Copart Inc (CPRT) Q4 2021 Earnings Call Transcript

Copart Inc (NASDAQ: CPRT) Q4 2021 earnings call dated Sep. 09, 2021

Corporate Participants:

John North — Chief Financial Officer

Jeffrey Liaw — President and Chief Executive Officer North America

Analysts:

Bob Labick — CJS Securities — Analyst

Stephanie Moore — Truist — Analyst

Craig Kennison — Baird — Analyst

Bret Jordan — Jefferies — Analyst

Joe Enderlin — Stephens — Analyst

Chris Bottiglieri — Exane — Analyst

Ryan Brinkman — J.P. Morgan — Analyst

Ali Faghri — Guggenheim — Analyst

Presentation:

Operator

Good day everyone and welcome to the Copart Incorporated Fourth Quarter Fiscal 2021 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 — Chief Financial Officer

Thanks, good morning. During today’s call, we’ll discuss certain non-GAAP measures, which include adjustments to reverse the effect of certain discrete income tax items, acquisition-related integration charges, foreign currency related gains and losses, certain income tax benefits and payroll taxes related to accounting for stock option exercises.

We provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures in our Investor Relations website and in our press release issued yesterday. We believe these non-GAAP measures together with our corresponding GAAP measures are relevant in analyzing our results and then assessing our business trends and performance. In addition, our comments today include forward-looking statements within the meaning of federal securities laws, including management’s current views with respect to trends, opportunities and uncertainties in our markets including the COVID-19 pandemic.

These forward-looking statements involve substantial risks and uncertainties. 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, 2020 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.

So, now that we’ve got the Safe Harbor language out of the way, I’ll turn the call over to Jeff Liaw, our President.

Jeffrey Liaw — President and Chief Executive Officer North America

Thanks, John and good morning, everyone and thanks for joining us for a review of our fourth quarter and fiscal 2021. We’re pleased with the results for the year, another record-setting quarter on multiple dimensions. We look forward to discussing some of the underlying factors in the business with you as well. The big news of course since we last spoke with you in May has been the emergence of the delta variant of COVID-19. Nevertheless, we’ve seen ongoing recovery across the industry, including key measures such as vehicle miles traveled published by the Department of Transportation, gasoline consumption and the like.

So, we’re beginning to see the return to normal driving activity, accident volumes, etc., though we noted still likely down on an apples-to-apples basis versus two years ago. Given the growth in our business, nonetheless, our inventory levels we’ll talk about in a bit, are up meaningfully year-over-year and up double digits versus July 2019 as well and due to several drivers we’ll discuss later on the call as well our average selling prices. The values we generate for our customers remain elevated and are in fact at all time highs.

Before we dig in, I wanted to take a moment to acknowledge the Copart cap team, which has had an active and productive few weeks certainly. As many have projected over the years, we are seeing more severe weather events with each passing year and just recently have observed flooding and other severe weather in Germany, in Tennessee, Louisiana, Mississippi, Alabama and now of course Hurricane Ida in the Northeastern United States. We’re watching all of those affected in those communities, including our employees, our own team members, the very best and a speedy recovery. Hundreds of us, myself included, were in the Northeast over the weekend and we have still more Copart team members headed their leading the charge from here forward.

We’ll discuss the financial implications of these events — of these recent weather events in future quarters, but the first order of business is always is to serve our customers and to take care of our own people. I wanted to start with a couple of statistics that we provide every quarter and close with a handful of remarks about the future as well. Our global unit sales for the quarter increased 25% year-over-year with the U.S. increase of 26% and an international increase of 18.5% year-over-year.

We continue to see more aggressive COVID-19 measures in many of our international markets than we have here in the U.S., which has caused more of a volume reduction or less volume growth in those markets. Within the U.S., our insurance business grew significantly year-over-year versus the fourth quarter of 2020. That is the net effect of lower driving activity — well increased driving activity year-over-year, still slightly lower driving activity, but on a two-year basis, we had increase in claims frequency and increase in total loss frequency as well.

Our non-insurance business, which we talk about each quarter, includes dealer consignments, wholesales and charities business, our Copart direct business in which we buy cars from consumers and institutional volume as well. We’ve historically provided the unit growth, in particular, excluding wholesalers and charities and on that basis, our U.S. non-insurance business grew 17% year-over-year, including a solid growth for our dealer consignment business despite inventory shortages of course throughout the automotive industry.

Our strong used car prices or used vehicle prices are driving strong returns and therefore consignment growth across these non-insurance categories. Our global inventory at the end of July increased 21.7% compared to a year ago and double-digit growth on a two-year basis as well. That’s comprised of a year-over-year increase of 28% for U.S. inventory and a decline of 13% for international inventory, attributable to the COVID-19 measures I’ve described a few moments ago.

We are especially proud of the record average selling prices that we’re delivering for our customers. The ASP strength is a reflection in part of course of market dynamics for used vehicles, but it’s also a byproduct of our member recruitment and retention efforts. ASPs worldwide grew 20.7% for the quarter with U.S. ASPs of 20.6%. The question we often get is how much of that is attributable to mix shift and it’s not. So our insurance ASPs are up, comparable levels are even up more still than that.

