Q4 2021 Copart Inc Earnings Call
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Good day, everyone and welcome to the co part incorporated fourth quarter fiscal 2021 earnings call. Just a reminder, today's conference is being recorded.
For opening remarks, I would like to turn the call over to Mr. John North Chief Financial Officer of co part incorporated. Please go ahead Sir.
Thanks, Good morning during today's call, we'll discuss certain non-GAAP measures, which include adjustments to reverse the effect of certain discrete income tax items acquisition related integration charges foreign currency related gains and losses, certain income tax benefits and payroll taxes related to accounting for stock option exercise.
<unk>.
We provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in our Investor Relations website and in our press release issued yesterday. We believe these non-GAAP measures together with our corresponding GAAP measures are relevant in analyzing our results and then assessing our business trends and performance.
In addition, our comments today include 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 the COVID-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 in our annual report on Form 10-K for the year ended July 31, 2020 in each of our subsequent quarterly reports on Form 10-Q any forward looking statements are made as of today and we have no obligation to update or.
So now that we've got the safe Harbor language out of the way I'll turn the call over to Jeff Lee our president.
Thanks, John and good morning, everyone and thanks for joining us for a review of our fourth quarter and fiscal 2021, we're pleased with the results for the year another record setting quarter on multiple multiple dimensions, we look forward to discussing some of the underlying factors in the business with you as well.
Good news of course since we last spoke with you in May has been the emergence of the DARPA Grant COVID-19, Nevertheless, we've seen.
Ongoing recovery across the industry, including key measures such as vehicle miles traveled published by the department of transportation gasoline consumption and the like so we are beginning to see the return to normal driving activity accident volumes et cetera, though we noted still likely down on an apples to apples basis versus two years ago.
Given the growth in our business Nonetheless, our inventory levels will talk about in a bit are up meaningfully year over year end up double digits versus July 2019, as well and due to several drivers will discuss later on the call as well our average selling prices the values, we generate for our customers remain elevated and are are in fact at all time highs.
Before we dig in and wanted to take a moment to acknowledge the cohort cat team, which has had an active and productive few weeks certainly.
As many have projected over the years, we're seeing more severe weather events with each passing year and just recently, we have observed flooding and other severe weather in Germany in Tennessee, Louisiana, Mississippi, Alabama, and now of course Hurricane Idaho in the northeastern United States.
We're wishing all of those affected in those communities, including our employees our own team members. The very best in a speedy recovery hundreds of US myself included were in the northeast over the weekend and we are still more cohort team members are headed theyre, leading the charge from here forward.
We will discuss the financial implications of these events of these recent weather events in future quarters, but the first order of business is always is to serve our customers and to take care of our own people.
Wanted to start with a couple of statistics that we provide every quarter and close with a handful of remarks about the future as well our global unit sales for the quarter increased 25% year over year with the U S increase of 26% and an international increase of 18, 5% year over year.
We continue to see more aggressive COVID-19 measures in many of our international markets than we have here in the U S, which has caused more of a volume reduction or less volume growth in those markets within the U S. Our insurance business grew significantly year over year versus the fourth quarter of 2020.
That is the net effect of lower driving activity will increase driving activity year over year still slightly lower driving activity were on a two year basis, but increase in claims frequency and increasing total loss frequency as well.
Our non insurance business, which we talked about each quarter includes dealer consignments wholesales and charities business, our co part direct business in which we buy cars from consumers and institutional volume as well.
We've historically provided the unit growth in particular, excluding wholesalers and charities and on that basis, our U S. Non insurance business grew 17% year over year, including solid growth for our dealer consignment business. Despite inventory shortages of course throughout the automotive industry.
Our strong used car prices or used vehicle prices are driving strong returns and therefore consignment growth across these non insurance categories.
Our global inventory at the end of July increased 21, 7% compared to a year ago.
Double digit growth on a two year basis as well that's comprised of a year over year increase of 28% for U S inventory and a decline of 13% for international inventory attributable to the COVID-19 measures I described a few moments ago.
We are especially proud of the record average selling prices that we are delivering for our customers. The ASP strength is a reflection in part of course of market dynamics for used vehicles, but it's also a byproduct of our member recruitment and retention efforts ASP worldwide grew 27% for the quarter with USPS.
U S asps up 26%.
The question, we often get is how much of that is attributable to mix shift and its not so our insurance asps are up comparable levels or even up more still than that.
While growth in used car prices have of course contributed to our ASP growth, our selling prices throughout the pandemic and prior to it as well as generally grown at a rate in excess of that of used car prices as well that being a reflection of the marketing and member recruitment efforts I mentioned a moment ago.
