Q1 2022 Copart Inc Earnings Call

Please standby.

Speaker 1: Please stand by.

Good day, everyone and welcome to the co part incorporated first quarter fiscal 2022 earnings call. As a reminder, today's conference is being recorded.

Speaker 1: Good day everyone and welcome to the COPART Incorporated First Quarter Fiscal 2022 Earnings Call. As a reminder, today's conference is being recorded. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. For opening remarks, I would like to turn the call over to Mr. John North, Chief Financial Officer of COPART Incorporated. Please go ahead.

A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad 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.

Good morning during today's call, we will discuss certain non-GAAP measures, which include adjustments to reverse a payroll tax benefits related to accounting for stock option exercises.

Speaker 2: Good morning. During today's call, we'll discuss certain non-GAAP measures...

Speaker 2: adjustments to reverse payroll tax benefits related to accounting for stock option

Speaker 2: We provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our Investor Relations website and in our press release issue.

A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our Investor Relations website and in our press release issued yesterday.

Speaker 2: We believe these non-GAAP measures, together with our corresponding GAAP measures, are relevant in analyzing our results and assessing our business trends and performance.

We believe these non-GAAP measures together with our corresponding GAAP measures are relevant and analyzing our results and 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.

Speaker 2: 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.

Speaker 2: For more detail on the risks associated with our business, we refer you to the section titled Risk Factors.

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, 2021, and each of our subsequent quarterly reports on Form 10-Q.

Speaker 2: your annual report on Form 10-K for the year ended July 31st, 2021, and each of our subsequent quarterly reports on Form 10-K .

Speaker 2: Any forward looking statements are made as of today and we have no obligation to update or revise any forward looking statements. And with that I'll turn it over to our president.............

Any forward looking statements are made as of today and we have no obligation to update or revise any forward looking statements and with that I'll turn it over to our president and CEO North America, Jeff laid out.

Speaker 3: Excellent. Thanks, John . Good morning, and thanks for joining us for the first quarter. We're pleased to report a strong first quarter for fiscal 2022 against a backdrop of various extremes, a persistent and evolving pandemic, changing global traffic patterns, supply chain disruptions, a strong used car price environment, and an active storm season, to name a few. We continue to serve our customers successfully to enhance auction liquidity and to continue our long-term trend of profitable growth.

Thanks, John Good morning, and thanks for joining us for the first quarter. We're pleased to report a strong first quarter for fiscal 2022 against a backdrop of various extremes, a persistent and evolving pandemic changing global traffic patterns supply chain disruptions are strong used car price environment and an active storm season to name a few.

We continue to serve our customers successfully to enhance auction liquidity and to continue our long term trend of profitable growth.

Speaker 3: I'll elaborate on a handful of key themes for the quarter, and John will provide additional perspective. My comments will center around Hurricane Ida, brief commentary there.

I'll elaborate on a handful of key themes for the quarter and John will provide additional perspective, my comments will center around Hurricane Idaho brief commentary there.

Speaker 3: Secondly, the health of our auctions. Third, the implications of the used car price environment. And fourth, our institutional commitment to stability.

Secondly, the health of our auctions third the implications of the used car pricing environment and fourth our institutional commitment to sustainability.

First on work Hurricane.

Speaker 3: First, on Hurricane Ida, Hurricane Ida struck the Gulf States on August 29th in the Northeast region on September 1st and 2nd. This represents our most substantial storm since Hurricane Harvey in 2017 and our largest storm in the Northeast region since Hurricane Sandy in 2012.

Hurricane struck the Gulf States on August 29th in the North East region on September one and second.

This represents our most substantial storm since hurricane Harvey in 2017, and our largest storm in the northeast region since hurricane Sandy in 2012.

Having learned from those experiences and a litany of catastrophic events between then and now we were better prepared for this event and in our history due to a very substantial investment over the years in land and technology and company owned trucks company employed drivers heavy equipment and most importantly, our dedicated cat team who deployed at a moment's notice.

Speaker 3: Having learned from those experiences and a litany of catastrophic events between then and now, we were better prepared for this event than any in our history, due to our very substantial investment over the years in land and technology, in company-owned trucks, company-employed drivers, heavy equipment, and most importantly, our dedicated CAT team who deployed at a moment's notice.

Speaker 3: Hundreds of us from around the country spent our Labor Day weekend on the ground, and many weeks thereafter, managing the retrieval of vehicles, receiving and imaging them, and navigating the vehicles through the titling process to their eventual sale.

Hundreds of us from around the country spent our labor day weekend on the ground and many weeks thereafter, managing the retrieval of vehicles, receiving an imaging them and navigating the vehicles through the titling process to the eventual sale.

Speaker 3: As is often the case with major storms, we experience an operating loss from the event in the quarter of a few million dollars. We view our pre-storm prep and our robust response to catastrophic events as investments in the strong and durable partnerships we have with our insurance sellers.

As is often the case with major storms, we experienced an operating loss from the event in the quarter up a few million dollars, we view, our pre storm prep and our robust our robust response to catastrophic events as investments and the strong and durable partnerships, we have with our insurance sellers.

Speaker 3: Our storm-related costs, as you know from prior experiences, include lease expense for temporary storage facilities, premiums for towing, labor costs and overtime for our people, travel expenses and lodging, among others.

Our storm related costs as you know from prior experiences include lease expense for temporary storage facilities premiums for towing labor costs and over time for our people travel expenses and lodging among others.

Speaker 3: These expenses are, of course, offset by revenue from incremental unit volume.

These expenses are part of course offset by revenue from incremental unit volume finish.

Financially speaking the impact of the storm in the quarter was approximately 100 150 basis points of gross and operating margin rate compression youll.

Speaker 3: Financially speaking, the impact of the storm in the quarter was approximately 100 to 150 basis points of gross and operating margin rate compression. You'll note we haven't provided further specifics in our press release or included adjustments in our non-GAAP earnings schedule for the catastrophe.

You will know we haven't provided further specifics in our press release or included adjustments in our non-GAAP earnings schedule for the catastrophe.

Speaker 3: We believe that providing excellent service in difficult times is an intrinsic aspect of our value proposition to our customers and that these storms will increase in frequency and severity over time.

We believe that providing excellent service in difficult times.

As an intrinsic aspects of our value proposition to our customers and that these storms will become will increase in frequency and severity overtime.

Speaker 3: The second thing I wanted to tackle is our unit volume growth and our auction liquidity. We experienced global unit sales increase of 21% year over year, of which approximately two points was explained by the hurricane itself.

The second thing I wanted to tackle is our unit volume growth in our auction liquidity, we experienced global unit sales increase of 21% year over year of which approximately two points was explained by the hurricane itself.

The U S increase of almost 24% again, two or three points of that growth explained by hurricane item.

Speaker 3: A U.S. increase of almost 24%, and again, two or three points of that growth explained by Hurricane Ida.

We grew our international unit sales by just shy of 8% the COVID-19 responses in countries outside the U S. As a general matter continues to be more aggressive and more pronounced than what we've experienced here state side.

Speaker 3: Our insurance business grew relative to the first quarter of last year at 23%.

Our insurance business grew relative to the first quarter of last year.

23%.

Speaker 3: We are observing certainly continued increases in total loss frequency. I'll comment more about that in a moment, and benefit from share gain as well. Driving activity itself continues to rebound relative to last year very significantly, but still just shy on measures such as gasoline consumption of what we experienced in the year prior.

We are observing certainly continued increases in total loss frequency I'll comment more about that in a moment.

And benefit from share gains as well driving activity itself continues to rebound relative to last year very significantly, but still just shy on measures such as gasoline consumption of what we experienced in the year prior.

Speaker 3: Total loss frequency has increased steadily, including during the pandemic. Though all else equal, as many folks on the phone already know, the strong used car price environment almost certainly is an inhibitor to assignment volume all else equal to co-part auction.

Total loss frequency.

<unk> increased steadily including during the pandemic they'll all else equal as many folks on the phone already know the strong used car price environment. Almost certainly is an inhibitor to assignment volume all else equal to go part auctions.

