Copart Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
September 8, 2022

Key Takeaways

  • Q4 Fiscal 2022 Financial Highlights: Global unit sales rose 5.1% (US +4%, International +12%), service revenue increased 14.2%, ASPs climbed 8.3%, GAAP net income grew 3% to $263.7 million and non-GAAP net income increased 9.6% to $271.6 million.
  • Core Circular Economy Model: Copart estimates ~40% of vehicles sold are driven again and the remainder are harvested or recycled, avoiding over 100 times its direct Scope 1 & 2 emissions; the company plans to publish its inaugural ESG report soon.
  • Margin Pressures from Cost Inflation & Mix Shift: Q4 gross margin contracted ~400 bps to 45.9%, driven by higher purchased vehicle costs, towing and labor inflation, and a greater mix of purchased vehicles, though management expects margin improvement over time through scale and technology.
  • Strategic Capital Deployment: The company invested $102.6 million in Q4 capex (over 80% for capacity expansion), maintains ownership of most real estate, ended July with $2.6 billion in liquidity and retired $400 million of private placement notes to preserve its conservative balance sheet.
  • Outlook & Market Dynamics: Total loss frequency declined to ~16.9% in Q2 2022 (from 19.7% a year ago) amid record used-car prices, capping insurance volumes, but Copart expects price moderation, volume recovery and continued expansion in non-insurance segments (US non-insurance volume +6% in Q4).
AI Generated. May Contain Errors.
Earnings Conference Call
Copart Q4 2022
00:00 / 00:00

There are 8 speakers on the call.

Operator

Good day, everyone, and welcome to the Copart Incorporated 4th 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 Gavin Renfrew, Vice President of Global Accounting of Copart Incorporated. Please go ahead, sir.

Speaker 1

Thank you, and good morning. We'll start with the Safe Harbor. 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, discrete income tax items and the effect of the extinguishment of debt. We provided a reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures 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.

Speaker 1

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 ks 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. With that, I'll turn the call over to our Co CEO, Jeff Liaw?

Speaker 2

Thank you, Gavin, and good morning, everyone. I'll start with some comments about themes in our business. I'll turn it over to Gavin to walk you through Some financial highlights and then we'll take Q and A thereafter. We're pleased to report our results for the Q4 of fiscal 2022 and have concluded another strong Sustainable Enterprise. We're confident our formula will work for the next 40 years as well.

Speaker 2

We're well into our 3rd year now of exceptional social And macroeconomic conditions, a virus and its attendant mutations, a war and the disruptions on industrial production supply chains, fuel prices and the like. All businesses, including ours, are affected by these forces. We're happy to take questions on short- or medium term volatility for the various Namely that we will 1, invest in our physical infrastructure, technology platform and customer service offerings to improve auction liquidity and returns for our sellers. We will collaboratively engage with our sellers both day to day and through catastrophic events to protect them and their policyholder relationships. We will actively expand our addressable market by growing our volume of lesser damaged and whole cars from both insurance and non insurance sellers.

Speaker 2

And finally, that we'll continue our expansion into international markets around the world. In a moment, we'll discuss the quantitative indicators that we customarily provide on these calls, Our shareholders and other stakeholders about how Copart's business addresses the world's growing focus on sustainability. I want to offer our perspective on what sustainability means to us, how our business contributes to environmental sustainability, 1st on the question of environmental sustainability, which is conventionally what folks mean most of the time when they say so. We have the great privilege of operating a business that is at its core green. We aren't trying to shoehorn an environmental theme into a fundamentally problematic business.

Speaker 2

Instead, Copart is a keystone enabler of the circular economy in the automotive sector. Our retrieval and storage of vehicles, Title processing and online marketplace are essential to the reuse, harvesting and recycling of literally millions of cars per year. We estimate that approximately 2 out of every 5 vehicles we sell are driven again somewhere in the world. The remainder are Harvested and recycled for parts or metals, reducing the need for de novo mineral extraction and manufacturing emissions. The benefits of the reuse and recycling of cars and their components and the attendant avoidance of carbon emissions dwarfs our actual Scope 1 and We estimate this benefit to be more than 100 times the quantity of our direct emissions.

