Q3 2022 Copart Inc Earnings Call
Please standby.
Good day, everyone and welcome to the co part incorporated third quarter fiscal 2022 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 income tax benefits related to stock based compensation legal matters and discrete income tax items.
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 we.
We believe these non-GAAP measures together with a corresponding GAAP measures are relevant in analyzing our results and are assessing our business trends and performance.
In addition, our comments today include forward looking statements under the meaning of federal Securities laws, including management's current views with respect to the trends opportunities and uncertainties in our markets. These forward looking statements involve substantial risks and uncertainties for more detail on the risks associated with our business. What we refer you to the section titled Risk factors in our annual report on.
<unk> Form 10-K for the year ended July 31, 2021, and 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 revise any forward looking statements.
And so with that out of the way I'd like to turn the call over to our co CEO , Jeff Lee.
Great. Thank you good morning, everyone.
Pleased to report our results for the third quarter of fiscal 2022 as you are all no doubt well aware our industry and the global economy in general are experiencing a number of variables that unusual levels, new and used vehicle shortages evolving workplace practices and traffic patterns volatile and elevated fuel and commodity price.
Mrs.
And global instability against that backdrop, we continue to perform well for our customers and therefore by extension for our business as well.
Our long term core operating beliefs and principles remain unchanged.
Above all else, we will invest in our physical infrastructure, our technology platform, our people and our customer service offerings to improve auction liquidity and returns for our sellers and our more mature markets. We will continue to collaboratively engage with our sellers both day to day and through catastrophic events, including what appears to be a active storm season.
And ahead to protect them and their policyholder relationships, we will actively expand our addressable market by growing our volume of lesser damaged in whole cars from both insurance and non insurance sellers and we will continue our expansion into international markets in Western Europe , and beyond including Germany and Spain.
Turning to the events of the quarter our.
Starting with the unit volume trends and are our auction performance, our global unit sales increased 12% year over year for the quarter with a U S increase of 11% and international increase of 18%.
Our insurance business itself grew relative to the third quarters of both last year and the year prior on a two year basis.
Due to a continued recovery in overall driving activity in accident frequency and severities.
We'd also note however that record high used vehicle prices have for the past few quarters negatively impacted total loss frequency and a tempered overall insurance volume growth relative to what it otherwise would have been.
On the notion of driving activity at least as measured in vehicle miles driven is tracked by the U S Department of Transportation. For example, we've seen a rebound in driving activity now to levels similar to pre pandemic levels, including as measured by gasoline consumption and alike.
Character of driving has evolved with less of course workplace commuting more leisure travel.
The substitute.
On the question of total loss frequency contrary to very consistent long term trends total loss frequency has declined sequentially over the past few quarters and year over year with a strong used car price environment and vehicle availability of reducing assignment volume relative to what it otherwise would be.
While our auction returns themselves are at all time highs and have kept pace with the used car market in general higher pre accident values do reduce volume relative to what it otherwise would be.
In layman's terms in a world in which replacement vehicles are hard to come by total loss settlements are less compelling than they otherwise would be.
While total loss frequency has declined over the course of the past 12 months or so the 40 year trend is nonetheless clear we believe the market will ultimately reverts to the historical norm of steadily rising total loss frequency and in fact, a number of other variables.
Increasing accident severity repair duration repair labor cost rental car costs and alike should contribute to that reversion as well the history of total loss frequency is quite clear it was 4% or thereabouts of $19 80, and it's approximately 20% today.
And it in turn has been a product of two key factors vehicle complexity and composition have made cars more expected to repair over time, while our auction liquidity and global buyer base have made them ever more efficient to total instead.
As used vehicle values, eventually moderation and potentially trend back to lower levels in the future.
We may see a moderation in our average selling prices as well in that scenario. However, we believe we will benefit from volume increases perhaps substantially so.
We continue to grow our business as well.
In non insurance vehicles, including excluding pardon me Carr.
