it shouldn’t be more than 18 months. So, we maybe done fully integrated within a year but I will give you a range of six to 18 months to get that done. It is a long term contract, as you’d expect because the integration alone is going to take a lot to do.

So, let’s see. I think I have covered most of the points. The only thing I’d mention maybe is that we currently have capacity for Allstate in all of our locations. So, we spent the last decade expanding all of our locations. We deployed a material amount of capital in the last decade, buying land and expanding locations so we’d have capacity to do something like this. So, while it is the #2 provider, and while it is a material gain for us we do have space at our existing locations today which is great news.

There are a bunch of things I want to talk about. But let us look at returns for a minute. As I said in 2008 return started to fall off at the end of the year. As we started 2009 in January we saw that start to come back. February got better, March got better. It did that all the way through the year we saw just continuous improvement month after month after month. That trend took place in Q2, November was better than October but December better than November, January is better than December. So, we’ve continued to see an upward trend. The good news, that’s obviously good news, but the additional good news is that we want to give you February, because we have completed the month so we can look at the data. The returns for February today are higher both in the per car selling price and in the return percentage which is the, per car selling price divided by the ACV. Those two metrics that we look at are higher than they were in January but more importantly they are higher than they have ever been. So, they are higher today in February. Our average selling price and our return percentage is higher in February than it ever was in the history of the company and ever was in 2008 when we were seeing the highs of the industry. That’s all. Let us take another point into consideration.

Scrap today is south of $100 a ton. Scrap back at the 2008 high was over $300 a ton. So, we are seeing some pretty interesting results right now, good exciting results. What’s causing that? Well as you know, we have talked a little bit already about the marketing. We kicked off 2009 with a marketing campaign in ESPN, in Speed. We did a little bit in Nascar. We kicked off our marketing campaign this year with Speed, ESPN, Nascar Carl Edwards, NHRA, Kenny, Brandon Bernstien.

So, we are reaching out to a large space of automotive folks, people that are technicians, people that are mechanics, real gear heads, in addition to enthusiasts. But we are really going after that heavy gear heads. Couple of areas that we measure, one would be website traffic. So, looking at January of ’09 compared to January of 2010, our business per day back in January of ’09 was about 46000 visitors per day and that’s calendar days, so 31 days in the month and that includes weekends. We obviously do more volumes during the week on our site than we do on the weekends, so, averaging over all days together 46,000 per day. Looking at January of this year we are over a 100,000 visitors per day again looking at 31 days and averaging it including weekends. So, we have seen more than doubling of visitors on a per day basis. Those are not peaks, those are averages. So, that’s a really good number. That’s not looking at one week or one day. That’s a whole month worth of data and we could have expanded after the quarter but what we were trying to do is just pick an exact point in time an exact month in time, to review the data. You can look at some analytic tools and you’ll be able to confirm some of the things I’m telling you here.

The other thing we look at is membership. And obviously our goal is make people aware of Copart, the right people to make aware of Copart like mechanics and technicians and convert that awareness into membership and eventually to get those members to bid and buy cars. So, looking at new members signed up. In the quarter Q2 of ’09 versus Q2 of 2010, this is a three month trend just looking at everyone that we sign up. We are more than 10 times the number in the most recent quarter of 2010, meaning we have 10 times more members that we signed up in this quarter than we did a year ago. So, we are obviously bringing in numbers at a much higher pace, a ten fold pace compared to a quarter where we didn’t have near the marketing budgets.

In addition to that we talk about international buyers today because we are focusing so steady on the domestic front but we are also marketing internationally and while we have done both we have seen an increase international buyers in Q2 of ’09 from 22% to 24% in Q2 of 2010. So, that is again a nice move from 22 to 24 and more in line with how Copart looked in 08 before a lot of what happened in the auto industry took place. I am also happy to announce the debut of our new TV show, Copart ‘Sold in Seconds.’ It went live yesterday at noon Eastern Time on the Speed Channel. Hopefully some of you got a chance to watch that. It is a 30 minute show. It is very fast. It is really geared towards speed and how fast we can sell cars and the high end of the Speed Channel of course. We looked at vehicles selling in seconds across the country real time. As they were selling on our website we were commentating. We had our hosts Greg White and Jamie How literally going over how fast these vehicles were selling, commentating on the pricing and that kind of thing. We then looked at the cars we sold last week. We looked at cars we are selling next week that are coming up for sale. We interviewed a buyer that bought a vehicle from Copart, turned into a race car. So, it is an entertainment show. It is completely geared towards entertainment but it is called the Copart ‘Sold in Seconds’ show and it is really introducing the Speed audience to Copart about what we do and what we are about, the industry. I think as one of the guys at the station said, hey this show is all about how you roll. And I kind of laughed when he said that but it really is. It about the way Copart functions, the industry functions. We will be introducing in future shows, we will be introducing recyclers and recyclers that buy from Copart, used parts that they sell to people that maybe build race cars, or build hobby cars and other things, a classic you name it. So, it was great. It was a good kick off, switch show and hope somebody has got it. I can keep plugging it but obviously one more time. It plays these days only on Speed.

