Copart, Inc. (CPRT) Q2 2014 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to Copart, Inc. Q2 Fiscal 2014 Earnings Call. Just a reminder, today's conference is being recorded. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart, Inc. Please go ahead, sir.

Thank you, David. Good morning, everyone. It's my pleasure to welcome you to our second quarter conference call for fiscal '14. I'm going to turn it over to Will Franklin, who will do Safe Harbor, go through his prepared remarks, turn it back to me for some brief remarks, and then we'll do Q&A. Will?

Thank you, Jay, and good morning, everyone. Before we begin our comments, I would like to remind everyone on the call that our remarks will contain forward-looking statements, including statements concerning our views of trends in our business. These statements are neither promises nor guarantees and are subject to certain risks and uncertainties that could cause the final results to differ substantially from those projected or implied by our statements and comments. The company expressly disclaims any obligation to update or revise these statements and comments. For a more complete discussion of the risks that could affect our business, please review the management's discussion and analysis and the risk factors contained in our 10-Q, 10-K and other SEC filings. With that, I'll begin with a few brief comments about the financial results of our quarter. Total revenue grew by $20.2 million. Purchased car revenue grew by $1.4 million, driven primarily by growth in Europe. Service revenue increased by $18.8 million. The increase resulted from growth in our international operations, which included the acquisitions in Germany, Spain, United Arab Emirates and Brazil of approximately $1.1 million; growth in the U.K. of $5.2 million, which was tied to recent market share gains; and $12.5 million in Copart U.S. In the second quarter of last fiscal year, we had an additional extraordinary revenue as a result of Hurricane Sandy. Excluding the Sandy impact, we calculate Copart U.S. service revenue grew by $29.3 million or 16.5%. Total worldwide sales volume increased 10.9%. In the U.S., total volume increased 10.1%. Excluding the Sandy impact, total U.S. sales volume grew by 18.3%. In the U.K., volume increased over 22%. In the U.S., on a same-store sales basis and excluding the impact of Hurricane Sandy, volume grew by almost 8%, as we are seeing growth in both our market share, as well as growth in overall market size, as salvage frequency, we believe, is increasing. In the U.K., our same-store sales volume increased 22%, as all growth came from market share wins and market growth. In North America, noninsurance car volume grew by over 22% and represented 19.5% of the total volume. Sales continues to lag behind the build in inventory. On a year-over-year basis, our North America inventory grew by 14.2%. Excluding the Sandy impact, it grew by 27.3%. In the U.K., our inventory grew by almost 17%. Yard operation expenses were up $5.3 million. The growth was driven by increased volume and, excluding the impact of Sandy, which added approximately $20 million in extraordinary cost in our results in the same quarter last year, we saw an increase in overall cost to process each car. The growth in processing costs, excluding Sandy, were driven by: The growth in our international activity outside of the U.K., as these operations are in their developmental stages without the benefit of scale; the additional cost associated with the QCSA migration with its inefficiencies and which included lease termination, severance and relocation costs of $2.2 million; and a general increase in our subhaul and employee cost. The growth in employee costs were led primarily by increased medical insurance cost. We expect to continue to rationalize existing QCSA cost as we adopt the most efficient plan for processing its volume. We expect lease termination, relocation and severance cost to continue into our fourth quarter. General and administrative costs grew by $6.3 million over the same quarter last year. The increase was due primarily to additional costs tied to our international expansion, which totaled $900,000 and which will continue; a $3.7 million increase associated with the QCSA acquisition, of which $500,000 was for severance and relocation. These restructuring costs will continue into our third and fourth quarters. We expect the QCSA general and administrative cost to be approximately $1.5 million per quarter when fully rationalized, and approximately $1.8 million in relocation and severance costs associated with relocation of our technology group from California to Texas. In total, we incurred approximately $4.5 million in severance, lease termination and relocation costs, of which $2.2 million is reflected in our yard fleet cost and $2.3 million was reflected in our G&A cost for the quarter. We ended the quarter with over $46 million in cash. We expended approximately $30 million for capital assets, primarily for the expansion of existing facilities to accommodate the growth in inventory. Also included in the $30 million is the buyout of 2 of our existing leases. Finally, we expended approximately $14 million for 2 acquisitions. During the quarter, we had no open market share repurchases. We have almost $48 million remaining in our current repurchase authorization. That concludes my comments. I'll now turn the call back over to Jay Adair for more color on the quarter.