Turning to our non insurance volume when we exclude lower value cars, such as wholesalers and charities, our non insurance business grew seven 5% year over year with our dealer unit volume up slightly approximately 1% versus last year and strong growth in our co part direct business.

Speaker 3: Turning to our non-insurance volume, when we exclude lower-value cars such as wholesalers and charities, our non-insurance business grew 7.5% year-over-year, with our dealer unit volume up slightly, approximately 1% versus last year, and strong growth in our Copart Direct business.

Speaker 3: I'll note and you'll note this represents solid absolute performance, but arguably the strongest relative performance in our history to other vehicle marketplaces, given what is the pronounced shortage of available supply in the industry.

I'll note and you'll note. This represents solid absolute performance, but arguably the strongest relative performance in our history to other vehicle marketplaces, given what is the pronounced shortage of available supply in the industry.

Speaker 3: We think this is a testament to the power of Coparts Marketplace. And we've said it before, but it's worth reiterating. The cars we earn the right to sell on behalf of insurance companies, along with rising total loss frequency, enable us to achieve superior returns for progressively more non-insurance cars as well. And it's also true in reverse. The dealer, rental car, fleet, bank, and consumer cars we earn the right to sell drive still more insurance volume and higher total loss frequency as the years go by.

We think this is a testament to the power of co parts marketplace, and we've said it before but it's worth reiterating the cars, we earn the right to sell on behalf of insurance companies.

Along with rising total loss frequency enable us to achieve superior returns for progressively more non insurance cars as well and it's also true in reverse the dealer rental car fleet bank in consumer cards, we earn the right to sell drives still more insurance volume and higher total loss frequency as the years go by.

Speaker 3: The next theme I wanted to address is prices themselves. So we are experiencing, of course, high used vehicle prices across the world and certainly strong ASPs at co-part auctions as well. Our ASPs worldwide grew 11% year over year for the quarter, with US ASPs up 10%.

The next theme I wanted to address these prices themselves. So we are experiencing of course high used vehicle prices across the world and certainly strong asps are co part auctions as well our asp's worldwide grew 11% for the year over year over year for the quarter with U S Asp's up too.

10%.

Speaker 3: year-over-year as well. The Mannheim index as one industry proxy is at all-time highs with a November mid-month reading of 234.8.

Year over year as well the Manheim index is one industry proxy is at all time highs within November mid month reading of $234 eight.

<unk> eight.

The durability based piece is of course, a natural question, there's certainly our longer term trend in favor of hires a higher ASP, including our auction liquidity total loss frequency and alike as well as growing demand from emerging economies for wrecked vehicles from our origin countries. We also continue to invest significant resource.

Speaker 3: The durability of ASPs is, of course, a natural question. There certainly are longer-term trends in favor of higher ASPs, including our auction liquidity, total loss frequency, and the like, as well as growing demand from emerging economies for wrecked vehicles from our origin country.

And remember registration member recruitment to registration retention and the like.

Speaker 3: But, of course, we should acknowledge the technical forces as well. There remains a chip shortage which is affecting the production of new vehicles and driving higher prices for used vehicles around the world.

But of course, we should acknowledge the technical forces as well.

There remains a chip shortage, which is affecting the production of new vehicles and driving higher prices for used vehicles around the world.

Our perspective doesn't diverged from the industry consensus, which indicates that this chip shortage will persist well into 2022 and likely into 2023 as well the.

Speaker 3: Our perspective doesn't diverge from the industry consensus, which indicates that this chip shortage will persist well into 2022 and likely into 2023 as well.

Speaker 3: The important note here is that if and when used car prices do fall, we expect a corresponding increase in assignment volumes. As total loss frequency is negatively correlated with used car prices, the more a car is worth before the accident, the more prone it is to being repaired.

The important note here is that if and when used car prices do fall, we expect a corresponding increase in assignment volumes total loss frequency is negatively correlated with used car prices. The more a car is worth of before the accident the more prone to being repaired.

Last theme I wanted to tackle before handing it to John is the notion of sustainability.

Speaker 3: The last theme I wanted to tackle before handing it to John is the notion of sustainability.

Speaker 3: As a longstanding cultural matter, we at Copart have always asked to be judged on our actions and results, not our words or our PowerPoint presentations. But we recognize that we're at a moment in history in which companies are being challenged to articulate their ESG position more clearly, and I'll spend a few minutes on that.

Our long standing cultural matter, we co part of always asked to be judged on our our actions and results not our words or our Powerpoint presentations, but we recognize we're at a moment in history in which companies are being challenged to articulate their ESG position more clearly and I'll spend a few minutes on that theme.

Speaker 3: COPAR plays a critical role in the automotive circular economy, enabling the reuse, recycling, and responsible disposal of vehicles around the world. We sell well over 3 million vehicles per year. And by matching those vehicles with their optimal owners, we enable the return to service of automobiles that would otherwise have been scrapped, the reuse of parts that otherwise would have ended up in landfill.

Cope our plays a critical role in the automotive circular economy, enabling the reuse recycling and responsible disposal of vehicles around the world, we sell well over 3 million vehicles per year and by matching those vehicles with their optimal owners. We enabled the return to service of automobiles that would otherwise.

Had been scrapped the reuse of parts that otherwise would have ended up in landfills as a result.

Speaker 3: As a result, the reuse and recycling that CoPART enables displaces what otherwise would have been de novo resource extraction and energy consuming manufacturing as well.

The reuse and recycling the co part and enables.

Displaces, what otherwise would have been de novo resource extraction and energy consuming manufacturing as well.

Speaker 3: As climate events themselves increase in frequency and severity, COPAR will play a growing role in assisting communities in recovering from them as we have in our past by removing vehicles from roadways, storage facilities and repair shops, enabling the free flow of people and goods and services and economies in which we do business.

As climate events themselves increase in frequency and severity co part will play a growing role in assisting communities and recovering from them as we have in our past by removing vehicles from roadways storage facilities and repair shops, enabling the free flow of people and goods and services in the economies in which we do business.

And finally because of so many of our vehicles are ultimately purchased by buyers outside the U S. Our auctions contribute to the physical and economic mobility of residents in countries or emerging economies, including in Central and South America, The Middle East Africa and Eastern Europe.

Speaker 3: And finally, because so many of our vehicles are ultimately purchased by buyers outside the U.S., our auctions contribute to the physical and economic mobility of residents and countries of emerging economies, including in Central and South America, the Middle East, Africa, and Eastern Europe .

If you haven't read it already please do see our annual shareholder letter on our Investor Relations website, where we expand further on these thing on these themes among others, including diversity and inclusion.

Speaker 3: If you haven't read it already, please do see our annual shareholder letter on our investor relations website, where we expound further on these themes, among others, including diversity and inclusion.

Speaker 3: We'll offer more substance in the coming days in the form of a sustainability report as well. And with that, I'll turn it over to our CFO , John North, to talk about the first quarter's financial results.

We will offer more substance in the coming days in the form of a sustainability report as well.

And with that I'll turn it over to our CFO, John North to talk about the fourth quarter's financial results of the first quarter's financial results.

Thanks, Jeff.

Speaker 2: Before I get into the numbers, I'd like to begin by also acknowledging our team's effort relative to Hurricane Ida and thank them for their dedication and sacrifice.

Before I get into the numbers I'd like to begin by also acknowledging our team's effort relative to hurricane Ida and thank them for their dedication and sacrifice.

Speaker 2: Being relatively new to the Coe Park family, this was my first opportunity to see us in action.

Being relatively new to the co part family. This is my first opportunity to see us in action and to observe firsthand the tremendous sense of ownership, we take to ensure a positive outcome in the face of both disaster and tragedy RP.

Speaker 2: first-hand the tremendous sense of ownership we take to ensure a positive outcome in the face of both disaster and tragedy.

Our people are our people and our culture has always been and will continue to be the key to our success.

Now I'll make a few comments on our operational results and then we'll open it up for questions.

Speaker 2: I'll make a few comments on our operational results and then we'll open it up for questions.

For the first quarter global revenue increased $217 million or 37%, including a nearly $4 million benefit due to currency.

