Copart, Inc.

Please stand by. Good day, everyone, and welcome to the Copart Incorporated fourth quarter fiscal 2020 earnings call. Just a reminder, today's conference is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart Incorporated. Please go ahead, sir.

Thank you, Casey. Good morning, everyone, and welcome to our fourth quarter call. I'd like to cross over to Jeff, the hour president, to do the safe harbor, and then we'll go ahead and give you an update on the quarter.

Jeff? During today's call, we'll discuss certain non-GAAP measures, which include adjustments to reverse the effect of certain discrete income tax items, disposal of non-operating assets, foreign currency-related gains and losses, certain income tax benefits and payroll taxes related to accounting for stock option exercises, and the effect on common equivalent shares from ASU 2016-09. We've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our website under the Investor Relations link and in our press release issued yesterday. We believe these non-GAAP measures, together with our corresponding GAAP measures, are relevant in assessing our business trends and performance. We analyze our results on both GAAP and non-GAAP bases. In addition, our comments today include forward-looking statements within the meeting of federal securities laws, including management's current views with respect to trends, opportunities, and uncertainties in our markets, including with respect to the COVID-19 pandemic. These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with our business, we refer you to the section titled Risk Factors in our annual report on Form 10-K for the year ended July 31st, 2019, and each of our subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today, and COPRAT has no obligation to update or revise any forward-looking statements. Okay.

Thank you, Jeff. Well, recently I was discussing the growth accomplishments achieved in 2020, and to say it was a unique year would be an understatement on so many fronts. The year started very strong, no question about that. August was ahead of the prior year both in finance, in units sold, and in pro-car yields. The great people that make Copar perform across the organization were executing both internationally and domestically in existing operations, from picking up vehicles, imaging those vehicles, receiving inventory, processing title, and eventually auctioning and selling off those vehicles. But also, we were executing on future opportunities, like finding land for capacity, making technological improvements to our internal platforms and our websites, creating pipeline supply both to our marketing efforts and our sales team, and really the list of accomplishments goes on and on. We had no reason to see 2020 as anything other than being our best year yet, where Copart would achieve record financial performance in an over 26-year history of filing Ks as a public company. By mid-year, We didn't believe that was going to be the case. The world was changing by the hour, and the government was actually contemplating and eventually would implement a policy of shutting down non-essential businesses and restricting how frequently and where people drive. This is not just in the US, but we were seeing this globally in markets where Cofart does business. Today, we have the benefit of hindsight, and despite all the challenges of 2020, It was a year where we actually did put down record performance, both from an operational standpoint, but also record financial performance that outdid every year prior to 2020. And I will tell you, in the past, we have had many great years where we questioned whether we could raise the bar again after such performance. As you know from history, we have continued to grow Copart, and we have done that again in 2020, even in the face of such an unprecedented unprecedented and challenging environment. So how do we do this, you might ask? Well, it's a cultural thing, and culture starts with people. We at Copart have the best people in the industry. We talk about people, process, and technology, and while technology and process have driven our business for over two decades, it is the people that not only do the day-to-day execution, but also that can pivot and if necessary, course correct on a dime when things get challenging. And that's exactly what happened in fiscal 2020. We didn't let the pandemic control us or change our long-term goals, but we did course correct in the short term to address head-on the safety of our customers and our employees. Throughout this period, we never dropped the ball on executing inside the organization for our members, our sellers, and our fellow employees. While August, the first month of fiscal 2020, was a record month, April was not. April was off 37% in assignments and 15% in units sold. In terms of assignment volume, it was the worst month of the fiscal year with people not just social distancing but staying home from school and work, failing to eat out at restaurants, seeing their hair salon and movie theaters closed, and the list goes on. Our immediate response was to communicate to all of our employees to stay focused on the job at hand, and that's exactly what our people did. And while they committed to our customers, we committed to them, promising no furloughs and no reduced hours. We wanted them to know that while they had our customers back, we had their back. We could have reacted to the environment we faced two ways, positively or negatively. The fact is, we chose the prior, not the latter. and viewed this lull in volume as an opportunity, an opportunity to straighten up yards and office space, workhold inventory, good zoning approved on land that might have otherwise not been approved prior to COVID, and implement efficiencies in our process, all while utilizing new technologies developed during the year. In 2020, we spent over $500 million in CapEx and added over 2,000 acres to our capacity. And I might add, the team never slowed down during the worst of the COVID pandemic. 2020 is a great example of Copart's performance in challenging times. We did this in 2008 during the financial crisis, and we have now done this again during a COVID-19 pandemic. Life is unpredictable. Always has been, always will be. But at Copart, we will always take the position of having a long-term view And that will always include having a conservative balance sheet. We are owners and best behave like owners. We challenge the norm every day. We get results. And in the process, it all comes down to our people. People who we celebrate with passion and people who have integrity in every decision and every action that they make. I used to say before 2008, that we were a recession resistant company. After 2008, I started saying that we were recession proof. And now, after 2020, I can confidently say we are a pandemic proof company. When Willis and I ended our call, I reflected on all that we achieved in the year and all that I'm thankful for. And when talking specifically about Copart, it's our people. I couldn't be prouder of the year and all their achievements. I'd now like to introduce our president, Jesse Allen.