Some sources like wholesalers and charities our U S. Non insurance business grew approximately 3% and unit volume year over year, driven in part by growth in our consumer based cash for cards business as well as growth in non salvage sources of volume such as rental car fleets corporate fleets and financial institutions.
Overall, our growth across the full spectrum of vehicles generates improved auction liquidity auction attendance and returns for our sellers as well.
Greater number of non insurance cars, we sell whether they're from dealers have rental car companies fleet managers lenders or from consumers ultimately contributes to auction liquidity and generating better returns for our insurance sellers in term.
I wanted to provide a few.
Comments on environmental sustainability and governance matters before turning it over to John .
We play a meaningful role in the global circular economy, we sold more than 3 million vehicles in our last fiscal year and estimate that 40% to 50% of those vehicles are ultimately return to drivable services somewhere on the planet.
And of course, the balance are subsequently harvested for parts and raw materials in both cases, we provide meaningful benefits to the world environmentally through the avoidance of manufacturing of vehicles and of replacement parts.
According to recent research from Argonne National Laboratory of Science and Engineering Research Health operated by the University of Chicago on behalf of the U S Department of energy the vehicle manufacturing processes process produces nearly two metric tons of cotwo per new vehicle manufacturer.
We estimate therefore that our business facilitates the avoidance of literally millions of carbon dioxide.
Millions of tonnes of carbon dioxide per year.
Our business, especially given our emphasis on providing access to international buyers also contributes to the advancement of other important societal societal objectives, including the reduction of global poverty with affordable transportation is a crucial lever and improved outcomes for people around the world and commuting to work advancing their education or accessing medical care and the like.
In the weeks ahead, we intend to publish our inaugural ESG report in which we'll provide additional disclosure about our role and impact in the circular economy.
And with that I'll turn it over to John North our CFO to walk through the third quarter financial results.
Thanks, Jeff and good morning.
I'll make a few comments on our results and then we can open it up for some questions.
For the third quarter global revenue increased $206 million or 28%, which included a $7 2 million dollar headwind due to currency.
Global service revenue increased $142 5 million or 23%.
Primarily due to higher average selling prices and increased volume U.
U S service revenue grew 23% and international experienced an increase of 19% despite significant currency headwinds.
We saw continued strength in average selling prices, which grew 13% year over year for the quarter USA Asps were up 14%.
The Manheim index is lower than January record levels, but remains historically elevated ending April at $221, two which was an increase of 14% year over year.
That trend has continued in may the mid month index. This year at least a couple of days ago is up sequentially.
Seven tenths of a percent.
<unk> nine 7% year over year.
U S insurance pre accident.
<unk> were up 29% or $3700 roughly as they continue to catch up with the reality of current used car values.
Purchased vehicles continue to comprise a larger percentage of our overall revenue mix driven by both unprecedented used car values and growth in volume, particularly in our consumer facing Castro cards business in the United States and from expansion in Germany.
Vehicle sales increased $64 million or 58% U S. Practical purchased vehicle revenue was up 56% over the prior year and international grew 62%.
Vehicle cost of sales grew $63 million or 66% exceeding the growth in revenue.
As a result purchase vehicle gross profit increased modestly by 800000 or five 3% overall.
Local gross profit in the third quarter increased by $55 million or 14% and our gross margin percentage decreased by approximately 550 basis points to 46, 4% U S margins decreased from 55 to 50 in international margins decreased from 37 to 29.
As was true last quarter. This margin decline was primarily attributable to two factors.
Approximately 250 basis points of decline was due to purchase vehicles from both a mix shift to more of them and from the decline in gross margin rate.
The vehicles relative to their absolute values increase.
The balance of the margin contraction was attributable to cost inflation about telling and labor.
Offset partially by higher revenue per unit and volume growth.
We believe we can continue to increase margin and returns on capital over time, However, as we benefit from scale and find further operational efficiencies through technology and innovation.
I will now move to a discussion of G&A expenditures.
Compensation and depreciation.
G&A spend in the quarter increased $11 1 million.
Approximately $6 6 million of the increase was attributable to certain how to legal items and we have presented this adjustment net of tax in our non-GAAP reconciliation.