Speaker 2: For the first quarter, global revenue increased $217 million, or 37%, including a nearly $4 million benefit.

Speaker 2: Global service revenue increased 152 million or 30% primarily due to higher average.

Global service revenue increased to $152 million or 30% primarily.

Primarily due to higher average selling prices and increased volume.

Speaker 2: U.S. service revenue was up 31%, and international...

U S service revenue was up 31% and international experience an increase of 18%.

Speaker 2: Versus vehicle sales increased 65 million or 84% due to higher ASP.

Purchased vehicle sales increased $65 million or 84% due to higher ASP and increased volume.

Speaker 2: U.S. purchase vehicle revenue was up 87% over the prior year and international grew 79%. As a result, purchase vehicle gross profit is defined as vehicle sales

Purchased vehicle revenue was up 87% over the prior year and international grew 79%.

As a result purchased vehicle gross profit.

Defined as vehicle sales less cost of vehicle sales increased by $2 7 million overall.

Speaker 2: As Jeff mentioned, we had significant relative growth in our purchase vehicle volume, resulting in gross and operating margin rate contraction of approximately $194 million.

As Jeff mentioned, we had significant relative growth in our purchase vehicle volume, resulting in gross and operating margin rate contraction of approximately 130 to 200 basis points.

Global gross profit in the first quarter increased by $88 million or 30% and our gross margin percentage decreased by approximately 250 basis points to 47, 5%.

Speaker 2: Global gross profit in the first quarter increased by 88 million or 30%, and our gross margin percentage decreased by approximately 250 basis points to 47.5%.

U S margins declined from 50 to $6 53 and <unk>.

Speaker 2: international margins decreased from 37 to 33.1 due to a higher purchase vehicle mix at lower margins, partially offset by higher ASPs globally. I will now move to a discussion...

Our national margins decreased from 37% to $33.

Due to a higher purchased vehicle mix at lower margins, partially offset by higher asp's globally.

I will now move to a discussion of G&A expenditures, excluding stock compensation and depreciation expense.

They spend increased $5 9 million from $35 2 million a year ago to $41 1 million in 2022.

Yes, it is lower from five 9% of revenue to five 1% of revenue this year.

Speaker 2: yet it's lower from 5.9% of revenue to 5.1% of revenue this year. We anticipate G&A to continue to improve as a percentage of revenue as we grow our business.

We anticipate G&A to continue to improve as a percentage of revenue as we grow our business.

As a result, our GAAP operating income increased by 33%.

From $248 6 million to $331 million.

Speaker 2: First quarter income tax expense was $65.5 million at a 20.1% effective tax rate.

First quarter income tax expense was $65 5 million at a 21 effective tax rate, which reflected a $3 million tax benefit on the exercise in place stock option.

Speaker 2: which reflected a $3 million tax benefit on the exercise's employee stock options. Adjusting those to a non-GAAP measure included in our earnings release changed our effective tax rate to 21%.

Adjusting to a non-GAAP measure included in our earnings release.

Change our effective tax rate to 21%.

First quarter GAAP net income increase of 30%.

From $200 million last year to $160 million this year.

Adjusted her and the tax benefit on the exercise of stock options non-GAAP net income increased 37% from $188 5 million last year 200 to $257 4 million in the first quarter of 2020.

Speaker 2: non-GAAP net income increased 37% from 188.5 million last year to 257.4 million in the first year.

Our global inventory at the end of October increased 12% from last year.

Speaker 2: Our global inventory at the end of October increased 12% from last year.

This is comprised of a year over year increase of 14% for U S inventory and a decline of 3% for international inventory.

Speaker 2: of a year-over-year increase of 14% for U.S. inventory and a decline of 3% for international

Speaker 2: Increase in inventory is largely a function of U.S. accident frequency in miles driven returning to normal, supplemented with the effects of IDA and share gains, partially offset by declines in international, driven by countries with longer duration lockdowns as a response to COVID.

This increase in inventory is largely a function of U S accident frequency and miles driven are returning to normal supplemented with the effects of Ida and share gain.

Partially offset by declines in international.

Driven by countries with longer duration locked down to the response to Covid.

Now to briefly update our liquidity and cash flow.

As of the end of the quarter.

Speaker 2: We had $2.3 billion of liquidity comprised of $1.3 billion in cash and cash equivalent.

We had $2 3 billion of liquidity comprised of $1 $3 billion in cash and cash equivalents.

Speaker 2: an undrawn revolving credit facility with capacity of over a billion dollars.

Drawn revolving credit facility with capacity of over $1 billion.

Speaker 2: Operating cash flow for the quarter increased by $54 million year-over-year to $312.5 million driven by strong...

Operating cash flow for the quarter increased by $34 million year over year to $312 5 million driven by stronger earnings.

Speaker 2: invested $65 million in capital expenditures in the quarter, approximately 70% of this amount was attributable to capacity expansion. We are continuing to prioritize

That's a $65 million in capital expenditures in the quarter approximately 70% of this amount is attributable to capacity expansion.

We are continuing to prioritize investments in physical infrastructure above other choices and believe this continued investment is helping to create durable.

Speaker 2: We believe this continued investment is helping to create durable advantages in our ability to handle increasing numbers of total loss vehicles and adjacent operations.

And our ability to handle increasing numbers of total loss vehicles and adjacent opportunities in the whole car marketplace.

We're continuing to focus on investing for the future in both capacity and technology, while maintaining a conservative capital structure allows operational flexibility, regardless of economic changes or transitory market dynamics.

Speaker 2: We're continuing to focus on investing for the future in both capacity and technology while maintaining a conservative capital structure that allows operational flexibility regardless of economic changes or transitory market dynamics.

And with that we're happy to open up the call for some questions.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Speaker 1: Thank you. We'll now be conducting a

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One moment, please while we poll for questions.

Okay.

Speaker 1: Thank you. Our first question comes from Stephanie Moore with Truist. Please proceed with your questions.

Thank you. Our first question comes from Stephanie Moore with <unk>. Please proceed with your question.

Hi, good afternoon. Thank you.

Jeff.

I wanted to touch a bit on the overall inflationary and cost environment.

Currently experiencing and if you are in fact, taking the impact of the hurricane out of the equation. Thanks for quantifying the impact that you saw.

From that event, but just looking at one the dynamic that you called about on the last quarter with Gess operating deleverage.

Speaker 4: One, the dynamic that you called about on the last quarter was just operating de-leverages inventory levels increase, as well as

Can you elaborate just inventory.

<unk> increase as well as.

Speaker 4: somewhat newer dynamics that we've heard, whether it's higher towing costs, higher driving costs, you name it. So, just kind of want to walk through, if you could, what you're seeing from an inflationary standpoint and higher costs, and then some levers that you might have in place to offset some of those costs would be helpful. Thank you.

Somewhat newer dynamics that we've heard whether entire towing costs higher driving cost.

You name. It so just kind of want to walk through if you could what youre seeing from an inflationary standpoint, and higher costs and then some levers that you might have in place to offset costs would be helpful. Thank you.

Sure.

No.

The cost of categories, you notice definitely certainly I think all participants in all economies worldwide are experiencing inflation to some extent in the form of wages towing expense fuel capital equipment, and the like and certainly we aren't immune to that either.

Speaker 3: The cost category you notice, Stephanie, certainly I think all participants in all economies worldwide are experiencing inflation to some extent in the form of wages, towing expense, fuel, capital equipment, and the like, and certainly we aren't immune to that either.

Speaker 3: It's our job to manage that, to absorb it where necessary, to manage with productivity as we can, and to deliver the results. So we are seeing and experiencing those things.

It's our job to manage that.

To absorb it were necessary to manage with productivity as we can and to deliver.

Deliver the results. So it's a we are seeing and experiencing those things.

Speaker 3: I would note that inflation, though certainly more pronounced today, it's not a brand new phenomenon. For years, we've experienced very meaningful inflation in health care costs, for example. Land has continued to grow in value. Capital equipment, the loaders we buy, for example, are more expensive than they were five and ten years ago as well. So inflation is more pronounced today, but it's not a radically new phenomenon. So we do have experience in managing through that, with productivity being the most important

Note that inflation.