The Manheim index, which is one of those third party indices. We do track is at $194 five for the month of August an increase of 18, 8% year over year, we track other indices as well, which would provide similar similar directional guidance.
Our average selling prices are certainly the ultimate output metric for auction liquidity, but the underlying figures that support that notion the notion of a flywheel effect certainly continue as well in the fourth quarter. We noted more bids per unit more domestic bids per unit more international bids per unit.
All compared to a year ago, our auction liquidity is stronger than it has ever been.
The natural questions of course, we will continue to be about what happens after the pandemic.
After the pandemic goes away I think we certainly holds an appropriate level of humility given the once in a lifetime nature of the event and our comments will largely be U S centric, but I think it's what we've been doing some of these longer term assumptions, we've talked about on prior calls and how they've been affected by the pandemic.
Driving activity certainly rebounding by the measures we have seen gap gasoline consumption in vehicle miles traveled but not yet back to 2019 levels. We continue to believe that longer term mobility will continue to grow that miles per person in the U S, but certainly in our emerging markets and many of the countries.
Buying our highest value vehicles will grow significantly.
We saw accident in claims frequency decline somewhat during the pandemic, but it actually increased relative to miles driven that is a new learning for us in the pandemic to see I think the historical conventional wisdom has always been that if there are fewer vehicle miles traveled that accident frequency per miles travelled will decrease but.
In effect or in actual practice, we've seen arguably more distracted driving certainly higher speed driving and therefore accident frequency. It can in some respect to be inversely related to vehicle miles traveled accident frequency per miles driven.
On total loss frequency the most important driver of our business long term that we've talked about at length in the past we've seen that increase during the pandemic as well.
Wanted to offer one addendum to that in a moment.
On the durability of ASP.
We note the longer term trends in favor of Asps.
We continue to see increasing demand from emerging economies for the vehicles from the U S U K, Canada other mature economies.
These emerging economies are especially eager to purchase our vehicles, which are wrecked and total vehicles become their drybulk fleet that trend has been a 30.40 year trend and we think will be so for the for the foreseeable future.
I wanted to know one important consideration that I think can be easily overlooked.
The natural questions are about when the selling prices when the selling prices could face weakness in light of an eventual recovery in semiconductors, and new cars and the like.
What I think is sometimes misunderstood is that all else equal high <unk> or high pre accident values actually reduce total loss frequency the higher the more cars worth before the accident all else equal the more pruning that is to be repaired and so eventually these certainly if there is a decline in asps or decline in vehicle values the offsetting considerations.
Is that we would see hydro higher total loss frequency and therefore higher consignment volume.
We continue to make our operating and strategic decisions are predicated on the expectation of long term growth post pandemic consistent certainly with what we've communicated over the years, we're grateful for the strong financial performance this quarter against the backdrop of a pandemic and know severe weather events all over the world. It can feel awkward to sell into congratulatory tone on the call, but nonetheless.
We're certainly pleased with our results in the fourth quarter excited about the year ahead, our business is stronger than it has ever been the quality of our team the sophistication of our technology stack and the depth of our auction liquidity, we think is yielding better results than ever for our customers.
With that let me turn it over to our CFO John <unk>.
Thanks, Jeff.
A few comments.
On more of our operational results and then we can open up for some questions.
For the fourth quarter global revenue increased $223 million or 42%.
At $12 million benefit due to currency.
Global service revenue increased to $166.0 million or 36%, primarily due to higher average selling prices U.
U S service revenue grew 36% and international experience an increase of 29%.
Purchased vehicle sales increased $66.0 million or 89% due to higher asps and increased volumes.
U S purchased vehicle revenue was up 99% over the prior year and international grew 73%.
As a result purchased vehicle gross profit.
As vehicle sales less cost of vehicle sales increased by $7.0 million overall.
Global gross profit in the fourth quarter increased by $108.0 million or 43% and our gross margin percentage increased by approximately 11 basis points to 48%.
U S margins improved from $50 to 51% driven primarily by higher ASP.
And international margins decreased from 34% to 30% due to the higher purchased vehicle mix at lower margins, partially offset by higher ASP and cost leverage.
I'll now move to a discussion of G&A expenditures, excluding stock compensation and depreciation expense.
They spend increased $5 million from $40.0 million a year ago to $46.0 million in 2021.
But decreased from six 6% of revenue five 3% revenue this year, an improvement of 130 basis points.
We anticipate G&A to continue to improve as a percentage of revenue in future years.
