Copart [CPRT] Conference call transcript for 2022 q1
2022-05-19 14:55:24
Fiscal: 2022 q3
Operator: Please standby. Good day, everyone, and welcome to the Copart, 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 Copart, Incorporated. Please go ahead, sir.
John North: 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. 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 issued yesterday. We believe these non-GAAP measures, together with the corresponding GAAP measures, are relevant in 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. These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with our business, we refer you to the section titled Risk Factors in our Annual Report on Form 10-K for the year ended July 31, 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 Liaw.
Jeff Liaw: Great. Thanks. Good morning, everyone. We’re 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 at unusual levels. New and used vehicle shortages, evolving workplace practices and traffic patterns, volatile and elevated fuel and commodity prices and the 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 in our more mature markets. We’ll continue to collaboratively engage with our sellers both day-to-day and through catastrophic events including what appears to be an active storm season ahead to protect them and their policyholder relationships. We will actively expand our addressable markets by growing our volume of lesser damaged and whole cars from both insurance and non-insurance sellers, and we’ll continue our expansion into international markets in Western Europe and beyond including Germany and Spain. Let’s turn into the events of the quarter, starting with the units volume trends in our auction performance. Our global unit sales increased 12% year-over-year for the quarter with the U.S. increased of 11% and international increased 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 and accident frequency and severity. We’d also note however the record high used vehicle prices have for the past few quarters negatively impacted total loss frequency and had 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. The character of driving has evolved with less of course, workplace commuting, more leisure travel as a substitute. On the question of total loss frequency, contrary to various incidences in 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 reducing its time and volume 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 due reduced volume relative to what it otherwise would be. In lame man’s terms, in a world in which replacement vehicles are hard 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 twelve months or so, the 40 year trend is nonetheless clear. We believe the market will ultimately revert to the historical norm of steadily rising total loss frequencies and in fact the number of other variables increasing accident severity, repair duration, repair labor cost, rental car cost and alike should contribute to that reversion, as well. The history of total loss frequency is quite clear. It was 4% throughout the 1980 and is approximately 20% today and it in turn has been a product of two key factors, vehicle complexity and composition have made cars more expensive 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 moderate 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 noninsurance vehicles, including – excluding, pardon me, cars and sources like wholesalers and charities. Our U.S. non-insurance business grew approximately 3% in unit volume year-over-year, driven in part by growth in our consumer-based Cash For Cars business as well as growth in non-salvaged sources of volumes, such as rental car fleets, corporate fleets and financial institutions. Overall, our growth across a full spectrum of vehicles generates improved auction liquidity, auction attendance and returns for our sellers, as well. The greater number of non-insurance cars we sell, whether they are from dealers or rental car companies, fleet managers, lenders or from consumers, ultimately contributes to auction liquidity and generating better returns for our insurance sellers in turn. 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 three million vehicles in our last fiscal year and estimate that 40% to 50% of those vehicles are ultimately returned 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 Argon National Laboratory, a science and engineering research house operated by the University of Chicago on behalf of the U.S. Department of Energy, the vehicle manufacturing process produces nearly two metric tons of CO2 per new vehicle manufactured. We estimate, therefore, that our business facilitates the avoidance of literally millions of carbon dioxide – millions of tons 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 objectives, including the reduction of global poverty with affordable transportation as a crucial lever and improved outcomes for people around the world and commuting to work, advancing their education or accessing medical care and alike. 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.