There was certainly more pronounced today, it's not a brand new phenomenon for years, we've experienced very meaningful inflation in health care costs for example.

<unk> has continued to grow in value capital equipment. The loaders. We buy for example are more expensive than they were five and 10 years ago as well so inflation is more pronounced today, but it's not a it's not a radically new phenomenon. So we do have experience in managing through that with productivity being the most important long term liver.

Speaker 4: Great. And then I guess maybe just talk a little bit about from an inventory standpoint, do you find that, you know, given where inventory levels are, particularly in the U.S., that you're seeing, just as inventory builds, just some operating leverage in the near term, as well as maybe some seasonality? So, just trying to think through the dynamic that impacted the fourth quarter and if that continued into the first.

Great and then I guess, maybe just talk a little bit about inventory standpoint, do you find that given where inventory levels are particularly in the west that you're seeing just as inventory builds just some operating leverage in the near term as well as maybe some seasonality, but just trying.

I think the dynamic that impacts the fourth quarter and that continued into the first.

Speaker 3: Fair question. And as you know, Stephanie, we run the business to deliver service and aren't, per se, trying to optimize any individual quarter, month, or unit in our inventory. I think your observation about inventory growth and unit volume growth helping to absorb

Fair question.

It's definitely we tend to we run the business to to deliver service and our per say trying to optimize any individual quarter month or units in our inventory I think your observation about inventory growth in unit volume growth helping to absorb.

Speaker 3: Fixed or semi-fixed cost is real. There's also other noise in the system, as you know, from the inflation you just mentioned a moment ago, Hurricane Ida, among other things. But yes, all else equals, certainly, unit volume growth on its own is near medium-term accretive to margin.

Fixed or semi fixed cost is real.

There is also other noise in the system as you know from the the inflation, you've just mentioned a moment ago Hurricane Ida among other things, but yes, all else equal certainly unit volume growth on its own is near medium term accretive to margins.

Absolutely. Thank you and then lastly for me kind of Big Picture you know you put out a release in early November about our partnership with I believe commerzbank, but just talk about some of the digital efforts that you have in place kind of where they feel like most of the time you you don't advertise some of the investments and initiatives you have in place.

Speaker 4: Absolutely. Thank you. And then lastly, for me, you know, kind of big picture, you know, you put out a release in early November about a partnership with, I believe, Commerce Bank that just talks about some of the digital efforts that you have in place, kind of rare if I feel like most of the time you don't advertise some of the investments and initiatives you have in place. But maybe if you could talk about

But maybe if you could talk about incremental investments that you are looking.

Speaker 3: incremental investments that you're looking going forward? Is it focused on improving cycle times, or what are areas where you find or have the largest opportunities for improvement here from it just for continued investment? Thanks. Fair point. And Stephanie, I'll talk perhaps in broader frameworks here.

Going forward is it focused on improving cycle times are what are areas, where you find that the largest opportunity for improvement here.

Just one for continued investment.

And Stephanie I'll talk perhaps.

<unk> frameworks here with.

Speaker 3: It's our job to serve our clients, and there are, as you know, multiple types of clients, starting with insurance companies, which still represent the strong majority of the units we sell. For them, they care a lot about speed and execution. They care about auction returns. They care about policyholder experience.

It's our job to serve our clients and there are as you know multiple types of clients starting with insurance companies, which still represents the strong majority of the units we sell for them.

They care a lot about the speed and execution they care about auction returns they care about policyholder experience and on all dimensions. We are investing there are different nuances to each I think which you mentioned a moment ago about cycle times and the.

Speaker 3: And on all dimensions, we are investing. There are different nuances to each. I think what you mentioned a moment ago about cycle times and the.

<unk>.

Speaker 3: The public notice you mentioned a moment ago about our partnership with Commerce Bank, for example, those are investments to address cycle times, in particular for cars with outstanding liens on them, which also have derivative effects on the policyholder settlement timelines in some cases.

Public notice you mentioned a moment ago about our partnership with our with Commerce Bank. For example, those are investments to address the cycle times in particular for cars with outstanding liens on them, which also have derivative effects on policyholder settlements timelines in some cases. So we certainly are investing their lien holder cars are in particular.

Speaker 3: So we certainly are investing there. Lean holder cars are in particular some of the most challenging vehicles in terms of cycle times, and we invest all the time in initiatives like that. But anyway, the point of all that was there are many dimensions to that, and we invest across those dimensions as well.

The most are the most challenging vehicles in terms of cycle times, and we invest all the time and initiatives like that but anyway. The point of all that was there are many dimensions to that and we invest across those dimensions as well.

Great. Thank you so much.

Thanks, Kevin.

Thank you. Our next question comes from Bob <unk> with CJS Securities. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Bob Labick with CJS Security. Please proceed with your question.

Good morning, Thanks for taking my questions.

Hey, Bob.

Speaker 5: I wanted to start and dig a little further on the total loss frequency commentary you offered us in the prepared remarks, as it relates to used car prices and insurance carriers' formulas to total a car.

Hi, I wanted to start and dig a little further on the total loss frequency commentary you offered us in the prepared remarks.

Used car prices and insurance carriers formulas to total a car if you.

Speaker 5: If you had said two years ago used car prices would rise 40 and now 60 or 70 percent over a two-year period, I would have incorrectly said total loss frequency would crater unless repair costs went up equally to offset it.

Wood said two years ago used car prices would rise 40, now 60 or 70%.

Over a two year period I would've incorrectly said total loss frequency would crater unless repair cost went up.

Equally to offset it.

<unk>.

Speaker 5: So I guess my question is, you know, are repair costs up as much in terms of dollars as used car prices? I can't imagine that's true. Or are insurers adjusting their total loss calculation kind of real-time to...

So I guess my question is our repair costs up as much in terms of dollars as used car prices I can't imagine that's true.

Or our insurers adjusting their total loss calculation kind of real time to the current salvage.

Speaker 5: the current salvage uh... your recovery rates that you're getting or is it something else because if it's dynamic you know insurance calculations if they're changing it with used car prices you know much faster than they have in the past would that potentially suggest that as used car prices fall then total loss frequency wouldn't rise as fast as anticipated

Your recovery rates that you're getting or is it something else because if it's dynamic insurance calculations, if they're changing it with used car prices much faster than they have in the past would that potentially suggest that as used car prices fall then total loss frequency wouldn't rise as fast as anticipated.

Question makes sense its a very perceptive question Bob.

Speaker 3: It's a very perceptive question, Bob, as usual. I think your statement is accurate in that total loss frequency, I think, has been impaired, all else equal, because of high used car prices. And your question as to then what tips to balance in the other direction, I think it is a combination of repair costs as well as rental car costs. You know, the repair path, so to speak, for an insurance carrier is also onerous and expensive today, relative to what it was two years ago.

Sure.

I think your statement is accurate and the total loss frequency.

Has been impaired all else equal because of higher used car prices and your question is to then what tips balance what tips the balance in the other direction I think it is a combination of repair costs as.

As well as rental car costs, the repair path so to speak for an insurance carrier is also onerous.

It expense is onerous and expensive today relative to what it was two years ago.

Speaker 3: I think there's also just the long-term secular trends in this direction. Anyway, Bob, as you know, which is the accident detection and avoidance systems and the vehicle complexity, substrate mix change from steel to aluminum and carbon and the like, electric vehicles, et cetera. So I think those are all.

I think there's also just the long term secular trends in this direction anyway, Bob as you know, which is the accident detection and avoidance systems and the vehicle complexity substrate mix change from steel to aluminum and carbon and the like electric vehicles et cetera. So I think those are all contributing to the net effect the total loss frequency as well.

Speaker 3: Contributing to the net effect that total loss frequency is rising when this one variable in isolation would suggest that it shouldn't now the other variable which is worth mentioning bob is You know the it's the mix between it's the tension between the two as well in terms of what the used car prices are But also our auction returns our auction returns are up Uh, I think more than pre-accident vehicle prices have been over that same period So we have also helped to close that gap with the the auction results as well

<unk> when this one variable in isolation would suggest that it shouldnt now the other variable which is worth mentioning Bob as you know.