While growth in used car prices have, of course, contributed to our ASP growth, our selling prices throughout the pandemic and prior to it as well, has generally grown at a rate in excess of that of used car prices as well that being a reflection of the marketing member recruitment efforts I mentioned a moment ago. The Manheim Index, which is one of those third-party indices we do track is at 194.5 for the month of August, an increase of 18.8% year-over-year. We track other indices as well, which would provide similar directional guidance.

Our average selling prices are certainly the ultimate output metric for auction liquidity, but the underlying figures that support that notion — the notion of the flywheel effect certainly continue as well. In the fourth quarter, we noted more bids per unit, more domestic bids per unit, more international bids per unit, all compared to a year ago, our auction liquidity is stronger than it has ever been.

The natural questions of course will continue to be about what happens after the pandemic — dread of the pandemic goes away. I think we certainly hold an appropriate level of humility given the once in a lifetime nature of the event and our comments will largely be U.S. centric, but I think it’s worth we begin some of these longer-term assumptions we’ve talked about on prior calls and how they’ve been affected by the pandemic. Driving activity certainly is rebounding by the measures we have seen, gasoline consumption and vehicle miles traveled, but not yet back to 2019 levels. We continue to believe that longer-term mobility will continue to grow that miles per person in the U.S., but certainly in our emerging markets in many of the countries that are buying our highest value vehicles will grow significantly.

We saw accident and claims frequency decline somewhat during the pandemic, but it actually increased relative to miles driven, that is a new learning for us in the pandemic to see. I think the historical conventional wisdom has always been that if there are fewer vehicle miles traveled that accident frequency per miles traveled will decrease, but in effect or in actual practice, we’ve seen arguably more distracted driving certainly higher speed driving and therefore accident frequency can in some respects be inversely related to vehicle miles traveled, accident frequency per miles driven.

On total loss frequency, the most important driver of our business long term that we talked about at length in the past, we’ve seen that increase during the pandemic as well and I wanted to offer one addendum to that in a moment. On the durability of ASPs, we note the longer-term trends in favor of ASPs. We continue to see increasing demand from emerging economies for the wrecked vehicles from the U.S., U.K., Canada, other mature economies. These emerging economies are especially eager to purchase our vehicles, which are wrecked and total vehicles become their drivable fleet. That trend has been a 30, 40-year trend and we think will be so for the foreseeable future.

I wanted to know one important consideration that I think can be easily overlooked. The natural questions are about when if the selling prices — when the selling prices could face weakness in light of an eventual recovery in semiconductors and new cars and the like. What I think is sometimes misunderstood that all else equal, high ACVs or high pre-accident values actually reduce total loss frequency. The higher, the more cars work before the accident, all else equal to more prone it is to be repaired and so eventually certainly if there is a decline in ASPs or decline in vehicle values, the offsetting consideration is that we would see higher total loss frequency and therefore higher consignment volume.

We continue to make our operating and strategic decisions predicated on the expectation of long-term growth post pandemic, consistent certainly with what we’ve communicated over the years. We’re grateful for the strong financial performance this quarter against the backdrop of a pandemic and now severe weather events all over the world. It can feel awkward to sound a congratulatory tone on the call, but nonetheless, we’re certainly pleased with our results in the fourth quarter, excited about the year ahead. Our business is stronger than it has ever been. The quality of our team, the sophistication of our technology stack and the depth of our auction liquidity, we think is yielding better results than ever for our customers.

With that, let me turn it over to our CFO, John North.

John North — Chief Financial Officer

Thanks, Jeff. I’ll make a few comments on more of our operational results and then we can open up for some questions. For the fourth quarter, global revenue increased $223 million or 42%, including a $12 million benefit due to currency. Global service revenue increased $162.4 million or 36%, primarily due to higher average selling prices. U.S. service revenue grew 36% and international experienced an increase of 29%. Purchased vehicle sales increased $60.6 million or 89% due to higher ASPs and increased volumes. U.S. purchased vehicle revenue was up 99% over the prior year and international grew 73%. As a result, purchased vehicle gross profit, defined as vehicle sales less cost of vehicle sales, increased by $1.6 million overall.

Global gross profit in the fourth quarter increased by $107.1 million or 43% and our gross margin percentage increased by approximately 11 basis points to 48%. U.S. margins improved from 50% to 51%, driven primarily by higher ASPs and international margins decreased from 34% to 30% due to a higher purchased vehicle mix at lower margins, partially offset by higher ASPs and cost leverage.

I’ll now move to discussion of G&A expenditures excluding stock compensation and depreciation expense. G&A spend increased $5 million from $34.6 million a year ago to $39.7 million in 2021, but decreased from 6.6% of revenue to 5.3% of revenue this year, an improvement of 130 basis points. We anticipate G&A to continue to improve as a percentage of revenue in future years. As a result, our GAAP operating income increased by 47% from $205.7 million to $301.5 million. We delivered 114 basis points of operating margin improvement due to revenue growth from strong ASPs and leveraging volume.