John North : 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 headwind due to currency. Global service revenue increased $142.5 million or 23%, primarily due to higher average selling prices and increased volume. 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. U.S. ASPs were up 14%. The Manheim Index is lower than January record levels, but remained historically elevated, ending April at 221.2, which was an increase of 14% year-over-year. That trend has continued in May. The mid-month index, which was released a couple of days ago, is up sequentially 0.7% and 9.7% year-over-year. U.S. insurance pre-accident ACVs were up 29% or $3,700 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 volumes, particularly in our consumer-facing Cash For Cars business in the United States and from expansion in Germany. Purchased vehicle sales increased $64 million or 58%. U.S. purchased vehicle revenue was up 56% over the prior year, and international grew 62%. Purchased vehicle cost of sales grew $63 million or 66%, exceeding the growth in revenue. As a result, purchased vehicle gross profit increased modestly by $800,000 or 5.3% overall. Global 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%, and 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 purchased vehicles from both a mix shift to more of them and from the decline in gross margin rates on the vehicles relative to their absolute values increase; the balance of the margin contraction was attributable to cost inflation in both towing 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 excluding stock compensation and depreciation. G&A spend in the quarter increased $11.1 million. Approximately, $6.6 million of the increase was attributable to certain out-of-legal items and we have presented this adjustment net of tax in our non-GAAP reconciliation. Adjusting for this, our G&A increased $4.5 million or 11.5% from $39.1 million to $43.6 million. While 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 G&A item I mentioned a moment ago, it increased 16% to $379 million. Third quarter income tax expense was $91 million at a roughly 25% effective tax rate. Adjusting for the tax benefit associated with the exercise of stock options, as well as certain legal matters and other discrete tax items, the effective tax rate would have been 25.2%. Third quarter GAAP net income decreased 3% from $287 million last year to 278 - $229 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 7.4% from $262 million last year to $282 million in the third quarter of this year. Our global inventory at the end of April increased 5.3% 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 1.9% for the U.S. and 31% for international. The increase in inventory is largely a function of accident frequency and miles driven returning to normal, offset by a decline in total loss frequency, as Jeff commented on a few moments ago. Now to briefly highlight our liquidity and cash flow. As of April 30, 2022, we had $2.9 billion of 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 to 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 are happy to take some questions.
Operator: Our first question comes from Bob Labick with CJS. Please proceed.
Peter Lukas : Hi, good morning. It's Pete Lukas for Bob. You are showing nice unit growth and despite what we think a 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?
Jeffrey Liaw : In short, the capacity efforts -- I appreciate the question, Pete, our capacity expansion efforts have been ongoing for years. You first heard about the 20/20/20 initiative in the spring of 2016. So that's six years ago and our land acquisition, as you know, during that period of time has been elevated even relative to our history, during which we bought lands almost as much as we could find. Nowadays, those land purchases continue and we do believe we're 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.
Peter Lukas : Great. And one more for me, just in terms of yard costs. Revenue unit and yard costs caused to process a unit are both rising rapidly. Can you talk about the outlook and drivers for cost to process a unit? And if inflation does abate, how much might yard cost pull back? And have there been any structural changes to the cost to process a unit?
Jeffrey Liaw : Appreciate the question. No structural changes per se. I think, like many businesses or perhaps most businesses in this global economy, the inflationary forces – and we've always faced inflation in past quarters and past years, perhaps we'll be talking more about health care expenditures in some instances. In some cases, we talk about fuel and alike. Today, those key drivers, of course, are fuel, to the extent that we use our own fleet to pickup trucks, certainly, there are increased costs for vehicles and loaders and alike. And to the extent that we use third parties to manage our logistics or to return handles for us, they in turn are facing elevated fuel, labor, vehicle costs and alike. So nothing unusual. So I wouldn't characterize it as a structural change or a structural shift, just the same underlying variables that most businesses are facing today.
Peter Lukas : Great. Thanks. I’ll jump back in the queue.
Jeffrey Liaw : Thanks, Pete.
Operator: Our next question comes from Daniel Imbro with Stephens Inc. Please proceed.
Daniel Imbro : Yes. Hey, good morning everybody and congrats on the quarter.
Jeffrey Liaw : Thanks, Dan.
Daniel Imbro : 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 a total loss rate to start increasing? Or do we really need to see a pretty steep move lower in pricing you think, before that reverts to the long-term trend?