It's the mix between the it's the tension between the two as well in terms of what the used car prices are but also our auction returns our auction returns are up.

Think more than pre accidents vehicle prices had been over that same period. So we have also helped to close that gap with the auction results as well.

Got it okay, that's great very helpful.

Just kind of going back to the cycle times I think in general.

That's obviously, a benefit and barrier to entry, but you're always trying to improve cycle times and obviously, they probably have over the last 510 years as well.

Cycle times.

To improve a little bit they open up yard capacity. So just curious as to like when.

Thinking about your Overcapitalized balance sheet and the liquidity that you have what are the primary uses of that liquidity as you run out of more land to buy or if cycle times pick up enough.

Speaker 5: Thinking about your overcapitalized balance sheet and the liquidity that you have, what are the primary uses of that liquidity as you run out of more land to buy, or if cycle times pick up enough, you need less land at the same time? So just trying to balance those two and ask, I guess, other uses of capital beyond land, because eventually you want to always buy land.

You need less land at the same time, so just trying to balance those two and ask I guess other uses of capital beyond land because.

Because eventually.

People have always bought land.

Many puts and takes on the question of land. So the business is growing and has been growing for years that by itself would necessitate more land not less cycle times.

Speaker 3: Many puts and takes on the question of land. So the business is growing and has been growing for years. That by itself would necessitate more land, not less. Cycle times.

Have improved but theres plenty of complexity in the ecosystem as well. So there are many examples case studies in which cycle times are increasing and today arguably very strong used car prices are making lean settlements faster than they otherwise would be.

Speaker 3: have improved, but there's plenty of complexity in the ecosystem as well. So there are many examples, case studies in which cycle times are increasing. And today, arguably, the very strong used car prices are making lean settlements faster than they otherwise would be, relative to an environment in which you had a bunch of underwater loans, for example, Bob, as you know.

Relative to an environment in which you had a bunch of underwater loans for example, Bob as you know.

Speaker 3: So I think in practice, we will continue to invest in land for years to come, and probably very substantially so. That said, as you noted, overcapitalized, Bob is more editorializing perhaps than I offer. But nonetheless, I take the point that we have a very robust balance sheet today. The answer over the next 10 years is for sure that we'll buy stock back, as we always have. As you know from our share count, the split that we have contracted,

And so I think in practice, we will continue to invest in line for years to come and probably very substantially so that said.

As you noted overcapitalized.

Overcapitalized, Bob is more editorializing, perhaps denied that I offer but nonetheless.

We have a very robust balance sheet today that the answer over the next 10 years, that's for sure that we'll buy stock back as we always have you know from our share count ex the split that we have contracted the.

Open market share part of the shares outstanding over the years and will continue to do so that's a matter of timing in comparison to our relative investment options and landed otherwise so we'll be good stewards of capital and return that via share buybacks at some point.

Speaker 3: open market share party, the shares outstanding over the years, and we'll continue to do so. That's a matter of timing and comparison to our relative investment options in land and otherwise. So we'll be good stewards of capital and return that via share buyback.

Speaker 5: Okay, super. And I meant to say well-capitalized, but it slipped out as over-capitalized. I apologize. And thanks for answering. I'll jump back in queue. Thanks.

Okay Super and I meant to say well capitalized, but it slipped out is over Capex I apologize.

Thanks, Thanks for answering all I'll jump back in queue. Thanks, Thanks, Bob.

Thank you. Our next question comes from Craig Kennison with Baird. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Craig Kenison with Baird. Please proceed with your question.

Speaker 5: Good morning, thanks for taking my question. Some have already been asked, but I thought I'd shift to Europe . I think you mentioned 8% volume growth, which was slower than what you saw in the U.S. And I think you identified COVID and the response there as a factor, but it's also a smaller business with

Good morning, Thanks for taking my questions. Some have already been asked but it's not a shift to Europe.

Thank you mentioned, 8% volume growth, which was slower than what you saw in the U S and I think you identified COVID-19 and the response there as a factor, but it's also a smaller business with.

Speaker 5: potentially a lot of momentum to it. Could you just comment on maybe the secular shift in that business and whether you still feel like you have momentum with insurance carriers in shifting their priorities to, shifting their practices to your platform?

Potentially a lot of momentum to it could you just comment on maybe the secular shift in that business and whether you still feel like you have momentum with insurance carriers and shifting their priorities to their <unk>.

<unk> their practices to your platform.

Speaker 3: Sure, and one technical clarification, when we said the growth rate, that was for our quote international business, which includes Canada, Brazil.

Sure and one technical clarification, when we said the growth rate that was for our quote international business, which includes Canada, Brazil.

The U K, Finland, Spain, Germany, and the Middle East. So it's not just Europe alone. So I think.

Speaker 3: UK, Finland, Spain, Germany, and the Middle East. So it's not just Europe alone. So I think underlying your question, Craig, is what's happening in Spain and Germany and our growth markets in Europe , for example. And there we continue to experience very significant year-over-year growth. We continue to prove the economic model. If anything, the gap between the auction returns we generate at co-part auctions relative to the listing services we've talked about in the past, that gap is expanding still. So the economic proposition, I think, is becoming more compelling, not less.

Underlying your question Craig is that is what's happening in Spain in Germany in our growth markets in Europe. For example, and we've continued to experience very significant year over year growth. We continued to prove the economic model if anything the gap between the auction returns we generate at co part auctions relative to the listing services, we've talked about in the past that gap is expanding still so the.

<unk> proposition I think is becoming more compelling not less but what youre seeing in terms of the overall growth rate is for sure that the U K and Canada for that matter in Brazil, and certain areas have been more aggressive about COVID-19 countermeasures and the USS.

Thanks, and then you've had good success in the U S. With your non insurance business is there a point when your.

Speaker 6: Thanks. And then you've had good success in the U.S. with your non-insurance business. Is there a point when your international business is mature such that you feel comfortable rolling out a service like that as well? Which service now, correct?

International businesses mature such that you feel comfortable rolling out a service like that as well.

Service now correct.

Speaker 3: I'm talking about non-insurance volumes, especially dealers selling cars on your platform. Yes, and to some extent we have. Where we do have liquid auction marketplaces, we have pursued other sources of that volume, including dealers and otherwise.

I'm talking about non insurance volumes, especially dealers selling cars on your platform into something that we have so where we do have liquid auction marketplaces. We do we have pursued other sources of that volume, including dealers and otherwise so in Canada, and Brazil, and the U K.

Speaker 3: Canada, in Brazil, in the U.K., for that matter, the Middle East. So in most most places we do business, the liquidity is comes in a hurry. And the cars that we can sell that extend beyond total loss units from insurance carriers happens pretty quickly as well.

And for that matter in the middle East. So in most most places we do business with liquidity is it comes in a hurry and the cars.

We can sell that extend beyond total loss of units from insurance carriers happens pretty quickly as well.

And then lastly, I appreciate your commentary on sustainability.

Speaker 6: And then lastly, I appreciate your commentary on sustainability. Clearly, your story fits that narrative quite well, and it's nice to hear you articulate it. I'm wondering if the board or you have done any analysis on whether, you know, you are under owned by that group of investors that put ESG as their number one priority.

Clearly your story fits that narrative quite well and nice to hear you articulate it I'm wondering if the board or you have done any analysis on weather.

You are under owned by that group of investors that put ESG is their number one priority.

Uh huh.

A judgment call at Hudson Bay from where we sit right now I'm not.

Speaker 3: A judgment call tough to make from where we sit, right? I'm not, uh, not sitting in their rooms and understand their criteria, but certainly from

Sitting in their rooms and understand their criteria, but certainly from.

Speaker 3: From our understanding of what constitutes true sustainability, I think our businesses should be at the very top of that list. So I think that's a reasonable conclusion, Greg, but we don't spend a lot of energy with target lists and trying to figure out who should own this and not. We trust that we deliver the results long-term economically and sustainability-wise, and those questions will take care of themselves.