Thank you, Will. Again, good morning, everyone. As you can see, we've had a really, really big year and a really big quarter. The first thing I'll talk about this morning, really, is just inventory builds, but the company would typically see winter inventory peaking some time in mid-January. We have peaked right now at February 12. And as of Monday, the 24th, that inventory is down about 1% from the peak. So we would typically expect to be down significantly, but we just continue to see large, large volume. The volume that was assigned Monday and Tuesday this week already far away exceeds what we would normally be doing. So it's a combination, as Will already discussed, of volume coming in from increasing market share, from increasing market size, from QCSA and from weather. And I'm sure there will be some questions on the breakout of those mixes. Some of it is easy to tell because we had the acquisition of QCSA. Some of it's very, very difficult to tell, like weather and market size or market size growth. We did see some large improvements in market share last year as the industry consolidated more towards 2 players. And we saw a number of smaller companies in the industry lose business to both us and our competitor. So it's been a good year from that perspective. It's also been a very big year for transition. So as Will discussed, we have completely moved now our operations from California, and we are completely focused on getting the team that's running in Dallas at optimal performance. So we are really enjoying having everybody in one building again and having that transition that we talked about back in '11 with Project Overdrive behind us. So really, when I think about where we're going to be in this quarter, we're going to have record number of units being sold, record revenues with respect to same quarter a year ago, even though we had Sandy involved. And then Q4 is just going to be a very, very big, big quarter as well because eventually, this inventory that we've got does have to go out. We've got existing locations of 183 locations. Currently, we acquired QCSA back in May with 39 locations. I wanted to give you an update on that. We added, out of the 39 locations, we have taken advantage of using 20 of those locations. But in doing that, we only have 11 new stores. And the way that we handle that, basically, was we turned 9 of those locations into sublots. These are yards that are, for instance, 10 acres where we take that facility, we keep that facility, we store cars at that facility, but we don't put a building on it, we don't staff it as a full-on operating facility with all the costs associated. So we've got a number of sublots across the company at various locations as we expand. And often, you'll see CapEx for acquired land and improvement of that land, but we don't necessarily add additional locations, and that's because we handle that through subplot expansions. And sometimes, you do that through adjacent expansion of property right next to our yard. So out of the 39 locations, we utilized 20 stores, 20 locations. 11 of those are new locations for the company, 9 are sublots and roughly 19 of those locations have been eliminated. So we've gone through the process of exiting leases, moving cars and doing that. There's a lot of costs in this quarter and next quarter associated with that transformation. And then we've also got the process of moving the home office functionality to Copart and eliminating the HQ for QCSA. That business or that division, that HQ is reduced to about 20%, from 100% in May in this quarter. So there's a little bit that'll trail into Q3 and a small bit that'll trail into Q4, both in G&A and in operational expense. But we expect to have the integration of QCSA completed by the end of the fiscal year. Also in the quarter, we made an acquisition in Montréal, Canada, bringing our total locations in Canada now to 5. And that really concludes my remarks. I'm going to go ahead and open it up for questions because I'm sure there'll be a number of questions around the growth that we've seen in the quarter. David?

[Operator Instructions] Our first question comes from Bill Armstrong with CL King & Associates. William R. Armstrong - CL King & Associates, Inc., Research Division: Would you happen to have the same-store inventory growth for North America? That might clarify things a little bit for us.

It's a little -- it's in excess of the same-store sales. It's around 10%, I believe. But let me get that number and confirm it before we exit the call. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay. And to clarify that inventory, that's not balance sheet inventory. That's just the number of vehicles you have in your lots, right, whether they're owned or whether -- and most of them, obviously, being consigned.

That's correct. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay. Jay, just to clarify...

Bill, I've got that number. It's closer to 14% on a same-store sales basis. And what I was referring the 10% -- a part of that 14% growth is attributable to delayed cycle time, processing time. So our days in inventory have increased. So the part of that growth that's ascribed to -- well, the market share growth is about 10%, 10.5%. William R. Armstrong - CL King & Associates, Inc., Research Division: I see, okay. And on QCSA, just so I have this straight, you bought 39 locations, 19 have been eliminated, 9 have been turned into sublots and then 11 are just operating as they were? Is that -- do I have that right?