Though moving from there talking about the U.K for a minute, we are doing very well in the U.K. We have started with, not just our team there that is running it, but also the returns that we are seeing in that market. We made an acquisition in the quarter, D. Hales Limited. They have locations in Bristol which services the South West portion of England, also Wales, Colchester, which I am going to call it North East London. It is really not quite North and quite East of London but it is actually north area but for those of you who are not familiar with the geography consider the utter North East of London. You have got Luton and Bedford which are also north of London and then further north of London. So, what we have really done here is gained a lot of capacity in the majority of the population which fits around London and at the same time we gained capacity in Bristol which is an area that we really needed to have space. All those locations are fully integrated. They are all utilizing the VB2 technology. We are actually seeing higher returns than ever again. So, we are seeing that VB2 effect which is great and they are all utilizing Copart.co.uk, so completely integrated systems people 100% across the board.

I think the only other thing left to talk about would be mix and some CapEx. On the mix side we are about 20% non-insurance, 80% insurance. The net CapEx for the quarter was $36.8 million. That includes our acquisitions in the U.K and a lease buy out and the buying of systems, computer systems as we are building another brand new data center and we finished the quarter with $189 million in cash. So, for further clarity on the financials for the quarter, it is my pleasure to introduce Will Franklin our CFO.

Will Franklin – Chief Financial Officer

Thank you, Jay. Yesterday we reported the financial result for the second quarter of our 2010 fiscal year. Consolidated revenue was $176.6 million compared to $169.9 million for the same quarter last year. The growth in revenue was driven primarily by increased yield per transaction as higher commodity pricing, higher used car pricing and in U.K the continuing impact of the VB2 our Internet selling platform translated into higher gross proceeds. In North America revenue grew from $138.7 million to $142.6 million.

In the U.K revenue grew from $31.2 million to $34 million despite the negative impact of the continued migration of seller contracts from the principal model to the agency model which we estimate to be approximately $6 million for the quarter. Same store sales increased 3.2%. Excluding the impact of the migration of the seller contracts in the U.K from the principal model to the agency model, same store sales would have been an increase of 6.7%. Consolidated gross margin grew from $67.3 million to $78.7 million and gross margin percentage grew by 500 basis points.

The growth in gross margin and gross margin percentage resulted from higher revenue per transaction, lower purchase car revenue as a percentage of total revenue, higher yield on the purchased car sales which grew by almost 46% and lower cost to process each car. General and administrative costs excluding depreciation were $23.4 million compared to $19.5 million for the same quarter last year. The growth was driven primarily by the increased investment in marketing and the impact of the new compensation structure for our Chairman and CEO approved by the shareholders last April. Our operating income increased from $45.6 million to $53.2 million and our operating income percentage increased by 330 basis points.

Included in our income tax expense for the quarter is the impact of the beneficial ruling in the U.K concerning the capital structure of our U.K operations. This resulted in a discrete tax adjustment of approximately $2.6 million. We expect normal tax rates to be approximately 39%. Diluted EPS was $0.42 compared to $0.32 for the same period last year.

On the balance sheet cash declined which is typical for our second fiscal quarter as we grow inventory and made two estimated tax payment. Nevertheless our balance sheet remained strong as our current ratio is over 3 to 1. In the quarter we generated approximately $5.1 million in operating cash flow. Net income plus non-cash expenses like depreciation and equity compensation generated approximately $51.3 million, while movement in the balance sheet consumed $46.2 million as we made two estimated tax payments totaling approximately $42.9 million and we grew inventory. Net capital expenditures including acquisitions for the quarter were $36.8 million and included the buy out of one facility leased. This concludes my comments. Miranda we will now return the call over to you to moderate the question-and-answer portion of the call.