Resting for this our G&A increased $4 5 million or 11, 5% from $39 1 million to $43 6 million.
G&A can be volatile from period to period over the longer term, we anticipate G&A leverage to improve as we grow our business and create additional opportunities for efficiency.
Our GAAP operating income increased by 14% from 328 million to $373 million and adjusting for the <unk> item I mentioned, a moment ago and increased 16% to $379 million.
Third quarter income tax expense was $91 million at a roughly 25% effective tax rate adjust.
Adjusting for the tax benefit associated with the exercise of stock options as well as certain legal matters and.
And other discrete tax items, the effective tax rate would have been 25 two.
Third quarter GAAP net income decreased 3% from $287 million last year to 278 $279 million excuse me this year adjusted to remove the items detailed in our pro forma reconciliation included in the press release non-GAAP net income increased seven 4% from $262 million.
$2 million to $282 million in third quarter of this year.
Our global inventory at the end of April increased five 3% from last year and 7%, excluding low value units from wholesalers and charities for example.
This is comprised of a year over year increase of one nine for the U S and 31% for international.
The increase in inventory is largely a function of accident frequency and miles driven are turned in normal offset by a decline in total loss frequency as Jeff commented on a few months ago.
Now to briefly highlight our liquidity and cash flow.
As of April 32022, we had $2 9 billion liquidity comprised of $1 7 billion of cash and cash equivalents and an undrawn revolving credit facility with capacity of over $1 2 billion.
Given the recent increase in interest rates, we have elected to call the $400 million of private placement notes due in $100 million tranches between now and 2029.
We will incur a modest prepayment penalty, but believe this to be the superior choice given cash on hand and associated interest savings over the next seven years, we have notified the noteholders and anticipate retiring the debt early next week.
Operating cash flow for the quarter increased by $48 million year over year to $417 million driven by stronger earnings.
We invested $79 million in capital expenditures in the quarter and over 80% of this amount was attributable capacity expansion as we continue to prioritize the investments Jeff spoke of a moment ago.
And with that we'll conclude our prepared remarks, we're happy to take some questions.
Yes.
Thank you.
And gentlemen, if you would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Please pull for questions.
Our first question comes from Bob <unk> with CJS. Please proceed.
Hi, Good morning, it's Pete Lucas for Bob.
You're showing nice unit growth.
And despite what we think are suppressed industry volumes due to lower total loss frequency and lower whole car auction volumes do you think you have sufficient capacity for expected volume growth when used car prices do recede and what's the pipeline like for additional land purchases.
In short the capacity efforts I appreciate the question Peter.
Our capacity expansion efforts have been ongoing for years you first heard about the 2000 2020 initiative in the spring of 2016, so thats six years ago, and our land acquisition as you know during that period of time, there has been elevated even relative to our history during which we bought.
Land almost as much as we could find.
Nowadays those land purchases continue and we do believe we are well equipped to handle a cyclical rebound.
As used car prices decline. So we can handle that volume as it comes but we are still purchasing land in anticipation of future growth as well both in the day to day business as well as our catastrophic readiness in light of increased volatility. It's not just the need for more land overall, it's also to accommodate greater volume. It's also.
An increased ability to handle spikes that are attributable to storm activity as well.
Great and one more from me just in terms of yard costs revenue unit and yard costs.
Cost to process a unit of both rising rapidly can you talk about the outlook and drivers for cost to process a unit and if inflation does debate how much might yard costs pulled back and have there been any structural changes to the cost to process a unit.
I appreciate the question no no structural changes per se I think like many businesses are perhaps most businesses in this global economy, the inflationary forces and we've always faced inflation.
In past quarters in past years, perhaps we'd be talking more about healthcare expenditures in some instances in some cases, we talk about fuel and the like today that those key drivers of course, our fuel to the extent that we use our own fleets to pick up trucks, certainly there are increased costs for vehicles and motors.
And alike and to the extent that we use third parties.
To manage our logistics were to retreat samples for us. They in turn are facing elevated fuel labor vehicle cost and the like so nothing unusual.
