A. Jayson Adair - Chief Executive Officer and Director William E. Franklin - Chief Financial Officer, Principal Accounting Officer and Senior Vice President of Finance Vincent W. Mitz - President and Director

Robert Labick - CJS Securities, Inc. Scott L. Stember - Sidoti & Company, LLC Bret David Jordan - BB&T Capital Markets, Research Division William R. Armstrong - CL King & Associates, Inc., Research Division Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division Gary F. Prestopino - Barrington Research Associates, Inc., Research Division

Good day, everyone, and welcome to the Copart, Inc. Third Quarter Physical (sic) [Fiscal] 2013 Earnings Conference Call. As a reminder, today's call is being recorded. For opening remarks and introductions, I'd like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart, Inc. Please go ahead, sir. A. Jayson Adair: Yes, thank you. Good morning. As you can tell, I'm a little hoarse from a pretty heavy week of talking a little too much. So this morning, I'm going to turn it over to Will Franklin who will go through his prepared remarks and then he'll turn it back over to me. I'll go through some of the stuff on our deal and then I want to point out as well, I've got Vinny Mitz who is our President, on the call today to answer some of the questions because as you can tell, I need to let me my voice rest a little bit. So with that, I'm going to turn it over to Will. Thank you. William E. Franklin: All right. Thank you, Jay, and good morning, everyone. Before we begin our comments, I'd like to remind everyone on the call that our remarks will contain forward-looking statements, including statements concerning our views of trends in our business. These statements are neither promises nor guarantees and are subject to certain risk and uncertainties that could cause 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 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 to give some comments about our financial results for the quarter. Total revenue grew by $33.5 million. Vehicle sales revenue grew by $9.7 million. About half of the increase came from growth and purchased car activity in North America. The balance came from changes in mix in the U.K. Service revenue increased by $23.8 million. We estimate incremental Sandy volume represented $12.8 million of that increase. The balance came primarily from increased volume from market wins and volume from growth in the overall salvage market. In North America, revenue grew by over 13% -- excuse me, volume grew by over 13%. Approximately half of that came from Sandy. We estimate that approximately 90% of the incremental Sandy volume was sold by the end of the quarter. Despite the continued growth in our dealer program, total noninsurance volume declined as a percentage of total volume, due to the significant growth in insurance cars from Sandy and market wins. Revenue per car was down marginally from same quarter last year due primarily to the decline in used car pricing and commodity pricing. The impact was offset by significant growth in the inventory as we recognized tow-in revenue and titling revenue around the time of the assignment, usually 50 to 60 days before the car is sold. In the U.K., volume grew by almost 4%. We had a change in mix between cars sold on a principal basis and cars sold on an agency basis due to the normal fluctuations in volumes supplied by the insurance companies and due to a direct purchase program initiated in the U.K. this year. Purchased car volume grew from 30% to 34% of the total U.K. volume. Both NAV revenue per purchased car and average service revenue per agency car remained relatively consistent with the same quarter last year. The art [ph] and fleet costs grew significantly, due primarily to the incremental costs associated with Sandy as the direct and indirect cost of processing the Sandy volume virtually absorbed the incremental revenue. In addition, we added the incremental cost of the international operations and we added resources to continue to growth in our dealer and direct purchase programs. Further, due to recent seller contract activity, volume was redistributed between yards in our national network, requiring additional transitional cost. Finally, on a year-over-year basis, our North America inventory grew by almost 21%. When vehicles are added to inventory, we incur and recognize majority of the total cost to process the car. However, majority of the revenue is recognized in the quarter in which the car is sold. General and administrative costs grew by $5.1 million over the same quarter last year. The increase was due primarily to additional cost tied to international expansion, which totaled $1.4 million. The additional cost associated with product and technology development, like our new mobile app and the rollout of our ERP system, has totaled $2.7 million, and increased spend on marketing and professional services. In addition, we accelerated the depreciation of our data centers in Reno and Las Vegas in anticipation of their expected shut down in fiscal 2014. This acceleration resulted in an increase in depreciation of $2 million and will continue until the second quarter 2014. We ended the quarter with over $139 million in cash. In the quarter, we generated almost $130 million in operating cash flow. We expended $28.6 million on CapEx, including a lease buyout of $8.6 million. During the quarter, we had no open market share repurchases. We have almost 48 million shares remaining in our current repurchased authorization. That concludes my comments. I'll turn the time back over to Jay Adair. Thank you, Jay. A. Jayson Adair: Thank you. Thank you, Will. Also in the quarter, we announced the acquisition of QCA Holdings, QCA owned Quad Cities, Desert View Auto Auctions and Crashed Toys, a specialty division of the company, selling jet skis and motorcycles and specialty product of that nature. We're excited about it. The company has 39 yards, currently covering 14 states and processes well over 100,000 units a year. The top customers are State Farm, Progressive, Farmers', Erie, Time [ph] National. So they've got a wide breadth of customers and the most exciting part is their management team. The company has been around for over a decade and has been very successful in competing against ourselves and Insurance Auto Auctions. And so this acquisition brings that whole leadership team into the company. John Lindell[ph] , who's the CEO of the company, said it best when we were talking to customers, that he had a choice of merging with one of the other large players or hooking up with another private equity company. And after he saw what Copart's working on, what we're doing, he said there was no question in his mind, he wanted to hitch his horse to Copart. And that's really exciting for us. We're looking forward to all the things that they do and learning about that and integrating it into our company. Some other points that I would just make about the company is that John will remain CEO of Quad Cities, and we're going to be sitting down with all of our customers and finding out what they like best about Copart and what they like best about Quad Cities and raising the bar in terms of the level of service that we bring to all of our customers. So really it's a win-win across the board on that. We also announced or I should say we also acquired in the quarter -- or not in the quarter, but in the recent months, Gainesville Salvage in Georgia. And that gives us another location in the Georgia market. So I'm sure there's a ton of questions as I said Vinny Mitz, our President's here. And so he's going to step in, do some of the questions as well. And at this time I'll turn it over to the operator for questions.