Question-and-answer session

Operator

Thank you. Ladies and gentlemen at this time If you’d like to ask a question please press ‘*1’ on your touchtone phone. If you are using a speaker phone please make sure that your mute function is turned off to allow your signal to reach our equipment. Again that’s ‘*1” for any questions at this time and we’ll pause for just one moment. We’ll go first to Scott Ciccarelli with RBC Capital Markets.

Scott Ciccarelli – RBC Capital Markets

Hey guys how are you? My first question is, Will you gave the same store number of 3.2%. Is that North American or that’s total?

Will Franklin

That’s total.

Scott Ciccarelli – RBC Capital Markets

You have the North American figure?

Will Franklin

We are not breaking it out. We did in the past, now simply because it was too difficult to calculate same store sales growth in the U.K. because of all the acquisitions and integration and the migration of volume between yards. Since that’s over a year old now, we can calculate that and we’ve included that in the total number that we presented.

Scott Ciccarelli – RBC Capital Markets

Okay. And then Jay a question about the Allstate deal. I guess this is kind of a little bit bigger picture question. You guys you had your private negotiations with Allstate. I am sure they are talking to other people. My understanding is that you guys did have to give price concessions to get that bid. Can you give us, first of all an idea about how large of a concession you had to give and second of all can this potentially be a prelude to some sort of a price war within the industry.

Jay Adair

Sure. I mean first of all we didn’t give them anything that was out of the ordinary in dealing with the order size. We have got literally over a 100 national accounts today as a company. Most of those obviously are not the size of Allstate but some of them are as big as 60,000 cars a year, a good-sized account. And they get concessions for that. So, sure Allstate got a better price based on the volume and the size and that what we were handling less than half of their business for them. But nothing out of the ordinary I’d say and so based on that I’d say no, I don’t think there is any kind of a price war so to speak going forward with our competition.

Scott Ciccarelli – RBC Capital Markets

But do you think that big win which has come as a signature type win I would think, does that create, in your opinion, does that potentially create some sort of anxiety on their part where they feel like they have to do the same.

Jay Adair

No. I can’t speak for them. I can just say it creates euphoria on our part. We are pretty excited about it because they have so much data. They can look at so much of the sampling. I mean they are #2 writers because they are looking at volumes across the nation and so we think it really validates what we have been saying in our models and it will I think be a great statement to a lot of other carriers that are maybe thinking of moving to us, maybe on a national level or maybe on a regional level. So, here is someone who has got lot visibility. They have lot of data on their fingertips and they chose us. So, I think that’s a pretty powerful statement.

Scott Ciccarelli – RBC Capital Markets

Okay great. Thanks a lot guys.

Jay Adair

Thank you.

Operator

We will go next to Bob Labick with CJS Securities.

Bob Labick – CJS Securities

Good morning.

Jay Adair

Good morning Bob.

Bob Labick – CJS Securities

I will just continue on Allstate for a minute. It sounds like they put up your feet in the industry today. How about their company’s follow up is absolute? Or do you believe others will be following on any time soon?

Jay Adair

As I said we have got a 100 national, over a 100 national agreements. So, a lot of companies have done it in the past but not in the size of Allstate. Allstate is the # 2 writers. So, that’s the first deal of that size I would say. It is a trend and it maybe a trend where companies are looking at consolidating because they see the benefits of that. Again I don’t know but I think it is positive on our part.

Bob Labick – CJS Securities

And then you discussed the 6 to 18 month integration. Could you just give us a little more details? What do you have to do at your end and how is this just different than…

Jay Adair

Bob I will give you an example. It has got people that are located at other locations, at various locations. Base has to be built out for them. They have got to be relocated to other locations. That kind of stuff takes time. The preparations, the discussions are now in place to do that and we are working on that and then the process of moving our staff. At the same time there is the system integration. So, we maybe handling a lot of the volume in 9 months but there is also system integration and a number of other integration points that have to be completed. So, my guess it will take a total of 18 months to get everything where it needs to be.

Bob Labick – CJS Securities

Got it and what kind of incremental investment do you need to make to facilitate this?

Jay Adair

It is pretty small. I’ll put it that way.

Bob Labick – CJS Securities

Okay great and then just moving on to U.K obviously another nice acquisition there and everything seems to be working out quite well. Could you tell us that did you gain new insurance customers? Are there still large insurers that you are seeking? But that you don’t usually get there and how this changes the final market?

Jay Adair

Yeah. We did gain some new customers in that market through the acquisition which is great. I think it introduces some additional leaders in the market. But no there are still very large buyers in the market that we don’t do business with. From a market aspect there is a lot of opportunity going forward in addition to the fact that we are very satisfied at where we are today in that market.