I wouldn't characterize it as a structural change or a structural shift just the same underlying variables that most of us are facing today.
Great. Thanks, I'll jump back in the queue. Thanks Lee.
Our next question comes from Daniel <unk> with Stephens, Inc. Please proceed.
Yeah, Hey, good morning, everybody and congrats on the quarter.
Thanks Pat.
Jeff I had a question on the total loss rate dynamics I think it makes a lot of sense, obviously with prices high what's going on there, but for that to revert and for total loss rates start increasing do we need prices to move absolutely lower or do they just need to stop increasing at.
These elevated rates or said another way if prices were to stay higher for longer or maybe just slowly moderate from here would that be enough to call. It total loss rates to start increasing or do we really need to see a pretty steep moved lower in pricing you think before that reversed in the long term trend.
A fair question I think this is an unusual enough moment in history that it's tough to forecast from this is the baseline in the sense that.
This is the first time I can remember that I could sell my truck, which is two years old for well north of what I paid for two years ago, having put 20000 miles on it right. So.
Tough to extrapolate too much from today's trends I don't think Thats, So I think a reversion to anything.
Resembling historical norms I think we would drive total loss frequency up I don't think that necessarily means a very radical change that used car prices, but I think it does mean that.
Used cars that are two years old can't sell for me and a few more than new ones.
Got it that's helpful and then just moving to the non uncertainties.
A lot of change in the wholesale market now I'm curious with the sale of ADESA. How do you think that creates opportunities for Cobra non insurance business, specifically thinking about things like repossessed vehicles, which need to be stored on land and obviously you guys have a huge advantage. There just curious how you view the wholesale market as it potentially growth opportunity and how that changes with what's.
With the sale, but that's it.
Yes.
A fair question I think we precede that.
Upon that kind of business as an opportunity for for years and have pursued that business and built the capabilities to service those types of customers and have made good progress in that regard industry changes like the one you mentioned I think cause disruption to the status quo. So I think it's a potentially favorable catalysts for us, but ultimately we still have to.
Our value proposition to deliver excellent returns to our sellers to provide excellent service to them as well. So it's a helpful fact, perhaps on the margin, but ultimately the challenge at <unk> and <unk>.
We think we will rise to meet it.
Perfect and then last one is kind of a modeling question John just following up.
Another step up in the mix of vehicles sales versus service it looks like its happening both in the U S and internationally is there any change on.
What insurance carriers provide there or can you provide some color maybe on why that keeps continuing on the person to be able to add other than just used vehicle prices.
Yes, I mean, it's a combination of vehicle prices and also units and as we mentioned we've seen significant growth in the U S and our consumer facing business, our <unk> business, where we buy lower value vehicles directly from consumers thats been growing rapidly we made great progress there and thats incremental liquidity in the marketplace. So we're happy to have it it doesn't.
This place other business in the U S per se. So we're happy to add those cars as well internationally I think really is a testament to the success, we're having in Germany.
<unk> seen great growth there in terms of assignment volume and like many nascent markets often times youre, starting providing insurance carriers with more certainty, which requires a greater mix of purchased staple contracts that business evolved exactly the way it did in the U S.
And in the U K, whereas we build trust and relationships and demonstrate tangible returns to insurance carriers, we can align and move to a more consignment based model and so you've seen both of those.
Great. Thanks, a lot of sense. Thanks, so much guys and best of luck alright. Thank you.
Our next question comes from Craig Kennison with Baird. Please proceed.
Hey, good morning, Thanks for taking my questions and Jeff Congratulations on your promotion to co CEO I guess, what should investors clients our employees expect from that change.
I think.
Co part as you know I think has long been.
<unk> has long had a very collaborative culture to begin with so we make decisions.
Based on the data and debating the merits of paths X y Z. So I think in many respects business continue as it did before.
He was president of the business before and works closely with our international teams in our U S functions and our customers to drugs excellent outcomes for them. So I think from from your perspective and for most of the outside world not a radical change from the day before.
