Good day everyone, and welcome to the Copart Incorporated second quarter fiscal 2008 earnings call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would now like to turn the call over to Mr. Jay Adair, President of Copart Incorporated. Please go ahead, sir.

Thank you, Catherine. Good morning everyone to the second quarter call for Copart, as you can hear, thanks as I am got my voice back. So, we have got a lot of information to update you on today with respect to the quarter and things are going on in the company. So, I would like to start off, I will turn it over to Will Franklin and then we will do the call and open up for questions. Will?

Thank you, Jay. During this call we may make forward-looking statements within the meaning of Securities laws. These forward-looking statements may include projections about our future revenue and earnings growth, which are subject to various risks, including weather conditions that are adverse to our business, our ability to increase market share in competitive market, and our ability to secure beneficial supply agreements. We face risks arising from our increased dependence on internally developed systems to conduct our auctions. Finally, our recent acquisitions in the United Kingdom expose us to new risks relating to international operations. For more discussions of these and other risks that could affect our business, please review the Management's discussion and analysis, and the factors affecting future results contained in our 10-K and other SEC filings. With that Jay I will turn the call over to you again comments.

Alright, thanks Will. Again good morning everyone, I did break the call or at least break my portion of the discussion out into North American and United Kingdom operations. I will start with North America. Looking at North America revenues grew 6.8% to $137.6 million. International sales in the second quarter of '07 were 26%; international sales in the second quarter of this year are 28%. We believe this is due to the fact; we now got European headquarters based outside of London. That is doing a lot of direct marketing. This is marketing in magazines and newspapers in Poland, Russia, Lithuania, lot of Eastern European areas. In addition we have got a footprint now that covers the UK of locations. These are locations that are interacting everyday with buyers from the European, Eastern European markets etcetera. And the last bit that I think is a cause of this is just cross-pollination of buyers. We have got buyers that were buying product in the US, that are now buying product in the UK and we have got buyers. There were buyers of product in the UK that are bidding on vehicles in the US. So, we are just seeing an overall penetration there in North America that's increased quite a bit. We also think record returns in fiscal '08. So, as we look at the year, I think from my perspective, since I have seen returns increased every single year since 2003. The launching of VB2, I keep waiting for this to mature in kind of level off and that just has been the case. So, both in the US and in the UK, we are seeing returns increased. We are currently sourcing 83% of our vehicles from the insurance industry and 17% of our vehicle sales from non-insurance, a…

Thank you, Jay. In our second quarter, consolidated revenue grew by $44.5 million to $173.5 million. In North America revenue grew by $8.7 million to $137.6 million. However included in the same quarter last year was approximately $2.6 million in extraordinary revenue associated with hurricanes, Rita and Katrina. Excluding the hurricane revenues, growth was $11.4 million or 9%. Same-store sales in North America grew by 6.4%. Excluding the hurricane revenue from the prior quarter, same-store sales grew by 8.5%. The growth was driven primarily by increased volume. We have experienced growth in all categories of suppliers, units from some insurance companies as a percentage total units was down from the same quarter last year, remaining at approximately 83%, the same as last quarter. During the second quarter gross proceeds and returns were higher than the same quarter last year. And sales to international buyers, expressed in units represented 28% of all North American sales. In the United Kingdom revenue for the quarter was $35.8 million. UK revenues were adversely impacted by credit card fraud, which reduced revenue by $900,000 and by delays in processing certain cars which would have normally being sold during the quarter. The delays were associated with integration and the sales deferred in this quarter will be reflected in our third fiscal quarter. Each of the facilities that we owned in the UK at the end of the quarter have been converted to VB2 and we continue to be pleased with buyer acceptance in return percentages. Consolidated operating expense and cost of sales for the quarter was $104.9 million and included depreciation of $7.8 million of which $800,000 was from the UK operations. In North America operating costs for the quarter were $69.5 million, an increase of $900,000 or 1.4%. The minimal increase reflects better fixed cost…

Thank you, Mr. Franklin. (Operator Instructions) Now we'll take our first question from Bob Labick with CJS Securities.

Good morning. Thanks for taking my question.

Hi, Bob.

Good morning, Bob.

Hi Jay, good to hear you, voice sounding so good.

Oh, buddy, I'm back and I love it.

Excellent. First question, I just wanted to…

We've no idea. It was terrible.

I believe it, especially for you.

Yeah specially.

Just want to verify in terms of, you mentioned the timing on sales, the delay in sales in the UK was a conscious effort on your part to allow for the integration of VB2 and things like that. But I just want to understand the underlying fundamentals there, the pick-up volumes and yours market share gain and everything is still consistent with your expectations. Is that true?

Yeah. We are extremely happy with what we've done so far. In fact I can tell you that which of more assignments when I thought we would take. I mean we exceeded my expectations in terms of assignments that have came in, in November, December and January for UK operations. But it was just been crazy on our part to go out there and start selling off 800 car sales. Now I'm doing that now. You know where some of the locations had 300 car sales and Q2 they have got 800 car sales going now. But that's okay, because the market place is now familiarized. You know BB2 is been out there four months. You take four months and four sales a month at location.