Speaker 2

Secondly, we operate our business to enhance the sustainability and well-being of the communities in which we operate. Our business is essential in helping communities recover from acute weather events, which are themselves increasing in frequency as well. We currently operate purpose built dedicated cat yards comprising 100 of acres of vacant storage capacity, Reserves for responding to catastrophic events in storm prone areas. When major weather events occur, our people and our advanced preparation Through our unparalleled global member network, we facilitate access to vehicular transportation across the globe. We estimate that approximately 2 thirds of the vehicles sold by our U.

Speaker 2

S. Auctions to international members are to developing economies as defined by the UN Department of Economic and Social Affairs. Physical Mobility, which most of us on this call have taken for granted, is essential for people around the world to access healthcare, education, leisure We believe that a truly sustainable business makes decisions so that it can serve its customers not just in the weeks, months and years ahead, but for decades to come. To that end, we have always taken the strategic approach of owning the vast majority of our real estate and storage capacity. We've heard the sometimes persuasive arguments in favor of more capital light approaches, but we're steadfast in our belief that owning our facilities enables us to control our own destiny, Ensuring the sustainability of our business for our customers.

Speaker 2

We are not just participants in our industry, we are stewards of it. Today, we operate on nearly Similarly, we have maintained a conservative balance sheet since our founding. We recognize the arguments in favor of more financial leverage, But we know that our approach assures our customers that whatever comes our way, the 2,009 financial crisis, massive storms in Sandy, Harvey, Ayda, COVID-nineteen and all that lies ahead Copart will stand uncompromised and ready to serve our customers. As noted on our last earnings call, we intend to publish our inaugural ESG report in the next few weeks, in which we will of course more fully articulate these things. I'll turn now to the operating statistics that we provide each quarter.

Speaker 2

Our global unit sales for the 4th quarter increased 5.1% year over year with the U. S. Increasing 4% and our international unit volume increasing 12%. Our insurance business was likewise above the Q4 of 2021. We grew on both a 1 year and 2 year basis Due to a combination of share gains and a continued recovery in driving activity and accident frequency and severity.

Speaker 2

Notably, of course, record high used vehicle prices have, for the past several quarters, negatively impacted total loss frequency and Tempered overall insurance volume growth relative to what it otherwise would have been. Driving activity itself as measured in vehicle miles driven continues In the U. S. Is up about a percentage point versus last year. Gasoline consumption specifics mirror the same themes as well.

Speaker 2

Contrary to consistent long term trends, we have observed declining total loss frequency on a sequential and year over year basis. Our selling prices have kept pace or more than kept pace with the strong used car price environment on a percentage basis, Total loss frequency for the 2nd calendar quarter in 2022 was approximately 16.9% In comparison to 19.7% for the same quarter a year ago, if vehicles had been totaled at the same rate as last year, we would have observed Insurance industry volumes 15% higher than what we actually experienced. In simple layman's terms, in a world in which replacement vehicles are harder to come by, total loss settlements are a less attractive resolution to an auto accident claim than they otherwise would be. While total loss frequency has declined over the past year and a half or so, the 40 year trend is unambiguous. We believe firmly that The history of total loss frequency from 4% in 1980 or so to 20% as of a couple of years ago has been the product of 2 key factors, vehicle complexity and While we will all no doubt struggle to predict precisely when supply chain bottlenecks will clear and new vehicle production will return to historical levels, We do anticipate an eventual unwinding of these conditions, which will lead to a moderation of used vehicle values.

Speaker 2

We may well see a moderation ASPs in that environment as well, but we'll almost certainly benefit from volume recovery or volume increases as well. We continue to invest in growing our business beyond insurance total losses, excluding lower value cars from sources such as wholesalers And Charities, our U. S. Non insurance unit volume grew approximately 6% in the quarter, driven by a combination of rental cars, corporate fleets, financial Our growth across the full spectrum of vehicles enhances our auction liquidity and returns for our sellers. The more cars we sell for the more cars we sell on behalf of dealers, rental car companies, fleet managers and the like,

Speaker 1

Thank you, Jeff, and good morning. I will make a few comments on our operational results and then we will take questions. For the Q4, global revenue increased $134,800,000 or 18%, including a 16 $4,000,000 Headwinds Due to Currency. Global revenue for the fiscal year increased $808,400,000 or 30 percent, including a $22,200,000 headwinds due to currency. Global service revenue increased 80 7,800,000 or 14.2 percent for the 4th quarter and $561,200,000 or 24.5 percent for the year, primarily due to higher average selling prices and increased volume.