Bob Labick – CJS Securities

And last one and I’ll get back in queue. As it relates to continental Europe does this, you getting critical mass and size in the U.K allow your transition into the continental Europe. Is that still on the anvil?

Jay Adair

I think it is a good point. As we said we have got a number of carriers that we do business with in the U.K that are #1, or let us say top 10 writers in continental Europe. And so, yeah it definitely gives us the relationship that we’d like to leverage as we go into continental Europe plus it gives us the experience plus it gets us the team over there because it has got to be led by the U.K. That expansion can’t be led by the U.S.

Bob Labick – CJS Securities

Okay great. Thanks very much.

Jay Adair

Thank you, Bob.

Operator

We’ll take our next question from Bill Armstrong with C.L King & Associates.

William Armstrong – CL King & Associates

Good morning. Could you discuss volumes trends during the quarter and on a year-over-year basis, unit volume?

Will Franklin

Volume is relatively flat. We think that we are seeing the impact of a couple of influences in that respect. One is we have a higher instance of uninsured motorists and that’s grown to almost 18% and 26% at some stage and naturally the higher value of these used cars tends to reduce the salvage frequency. So, we think those both have led to a relatively flat market at this point in terms of volume.

William Armstrong – CL King & Associates

Right, okay, as you probably heard Insurance Auto Auctions said they had I think a 9.6% increase in same store unit volumes. Does that indicate that you are losing share to them?

Will Franklin

I can’t speak to that. I can only speak to what we are saying. We have like Jay said, about a 100 actually it is more than a 100 national contract. So, we get every car they have and with those contracts we monitor their volumes so it excludes wins and losses and in most cases it is flat and in some cases it is actually down slightly.

William Armstrong – CL King & Associates

Okay. In the U.K can you update us on the ratio of cars that you sell on a principal versus agency basis?

Will Franklin

Generally last quarter it was 50:50, right up 50:50. In the same quarter last year it was 30% agency. However we are making progress in the migration. There is still a couple of contracts that are committed to migrate to the agency model but they haven’t done so yet. So, we expect that percentage to grow.

William Armstrong – CL King & Associates

Okay. The $1 million in acquisition costs for D. Hales that you mentioned in the press release is that in SG&A or is it in the other income line or it is in the rest?

Will Franklin

Half of that is in SG&A and about half of that is in yard operating expenses. The portion in SG&A is primarily legal expenses. You may or may not be aware of it but accounting was changed. Previously legal expenses and many due diligence costs were capitalized as part of the acquisition and now they have to be recognized in the income statement which is reflected in this quarter’s numbers.

William Armstrong – CL King & Associates

I see and then finally on the Allstate how long do you think it will take before you are actually processing all their cars. I know they have some contracts with some of your competitors. When do those contracts line down or you will be seeing all of their volumes?

Jay Adair

Probably somewhere in the, again we said 6 to 18 months for the integration. It is probably somewhere in the one year range.

William Armstrong – CL King & Associates

One year range, okay great, thanks.

Operator

We will go next to Gary Prestopino with Barrington Research.

Gary Prestopino – Barrington Research

Hey guys how are you doing?

Jay Adair

Hi Gary.

Gary Prestopino – Barrington Research

Can you share with us just the size of the revenues form the D. Hale’s acquisition or is that something you can’t make public.

Jay Adair

No, we haven’t disclosed that and we typically don’t. Actually we typically don’t disclose to an extent possible many of the details in our acquisition because we found that it hinders us on occasions in future negotiations.

Gary Prestopino – Barrington Research

Right. All right how about this relative to the size of the sites of the company which you have over there. Are there sites comparable in size, the 5 sites?

Jay Adair

Yeah, I would say out of the four that we mentioned on the call here, that they are comparable.

Gary Prestopino – Barrington Research

Okay and then, in terms of marketing spend going forward, did you mention the level that you spent this quarter?

Jay Adair

No, we gave guidance at the beginning of the fiscal year and that hasn’t changed. So, we are still in line with that. And as I said on the call we are seeing pretty phenomenal results so far. So, we are happy with what is happening there.

Gary Prestopino – Barrington Research

But the majority, this is going to be back end loaded as the season starts.

Jay Adair

Yeah I’d say in Q3, 4 and 1 of the next year.

Gary Prestopino – Barrington Research

Okay. All right and then in terms of Allstate when will you have the benefit of the full volume from the new contract? Is that about 18 months from now?