It's actual new stores. So we were able, in some scenarios, to take existing Copart -- I'll give you Sacramento as a prime example. They had a location in Sac, we had location in Sac. We were able to move all of that business over to that location and not have an additional store and not need an additional sublot. So that would be the ones where we've actually done away with that property that we had in Sacramento. So 19 locations have been given back to landlords, 11 locations are new actual yards for the company and 9 of the locations we kept because we needed capacity, we needed the land and they have been turned into sublots.

Our next question comes from Bob Labick with CJS Securities.

I wanted to start on the IT side. And maybe you could just remind us the scope of the projects and the timing for the projects you're working on. I'm talking more about the outsourcing of your internal ERP and then also about moving to VB3 in foreign languages and stuff like that. Just give us a sense of the goals there, the costs you have ahead of you and then the future benefits you expect to get when these are all wrapped up.

Sure. Well, that project started at the beginning of Overdrive. There was a delay that was caused because of the move, making the decision to move the company. There was another delay that was caused by then finally moving all of the technology team to Dallas. So I hate hindsight because I didn't have hindsight 3 years ago. But in hindsight, I probably would have just moved everybody up front and not put off that move. But that team has been successful in delivering the new third-generation technology on the mobile platform, the new third-gen VB3 technology on copart.com, on our new website. That website has been in beta for roughly 6 months. If you go back to Copart 10 years ago, we would have launched a new website and put it in, and we just can't do that kind of stuff today. We do way too much volume and have too much -- too many transactions to just kind of hotshot something in. So that's been in beta. We have modified, my goodness, over 100 new things on the site in the last 6 months, and we're coming out of beta now. We would expect to close beta down next month. So we would expect that our current website be replaced in Q3, no later than Q4, with the new website. And that new website has multi-layers [ph], so a number of new functions, third-generation option technology, multi-language capabilities, much more user-friendly. I would just encourage you to go to both sites, and it pops. It's very obvious why we're rolling out the new site. It's a much better product. So that will be taking place this fiscal year. There'll be some enhancements coming in the new fiscal year to both mobile and to copart.com, and that will continue. It's written in the most modern language, in the most modern architecture. And so it really is a state-of-the-art system. So that's exciting. The ERP side, we will be launching -- our expectation is to launch a yard in this calendar year, not fiscal, but calendar year, and have that system in place. And then we will be rolling 1 yard at a time, the same way that we implemented the new system back in '97. We're not going to do a hard cut over and convert 183 locations, and 6 or 7 countries to 1 system. So we'll be going 1 yard at a time. And having costs associated with that, you obviously have to carry the cost of a legacy system and the new system as you do it. But we feel that's the right way to handle a transition like that. So there won't be any material improvements to operating costs in the next -- in this fiscal year or the next fiscal year with respect to technology, as we're rolling that technology in and then transferring from legacy to the new system, the new ERP system. And then, what you'll see is the elimination of duplicate costs in having a beta website, in duplicate costs of having a legacy system and a new operating system. And that, I would suspect, will happen fiscal '16. So we haven't really -- right now, our focus is getting Quad Cities and DVAA integrated. We will have that done by the end of the year. As I said, we've really already done QCSA. That's integrated with the small bits that we've got to do on the G&A front, and then DVAA will come in towards the end of the fiscal year. So that's been the focus this last year because of that large acquisition we made in May, also the large market share gains we've been spending a lot on expanding yards, existing locations and integrating all of these facilities that we've talked about because volumes are up significantly, as you heard, from inventory and current sales. I mean, the fact that we're selling more volume and higher revenues this year when we had Hurricane Sandy a year ago, if you'd asked me that on a call a year ago, I would've said, "That's not going to happen." And for us to be in that position, that was definitely unexpected. So our focus has been on existing volumes, existing customers, integrations of those companies, transformation of -- or transition of the company from California to Dallas, and then this transformation piece of technology. And that has been delayed a bit and -- but it will be coming. So you can expect us to talk about it in fiscal '15, as we're not dealing with integrations and such, we'll talk about technology transformation in '15 and fiscal '16.