Speaker 1

U. S. Service revenue grew 14.7% for the quarter 25.6 percent for the year, and international experienced an increase of 9.4% for the quarter and 16.6% for the year. We saw continued strength in ASPs, which grew 8.3% year over year for the quarter, with U. S.

Speaker 1

ASPs up 9.2%. The Mannheim Index is lower than January record levels of 236.3, but remains historically elevated ending July of 219.6, driven by both strong used car values and growth in volume, particularly in our cash for cars business in the UK and from expansion in Germany. Purchased vehicle sales for the quarter increased $47,000,000 or 36.5 percent and increased $247,200,000 61.7 percent for the fiscal year. U. S.

Speaker 1

Purchased vehicle revenue for the quarter was up 39.3% over the prior year and 61.8 percent for FY 2022. International grew by 31.5% for the quarter 61.5 percent for the year. Purchased vehicle cost of sales grew $47,600,000 or 41.9 percent in the 4th quarter $239,100,000 or 69.1 percent for the year, exceeding the growth in revenue. As a result, Purchased vehicle gross profit decreased slightly by $600,000 or 4.2% during the quarter. For the fiscal year, purchased vehicle gross profit increased $8,200,000 or 15%.

Speaker 1

Global gross profit in the 4th quarter increased by $24,100,000 or 6.7 percent U. S. Margins decreased from 51% to 46.3%, and international margins decreased from 29 point percent and our gross margin percentage decreased by approximately 400 basis points to 45.9%. 35.1 percent to 29.9 percent. As was true last quarter, this margin decline was primarily attributable to 2 factors.

Speaker 1

200 basis points to 2 25 basis points of the fiscal year decline was due to purchased vehicles from both a mix shift to purchased vehicles And from the contraction in gross margin rate on our purchased vehicles as the absolute values of those vehicles increase. The balance of our margin contraction is attributable to cost inflation in both towing and labor, offset partially by higher revenue per unit and volume growth. However, we believe we can continue to increase margin and returns on capital over time as we benefit from scale and find further operational efficiencies through technology and innovation. I will now move to a discussion of G and A expenditures, excluding stock compensation and depreciation expenses. G and A spend in the quarter increased $3,600,000 or 9.2%.

Speaker 1

For the year, G and A spend increased to $27,600,000 or 18.4 percent. Approximately $6,600,000 of the increase is attributable to certain discrete legal items, and we presented this adjustment to net of tax in our non GAAP reconciliation. Adjusting for this discrete item, our G and A increased $21,000,000 or 14 percent from $149,800,000 to $170,700,000 While G and A can be volatile from period to period, over the longer term, we anticipate G and A to decline as a percentage of revenue as we grow our business and create additional leverage. Our GAAP operating income increased by 7.7% From $301,500,000 to $324,800,000 for the 4th quarter, including a $2,300,000 headwind due to currency. For the fiscal year, GAAP operating income increased by $238,600,000 or 21 percent.

Speaker 1

And adjusting for the G and A item I mentioned a moment ago, it increased 21.2 percent to $1,380,000,000 4th quarter income tax expense was $39,700,000 at a 13.1% effective tax rate. Adjusting for the tax benefits associated with the exercise of employee stock options as well as the effect of extinguishment of debt, net of tax on a non GAAP basis, Our effective tax rate would have been 15.2%. For the year, income tax expense was $250,800,000 For an 18.7 percent effective tax rate with an associated non GAAP full year expense of 200 and 7,900,000 for an effective tax rate of 21.1%. 4th quarter GAAP net income Increased 3% from $256,000,000 last year to $263,700,000 this year. Adjusted to remove the items detailed in our pro form a reconciliation included in our press release, non GAAP net income increased 9.6% from $247,700,000 last year to $271,600,000 in the Q4 of FY 'twenty two.

Speaker 1

GAAP net income for FY 2022 increased 16.4 percent to $1,100,000,000 And non GAAP net income increased 21%. Our global inventory at the end of July decreased 5.7% from last year And 2.7%, excluding low value units like wholesalers and charities. That is comprised of a year over year decrease of 9.6% As of July 31, 2022, we had $2,600,000,000 of liquidity, comprising of $1,400,000,000 in cash and cash equivalents Call. In the Q4, we retired $400,000,000 of private placement notes outstanding. We incurred a prepayment penalty of $16,800,000 in the quarter Associated with the retirement, which is nearly equivalent to 1 year of interest payments if the notes had not been retired.