Jay Adair

I think that question was asked earlier. Full volume should be about one year.

Gary Prestopino – Barrington Research

Okay so full volume one year. All right and then can you comment on some of your initiatives on dealer side and Copart direct in terms of getting vehicles as a source of supply? I mean you commented on what you are doing, on what you are getting on the membership side. Can you comment on that?

Jay Adair

Yeah I mean we are having a lot of success on the non-insurance side both in Copart Direct, CDS and a couple of other initiatives that we have got. Those are continuing to grow and my guess is they will continue to grow. So, that’s a great thing.

Gary Prestopino – Barrington Research

All right. In general Jay you are looking to build your buyer base here which if you are sharing statistics with us it seems to be working somewhat but somewhere along the line don’t you have to get more volume come into the system to satisfy the buyer base?

Jay Adair

Yeah I mean it is a supply demand game. So, we are seeing record returns right now, which is great. We are selling a material amount of our cars to new buyers so that’s again we are happy with all these fronts and the volume is coming in. I think we talked about that in just the Allstate discussion alone. That will be quite a bit of volume coming in, in the next year. So, I am not too concerned with volume. Right now I am more focused on and we as a company are more focused on trying to get additional members and additional awareness.

Gary Prestopino – Barrington Research

All right and just one last question, you said you increased your membership signings by 10 times?

Jay Adair

Correct.

Gary Prestopino – Barrington Research

There are a couple of levels of membership. But how many of these newer members are actually moving into where they are hitting a I guess there is a higher level of membership where you pay a higher fee and you can buy more cars.

Jay Adair

Right.

Gary Prestopino – Barrington Research

Is that something that you can share with us?

Jay Adair

Oh yeah I mean there is a migration process. Well they come in as a basic member and then maybe over time get to premier status but it still has, either one has the ability to buy cars which is really based on license type. If you don’t have proper licensing you can go through a broker network that we have got. So, it is really about how many cars that we are selling to new buyers and we are selling a material amount. Material to me would be 10%. So, more than 10% of our product is being impacted by new members. New members we think are less than a year old but that’s an important part of what we are doing and again that’s a major part of this initiative. This marketing initiative is not only making buyers aware of us but by getting those members to eventually start bidding and buying and that’s the case. That’s what we are seeing and that’s good stuff.

Gary Prestopino – Barrington Research

Right thanks Jay.

Will Franklin

Gary let me add one more comment on that. It is not only a numbers game. We track what these new buyers are buying and these new buyers have an appetite for the clean title and run and drive cars, which is exactly what we are trying to accomplish.

Gary Prestopino – Barrington Research

Right, thanks Will.

Operator

We will go next to Scott Stember with Sidoti & Co.

Scott Stember – Sidoti & Company

Morning.

Jay Adair

Morning Scott.

Scott Stember – Sidoti & Company

Will I would like to clarify, you said that total same store sales were up 3.2 and as you adjust for the purchase migration, total up 6.7?

Jay Adair

That’s correct.

Scott Stember – Sidoti & Company

Okay and just shifting back to Allstate Jay can you talk about the kind of mix within the business that we are getting? I know right now you are doing like 60:40, or 70:30, tip, to non-tip, what’s the mix within that contract?

Jay Adair

You mean the type of contracts that we have negotiated with them?

Scott Stember – Sidoti & Company

Yeah.

Jay Adair

Signed up with them? It is a fixed contract is what we are doing with enhancements to the cars.

Scott Stember – Sidoti & Company

All right this will be the stock where you can make higher percentage obviously.

Jay Adair

Well I can’t get into the actual deal but yeah that’s correct. If we end up generating more money for the car we will make more money on the car.

Scott Stember – Sidoti & Company

Okay and that certainly backs the Copart Direct? I know there has been a little bit of a slow go out of the gate but now that you have this new buyer base hitting your option have you seen any trends that suggest that more volume is going to come through now that you do have a buyer who is going to pick up all those cars?

Jay Adair

That we are seeing more volume, yeah we just talked about the Allstate deal. That’s a big part of, they are seeing what we are seeing and they made their decision based on a number of factors. But again I don’t know how to state it any clearer that we are seeing increased volumes and we are going to be seeing a lot of increased volumes by next year just from that commitment, just as long as anybody comes and commits to Copart. Right now our focus is to continue bringing these members and I can’t give better news than we are at record levels in the month of February for ever. We have never seen in the times per car selling price or return percentage. So, if we are in a situation, we have got a lot of demand right now. For the supply we have got that’s great as supply is going to be increasing going forward.

