Q4 2020 Copart Inc Earnings Call
[music].
Please standby good day, everyone and welcome to the coupon incorporated fourth quarter fiscal 2020 earnings call. Just a reminder, today's conference is being recorded for opening remarks, and introductions I would like to turn the call over to Mr., Jay Adair Chief Executive Officer of Copart incorporated. Please go ahead Sir.
Thank you Casey good morning, everyone and welcome to our fourth quarter call.
Like the craft soda Jeffrey our president to do the Safe Harbor and then we'll go ahead and gave me an update on the quarter Jeff.
Thanks Jay.
During today's call will discuss certain non-GAAP measures, which include adjustments to reverse the effect of certain discrete income tax items disposal of non operating assets foreign currency related gains and losses certain income tax benefits in payroll taxes related to accounting for stock option exercises any effect on common equivalent shares from a few 2016 or not.
We've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our website under the Investor Relations link and in our press release issued yesterday. We believe these non-GAAP measures together with our corresponding GAAP measures are relevant and assessing our business trends and performance, we analyze our results on both GAAP and non-GAAP basis in it.
Addition, our comments today includes forward looking statements within the meaning of federal securities laws, including management's current views with respect to trends opportunities and uncertainties in our markets, including with respect to the cobot 19 pandemic. These forward looking statements involve substantial risks and uncertainties for more detail on the risks associated with our business. We refer you to the section titled risk factors and.
Our annual report on form 10-K for the year ended July 30 Onest.
2019 in each of our subsequent quarterly reports on form 10-Q any forward looking statements are made as of today and Copart has no obligation to update or revise any forward looking statements Jay.
Thank you Jeff.
Well recently I was discussing as well as the accomplishments achieved in 2020.
To say it was a unique here.
Was the an understatement on so many fronts.
The year started very strong look question about that August was ahead of the prior year, both assignments in unit sold and input call yield.
The great people that make copart perform across the organization works executing both internationally and domestically and existing operations from picking up vehicles imaging those vehicles doing receiving inventory process entitle and eventually eventually auctioning and selling off those vehicles.
It also we were executing on future opportunities like finding land for capacity, making technological improvements to our internal platforms and our website, creating pipeline supply both to our marketing efforts and our sales team.
And really the list of accomplishments goes on and on.
We had no reason to see 2020 as anything other than doing our best year, yet where copart would achieve record financial performance in an over 26 year history of filing kase as a public company.
By mid year, we Didnt believe that was going to be the case.
The world was changing by the hour and the government was actually contemplating and eventually would implement a policy of shutting down non essential businesses and restricting how frequently and where people drive.
This was not just in the U.S., but we were saying this globally in markets, where Copart does business.
Today, we have the benefit of hindsight and despite all the challenges of 2020. It was a year, where we actually did put down record performance. Both from an operational standpoint, but also record financial performance set out did every year prior to 2020.
And I will tell you in the past we've had many great years, where we question whether we can raise the bar again after such performance as you know for history. We have continued to grow copart and we've done that again in 2020, even in the face of such an unprecedented unprecedented and challenging environment.
So how do we do this you might ask well, it's a cultural thing and culture starts with people.
We have copart have the best people in the industry.
We talk about people process and technology, and while technology and process of driven our business for over two decades.
It is the people.
Not only do the day to day execution, but also that can pivot and if necessary course, correct on a dime when things get challenging and that's exactly what happened in fiscal 2020.
We didn't let the pandemic control us or change our long term goals, but we did course correct in the short term to address head on the safety of our customers and our employees.
Throughout this period, we never dropped the ball on executing inside the organization for our members are sellers.
Fellow employees.
While August the first month of fiscal 2020 was a record month April was not.
April was off 37% in assignments and 16% in units sold.
In terms of assignment volume it was the worst month of the fiscal year with people not just social distancing, but staying home from school in work failing the out at restaurants seeing their hair Salon and movie theaters closed in list goes on.
Our immediate response was to communicate to all of our employees to stay focused on the job at hand, and Thats exactly what our people did.
And while they committed to our customers, we committed to them promising no furloughs and no reduced hours, we wanted them to know that while they had our customers back we had their back.