Jeffrey Liaw : A fair question. I think this is an unusual enough moment in history that it's tough to forecast from this as 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 20,000 miles on it, right? So it's tough to extrapolate too much from today's trends. I don't think that's the – so I think a reversion to anything resembling historical norms, I think, would drive total loss frequency up. I don't think that necessarily means a very radical change in used car prices, but I think it does mean that used cars that are two years old can't sell for meaningfully more than new ones.
Daniel Imbro : Got it. That's helpful. And then, just moving to the non-insurance piece, obviously, a lot of change in the wholesale market now. I am curious with the sale of ADESA, how do you think that creates opportunities for Copart's 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 a potentially growth opportunity and how that changes with what's going on with the sale of ADESA.
Jeffrey Liaw : Yes. It's a fair question. I think, we perceived that and acted upon that kind of business as an opportunity 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 catalyst for us. But ultimately, we still have to prove our value proposition, deliver excellent returns to our sellers, provide excellent service to them, as well. So it's a helpful fact perhaps on the margin, but ultimately, the challenge is ours and we think we'll rise to meet it
Daniel Imbro : Perfect. And then, last one, just kind of a modeling question, John, just following up. We've seen another step-up in the mix of vehicle sales for service. It looks like it's 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 step-up keeps continuing on the purchased vehicle side other than just used vehicle prices?
John North : Yeah, 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. in our consumer-facing business, our Cash For Cars business, where we buy lower-value vehicles directly from consumers. That's been growing rapidly. We made great progress there. And it's incremental liquidity in the marketplace. So we are happy to have it. It doesn't displace other business in the U.S. per se. So we are happy to have those cars as well. Internationally, I think really it’s a testament to the success we're having in Germany. We've seen great growth there in terms of assignment volume. And like many nascent markets, oftentimes, you are starting providing insurance carriers with more certainty, which requires a greater mix of purchased vehicle 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.
Daniel Imbro : Great. It makes a lot of sense. Thanks so much guys and best of luck.
John North : Sure. Thank you.
Operator: Our next question comes from Craig Kennison with Baird. Please proceed.
Craig Kennison : Hey, good morning. Thanks for taking my questions. And Jeff, congratulations on your promotion to co-CEO. I guess, what should investors, clients or employees expect from that change?
Jeffrey Liaw : I think, Copart, as you know, I think, has long been – has long had a very collaborative culture to begin with. So we make decisions based on the data and debating the merits of pads XYZ. So I think in many respects, business continued as it did before. I was President of the business before and worked closely with our international teams in our U.S. functions and our customers to drive excellent outcomes for them. So I think from your perspective and for most of the outside world, not a radical change from the day before.
Craig Kennison : Got it. Thank you. And 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 outcome?
Jeffrey Liaw : A recession, which, of course is top of mind for everyone. I think the – historically, I would have told you that it can lead to higher unemployment. We are, of course, today at nearly all-time low unemployment levels, but it can lead to elevated unemployment and therefore a reduction in commuting for work and otherwise. And of course, over the course of the past two years, we've seen a decline in that commuting traffic anyway even as the economies – the global economy has boomed. So I think it's difficult 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 are 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.
Craig Kennison : And I guess just as a follow-up related to National Powersports Auctions, are you seeing any rise in repossessions as the economy slows in that particular category?
Jeffrey Liaw : If so, modestly. I think it's – we've been on a many year run of very low repossessions and certainly over the course of the past few years, because there is so much equity value in any loan outstanding that wasn't issued very, very recently. Those are almost always in the money. So the repo volumes remain low even if you're struggling to make your payments, you can likely cash in your asset, whether that's a car or a bike for that matter for positive equity not negative.
Craig Kennison : Great. Thank you.
Jeffrey Liaw : Thanks, Craig.
Operator: Our next question comes from John Healy with Northcoast Research.
John Healy : Thank you. I wanted to ask a big-picture question. Obviously, land 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 Copart. 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 BOSS 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 in towing only going to get worse? And is there any thought to potentially internalizing the logistics or towing side of the business? Obviously, the balance sheet is a fortress. And it would seem like you'd have the ability to maybe pivot to making towing an internal competency rather than an outsourced item and I would love to kind of hear your thoughts on the pluses and minuses of that.