Thank you, Jake. Before turning to our financial performance for the quarter, which will provide the metrics we do customarily, a handful of observations about, of course, the COVID-19 crisis specifically. We anticipate many questions about recent trends, for which we'll provide you our most informed perspectives, of course. We also want to draw you back, as Jay just did, to the strategic and operational principles that guide our decision-making and have guided us through the pandemic, including investing in people, technology, and process, as Jay just articulated. We are immensely proud of our people for delivering our essential service to the communities we work in around the world. We elaborated in more detail on our last call about how important it is that we do what we do to enable the roads and our society's infrastructure to function as it does. We've done so while adapting on the fly to keep our employees, members, and customers safe. History has shown that we distinguish ourselves in a time of crisis and in investing in our people, processes, technology, and land against the backdrops of arguably the biggest economic disruption of our lifetimes, we think we've done so again. Our aspiration throughout the crisis has been to deliver much, much more than business as usual. We have adapted real-time to our customers' workflow modifications, their process changes. We've deployed new technology that has enhanced what we do and what they do as well. I wanted to make a handful of observations about some of the key industry drivers that we talk about regularly, including miles driven, accident frequency, total loss frequency, and matters like that before talking about the details of the quarter. As we noted on our last call and in Jay's overview, we'd observed substantial declines in driving activity in March and April, and therefore assignments and inventory as well. Since June, we've seen a gradual and steady improvement in activity levels, with the United States generally recovering more quickly than some of our international markets. not substantial recovery since then, but very mixed on the magnitude of the recovery. We track sources, many of which I'm sure you do as well, including Google, Apple, INRIX, the University of Washington's Institute for Health Metrics and Evaluation, all of which or most of which show substantial declines still in comparison to last year. As another guidepost, we track data published on gasoline consumption by the United States government's Energy Information Administration, which shows that at least for recent weeks, gasoline consumption down mid to high single digits year over year. We do believe we've seen evidence of relative increases in driving activity as a substitute for mass transit and ride sharing with good evidence that either or both of those channels of transportation have declined over 50% year over year during the course of the pandemic. On accident frequency, Conventional wisdom has been that accident frequency is positively correlated with miles driven because congestion naturally contributes to accident frequency. During the pandemic, we've seen very strong evidence that the opposite has proven true. With our roads less crowded, speeding and distracted driving have both increased substantially, contributing, at least in the near term, to increased accident frequency per miles driven. Over the very long haul, over co-parts, near 40-year existence. We have generally seen accident frequency decline as cars get safer. The overwhelming offset to that, of course, has been total loss frequency. And on total loss frequency itself, we have seen evidence of increasing total loss frequency during the pandemic as well. There are some near-term catalysts, including repair shop interruptions, supply chain interruptions for repair parts, and the like. But there are also key, critical, long-term, durable drivers of the same, including our improving auction returns, which I'll address next. But auction returns, repair costs, vehicle complexity, those same themes remain the case in the quarter as well. Turning to average selling prices, we experienced a 26.4% increase in global average selling prices year over year for the quarter. That is a record change for Copart and occurred despite some natural headwinds in the business. We've talked at length in the past about the importance of cultivating our international buyer base in particular and in this quarter and really for the past two five years and more, it has paid dividends to the business and has done so very much during the pandemic as well. Our member recruitment and retention efforts when married with our auction technology, as a reminder, we have been natively and exclusively a digital auction platform since 2003. Together, those have contributed and caused substantial ASP outperformance year over year. There are no doubt some near-term technical factors worth commenting on as well, including strong used car prices against a scarce new car environment given production constraints. There are some supply chain issues regarding automotive parts replacements and for the repair network as well. But nonetheless, despite very substantial currency headwinds on a year-over-year basis, we have experienced average selling prices for co-part vehicles at all-time highs. With that, I'll turn to the actual fourth quarter financial results. We're pleased with the results of the quarter. We experienced a global revenue decline of 3% or just shy of $17 million year-over-year, including an unfavorable year-over-year currency effect of $2.2 million from foreign operations, primarily due to the strengthening of the U.S. dollars, but also partially due to a shift of a customer from a purchase arrangement to a consignment