Net interest expense increased $0.2 million or 5% year-over-year, primarily due to our upsized revolving credit facility, which we upsized in July of last year. Before income tax expense was $43.1 million at 14.4% effective tax rate, reflecting an $11 million tax benefit on the exercise of employee stock options, which have been adjusted for purposes of the non-GAAP earnings included in our release. On a non-GAAP basis, our effective tax rate would have been 17.6% and our full year rate would have been a normalized 20.8%.

Fourth quarter GAAP net income increased 55% from $165.5 million last year to $256 million this year, adjusted to remove the effects of currency, acquisition-related costs and the tax benefit on the exercise stock options. Non-GAAP net income increased 51% from $163.4 million last year to $247.3 million in the fourth quarter of this year.

For fiscal year ’21 on a full year basis, global revenue increased $486.9 million or 22%, including a $31.6 million benefit due to currency. Global gross profit increased $335.3 million or 33% and our gross margin percentage increased by 419 basis points to 50%. Operating income increased 39% to $323 million and operating margin improved by 521 basis points.

Finally, GAAP net income increased 33 — 34%, excuse me, from $699.9 million last year to $936.5 million this year and non-GAAP net income increased 45.7% from $610.5 million last year to $889.7 million this year. Now to briefly update our liquidity and cash flow highlights as of July 31, 2021, we had $2.1 billion of liquidity comprised of over $1 billion of cash and cash equivalents and an undrawn revolving credit facility with a capacity of over $1 billion. This is an increase of $570.5 million over July 31st of last year. Operating cash flow for the quarter decreased by $38.2 million year-over-year to $228.7 million, primarily driven by working capital investments as we increased inventory levels, which Jeff spoke about a few moments ago.

We invested $98.6 million in capital expenditures for the quarter and approximately 76% of this amount was attributable to capacity expansion. For the year, we invested $463 million in capex, of which approximately 85% was associated with capacity expansion. We continue to prioritize investing in physical infrastructure above other choices and believe this continued investment is creating a durable advantage in our ability to handle increasing numbers of total loss vehicles and adjacent opportunities in the whole car marketplace. We continue our relentless focus on investing for the future in both capacity and technology, while maintaining conservative capital structure that allows operational flexibility, regardless of economic changes or transitory market dynamics.

And I will conclude our prepared remarks this morning and we’re happy to open it up for some questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question today is coming from the line of Bob Labick with CJS Securities. Please proceed with your question.

Bob Labick — CJS Securities — Analyst

Good morning and congratulations on fantastic results.

Jeffrey Liaw — President and Chief Executive Officer North America

Hi, Bob. Thank you.

Bob Labick — CJS Securities — Analyst

Yes. So, I wanted to start obviously really, really strong sales growth. I mean, you talked about inventory a little bit too, but kind of looking sequentially from last quarter to this quarter on the service revenue basis, service revenues were roughly flat, but yard expenses were up sequentially quite a bit. Is that all inventory build? And is that kind of — is inventory seasonally building at this point or are there other factors behind it? And if it’s not inventory, what are the other drivers between the cyclical yard cost increase on flat revenues?

Jeffrey Liaw — President and Chief Executive Officer North America

Fair question Bob and that is certainly a healthy portion of the explanation, is that the activity becomes from inventory growth. This is — the fourth quarter is not historically an inventory build quarter for us. We tend to build in the second quarter in particular ending in January through the winter, to some extent in the third. The fourth quarter is usually a quarter in which we are liberating inventory and preparing for the seasons ahead. This year, in part because of the pandemic effect and in part because of growth in the business, for the reasons we talked about a little while ago, yes, that is a meaningful portion of the driver of yards costs.

Bob Labick — CJS Securities — Analyst

Got it. Okay, great. And I know you touched on this, Jeff, but just maybe if you could kind of wrap it up in terms of the insurance growth is recovering. How do you put us versus — now versus the pre-20 — pre-pandemic levels in terms of insurance activities and how long do you think it takes to get back to a kind of a normalized rate of driving accidents, etc., looking ahead?

Jeffrey Liaw — President and Chief Executive Officer North America

Yes, that’s the right question and almost an impossible one. My answer might be different even in June when the vaccines were rolling out and I thought that we were on our way to being done with it all and then the delta variant emerged and we’ve seen of course case counts rise again in many of — certainly across the U.S. and in many of our other markets as well. So, I think the forecast is I don’t know that we would have a more insightful perspective about the unwinding of COVID-19 that others might.

On driving activity, we looked at the same metrics you might, which is the DoT data, the gas consumption data. We have certainly information from our insurance company clients as well, which would suggest huge growth versus the fourth quarter of last year, but not yet back to fourth quarter 2019 levels. When that bounces back, I don’t — candid answers we don’t know. I would guess smaller quarters though.

Bob Labick — CJS Securities — Analyst

Got it. Okay, great. And then last one for me. Obviously, Copart — dealer cars have been a big growth driver and you’ve been talking about it as such for quite some time. How does the type car — like the ASP for your dealer cars compared now to maybe two or three years ago, obviously adjusting for the Manheim Used Car Index? I guess another is, are you still selling the same mix of cars you were before, presumably aged inventory older cars etc., or have you expanded the mix and what is the typical Copart dealer car look like now?