Jeffrey Liaw : Yes. Great question and one we are constantly reevaluating. I think first – the first half of your question, what happens when volumes pick up to our demand for towing capacity. I think there is so many confounding variables. The real question is what's caused that volume to go up, right? Is the used car prices have softened somewhat and so total loss frequency reverts to its historical trends and we see many more cars being towed instead of repaired. That's one scenario. If you told me there were a 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 retrieve vehicles for us, but we've also operated our own fleet. Historically, the logic there was we wanted to have some capacity to serve, in particular in storms because that's when drivers are of course, in the shortest supply. When we certainly have elevated 5x, 10x ordinary day-to-day volume in a major metro area, having drivers migrate there from elsewhere in the U.S. is challenging. So we have built our own capacity. Our catastrophic fleet, so to speak, to serve our customers in 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 than 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 footprints. Every new yard we add reduces to some extent, the miles that any given car has to be towed to get to a Copart facility but as well as our technology, our location-based driver apps, which help to better dispatch, better deploy our drivers, whether they are in-house employees or third parties.
John Healy : Great. Thank you.
Jeffrey Liaw : Thanks, John.
Operator: Our next question comes from Chris Bottiglieri with BNP Paribas Exane. Please proceed.
Chris Bottiglieri : Hey guys. Thanks for taking the question. Want to follow-up on the purchased vehicle business a little bit. Is most of the growth in the U.S., is that coming from Copart Direct? Or are there other factors at work? And then, can you tell us more about that Copart Direct car? Is the average selling price materially different than your overall? And then I have like a related GM question for this business.
John North : Yeah, I think we called it out specifically in the U.S., Chris, because that's been a significant driver of the purchased vehicle volume in the U.S. market. And certainly, it's – we've seen just overall vehicle inflation, which has driven the number higher as well, as I am 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 the specific vehicle, I mean, go check out the website, it's cashforcars.com. Historically, we used to call it Copart Direct internally, but we have been branding it as Cash For Cars, and we put pretty dramatic resources into that business over the last couple of years and have seen pretty significant growth. So the average car is obviously significantly lower than our overall ASP. Think of these as the cars that would be a direct-to-wholesale piece. If you took into a CarMax or a Carvana, never a car that they are going to retail it’s to the tune of $1,500 or $1,000 or something like that.
Jeffrey Liaw : And then the growth otherwise in noninsurance also was driven by some of those other non-salvaged sources that we mentioned in the opening comments from rental car fleets corporate fleets, financial institutions and alike, so both.
Chris Bottiglieri : Got you. Okay. So then, just a related question, is the gross margins have been, I guess, under pressure for like six, seven quarters now? Can you kind of speak what's causing that? Like, what has the gross profit per purchased vehicle done over that same period? And one of it may be more stable in that metric. Can you just give us a sense for kind of how to think about the gross margins, the gross profit per vehicle in the purchase side?
Jeffrey Liaw : Yes. I think there's a little bit of splitting the difference. So, gross margin, when you say that, I think, mathematically, you literally mean the percentage, right? And so, that phenomenon is in part a shift to purchased vehicles. And in practice, these are not – we manage the duration of these assets very aggressively or we don't want to own purchased cars speculatively or purchased by speculatively. We want to buy them 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 $1,000 car than you will a $5,000 car. You'll make more on a $5,000 car in absolute dollars, but far less on a percentage basis. So as we've seen an increase in purchased car mix, that drives the quote margin rate down, as we've seen an increase in the value of the average purchased car, you'll also observe a decline in the percentage rate as a result, as well.
Chris Bottiglieri : Got you. Okay. All right. Thank you.
Jeffrey Liaw : Thanks, Chris.
Operator: And our next question comes from Bret Jordan with Jefferies. Please proceed.
Bret Jordan : Hey, good morning, guys.
Jeffrey Liaw : Bret.