Yeah. Everyone stand by.

And we did the math 16 -- 16 sales at the location. So, they're used to now they're comfortable with it and so the risk isn't there. Now, we are getting the right returns, but to flood the market with another $20 million or $30 million worth of vehicles sales I just would have been stupid.

Okay. I mean that sounds great and obviously people shouldn't be looking at this is a correlated event as you said. So, it sounds good to hear the fundamentals behind are still strong. Could you expand on, with a little more color on the acquisitions you've made at the 5 new locations, give us a sense of your, maybe estimated market share or your footprints where, where else you need to go? You said you are going to look for potentially five more by year end and will that be your full compliment in the UK for the time being?

Yeah I think from a UK perspective, I think that would give us complete coverage. We still, we have coverage across the UK. We are doing it now. But its no different than we cover Alabama and we needed a location in Birmingham. It is the same concept that we have done in the States. So we have got full coverage in the UK. But we are towing a 120 miles sometimes to get a car. So to -- I don’t want to sit here on the call and pin exactly to whom I am talking to and exactly where I want to go. But I want to further that network and be closer to the cars and increase capacity for storage etcetera.

Great and then just finishing on the UK for me. Could you give your progress and I thought you mentioned principal versus agency actually kicked up a little bit. But what is the overall, your overall thoughts on the -- once a year outlook for the switch potentially for agency run?

Yeah, no I mean and the reason it kicked up is just because the clients that were on that model, happened to send more product in, happen to have to more totals. It wasn’t that we shifted anything. I would say all, I want to say majority. But I think all of our clients are on supply agreements that have dates to them, terms where they expire and so to - we can renegotiate that now, but our approach has been to just go ahead and handle the cars the way we are doing and make the money that we are making right now. It is the not the right long term effect in our view of the industry for a number of reasons. But we saw this ten years ago in the US, when the US was on a purchase model. And so they are today because they use the purchase numbers to total off the vehicles instead of using say a [protocol] valuation from Copart. They will fix cars that should have totaled than they were total cars that they should have fixed. Its really about what's the right value of the car. Total the right cars, fix the right cars. Instead today we may take a really high end unit that would bring 50% in VB2 auction and because the purchase number on it is less than that, they end up fixing the car and than we may take an older car that isn't worth the purchase number that we've got on it and because of that, they total it when they should have fixed it. So its really about sitting down with our clients, showing them that it's a true business partnership and that we want to have full transparency. They can see what we're earning. There is no question its…[technical difficulty]

Yes Mr. Franklin it does appear that Mr. Adair's line has dropped. Please standby while we rejoin. Once again and gentlemen, please stand by. We will rejoin the speaker in just a moment. And Mr. Adair rejoins.

Yeah sounds like I got a little sound on the phone as well but hopefully that will -- we can live with that. Is Bob still on that call?

I am still here, I don't know if you can hear me?

Yeah I hear you fine. I don't know if can you hear me okay?

Yep.

All right. So, I guess what I was just -- I don't know where you lost me but the point is that you want to be delivering a business partnership, where you're getting the true value of the car, and because you're doing that, you're totaling the right cars and fixing the right cars and where they purchase method because those numbers that are said based on the different year and categorization of the car, you don't get that, plus you don't get market value. So, today we have a supply agreement, which we do and VB2 increases the returns over the next six months, then we generate more income, which sounds great to the financial community, but it creates an adverse relationship with your supplier, where they're saying, I think you're making more money now and I want to give some of that back to us and my feeling is just to say look, lets always have a said amount that we make because that's we have to generate a certain income to do business and then lets give you fair market value. So, that we'll be going through that -- through those explanations for their suppliers, but we've already had some conversations with that been may take on this been, they've been very receipted to it. Again it just you're talking about an industry that's done this way for a longtime, when you are introducing a new idea change us to be embraced and thought about and eventually accepted.

Okay. Well, I'll jump back in queue and let others ask. Thank you very much.

Okay. Thanks Bob. Will, are you there?

Yes.

All right. We all love modern technology may I get in drop off of the call.

(inaudible) already, we can go on to our next participant.

Sure.

And we'll go to Tony Cristello with BB&T Capital Markets.

Hey, Tony Tony Cristello - BB&T Capital Markets: Hey, thanks. Good morning, guys.

Good morning.

Hi, Tony Tony Cristello - BB&T Capital Markets: I guess one question is, with the principal model, what's done over the UK, is there something that doesn't allow you to get as much fixed costs absorption and I guess the question I have is, relationship to gross margin. I know there was some reclassification, items from Q1 into Q2?

Oh, for the G&A, yeah. Tony Cristello - BB&T Capital Markets: Yeah. Is there something that would cause gross margin to be down so dramatically on a sequential basis and is it more of -- this is sort of how we're integrating and we should see something normalize as we progress back out into Q3 and Q4?