[Operator Instructions] We'll go right to our first question from Bob Labick, CJS Securities. Robert Labick - CJS Securities, Inc.: Just wondering if you could maybe give us a little more history of the acquisition, how long you were talking to them? Was it a auction or a negotiated deal? Why did they sell now? You talked a little bit why to Copart but why now? And obviously we'd love to know any of the terms of the deal, or how big they are and then that kind of stuff if you would tell us that. Vincent W. Mitz: Sure. This is Vinny. The deal came together very, very quickly. After some recent national RFPs, market share throughout the country had been settled and redistributed. And the owners of Quad Cities including John, were looking what was best for their strategic future and they were looking to team up to continue and accelerate their growth. And actually were looking for a partner who would be able to help and assist in the growth of their company, separate from a normal acquisition integration. And that opportunity came together very quickly. Once we agreed philosophically how to handle the transaction, it was just a matter of working out the financials. So it only took probably 3 to 4 months for the whole thing to come together. William E. Franklin: Bob, this is Will. Let me add just a little color to that, too. Quad Cities is a serious player in our space. We compete with them all the time and we lose to them. The insurance companies use them because they like what they do. So we think this is a win for us to be able to understand what they do well and incorporate that into our offerings as well. Robert Labick - CJS Securities, Inc.: And could you -- I mean, maybe give some specifics on what they do well, better than Copart? And how you can bring that to the rest of your yards? A. Jayson Adair: Well, that's exactly what we're doing right now. We're in a period where we're going to be analyzing all their process and then we're going to be looking at what we want to incorporate. So we don't plan on changing anything for the foreseeable future right now until we get all that figured out. William E. Franklin: Bob, this is similar to what happened in the U.K. We went to the U.K. and we took what they did really well and what we do really well and combined to arrive at the best offering that we could provide. And that's exactly what we intend to do with UCSA [ph]. Robert Labick - CJS Securities, Inc.: Okay, great. And then the terms of the deal, any information you'll share with us on that? William E. Franklin: No, not at this time. Obviously, there'll be some disclosure in the 10-Q and other public filings. But at this time, we'll not talk about the specific terms of this deal. Robert Labick - CJS Securities, Inc.: Okay. Understood. Then just quickly onto the quarter. The very strong inventory build, the 21%, can you maybe give us some color in terms of how much of that's related to -- you had to sell out Sandy cars, so you were building inventory. How much was the easy comp from the winter? And how much was really growth that you're seeing, where we should expect that growth on a go-forward basis? William E. Franklin: [indiscernible] That's a good question. So some of it is Sandy, obviously, we've got about 10% of Sandy cars remaining in inventory. The majority of that comes from market wins. So we've been successful in the last 12, 18 months in expanding our presence in the market. But we're also seeing growth in the market in our overall basis. So 2009, '10, '11, we basically had headwinds in every element of our market measurement. So when we look at our market and what drives it, we look at basically 4 different elements. We look at the number of cars on the road, look at how often are those cars involved in accidents, of those cars involved in accidents, how often are they salvaged as opposed to repaired. And then finally, we started looking after 2009 at unemployment because unemployment drove uninsured motorists. So while there -- uninsured motorists may be involved in an accident, we didn't necessarily get the cars. They didn't know about Copart or salvage pools. So for 3 years, every one of those drivers have been negative. And now they're starting to turn. And so we're seeing the test of that, and you're seeing that reflected in our inventory. Robert Labick - CJS Securities, Inc.: Okay. Great. And then one last one and then I'll jump out. In terms of the increased yard and fleet, I think you mentioned this, but I just want to check. You said roughly, I think $12 million, $13 million in sales from Sandy and roughly that much in incremental Sandy expense. Can you -- is that accurate? And then also can you quantify maybe the incremental yard expense from that 21% inventory build as you said because you're getting all the towing expenses upfront in this quarter, so we can kind of get a normalized yard expense on a go-forward basis. William E. Franklin: It makes it very difficult to get a normalized yard expense on a go-forward basis. Historically, we used to put all of our cost on the balance sheet and then release them in the same period in which we recognize all the revenue. And that's no longer the case. So it's very difficult to predict our yard and fleet expense until you are able to predict our growth and changes in inventory. So getting back to your specific question from Sandy, we said last time that we didn't expect any more losses from Sandy and I think that -- we think that, that's what we saw this quarter. So of the roughly $13 million of Sandy sales, almost none of that came through as a benefit. It was all absorbed by direct and indirect cost. And we'll have some of that cost continue into our fourth quarter. So we still have people displays, we still have properties that we're leasing. And some of that's going to flow through. In terms of revenue, I think that -- the impact of a change in inventory, I think we'll just leave it with the comments we've already made, in that we recognize the majority of our expenses when picked up the car and the majority of our revenue when we sell it. And they can be 1 or 2 quarters apart.