As a result, our GAAP operating income increased by 47% from $212.0 million to $306.0 million.
We delivered 114 basis points of operating margin improvement due to revenue growth from strong ASP and leveraging volume.
Net interest expense increased <unk> 2 million or 5% year over year, primarily due to our upsized revolving credit facility.
Which we upsized in July of last year.
Q4 income tax expense was $44.0 million at a 14.414, 4% effective tax rate.
Reflecting an $11 million tax benefit on the exercise of employee stock options.
Which have been adjusted for purposes of the non-GAAP earnings included in our release on a non-GAAP basis, our effective tax rate would have been 17, 6% and our full year rate would have been a normalized 28%.
Fourth quarter GAAP net income increased 55% from $170.0 million last year to $256 million. This year adjusted to remove the effects of currency acquisition related costs and the tax benefit on the exercise stock options non-GAAP net income increased 51% from $167.0 million last year to $250.0 million.
In the fourth quarter of this year.
For our fiscal year 'twenty, one on a full year basis global revenue increased $495.0 million or 22%, including a $37.0 million benefit due to currency.
Global gross profit increased $338.0 million or 33% and our gross margin percentage increased by 419 basis points to 50%.
Operating income increased 39% to $323.0 million and operating margin improved by 521 basis points.
Finally, GAAP net income increased 33, 34% excuse me from $708.0 million last year to $941.0 million. This year and non-GAAP net income increased 45, 7% from $615.0 million last year to $896.0 million this year.
Now to briefly update our liquidity and cash flow highlights as of July 31, 2021, we had $3.0 billion of liquidity comprised of over $1 billion of cash and cash equivalents and an undrawn revolving credit facility with capacity of over $1 billion. This is an increase of $575 million over July 31.
Last year.
Operating cash flow for the quarter decreased by $40.0 million year over year to $235.0 million, primarily driven by working capital investments as we increased inventory levels, which Jeff spoke about a few moments ago.
We invested $104.0 million in capital expenditures for the quarter and approximately 76% of this amount was attributable to capacity expansion.
For the year, we invested $463 million in Capex of which approximately 85% was associated with capacity expansion. We continue to prioritize investing in physical infrastructure above other choices and believe this continued investment is creating a durable advantage in our ability to handle increasing numbers of total loss vehicles and adjacent opportunities in the whole car.
Marketplace.
We continue our relentless focus on investing for the future and both capacity and technology, while maintaining a conservative capital structure that allows us operational flexibility, regardless of economic changes or transitory market dynamics.
And that will conclude our prepared remarks, this morning, and while I'm happy to open it up for some questions.
Thank you.
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One moment please poll for questions.
Thank you. Our first question today is coming from the line of Bob <unk> with CJS Securities. Please proceed with your questions.
Good morning, and congratulations on Fannie.
Fantastic results.
Hi, Bob Thank you.
Yes, so I wanted to start obviously really really strong sales growth and you talked about inventory a little bit too, but kind of looking.
Sequentially from last quarter to this quarter on the service revenue basis service revenues were roughly flat, but yard expenses were up sequentially quite a bit is that all.
Inventory build and as that.
Kind of is inventory seasonally building at this point or is there other factors behind it and if it's not inventory what are the other drivers between between the coal yard cost increase on flat revenues.
Yes Fair question, Bob and that is certainly a healthy portion of the explanation is that the activity that comes from inventory growth. This is the fourth quarter is not historically have an inventory build quarter for us we tend to build in the second quarter in particular ending in January through the winter to some extent in the third the fourth quarter is usually a quarter in which.
We are liberating inventory and preparing for the seasons ahead. This year in part because of the pandemic effects and in part because of growth in the business for the reasons, we talked about a little while ago, yes that is.
A meaningful portion of the driver of your cost.
Got it okay, great and I know you touched on this Jeff, but just maybe if you could kind of wrap it up in terms of the insurance growth is recovering.
How are you.
Put us versus now versus the pre <unk> pre pandemic levels in terms of insurance activities and how long do you think it takes to get back to a kind of a.
Normalized rate.
Driving accident accidents et cetera looking ahead.
Yes.
The right question and almost an impossible one by extra margin is different even in June when the vaccines are rolling out and I thought that we were on our way to being done with at all and then the Delta variant emerged and we have seen of course case counts rise again, and many of certainly across the U S and in many of our other markets as well. So I think the forecast is.
I don't know that we would have a more a more insightful perspective about the.
Widening COVID-19 to others might on driving activity, we look to the same metrics you might which is the data the gas consumption data.