From our understanding of what constitutes true sustainability I think our businesses should be at the very top of that list. So I think that's a reasonable conclusion, Craig, but we don't we.

We don't spend a lot of energy with target lists and trying to figure out who should owners and not we trust that we deliver the results long term economically and sustainability wise and those questions will take care of themselves.

That's great. Thanks, Jeff.

Thank you. Our next question comes from Daniel <unk> with Stephens. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Daniel Imbro with Stevens. Please proceed with your question.

Yeah, Hey, good morning, guys. Thanks, taking my questions.

Speaker 7: Jeff, I want to start on the non-insurance side of the business. You noticed some pretty stark outperformance versus the peers. As you're growing into those diverse synergies back to the business, I guess a few questions. One, right now, are you selling all of those dealer cars internationally, or are you actually transacting some maybe US dealer sourced cars to other dealers in the US?

Dev I wanted to start on the non insurance side of the business you noted some pretty stark outperformance versus peers or as you grow.

Going into those the diverse synergy.

I guess a few questions one right now or are you selling all of those dealer cars internationally or are you actually transacting. So maybe U S dealer sourced cars to other dealers in the U S.

Speaker 7: And then the second question would be, given the reverse energies and obviously the attractive just unit economics, what are the limiting factors on maybe growing into that faster as you think about the next three to five years' outlook on unit subs?

And the second question would be given the reverse synergies and obviously the attractive unit economics, what are the limiting factors on maybe growing into that factor as you think about the next three to five years outlook.

Speaker 3: Got it. Daniel, to your first question, the latter. So the U.S. dealer cars are being sold both to U.S. buyers and international buyers. Both are meaningful portions of the U.S. dealer buyer base.

Got it Daniel to your first question the latter so the U S dealer cars are being sold both to U S buyers and international buyers. Both both are meaningful portions of the U S dealer buyer base.

On your second question about the limit.

Speaker 3: On your second question about the limit, uh, that's a

Yeah.

There are dynamic circumstances, so as total loss frequency rises as we win more dealer cars. We then can win more dealer cars. So the logic is a little bit circular.

Speaker 3: There are dynamic circumstances. So as total loss frequency rises, as we win more dealer cars, we then can win more dealer cars. So the logic is a little bit circular, but are we the absolute sweet spot for a perfectly intact $75,000 Audi today when it comes to liquidity?

But are we the absolute sweet spot for it perfectly intact 70, $575000 Audi today when it comes to liquidity, perhaps not yet I'd argue we can achieve a very strong result, there too, but there are certainly many cars and an increasing number of cars for which we are the obvious answer I don't think were yet the obvious answer for $75000 audis, but.

Speaker 3: Perhaps not yet. I'd argue we can achieve a very strong result there too. But there are certainly many cars and an increasing number of cars for which we are the obvious answer. I don't think we are yet the obvious answer for $75,000 Audis. But there's no ceiling per se. Probably the same conceptually, Daniel and Pete folks ask, what is the ceiling for total loss frequency? Can it get to 25%? Can it get to 30? I think this is a dynamic picture and we'll see that evolution over time. But there's no reason there's a hard asymptote.

There's no there's no ceiling per se, probably the same conceptually Danny when people asked what is the ceiling for total loss frequency can it get to 25% can you get to 30 I think this is a dynamic picture and we will see that evolution over time, but theres no no reason theres a hard asymptote.

That makes sense and then I guess it had to Bob's question earlier, you know as you think about land capacity, though youre not feeling right now given the trade off but we don't have enough land for continued growth in either dealer or insurance cars year land gives you flexibility to pursue both.

Speaker 7: That makes sense. And I guess it's tied to Bob's question earlier, you know, as you think about land capacity, though, you're not feeling right now, given a trade off, like we don't have enough land for continued growth in either dealer or insurance cars, your land gives you flexibility to pursue both.

Speaker 3: Correct. The combination of our land and our logistics and our planning is such that we are in position to serve our customers.

Correct, the combination of our land and our logistics and our planning is such that we are in position to serve our customers.

Speaker 7: Perfect and then last question just wanted to touch on the percentage of vehicles. I think in 10-K less. That was filed that are getting sold overseas. I think we're still kind of in the mid 30s. That's that's pretty flat from the year before. I guess.

Perfect and then last question just wanted to touch on the percentage of vehicles I think in the 10-K left.

So theyre getting sold overseas I think we're still kind of in the mid 30, that's pretty flat from the year before I guess, where are we at the hard question to answer but in terms of innings, where are we at in terms of opening up new countries that sell into are there still larger emerging market thinking like India, you guys arent selling into today and then maybe you could talk about.

Speaker 7: Where are we, it's a hard question to answer, but in terms of innings, where are we at in terms of opening up new countries to sell into? Are there still larger emerging markets, thinking like India, that you guys aren't selling into today? And maybe, could you talk about just what the steps look like as you enter into these new countries to really start scaling those buyer bases where you're not maybe fully mature today?

What.

Look like as you enter into these new countries to really start scaling those buyer basis, where you're not maybe fully mature today.

Speaker 3: Oh, I think it's not anywhere close to mature. I think if you compare, and we did this exercise internally some years ago, but if you compare long-term GDP growth.

I think it's not anywhere close to mature I think if you compare when.

We do this exercise internally some years ago, but if you compare.

Long term GDP growth rates and have that on one axis on on the other axis have vehicles per capita the very fastest growing economies in the world tend to be the ones with the fewest cars and vice versa. The ones with the slowest growing economies have the most cars to say U S. Western Europe, Japan for example.

Speaker 3: and have that on one axis, on the other axis.

Speaker 3: have vehicles per capita. The very fastest growing economies in the world tend to be the ones with the fewest cars and vice versa. The ones with the slowest growing economies have the most cars, to say US, Western Europe , Japan, for example.

Speaker 3: And so there will be a 50-year trend of more of our used, wrecked, damaged vehicles moving overseas where they are meaningful contributors to economic and physical mobility there. So that theme isn't going away anytime soon. As for tactically how we pursue individual countries, we do both. So we are responsive when we see

So there will be a 50 year trend of more of our used wrecked damaged vehicles moving overseas, where they are meaningful contributors to economic and physical mobility. There. So that that theme isn't going away anytime soon as for tactically how we pursue individual countries. We do both so we are responsive when we see.

Speaker 3: activity from countries that previously didn't buy, and we'll invest in online and physical marketing. In some cases, we'll invest in physical resources on the ground there as well.

Activity from countries that previously didn't buy and we will invest in online and physical marketing in some cases, we will invest in physical resources on the ground there as well to cultivate that new buyer base and in some cases, we're simply proactively identifying countries that fit the parameters that obviously country ex looks a whole lot like countries y and Z that already by a lot let's go deep.

Speaker 3: to cultivate that new buyer base. And in some cases, we are simply proactively identifying countries that fit the parameters. That obviously country X looks a whole lot like countries Y and Z that already buy a lot. Let's go dip our toe there proactively even before we see actual buyer activity. So we do do both.

Auto there proactively even before we see actual buyer activity. So we do do both.

Got it that's helpful. Thanks, so much and best of luck.

Thank you.

Thank you. Our next question comes from Chris <unk> with BNP Paribas. Please proceed with your question.

Speaker 1: Thank you. Our next question comes from Chris Bottiglieri with BNP Paribas. Please proceed with your question.

Hey, Thanks for taking the question just one quick clerical one.

Speaker 8: Hey, thanks for taking the question. Just one quick clerical one to start off with. Was the revenue impact on the cat, was that roughly like 2% as well in terms of the contribution to revenue that you gave volumes?

To start off with.

The revenue impact on the.

The cat was that roughly like 2% as well in terms of the contribution to revenue.

<unk>.

Yes, Directionally, yes.

Got it okay.

Speaker 8: Gotcha. And then I want to ask about what you're seeing in terms of like towing availability, to what extent that's become a constraint is, you know, more brick and mortar dealers are going digital and online retailers, and that's putting pressure on the system. And then.

Then.

So wanted to ask about what youre seeing in terms of like killing availability to what extent that may be kind of constraint is more.