We could have reacted to the environment, we faced two ways positively or negatively.
The fact is we chose the prior not the ladder and viewed this will all in volume as an opportunity and opportunity to straighten up yards and office space or gold inventory. Good zoning approved on land that might have otherwise not been approved prior to co bid and implement efficiencies in our process all while utilizing new technology.
He has developed during the year.
In 2020, we spent over 500 million Capex and added over 2000 acres to our capacity and I might add the team never slowed down during the worst of the Covance pandemic.
2020 is a great example of Coparts performance in challenging times.
We did this in 2008 during the financial crisis, and we've now done this again during a cobot 19 pandemic.
Life is unpredictable always has been.
Always will be.
Copart, we will always take the position of having a long term view and that will always include having a conservative balance sheet.
We are owners and thus behave like owners, we challenged on every day, we get results and then and in the process. It all comes down to our people.
People, who we celebrate with passion and people, who active integrity and as a decision and every action that they make.
I used to say before 2008.
But we were a recession resistant company.
After 2008, I started saying that we will recession proof.
And now after 2020.
I can confidently say, we are a pandemic approved company.
When Willis and I ended our call.
Hi reflected on all that we achieved in the year and all that I'm thankful for.
When talking specifically about Copart, it's our people.
I couldn't be prouder of the year and all their achievements.
I'd now like to introduce our president Jeff layout.
Thank you Jay.
Before turning to our financial performance for the quarter, which will provide the metrics. We do customarily a handful of observations about of course Tecogen 19 crisis, specifically, we anticipate many questions about recent trends for which will provide you are most informed perspectives of course, we also want to draw you back as JJ.
Adjusted to the strategic and operational principles that guide our decision, making and have guided us to depend demick, including investing in people technology and process as Jay just articulated.
We are immensely proud of our people for delivering are essential service to the communities working around the world. We elaborated in more detail on our last call about how important is that we do what we do to enable the roads and our societies infrastructure to function as it does we've done so while adapting on the fly to keep our employees members and customers safe.
History has shown that we distinguish ourselves in time of prices and investing in our people processes technology and land against the backdrop of arguably the biggest economic disruption of our lifetimes. We think we've done so again.
Our aspiration throughout the crisis has been to deliver much much more than business as usual.
We have adapted real time to our customers work flow modifications their process changes we've deployed new technology that has enhance what we do and what they do as well.
I wanted to make a handful of observations about some of the key industry drivers that we talk about regularly including miles driven accident frequency total loss frequency and matters like that before talking about the details of the quarter.
As we noted on our last call and in Jays overview, we observed substantial declines in driving activity in March and April and therefore assignments in inventory as well since June we've seen a gradual and steady improvement in activity levels with the United States generally recovering more quickly than some of our international markets.
I was driven in the U.S. appears to have Troughed in April with data sources, showing a substantial recovery. Since then but very mixed on the magnitude of the recovery. We track sources, many of which I'm sure you do as well, including Google Apple Inrix University of Washington into two for health metrics and evaluation, all the which or most of which show substantial declines still.
In comparison to last year.
Another guide post we track data published on gasoline consumption by the United States governments Energy information administration, which shows that at least for recent weeks.
Gasoline consumption down mid to high single digits year over year.
We do believe we've seen evidence of relative increases in driving activity.
As a substitute for mass transit and ride sharing with good evidence that either or both of those channels of transportation of declined over 50% year over year during the course of the pandemic.
On accident frequency conventional wisdom is has been that accident frequency is positively correlated with miles driven because congestion naturally contributes to accident frequency during the pandemic. We've seen very strong evidence that the opposite has proven true with our roads less crowded speeding and distracted driving.
Both increased substantially contributing at least in the near term to increased accident frequency per miles driven over the very long haul over coparts.
Near 40 year existence, we've generally seen accident frequency frequency decline as cars get safer.
The overwhelming offsets to that of course has been total loss frequency.
Total loss frequency itself, we have seen evidence of increasing total loss frequency during the pandemic as well.
There are some.
Near term catalysts, including repair shop interruptions supply chain and interruptions for repair parts and the like but they're also key critical long term durable drivers of the same including our improving auction returns, which I'll address next but auction returns repair cost vehicle complexity those same things remain the case in.