And Jay, let me add another comment on that issue. So we'll be utilizing that ERP system for not only operations, but for our financial reporting. And the rollout of those 2 functions are not necessarily linked. And in fact, we've had a successful installation of the financial system, SAP financials in Germany. And we expect to be rolling that out during the course of the next 4 quarters.

Okay, great. That was very helpful color. I appreciate that. And then just one more question. Back to the volume increase and the inventory increase, you talked about for the last couple of quarters the cycle time difference. Has there been any change there? Or do you expect that to catch back up at some point? Have you identified what has caused it? Or can you just put a little more color around that, and when you think you'll get more in sync of bringing cars in and getting them out the same pace you used to?

Well, they really are. The cycle times are up, but they're not up -- I could -- we can look that up while we're sitting here chatting and come back to you on the call. I want to tell you, they're not up in some huge, huge way. But I'll quantify it for you here in a minute by looking it up. The vast majority of the volume increase or the inventory increase is assignments, where we're doing record assignments through November, December, January and now, February. The numbers I looked at from Monday and Tuesday are way ahead of what we thought we'd be seeing by now. Volume should be dropping off, inventory should be selling. That's the normal part of the business, and we're not seeing that right now. We're just seeing a continued increase in volume. And so we are selling the cars. We had a record month in January. But we also had a record inventory build in January because so many assignments are coming in. So let me quantify it for you in a minute what the cycle time change has been so that you can get a feel for that. But I'm just telling you, the majority of the inventory build is volume.

Our next question comes from Ryan Brinkman with JPMorgan. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: I wanted to focus on the 27.3% year-over-year increase in inventories x Sandy because I know that's a very large increase and also that it has the potential to depress your earnings during the quarter, but boost your earnings in subsequent quarters. So firstly, I presume that 27.3% increase includes the impact of -- yes, can you hear me?

Yes. We just -- we got -- I'm sorry, we got chatting a little bit on the very beginning when you [indiscernible], so I wanted to make sure we were talking to the right guy. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Yes, yes. No, sure. I presume the 27.3% increase includes the impact of QCSA. Can you say how much inventory would have increased x QCSA?

Well, we did. It was that same-store sales inventory growth asked earlier, which was about between 10%, 11%. And... Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: And do you know -- yes.

Excluding the impact, at least my calculations of the impact of cycle time and for QCSA, and excluding Sandy, it's between 10%, 11%. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay. So still very strong. Do you know how much the overall industry might have increased during that period of time x Sandy?

That's the question we knew we'd get, and it's very hard to put your hands around that. The inventory is increasing because the average age of vehicles is increasing. So the number of units that are totaling, we believe, is going up. And we believe it's going up because vehicles are aging, but it's also going up right now because of weather. The U.S. is seeing some significant weather, and that's creating an environment where we're getting volumes way late in the year. To peak on February 12, it just doesn't happen. We peak in January. So I can just tell you that Q3 and Q4 are going to have record, record revenues associated with selling off that inventory. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay. So maybe we can't say how much it rose, but it's safe to conclude that it rose substantially less than 10% to 11%.

What's the conclusion -- what's the question you just asked? What... Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: We may not able to say how much the overall industry rose, but it's safe to say it rose substantially less than 10% to 11%.

I think that's safe. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Yes. You mentioned that there was this salvage auction market share consolidation in 2013. Can you just kind of state sort of the reasons why the industry consolidated in 2013 benefiting you and your primary competitor? Was this due to some sort of overarching trend or would it be the purposeful -- go ahead.

Well, no, I was just going to answer for you. I mean, there's just a benefit to having scale in this business. There's a benefit with respect to pricing, there's a benefit with respect to returns. I mean, I was looking at auctions yesterday, we got 1,500 members watching and bidding on the auctions. I mean, you're just -- you're not going to get 1,500 people to show up to a location when you're a single operator. So it's just a benefit of being the portal. You're going to go find your product at the biggest players in the market. And when you're an independent small guy, you're just not going to -- you're going to struggle to get the returns and you're not going to have any scale. I mean, we're talking about investing tens of millions of dollars in technology annually. And the amount we invest in technology in a quarter is more than these guys generate in revenue in a year. So how do you -- that's not a boastful statement by any stretch, that's just a factual statement. How do you compete with the investment and generating the technology, the returns and then being competitive on price? It becomes very, very difficult to do that. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Yes. So that seems more like a longer-term overarching trend, but was there maybe a purposeful scaling back by a specific competitor or an exit of a competitor that benefited you in sort of a step change [indiscernible]?