We have certainly information from our insurance company clients as well, which would suggest huge growth versus the fourth quarter of last year, but not yet back to fourth quarter of 2019 levels when that bounces back I don't candid answers, we don't know I would guess, it's multiple quarters, though.
Got it okay, great and then last one for me obviously.
Corporate dealer cars have been a big growth driver and you've been talking about it.
As such for quite some time, how does the type car like the ASP for your dealer cars compare now to maybe two or three years ago.
Adjusting for the Manheim used car index I guess in other words are you still selling the same mix of cars you were before presumably aged inventory older cars et cetera, or have you expanded the mix and what is the.
Typical cohort dealer car look like now.
Yes, I think the quote typical car as you're describing.
Somewhat similar though higher ASP and off the cuff likely even adjusted for the Manheim index and that the natural liquidity pool for US as you know from the insurance side of things becomes a better and less damaged and more valuable car over the years, that's been true forever as you know that therefore has come.
Debated a different buyer base different member base, who is looking for a drivable car and that in turn that.
That liquidity has benefited us on the dealer side that trend certainly continues and.
If you visited some of our yards GBT astonished by some of the high value range Rovers in European vehicles that you would see on the loss.
At least on their surface look perfectly good and perfectly functional in many cases are so it is a gradual shift over time. This is not an overnight overnight shift, but the liquidity is certainly has nudged up market so to speak and see you in our cohort dealer business as well.
Okay Super Congratulations again, thank you so much thanks.
Thanks, Bob.
The next question is from the line of Stephanie <unk> with <unk>. Please proceed with your questions.
Hi, good afternoon.
Thanks, Doug.
I wanted to touch a little bit on the impact of the catastrophic events that have really slipped is it the globe over the last couple of months first some of the.
Pretty deadly flooding, we saw across Europe, particularly in Germany, and any impact that had on the quarter our expectations are.
For the coming quarter.
And that particular as well as what we should expect in the U S. And maybe you can remind us I know theres been a lot of efforts to expand your catastrophic capabilities to make it so it's somewhat more profitable or profitable given the situations. So any update you can provide generally would be helpful. Thank you.
Sure. Thanks, F&B the significant catastrophic activity at.
Largely occurred after the quarter so in the United States in particular, we did experienced some flooding.
In the U S and Germany prior compared to catastrophic events.
In the past these events were relatively modest in absolute size in terms of catastrophic readiness, which I think you posed the question Stephanie we have invested massively in this anticipating more severe weather over the years to come and a catastrophe the key questions are.
Do we have the technology to support the suddenly accelerated volume of activity. The answer is yes, and we are continuing to invest behind it do we have the land to store the vehicles until we can process the titles and sell them on behalf of our insurance company clients. The answer to that is yes, we have bought and built catastrophic yards. That's in many cases abroad.
Idaho.
<unk> awaiting a catastrophic event to service our customers again, we certainly depending on where the cat event might be also then lease land on a temporary basis as well to expand our capacity.
And then towing and trucking is certainly an important variable as well.
Pick up of course millions of cars a year on behalf of our customers and have again, a more acute need in the middle.
Catastrophe, we've therefore invested in a fairly sizable fleet of our own which we expect to continue to invest in as well to support those efforts. So these are folks day to day, who are deployed in their home yards, but in a crisis or are asked to join us on the ground where the need is most acute so those are all ways for us to address the to be.
Be more ready and anticipation of the weather events, rather than scrambling last minute that was had been investments that we've made very consistently and continue to grow year after year.
Got it that's very helpful and switching back to Germany.
There is this a situation where.
Thank you have a little bit more longer term or maybe the impact.
The cat at the flooding.
Where you guys were able to come in and really show your value from a consignment model standpoint is that an opportunity where it might accelerate the shift and what youre, providing in Germany with insurance carriers and may potentially get them to shift over.
Two more of what the model looks in the U S alright any update there.
Yeah, I think that's it.
I have a question or insightful premise and I think it is true that in Germany and elsewhere. The catastrophic events very much underscore the cohort value proposition that our service our hustle in a moment of crisis is still more visible at moments like that to insurance carriers, whether they are longtime customers who have been with us for 30 years or.
German insurance customers, we are reporting for the first time or converting more of their volume to the consignment model under under <unk> business model that I think is certainly true. So all else equal this for sure better communicates our value proposition to the German market.
Got it I'll leave it at that thank you.
Thanks, Doug.
The next question is coming from the line of Craig Kennison with Baird. Please proceed with your questions.
Hey, Thanks for taking my question.