As soon as it's going to normalize as we go back, yeah I mean, we're going to have the integration cost now associated in Q3 and Q4 with the recent acquisitions. And then, hopefully we'll be making some more expansion moves as we said and there'll be cost associated with that. So, that's going to happen, but let's look at year from now. A year from now things will normalize considerably and you'll see -- you'll be able to view. We've made a real clear in Q1, I mean, in terms of maybe people think that, it's like a safe harbor statement and that they were not serious about. But we made a real clear to Tier 1 that, yeah, this is Q1, you just saw the results, but that's because we have integrated and don't look at that is being a way to model out the future quarters and I feel the same about Q2, it just the quaternary now. It's not -- you can't take Q2 and map that into Q3. Q3 is going to be high revenue and it's going to be a very different quarter then what you're saying in Q2, but then Q4 be different again. So, it's really about -- let us get everything in place and get kind of a consistent program in place and then I think it will be a lot of easier for us and you and everyone to model it. Tony Cristello - BB&T Capital Markets: Okay. So, its sounds like, results will vary between what we saw on Q1, what we saw on Q2. Why you're integrating the fall in between and once you've kind of get 12 months in your belt, we should use sort of Q1 as sort of the bench market then show improvement from?

That's right. Tony Cristello - BB&T Capital Markets: Okay. Is there anything would integration in the UK from even a regulatory standpoint that differs and that's you have now benefited from as you think about maybe using that as your springboard to further expansion into Europe?

Well, it's a pretty big question. I try to think from a regulatory standpoint, it obvious a very different marketplace. Then Europe, I mean if you take the UK and try to compare it to Germany or some other market for instance. It is a very different, each market place, each country has a different set of expectations and rules that you got to live with it. But I mean we have been very, all I can tell you is we have been very pleased with the acceptance, both on the supply side, on the buy side and all of our internal customers, all of our employees. So, it has been really, really, it's really positive and I haven't seen any kind of a regulatory issue that is going to put up a wall, as we said here today. It looks great. Tony Cristello - BB&T Capital Markets: Okay. So, it should ease as you think about expansion further in the Europe at some point that you sort of cut your [teeth] in UK.

Yeah, I think we are doing a great job in UK. We have got a team that's really excited and committed. They are pumped up about what we are doing. It is just part of our culture. We are excited about what we do and we kind of live it. And that's the same kind of approach that you see in the UK. I mean I was out last week in the UK going around different locations and everybody is really excited about where we are headed. It is all good stuff. Tony Cristello - BB&T Capital Markets: That is fine and that's encouraging. I think it is, from an investor standpoint now we just have to be, understanding that there is going to some lumpiness and some volatility?

Yeah and there is no way around. I mean I could belong the doors and I just saw the bunch of cars in the quarter. It would have been silly to do that. I would have had the revenue, but I wouldn't got the right returns. And we have done, we have done the right thing. And now selling those vehicles off in Q3 it's the proper thing to do and we are seeing the returns associated with it and we are happy about that. Tony Cristello - BB&T Capital Markets: Okay. And maybe just two quick questions on something, it will be a little bit different. The credit card fraud, how does?

Does is that happen? Tony Cristello - BB&T Capital Markets: Yeah, I really.

Any time you're doing an integration of this magnitude, I mean you're talking about something that's larger than 10% the size of Copart. You're talking about doing business in a completely different environment, building different. You know we had to change all of our systems so that they could accept dates that are different, postal codes that are different, [talents] instead of Canadian dollars or US dollars. So you're talking about major, major changes, you're going to miss something, and so I'll just call it what it is we miss something, and we allowed for fraud by not having a security code labeled on our credit card, we fixed that, and going forward we don't envision that happening in the future. But you are always going to miss something, and usually they are small enough that you don't report it, you don't talk about it and you move on. This was material enough that we were discussing it and said look this is something that occurred. We got burned on some credit card fraud and we don't anticipate it will happen in the future. So [It's] term one-time event, but I think that's exactly what it is.

Okay. And maybe just one last question and maybe this is for Will. I guess that the Katrina and the hurricane anniversary I though ended last quarter. Is there anything in Q3 and Q4 that's you've faced on a comp basis or was this sort of the last sort of piece? Will Franklin It is the last piece. Q2 of last year was the last material elements of hurricanes that go through our financial. So we won't be adjusting any of the comps going forward.

Okay, great. All right guys I'll let some else ask.

I appreciate. Thanks Tony.

Thank you and we'll go on to Scott Stember with Sidoti & Company.

Hey Scott. Scott Stember - Sidoti & Company: How are you?

Good. How are you? Scott Stember - Sidoti & Company: Not bad. Could you talk about on the non-insurance vehicles again in the US versus last year. I didn't get that number?

Yeah. Will do you have that in front of you?

Sure. Last year is over 85% for last year. Scott Stember - Sidoti & Company: And this year?

This year its 83 right now.

Right around 83. Scott Stember - Sidoti & Company: Right. And this is a function of you getting more vehicles from banks, repo companies and so forth?