Really, there was a number of RFPs that took place last year. And we gained in those RFPs and candidly, our competitor gained in those RFPs. It was much more a consolidation of the market. And there were a number of RFPs that took place with large carriers, with large suppliers. And so that's just the reality of what happened. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay. And are you able to say when in the year that you began to benefit from this? Because I'm trying to just sort of figure out when you'll anniversarize the increase for modeling purposes.

No, I understand. No, it happened. There were a number of RFPs that took place, I'm thinking over 5 off the top of my head, and they happened throughout the year. So -- and part of it is that, part of it is the weather, part of it is the improvement in the market. The best indicator to me of what we're going to be selling in the future is just look at accounts receivable. And you can see, sequentially, for the last 8 quarters, what's happened with accounts receivable for the company, and it's just gone up and up and up as we're sitting on a record number of cars right now, and those cars have to sell. They're starting to sell. Monday and Tuesday, we saw record sales. So they're starting to sell now and they're going to be going out in the third and the fourth quarter. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay, great. And then just very last question. Is there anything you can sort of say about your newer operations outside the U.S. and the United Kingdom during the quarter outside North America and the United Kingdom? I know after you made your initial acquisition of Universal in the U.K., you were sort of on the ground, you learned the markets and then you decided you wanted to fill in, in different areas. I mean, as you're -- on the ground in those markets now, are you sort of learning anything different or do you want to [indiscernible]?

It's the same. It's the same strategy that we deployed in the U.K. We entered the U.K. '07 and you saw a good 3 years before we really started to acquire and integrate and implement our process. So that's the same kind of scenario that we've got in these other markets. We've entered them in the last year, and it will be a few years before we see us going out and building the network, doing the things that we need to do, no different than the U.K. But as you also heard from the numbers, the U.K. is a booming market for us as is the U.S. So these other markets, we suspect, they will be similar. And as we go out and we start to deploy our suite of services, we expect to be successful in those markets the same way we have in the U.S. and the U.K.

Our next question comes from Bret Jordan with BB&T Capital Markets. Bret David Jordan - BB&T Capital Markets, Research Division: A couple of quick questions. If we look at the comp inventory growth, did it grow sequentially in the quarter, I guess, as we take out Sandy and new points-of-sale?

Yes, it always grows in our second quarter. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. But it's -- and I guess as we look at the slowing processing and that's -- and I might have missed this earlier, is that related to the high rate of inventory growth, just we would normalize the processing pace as we decelerate inventory growth?

What slowing process are you referring to? Bret David Jordan - BB&T Capital Markets, Research Division: The cycle time, that you were discussing earlier, being somewhat slower.

Yes, there's a lot of reasons for the increase in cycle time. But a lot of it is just because of the increased volume and the limited resources that the interested companies had to clear the cars. So at some point, they'll catch up with the resources to the volume. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. And then one last question on Quad City. Is the integration of Quad City taking longer than expected? I guess, as we're looking at your spending continuing into the fourth quarter, is that something that was originally factored into your model? Or is that a slower process than had been expected?

No, not at all. It's going perfectly just as we planned. We said in the last quarter that there'd be costs associated with QCSA in Q2 and Q3, and that is still the case. There's going to be the majority of the expenses will be Q2 and Q3, and we won't be discussing in Q4 any of the nonrecurring expenses. But there will be a tail. There will be some nonrecurring expense in Q4. It won't be a perfectly clean quarter like Q1. That was the point of the opening remarks and the press release. Just to let you know, there'd be some impact in Q4, but it's relatively small compared to Q2 and Q3.

Our next question comes from John Lawrence with Stephens.

Could you give us -- Jay, to follow that question, as far as last quarter, you gave us the buckets of how those charges would fall and when they would start rolling off. Will, you just mentioned on Quad City's on the other sort of systems related, does there seem that there's a little bit of extension on that timeframe? And could you quantify that just a little bit, please?