Brick and mortar dealers are going digital and online retailers and that's putting pressure on the system and then.

Speaker 8: Relatedly, you have a small but growing fleet in the U.S. that's dedicated for cat events, but what do you do with those towing vehicles when you're not in a cat, right? The other 365 Fordies of the year, how do you use those towing trucks?

Relatedly you have like a small but growing fleet in the U S. That's dedicated for for Cat events, but what do you do with those what do you do with those telling vehicles when when youre not in a cat rate. The other 365 four days of the year.

How do you use those those telling trucks.

Speaker 8: in other parts of the year and is there any opportunity to expand that to vertically integrate or Is it just not enough scale? How do you think about that trade-off?

In other parts of the year and is there any opportunity to expand that to vertically integrate or.

Is it just not enough scale, how do you think about that trade off.

Speaker 3: When not deployed, they support our business in markets in which we are facing the most pressure in terms of towing vehicles. So you're right that even when there are not active storms, we make good use of those.

We're not deployed based support our business and markets in which we are facing the most are the most pressure in terms of towing vehicles. So you are right that even when there are not active storms, we make good use of those.

Speaker 3: those assets. Medium long term, I think there is, there may well be an opportunity to invest further still here. Historically, we have

Those assets medium long term I think there is a there may well be an opportunity to invest further still here historically, we have done.

Speaker 3: Done very well with the third-party contractor model. They tend to be

Done very well with a third party contractor model.

Tend to be very resourceful and productive and it's a good alignment of interest is they want to grow and support their own businesses and to work productively for us, but that's always an it's an evolving mix and one we continue to evaluate over time.

Speaker 3: very resourceful and productive, and it's a good alignment of interests as they want to grow and support their own businesses and to work productively for us. But that's always an – it's an evolving mix and one we continue to evaluate over time. During the catastrophic event, and certainly even in – and afterwards as well, we are certainly happy that we have those trucks and those drivers employed in-house. They have been very productive members of our team.

The catastrophic events and certainly even.

Afterwards, as well we are certainly happy that we have those trucks and those drivers employed in house they had been.

Very productive members of our team.

Yes. Thank you that's helpful.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

Speaker 8: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question.

Thank you. Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.

Speaker 8: Thank you. Our next question comes from Brett Jordan with Jeffries. Please proceed with your question.

Good morning, guys.

Speaker 9: On the IDA cars, and I think you called out the 14% U.S. inventory growth, have most of IDA cars been processed or are there any that flow into the second quarter that might come with margins but fewer expenses associated with them?

Right.

On the Ida cars.

You called out the 14% U S inventory growth have most of Ida cars has been processed or are there any of that flow into the second quarter that might come with.

Margins, but fewer expenses associated with them.

Many of those cars are.

Speaker 3: Many of those cars are, we have not yet sold the majority of the cars. So they're coming in, many of them in the second quarter and some no doubt will, there'll be a tail that takes longer.

We have not yet sold the majority of the cars. So they are coming in and many of them in the second quarter and some no doubt will there'll be a tail that takes longer than that.

Speaker 9: Okay. And then you did comment that insurance growth of 23% included both a higher total loss rate as well as share. Could you maybe give us some what was share versus total loss in that growth?

Okay, and then you did comment that insurance growth of 23% included both a higher total loss rate as well as share could you maybe give us some what was share versus total loss in that growth.

Speaker 3: No, we don't break that out in breadth. The share commentary, I think, as you know, is a long... That comment you can probably find in literally every earnings call. It's been true for a long time. The industry tends to move more slowly in terms of switching providers. But over the very long haul, we have, generally speaking, grown our share, both in the insurance realm and certainly in non-insurance as well. And that was true in this quarter as it was in the past 30 quarters as well.

No we don't break that out and breadth of the share commentary I think as you know is a there's a long comment you can probably find it literally every earnings call. It's been true for a long time the industry.

It tends to move more slowly in terms of switching.

Switching providers, but over the very long haul we have generally speaking and grown our share both in the insurance realm, and certainly the non insurance as well and that was true in this quarter as it was in the in the past three quarters as well.

Speaker 9: Okay, and then I guess a question sort of a longer term. As you think about the purchase vehicle trend and purchase vehicles up 85% if you were to think out three to five years, do you see this becoming a business where you are doing a greater percentage of your unit volume on purchased versus service? No.

Okay, and then I guess, a question sort of a longer term.

As you think about the purchase vehicle trend in purchase vehicles up 85%. If you were to think out three to five years do you see this becoming a business where you are doing.

Greater percentage of your unit volume on purchased versus service.

No I think the the long term.

Wins of history would suggest we move the other way that we migrate eventually from principal to consign.

Speaker 3: Winds of history would suggest we move the other way, that we migrate eventually from principal to a consignment basis. The principal business.

A consignment basis the principal business for example in the UK. When we entered in 2007. It was largely principal oriented and today, we sit that shifted the strong majority over to a consignment basis, instead, which we think is a better long term alignment of our incentives with those of our sellers as opposed to being principals to trade against them. We are on the same side rooting for the highest possible.

Speaker 3: For example, in the U.K. when we entered in 2007, it was largely principal oriented, and today we've shifted the strong majority over to a consignment basis instead, which we think is a better long-term alignment of our incentives with those of our sellers, right? As opposed to being principals who trade against them, we are on the same side, rooting for the highest possible scale price for those cars. Now, the realms in which we do have more principal activity tend to be places where

Sale price for those cars now the realms in which we do have more principal activities tend to be places where.

We are less established as a known brand and a known quantity. So today, we are not yet a prominent consumer brand. So it's tough to ask Bret Jordan to consign his car through us and assume that we'll get a good return for you. Instead, we can offer you a compelling price you sell the car to us and we sell it in turn as a principle and ditto in the U K.

Speaker 3: We are less established as a known brand and a known quantity, so today we are not yet a prominent consumer brand. So it's tough to ask Brett Jordan to consign his car through us and assume that we'll get a good return for you. Instead, we can offer you a compelling price, you sell the car to us and we sell it in turn as a principal. And ditto in the UK in the early days, today that's no longer necessary because we certainly are a well-established brand among the insurance industry and otherwise in the UK.

In the early days today, that's no longer necessary, because we certainly are a well established brand among the insurance industry and otherwise in the U K.

Speaker 9: So the point being, all long-term as liquidity grows, as our recognition grows in those subsections of the marketplace, so to speak, we'll migrate to a consignment model. Okay, great. And I guess one final question, just a percentage. As you think about the run and drive, that what percentage of the cars that you are processing could be put back on the road in these emerging markets? I mean, obviously some are beyond repair, but when you think about the mix,

So the point being all long term as liquidity grows as our recognition grows in those sub sub sections of the marketplace so to speak.

Will migrate to a consignment model.

Great and I guess, one final question just a percentage as you think about the run and drive that what percentage of the cars that you are processing could be put back on the road in these emerging markets I mean, obviously some are.

<unk> repair, but when you think about the mix.

Speaker 9: Is it 30 or 40 percent of cars that you see in theory could be roadworthy again?

Is it 30 or 40% of cars that you see in theory could be road worthy again.

Of the cars that are exported.

Speaker 3: I don't know offhand, Brett, so I don't want to speculate, but it's high, that number doesn't sound unreasonable to me, in part because there's a natural filter, as you might imagine, for the kinds of cars that it's even worth putting on a boat to get to Eastern Europe , period. You will filter out the cars that are pure metal content or a couple of recycled parts and then otherwise disposed of. They tend to, by their nature, be the more drivable, repairable cars that would ever leave the country in the first place. Okay.

I don't know offhand, but so I don't want to speculate, but it's high that that number doesn't sound unreasonable to me in part because theres a natural filter as you might imagine for the kinds of cars that it's even worth putting on a boat to get to eastern Europe period, you will filter out the the cars that are pure metal content or a couple of the recycled parts and then otherwise disposed of.

Turning to by their nature would be the more drivable repairable cars that whatever lead the country in the first place.

Okay. Thank you thanks Brett.

Thank you. Our next question is from Ryan Brinkman with J P. Morgan. Please proceed with your question.