Jeffrey Liaw — President and Chief Executive Officer North America

Yes, I think the quote is typical car, as you’re describing, looks somewhat similar, though higher ASP and off the cuff likely even adjusted for the Manheim index and that the natural liquidity pool for us as you know from the insurance side of things becomes a better and less damaged and more valuable car over the years. That’s been true forever as you know. That therefore has cultivated a different buyer base, different member base who is looking for a drivable car and that in turn — that liquidity has benefited us on the dealer side.

That trend certainly continues and I think if you visited some of our yards, you’d be astonished by some of the high value Range Rovers and European vehicles that you would see on the lots that at least on their surface look perfectly good and perfectly functional in many cases are. So it is a gradual shift over time. This is not an overnight shift, but the liquidity certainly has nudged us up market so to speak and certainly in our Copart dealer business as well.

Bob Labick — CJS Securities — Analyst

Okay, super. Congratulations again. Thank you so much.

Jeffrey Liaw — President and Chief Executive Officer North America

Thanks, Bob.

Operator

The next question is from the line of Stephanie Moore with Truist. Please proceed with your question.

Stephanie Moore — Truist — Analyst

Hi, good afternoon.

Jeffrey Liaw — President and Chief Executive Officer North America

Hey, Stephanie.

Stephanie Moore — Truist — Analyst

I wanted to touch a little bit on the impact of the catastrophic events that have really swept the globe over the last couple of months. First, some of the pretty deadly flooding we saw across the Europe, particularly in Germany and any impact that had on the quarter or expectations for the coming quarter in that particular, as well as what we should expect in the U.S.? And maybe you can remind us, I know there’s been a lot of efforts to expand your catastrophic capabilities to make it so — it’s somewhat more profitable or profitable given the situation. So any update you can provide generally would be helpful. Thank you.

Jeffrey Liaw — President and Chief Executive Officer North America

Sure. Thanks. That may be — the significant catastrophic activity has largely occurred after the quarter. So, in the United States, in particular, we did experience some flooding in the U.S. and in Germany prior, compared to catastrophic events of — in the past. These events were relatively modest in absolute size. In terms of catastrophic readiness, I think you posed the question, Stephanie, we have invested massively in this, anticipating more severe weather over the years to come and a catastrophe, the key questions are: do we have the technology to support the suddenly accelerated volume of activity. The answer is yes and we are continuing to invest behind it.

Do we have the land to store the vehicles until we can process the titles and sell them on behalf of our insurance company clients. The answer to that is, yes, we have bought and built catastrophic yards that in many cases have run idle, simply awaiting a catastrophic event to service our customers again. We’re certainly depending on where the cat event might be also then lease land on a temporary basis as well to expand our capacity.

And then towing and trucking is certainly an important variable as well. We pick up of course millions of cars a year on behalf of our customers and have again a more acute need in the middle of a catastrophe. We have therefore invested in a fairly sizable fleet of our own, which we expect to continue to invest in as well to support those efforts. So, these are folks day to day who are deployed in their home yards, but in a crisis are asked to join us on the ground, where the need is most acute.

So, those are all ways for us to address the — to be more ready in anticipation of the weather events rather than scrambling last minute. Those have been investments that we’ve made very consistently and continue to grow year-after-year.

Stephanie Moore — Truist — Analyst

Got it. No, that’s really helpful. And switching back to Germany, is there — is this a situation where thinking into a little bit more longer term where maybe the impact of the cat, it’s a flooding and where you guys were able to come in and really show your value from a consignment model standpoint? Is that an opportunity where it might accelerate the shift and what you’re providing in Germany with insurance carrier that may potentially get them to shift over to more of what the model looks in the U.S. than in Europe? Any update there?

Jeffrey Liaw — President and Chief Executive Officer North America

Yes, I think that’s an insightful question or insightful premise. And I think it is true that in Germany and elsewhere, the catastrophic events very much underscore the Copart value proposition that our service, our hustle in a moment of crisis is still more visible at moments like that to insurance carriers. Whether they are long time customers who have been with us for 30 years or German insurance customers we are quoting for the first time or converting more of their volume to the consignment model under Copart’s business model, that I think is certainly true. So all else equal, this for sure, it better communicates our value proposition to the German market.

Stephanie Moore — Truist — Analyst

Got it. I’ll leave it at that. Thank you.

Jeffrey Liaw — President and Chief Executive Officer North America

Thanks, Stephanie.

Operator

The next question is coming from the line of Craig Kennison with Baird. Please proceed with your questions.

Craig Kennison — Baird — Analyst

Hey, thanks for taking my question. Copart likes to innovate without much fanfare, I think, but I’m curious if you would call out any key platform enhancements you might have made in the last six to 12 months that could be driving value for your buyers or sellers?

Jeffrey Liaw — President and Chief Executive Officer North America

It’s been great, I think the — the introductory clause there I think is accurate. We tend not to declare much victory in particular on investor calls. We launched these products through our sellers, our customers and our members as well. So, I’ll talk more broadly. I think we have introduced a range of products and enhanced them that help our customers to process titles more quickly. The loan payoff tool we’ve talked about in the past is better still today than it was a year ago in terms of the lender coverage. Lean cars are an especially challenging title for insurance carriers to obtain and therefore to allow us to sell the vehicle. And I think our various offerings loan payoff included in that realm are better than they ever have been.