The quarter as well.
Turning to average selling prices, we experienced a 26.4% increase in global average selling prices year over year for the quarter that is a record change before copart and occurred despite some natural headwinds in the business.
We've talked at length in the past about the importance of cultivating our international buyer base in particular and in this quarter and really for the past the five years and more it has paid dividends to the business and has done so very much during the pandemic as well.
Our member recruitment and retention efforts when married with our auction technology. As a reminder, we have been natively in exclusively a digital auction platform. Since 2003 together those have contributed and caused substantial ASP outperformance year over year.
There are no doubt some near term technical factors worth commenting on as well, including strong used car prices against a scarce nucor environment given production constraints. There are some supply chain issues regarding automotive parts replacement and for the repair network as well, but nonetheless, despite very substantial.
On a year over year basis, we have experienced average selling prices for copart vehicles.
At all time highs.
With that I'll turn to the actual fourth quarter financial results were pleased with the results.
Of the quarter, we experienced a global revenue decline of 3% or just shy of $17 million year over year.
Including an unfavorable year over year currency effect of $2.2 million from foreign operations, primarily due to the strength strengthening of the U.S. dollar, but also partially due to a shift of a customer from repurchase arrangement took assignment engagement instead.
Our global service revenue, which we have generally.
Informed view is a better barometer for business activity declined 2.7% year over year with us down two and a half in our international business down four and a half.
We experienced purchase vehicle decline in revenue of $4.2 million or just shy of 6% year over year.
Kind of growth in the us was more than offset by decline internationally, including that customer shift to a fee based sales arrangement in the United Kingdom.
Our global unit sales decreased by 18% year over year with US unit decreases of 16.3% for the quarter and international declines of 27.1%, although elaborate on that separation momentarily.
Our unit decline would of course, driven primarily by Cobot night team and its impact on miles driven and therefore consignment volume to Copart.
Our noninsurance volume declined 16%, though there is a significant divergence of the underlying underlying sources of automobiles within that segment I'll comment on momentarily as well.
Our international markets encountered in some cases more aggressive responses to go bid 19 affecting driving activity, but also title processing and therefore units sold.
Within our non insurance business, our charities and wholesalers business, where the most significantly impacted by cobot 19, excluding those two portions are noninsurance volume actually grew year over year, our dealer platform in particular, serving automotive dealers, who consigned their non damage vehicles through copart.
Increased year over year.
We continue to attribute our strong noninsurance in dealer performance to our mature natively digital auction platform, we've seen persuasive evidence that otherwise the dealer consigned wholesale auction volumes have declined industry wide, but we experienced year over year growth as a result of liquidity and service.
We can provide.
On global inventory, we decreased 10.8% compared to the same moment to July 31, 2019 in the US we experienced inventory decline of 12.3%.
International inventory declined 1.1%.
You'll note that our international unit sales.
Declined more significantly than us sales, but the international inventory did not decline as much that's a reflection in part of some of the title processing issues I mentioned, a moment ago, which has challenged our ability to move cars through the pipeline in certain of our international markets. We don't believe this will have any longstanding or long lasting effects on the.
Business, it's merely a reflection of near term technical considerations in light of Cobot 19.
Our gross profit increased 3.2% from 242.6 million to 250.4 million.
Our rate change our gross margin rate increased from 44.7% to 47.6% in the U.S., our increased from 48 of from 48.8% to 50.1%.
It's a reflection of a number of offsetting forces, including increased average selling prices, which we've talked about at length already but offset by yard efficiencies or relative inefficiencies due to cost absorption of fewer than expected volumes.
Our international gross margins increased substantially due in part to the shifted the customer from a purchase arrangements to consignments agreement instead.
Turning to general and administrative expenditures for the quarter. We have always said that gena expenditures will fluctuate and grow overtime.
We will continue to leverage DNA over the long haul.
But that's taking a perspective across multiple quarters really Virginia and other drivers as well is the best measure of our actual investments in general and administrative costs on a year over year basis were down from 39.8 million a year ago to 34.6 million in the fourth quarter 2020.
Including reductions in travel expenditures and others those changes that would be attributable to cobot 19.