Scott Stember – Sidoti & Company

And just the last question with regards to this NASCAR shift, I think last quarter you might have said that currently the public can bid in about 6 states right now. Can you just talk about where that stands now?

Jay Adair

The public can bid in every state because we have got a broker network that we have built. So, there is nothing stopping you from bidding. We will connect you virtually through a dealer. That dealer will buy the car and book the car and sell it to you. So, there is nothing stopping you from going on our website tomorrow and buying a car anywhere in the country through the broker network. That’s one of the great designs of our website. That’s a big improvement that we have put in the last to the beginning just over a year ago. That’s within reason. If we have got a junk car that has to be crushed you can’t buy that of course. Everything else that we are selling you have got access to it.

Scott Stember – Sidoti & Company

All right that’s all I had. Thank you.

Jay Adair

Thank you.

Operator

We will go next to Justin Boisseau with Gates Capital Management.

Justin Boisseau -- Gates Capital Management

In the number how much of the 37 million in the quarter was pure CapEx versus CapEx plus acquisition?

Will Franklin

Well, we don’t break it down. I can tell you this that out of that number $7.5 million was what we classify as non-capacity CapEx and other 7 million approximately 6 million of that was computers and computer sites.

Justin Boisseau -- Gates Capital Management

Okay and the last CapEx number that you guys talked about for the year which included acquisitions was supposed to be around $40 million to $50 million for the 2010 year. What do you expect to shape out now? I mean you guys are a little over 60 year-to-date.

Will Franklin

Yeah it is just becoming too difficult to give guidance on our CapEx because so much of it is opportunity based. Though there are certain locations that we can use extra capacity and we are searching for those locations and if the opportunity rises we will pull the trigger.

Jay Adair

As we sit here today and just to add a little bit more to what we said. We figured we had capacity but there are some markets across the country we have been looking for properties for 10 years. And if that property came up for sale we are going to buy it and we may mark down and we may not even develop it for two or three years, same thing with acquisitions. There is no way to anticipate that and in the second quarter we will be making this acquisition that we made back in the fourth quarter when we gave the estimates. Who knows what other acquisition opportunities will come up in the year between now and July?

Justin Boisseau -- Gates Capital Management

Fine. What about the G&A line through the rest of the year? Did I hear you earlier saying that you think that will move up higher in Q3 and 4? We had a good run rate here in quarters 1 and 2.

Will Franklin

It will increase the next three quarters actually and that’s because of the marketing spend that’s associated with the racing initiatives both in NHRA and NASCAR. Most of those events happen in the next three quarters.

Justin Boisseau -- Gates Capital Management

Got it and then as far as acquisitions and expansions what would be the next logical country for you guys to maybe expand or do you think there is still a lot left to do in the U.K if you were to think about next opportunities for you guys?

Jay Adair

Well we have got opportunities in the U.S and U.K but we wouldn’t be disclosing what the next country would be. That kind of puts us in a disadvantage.

Justin Boisseau -- Gates Capital Management

Okay. Thanks.

Jay Adair

Thank you.

Operator

We will go next to Tony Cristello with BB&T Capital Markets.

Tony Cristello – BB&T Capital Markets

Thanks good morning gentlemen.

Jay Adair

Good morning Tony.

Tony Cristello – BB&T Capital Markets

Jay you talked a little bit about in your opening comments the impressive traffic, the very strong membership numbers and I am assuming there has to be some magnitude of improvement or increase in the conversion rate of that member into a traffic to buyer. Is there anything that you can share with us that obviously you don’t have to give numbers but anything that you can share kind of directionally tells us what you are seeing on the actual final product there?

Jay Adair

Yeah I could tell you this. As we sign up new members, the first step is awareness and when people are made aware of us most of the people did not know the industry existed. They didn’t know the company existed. So, they go from awareness to become a member to looking around and what we found here is that there is a curve that takes place with their activity is slow in the beginning and it is kind of like once they have bought their first car then they are set to increase substantially. So, the longer they have been a member with Copart the more they buy, the more active they are, the more they get involved in the process. So, we are starting to see the fruits of a year ago taking place today. And as I said we have 10 times more members that we signed up but again you start looking at how buyers you brought in then and how many buyers were brought in July, and August and September and now what buying they are doing today in February and it is definitely making an impact. So, it is exciting. I think what is exciting is where we are going to be 12 months from now. The volume that would be processing, how may more buyers we have on board, so that’s the kind of where our focus is right now is looking at awareness about new membership and the impact that’s having on the returns.