Speaker 1

We believe this to be the superior choice given cash on hand, projected interest savings and the relative inflexibility of these private placement notes. Operating cash flow for the quarter increased by $84,100,000 year over year to $312,800,000 driven by stronger earnings and the cost associated with the extinguishment of debt. We invested $102,600,000 in capital expenditures in the quarter And over $300,000,000 for the fiscal year, with over 80% of this amount attributable to capital sorry, to capacity expansion, as we are continuing to prioritize investments in physical infrastructure. Despite unusual near term forces that have suppressed unit sales relative to where they would have been,

Operator

Thank you. Our first question is from Bob Labick with CJS Securities, please proceed with your question.

Speaker 3

Good morning. Congratulations on another fantastic year.

Speaker 2

Thanks,

Speaker 3

So I just wanted to start with a short term one. You obviously discussed costs rising related to Towing and labor, and I assume fuel is embedded in that towing discussion. And we did some quick math, if it's right, like There was even a sequential growth in cost per unit from last quarter. So I guess the question is, What actions are you taking now or can you take to reduce cost per unit? And how long might that take to kind of flow through to get Lower cost per unit, better unit economics in that regard.

Speaker 2

Got it. Bob, I think in short, Optimizing the efficiency of our business is a forever initiative regardless. So it's not per se in response to rising fuel prices or labor costs,

Operator

.:]

Speaker 2

It's fuel, sometimes it's healthcare, sometimes it's commodities, otherwise. But the efficiency initiatives we pursue are Self evident in some regards, but we endeavor to automate much of what we do, including the dispatching of our drivers to retrieve vehicles But those productivity initiatives have been true forever, and we are attacking them with the same zeal as we always have.

Speaker 3

Okay, great. I understand. And then a little bit more big picture. I guess, what if anything has changed in the Insurance and salvage process, since the pre pandemic, in other words, have you added new service for the insurance companies, New products or differentiated offerings that may also come with a cost to you, but it's obviously part of what you provide your insurance customers. How has anything changed since pre pandemic?

Speaker 3

And I'm trying to think about like adding to the unit cost over time, but for a good reason kind of thing.

Speaker 2

Yes. That's a fair question, Bob, and I think an astute observation that in general, the early days of the pandemic were such that many companies, insurance companies included, Wanted to avoid in person engagement for themselves and their customers for obvious reasons to avoid the transmission of COVID-nineteen itself. And since then, of course, they have faced some of the same hiring and retention challenges that the economy more broadly has as well. And We have many fewer insurance company employees who are day to day visiting our yards to do their work and we've instead virtualized much of that workflow for them doing it on their behalf and conveying that information digitally so that they can process those vehicles without coming to see us firsthand. There are also other further downstream processes involving title and otherwise that we now do on their behalf that perhaps they previously had retained a larger

Operator

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

Speaker 4

Hey, good morning. Thanks for taking my question. We get a lot of The dynamic with respect to volume and then also just price, you mentioned the Manheim Index being at a record level. If we revert to a scenario in which volume sort of dominates driven by a higher total loss rate, but price comes down, How would you say that will impact your revenue algorithm kind of in the near term and the long term? On the long term side, I'm sure If volume grows, that's great for you.

Speaker 4

But in the short term, if you see prices drop or volume recovers, but maybe at a slower rate, Could there be an air pocket there? That's the question we get.

Speaker 2

Fair question, Craig. And one we wrestle with forever, even outside The parameters of what is currently a once in a lifetime, I'd argue, inversion where we've never seen this before. But even 5 years ago, when were facing the same questions. Do we in general favor high used car prices or low used car prices? We've always been ambivalent about it.

Speaker 2

The lower used car prices Economics will be modestly worse, but we'll certainly see greater unit volume as well. So we I think to be Transparent, Craig. Don't know precisely, right? It's a matter of degrees. And so if the volume increases significantly and the price moderates Modestly, there's no doubt that's beneficial to us.

Speaker 2

Could there be other such scenarios? I think, yes. The 40 year trend says that the economics will work themselves out quite Well, in the end, but as for what happens in a given month or quarter or perhaps even fiscal year, harder to be precise about that.