Our GAAP operating income increased from 192.8 million to 205.7 million for the quarter or an increase of 6.7%.
Our net interest expense was up 12.9% year over year.
Due in part to our Upsized revolver and fees incurred as a result as.
As well as lower interest earned on our cash balances.
On our.
Fourth quarter income tax, we incurred expenses of $36.3 million, which reflects the $6.6 million tax benefit on the exercise of employee stock options offset by a $4.7 million impact from discrete income tax items, all of which had been reflected in the non-GAAP earnings reconciliation you've seen.
GAAP net income decreased from the fourth quarter of 19 of 153.5 million to 165 apartment increased from 153.5 million $265.5 million or an increase of 7.8% year over year.
Non-GAAP in income increased by 14.7% from 142.5 million 263.4 million year over year.
Last few comments on the balance sheet and our cash flow.
On July 20, Onest, we increased our upsized, our revolver from 850 million to a billion 50.
And extended the maturity through July 20, Onest 2023, it's a reflection of our conservative capitalization.
And strong credit profile that we were able to achieve that extension and upsizing in a financial or.
In an economic crisis as of July 30, Onest than we had a billion dollars and a half of liquidity, which we continue to use to invest in our business operating cash flow for the quarter was 267 million an increase of 74 million relative to the fourth quarter 2019, driven by a combination of higher.
Earnings as well as working capital.
As noted previously we continue to invest in our business long term with land as one critical dimension, but certainly not the exclusive one.
We invested $112.7 million of Capex in the fourth quarter alone, 90% of which was attributable to capacity expansion alone.
We finished the quarter with just shy of half a billion dollars, where the cash on the balance sheet 477.7 million of cash we remain well equipped than to invest in our business for the long term.
We're pleased with our fourth quarter and at this point Casey, we'll open it up for questions.
Thank you ladies and gentlemen at this time of we'll open the floor for questions.
I would like to ask a question. Please signal by pressing star one on your telephone keypad now if you are using a speakerphone. Please I should hear me assumption is turned off to rely your signal to we try equipment anytime if he would like to remove yourself from the question in queue. You May press star too and begin that is star one to ask a question.
We'll take our first question from Robert Labick CJS Securities.
Foreign and congratulations on strong operating performance and a uniquely difficult environment.
Thank you Bob.
I wanted to start.
You mentioned, obviously used car pricing is offset all time highs. According to manheim pretty much anywhere you look so two questions related to that and just trying to tease out the drivers for your strong pass page or record Aspen piece.
Can you talk a little bit about.
Is it more from the dealer or drivable cars or more from the insurance cars being.
Bought by dismantle errors, which was a bigger component and driving the ASP growth.
Just the sheer volume of the cars, Bob would just mathematically it make it so that it has to be insurance volume driving 26% increases year over year.
As you know the Noninsurance cars in the aggregate only comprise about a quarter of our.
Core of our units sold so it is like for like insurance vehicles.
Got it okay and those were generally speaking close to the 26% I guess I, probably would have been a better way to ask it in terms of overall, our fees were 26% or insurance close to that as well correct. Yes.
Okay, Great and then.
Yes, generally speaking as used car pricing rises there may be.
Offsetting impact total loss frequency, but obviously, we're in a different or any coral.
As a short time period, but.
Has there been any suppression on total losses or is there.
How is that dynamic working out in the current environment.
Well the dynamic is.
It's the relative value of the cars when it comes to that total loss equation, Bob you know well from abstract is forever.
But at the relative value of the impacts car versus this out versus the wrecked cars that drives total loss frequency and while certainly yes used car prices are high and all else equal those used car prices being that robust suppresses volumes that would come to copart.
Increasing salvage returns by as much as we have arguably drive to a loss frequency on a net basis up Nevertheless, right. So yes, if our salvage returns were going up 25% while used car prices were flat or down that would drive still more volume the pointed that at least for the quarter.
Used car prices are very strong, but salvage returns almost certainly we're we're stronger still.
Got it okay, great and then has there been any change in the supply dynamics because of the higher.
Proceeds you're receiving meaning are you getting different sellers coming into the market that before maybe weren't interested in using copart, but seeing the record proceeds are starting to give you more cars or any kind of change in supply.