Got it thank you.
Your business is not overly cyclical but to the extent the broader economy is headed for a recession what can you do.
To prepare for that.
Yeah.
Yes.
A recession, which of course is just top of mind for everyone. I think historically I would have told you that it can lead to higher unemployment.
Of course today at nearly all time low unemployment levels, but it can lead to elevated unemployment and therefore a reduction in commuting.
Work and otherwise.
Of course over the course of the past two years, we've seen a decline in our computing traffic anyway.
Even as the economies the global economy is booming. So I think it's difficult to go to prepare for it I think our assumption is that we will have to continue growing our capacity and serving our customers with greater volumes.
Tomorrow than today, and so I think preparation we're ready for it if it comes but I don't know that it changes the trajectory of how we manage the business day to day.
And I guess, just as a follow up related to and national power sports auctions.
Are you seeing any rise in repossessions as the economy slows in that particular category.
If so modestly.
I think we've been on a many year run of very low repossessions.
Certainly over the course of the past few years, because theres so much equity value.
In any loan outstanding that was issued very very recently those are almost always in the money. So the repo volumes remained low even if you're struggling to make your payments you can likely cash in your asset.
Whether that's a car or bike for that matter for positive equity not negative.
Great. Thank you.
Thanks, Craig.
Our next question comes from John Healy with Northcoast Research. Please proceed.
Thank you.
Wanted to ask a big picture question.
Obviously Atlanta has been the right move for you guys for a long period of time.
But Jeff you made a comment about investing in the infrastructure at co part.
As I think about the needs of the business going forward and you talk about more volumes coming to you guys at some point.
With the total loss rate getting back on that long term trajectory. How do you think about the towing capacity in the business and if volumes do pick up from here.
Are the pressures and telling them, we're going to get worse and is there any thought to potentially internalizing.
It takes they are telling side of the business, obviously the balance sheet.
Fortress and it would seem like you'd have the ability to.
Maybe pivot to making telling a internal competency rather than on an outsourced item and we will have to kind of hear your thoughts on the pluses and minuses of that.
Yes, great.
A question and one we.
We are constantly reevaluating I think first on the.
First half of your question what happens when volumes pick up.
Two our demand for towing capacity I think theres. So many confounding variables. The real question is what's caused that volume to go up ready to the used car prices have softened somewhat and so total total loss frequency reverts towards historical trends and we see many more cars being totaled instead of repaired. That's one scenario. If you told me that.
Dramatic global economic downturn, leading to very high unemployment and suddenly.
Heightened availability of drivers that would be a different question altogether.
But as to your.
More general question, we have long had a mix certainly very heavily in favor of third party contractors now for many many years to to retrieve vehicle for us, but we are also operated our own fleet. Historically the logic. There was we wanted to have some capacity to serve in particular and storms because.
That's when drivers are of course in the shortest to supply when we suddenly have elevated five X 10 X ordinary day to day volume.
Major Metro area.
Having drivers migrate there from elsewhere in the U S is challenging and so we have built our own capacity are catastrophic fleet, so to speak to serve our customers and their times of need and ours.
We are also evaluating doing more of that on a day to day basis as well not per se because of the fortress balance sheet, but because it may allow us to better serve our customers and so we have purchased certainly meaningfully more trucks in the past couple of years and we had previously for that express purpose.
Long term, we continue to think there are technology solutions that can help increase efficiencies for our logistics, including by the way expansion of footprint every new yard we add reduces to some extent the miles that any given car has to be towed to get to a cohort facility, but as well as our technology our location based driver apps, which helped.
To better dispatch better deploy our drivers whether they are in house employees or third parties.
Great. Thank you. Thanks.
Thanks, John .
Our next question comes from Chris, particularly Aerie with BNP Paribas Exane.
Please proceed.
Hey, guys. Thanks, taking the question.
I wanted to follow up on the purchase vehicle business a little bit.
As most of the growth in the U S is that coming from co part direct or are there other factors at work and then.
Can you tell us more about the co part correct cars, the average selling price materially different than your overall.