Well, it's difficult to quantify it on a quarterly basis because they're contingent on certain events, particularly with the severance and the relocation costs. So I think we'll just leave it at what we said so far, is that we've gone through the majority of those costs and we've identified them in the last 2 quarters. But we'll have some tail in our third quarter and perhaps into our fourth. But we would not expect them to be near the size that we've incurred so far.

Yes. And secondly, you've mentioned in the last couple of quarters about towing costs. Anything there on some of these contracts that have -- with all this volume.

So, yes, towing goes up when you have a lot of volume like this. I mean, that shows that, that's a normal part of the business. If tomorrow the volumes halved -- which that can happen. But if tomorrow the volumes halved, you'd have a lot more towers than you have cars and the cost of towing would come down. When the volume goes up so dramatically, you've got towers working a lot harder and then you've got to bring new towers in, so your cost could go up. So part of it -- a big part of it is just the volume increase.

Right. And last question from me...

And I want to make sure we're clear on something, it's not going up materially. A material increase in towing cost would be Hurricane Sandy. Hurricane Sandy, we were paying out silly rates to get cars picked up because you flood the Northeast with 80,000 cars in a month, and it's a market that does 80,000 cars in 2 years. So that kind of experience is what we saw a year ago. What we're seeing now is just a modest increase in cost as we see increased volume.

Okay. And the last question, any thoughts or can you comment at all on stock buyback here?

No, no comments at this time.

Our next question comes from Gary Prestopino with Barrington Research.

A lot of my questions have been answered. But Will, do you have in front of you what the revenues you derived last year in Q3 from Sandy, as well as Q4?

I don't have -- no, I don't have it in front of me, but I can provide that offline.

Okay, I'll circle back to you. And then Jay, any comments on what's going on with returns and pricing in the market? I mean, the Manheim index has come down a little bit. We're starting to hear that used car values are slipping, albeit not that dramatically. But are you still deriving record return on salvage at this juncture?

Yes. Returns started to dip towards the end of the calendar year. They've gone up week after week after week in a row since really exiting the holidays. So from the beginning of the year to where we're at today, we keep seeing record weeks. This week, again, is producing record return on pricing. So that is indicative of the last 4 years. '08, we saw a dramatic drop. We know what happened in '08. '09 was a year of trying to recovery -- of trying to recover. And then since 2010, we have seen this increase, this uptick in returns that happens around February. And this year, it started in January. And again, the sales we had this week have continued to be higher -- the highest returns we've seen all year.

Okay. And then, do you feel that -- this is basically an oligopoly now at this point, but do you feel there's further consolidation opportunities for you in terms of whatever little is left within the industry being divvied up between the 2 major players?

I want to make sure I understand the question. We were passing some notes when you started on that...

I'll repeat it again. Just in the terms of further consolidation, I mean, one large competitor lost some business on RFPs. I mean, as you're talking to the insurance companies, are they more in tune with dealing with companies like yourself or your larger competitor versus being with these smaller regional or 2-site, 1-site players that are local?

Yes, there's no question that, that's the case. You just -- as I said in some of the earlier remarks, when you're a small player in this market, you just can't get the scale. You don't have the revenues to generate or to invest in technology, you don't have the ability to generate in facility improvements, you don't have the ability to bring the buyers in. You can't get enough eyes to look at your product, you can't generate the returns. So yes, by and large, there may be a tiny, tiny contingent of clients that don't see that. But I'm not aware of who they are. Everybody recognizes at this point that scale is critical to generating returns and having the best products.

Could you just maybe give us a comment on, if you could, given over the past 1.5 years, 2 years what's happened with the industry, just how much you have increased your buyer base in salvage? Is that possible?

Yes. I can run next door real quick and get some of those numbers. I don't have them off the top of my head. And we're trying to get the cycle time number for, I think, Bob asked that one earlier. Let me hold on that and see if we can't get that before the call ends and talk about growth in number. We're selling -- we're just selling -- I know off the top of my head, we're just selling a lot more product to a much more distributed buyer base, meaning, buyers that haven't been here a year or less than 2 years. So we'll find out what that is and I'll announce that on the call.

Gary, I've got the answer to your previous question about Sandy revenue. So in Q3, it was about $12.7 million. Q4 is about $2.7 million.

Our next question comes from John Healy with Northcoast Research.

I wanted to ask about the -- yes.