That's been true within the non insurance space for years, Bob that as our cars gravitate more from.
Back in the day 40 years ago 35 years ago selling.
Metal by the pounds to selling parts 20 years ago to selling intact drivable cars today, even within our insurance cars themselves that liquidity has naturally invited more and more participants to the auction and that certainly been true.
Over the past quarter in the past year in the past five years as well so yes in short but not.
Not disruptively so in the last 90 days.
Got it okay, great last one from me I promise just.
Curious about I know in the past certainly were all cars that went to auction sold but that was mostly wanted was all insurance cars and as Youve had more dealer noninsurance.
I know conversion rates are very high but has there been any change in conversion rates given the scarcity of vehicles during the quarter. So that maybe use and benefited from even higher conversion rates and the not too distant past.
Not unusually so Bob I think.
Conversion rates are very robust and we track and manage carefully but what again Wouldnt say there was an unusual disruption in the quarter.
Got it okay Super Thanks, so much.
And our next question comes from Craig Kennison, with Robert W. Baird <unk> company.
Thanks, Thanks for taking my questions. Congratulations I wanted to follow up on the non insurance market. When you've got this all digital platform you've had it for a long time now that should have been an ideal platform for you during a pandemic when a lot of physical competitors or close I'm curious to what extent.
Coal part was able to capitalize on this opportunities specifically to grow in the used car market.
Hi.
Fair question, Craig I think the the math, we do isn't any different from what you would so when you track the other publicly traded.
Auction houses for for whole cars I think you can see were relative performance would have been I think we've noted that others have experienced declines in a period and meaningful declines in a period, where we actually experienced growth. So I think.
That's about all we know Directionally. So we don't have any insider perspective in particular on on on those other companies, but we do believe against the backdrop of generally declining wholesale dealer volume that we have increased year over year.
Am I right that this was a unique opportunity for you to really pitch the service to potential.
Sellers and maybe you got it better look this time than in past pitches.
I'd say, yes, and no co cobot 19, certainly has has underscored.
How powerful Coparts natively digital platform, which has been exclusively digital since 2003, and having lived that way for 17 years means that we have honed that platform and understand it well and other competitors had to do so at the tip of the spear had to virtual.
Wise overnight and yes, I think copart is distinct in that regard so on the margin surely it has it has enhanced.
Our value proposition.
In Coburn 19 of course, it's also.
Across any walk of life difficult to meet new people. So its is reduced what otherwise might be the natural selling cadence as you get to know new parties dealers and otherwise, but I think on balance it has been a very positive force for cohort.
And then circling back on the ASP commentary I mean, it's just an incredible number.
To what extent do you think that reverses overtime, knowing that the pandemic was a factor I know the long term trend has been up but for those of US who have to build a model should we bake in some.
Year over year decline as we lap that next year.
The short answer Craig is is that I don't know.
There are as I noted in those comments a moment ago, certainly some near term technical factors to consider.
The underlying drivers I think are still very long term favorable but adds were predicting precisely what happens next quarter next year.
I think that remains challenging I would say that there's been some.
As one one tidbit here.
When we look at the buyers non us buyers of Copart cars that you with auctions window to their currencies declined very meaningfully year over year. So their purchasing power was meaningfully compromised relative to a year ago, but nonetheless, the value of the cars they purchased increased substantially.
Plus or minus in proportion with our overall ASP increase which meant that in their local currency theyre spending still more and dramatically more so think of power that liquidity.
Is never going away. There is the flywheel effect now of driving more total loss frequency with outstanding returns, we get lighter damage cars, which brings more buyers, but we do think that this is a productive period for us in further splitting spinning that flywheel exactly with a year over year comparison will look like Craig we don't know.
Great. Thank you so much.
Thanks, Greg.
Well take our next question from Daniel Ambarella with Stephens, Inc.
Hey, good morning, guys.
Just wanted to start on on the M&A side really impressive control I think probably one of the biggest surprises and the composition of like where do.
You mentioned travel being down can you provide any more color on kind of where you did remove costs you mentioned I think.
There wasn't any for lower employee removal, though how do you think about like the sustainability of the Connecticut.