Co part likes to innovate without much fanfare, I think but I'm curious if you would call out any key platform enhancements you might have made in the last six months to 12 months that could be driving value for your buyers or sellers.
And Craig I think.
The introductory clause there I think is accurate we tend not to declare much victory in particular on investor calls.
We launched these products through our our sellers, our customers and our members as well.
So I'll talk more broadly I think we have introduced a range of products and enhance them that help our customers to process titles more quickly.
Loan payoff tool, we've talked about in the past is better still today than it was a year ago in terms of the lender coverage lean cards are especially challenging title for insurance carriers, two to obtain and therefore to allow us to sell the vehicle and I think our various offerings loan payoff included in that realm are better than they ever have been.
When it comes to the member side of things, we have deployed a number of different tools, including App based tools.
<unk> mobile check ins and scheduling of pickups and such that have made that has made their experience more seamless.
And we think we are reducing friction for new and existing members to buy cars that cohort and certainly have have much to do on our to do list to to move that ball forward.
And then lastly, and perhaps most importantly, the auction itself is.
Arguably our most important single platform that we invest in very aggressively to make the experience faster to make it still more mobile friendly to let anyone who wants to see and buy and tracked vehicles at cohort to make that as seamless experience as possible. Our paid member growth paid member growth is up very meaningfully year over year reflects.
<unk>.
Of our investments in that in that arena.
Thanks, and then we continue to hear stories about the exceptionally high cost of shipping containers.
Naturally your business relies on that to some extent are you surprised that there is no. There has seemingly no impact from the rising cost of shipping containers on your.
On your overall demand I would think that your customers would have to factor that in.
I think thats.
No effect, probably overstating it I think the point would be that the offsetting forces have overwhelmed to that so vehicle demand the member recruitment in auction liquidity of more than covered it I think it's also fair to say that when it comes to shipping containers and the inflationary pressures there that those are much heavier.
Inbound volume to the U S.
It's always been the case then it is the containers, leaving are the ships, leaving the U S and going elsewhere I think those routes tend to be a little less congested the slots less spoken for so those pressures I think are more modest than they might appear at first glance.
That's great Hey, thank you so much.
Thanks, Greg.
Thank you. The next question is coming from the line of Bret Jordan with Jefferies. Please proceed with your questions.
Hey, good morning, guys.
Brett.
Question I guess on the vehicle profiling, Jeff commented that Youre seeing less damage mix over time could you talk about sort of what percentage of mix might be run and drive and then the inverse of that what percentage of your mix is really sold as crushed car bodies on its metals content and where.
Youll see that metals price environment now.
Yes to the last portion of your question, which is probably the easiest certainly metals commodity metals are.
Our rebounding like many.
Underlying physical goods in terms of the prices.
Still it's a small minority of our cars that are sold for sure meltdown value so to speak and it's still smaller minority of our relevant economic spread the car the sales for a few hundred dollars and is stripped of apart or two and then melted down is a very valuable service that we provide to our communities and our customers.
Two to eliminate those cars, but not as consequential when it comes to the economics of our business.
And then the run and drive mix as a percentage I mean, obviously the dealer cars. It's gone up it is it a third or 40% on your volume sold or less than that.
So we havent havent disclosed that the precise mix in the past and don't intend to do so but in terms of the run and drive mix. Yes. It is it is a reflection of rising total loss frequency, so that less damaged cars and I think it probably easier breath for that matter district insurance from from everything else to isolate that question, but when it comes to the insurer.
Since vehicles, yes, more cars are drivable today, because a car can be totaled because they rear sensor or front sensor or lane departure warning sensor on the mirror is knocked out in the replacement and calibration is expensive that yes, there are more run and drive cars as a percentage of the of the total.
Okay, and a quick cash flow question I guess, when you think about the land and build out strategy I think it was back in 15 or 16.
What inning of land acquisition are we in and when you think about your capex expectations, what's the maintenance Capex number versus the acquisition real estate investment Capex.
Expectation.
Rob.
Thank you.
Our next question is from the line of Daniel <unk> with Stephens. Please proceed with your question.
Hi, This is Joe <unk> on for Daniel.
Okay.
A question and session.
Lymphoma speaker lines.
Okay.
So let's be careful interest.
Hi, so.
A question, we're looking for and availability on land overseas.
I wanted to know if thats kind of arduous process to find land and given the grow Rob can you hear us.
Yes, I can hear you gentlemen, please continue.
Okay, yes, given the growth in Germany, do you have the capacity to support more growth.
Please standby, we're experiencing technical difficulties will resume momentarily.