Speaker 4

Thanks. And then with respect to Europe, have you run any game plan scenarios with the energy crisis and potential recession there? And then on the demand side with a strong dollar and potential uncertainty in that market, are you seeing any behavior changes there?

Speaker 2

I'll separate those two questions for a minute, Craig. First, on the notion of insurance company practices In Europe, I wouldn't say besides the same themes I mentioned a moment ago about insurance companies as a general matter asking us to do more and are offering to do more In the claims process relative to what we used to do. Besides that, I wouldn't note any radical changes in the way they have managed Their businesses over the course of the past couple of years or since the beginning of the war, I think is the specific catalyst you're asking about. And then and to your second question then about currency fluctuations, I think you know this already. We are Short, the dollar in our business, we favor a weaker dollar, which leads to better auction returns on the margin for us given our Robust Global Buyer Network.

Speaker 2

At any given moment in time, I think we see currency fluctuations across countries such that some are more in the money or some are more out of the money relative As for how we approach in our game planning for Europe, we aren't going to be affected by What happens in the next month or 2, right? That's not the horizon with which we're making our business decisions anyway, there or here or anywhere. So what we specifically On natural gas shortages or what have you, we certainly observe them. We take stock. We understand how to communicate with our customers given that backdrop,

Operator

Thank you. Our next question comes from Daniel Imbro with Stephens Inc. Please proceed with your question.

Speaker 5

This is Joe Enderlin on for Daniel Embraer. Thanks for taking our question.

Speaker 2

Hi, Joe.

Speaker 5

So our question, when looking at service vehicle gross margin pressure Specifically, could you talk about what the biggest drivers of pressure you've seen? And then could you touch on any new developments you've seen on towing costs?

Speaker 2

I think the pressures Gavin talked about them in his prepared remarks, but we're observing the same inflationary Forces that the folks are across industries. So whether it is fuel costs, labor costs, both in house And 3rd party, those are the same forces, I think, that every business literally worldwide is observing today. So nothing particularly unique in that regard. As for the economics of the business, gross margin, as you know, is a function both of the cost as well as the revenue. On the revenue side, we continue to benefit, of course, from And so the realized returns we achieve at auction are certainly the offsetting consideration there as well.

Speaker 5

Got it. That's super helpful. As a follow-up, I was wondering how you're looking at the returns on capital between share repurchase and land expansion at this point. You likely have capacity to pursue both, but how are you feeling about

Speaker 2

The priority certainly is always to invest in and this is what Any good steward of capital would, I think is the framework they would approach the question with, which is how do we maximize Those returns over 30, 40, 50 year horizons and if that is your framework, we would always elect to invest productively in the business long term. There is power in the network. There is power in physical capacity. There is power, as you heard me say, in owning it and controlling it in perpetuity. We generate cash, of course, net of those investments as well.

Speaker 2

As you know from our history, we buy So at some point, we don't announce in advance, but at some point, we of course will buy shares back. That ultimately is the use of residual capital.

Operator

Our next question is from Chris Bottiglieri with BNP Paribas, please proceed with your question. Hey, guys. Jeff, I think you said 2 out of every 5 cars are coming back in the road today. I guess, where do the metrics stand before the great financial crisis? And can you give us a sense of how price and volumes change in the financial crisis of these types of vehicles?

Operator

To understand that this is becoming more cyclical as you successfully disrupted international markets and traditional wholesale auction model or if like supply is the bigger factor out of demand?

Speaker 2

I missed the critical first phrase. What did you could you say it again, Chris?

Operator

Yes. So I'm just trying to understand like, You have 2 of every 5 cars are putting back on the road. Like where did that metric stand before the Great Financial Crisis? Like where were drivable cars before then? Just trying to understand that this is becoming more cyclical as you've just gone more international markets, you've gone to the Copart Direct, you've gone through the Dealwork Assignment Business.

Speaker 2

Got it. I think directionally, Chris, meaningfully lower, but that's not per se a function of macroeconomic conditions. So the global financial crisis, if we're talking 2,008, 2,007 horizon, pre GFC, that is a full 15 years ago total loss So it's not a function per se of Economic growth or recessions or interest rates or what have you, it's that the fastest growing economies worldwide, as a general rule, Certainly has increased the number of drivable vehicles we sell, has over the past 15 years and almost certainly will over the next 15 years as well.