Anything change there you're thinking.
No nothing has changed in our thinking we did not for low.
Employees and continue to invest in our people, we continue to higher to train to promote because that's what it takes to build a successful business over the next 20 years hard stop on June eight Albie militantly consistent right in quarters, where it's up a couple of million or down a couple of million.
I'll ask you to use many quarters to draw your trend lines no individual quarter is the is the right predictive model for future trends.
Total and follow up on Craig.
Dealer question, you clearly gained share in the quarter. When you talk to the dealers on your platform are you seeing them stay on Copart as some of the competitors reopened.
And if they are that change you guys is long term strategy around how much of your business could be dealer or should be dealer I think into Pat you mentioned, you don't want that'd be a majority of your business, but yeah. How is the success in that during the endemic maybe impacted those long term thoughts.
Hi.
We've grown that dealer business and very steadily and very consistently for years. So I don't.
We don't perceive this as a temporary onetime pickup we invest in that business.
Because it is an excellent and profitable business for us and we invested it because it's an excellent and planned profitable addition to our auction liquidity, which ultimately benefits our insurance customers as well as we draw ever more buyers to our platform. We also will drive salvage returns upwards.
I would say even before cobot 19.
The whole the whole KAR auction business is as competitive as it has ever been with very strong incumbents with strong venture back to new entrants into the business as well and even against that backdrop, we continue to grow our volume virtually every quarter for as many as many years I've been here certainly and we don't expect.
We believe that competitive advantage is that is the auction liquidity point and if anything our liquidity will improve as a result to covert 19.
Got it that's helpful. And then last one from me touching on the balance sheet. As we think about uses for cash I wanted to hear your thoughts on capacity I mean to handle more volume and continued growth we're going to have two choices you add capacity or you improve your throughput three art is there a meaningful opportunity to really improve throughput from here as we think about long term.
From Capex is that going applicant should that continue to grow to support future volume growth. Thanks.
Thanks Daniel.
We will do both and have to be both so we.
We focus.
Very much on improving cycle times, and turning cars more quickly both because it is capital efficient for us, but also because it had better outcome for our customers, who can settle claims and close files more quickly who can achieve better auction returns with less depreciation with the cars is sitting on our properties.
So that is a an evergreen initiative on the part Copart and has been forever. So, yes, we will invest in reducing cycle times and can improve.
But also yes, we will continue to invest in our land and capacity because it is absolutely necessary to serve our customers will both in the ordinary course and in catastrophic times, we have to be prepared to absorb volatility. So we are.
Heavily investing and have invested it through the pandemic in additional capacity and expect to do so for years to come.
Great. Thanks, so much guys and vessel out thanks.
Well take our next question from Bret Jordan with Jefferies.
Hi, good morning, guys.
Good morning.
I got cut off for a second softly I'm not going to ask this question twice, but I guess, if you think about pricing and its role in.
In the quarter could you talk year over year about maybe what you've seen from a pricing increase on that and as you look at all the whole cars as you get in the dealer space in your competing with some legacy players is there any bias to move prices lower as people compete for share in that space.
Okay.
So I.
I want to make sure I understand precise your question Brett you mean, the prices we achieved at auction for the vehicles or the price me the buyers.
Yeah, the rate on buyer fees year over year on the insurance space, and then whether or not there is any bias to become increasingly competitive on the fees charged as you get into the dealer cars.
On fees, we don't don't comment.
Brett publicly available of course on our website is a fee schedule that are their members incur when they purchase cars at Copart and for other services that we provide.
Okay anything that you're seeing as far as dealer volumes and pricing.
Dealer volumes.
Noted you may have.
Click off the call at that moment, but we have experienced increases year over year in dealer volumes for the quarter and thats against.
What we believe our competitors, who have experienced very meaningful declines in dealer consigned volumes for the quarter. So we believe that we have grown our dealer business relatively speaking a much faster than the rest of the industry that is not a reflection of.
Quote aggressive.
Fees on our part we believed that we have a very competitive offerings and ultimately deliver.
In the best possible returns to our dealers, but that's that's easy to say.
But we think the very consistent growth in our Copart dealer services volume as a reflection of the of the actual reality in practice.