engagement instead. Our global service revenue, which we have generally informed you is a better barometer for business activity, declined 2.7% year-over-year, with the U.S. down 2.5% and our international business down 4.5%. We experienced purchase vehicle decline in revenue of $4.2 million, or just shy of 6% year-over-year. as growth in the US was more than offset by decline internationally, including that customer shift to a fee-based sales arrangement in the United Kingdom. Our global unit sales decreased by 18% year-over-year, with US unit decreases of 16.3% for the quarter and international declines of 27.1%. I'll elaborate on that separation momentarily. Our US unit decline was, of course, driven primarily by COVID-19 and its impact on miles driven and, therefore, consignment volume to cohort. Our non-insurance volume declined 16%, though there is a significant divergence of the underlying sources of automobiles within that segment I'll comment on momentarily as well. Our international markets encountered, in some cases, more aggressive responses to COVID-19, affecting driving activity, but also title processing, and therefore units sold. Within our non-insurance business, our charities and wholesalers business were the most significantly impacted by COVID-19. Excluding those two portions, our non-insurance volume actually grew year over year. Our dealer platform, in particular, serving automotive dealers who consigned their non-damaged vehicles to Koch Park, increased year over year. We continue to attribute our strong non-insurance and dealer performance to our mature, natively digital auction platform. We've seen persuasive evidence that otherwise the dealer-consigned wholesale auction volumes have declined industry-wise, but we experience year-over-year growth as a result of the liquidity and service that we can provide. On global inventory, we decreased 10.8% compared to the same moment, July 31st, 2019. In the US, we experienced an inventory decline of 12.3%. International inventory declined 1.1%. You'll note that our international unit sales declined more significantly than U.S. sales, but international inventory did not decline as much. That's a reflection in part of some of the title processing issues I mentioned a moment ago, which has challenged our ability to move cars through the pipeline in certain of our international markets. We don't believe this will have any long-standing or long-lasting effects on the business. It's merely a reflection of near-term technical considerations in light of COVID-19. Our gross profit increased 3.2% from $242.6 million to $250.4 million. Our rate change, our gross margin rate increased from 44.7% to 47.6%. In the U.S., our increase from 48.8% to 50.1% is a reflection of a number of offsetting forces, including increased average selling prices, which we've talked about at length already, but offset by yard efficiencies or relative inefficiencies due to cost absorption of fewer than expected volumes. Our international gross margins increased substantially due in part to the shift of the customer from a purchase arrangement to a consignment agreement instead. Turning to general and administrative expenditures for the quarter, we have always said that G&A expenditures will fluctuate and grow over time. We will continue to leverage G&A over the long haul, but that's taking a perspective across multiple quarters, really for G&A and other drivers as well, is the best measure of our actual investments in general and administrative costs. On a year-over-year basis, we're down from $39.8 million a year ago to $34.6 million in the fourth quarter of 2020. including reductions in travel expenditures and other such changes that would be attributable to COVID-19. Our gap operating income increased from 192.8 million to 205.7 million for the quarter, or an increase of 6.7%. Our net interest expense was up 12.9% year over year, due in part to our upsized revolver and fees incurred as a result. as well as lower interest earned on our cash balances. On our fourth quarter income tax, we incurred expenses of $36.3 million, which reflects a $6.6 million tax benefit on the exercise of employee stock options offset by a $4.7 million impact from discrete income tax items, all of which have been reflected in the non-GAAP earnings reconciliation you've seen. Gap net income decreased from the fourth quarter of 19 of 153.5 million to 165, pardon me, increased from 153.5 million to 165.5 million, or an increase of 7.8% year over year. Non-gap income increased by 14.7% from 142.5 million to 163.4 million year over year. Last few comments on the balance sheet and our cash flow. On July 21st, we increased or upsized our revolver from $850 million to $1.5 billion and extended the maturity through July 21st, 2023. It's a reflection of our conservative capitalization and strong credit profile that we were able to achieve that extension and upsizing in a financial or in an economic crisis. As of July 31st, then, we had $1.5 billion. Operating cash flow for the quarter was $267 million, an increase of $74 million relative to the fourth quarter of 2019, driven by a combination of higher earnings as well as working capital. As noted previously, we continue to invest. in our business long-term with land as one critical dimension, but certainly not the exclusive one. We invested $112.7 million of CapEx in the fourth quarter alone, 90% of which was attributable to capacity expansion alone. We finished the quarter with just shy of half a billion dollars worth of cash on the balance sheet, $477.7 million of cash. We remained well-equipped then to invest in our business for the long-term. We're pleased with our fourth quarter, and at this point, Casey, we'll open it up for questions.