John, if I could just touch on one of these points before we get into your question. So we talked about cycle time and, in fact, the cycle times increased. We need -- we have to get another data point, but I'll give this one out. Our cycle time right now is the same as the cycle time was year-to-date for the company, so year-to-date 2013. So the cycle time that we're running right now is the same for that. That number is a little artificially high because of Sandy. So I'm going to find out what our cycle time was in Sandy, find out what our cycle time was mid-year, and then we'll get that data out to you guys.

I wanted to ask a little bit about the vehicle sales line. The revenue growth there kind of slowed a little bit. And I was wondering, I guess 2 parts to that, was that by design? And potentially, if I take some of your other comments, it looks like you invested a lot into real estate this quarter and including kind of converting some of the QCSA operations, are we at a point where the company needs to undergo more investments into yards? You've garnered share and the industry's increasing. And might we expect that CapEx number to be somewhat higher than we've seen over the next few quarters.

Yes. So right now, as we're sitting right now in this quarter, we're not spending a lot on CapEx because a lot of that was deployed in the second quarter. But we have authorized the improvement of a dozen facilities in the fourth quarter and the next fiscal year. I wouldn't say it's abnormally high from what I've looked at. We expect this inventory to come out. We expect this inventory to sell off, and that would give us further capacity. So I don't -- look, as I'm sitting here looking at the business today, I don't see some huge need to spend a lot of capital on facilities, barring the fact that the industry starts to grow at a much faster rate. So right now, we know the industry is growing because cars are older. But I think the majority of what we're seeing right now is weather-related. But if that starts to -- in the next year, we start to see the industry growing at a higher rate, then we're going to have more volume coming in, we're going to need more capacity. And if that happens, we'll discuss it. And let you guys know what kind of -- and that's a good thing. I hope that happens. If we end up having to deploy capital expanding 50 locations, because we've got that kind of volume coming up, that would be a dramatic improvement for the company.

I would agree. And I just wanted to ask -- just follow up on the vehicle sales line. Was there anything to call out there that caused the growth rate to come down a bit there?

Caused the growth rate on...

Purchased car revenue. No, it's just the normal fluctuations. It was primarily in North America. So we had a reduction at the Copart level, an increase in purchased car revenue that we inherited from QCSA, and they pretty much mitigated each other. So what that left us with was some growth out of -- primarily Spain.

Okay. And I just wanted to ask, I might have missed it, but is there a way you guys could quantify just how much revenue you got from QCSA this quarter and maybe what the operating profit contribution was, even including some of the severance and integration costs?

No. I think we'll probably stay away from that because QCSA, frankly, is starting to lose identity. We're starting to process a lot of its cost in 2 different systems. And to give you a number would be to make some assumptions that I don't think we want to do in a call.

Let me add a little color on that as well. We have integrated the QCSA team into Copart. And we've got some really, really fantastic people now that are part of our sales group, our maintenance group, our operations group. So we're really happy about that component of it. The costs that we're eliminating here are not the value add, they're the processing costs of moving a vehicle a long distance into a facility when you've got -- they may have had a facility that was 80 miles away and Copart's 20 miles away. So the cost that we're ripping out of the system are all wasted duplicate costs like that, paying rent on a facility when we already have a facility, towing a car too far. There's some lack of scale in having duplicate facilities that you get when you have one store. But all the great people that came through the acquisition, most of them -- most of those folks have relocated to Dallas. And those that have not are still in Iowa, which was the home office. We've kept that facility as a processing center for the company. And in fact, we've staffed up that facility and moved some jobs into that market as well. So from that perspective, we're really, really happy. We got the integration where we want it, we've got people now on our team that are bringing value, things that QCSA did that we feel were better and we've implemented those at Copart. And so it's becoming the Copart brand, but the Copart brand is shifting a little more towards what the QCSA brand was like, if that makes any sense.

[Operator Instructions] Our next question comes from Craig Kennison with Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Many of the quarterly-related questions have been taken. So Jay, maybe I'll switch into some longer-term questions. There are certainly some big trends related to industry consolidation, the aging vehicle population, even accident avoidance technology. I'm curious what you think, 5 years from now, all of those trends mean for industry volume and your share of it.