Okay, and I guess can you comment on capacity utilization I think you said you've added over 2000 acres did you talk about what your average utilization is.
Yes average utilization I think.
Not super meaningful.
Because the land isn't fungible and east yard is its own certainly each metropolitan area is its own island, and even though Dallas in Texas are in Dallas and used during the same state you can't really use one cities facilities as fungible capacity for the other so we certainly monitor our metropolitan areas.
Very carefully and invest accordingly based on our baseline expectations over the next five or 10 years.
Certainly capacity utilization is lower during the pandemic than it otherwise would be for all the reasons you already know about inventory and driving activity and so forth.
Capacity utilization is a microeconomic.
Valuation, which then drives our investment decisions on micro basis, but in the aggregate we will continue to invest in land for years to come.
Okay. Thank you.
Thanks, Brett.
Our next question comes from Ryan Brinkman with JP Morgan.
Okay, great. Thanks for taking my question I think it's really incredible increase in average selling prices that you reported can you just help us think about the waste at that helps copart is it the case that.
Generally charge buyers a fixed percentage if the transaction price in agency model transactions any way such that the revenue from higher prices falls, just pretty well through to profit and and then also would be great. If you could comment on that the reasons for such a large increasing prices and the sustainability of the various factors driving prices higher.
Got it.
On your former question Ryan that that member fee schedules is readily available online to encourage you to look there and you can see.
What happens to the fees that are buyers incur.
Based on changes in the selling price vehicles as for the pricing changes.
In the actual pricing at our auction or the so selling prices for cars that are auction. They are high for a combination of technical but also fundamental reasons. The technical reasons you heard us comment on our they used car prices are robust against the supply constrained new car environment, but the fundamental reasons are rising total loss frequency.
Newer less damage cars being total better auction liquidity, we have driven more bids per vehicle by far than we did a year ago in the fourth quarter 2020 than 2019. So those are the fundamental drivers.
Which we think ultimately are the most important ones there will be near term technical changes certainly some of which we are benefiting from today, but others of which are unfavorable including volumes for example.
But over the long haul.
The flywheel walks in liquidity, the recruitment of international recruitment and retention and cultivation of international buyers. We think will continue to drive selling prices upwards total loss frequency upwards, which in turn of course is self reinforcing so self reinforcing bringing ASP is up as well.
Okay. Thanks, and then just finally are you able to comment on the trend and assignments here in one Q do you have a timeframe in mind for when miles driven or assignments, what returned to pre tend to make levels. Thanks.
Yes, I appreciate the question that.
That remains I think largely unknowable, we have generally seen a continuation of the trend we remarked on in the fourth quarter.
First quarter, but with we'll talk much more about first quarter of course, including.
Including storms and so forth on our first quarter call, but we've generally seen a continuation as for when society.
Returns to normal practices will leave that to the experts.
Okay. Thank you.
Our next question comes from Gary Prestopino with Barrington Research.
Hey, good morning, everyone.
And just looking at the change in the purchase.
Margin gross margin sequentially and year over year, you mentioned it was it was being some of that was driven by a move from a consumer purchase to a consignments.
Agreements.
We do assume that.
That move in of itself.
Was that agreement that you had on a purchase pretty detrimental to the to the margins overall and that getting that out of the mix just led to those vehicle sales margins going up pretty dramatically in is that gross margin sustainable.
The answer to your first question is is no. It's not that it's not that the purchase vehicles of that particular customer, we're very very unprofitable somehow and we removed them we don't.
Much these days Gary about.
We prefer consignment arrangements, because we think it generally is a better alignment of interest between us and our customers, but it's not it's not per day of profitability decision.
The purchase vehicle changes year over year the decline in revenue is in part attributable to.
The shift in that customer because now instead of showing up as purchase vehicle sales and purchase vehicle Cogs and now shows up instead it service fees.
But otherwise note that was not not any meaningful driver for the change in purchase vehicle profitability.
Well that was it was a day Sts.
Yes.
Yes in short.
Okay.
Cash and then could you give us some idea I know you said your dealer dealer business was up but could you put a a number on that in terms of the growth in units year over year.
It's up meaningfully I think we've historically said.