Thank you. Ladies and gentlemen, at this time, we will open the floor for questions. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad now. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. At any time, if you would like to remove yourself from the questioning queue, you may press star 2. And again, that is star 1 to ask a question. We'll take our first question from Robert Lubbock. with CJS Securities.

Morning. Congratulations on strong operating performance in a uniquely difficult environment.

Thank you, Bob.

I wanted to start, you know, you mentioned, obviously, used car pricing is up at all-time highs, according to Mannheim, you know, pretty much anywhere you look. So two questions related to that. I'm just trying to tease out the drivers for your strong ASTs, your record ASTs. Can you talk a little bit about Is it more from the dealer or drivable cars or more from the insurance cars being bought by dismantlers?

What's the bigger component in driving the ASP growth? Just the sheer volume of the cars, Bob, would just mathematically make it so that it has to be the insurance volume driving the 26% increases year over year. As you know, the non-insurance cars in the aggregate only comprise about a quarter of our a quarter of our units sold. So it is life-for-life insurance staples.

Got it. Okay. And those were, generally speaking, close to the 26%? I guess it probably would have been a better way to ask it in terms of the overall AFCs were 26%. Correct. Were the insurance close to that as well? Correct. Yes. Okay. Got it. Great. And then, you know, generally speaking, as use cooperation rises, there may be an offsetting impact to total loss frequency, but obviously we're in a different or unique world.

and it's a short time period, but has there been any suppression on total losses or is there, how is that dynamic working out in the current environment?

Well, the dynamic is, It's the relative value of the cars when it comes to that total loss equation, Bob, that you know well from having tracked this forever. But it's the relative value of the intact car versus the wrecked car that drives total loss frequency. And while certainly, yes, used car prices are high and all else equal, those used car prices being that robust suppresses volumes that would come to coparts. increasing salvage returns by as much as we have arguably drive to a loss frequency on a net basis of nevertheless, right? So yes, if our salvage returns were going up 25% while used car prices were flat or down, that would drive still more volume. The point is that at least for the quarter, used car prices are very strong, but salvage returns almost certainly were stronger still. Got it.

Okay, great. And then Has there been any change in the supply dynamics because of the higher proceeds you're receiving? Are you getting different sellers coming into the market that before maybe weren't interested in using Copart, but seeing the record proceeds are starting to either give you more cars or any kind of change in supply?