When it comes to the member side of things we have deployed a number of different tools, including app based tools, including mobile check-ins and scheduling of pickups and such that have made — that has made their experience more seamless and we think we are reducing friction for new and existing members to buy cars at Copart and certainly have much to do on our to-do list to move that ball forward.

And then lastly and perhaps most importantly the auction itself is arguably our most important single platform that we invest in very aggressively to make the experience faster to make it still more mobile friendly to let anyone who wants to see and buy and track vehicles at Copart to make that a seamless experience as possible. Our paid member growth is up very meaningfully year-over-year, a reflection of our investments in that arena.

Craig Kennison — Baird — Analyst

Thanks. And then we continue to hear stories about the exceptionally high cost of shipping containers and naturally your business relies on that to some extent. Are you surprised that there’s no — has seemingly no impact from the rising cost of shipping containers on your overall demand? I would think that your customers have to factor that in.

Jeffrey Liaw — President and Chief Executive Officer North America

I think that’s no effect, probably is overstating it. I think the point would be that the offsetting forces have overwhelmed that, so vehicle demand, the member recruitment and auction liquidity have more than covered it. I think it’s also fair to say that when it comes to shipping containers and the inflationary pressures there, those are much heavier on inbound volume to the U.S. as it’s always been the case than it is the containers leaving or the ships leaving the U.S. and going elsewhere. I think those routes tend to be a little less congested. the slot is less spoken for, so those pressures I think are more modest than they might appear first glance.

Craig Kennison — Baird — Analyst

That’s great. Hey, thank you so much.

Jeffrey Liaw — President and Chief Executive Officer North America

Thanks, Craig.

Operator

Thank you. The next question is coming from the line of Bret Jordan with Jefferies. Please proceed with your questions.

Bret Jordan — Jefferies — Analyst

Hey, good morning guys. Question on — I guess on the vehicle profiling. Jeff commented that you’re seeing less damage mix over time. Could you talk about sort of what percentage of mix might be run and drive and then the inverse of that what percentage of your mix is really sold as crushed car bodies on its metals content and where you see that metals price environment now.

Jeffrey Liaw — President and Chief Executive Officer North America

Yes, to the last portion of your question, which is probably the easiest, certainly metals — commodity metals are rebounding like many, many underlying physical goods in terms of the prices. Still, it’s a small minority of our cars that are sold for pure meltdown value so to speak and it’s still smaller minority of our relevant economic spread of the car that sells for a few hundred dollars and is stripped off a part or two and then melted down, is a very valuable service that we provide to our communities and our customers to eliminate those cars, but not as consequential when it comes to the economics of our business.

Bret Jordan — Jefferies — Analyst

And then the run and drive mix as the percentage, I mean, obviously with dealer cars, it’s gone up, is it a third or 40% your volume sold or less than that?

Jeffrey Liaw — President and Chief Executive Officer North America

No. So, we haven’t disclosed that precise mix in the past and don’t intend to do so. But in terms of the run and drive mix, yes, it is a reflection of rising total loss frequency, so that’s less damaged cars. I think it’s probably easier Bret for that matter to strip the insurance from everything else to isolate that question. But when it comes to the insurance vehicles, yes, more cars are drivable today because a car can be totaled because a rear sensor or front sensor or lane departure warning sensor on the mirror is knocked out and the replacement and calibration is expensive. That yes, there are more run and drive cars as a percentage of the total.

Bret Jordan — Jefferies — Analyst

Okay. And a quick cash flow question, I guess when you think about the land build-out strategy, I think it was back in ’15 or ’16. What inning of land acquisition are we in? And when you think about your capex expectations, what’s the maintenance capex number versus the acquisition real estate investment capex expectation? [Technical Issues] Rob.

Operator

Thank you. Our next question is from the line of Daniel Imbro with Stephens. Please proceed with your question.

Joe Enderlin — Stephens — Analyst

Hi. This is Joe Enderlin on for Daniel Imbro. [Technical Issues] so, our question, we’re looking for availability on land overseas. I want to know if it’s kind of arduous process to find lands and given the…

Jeffrey Liaw — President and Chief Executive Officer North America

Hi, Rob, can hear us.

Operator

Yes, I can hear you, gentlemen. Please continue.

Joe Enderlin — Stephens — Analyst

Okay. Yes. Given the growth in Germany, do you have the capacity to support more growth?

Operator

[Operator Instructions] Gentlemen, if you can — this is your operator, if you can hear me, you may continue with your presentation. [Operator Instructions] Gentleman, you may continue with your presentation.

Jeffrey Liaw — President and Chief Executive Officer North America

Okay. Thank you. Bret, apologies, we got disconnected there. Hello, Bret can you hear us.

Joe Enderlin — Stephens — Analyst

Hi, this is Joe.

Jeffrey Liaw — President and Chief Executive Officer North America

Hi, Joe.