Gentlemen, if you Ken this is Jeff I know if you can hear me, who you may continue with your presentation.
Ladies and gentlemen, please standby will continue momentarily.
[music].
Okay.
Gentlemen, you may continue with your presentation.
Okay. Thank you.
Brett I apologize, we got disconnected there.
Hello.
Brett in Europe.
Hi, This is Joe.
Hi, Joe.
So I was looking for some color on the availability of land overseas.
I'm wondering if it's an arduous process to find land and then given the growth in Germany do you have the capacity to support more growth there.
Great good.
Good question and certainly be the challenge.
Land acquisition and development.
As universal it varies and it certainly varies by degrees even here in the United States, depending on what.
With city and state we're talking about then varies across countries as well.
Within those countries as well so it's difficult to provide a thoughtful nuanced answer there, but yes. The challenges are are similar we do have the capacity.
In Germany to support the business, we have and we have built.
For growth, but certainly we would expect to invest more over the years to come to support our ongoing growth there.
There is lead time to do so so you've heard us tell the story here in the U S in the past.
Which when you buy a parcel of land in.
California for example that we've been pursuing for 20 years, we don't expect Bachelor severe lead times in these markets, but it does take time to identify two permits and to develop the land before we can operate on it.
Great and then as a follow up what about Spain or other markets you have capacity there.
Same answer, yes, we havent that foodservice business today and for the near and medium term growth, but also that we intend to and we will invest more still in it to support <unk>.
Part of future business there.
Great. Thank you so much.
Thank you Joe.
Thank you. The next question will be coming from the line of Chris <unk> with Exane. Please proceed with your questions.
Hey, guys.
Couple of questions for me first one is one of your salvage competitors spoke to installation telling costs have you seen this at all can you give us a sense for the sensitivity of yard ops to telling cost in.
What type of impact this could have an operations growth and then historically when you've seen periods of inflationary telling costs like what extended to be able to pass that through to sellers would be helpful.
Got it well inflation, perhaps generalize first it's always a consideration in our business and in different years, there are different inflationary inputs for our business and many years of course, it's been healthcare.
Your other such commodities today, yes, somewhat more acute for all the reasons you are reading about in the poverty, Chris already we're comfortable we can manage that inflation and continue to deliver operating leverage in our business.
So in short towing costs are a significant portion of our.
Our cost at the yard level. So they certainly do matter to us, but we think it's manageable we have.
Proactively raised it.
It's a consideration this quarter because it's just part of the business is labor cost health care cost power and utilities and so forth. It's part of what we do.
Got you okay.
It sounds like you do a lot of like logistics services for insurers that you've been telling all of that is there an opportunity to do the container side like are shifting side for ocean freight here international buyers like who are the international buyers they tend to be smaller one off consumers or small business like small businesses are they or their wholesalers that are managing this process for them.
So I'm wondering I guess trying to get at is there an advantage to use your scale to.
We ought to get better shipping rates will be happier customers. There's just not a way to arbitrage that market's kind of curious how you think about that yes.
Yes, I think there's a healthy distribution.
Buyers. So some cases pure one off buyers, who what when we bought one car and then disappear and there are others, who make it their business by 110 in some cases thousands of vehicles to rebuild itself and their native markets.
Have experimented and dabbled certainly international shipping over the years, if there is a healthy ecosystem that emerges of course.
Around a business of our size and other folks who do ship you do aggregate vehicles, who do Marshall that won't behalf of buyers. So it's something we would continue to evaluate but there is a robust.
A robust enough and healthy enough ecosystem around us that has never been a barrier to auction participation.
Got you, Okay, and then just a quick quick housekeeping one it looks like a small acquisition this quarter $5 million or so like I'm not sure. It was.
Proceeds for past acquisition or something.
Shed color that'd be helpful.
Yes.
Small regional.
Provider.
Our space.
Let's shift gears.
Got it.
Midwestern United States.
Got you Okay. That's helpful. Thank you.
Thank you.
Our next question is from the line of Ryan Brinkman with Jpmorgan. Please proceed with your questions Hi, Thanks for taking my questions. How much of the increase in transaction prices do you think is driven by the rise in used vehicle and crushed auto body prices, which would of course, there could of course cyclically decline after have.
An experienced such a large run up versus how much of the increase in transaction prices do you think is being driven by your member recruitment or other company specific efforts, which could improve which could prove longer lasting and then also I think it's difficult to make such projections, but I'm just curious about the extent to which you think are estimate or handicap.
The increases in used vehicle in commodity prices that we've seen may actually be partly structural in nature, rather than cyclical given fiscal or monetary policies.