Yeah, Copart has a very powerful remarketing technology and as we go out and we show customers in all market places, I mean we are going in the insurance market as Will talked about in his opening markets, but we are also going in non-insurance as well as banks and other companies or/and other industries saying, hey, this is great technology, lets try it and sell some cars. Scott Stember - Sidoti & Company: Now during the quarter you made an announcement that you have an agreement with Harley Davidson to auction off their repossessed bikes.

Right. Scott Stember - Sidoti & Company: Is there anything else within the mix here that’s notable, that shows how you are going outside the cars?

No, I think that’s just a great example. I get, and Will gets asked a lot of question about what are these non-insurance related and are they all just banks? And no, some are manufactures like Harley. So, it was juts a way for us to say, look this is another segment, another market place that we are processing vehicles for, and we think there will be continued growth there. There is really no doubt in my mind that we are going to actually see those numbers continue to move. So, it's got a certain momentum to it now and my guess is that over time you'll see more and more non-insurance vehicles going through the market. And it's great. It allows the buyers to find more product and I think it raises returns across the board. Our average selling price stays up across the board, compared to last year. So that’s a great thing. Scott Stember - Sidoti & Company: Okay. And as far as the delayed sales you had in the U.K; is there anyway to quantify how much got left on the tables or is it going to get booked in the second quarter or talk on a high level?

Well, I think we did by telling the inventory is up 27%. Then you said, well, how much would it be up normally and I'd say I don’t really know. How I would I know because it's a new marketplace for me too. I can just tell you on the call that there's going to be considerable sales in Q3 compared to Q2 and we'll just have to see how that ends up, what it ends up being in terms of dollars. Scott Stember - Sidoti & Company: That’s all I have. Thank you.

Okay. Thanks Scott.

(Operator instructions). And we'll go on to Scot Ciccarelli with RBC Capital Market.

So how are you?

Hey, hi Scott.

Just want to be clear on one thing. So the delays you referenced, that was wholly the conscious effort that you have talked about in terms of getting the proper returns. There weren’t any actual technical integration - -

Absolutely, there was some technical issues, there's no question about that. But we could have turned around and after tweaking some technical issues - we had every single day on the fly-fixing things, that’s how integrations go. And as soon as we found one little thing and we tweaked it, was that reason we didn't sell vehicles from a primary standpoint? Absolutely not. I mean we had no intention of going in, integrating a company, switching them over to new systems, switching them over to a new remarking technology like VB2 and then flushing out 16,000 cars a month. That was just, it wouldn’t make any sense. And so we held back and we did the right thing and now we are selling off those units in Q3 and we'll be selling in Q4, they won't all go out in Q3. Q3 is February, March, April. So it will be all the way at the end of the year, all the way to July.

Nice, that’s helpful. And then can you guys address, there has been recent articles regarding Mexico and some regulatory changes etcetera going on there. Can you just kind of outline it for me in the potential impact if any on you guys?

We haven’t seen an impact of it yet. I mean I can tell you the law. I mean supposedly you can only import 1986 model years into the country. And the reality is that there is this 20 mile area of towns like Juarez and Tijuana that all border. They are all border cities and this area is allowed to import any model here, but it has to stay in that marketplace, and it used to be that they weren’t supposed to import anything older than 10 years. And look, the laws are going to be what they are going to be, and all I can tell you is, as of right now returns are up, and if it's something that we thought was worth discussing we talk about it. We do a press release. As of 2009 the NAFTA rules kick in, January 1 of 2009, and they basically have to sell vehicles every single year. They have a model years until I think 2019 or something and then they have to allow every vehicle in to the country. But I guess the point is, you can look at the law and you can read it. If it's got a material impact Copart will talk about it right now. We don't think that's the case.

All right, that's very helpful. Thanks guys.

Okay.

Thank you. And we will go on to Bill Armstrong with C.L. King & Associates. Bill Armstrong - C.L. King & Associates: Hi, good morning.

Good morning, Bill.

Hi Bill. Bill Armstrong - C.L. King & Associates: Just going back to the UK for a minute, even if we add back the fraud and integration cost, gross margins were still down significantly. I guess I still don't quite understand. I understand how your sales volume was down, but why were those gross margin down so much?

Well, there's two elements to really focus on. First is the percentage of purchased cars; that went from 66% to 71%. So the cost of those cars flows through our cost of sales, our [year-end] operating costs. The second is we have a lot of fixed costs, I mean it's the same model in the UK as it is in United States. And so you saw that we had increase in revenues substantially more than our increase in our operating cost this quarter, and that's because we have a lot of fixed cost and that works up when revenue goes down. When revenue goes down we still got that cost remaining on our books. So if we process 30,000 units or we process 50,000 units, we have a lot of the same cost that we have to incur every quarter. So with the reduction in volume that flowed through our cost per vehicle went up substantially and that suppressed our margin. Bill Armstrong - C.L. King & Associates: Okay. And I think it was Jay who mentioned in his opening comments that toeing cost went up also in the UK?