Joe Enderlin — Stephens — Analyst

Hi. So I was looking for some color on the availability of land overseas. I’m wondering if it’s an arduous process to find land? And then given the growth in Germany, do you have the capacity to support more growth there?

Jeffrey Liaw — President and Chief Executive Officer North America

Great. Good question and certainly the challenge of land acquisition and development is universal. It varies and it certainly varies by degrees even here in the United States depending on what city and state we’re talking about. It then varies across countries as well and within those countries as well. So difficult to provide a thoughtful nuanced answer there, but yes, the challenges are similar. We do have the capacity in Germany to support the business we have and we have built for growth, but certainly we would expect to invest more over the years to come to support our ongoing growth there. There is lead time to do so. So you’ve heard us tell the stories here in the U.S. in the past, in which we buy parts of land in California, for example, that we’ve been pursuing for 20 years. We don’t expect that severe lead time in these markets, but it does take time to identify, to permit and to develop the land before we can operate on it.

Joe Enderlin — Stephens — Analyst

Great. And then as a follow-up. What about Spain or other markets, you have capacity there?

Jeffrey Liaw — President and Chief Executive Officer North America

Same answer, yes, we have capacity to serve the business today and for a near, medium-term growth, but also that we intend to and will invest more still in it to support our future business there.

Joe Enderlin — Stephens — Analyst

Great. Thank you so much.

Jeffrey Liaw — President and Chief Executive Officer North America

Thanks, Joe.

Operator

Thank you. The next question will be coming from the line of Chris Bottiglieri with Exane. Please proceed with your questions.

Chris Bottiglieri — Exane — Analyst

Hey, guys. Couple of questions from me. First one is, one of your salvage competitors spoke to inflation and selling cost. Have you seen this at all? Can you give us a sense for the sensitivity of yard ops to towing cost and what type of impact this could have on operations growth? And then historically when you’ve seen periods of inflationary towing cost, like what extent you’ll be able to pass out there to sellers would be helpful?

Jeffrey Liaw — President and Chief Executive Officer North America

Got it. Inflation perhaps to generalize first. It’s always a consideration in our business and in different years, there are different inflationary inputs for our business. Many years of course it’s been healthcare, fuel and other such commodities. Today, yes, somewhat more acute for all the reasons you’re reading about in the popular press already. We’re comfortable we can manage that inflation and continue to deliver operating leverage in our business.

So, in short, towing costs are a significant portion of our costs at the yard level. So, they certainly do matter to us, but we think it’s manageable and we haven’t proactively raised it as a consideration this quarter because it’s just part of the business, as is labor costs, health care costs, power and utilities and so forth. It’s part of what we do.

Chris Bottiglieri — Exane — Analyst

Yes. Sure does. So that sounds like you do a lot of like logistics services for your insurers on managing towing and all of that. Is there an opportunity to do the container side, like shipping side, ocean freight for your international buyers. Like who are the international buyers? They tend to be smaller one off consumers or small — like small businesses, or they are wholesalers that are managing this process for them. I guess, I’m wondering — just trying to get at is there advantage to user scale to go to get better shipping rates on behalf of your customers? Or there’s just not a way to arbitrage that market? Just kind of curious how you think about that?

Jeffrey Liaw — President and Chief Executive Officer North America

Yes. I think there’s a healthy distribution of buyers. So, in some cases pure one off buyers who will literally buy one car and then disappear and there are others who make it their business by hundreds, in some cases thousands of vehicles to rebuild and sell in their native markets. We have experimented in that with certainly international shipping over the years. There is a healthy ecosystem that emerges, of course, around the business of our size, other folks who do ship, who do aggregate vehicles, who do marshal them on behalf of buyers. So it’s something we would continue to evaluate, but there’s a robust enough and healthy enough ecosystem around us that has never been a barrier to auction participation.

Chris Bottiglieri — Exane — Analyst

Got it. Then a quick housekeeping one. It looks it is a small acquisition this quarter $5 million or so, like — I’m not sure it was proceeds for the past acquisitions or something, but anything you can share color there would be helpful?

Jeffrey Liaw — President and Chief Executive Officer North America

Yes, it’s a small regional provider in our space that we’ve had — let’s shift with years and bought it in the Mid-Western United States.

Chris Bottiglieri — Exane — Analyst

Got it. Okay. That’s helpful. Thank you.

Jeffrey Liaw — President and Chief Executive Officer North America

Thank you.

Operator

Our next question is from the line of Ryan Brinkman with J.P. Morgan. Please proceed with your questions.

Ryan Brinkman — J.P. Morgan — Analyst

Hi, thanks for taking my questions. How much of the increase in transaction prices do you think is driven by the rise in used vehicle and crushed auto body prices, which would have of course or could of course cyclically decline after having experience such a large run up versus how much of the increase in transaction prices do you think is being driven by your member recruitment or other company specific efforts, which could improve — which could prove longer lasting? And then also, I think it’s difficult to make such projections, but I’m just curious about the extent to which you think or estimate or handicap that increases in used vehicle and commodity prices that we’ve seen may actually be partly structural in nature rather than cyclical given fiscal or monetary policies and that whatever level we do cyclically decline too might in fact prove potentially higher than where we stood pre-pandemic?