Operator

Got you. Okay. Thank you. And maybe a bigger picture question longer term, just with your ESG report coming out, I was wondering like how much work you've done on the impact of And particularly like battery electric vehicles like what are you seeing today in terms of another it's obviously a very as a percentage of, call it, like ECB or something. What are you seeing on those EVs today?

Speaker 2

Fantastic questions and complicated ones. First, and difficult to isolate specifically because there are, as you know, sparingly few cars for which When it comes to total loss frequency, repair costs and auction returns is difficult. What I would tell you so far, however, is that electric vehicles, perhaps by virtue of being newer, having more safety technologies, Or even autonomous driving like features, those cars total more easily. The repair costs are high. As for auction returns, though as you noted, it's early and therefore the addressable population remains small.

Speaker 2

On balance, the returns on electric vehicles

Operator

Thank you. Our next question is from Ryan Brinkman with JPMorgan. Please proceed with your question.

Speaker 6

Hi. Thanks for taking my question. How should we think about the outlook for agency model average revenue per unit tracking going forward with On the one hand, declining used vehicle and scrap metal prices, but on the other hand, the tailwind from more higher priced non salvage vehicles and Maybe any potential fee actions you could take as selling prices decline? And then what do you think the margin implications are of going forward On the one hand, the direction of selling prices, which I'm presuming is down and on the other hand, the operating leverage provided as volumes normalize higher?

Speaker 2

Ryan, good to hear from you. And fair questions probably along the same lines as a few callers ago on My answer then is that we are somewhat ambivalent between the 2. A high used car price environment like the one we're in now means Our unit economics are excellent, but it also means that our volume is compromised relative to where it otherwise would be. As for then how we would feel about movements of Bottom line, long term, I think the volume growth will no doubt be positive and meaningful as it has been for the past 40 years. So total loss frequency will be the tailwind behind But as for the near term P and L effects of a slight drop in ASPs and a bump in volume, Precisely how that unfolds, we don't know.

Speaker 6

Okay, great. Thanks. And then how should we think about, just lastly here, the trend in land purchases tracking going forward after a step up in recent years, Going forward after a step up in recent years, maybe as you were anticipating some of these market share gains and expecting volume recovery, But how should we think about land purchases tracking and then the implications of that for the conversion of EBITDA into free cash flow and Capital allocation optionality?

Speaker 2

Sure. As for investing in land, I think you've heard me say this on prior calls too. That becomes a very specific microeconomic exercise in which we evaluate metro by metro and even metro Growth in total loss frequency given, of course, as you noted, market share aspirations, given growth in our non insurance business, what storage needs we anticipate in a given market. So it's not an aggregate corporate decision. We don't wake up in a quarter and say, let's go spend $150,000,000 this quarter.

Speaker 2

Instead, it's a microeconomic question that we face market by market. In the aggregate, given that total loss frequency expectation, given our volume growth aspirations, we do expect to continue to invest In that capacity for years to come. So it has been, as you know, turbocharged, say, since 2016 or so relative to historical periods Before that, but we continue to believe that controlling our own destiny, investing in physical infrastructure is a key enabler in our business and we'll continue to do that.

Speaker 6

Okay. Maybe just one last one on market share. Do you know what your market share is? I think it was already possibly over 50% before some Recent contract wins and wasn't there a case where maybe I forget when in the 90s that Manheim had to sell some yards via some, I forget, arrangement with the Federal Trade Commission to ADESA when their market share was over a I forget what it was, maybe 65%, 70% or something like that. Are there any read throughs to the salvage industry?

Speaker 6

Do you intend to just keep Driving share higher, is there any kind of practical limit? Or what do you think?

Speaker 2

Difficult for us to comment Market share, in the same way that talking about market share in the aggregate is a little bit like answering how much do we want to invest in land in the next quarter, but every customer to us, whether we All of their business, some of it or none of it is really important to us and we spend a hell of a lot of our energy serving them and persuading them to I'd also note that as you probably remember, a quarter of our cars today come from non insurance sources and we continue to believe that we can grow In that arena as well. So we don't do market share calculations along the lines of what you described. And if we did, We would look at the automotive industry more broadly and look at it worldwide, in which case our market share, of course, is quite a bit less And the ranges you were citing in our addressable market quite a bit bigger.