Yes. We've talked so much about that trying to get our hands around it. I've even shared with some CEOs in the body shop industry, some of the large body shop groups and the CEO of LKQ. And so we've all tried to understand what we think it means for the market. In the interim, we just don't believe it has a negative effect. I clearly think having the beepers and backing up your car and you've got a camera on your car, stops you from bumping into things potentially. But of course, those aren't total loss vehicles. And when I talked to the body shops, they're doing record volume. And that may just be the consolidation of the industry moving more to MSOs. But I just don't see it, Craig. I don't see -- I just don't see a big reduction in vehicles, especially since it's going to take a number of years for those to get into play. And then right now, we're just not seeing that, that stops total loss frequency. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And then, how open are you to considering some nonautomotive categories for your services?

Well, I'll give you the cycle time numbers so you have them. And I'll put some color around this so you get it. So in March, our average cycle time was 59 days, and that was a high because of all those Hurricane Sandy cars that came in. By June, we had an average of 59 days. So why didn't it drop off? Well, there's a lot more volume coming in towards the middle of the year as a lot of these consolidations were taking place. And as we sit here today, it's 62 days, so we've got a good 5%, if you will, increase in cycle time, moving from 59 to 62 days today. And that's -- there's no doubt that number is coming off this quarter. And I don't -- really don't want to get into a habit of every call talking about cycle times. The question came up and we responded. Of course, we're running to go get the data to do it on the call. I really don't want to get into cycle times. I just wanted to show you it doesn't move that much. That's why I believe Will said 14% is probably 11%, and that's the math. That's how it works out. So the reality is cycle times don't go from 60 to 90. That doesn't happen. They go from 59 to 62. But we are talking about hundreds of thousands of cars that we have on the ground right now. And when you move something 5%, it's a lot of cars. And every car costs about $1,000. That's how we think about it. We've got revenue associated with the car, all the advances associated with the car, all the costs associated. So when we sell these cars off, we're going to be generating a lot of cash in Q3 and Q4. So I apologize, I wanted to get that out. Craig, what was the question again? Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: I'm just curious, outside of salvage, how open are you to pursuing growth in some non-salvage automotive categories or even getting outside of automotive altogether in terms of the auction services you provide?

Well, we provide a lot of growth in the automotive non-salvage. Will disclosed that number in his opening remarks, so we'll continue to do that. That's been a big boom for us. And as we've grown over the last 4 years with units, some major suppliers that chose Copart to go 100% with their business, consolidation in the marketplace generally between 2 players, all that has caused growth and yet we've been pretty consistent about maintaining our percentage of non-insurance volumes. So we're going to continue to go down that path. We've got a great team that are working -- that work every day in the growth of that sector. We work already, work non-auto. I was watching an auction yesterday, we were selling a number of 40-foot trailers at one of our locations. So when it comes to large equipment, Crashed Toys that came to us through QCSA, the selling of jet skis and motorcycles and all the fun stuff, the fun vehicles like that or units, that's already a big growth for us. So I don't know if you're specifically asking another question or if you just weren't aware that we were growing in those sectors. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: I'm definitely aware of what you're doing, especially on the non-salvage side. I was just curious about thinking more broadly as some of these salvage trends unfold over, let's say, the next decade even.

Yes. I would say, what you're going to ask, where is our focus? Besides all that, that I just mentioned, we are focused right now this year on completing the integration of QCSA and DVAA and Crashed Toys into Copart. We are focused on finishing up -- everybody's moved out of California, not everybody's been -- some of the people didn't move, not everyone's been rehired. So we're finishing up the recruiting process here in the home office. And then we're expanding yards and deploying capital right now to make sure we have volume because there are so many vehicles. We're sitting on damn near 50% more cars than we did 2 years ago. I mean, that's just unbelievable volume to be up that much and that's -- we've got more cars than we did when we had Hurricane Sandy, so like, wow. So we are focused on making sure we've got capacity, service and all those levels up. And then in the next year, the calls will be -- I suspect the calls will be very focused around technology discussions as we are deploying some of those new technology platforms in the next fiscal year. We'll be updating you on how we're doing in that space.

At this time, we have no other questioners in the queue.

All right. Thank you, David. Again, thanks to everyone for coming in the call, and we look forward to reporting on Q3 when we sell off this inventory.