Jeffrey Liaw — President and Chief Executive Officer North America

Sure. I think you’ve got probably eight questions nested in there, but we’ll will try to tackle them. On the question of ASPs and what is driving their growth. The third variable I’d add to your list in addition to, I think, first you were citing the market dynamics and used vehicles today. Second, you’re citing our member recruitment retention expansion and the experience. The third variable I’d add to that list is total loss frequency that adds carriers’ total more cars, as I told newer and less damaged vehicles that has a healthy effect on ASPs as well. So the latter two I would describe as durable, long-term secular forces. The first I think is an open question. I think that all three have mattered a lot over the course of the past year.

The first question on to what extent the vehicle values are cyclical or reflections of more secular structural forces, I think, is a fair question. I don’t know that we have and especially in light with respect on that I think some of it for sure is here to stay, perhaps not all of it. Now, how the semiconductor universe in the new vehicle universe, etc., how those forces unwind or how they rebound over the course of the next six to 24 months, I think is, I don’t know, we have a different perspective on that.

Ryan Brinkman — J.P. Morgan — Analyst

Okay, very helpful color. Thanks and then just last question is, what the latest is that you’re seeing in terms of the recovery in miles driven? LKQ has made some comments recently about how well miles driven is recovering, the distribution of when people are driving throughout the day is different, less centered around commuting hours, I mean less congestion, which can result in accident frequency maybe not recovering in a linear fashion along with miles driven. Just curious what the latest that you’re seeing there might be?

Jeffrey Liaw — President and Chief Executive Officer North America

I’ve got latest data, June, July, August would suggest ongoing recovery and certainly now as the Northeast goes back to school also post Labor Day, we’re seeing a recovery, but not yet back to 2019 levels. So, I don’t know that we have a final resolution on that question than you would. We’re looking at the same underlying data.

As for the distribution of driving hours, I think we’ve seen a change both in when people drive and where they drive to, so less commuting, much more retail, much more recreation I think in some cases as folks have avoided airlines and such. Now, that has frankly yielded, in the end, higher accident frequencies than I think had been predicted going into the pandemic, right, if you told folks that vehicle miles traveled would go down by X percent, I think the conventional wisdom is that accidents — the number of accidents in the absolute would go down by more than X percent and in fact it has gone down by significantly less than X percent, a reflection of higher speed driving, more distracted driving and the like. So even though the congestion I think has been appreciably less than it once was, I think that has not yet yielded the effect you just described.

Ryan Brinkman — J.P. Morgan — Analyst

Very interesting. Thank you.

Jeffrey Liaw — President and Chief Executive Officer North America

Yes.

Operator

Our next question is coming from the line of Bret Jordan with Jefferies. Please proceed with your questions.

Bret Jordan — Jefferies — Analyst

Hey guys. I, like in my follow-up question got lost in the shuffle earlier. It was cash flow, when you think about your capex in the last five or six years of real estate investment, what inning are we at in building out the North American real estate? And as you think about your capex number, what number would be made when you proceed with acquisition of additional real estate going forward?

Jeffrey Liaw — President and Chief Executive Officer North America

Yes, fair question, Bret. I think we launched, you may remember, Jay, talking about it in the spring of 2016, then 2020 program to expand our footprint to absorb the growth that was to come, if anything we had then under declared our ambitions by fair bit and have continued to invest even through this past quarter as you’ve seen. The issue with a forward prognosis is this is a dynamic question, it’s a reflection of what we see in volume growth, share gain, growth of our non-insurance business, cycle times, etc. But we are certainly continuing to meet literally weekly to review our investment opportunities in land and the like, both in the U.S. and the overseas, so — and overseas.

So my expectation is that we’ll continue to invest in land. Each quarter as you know tends to be very lumpy because the nature of land is that we chase it for a long time till it finally comes through and therefore one quarter suddenly much more substantial than the prior one, but we continue to invest in our business. It’s essential to what we do. So, we expect that to continue.

Bret Jordan — Jefferies — Analyst

Okay. Could you give us sort of our expectation on maintenance capex, so we can sort of bucket what is acquisition versus ongoing spend?

Jeffrey Liaw — President and Chief Executive Officer North America

Yes, maintenance capex I think is a proxy depreciation and amortization at least at starting point. It’s a reflection of the useful life’s logic that we are diligent about and review with our accountants so forth that should reflect how long that asset should last and it’s a good proxy certainly across the company overall.

Bret Jordan — Jefferies — Analyst

All right. Great. Thank you.

Jeffrey Liaw — President and Chief Executive Officer North America

Thanks, Bret.

Operator

[Operator Instructions] The next question is from the line of Stephanie more with Truist. Please proceed with your questions.

Stephanie Moore — Truist — Analyst

Hi, thank you for the follow-up. I just had a quick point I think you touched on many times just the efforts that have been done on a member recruitment side, on the buyer’s side. So maybe you can touch a little bit on, is there anything different that has been done as the strategy needed to change or just remind us what you’re doing specifically just to reach that larger buyer base? Has anything changed to create maybe a more stable buyer base, where you have more consistent purchases, just anything there would be helpful? Thank you.