And our next question comes from Scott Stember with Sidoti & Company. Scott L. Stember - Sidoti & Company, LLC: Can you maybe talk about with the Nationwide contract. I know that as of last quarter, we were the second quarter on a full run rate basis, are we on a full rate run rate basis apples to apples going forward from here with that contract? Vincent W. Mitz: Yes. This Vinny. We are absolutely fully integrated with Nationwide. And that is a apples to apples run rate now. Scott L. Stember - Sidoti & Company, LLC: Okay. And just shooting over to the acquisitions you guys announced last night with Quad Cities. Could you maybe talk about how they process their business? Is it more of a purchased versus an agency type of model? And how much of it is a pip or percentage kind of deal versus naught or fixed? Maybe just talk about some of the details there? Vincent W. Mitz: Sure, sure. They have different divisions, as does Copart. They have a charity division which strictly processes charity cars with sales to the public. That's the brand, those are a few auto options. They do some purchase cars, similar to Copart Direct. And the vast majority of their insurance work is on the agency business, exactly the same as Copart. And of course, the specialty division are all individually negotiated contracts, but also all on agency. Scott L. Stember - Sidoti & Company, LLC: Okay and last question. Can you maybe just give an update on how things are going down in Brazil and some of the other areas that you entered over the last couple of quarters? Vincent W. Mitz: Yes. All of the investments we've made internationally are considered strategic investments for the future. We are in the process of consolidating the operations into the Copart model, implementing our operational procedures and looking forward to growth. Right now, there obviously is a cost drag on them as we go through that process. But the investment in the future is hopeful. I mean, we are extremely excited about it, we see a great growth opportunity in the international markets. And the benefit is yet to come, obviously.