That whatever level, we do cyclically declined two might in fact proved.
Higher than where we stood pre pandemic.
Sure I think you've got probably a questions nested in there but.
To tackle them.
On the question of Asps.
What is driving their growth the third variable I'd add to Europe list. In addition to I think first you were citing the market dynamics in used vehicles today second youre, citing our member recruitment retention expansion any experience the third variable I'd add to that list as total loss frequency.
At its carriers totaled more cars ethical newer and less damaged vehicles.
A healthy effect on ASP as well so the latter two I would describe it is durable long term secular forces. The first I think there is an open question I think all three have mattered.
Over the course of the past year. The first question on to what extent the vehicle values are cyclical or reflections of more secular structural forces. I think is a fair question I don't know that we have and especially in light perspective on that I think some of it for sure is here to stay.
Perhaps not all of it how the semiconductor universe in the new vehicle universe et cetera.
How those forces unwind.
Over the course of the next six to 24 months.
I don't know that we have a different perspective on that.
Okay very helpful color. Thanks, and then just last question is what the latest is that youre seeing in terms of the recovery and miles driven LKQ has made some comments recently about how while miles driven is recovering the distribution of when people are driving throughout the day as different less centered around comedian hours I mean he left.
Jeff Chen, which can result in.
Accident frequency, maybe not recovering in a linear fashion along with miles driven just curious what the latest that you're seeing there might be.
I think the latest data June July and August which suggests ongoing recovery.
Now.
The northeast goes back to school also gross weight per day, we are seeing.
Recovery, but not yet back to 2019 levels I don't know that we have a final resolution on that question that you would write that we're looking at the same the same underlying data after the distribution of driving hours I think we're seeing.
A change broken when people drive and where they drive too so less commuting much more retail.
Much more recreation.
Our cases as folks that have avoided airlines as such now that has frankly.
Yielded in the end higher accident frequency than that I think had been predicted going into the pandemic. If you'd told folks that vehicle miles traveled would go down by X percent I think the conventional wisdom is.
Is it accidents, the number of accidents and the absolute would go down by more than X percent and in fact, it has gone down by significantly less than X percent, a reflection of higher speed driving more distracted driving.
So even though the congestion I think has been appreciably less than it once was.
It has not yet yielded the effect you just described.
Interesting. Thank you.
Yes.
Our next question is coming from the line of Bret Jordan with Jefferies. Please proceed with your questions.
Hey, guys.
Thank you my follow up question got lost in the Shuffle earlier it was cash flow.
Think about your Capex in the last five or six years of real estate investment what inning are we at in building out the North American real estate.
Yes.
As you think about your May your Capex number what number would be maintenance versus acquisition of additional real estate going forward.
Yes Fair question, Brad I think we launched you may remember Jay talking about it.
The spring of 2016, our debt in 2020, 'twenty program to expand our footprint to have to absorb the growth that was to come if anything we had that under declared our ambitions, but a fair bit and have continued to invest even through this past quarter as you've seen.
The issue with a forward prognosis is that this is a dynamic question.
<unk>, what we see in <unk>.
Volume growth.
Share gain growth of our non insurance business cycle times et cetera, but we are certainly continuing to debate literally weekly to review, our investment opportunities and land and the like both in the U S and the overseas and overseas. So my expectation is that we'll continue to invest in land.
Each quarter as you know tends to be very lumpy because the nature of land is that we chase it for a long time to finally comes through and therefore, one quarter suddenly much more substantial than the prior one but we can continue to invest in our business. It's essential to what we do so we expect that to continue.
Okay could you give us sort of an expectation on maintenance capex. So we can sort of bucket what is acquisition versus ongoing Spanish.
The maintenance Capex I think.
Depreciation and amortization a decent starting point.
It's a reflection of the useful lives logic.
Our diligent about and review with our accountants, and so forth that should reflect how long that assets should last and it's a <unk>.
Good proxy certainly across.
Across the company overall.
Alright, great. Thank you.
Thanks, Brett.
As a reminder to ask a question at this time you May press Star one.
The next question is from the line of Stephanie Moore with <unk>. Please proceed with your questions.
Hi, Thank you for the follow up I just had a quick point I think you touched on many times with the efforts that will be done that have been done on our member recruitment side and on the buyer side. So maybe you can touch a little bit on is there is there anything different that has been done at the strategy needed to change or just remind us what youre doing specific.
Gesture reach that larger buyer base.
Has anything changed to create maybe a more stable buyer base, where you have more consistent purchases.
There would be helpful. Thank you.