And then I have a related to your question for this business.
Yes, I think we called it out specifically in the U S. Chris because.
That's been the most significant driver.
Of the purchase vehicle volume in the <unk>.
U S market and certainly we've seen just overall vehicle inflation, which has driven that number higher as well as I'm sure. You can appreciate so whatever business. We had a year ago is certainly up dramatically. When you just think about the change in the Manheim index year over year.
So those are the two big factors there in terms of a specific vehicle.
Go check out the website at <unk> Dot com historically, we used to call it co part correct.
Internally, but we have been branding it as cash for cars.
Dramatic resources into that business over the last couple of years and have seen previously.
Pretty significant growth of the average car is obviously significantly lower than our overall asps.
Think of these as the cars that would be a direct to wholesale piece. If you took it to a carmax carvana.
For a car that theyre going to retail.
To the tune of $500, a $1000 or something like that.
Okay.
Growth otherwise non insurance also was driven by some of those other non salvage sources that we mentioned in the opening comments from rental car fleets corporate fleets finish.
Financial institutions and alike.
So both.
Yes. Okay. So then just related question is the gross margins have been under pressure for like six seven quarters now can you kind of speak with.
Causing that.
What is the gross profit per per purchase vehicle done over that same period and I wonder if it's maybe more stable on that metric and just kind of give us a sense for kind of how to think about the gross margins. The gross profit per vehicle on the purchase side, yes.
Yes, I think theres, a little bit of splitting the difference. So gross margin. When you say that I think mathematically you literally mean percentage right and so that phenomenon is.
Part a shift to purchase vehicles and in practice these are not <unk>.
Manage the duration of these assets very aggressively, but we don't want to own purchase cars speculatively purchased by expected to we want to buy them. When it makes sense when it makes sense to and when necessary and we want to sell them very quickly. So they are not long duration assets and therefore, we manage them to absolute dollar profit.
And just by its nature, you will make a higher percentage return on a $1000. A car. Then you will have 5000 other cards will make more than $5000 a car.
Absolute dollars, but far less on a percentage basis, so as we've seen an increase.
Purchase car mix that drives the gross margin rate down.
As we've seen an increase in the value of the average purchased car. You'll also observed a decline in the percentage rate as a result as well.
Gotcha alright, thank you.
Thanks, Greg.
Thank you, ladies and gentlemen, as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
And our next question comes from Bret Jordan with Jefferies. Please proceed.
Hey, good morning, guys.
On the non insurance business I know you called out cash for cars in fleet you Didnt mentioned dealer at all is that something that is really no longer a focus or maybe give us an update on that.
Now the lower value dealer volumes look yes.
The volume is incredibly important to us and has been for years.
Yes.
This environment as Youre, well aware a breath of dealers in particular used car dealers are struggling for volume themselves that remains a meaningful and profitable business for us and a huge long term priority for us as well we didn't call. It out specifically in this quarter was not a meaningful driver of growth for us for the quarter year over year.
Okay, and then I guess as you've shifted to some of these higher value cars purchased vehicles outside of the insurance space could you update us maybe what percentage of your unit volume is run and drive as we think about this is that cheap.
Cheap source of transportation globally, maybe how big a piece of your business is that.
So running drive is kind of a specific technical term but.
I made the comment accident ESG section. If you would if you wanted to guess how many of our cars are ultimately driven as cars again as opposed to harvested for parts metals and alike. We think it's approximately half between 40 and 50% of the cars ultimately are used as cars either in the U S or in the <unk>.
And the native market from which it originates or elsewhere.
In the developing economies, where the cars are wrecked cars are incredibly desirable drivable cars to them.
Okay, Great and one last question I think you called out Germany.
Doing well now could you talk about the cadence of that business is there anything I guess you guys talked about the economy in the U S. But obviously a lot of instability.
In Eastern Europe .
If you talk about the sort of the trajectory there in the last couple of quarters is it improving or.
Any color would be helpful.