That's been true within the non-insurance space for years, Bob, that as our cars gravitate more from Back in the day, 40 years ago, 35 years ago, selling metal by the pound to selling parts 20 years ago to selling intact drivable cars today, even within our insurance cars themselves, that liquidity has naturally invited more and more participants to the auction. And that's certainly been true over the past quarter and the past year and the past five years as well. So yes, in short, but not disruptively so in the last 90 days. Got it. Okay, great. Last one for me, I promise.

I'm curious about, I know in the past certainly we've purchased all cars that went to auction sold, but that was mostly when it was all insurance cars, and as you've had more dealer or non-insurance.

I know conversion rates are very high, but has there been any change in conversion rates given the scarcity of vehicles during the quarter so that maybe you've benefited from even higher conversion rates than in the not-too-distant past? Not unusually so. I think conversion rates are very robust, and we track and manage carefully. But I, again, wouldn't say there was an unusual disruption in the quarter.

Got it. Okay, super. Thanks so much.

And our next question comes from Craig Kinison with Robert W. Barrett & Company.

Thanks. Thanks for taking my questions. Congratulations. I wanted to follow up on the non-insurance market. I mean, you've got this all-digital platform. You've had it for a long time now. That should have been an ideal platform for you during the pandemic when a lot of the physical competitors were closed. I'm curious to what extent Copart was able to capitalize on this opportunity specifically to grow in the used car markets.

Fair question, Craig. I think the math we do isn't any different from what you would. So when you track the other publicly traded auction houses for whole cars, I think you can see what relative performance would have been. I think we've noted that others have experienced declines in a period and meaningful declines in a period where we actually experienced growth. So I think... That's about all we know directionally, so we don't have any insider perspective in particular on those other companies. But we do believe against backdrop of generally declining wholesale dealer volume that we have increased year over year.

Am I right that this was a unique opportunity for you to really pitch the service to potential sellers, and maybe you got a better look this time than in past pitches?

Yes. I'd say yes and no. COVID-19 certainly has underscored how powerful Copart's natively digital process is. We have honed that platform and understand it well. And other competitors had to do so at the tip of a spear, had to virtualize overnight. And, yes, I think Copart is distinct in that regard. So on the margin, surely, it has enhanced our value proposition. In COVID-19, of course, it's also across any walk of life, it's difficult to meet new people. So it has reduced what otherwise might be the natural selling cadence as you get to know new parties, dealers and otherwise. But I think on balance, it has been a very positive force for COPAR.

And then circling back on the ASP commentary, I mean, it's just an incredible number. To what extent do you think that reverses over time, knowing that the pandemic was a factor? I know the long-term trend has been up, but for those of us who have to build a model, should we bake in some year-over-year decline as we lap that next year?

The short answer, Craig, is that I don't know. There are, as noted in those comments a moment ago, certainly some near-term technical factors to consider. The underlying drivers, I think, are still very long-term favorable. But as for predicting precisely what happens next quarter, next year, I think that remains challenging. I would say that there's been some, as one tidbit here, when we look at the non-U.S. buyers of co-part cars at U.S. auctions, we know that their currencies declined very meaningfully year over year. So their purchasing power was meaningfully compromised relative to a year ago. But nonetheless, the value of the cards they purchased increased substantially, plus or minus in proportion with our overall ASP increase, which meant that in their local currencies, they're spending still more and dramatically more. So I think the power of that liquidity is never going away. There is the flywheel effect now of, driving more total loss frequency. With outstanding returns, we get lighter damaged cars, which brings more buyers. But we do think that this is a productive period for us in further spinning that flywheel. Exactly what the year-over-year comparison will look like, Greg, we don't know.

Great. Hey, thank you so much. Thanks, Greg.

We'll take our next question from Daniel Imbrow with Stephen Fink.

Hey, good morning, guys. Jeff, I wanted to start on the G&A side. Really impressive control. I think probably one of the biggest surprises in the composition of the quarter to us. You mentioned travel. There wasn't any furlough or employee removal. So how do you think about the sustainability of the cost cuts? Has anything changed there in your thinking?