And next we have a question from Bret Jordan with BB&T Capital Markets. Bret David Jordan - BB&T Capital Markets, Research Division: A couple of quick questions, and I guess as we look at the acquisition and the productivity of these sites compared to your core business, could you give us a feeling sort of what the volume's being done and ideally sort of by line between Quad Cities and Crashed Toys and the Desert View, just so we can sort of try to figure out how to model this in versus your existing business. Vincent W. Mitz: Sure. The charity business is about 60,000 automobiles. The Crashed Toys represents a minority business, less than 5,000. And the rest is the insurance business under Quad Cities. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. And as you look at this, is incremental G&A going to be built in? It sounds like you're keeping a lot of the existing management team given their skills. Is this -- and you can look at the impact on your aggregate margins, do you see a lot of near-term overhead reductions? Or is it going to run sort of as a standalone business side to side with Copart? William E. Franklin: No. At this point, it's standalone. So there's no leverage there. And as you can tell, they run fewer cars through more facilities. So it's not as efficient as ours. So it won't have an impact on our overall margin. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. And then I guess a question on the core business, and the inventory growth year-over-year, about 21%, how does that compare to prior quarters? Is that an acceleration of the inventory growth? And I guess, if you could carve out Sandy versus core inventory growth in that description. William E. Franklin: Well, even excluding Sandy, that's better growth than we have seen in maybe 12 or 16 quarters and we're very happy with that. Bret David Jordan - BB&T Capital Markets, Research Division: Okay. I guess, okay, On a relative basis, if we were to go back in the Q1 and Q2, what would the growth rates have been there? Are we accelerating significantly out of the first half? It seems like we're in a cyclical recovery here, is that a ramping cyclical recovery? William E. Franklin: No. I don't think so. I think we've had a run rate that I don't anticipate to grow anymore. If you exclude Sandy, we're about 16% up in our inventory. And I wouldn't expect that to accelerate. A. Jayson Adair: It's a really big number. Let's call it what it is. It's a really big number, so to expect that to go to 20%, I think, is unreasonable.

And our next question comes from Bill Armstrong with CL King and Associates. William R. Armstrong - CL King & Associates, Inc., Research Division: Just to clarify then. So yes, 3 months ago, you said you didn't expect any further losses from the Sandy vehicles. And it sounds like that was in fact the case then that there were -- that you're , I guess, roughly break even on those vehicles in Q3? William E. Franklin: Yes, Bill. That's exactly right. I was just going to reiterate, we've modeled this out and we're fairly close in our expectations. And in fact, we're about breakeven this quarter. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay. Could you discuss the pricing trends, the vehicle pricing trends during the quarter, maybe subsequent to the quarter excluding Sandy. I'm not sure if you're able to break that out. But overall, pricing trends in the salvage line. William E. Franklin: Yes, it's real simple. Our pricing is linked to commodity pricing and used car pricing. So if you see those -- movement in those indexes, you can see what the impact will have on our pricing. But we had just very little change over the last year. William R. Armstrong - CL King & Associates, Inc., Research Division: Very little change in pricing or in the trend? William E. Franklin: Very little change in pricing. I mean, the elements that it affected are commodity pricing, used car pricing like we've already talked about. The other element is product mix. So to the extent, we sell more noninsurance cars than we have an increase in revenue per car. To the extent we process more charity cars than we have a detrimental impact on our overall average revenue. And it's hard to predict all of those elements. William R. Armstrong - CL King & Associates, Inc., Research Division: Right. What is the noninsurance percentage this quarter? William E. Franklin: It was under 20%. William R. Armstrong - CL King & Associates, Inc., Research Division: That sounds like it is less than last year. William E. Franklin: It is. It is. But we didn't have Sandy last year and we didn't have the market wins that we had on the insurance side.