Excellent I appreciate the questions and this is the logical but a little bit circular but it is the growth the quality of our cars the vehicles that we earn the right to sell from dealers.
<unk> brings additional members onboard increasing total loss frequency brings more members onboard the increasing members who are on board and brings more consignments from dealers and insurance companies. So it certainly is circular so it very much works in both directions in terms of the actual active measures we take.
On member recruitment.
It very much varies by country by market by type of buyer. It can include things as mundane as trade show attendance physical media, certainly social media and alike, but radio ads et cetera. It is it's all over the map and we try to have a sophisticated market specific approach to.
Each of our major member buying countries. It is also a major to do of ours to anticipate the next country, which has the characteristics of a one that should be a major co part buyer into invest proactively in that and then once they are in the funnel.
Yes.
We view the member experience is paramount as well not just the registration and becoming eligible to bid and participate at cobalt auctions, but really the lifetime journey with cohort what it means to buy a car pay for it and pick it up.
And so on and so forth and there are certainly enhancements will provide there over the years to come as well.
Great. Thank you.
Thank you. Our final question is from the line of Ali <unk> with Guggenheim. Please proceed with your questions.
Great. Thanks for taking my question.
And I'm wondering about the impact of these cat events on your margins in the past you've talked about upfront costs related to towing and land and you've seen kind of a pretty sizable margin impact initially before you actually sell those incremental total loss vehicles, given all of the investments you've made in land as well as your fleet on the tolling side as well.
Is there a chance that these.
Cat events had maybe less of a kind of near term cost and margin impact than they have historically.
I think it's perhaps more accurate IAA to say that for the same catastrophic events relative to 10 years ago, the financial impact to us is more muted than it otherwise would've been now every catastrophic event is unique in the east coast is a very good Louisiana, which has in turn very different from <unk>.
Houston, Texas, which is certainly different in Germany as well so it's a matter of investing proactively it's partially a question of cost because it allows us to equip the extremes of the supply curve, but it's largely about service to the reason, we owned trucks and land and have a catastrophic team already assigned here at cohort, who is ready to deploy at a moment's notice.
That is as much about customer service as it is about cost, but yes, all else equal the margin impacts would be more muted today than they otherwise would have been the priority really is providing excellent service to our customers.
Great that makes sense I appreciate the color and then a quick follow up on what drove the stronger vehicle sales growth in the quarter is there anything you'd call out there.
The vehicle sales growth there.
There are a number of different.
Avenues through which co part purchases cars, including our co part direct business, which is which.
Which reflects vehicles, we buy directly from consumers and in turn sell at our auction platform.
And that includes our international business in Germany, as we penetrate the market.
Show the market why the consignment model with cohort makes the most sense. We also hope to get the flywheel going by purchasing cars there as well. So there are a number of different forces I think unfortunately, the vehicle sales number just had built in.
An awkward be outsized effect on the P&L results, especially if you're focused on basis point changes in margin rates and the like but certainly we continue to evaluate the business on a per vehicle economics basis, which is a little bit less transparent to the outside world.
But yes vehicle sales have grown but even still relative to the actual sides of our business is very modest meaning if we were to gross up every car we sold to its actual selling price you would see that the purchase vehicles is pretty modest in the grand scheme of things.
Got it and one final question if I can squeeze it in I'm sure you do a lot of work on this internally, but any insights about what your market share currently maybe within kind of the insurance business. The consignment side versus your primary competitor I know this industry has historically been viewed as a duopoly, but it's pretty clear that co part has taken share over.
The last call it five plus years. So I'm curious if you have any kind of numbers that you would put around your market share versus versus your main competitor. Thank you.
Appreciate the question that I don't think we could provide.
An absolute number or an estimate of our market share.
Certainly do know that our customers have alternatives.
We act that way and invest and operate that way as well our market share gains, but you just described a moment ago a reflection of some of the things you talked about on the call, including catastrophic readiness, including auction liquidity in day to day service, including the technology stack of our member experience et cetera. So over the years, we certainly have had.
Growing our market position.
We take it.
That's one of our key aspirations as a business and we hope to do so in the future as well, but not in a position to provide an absolute ASP.
Great. Thanks, Jeff Thanks, Sean.
Thanks, Doug.
Thank you at this time I will turn the floor back to management for closing remarks.
Okay, well. Thank you everyone for joining us for the fourth quarter, we'll talk to you in a couple of months after the first quarter of fiscal 'twenty two thanks everybody.
Ladies and gentlemen, thank you for your participation. This does conclude today's conference have a great rest of your day.