We had increased toeing expense simply because of the volume. I mean the sheer volume that was coming in and dealing with integration we ended up serving our a lot of toeing instead of using just our own trucks. So there's clearly just in any integration like this Bill you're going to have one time cost that exists because you don't have your efficiencies built in, and a yea from now you'll be - you'll have your [bad] tricks figured out and your SLA requirements figured out and by then you'll be a lot more efficient. Bill Armstrong - C.L. King & Associates: Okay, and then just two more quick questions. The credit card fraud, do you have any recourse to the credit card company? Can you get any of that money back?

No. We've shut all the avenues of recouping that cost, and it's our responsibility. We won't capture any more of that. Bill Armstrong - C.L. King & Associates: Anyway of getting any of those vehicles back from the fraudulent buyers?

Yeah, we've gotten some of the vehicles back already, they've been recovered. But I wouldn't bet on all the cars being recovered. They may be in the UK, they maybe in Poland. By now you don't know… Bill Armstrong - C.L. King & Associates: Okay. And then I guess finally you got a new credit line of $200 million. You haven't really had it, I guess you haven't had a credit line in a while, but they haven't really needed it, why do you feel at this point in time that you need this extra financing capacity?

Just keeping our options open, just making sure that for some reason we need the money, we've got it. Bill Armstrong - C.L. King & Associates: For a potential acquisitions maybe or?

For anything, the line is can be used for acquisitions of companies, it can be used for the acquisition of stock, it can be used for a number of options. So, again, we just keeping our options open. Bill Armstrong - C.L. King & Associates: Right, okay. All right, thanks a lot.

Yeah, you bet. Thanks

Catherine?

Well, no further questions.

I do apologize. We will go on to Mr. Craig Kennison with Robert W. Baird.

Hey, Craig.

Good morning guys. I'm sorry not to let you off (inaudible) Jay. Question is on the US market, last year I believe in the summer you announce some wins or you had some wins that allowed you to gain significant market share and since then you've been reporting very strong same store sales growth. Have you earned any additional wins in the subsequent periods or might that same store sales growth begin to slow after next quarter?

Well, we have had -- I can't tell you whether it's going to slow or not, in the next quarter. I can tell you we've had wins all through the year and that's a good thing. We're continuing to get higher returns for the product that we're selling and it makes a very compelling statement to our suppliers. We have a number of suppliers Craig, if we don't do all their business. We do rather portion of it -- a small portion of it and they will look at these results and I want to try other markets and run other test. So, I'd expect that we'll continue to see growth, but I don't look at quarter-to-quarter. I'm looking two, three, four, five years out. I think we'll continue to see growth in the US, that's why we are going to open up another 8 to 10 stores this year.

Jay, could you characterize what a wins feels like, is it 1000 to 2000 cars is they're committing or is…

I tell you what it feels like, but it's like a happy day man, you get up and do a little dance and you just feel great. It's terrific and yeah, are you talked about volume? 1000 cars a year is a great thing, 10,000 cars a year is a great thing. It's nice to have a company test in a market, validate the model, validate what's you're doing and then make the decision to give you more business. And I think, we're all just -- we take a lot of pride in being able to show the value that Copart brings. And I believe I said to my team that, if we don't have a client today then we fail to demonstrate the value of doing business for Copart and that's the challenge we have. And so, when you can actually get that win, you've done that, you've demonstrated the true value of remarketing your vehicle through us.

Then just one question on the UK, the recent acquisition that you've made there, could you characterize sort of the revenue margins, sort of agency, principal, characteristic of those businesses, is it similar what you've done with Universal and Century or they much different?

I mean the acquisition we just made.

Right.

I think, they are all principal, but I could be incorrect in that. Will?

Yeah, I don't know Jay.

Okay. I think they are, but I'm not positive.

A scale or volume or size perspective, anything, and I think you can comment on relative to your other operations in the UK?

Yeah, as you know, their material and volume, I don't want to break out all the numbers on that. And again, the biggest reason for and again the biggest reason for now wanting to do that is the market right now, everything is, were becoming more efficient. We're building the network, to build the network we become less efficient at first. So, we're adding cost and then later on as we bring cars in as we streamline the model it become more efficient and so, it's just if I knew it, like I knew the US it would be different. But I don't and until we get that market, more material, we almost had our one year anniversary. And that we're still babies in that market. So, as we mature and have been in that market longer then I'll be happy to report you on how things look.

Hey Jay, let me respond to the question Craig had, on the acquisition we are probably principal based.

Okay. That’s helpful. Last question just on the credit card issue again, what was it that allowed you to catch it and now you are people constantly trying to defraud you, and you have systems in place for to catch [Multiple Speaker] a couple of time?

Unfortunately, are constantly trying to defraud us, that just the fact. Yeah, I mean if they can, you deal with falsified cashier checks, they are run them up on laser printers and you deal with, reversing bank, we're notified of this because the bank reversed the charges. And then we realized, and then we stopped it, but the problem is, there is a tail with credit card. Minute you get notified, there is all the other sales you've done. So, we saw that, we've stopped it. It won't happen. We've been defrauded in the US before, when we fix that in. Then we get defrauds in somewhere else we fixed that. It's just that, that’s a constant I think every business faces there, that's just a constant part of business someone trying to do, to do that. And of course, we're new to the UK, so coming to that market we thought we covered the basis and this was the one area that we're open. So, the good news is we fixed it.