[Operator Instructions] We'll go next to Craig Kennison with Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Regarding the inventory build, how much of that non-Sandy growth, I think you said it was 16%, is a function of deferred activity because you were so busy processing Sandy cars? William E. Franklin: I wouldn't even know how to measure that. I don't think any, 0. I can't think of anything that we didn't sell because of Sandy activity because those are processes. And we have auctions going on in Florida when there's a hurricane going on in Florida. Vincent W. Mitz: Yes, with the -- part of the power of the VB2, our sales platform, is it doesn't impede volume [indiscernible] As soon as we can plug volume into it, we can sell it certainly [ph]. So it doesn't rely on the physical sale and a bunch of logistics to get cars sold. So in Sandy, even though we had 16 different sublots, we were able to sell Sandy cars every day from different sublots in multiple sales per week. They weren't relying on buyers getting to facilities, to attend sales and auctioneers and then the hard-core logistics of it. So we didn't have any delay in sale because of Sandy at any other facilities north of Sandy locations. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Okay. And I know these catastrophes are a money loser for the event itself, but you also often take that opportunity to follow-up with your insurance partners and maybe win bigger deals because of the service you provided during the catastrophe. Is that the case? Are you seeing any impact on the goods side? Vincent W. Mitz: I guess, we can comment as those discussions are ongoing. And absolutely, we get a generally positive and exceptional reviews, actually, out of our Sandy performance, yes, as part of our recent advisory board. We did a full cat wrap up on our Sandy handling and even improvements we can make on the plan for subsequent events. And that was received with a tremendous amount of positive feedback from our clients. So building and improving that plan and working with the industry, I think, has been a tremendous benefit, yes. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And then regarding your capital structure, I know you keep a solid balance sheet with a lot of cash. Has the philosophy on capital structure changed at all? And would you consider introducing more leverage to the model if the share price, for example, were to become attractive? William E. Franklin: Yes, Craig, we talk about capital structure all the time. Our policy is to make no comment. And when I say "talk about," I'm talking about at the executive and board level. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: Understood. And then last question just cleaning up on the acquisition, I assume those all closed post quarter? William E. Franklin: That's correct.

We'll take our next question from Gary Prestopino with Barrington Research. Gary F. Prestopino - Barrington Research Associates, Inc., Research Division: Quad Cities, I guess, you're talking about what they do best, what you do best. Is the plan to totally put them on VB2? Or are you going to allow them to maybe do a hybrid model with actual auctioneers? Vincent W. Mitz: Yes, well I guess Gary, the good news is we don't have a plan yet. The plan is to come up with a plan by actually sitting down with both management teams and both management groups and figuring out what's going to be best for our customers. The point is they've been an attractive option in the marketplace. They've been growing as a standalone independent when many others haven't been. So clearly, they're doing something that's attractive for the marketplace. And we're certainly not going to rush into some mass integration and lose that uniqueness. There is a customer perspective here that we have to take into account and really look hard at why they've been able to grow in this hypercompetitive market. So... Gary F. Prestopino - Barrington Research Associates, Inc., Research Division: Do they have Internet auction capabilities right now? And what percentage of their cars were being pushed or sold over the net? Do you know that? Vincent W. Mitz: I do not have that number handy, but yes, they do have that ability. Gary F. Prestopino - Barrington Research Associates, Inc., Research Division: Okay. All right, good. It's a great acquisition for you guys. And then I just want to talk about just the way I look at it, just the erosion in the gross margin overall, almost similar to Q2. Is a lot of that attributed to those Sandy cars that basically went out with no gross margin in the sales? Or is that really attributed to the fact that you've changed your accounting somewhat? And since you're building inventory, your expensing that all upfront and then we should see a better gross margin in Q4 and maybe into Q1 of next year? Vincent W. Mitz: Yes. Well, if you're ask me the size of the impact, the different impacts, I'd say that Sandy has the largest impact. The rest would be the increase in our purchased car revenue. That's why it's hard to predict our gross margin percentage because whenever we increase our purchased care revenue, it's going to have a detrimental impact on that. And then third would be, like you described, is just the change in our inventory volumes.

And for our final question today, we have a follow-up from Bret Jordan with BB&T Capital Markets. Bret David Jordan - BB&T Capital Markets, Research Division: Yes, just -- I think in the last quarter conference call, you did comment that you're evaluating this REIT prospect. And can you just give us an update on where that stands? William E. Franklin: Sure. And just like the comment I gave to Craig Kennison, we talk about capital structure at the executive board level all the time. We just don't make any public comment unless we have a conclusion or something to share. So we have no comment. Bret David Jordan - BB&T Capital Markets, Research Division: Is that ongoing? Or -- So there's conclusion reached on that process yet? William E. Franklin: There's no comment until we have something that we're ready to publicly announce to everyone.

And this concludes our question-and-answer session today. I would now like to turn the conference back over to management for any further or closing remarks. Vincent W. Mitz: Okay. Thank you. Thank you for your participation in our call. We look forward to Q4 and reporting our Q4 and full fiscal year results on our next call. Thank you very much for attending.

And this does conclude our conference for today. We thank you once again for your participation.