Tony Cristello – BB&T Capital Markets

Okay and when you look at the various initiatives then whether it is with dealers or with Copart Direct, with Speed, TV, the Nascar, all these things you have got going on, is there any one in particular that you should say, this is going to be the better contributor to the ultimate growth and profitability down the road or is it just an aggregate? Let us get them all there because ultimately it is all going to drive higher selling prices and thus higher yields.

Jay Adair

Yeah I am sure that there is something that’s working better than others and we haven’t been doing it long enough to have that much visibility but we will be in the next 12 months, we will be kind of jockeying and repositioning into the areas that are the most effective. Well this is the program we are sticking with it. As I said a year ago or maybe six months ago the intent is to look at the result, measure the result. We are doing that now and there are areas that are more that have a better return than the others. There are areas that are more effective than others and so we will be moving dollars around and spending appropriately to get those the additional buyers and members in.

Tony Cristello – BB&T Capital Markets

Okay and not to talk much more about Allstate but when you think about and maybe this is a question for Will, as we look down the road, 12, 18 months whenever you get full ramp, I guess the question I have, in the interim, are there new programs in place with respect to the Cs and with respect to what you have to put into from a cost standpoint that may impact margins or revenue in the interim until you are at full scale. In other words are you incurring a little bit higher cost or less fee revenue on vehicles with Allstate until you have the full ramp opportunity to catch up?

Will Franklin

That’s exactly the case and the next quarter and perhaps the quarter after that it will actually have a negative impact, a la margins. As we ramp up we incur cost on the existing volume is priced at the new contract rate.

Tony Cristello – BB&T Capital Markets

Okay, okay and so we had a demy for that. And in fact will that impact more the revenue side or that impact more the cost of goods margin side or will it impact a little bit of both?

Will Franklin

It will impact both, both cost and revenue.

Tony Cristello – BB&T Capital Markets

Okay all right, that’s very helpful and one last question. When you look at Will, I don’t know if you will share this or not, did you give the impact of currency on the service in the vehicle sale side of the business for the quarter?

Will Franklin

No, we didn’t. It was immaterial and in the margin line it is almost nothing. It was a million or 2 million dollars on the revenue side.

Tony Cristello – BB&T Capital Markets

Okay, perfect very helpful. Thanks guys, I appreciate it.

Will Franklin

Thanks Tony.

Operator

We will go next to Edward Hemmelgarn with Shaker Investments.

Edward Hemmelgarn – Shaker Investments

Yeah I just had a question regarding the impact I guess the used cars as opposed to junk cars. Does that lower or improve your margin, the more non-wreck cars you get in?

Jay Adair

Yeah, the more non-wreck cars we process, they sell for higher value. It does improve margins over time.

Edward Hemmelgarn – Shaker Investments

Do you also I guess your not having towing cars something like that, is that part of the contribution too?

Jay Adair

You may have towing cars. In fact we usually do because whether it is a financed car or a dealer car you are still picking it up.

Edward Hemmelgarn – Shaker Investments

Okay thanks.

Operator

We’ll take our next question from Christian Buss with Thomas Weisel.

Christian Buss – Thomas Weisel Partners

From the agents perspective until the transition from the principal to agency’s model with the acquisition how is the timeline for that change?

Jay Adair

Well, the number of cars that we are selling on purchase has gone after we made that acquisition but I think the roll out of moving to a fee based has continued in U.K. That hasn’t changed. But we just made a large acquisition that will over night throw a lot more purchased cars into the math. So, our goal would be to continue down the path that we have. It will probably extend the process on those cars. I don’t think it changes anything to the existing business that we have on the cars that we have acquired. We have to get in now and meet with our customers and show them the numbers and those are the profits we have earned with other suppliers of ours. So, it is really about going through an education process on what the results are on what the returns are, what we are doing and how we are aligning our interests if we do it as a fee structure versus as we are trying to buy the car and negotiate based on conditions and categories and all the rest of the stuff.

Christian Buss – Thomas Weisel Partners

When do you expect to be fully transitioned there?