Okay. Thank you.

Okay. thanks, Craig

Thank you, gentlemen. Now we will go on to Tom Lamb with Weybossett Research.

Looks like a great quarter to us and you are doing fantastic job. So keep it up. I had couple of questions.

Thanks Tom

You are welcome. You said I think you had $35 million of UK yard op expenses in the quarter?

That's correct. That includes cost of sales.

Cost of sales. And then you had $25 million I think you said from purchased cars?

That's included in a $35 million…

That's included in the $35…

$23 million included in the $35 million.

$23 million, okay. Thanks. Was there any negative or positive foreign exchange impact in the quarter?

It was minimal.

Minimal, and then -- yeah go ahead I am sorry.

Yeah it went from basically about 203 to 201 I think average FX exchange rate from Q1 to Q2.

Okay. And then regarding the VB2 patent in the US, is that -- are you going to try to get it patented elsewhere or copyright it elsewhere?

Yeah we've been doing that and we'll continue to push to get patent issued in other countries. But we were just really excited about the fact that we got the patent in the US and again I think the returns validate and the increase business validate the model and the fact that it turns five years old this year believe it or not. Which is hard for me to believe sometimes, but I think getting the paten just validates that we've got a unique process and we've seen a pretty dramatic affect of that process over the last five years.

Yeah it has been great. Alright thanks a lot keep up the great work.

Okay. Thanks Tom.

You're welcome.

And we'll take our next question from Gary Prestopino with Barrington.

Hey Gary.

How are you doing?

Good man,. How are you?

Fine. Most of my questions have been answered really Jay. But, was the credit card fraud on the internet transactions or was that a face-to-face transaction?

Internet.

Just figured as much?

Yeah. The face to face we could depend -- they've actually got a more secure credit card technology in the UK then they do in the US. I want to say a better technology.

In Nairobi, Kenya, that’s where you get that from. Jay Adair No, I would imagine that, actually the US will see this coming, some of the technology that exist there, because it's a lot more secure, but; yeah on the internet we missed that. So that's where we got hit.

One quick question; you mentioned your returns are at record levels. Vis-à-vis last year at this time, can you give us directionally how high, well, what percentage increase you've seen in the returns?

I don’t have that in front of me. I'm not in the office today.

Yeah, normally we don’t get explicit on what the returns are other than just comment on trends and I think you said Jay that, this is

It is a material trend I can tell you that. It's not a couple of points.

Yeah, I'm not asking for exactly what the returns are, but was it up 5% to10% over last year? I mean, I think that’s a fair question to ask?

Yeah, I don’t have the numbers in front of me. It's got to be in that range, off the top of my head.

Yeah, it's about 10%.

So, that’s fine; 10% off year-over-year. And then, what specifically are you doing? Are you holding training classes for your buyers on VB2?

We have done that already. We did that back in September and October before we integrated in November. So we had classes to train them at the facilities and then we did daily trainings. So, at this point everybody is utilizing the product now. It's the number one sales method in the UK.

Right.

There's more vehicles are sold over VB2 than any other model in the UK. So, at this point they definitely know how to use it.

So how ling have you actually had this VB2 fully rolled out? From December right?

It did started November 1 and as of the end of February, as an example the locations are all rolled out. I think we the last of the 10 was in January. But clearly, I think they were all on in February. I know they were all on in February.

And then can you talk about on the prices paid for the cars versus Q1 in the UK?

Yeah. We are seeing an increase in returns. So we are excited about that.

Great. Thanks.

You are welcome.

Thank you. And now will take our next question from [Chris Blackman with Core Capital].

Yeah. Thank you. I appreciate that.

Hi Chris.

Hi. How are you?

Good.

You mention you've spent about $170 million investment in the UK so far. Have you any projections on how much you think that ultimately, you end up investing there with the additional five acquisitions?

Yeah. Well. It won't be just acquisitions. It will be the acquiring of some land and it will be investment in systems technology and a number of things. But it could be, it could end-up being in the $250 million range.

$250 million?

Yeah. Give or take.

And CapEx for the US maybe you don’t disclose what you expect your CapEx for this year to be?

Well. I might give you that one.

Yeah, In that we didn't. In fact we stop disclosing that and providing guidance with respect to that number because there are just so much uncertainty that surround the timing of acquisitions.

Okay.

Part-part of issue, Chris as in the past we gave numbers and it just almost impossible to even come close. If you end up making deals, you spend more and if you don't you spend a little less.

Sure. When you were talking about the efficiency curve of the UK integration and how it can be less efficient at first and then become more efficient. Where are you, would you say on that efficiency curve?