No, nothing has changed in our thinking. We did not furlough employees and continue to invest in our people. We continue to hire, to train, to promote, because that's what it takes to build a successful business over the next 20 years, hard stop. on G&A, I'll be militantly consistent, right, in quarters where it's up a couple million or down a couple million. I'll ask you to use many quarters to draw your trend line. No individual quarter is the right predictive model for future trends. Double.

And I know to follow up on Craig's, you know, dealer question, you clearly gained share in the quarter. When you talk to the dealers on your platform, you know, are you seeing them stay on Copart as some of the competitors reopen? And if they are, you know, does that change you guys' long-term strategy around how much of your business could be a dealer or should be a dealer? I think in the past you mentioned you don't want that to be a majority of your business. But, yeah, how has the success in that during this pandemic impacted those long-term products?

We've grown that dealer business. and very steadily and very consistently for years. So we don't perceive this as a temporary one-time pickup. We invest in that business because it is an excellent and profitable business for us, and we invested it because it's an excellent and profitable addition to our auction liquidity, which ultimately benefits our insurance customers as well. As we draw ever more buyers to our platform, we also will drive sales returns upwards. So I would say even before COVID-19, the whole car auction business is as competitive as it has ever been with very strong incumbents, with strong venture-backed new entrants into the business as well. And even against that backdrop, we continue to grow our volume virtually every quarter for as many years as I've been here, certainly. And we don't expect – we believe that competitive advantage is the auction liquidity point that improve as a result of COVID-19. Got it.

That's helpful. And then the last one for me, certainly on the balance sheet. As we think about uses for cash, I wanted to hear your thoughts on capacity. I mean, to handle more volume and continued growth, we've got to have two choices. You know, you add capacity or you improve your throughput three hours. Is there a meaningful opportunity to really improve throughput from here? Or as we think about long-term CapEx, is that going to have to – should that continue to grow to support future volume growth? Thanks.

Thanks, Daniel. We will do both and have to do both. So we focus very much on improving cycle times and turning cars more quickly, both because it is capital efficient for us, but also because it is a better outcome for our customers who can settle claims and close files more quickly, who can achieve better auction returns with less depreciation with the cars sitting on our property. So that is a an evergreen initiative on the part of Copart and has been forever. So, yes, we will invest in reducing cycle times and can improve. But also, yes, we will continue to invest in our land and capacity because it is absolutely necessary to serve our customers well, both in the ordinary course and in catastrophic times. We have to be prepared to absorb volatility. So we are happily investing and have invested through the pandemic in additional capacity and expect to do so for years to come.

Great. Thanks so much, guys, and best of luck. Thanks.

We'll take our next question from Brett Jordan with Jefferies.

Hey, good morning, guys. Good morning. I got cut off for a second, so hopefully I'm not going to ask this question twice. But I guess if you think about pricing and its role in the quarter, If you're taught year over year about maybe what you've seen from a pricing increase, and I just look at the whole cars. If you get into the dealer space and you're competing with some legacy players, is there any bias to move prices lower as people will compete for share in that space?

I want to make sure I understand precisely your question, Brett. You mean the prices we achieve at auction for the vehicles or the prices?

The fees. Yeah, the rate on buyer fees year over year in the insurance space, and then whether or not there's any bias to be increasingly competitive on the fees charged as you get into the dealer cars.

On fees, we don't comment, Brett. Publicly available, of course, on our website is a fee schedule that our members incur when they purchase cars at Copart and for other services that we provide.

Okay. Anything that you're seeing as far as dealer volumes in pricing?

Dealer volumes is noted. You may have clicked off the call at that moment, but we have experienced increases year over year in dealer volumes for the quarter, and that's against what we believe are competitors who have experienced very meaningful declines in dealer-consigned volumes for the quarter. So we believe that we have grown our dealer business, relatively speaking, much faster than the rest of the industry. That is not a reflection of, quote, aggressive fees on our part. We believe that we have a very competitive offering and ultimately deliver the best possible returns to our dealers. But that's easy to say. But we think the very consistent growth in our copar dealer services volume is a reflection of the actual reality in practice.