Jay Adair

On the new business I really can’t speak to that yet and I don’t remember what numbers we gave out on the old Business but it continued quarter after quarter to transition and I anticipate that will continue to be the same and whatever numbers we gave out in the past I don’t have in front of me but I don’t think that has changed as we sit here today. It looks good and in the end there maybe some customers who don’t want to move to off of it. That’s fine. We make more money on the purchase and we have shown them that we make more money on the purchase on a per car basis. And again we think long-term. The long-term benefit is being very transparent and showing them exactly what you make and knowing that your interest are aligned versus here we are buying cars from you, you are not sure what we are making.

Jay Adair

Operator do we have any more questions?

Operator

Yes. As a reminder it is “*1” for any questions at this time. We will go on to Craig Kennison with Robert Baird.

Craig Kennison – Robert W. Baird

Good morning guys.

Jay Adair

Good morning Craig.

Craig Kennison – Robert W. Baird

Jay, would you provide us with an update on Auto IMS?

Jay Adair

Sure. I don’t think it has changed much from the last update that we have given. We are integrated not at all of our facilities but in our market. So, if we get three facilities in the market, we have only integrated one facility in that market just because of the cost and then we have got a team that is out there pushing to do additional business with them and in fact we recently felt some nice growth in that area. So, we will continue, we are going to continue to be a player in that business and nothing has changed with regard to are we happy with it, to deal with Auto IMS? Very much so.

Craig Kennison – Robert W. Baird

And are you continuing to see incremental volume from that and in other words you haven’t fully penetrated the opportunity?

Jay Adair

No we are at the beginning stages of that. We will continue to do that for years and years and years. There is a lot of opportunity on that front.

Craig Kennison – Robert W. Baird

Can you share with us any information that would help us size that total opportunity?

Jay Adair

That’s tough. I don’t have an idea because you can get the size of the market and then what we are really going after is the cars that fit the Copart model, in trying to work that kind of business . So, it is tough to give you a size of the market. I can tell you that it is not uncommon to be able to win a 5000 car year account in that business. I mean those kinds of wins are out there. And it is just about, it is again like we built Copart, we built Copart not by any one big deal but by growth, consistent growth year after year after year over a couple of decades.

Craig Kennison – Robert W. Baird

And then Jay how exposed are you to the repossession market? And what are the trends there?

Jay Adair

I don’t know that I want to get into the trends Craig on repos simply because it is a relatively small piece of our business. It is a growth area for us but are we going to be impacted if repos go up 10% or down 10%? No. We are not. It is not enough of our volume to impact us. We are much more focused on trends with total lots and things like that that we are repo volume.

Craig Kennison – Robert W. Baird

Last question on currency, are you seeing any near term impact from this strength in the dollar and the relative weakness in Europe?

Jay Adair

Do you want me to comment on that or Will?

Craig Kennison – Robert W. Baird

Will.

Will Franklin

Yeah in the last quarter we actually saw a growth in the percentage of international sales as the dollar actually weakened against the peso and the euro and the pound. It is too soon to tell what the current trends impact they will have but there is a tight correlation and we believe that there is some time between the strength of the dollar and our international bill.

Craig Kennison – Robert W. Baird

Great thank you very much.

Will Franklin

Thanks Craig.

Operator

We will go next to Gary Prestopino with Barrington Research.

Gary Prestopino – Barrington Research

Yeah just one quick question, Will, or two questions. You gave North American I think service revenue number of a $132 million, did I write that down right?

Will Franklin

Let me confirm. $138.7 last quarter $142.6 million.

Gary Prestopino – Barrington Research

For this quarter $142.6 million?

Will Franklin

Right versus 138.7 last quarter.

Gary Prestopino – Barrington Research

And then could you maybe just directionally talk, we talked a little bit about these clean title drivable cars. As a percentage of the volume that you are doing, where does that stand now versus maybe where it was a year or so ago? Can you share that with us?

Will Franklin

One sec Gary, yeah Gary it is about 15% of our business and has grown slightly. It hasn’t gone from 10 to 15. It has gone from like 13 to 15.

Gary Prestopino – Barrington Research

Okay but it is growing. So, those are the drivable cars.

Will Franklin

That’s correct.

Gary Prestopino – Barrington Research

Right thanks.

Will Franklin

You’re welcome.

Jay Adair

Thank you.

Operator

And ladies and gentlemen as a final reminder it is “*1” for any questions at this time. And Mr. Adair it appears we have no further questions from the phone audience. I’ll turn the call back over to you.

Jay Adair

Thank you, Miranda. Well again thank you for attending the second quarter call and we look forward to reporting on Q3. Thanks again bye-bye.

Operator

Ladies and gentlemen that does conclude today’s conference call. We like to thank you all for your participation. Have a great day.