Well we are more efficient now than we were last quarter. You kind of love this answer. And we will be more efficient next quarter. But no, I mean seriously it is just a number of things going on right now. And it is, as we integrate the five locations that we have got, that aren’t integrated yet. We will go through some inefficiency. We will actually go back a little bit and we will come out of that more efficient.

Yes if you try to balance the efficiency and the costs on that curve somewhere, somewhere in the middle I guess.

I guess I look at it as its the right long term strategy. It is the right long term thing to do. So we could leave all the locations on the old technology and the old systems and not integrate them. And that would be bad long term. And by integrating them you going to have upfront costs. But long term it is just the right thing to do for the business.

Sure, sure. All right. Stock buyback about you all mentioned you bought back what I think about little over 900, 000 shares or close to million shares. What -- how much do you have left on that and can you comment on your plans there. I mean obviously the stock is maybe 15 to 20% below where you were buying it before?

Yeah we don't comment on what price points we will buy the stock back, so I won't change that. But I think we got a little over $20 million. Will, you probably got the number in front of you?

Yeah, it is closer to $21 million remaining on our authorization.

21 million?

Shares available, that have been authorized.

Shares available. All right. All right. Thank you very much.

Okay. Thanks, Chris.

Thank you. Bye.

Thank you. And now [Dan Rudder with WHC].

Hey good morning to you guys.

Hey good morning, Dan.

Hi. Can you disclose what the interest rate is on the line of credit that you just signed?

Well it is sliding, depending on our leverage ratio, at the low end it would be LIBOR plus 47.5 basis points.

Okay, is there a gap?

Yeah, we'll never get to it. It based on the leverage ratio that are in there. And then our commitment fee is 7.5 bits for a commitment for unutilized funds.

Wonderful. It look to me like the gross margins in the US were up nicely, is that kind of a level that you think is attainable or was there some things that really kind of aligned into this quarter?

We're doing more volumes so that improves it, but as we open up more locations that will obviously knock it down, So it really depends on the rate that we open those 10 new locations in the year. But every time I bring those locations on, we cannibalize our existing locations. So again there is no new expenses, so no real new volume obviously and that will reduce margin, so I think its -- we're happy with where its out and there is -- my expectation would be that it flattens out. But we'll see what happens, simply because I know we're going to be adding those locations.

All right, that's helpful. Will, could you just repeat what you said about the CapEx, I can't write as quickly as you talk some times?

Over the quarter?

Yeah.

Sure, we had $38.3 million in CapEx for the quarter.

Okay, and real quickly, I think you brought that down or you gave out…?

Well, I didn't quantify, but I gave categories. We bought some land and we had some lease buyouts, we bought a plane. You recall we our sold a plane in Q3 of last year and replaced with another plane and the rest of it just general expansion improvements in our existing facilities.

Putting up new buildings, rocking stores that kind of thing.

Sure.

Okay, great. And Will, you also alluded to rising fuel cost, can you kind you kind of put that into some color for us in terms of what your…

Yeah, we're seeing upward pressure on our towing cost. We try to reduce tow zones, and we go through a lot of effort to be efficient in the selection of our towers, but all that can take us so far. We've got diesel going up to $3.5 to $4 bucks a gallon. It's going to have a negative impact on our cost of car, we can't quantify it, we just tell you what impact it will have.

Can you talk about what kind of percentage fuel expense typically is of the [yard costs}?

No.

Okay. All right, and last question I guess real quick. You've dabbled periodically with things in the public domain, maybe for VB2 and I'm curious if those thoughts you are taking a further back seat these days or has there anything that’s kind of maybe bubbled forward a bit in the relative sense?

I think we're sold on the fact that our model works best with VB2 in the vehicles on our possession and with that qualifier upfront, we're going to go after a lot of different market segments of business out there. But we're going to keep it in that model .We're not really interested in trying to offsite sell vehicles, so to speak. WE will try to bring those vehicles into our location where they can be inspected properly. We see picture taken and then allow for buyers, for their appraisers to come in look at those vehicles and assess the true value.

Wonderful. All right, thanks for time.

Okay, thanks Dan.

Thank you. And we'll take our next question from Jon Christensen with Kayne Anderson Rudnick.

Good morning.

Good morning Jon.

We talked little about VB2 and Jay you said five years old; it's hard to believe its that old?

Indeed.

Yeah, you are surprised as we are that you're continuing to see in the US specifically revenue per car that’s continuing to increase. What do you attribute that too?

Well, revenue per cars kind of go up based on the average selling price obviously. So if we can keep increase in the average selling price of the car then we'll generate a higher revenue per car. The other thing is that we can offer more services. So, international buyers for instants are very different than a local buyer. The local buyers don't pick their car by a day, they buy and pick it up and haul it 10 miles away. And the international buyer may buy 50 cars and then send the truck across the country over the next two weeks to pick that vehicle up. So we've been expanding a number of stores because we run out of storage capacity. We always thought storage as being a seller function. Today we look at storage very much so from a buyer and seller perspective. So we've got to store those cars before they go to sales, but once they go to sale, we may have to store a car for another two weeks, while the buyer deals with the logistics of getting that car moved to another location. Not to mention, I think we can do -- I know from my perspective, because we didn't track the international number at all that onetime. And so from my perspective I can't get amazed by the 28%. But we often forget about the interstate affect in that. It's not just the local audience but buyers from other states are bidding. And they need to deal to logistics of hauling the car maybe 200 miles or 300 miles. And so that has -- if I can offer more services, I'm using that as one example, but if I can offer more services to the buyers that generates more revenue too.