Speaker 6

Very helpful. Thank you.

Operator

Our next question is from Bret Jordan with Jefferies. Please proceed with your question.

Speaker 2

Hey, good morning guys. Brett?

Speaker 6

Could you talk a little bit about specifically the German market, what you're seeing as far as traction there with insurance companies?

Speaker 2

Yes. And for folks who are new to us, we elaborated a I think it was end of fiscal 2019 or 2020 on our earnings call in much greater detail about our approach to the German market. Most of those themes remain true, which is to say that the business model to date that has been deployed by insurance companies in Germany is very different from how we operate in the U. S, U. K, Canada, Brazil, the Middle East, Finland for that matter, Other major markets in which we participate today.

Speaker 2

The model that we offer is a liquid auction as opposed to a listing service model It exists there today and we're working with the insurance carriers to effectively convert the market to a different way of doing business. So it's not per se head to head competition Again, the Copart like market participants, but instead a changing of the market altogether. Today, we are selling cars on an agency basis On behalf of 7 of the top 10 insurance carriers in Germany, we do not yet have a national account across the and continue our progress there. Germany, I think you mentioned Western Europe and I think appropriately so,

Speaker 6

And then a quick question on non insurance. You sort of called out rental and fleet and finance costs, but could you talk about What you're seeing in the dealer market now? Obviously, that was something that was shown some potential a year or 2 ago. And in addition to the dealer, just sort of a follow-up on that same question, What's been the trend of ASPs in the non insurance units? Obviously, dropping charity and picking up some more of these sort of whole car type vehicles might be favorable.

Speaker 2

Yes. So I'll start with your first question on the dealer business. They are an important constituent for Copart today and have been for years. So we our Copart Dealer Services business in the U. S.

Speaker 2

And elsewhere Continues to pursue that business. It won't surprise you that the dealers are short on cars as well these days, new and used, but we have Nonetheless, continue to grow our business among the dealer sellers at Copart, broadly speaking. Your second question about the ASP effect, I think there is some Favorable mix shift, of course, in combination with what is a robust ASP market overall. So I couldn't isolate for you the two effects, Brett, but both are favorable.

Operator

Our next question is from Ali Saadri with Guggenheim. Please proceed with your question.

Speaker 7

Hi, Jeff and Gavin. Thanks for taking my questions. My first question is on the near term outlook for total loss frequency, And at the same time, vehicle repair costs are also increasing at a more rapid rate. So it would seem like the elements are in place to drive total loss rates higher. And I guess as part of this, How long do you think it would take to get back up to that 20 plus percent rate of total losses we were at coming into the pandemic?

Speaker 2

I think the transparency, at least, we don't know. We don't know precisely. Total loss frequency itself, as you probably appreciate, is a lagging indicator because the accidents happen. It takes X weeks for the car's claim to be resolved via a written estimate being provided to the insurance carrier, in some cases, Discussions or negotiations with the policyholder and owner of the car, in some cases, subrogation from one insurance carrier to another. So by the time the car is totaled, you are weeks After the accident itself occurred and the economic decisions are themselves made on a huge basket of inputs, including what the car is worth The repair estimates, as you note, are increasing in price.

Speaker 2

Rental car costs remain elevated as well. And so that basket of inputs Inside of Copart, it's not clear what individual metric you look for to see a turn in total loss frequency. We are confident that will happen as for the horizon and when exactly it reaches then 19% again, 20% again or 20 4% someday, it's harder for us to forecast.

Speaker 7

Got it. That makes sense. And then as a follow-up, a similar question on the towing cost side. Are you seeing any normalization there yet? I know diesel prices have come lower recently and I know that's at least one input.

Speaker 7

Curious what you're seeing on towing costs more recently?

Speaker 2

I think that's a reasonable observation that fuel is a part of it, diesel is a part of it. Gasoline prices have softened very meaningfully from the peaks Near the beginning of the war, diesel, as you know, has moderated less than conventional gasoline, but also has moderated as well. So that will ultimately be realized in the form of our tolling costs.

Speaker 7

Great. Thanks, Jeff.

Speaker 2

Thanks, Oli.

Operator

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

Speaker 2

Great. Thank you everyone for joining our Q4 call and we'll talk to you after the Q1. Thank you.

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