The unit volume trends in Germany are very encouraging I think emission on on the last call. We are selling cars on a consignment basis for the majority of the top 10 carriers in Germany, none yet with a nationwide all in deal.
But certainly doing so at volume for a good number of insurance carriers today.
Or as you noted affected more so even in the U S.
The instability regional instability, let's call it.
A good number of their buyers come from countries affected by the recent conflict.
They will feel that to some extent, but nevertheless, earning.
Good consignment volume on behalf of insurance carriers.
A good forward progress there.
Great. Thank you.
Thanks, Brett.
Our next question comes from Ryan Brinkman with Jpmorgan. Please proceed.
Hi, I appreciate the comments on ADESA. Thank you and agreed there is a clear market share opportunity for you in the physical or on premise whole car auctions market, including <unk>.
Physical auction business and sold the Carvana, which still has provided us the competitor beyond ADESA, losing market share, though another potential outcome of that transaction is I think an acceleration toward the app based online only dealer to dealer business or even.
Online off premise commercial consignor business and I believe that you don't participate in these parts of the whole car market today, because you take possession of all the vehicles you saw I think so I just wanted to check in on that with you. If you have any updated thoughts on the online only portion of the whole car market as you increasingly expand into whole.
Would it be relatively difficult or easy do you think for you to transition your whole car offering to online only which I think there's been some speculation could over time have attractively high margins and returns when at scale.
Yes, it's a fair question and many nested questions they're in as for whether that economic model is ultimately compelling I think time will tell in there as you know our number of participants in that space, some publicly traded and others not.
Do follow that business model carefully we do experiment with offerings like that and in fact have done so in our own business. We do continue to believe that liquidity is paramount and so bringing the buyers and sellers together in an auction online, yes, but bringing them together in an online auction, which we achieve.
Price discovery and maximum returns for our sellers is ultimately the way, we deliver value to them and whether that will someday be achieved virtually versus in our physical facilities. I think remains to be seen but I don't think thats, a structurally challenging pivot for us per se, but today the strong majority of our cars as you noted.
Still we are still physically touching them.
Okay. That's helpful. Thanks, and then I think there is.
Obviously, a number of macro factors, helping you, including the rebound to miles driven and some of that the increase in commodity prices since the conflict in Ukraine, but also isn't a lower dollar generally better for co part, giving you greater translation of EBITDA in pounds back into dollars and because of the greater purchasing power up of overseas customers in dollar terms. So.
Okay.
Then arguably surprisingly stronger and so I'm just curious if you could maybe dimension that stronger dollar headwind if you see that.
How large.
Forceful is that relative to some of these other macro tailwind and have you seen any impact yet on overseas demand from a stronger dollar.
Okay, Yes in short we have I think.
Let's say not even that the pound certainly but also just the basket of international currencies period has certainly weakened relative to the dollar and for the reasons. You noted we quote prefer a weaker dollar for our business. Both for the translation of earnings that we generate in other countries as well as for international participants at our.
Our U S. Auctions. So that has had an effect that has no doubt been a headwind in the business.
The good news in our business today is that the auction liquidity is robust enough that there are always a very healthy number of countries looking at and bidding on vehicles certainly many buyers in the U S across the U S and Canada, Mexico, and Central and South America, and the like that are bidding so theres enough cumulative.
Liquidity to mitigate this effect to some extent, but yes, if we woke up with a dollar at 2019 levels. We would see auction returns all else equal will be meaningfully higher okay.
Okay. Thanks, and then just lastly could you did you say or could you say what percentage of your buyers have historically been in Russia, or Ukraine or what percent of your U S volume those countries might represent.
We haven't disclosed that but.
They are meaningful in the sense that there were years in which many high value cars would be sold for example, too to Ukraine and Russia.
It is.
It matters, but it's not it's not a large percentage overall okay.
Okay, great. Thank you very much.
Thanks, Ron.
Thank you. This concludes our question and answer session I would like to turn the call back to Jeff Lee for any closing remarks.
Great. Thank you everybody and we'll talk to you again after the fourth quarter in September .
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.