Okay. And you also a talked a little bit about opening new sites again in the United States, that as you open these sites to cannibalized existing sites? Tell me about, where we are in saturating the market in the United States.

You mean as far as market share.

Yes.

I would say, we're probably 35% to 40% of the market. Will do you?

Yeah I think the question is with respect to our sides.

Is that what you mean, not total market share.

Right. I am also talking about at what point do you have enough sites.

Locations?

Yes.

Well, I think we’ll add another 10 this year, and I think it will be entirely possible for us to do another 10 the year after. About somewhere around 125 to 150 would be the number, but it's obviously more than that. So, I had to guess for the [US] today I would say somewhere around 150 to 200 locations, would seem like the right number. I say that and we have two locations in Miami and we're looking for a third location in Miami, and we have three in Chicago already. We have two in Atlanta, we'll probably be opening a third. So just as you think you really got enough locations and you got cover to goes back to towing cost that Will talked about. And if you can be on the east, west and south side of the city, then you can reduce the hall, maybe your average tow-[goes] from 60 miles to 30. Reduce the cost for your customers, and then pick the cars up quicker. So, I don’t tend to put too many limits on how many locations we have. It's entirely possible, we could end up with 200 to service the US.

Great, thank you.

Okay. Thank you.

Thank you. And Mr. [Darrel Norian with BlackRock].

Hi, it's Garo Norian.

Hi, Garo.

Two questions around share repurchase. How do you philosophically or conceptionally think about your allocating capital, share repurchase versus other alternatives.

Well, I think we look at the turn we get from purchasing our own stock versus the return we get from investing in our business versus the return we get from acquiring other companies, and then we do that as a Board. We make that as a Board's decision and then go forward whether or not we want to buy stock back.

It's just a fairly kind of methodical return based analysis as opposed to other company's that kind of say well if I can't find acquisition, then it kind of becomes a default?

No we don't do it that way.

Okay.

I'll tell you that that right now. We don't have a problem with building cash, I think at one point we had nearly $300 million in cash on the balance sheet, and I think that's proof. We're not opposed to building a larger sum of cash if that need to be the case. But it's definitely not a kind of traditional to that, it's more of what's the best use of the cash at that time.

Okay. And then just more nuts and bolts, I mean when are you guys allowed to go back into the market?

Next week.

Okay. Great, thank you.

You bet.

Thank you. And we will now take our final question from Edward Hemmelgarn with Shaker Investments.

Thanks. I just had a question. Can you go through the seasonality again in the UK? Which quarter are going be the --

I don't know if it's any different than the US. As soon as daylight savings time occurs you are lose an hour of daylight, and you will see accidents start racking up much quicker. And then as we go through winter, you've obviously got lot more rain and ice and then as you come out of winter you start to get more daylight and better weather and so the number of accidents tend to go down. So we've always looked at it as kind of February peak in terms of accidents coming in, and then kind of February, March, April, May you start getting less volume but you're selling off those units.

So you would expect that like in US the April quarter is going to be your biggest sales quarter when you hit normalcy?

Yeah I think that's fair, I don't think its any different. I compare the UK to kind of California. I don’t compare it to the eat cost because the east coast gets much rougher weather. Much more snow and more extreme weather, but California just tends to rain through the whole winter. And that’s how the UK is; you just tend to get a lot of rain. I was there last week I think it rained 3 out of 5 days. It's just, you tend to get a lot more, and I got to go through an earthquake. And I can tell you in all the years I've lived in California I've never felt an earthquake. So that was interesting.

Right.

But, yeah I think it's very similar to that marketplace. So you'll see from a seasonality perspective, you'll see the volumes increase up until about February and then yeah, you'll be selling those units off February, March, and April.

So January you would expect to be your lowest volume quarter in terms of revenues?

Well, it will be this time, especially because of the integration.

Seeing at the sales, that I mean in the future would you expect that to be the case too or it's not as. I mean

It depends if you get a new business, doesn't it? So, if you sign up a brand new account in August, September, October, you are going to start selling those vehicles off in November, December, January and that would break the whole theory. So as long as you don’t get new business that’s fine.

Okay. I appreciate it.

Okay. You are welcome. Thanks.

Thank you. And we have no further questions at this time. Mr. Adair, I'd like to turn the conference back over to you for any closing or concluding remarks.

All right. Thank you very much Catherine, and thank you to everyone out there that partook and listened to the call today. We look forward to reporting Q3 on the next call. Have a great week. Thanks. Bye, bye.

Thank you. And this does conclude our presentation for today. We thank you for your participation and have a great afternoon.