Speaker 8: Thank you. Our next question is from Ryan Brinkman with J.P. Morgan.

Hi, Thanks for taking my question I wanted to ask on what you think.

Biggest drivers of your non insurance volume in particular, the dealer cars, which we know from following car global an ACD are under significant pressure as the chip shortage is weighed on new vehicle inventories and therefore, new vehicle sales and used vehicle trade ins given your significant outperformance of the trend in dealer cars Im curious, if youre doing anything differently or.

Have changed your go to market strategy with regard to dealer cars or maybe it's a function of greater capacity. After the land purchases or just what have been the drivers there and what do you think the longer term potential for dealer cars might be.

Speaker 3: Sure, nothing radical in terms of our approach. We have a very capable sales team who approaches those dealers.

Sure nothing nothing radical in terms of our approach we have a very capable sales team who approaches those dealers and communicates our value proposition proposition to them being our global auction liquidity.

Subjecting your car to a global buyer base and finding the best home for their car, whether it's in Ohio, Florida, Poland or Honduras, I think there is a compelling value proposition there, but theres nothing radical that we had changed in the last quarter or two or three this is the byproduct of the auction liquidity, we've talked about a moment ago as well as our own proactive sales.

Efforts.

Okay, Thanks, and Im not sure what percent of the non insurance cars you option, our whole cars as supposed to like non insurance salvage cars, maybe you can help us with that and then the whole cars what percent are dealer cars versus from other sources, such as off lease off rental and repossession because I think these other.

Speaker 2: I'm not sure what percent of the non-insurance cars you auction are whole cars as opposed to like non-insurance salvage cars, maybe you can help us with that and then of the whole cars, what percent are dealer cars versus from other sources such as off-lease, off-rental and repossession because I think these other non-dealer whole car categories are down even more than the dealer cars. I'm just curious what you're seeing there too and if those other categories are also a potential source of share gain going forward beyond the opportunity in dealer cars.

Non dealer whole car categories are down even more than the dealer cars. So I'm just curious what you're seeing there to win.

If those other categories are also a potential source of share gain going forward beyond the opportunity in dealer cars.

Speaker 3: The answer to your latter question is yes, those are also relevant and addressable for us, and all cars, as you well know, are on a spectrum. So even what you define as a salvage versus whole car is a more nuanced matter than a binary distinction between the two.

The answer to your latter question is yes. Those are also relevant to an addressable for us at all cars as you well know are on the spectrum. So even what you define as a salvage versus whole car is a more nuanced matter even simpler than that.

Binary distinction between the two but we have grown our business very naturally of course, they rental car company with a car that slightly damaged or meaningful damage. We are absolute obvious home for it older car, where a good and obvious how important is well the newer rental cars. Those of course are very.

Speaker 3: But we have grown our business very naturally, of course, a rental car company with a car that's slightly damaged or meaningfully damaged. We are absolute obvious home for it.

Speaker 3: Older car, we're a good and obvious home for it as well. The newer rental cars, those of course are very meaningfully compressed in terms of available industry volume because of the

Very meaningfully compressed in terms of industry available industry volume because of the shortage of new cars. The fleets are hanging onto cars, they've got but yes long term those are addressable for us as well addressable targets for us as well.

Speaker 3: the shortage of new cars, the fleets are hanging on to the cars they've got. But yes, long term those are addressable for us as well, addressable targets for us.

Okay. Thanks, and just lastly, I want to follow up on your comment about higher used car prices being a global phenomenon.

Speaker 10: Lastly, I want to follow up on your comment about higher used car prices being a global phenomenon. I found that quite interesting. I'm curious if you could identify any sort of trends that you're seeing in terms of used vehicle inflation by market. I think it is more severe in the US. I don't know if you have any ideas as to why that might be or if that's not what you're seeing. Also, if used vehicle prices are inflating more in the US than internationally and the US dollar has somehow outperformed all expectations, hanging in there very strong, rallying recently, how does that impact affordability overseas for these cars?

That's quite interesting and I'm curious if you could identify any sort of trends that youre seeing in terms of your used vehicle inflation by market I think it is more severe in the U S and I know if you have any ideas as to why that might be or if that's not what you are seeing in and also if used vehicle prices are in play and more in the U S and internationally in the U S dollar has.

Somehow outperformed all expectations hanging in there very strong rallying recently.

How does that impact affordability overseas for for these guys.

Speaker 3: I

I would say that the.

Speaker 3: I think of vehicles, with some notable exceptions, the automotive industry as being a reasonably liquid global market. Right? So I don't think you could see.

Think of vehicles with some notable exceptions.

The automotive industry as being a reasonably liquid global market right. So I don't think you could see.

Speaker 3: 50% inflation for two-year-old Toyota Corollas in one market and 8% inflation in another currency-adjusted. So I do think we have observed.

50% inflation for two year old Toyota Corolla in one market and 8% inflation another currency adjusted so I do think we have observed.

Speaker 3: increases in used car values around the world in most countries in which we do business. There are sources of friction and distortion, of course, in comparing those trends, whether it's tariffs or shipping or otherwise that can introduce discontinuities in that comparison. But by and large, I think of the vehicle business as being a global one in nature. In terms of the long-term trends, short-term trends, I think we certainly can be affected by currency.

Increases in used car values around the world in most countries in which we do business. There are sources of friction and distortion of course, and comparing those trends, whether it's tariffs or shipping or otherwise that can it can introduce discontinuities in that comparison, but by and large I think of the vehicle business as being a global one in nature in terms of the long term trend.

<unk> short term trends I think the we certainly can be affected by currency.

Speaker 3: in any given auction, in any given week, in any given quarter, maybe even in any given year. But I think the long-term trends of our cars being in higher demand in other countries still than they are in the U.S., that's not going away. That over a multiple-year horizon will dwarf any currency effects.

In any given auction any given week in a given quarter, maybe even any given year, but I think the long term trends of our cars being in higher demand in other countries still than they are in the U S. That's not going away that over a multiple year horizon will dwarf any currency effects.

Okay helpful. Thank you.

Speaker 8: Thank you. Our last question comes from Chris Batiglieri with BNP Paribas. Please proceed with your question.

Thank you our last question comes from Chris, particularly Aerie with BNP Paribas. Please proceed with your question.

Speaker 3: Hey guys, thanks for sending me back in. Just had a follow-up to Brett's question. Just want to make sure I heard you correctly. You said the vast majority of the CAT cars hadn't been sold yet. So should we expect to see- We've sold a bunch, but the majority have not yet been sold.

Hey, guys. Thanks for fitting me back and sort of follow up to Brad's question.

Just want to make sure I heard you correctly, you said the vast majority of the cat cars Hasnt been sold yet so should we expect a story we sold a bunch for the majority have not yet been sold.

Speaker 3: Gotcha. So, I mean, I'll be thinking like it was one or two point impact this quarter. Is it like two to three or is it just much more than that? Any sense in the margin rate should be similar headwind? Like, how do we think about all that? Yeah, as you know, we don't provide any kind of forward guidance. Those cars will sell. They will generate revenue. They do have costs associated with them. They'll have simplifications. We'll talk about it next quarter.

Yes, so I mean there'll be thinking like if there's one or two point impact this quarter or is it like two to three or is it just much more than any any sense in the margin rates to be similar headwinds how do we think of that as you know.

We don't.

Don't provide any kind of forward guidance are those cars.

We'll sell they they will generate revenue they do have costs associated with them they'll have some vacations, we'll talk we'll talk about next quarter.

Yes. Thank you.

Yeah.

Thank you there are no further questions at this time I would like to turn the floor back over to Jeff Lee for any closing comments.

Speaker 3: Thank you. There are no further questions at this time. I would like to turn the floor back over to Jeff Leal for any closing comments. Good. Thanks, everyone, for joining us. We'll talk to you next quarter.

Thanks, everyone for joining US we'll talk to you next quarter.

Speaker 8: Ladies and gentlemen, thank you for your participation. This concludes today's conference. Have a great rest of your day.

Ladies and gentlemen, thank you for your participation. This concludes today's conference have a great rest of your day.

Yes.