Bret Jordan : On the non-insurance business, I mean, you called out Cash For Cars and fleet, you didn't mention dealer at all. Is that something that is really no longer a focus or maybe give us an update on how the lower-value dealer volumes look?
Jeffrey Liaw : Yes. Dealer volume is incredibly important to us and has been for years. In this environment, as you are well aware of both the 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 it was not a meaningful driver of growth for us for the quarter year-over-year.
Bret Jordan : 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 as a cheap source of transportation globally, maybe how big a piece of your business is that?
Jeffrey Liaw : So run and drive is a kind of a specific technical term. But to the – I made the comment actually in the ESG section. 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 native market from which it originates or elsewhere in a developing economy where the cars are wrecked cars or incredibly desirable, drivable cars to them.
Bret Jordan : 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 talk 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.
Jeffrey Liaw : The unit volume trends in Germany are very encouraging. I think I mentioned 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 the nationwide all-in deal but certainly doing so at volume for a good number of insurance carriers today. They are, as you noted, affected more so even in the U.S. by the instability – the regional instability, let's call it, as a good number of their buyers come from countries affected by the recent conflict. So they will feel that to some extent. But nevertheless, earning good consignment volume on behalf of insurance carriers making good forward progress there.
Bret Jordan : Great. Thank you.
Jeffrey Liaw : Thanks, Bret.
Operator: Our next question comes from Ryan Brinkman with JPMorgan. Please proceed.
Ryan Brinkman : Hi. I appreciate the comments on ADESA, thank you, and agree there is a clear market share opportunity for you in the physical or on-premise whole car auctions market including as ADESA's physical auctions business is sold to Carvana, which dealers regardless of their 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 the online off-premise commercial consignor business. 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 sell, 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 cars. 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 has been some speculation could over time have attractively high margins and returns when at scale?
Jeffrey Liaw : Yes. It's a fair question and many nested questions therein. As for whether that economic model is ultimately compelling, I think time will tell. And there, as you know, are a number of participants in that space, some publicly traded and others not. We 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 in which we achieve price discovery and maximum returns for our sellers is ultimately the way we deliver value to them. Now, whether that will someday be achieved virtually versus in our physical facilities, I think, remains to be seen. But I don't think that's a structurally challenging pivot for us per se. But today, the strong majority of our cars, as you noted, are still – we are still physically touching them.
Ryan Brinkman : Okay. That's helpful. Thanks. And then, I think that there is obviously a number of macro factors helping you, including the rebound of miles driven, some of the increase in commodity prices since the conflict in Ukraine. But also isn't a lower dollar generally better for Copart given a greater translation of EBITDA and pounds back into dollars and because of the greater purchasing power of overseas customers in dollar terms? So, the dollar has been arguably surprisingly stronger and so I am just curious if you could maybe dimension that stronger dollar headwind, if you see that, how large or forceful is that relative to some of these other macro tailwinds? And have you seen any impact yet on overseas demand from a stronger dollar?
Jeffrey Liaw : Yes. In short, we have. I think the – let's say, not even the pound certainly, but also just the basket of international currencies period have certainly weakened relative to the dollar. And for the reasons you noted, we "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 U.S. auctions. So that has had an effect. It's no doubt been a headwind in the business. I think 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 in Canada, Mexico and Central and South America and alike that are bidding. So there is enough cumulative liquidity to mitigate those effects to some extent. But yes, if we woke up with a dollar at 2019 levels, we would see auction returns, all else equal, be meaningfully higher.
Ryan Brinkman : 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?
Jeffrey Liaw : We haven't disclosed that. But it's – they are meaningful in the sense that there were years in which many high-value cars would be sold for example, to Ukraine and to Russia. It is – it matters, but it's not a large percentage overall.
Ryan Brinkman : Okay. Great. Thank you very much.
Jeffrey Liaw : Thanks, Ryan.
Operator: Thank you. This concludes our question-and-answer session. I would like to turn the call back to Jeff Liaw for any closing remarks. Great. Thank you, everybody. We'll talk to you again after the fourth quarter in September.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