Okay, and I guess, did you comment on capacity utilization? I think you said you've had over 2,000 acres. Did you talk about what your average utilization is?

Yeah, average utilization, I think, not super meaningful because the land isn't fungible and ECR is its own – certainly each metropolitan area is its own island and even though Dallas and Texas are in – Dallas and Houston are in the same state, you can't really use one city's facilities as fungible capacity for the other. So we certainly monitor our metropolitan areas very carefully and invest accordingly based on our baseline expectations over the next five or ten years. Certainly capacity utilization is lower during the pandemic than it otherwise would be for all the reasons you already know about inventory and driving activity and so forth. But capacity utilization is a microeconomic evaluation, which then drives our investment decisions on a micro basis. But in the aggregate, we will continue to invest in land for years to come. Okay. Thank you. Thanks, Brent.

Our next question comes from Ryan Brinkman with J.P. Morgan.

Hey, great. Thanks for taking my question. I think it's really incredible, the increase in average selling prices that you reported. Can you just help us think about the ways that that helps Copart? Is it the case that you generally charge buyers a fixed percentage of the transaction price in agency model transactions anyway, such that you know, the revenue from higher prices falls just pretty well through to profit. And then also it would be great if you could comment on the reasons for such a large increase in prices and the sustainability of the various factors driving prices higher.

Right. On your former question, Ryan, that member fee schedule is readily available online. We encourage you to look there and you can see what happens to the fees that our buyers incur based on changes in the selling price of the vehicles. As for the pricing changes and the actual pricing at our auction or the selling prices for cars at our auction, they are high for a combination of technical but also fundamental reasons. The technical reasons you heard us comment on are the used car prices are robust against the supply-constrained new car environment, but the fundamental reasons are rising total loss frequency, newer, less damaged cars being totaled, better auction liquidity. We have driven more bids per vehicle by far than we did a year ago in the fourth quarter of 2020 than 2019. So those are the fundamental drivers, which we think ultimately are the most important ones. There'll be near-term technical changes, certainly, some of which we are benefiting from today, but others of which are unfavorable, including volumes, for example. But over the long haul, the flywheel of auction liquidity, the recruitment and retention and cultivation of international buyers, we think will continue to drive selling prices upwards, total loss frequency upwards, which in turn, of course, is self-reinforcing, bringing ASPs up as well.

Okay, thanks. And then just finally, are you able to comment on the trend in assignments here in 1Q? Do you have a timeframe in mind for when, you know, miles driven or assignments will return to pre-pandemic levels? Thanks.

I appreciate the question. That remains, I think, largely unknowable. We have generally seen a continuation of the trend that we remarked on in the first quarter, but we'll talk much more about the first quarter, of course, including storms and so forth on our first quarter call. But we've generally seen a continuation as for when society returns to normal practices. We'll leave that to the experts. Okay. Thank you.

Our next question comes from Gary Prestapino.

Just looking at the change in the purchase margin, gross margin, sequentially year over year, you mentioned some of that was driven by a move from a purchase to a consignment agreement. Are we to assume that that move in and of itself is Was that agreement that you had on a purchase pretty detrimental to the margins overall and that, you know, getting that out of the mix just led to those vehicle sales margins going up pretty dramatically? And is that gross margin sustainable?

The answer to your first question is no. It's not that the purchased vehicles of that particular customer were very, very unprofitable somehow and we removed them. You know, we don't... much these days, Gary, about we prefer consignment arrangements because we think it generally is a better alignment of interest between us and our customers, but it's not per se a profitability decision. The purchase vehicle changes year over year. The decline in revenue is in part attributable to the shift in that customer because now instead of showing up as purchase vehicle sales and purchase vehicle COGS, and now it goes up instead at service fees. But otherwise, no, that was not any meaningful driver for the change in purchase vehicle profitability.

Well, was it AFPs? Yes, insured. Okay. And then could you give us some idea? I know you said your dealer business was up, but could you put a number on that in terms of the growth in units year over year?