Do disclose that we've been up double digits in this case, it wasn't double digits, but meaningfully so.
Okay, and then just getting back to my other question I'm, sorry about the sustainability of that.
Gross margin.
Is that something that again thats going to really be driven by what the ASP is doing the future.
Yes, and I forgot that that third or that quarter of your your prior question.
We don't.
We don't manage the business to gross margin rate per se, Gary where would of course optimized or.
Before service and returns and profitability and so forth. So the margin rate is really a byproduct metric that we track at the end of the month in the quarter.
As a matter visibility, but it's not we think about the business on a per car basis.
And how much property and contribution we generate per per unit. So the rate is not something we consider but your point about ASP is very strong average selling price performance contributing to our profitability, yes, Thats certainly true to the point about consignments, we want to work with our customers.
On that basis to drive the highest cost for recurrent would yield the very best outcomes for them and for us.
Okay and then last question just on your dealer business I would assume that most of your dealer customers. Our independence is that correct.
Yes.
So is is the.
Assignments.
On the independent dealers I look cars that driving a lot of the growth are you finding a lot of the independents are also buying cars from Neil.
Okay.
Don't fall Didnt follow the question, meaning.
Oh, yes.
Yeah, I guess, what I'm trying to get out is that if fitness and independent takes sent a trade that they don't want to keep on their lot are they.
Handing it off to you to sell or are you seeing more of the in more of the usage of the platform the independent dealer buying cars to replenish inventory.
Oh, well, they've certainly participate on both sides. So yes, we are growing the consignment volume.
And yes, we are also a viable purchase channel for dealers as well.
Okay, but you have very few franchise dealers that are using your platform right now.
We have.
A good variety of Noninsurance consignment sources, including dealers have all right.
Okay. Thank you.
Thank you.
So.
And that's a reminder to our audience. If you would like to ask a question. Please press star one now.
Our next question comes from Joseph Hassling, What's truly securities.
Hi.
Hey, Good morning. This is Joe on the Stephanie how are you guys doing.
Good heritage. Thanks, I just had a couple of quick questions maybe quickly shifting back to the non insurance business. I was wondering if everything was going on with rental if you guys could talk about maybe how that was going if you had any opportunity a rental side im not sure. Thanks.
Hi.
In short Thats, a relevant target segment for US we have serve that segment the market for some time.
Plenty of disruptions as you know Joe in that corner of the universe, given what's happened to travel trends over time.
So for all the same reasons that we are increasingly a compelling offering.
To the dealer universe, we think Thats also true for the the.
Rentals and finish financial institutions and otherwise.
Okay, Great and then maybe just another one from me I was wondering if you gave an update on Germany, particularly with maybe some really neat problems with some pandemic, maybe causing that to accelerate.
The insurance companies there.
Yes, we remain.
Very excited about our long term prospects in Germany, and continue to invest in our business there, including all the dimensions, we've talked about before which is in people and technology in land capacity in trucks and equipment and certainly in customer relationship building as well I think we noted a couple of calls ago that we are selling cars for us.
Appearance carriers on a consignment basis, where delivering very strong returns and remain.
Very optimistic about Germany, and frankly about western Europe in general.
Okay, but you have anything as far as like the productivity of the conversation increasing because some of the disruptions caused over there.
I think it's too early to tell I think theres. Some your intuition is probably reasonable in that if there is a I think we have demonstrated that the copart, Germany model is economically superior and frankly, even experientially superior for policyholders than the status quo, we've talked about at length in the past, where and what rehash that entire.
Narrative.
But one of the big barriers to.
To our converting the market is just inertia and so yes to the extent to covert 19 has forced us all to confront inertia and as up ended a lot of what we considered the ordinary course I think in that respect. Yes. This can can cause customers to contemplate radical changes in their business.
Okay, great. Thank you that with everything I had congrats on a quarter. Thank you.
Thank you.
At this time there no further questions I'll now turn it back to today's speakers for closing remarks.
Alright, we appreciated one showing up for the call and we look forward to reporting Q1 in the future.
Thanks, again bye bye thanks, everyone.
Ladies and gentlemen, thank you for your participation. This does conclude today's conference have a great rest of your day.
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