Without giving specific figures, Copart chief executive officer Jay Adair described salvage vehicle prices as “what we would expect,” when the company discussed the financial performance of the third quarter of its fiscal year.

Reflecting on the span that wrapped up on April 30, Adair indicated that pricing for salvage units “tends to peak in the second and third quarters and comes off as you enter into the summer. That’s what we’ve seen. We’ve had what I would say no question was a peak in the second quarter, and it’s been relative to that number since. One month it will be up a little; one month down a little bit compared to that number.

“The returns look strong,” he continued during the company’s conference call with investment analysts. “We’ve talked to our customers. Right now they’re very happy with what we’re seeing in terms of percentage of (actual cash value) and in whole dollars.”

A Wall Street observer wondered how salvage prices compare to this juncture a year ago, but Adair explained how that’s not a fair contrast.

“A year ago, we were selling Hurricane Sandy cars, and they sold for more money,” Adair said. “You really can’t compare since those were cars that didn’t have collision damage. Those are vehicles that are going to bring more money at auction. With Sandy involved, you just can’t compare year-over-year.”

Copart is still pushing units damaged during Hurricane Sandy through its system even though the storm hit the Northeast more than 18 months ago. The company indicated its overall inventory level was 19 percent higher at the end of the third quarter than a year earlier. However, excluding Sandy vehicles, that inventory level settled 12 percent higher.

Adair said the company is pleased that inventory has climbed during each of the past four quarters.

“At this point, I would say the only thing we’re not happy with right now internally is SG&A costs,” the Copart boss said. “We’ve got increased costs associated with technology, some of it being one-time costs associated with moving out of California. That’s all going to be rationalized in the next four quarters. So we’re very focused on identifying every single asset we have and to make sure it provides value and to make sure we realize the return on that.

“If we have costs that don’t belong or we don’t need, we’re going to go through the process of rationalizing it. I can’t give predictions, but I suspect over the next four quarters that we’ll see those costs coming down,” Adair went on to say.

Q3 Financial Performance

For the three months that ended April 30, Copart reported that its revenue, gross margin and net income came in at $309.7 million, $132.3 million and $40.9 million, respectively. Those figures represented increases in revenue of $32.1 million, or 11.6 percent; and in gross margin of $16.7 million, or 14.4 percent; and a decrease in net income of $12.4 million, or 23.2 percent, respectively, from the same quarter last year.

The company’s fully diluted earnings per share for the three months were $0.31 compared to $0.41 last year, a decrease of 24.4 percent.

For the first nine months of its fiscal year, Copart indicated its revenue, gross margin and net income totaled $876.0 million, $351.6 million and $127.6 million, respectively. Those amounts constituted increases in revenue of $93.4 million, or 11.9 percent; and in gross margin of $33.8 million, or 10.6 percent; and a decrease in net income of $11.1 million, or 8.0 percent, respectively, from the same period last year.

Fully diluted earnings per share for the nine-month span were $0.97 compared to $1.07 last year, a decrease of 9.3 percent.

Included in operating results of the most recent quarter was an impairment charge of $29.1 million. Copart officials elaborated about the accounting entry.

“In a prior fiscal year, the company initiated the development of a third-party enterprise operating system to address its international expansion needs and to eventually replace its proprietary operating system, which is currently utilized in the United States, Canada, the United Kingdom and the United Arab Emirates. During the quarter, the company reassessed this strategy based on the projected cost to complete, deployment risk and certain other factors,” officials said.

“As a result of this assessment, the company decided to cease development of the third-party enterprise operating system and address its international technology needs through an internally-developed proprietary solution. Accordingly, during the quarter, the company recognized an impairment charge resulting primarily from the abandonment of work previously capitalized in connection with the development of the third-party solution,” they went on to say.

Included in the operating results of the third quarter of the prior fiscal year were the incremental revenues and operating expenses associated with incremental unit volume generated by Hurricane Sandy, which were estimated to be $12.7 million and $7.2 million, respectively.