Jeffrey Liaw — President and Chief Executive Officer North America

Excellent. I appreciate the questions, Stephanie. And this is — the logic is a little bit circular, but it is the growth, the quality of our cars, the vehicles that we earn the right to sell from dealers then brings additional members on board. The increase in total loss frequency brings more members on board, the increasing members who are on board and brings more consignments from dealers and insurance companies. So, it certainly is circular that very much works in both directions.

In terms of the actual active measures we take on member recruitment, it very much varies by country, by market, by type of buyer. It can include things as mundane as the trade show, attendance, physical media, certainly social media and the like, but it — radio ads, etc. It’s all over the map and we try to have a sophisticated market-specific approach to each of our major member buying countries. It’s also a major to do of ours to anticipate connects country which has the characteristics of one that should be a major Copart buyer and to invest proactively in that.

And then once they’re in the funnel, it’s — we view the member experience is paramount as well, not just the registration and becoming eligible to bid and participate at Copart auctions, but really the lifetime journey with Copart, what it means to buy a car, pay for it, pick it up and so on and so forth. And there are certainly enhancements we’ll provide there over the years to come as well.

Stephanie Moore — Truist — Analyst

Great, thank you.

Operator

Thank you. Our final question is from the line of Ali Faghri with Guggenheim. Please proceed with your questions.

Ali Faghri — Guggenheim — Analyst

Great, thanks for taking my question. I’m wondering about the impact of these cat events on your margins. In the past, you talked about upfront costs related to towing and land and you’ve seen kind of a pretty sizable margin impact initially before you actually sell those incremental total loss vehicles. Given all of the investments you’ve made in land, as well as your fleet on the towing side as well, is there a chance that these cat events had maybe less of a kind of near-term cost and margin impact than they have historically?

Jeffrey Liaw — President and Chief Executive Officer North America

I think it’s perhaps more accurate only to say that for the same catastrophic events relative to 10 years ago, the financial impact to us is more muted than it otherwise would have been. Now, every catastrophic event is unique and the East Coast is very different from Louisiana, which is in turn very different from Houston, Texas, which is certainly in turn different from Germany as well. So, it’s a matter of investing proactively. It’s partially a question of cost because it allows us to equip the extremes of the supply curve, but largely about service too. The reason we own trucks and land and have a catastrophic team already assigned here at Copart who is ready to deploy at a moment’s notice that is much about customer service as it is about cost. But yes, all else equal the margin effects would be more muted to date that they otherwise would have been, but the priority really is providing excellent service to our customers.

Ali Faghri — Guggenheim — Analyst

Great. That makes sense. Appreciate the color. And then a quick follow-up. What drove the stronger vehicle sales growth in the quarter? Is there anything you’d call out there?

Jeffrey Liaw — President and Chief Executive Officer North America

The vehicle sales growth. There are a number of different avenues through which Copart’s purchases cars, including our Copart direct business, which is — which reflects vehicles we buy directly from consumers and in turn sell at our auction platform. It certainly includes our international business in Germany as we penetrate the market and show the market why the consignment model with Copart makes the most sense. We also help to get the flywheel going by purchasing cars there as well. So there are a number of different forces the — I think unfortunately the vehicle sales number just had an awkwardly outside effect on the P&L results, especially if you’re focused on basis point changes in margin rates and the like.

But certainly, we continue to evaluate the business on a per vehicle economics basis, which is a little bit less transparent to the outside world. But, yes, vehicle sales have grown, but even still relative to the actual size of our business is very modest, meaning if we were to gross up every car we sold to its actual selling price, you would see that the purchase vehicles is pretty modest than [Indecipherable].

Ali Faghri — Guggenheim — Analyst

Got it. And one final question, if I can squeeze it in. I’m sure you do a lot of work on this internally, but any insights about what your market share currently may be within kind of the insurance business on the consignment side versus your primary competitor. I know this industry has historically been viewed as a duopoly, but it’s pretty clear that Copart has taken share over the last call it five plus years. So, I’m curious if you have any kind of numbers that you would put around your market share versus your main competitor? Thank you.

Jeffrey Liaw — President and Chief Executive Officer North America

No, I appreciate the question. I don’t think we could provide an absolute number or an estimate of our market share. We certainly do know that our customers have alternatives and we act that way and invest and operate that way as well. Our market share gains, which you just described a moment ago are reflection of some of the things you talked about on the call, including catastrophic readiness, including auction liquidity and day-to-day service, including the technology stack, our member experience etc. So, over the years, we certainly have grown our market position because we take it — that’s one of our key aspirations as a business and we hope to do so in the future as well, but not in a position to provide an absolute estimate.

Ali Faghri — Guggenheim — Analyst

Great, Thanks, Jeff. Thanks, John. Thanks, Ali.

Operator

Thank you. At this time, I will turn the floor back to management for closing remarks.

Jeffrey Liaw — President and Chief Executive Officer North America

Okay. Well, thanks everyone for joining us for the fourth quarter. We’ll talk to you in a couple of months after the first quarter of fiscal ’22. Thanks everybody.

Operator

[Operator Closing Remarks]