It's up meaningfully. I think we've historically said disclosed that we've been up double digits. In this case, it wasn't double digits, but meaningfully so. Okay.

And then just getting back to my other question, I'm sorry about the sustainability of that gross margin. Is that something that, again, is going to really be driven by what the ASD is doing in the future?

Yes, and I forgot that. that third or that quarter of your prior question. We don't manage the business to gross margin rate, per se, Gary. We're, of course, optimizing for service and returns and profitability and so forth. So the margin rate is really just a byproduct metric that we track at the end of the month and the quarter as a matter of visibility. But we think about the business on a per-car basis and how much profit and contribution we generate per unit. So the rate is not something we consider, but your point about ASPs, very strong average selling price performance, contributing to our profitability, yes, that's certainly true. To the point about consignments, we want to work with our customers on that basis to drive the highest possible return, which yields the very best outcomes for them and for us.

Okay. And then last question, just on your dealer business, I would assume that most of your dealer customers are independent. Is that correct? So is the assignment from the independent dealers of a car, is that driving a lot of the growth or are you finding a lot of the independents are also buying cars from you?

Don't follow, didn't follow the question. Meaning, yes, we are growing.

Yeah, I guess what I'm trying to get at is that You know, if an independent takes in a trade that they don't want to keep on their lot, are they handing it off to you to sell, or are you seeing more of the usage of the platform, the independent dealer buying cars to replenish inventory?

Oh, well, they certainly participate on both sides. So, yes, we are growing the consignment volume, and, yes, we are also a viable purchase channel for dealers as well. Okay.

But you have very few franchise dealers that are using your platform right now?

We have a good variety of non-insurance consignment sources, including dealers of all sizes.

Okay. Thank you.

Thank you.

Another reminder to our audience, if you would like to ask a question, please press star 1 now. Our next question comes from Joseph Huffling with Truist Securities.

Hey, good morning. This is Joe on for Stephanie. How are you guys doing? Good. How are you, Joe? Good, thanks. I just had a couple of quick questions, maybe quickly shifting back to the non-insurance business. I was wondering if everything that's going on with rental, if you guys could talk about maybe how fast it's going, if you have any opportunities for rental side of non-insurance.

In short, that's a relevant question. Target segment for us, we have served that segment of the market for some time. Plenty of disruptions, as you know, Joe, in that corner of the universe, given what's happened to travel trends over time. So for all the same reasons that we are increasingly a compelling offering to the dealer universe, we think that's also true for the rentals and financial institutions and otherwise.

Okay, great. And then maybe just another one from me. I wanted to give an update on Germany, particularly, you know, maybe some of the problems with the pandemic may be causing that to accelerate with the insurance companies there.

Yeah, we remain... very excited about our long-term prospects in Germany and continue to invest in our business there, including all the dimensions we've talked about before, which is in people and technology and land capacity and trucks and equipment and certainly in customer relationship building as well. I think we noted a couple of calls ago that we are selling cars for insurance carriers on a consignment basis. We're delivering very strong returns and remain very optimistic about Germany and, frankly, about Western Europe in general. Okay, but you haven't seen anything as far as like the part of the conversation is increasing because of some of the disruptions the pandemic caused over there? I think it's too early to tell. I think there's some, your intuition is probably reasonable in that if there is a, I think we have demonstrated that the co-part Germany model is economically superior and frankly even experientially superior for policyholders stem the status quo. We've talked about that at length in the past, so I won't rehash that entire narrative. But one of the big barriers to our converting the market is just inertia. And so, yes, to the extent that COVID-19 has forced us all to confront inertia and has upended a lot of what we consider the ordinary course, I think in that respect, yes, this can cause customers to contemplate radical changes in their business. Okay, great. Thank you.

That was everything I had. Congrats on the quarter. Thank you. Thank you.

At this time, there are no further questions. I'll now turn it back to today's speakers for closing remarks.

All right. We appreciate everyone showing up for the call, and we look forward to reporting Q1 in the future. Thanks again. Bye-bye. Thanks, everyone.

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