Good day, everyone, and welcome to the Copart, Inc. 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, Inc. Please go ahead, sir.
Thanks. Good morning. During today's call, we'll discuss certain non-GAAP measures, which include adjustments to income tax benefits related to stock-based compensation, legal matters, and discrete income tax items. We've 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'll refer you to the section titled Risk Factors in our annual report on Form 10-K for the year ended July 31st, 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 out of the way, I'd like to turn the call over to our Co-CEO, Jeff Liaw.
Great. Thank you. 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 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'll 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 policy holder 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. We'll continue our expansion into international markets in Western Europe and beyond, including Germany and Spain. Turning to the events of the quarter, starting with units volume trends and our auction performance. Our global unit sales increased 12% year-over-year for the quarter, with a U.S. increase of 11% and an international increase of 18%.
Our insurance business itself grew relative to the third quarters of both last year and the year prior on a two-year basis due to a continued recovery in overall driving activity and accident frequency and severity. We'd also note, however, that record high used vehicle prices have, for the past few quarters, negatively impacted total loss frequency and have 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 as 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 the like. 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 very consistent long-term trends, total loss frequency has declined sequentially over the past few quarters, and year-over-year, with a strong used car price environment and vehicle availability reducing assignment volume relative to what it otherwise would be. While our auction returns themselves are at all-time highs and have kept pace with the used car market in general, higher pre-accident values do reduce volume relative to what it otherwise would be. In layman's terms, in a world in which replacement vehicles are hard to come by, total loss settlements are less compelling than they otherwise would be. While total loss frequency has declined over the course of the past 12 months or so, the 40-year trend is nonetheless clear. We believe the market will ultimately revert to the historical norm of steadily rising total loss frequencies.
In fact, a number of other variables, increasing accident severity, repair duration, repair labor costs, rental car costs, and the like should contribute to that reversion as well. The history of total loss frequency is quite clear. It was 4% or thereabouts in 1980 and is approximately 20% today. 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 non-insurance vehicles, excluding, pardon me, cars from 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-salvage sources of volume such as rental car fleets, corporate fleets, and financial institutions. Overall, our growth across the full spectrum of vehicles generates improved auction liquidity, auction attendance, and returns for our sellers as well. The greater number of non-insurance cars we sell, whether they're 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 3 million vehicles in our last fiscal year and estimate that 40%-50% of those vehicles are ultimately returned to drivable service somewhere on the planet. Of course, the balance are subsequently harvested for parts and raw materials. In both cases, we provide meaningful benefits to the world environmentally through the avoidance of manufacturing of vehicles and of replacement parts. According to recent research from Argonne National Laboratory, 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 2 metric tons of CO2 per new vehicle manufactured. We estimate, therefore, that our business facilitates the avoidance of literally 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 in improved outcomes for people around the world in commuting to work, advancing their education, or accessing medical care and the like. In the weeks ahead, we intend to publish our inaugural ESG report, in which we'll provide additional disclosure about our role and impact in the circular economy. With that, I'll turn it over to John North, our CFO, to walk through the third quarter financial results.
Thanks, Jeff, and good morning. I'll make a few comments on our results, and then we can open it up for some questions. For the third quarter, global revenue increased $206 million or 28%, which included a $7.2 million 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 remains historically elevated, ending April at 221.2, which was an increase of 14% year-over-year.
The trend has continued in May. The mid-month index, which was released a couple days ago, is up sequentially 0.7% and 9.7% year-over-year. US 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 % of our overall revenue mix, driven by both unprecedented used car values and growth in volume, 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 % decreased by approximately 550 basis points to 46.4%. US 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 rate on the vehicles relative as 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, exclude 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-period 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 - $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 - $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 $279 million, excuse me, this year.
Adjusted to remove the items detailed in our pro forma reconciliation included in the press release. Non-GAAP net income increased 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 note holders 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. With that, we'll conclude our prepared remarks. We're happy to take some questions.
Thank you. Ladies and gentlemen, One moment please while we pull for questions. Our first question comes from Bob Labick with CJS. Please proceed.
Hi. Good morning. It's Peter Lukas for Bob Labick. You show a nice unit growth, and despite what we think are suppressed industry volumes due to lower total loss frequency and lower wholesale car auction volumes, do you think you have sufficient capacity for expected volume growth when used car prices do recede? What's the pipeline like for additional land purchases?
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 land acquisition project in the spring of 2016, so that's six years ago. Our land acquisition, as you know, during that period of time, has been elevated, even relative to our history, during which we bought land almost as much as we could find. Nowadays, those land purchases continue, and we do believe we're well equipped to handle a cyclical rebound, as used car prices decline, so we can handle that volume as it comes. We are still purchasing land in anticipation of future growth as well, both in the day-to-day business as well as our catastrophic readiness in light of increased volatility.
It's not just the need for more land overall, it's also to accommodate greater volume. It's also an increased ability to handle spikes that are attributable to storm activity as well.
Great. One more from me, just in terms of yard costs. Revenue unit and yard costs, cost to process a unit are both rising rapidly. Can you talk about the outlook and drivers for cost to process a unit? If inflation does abate, how much might yard costs pull back? Have there been any structural changes to the cost to process a unit?
Appreciate the question. No, no structural changes per se. I think, like many businesses, or perhaps most businesses, in this global economy, the inflationary forces. We've always faced inflation. In past quarters and past years, perhaps we'd be talking more about healthcare expenditures in some instances. In some cases, we talk about fuel and the like. Today, those key drivers, of course, are fuel, to the extent that we use our own fleet to pick up trucks. Certainly, there are increased costs for vehicles and loaders and the like. To the extent that we use third parties, to manage our logistics or to retrieve vehicles for us, they in turn are facing elevated fuel, labor, vehicle costs and the like. Nothing unusual. Nothing.
I wouldn't characterize it as a structural change or a structural shift, just the same underlying variables that most businesses are facing today.
Great. Thanks. I'll jump back in the queue.
Thanks, Pete.
Our next question comes from Daniel Imbro with Stephens Inc. Please proceed.
Yeah. Hey, good morning, everybody, and congrats on the quarter.
Thanks, Dan.
Jeff, I had a question on total loss rate dynamics. I think it makes a lot of sense, obviously with prices high, what's going on there. For that to revert and for total loss rate to start increasing, do we need prices to move absolutely lower, or do they just need to stop increasing at these elevated rates? Said another way, if prices were to stay higher for longer or maybe just slowly moderate from here, would that be enough to cause 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?
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 for well north of what I paid for two years ago, having put 20,000 miles on it, right? It's tough to extrapolate too much from today's trends. I don't think that's. I think a reversion to anything resembling historical norms 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.
Got it. That's helpful. Just moving to the non-insurance piece. Obviously, a lot of change in the wholesale market now. I'm curious, you know, 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.
Yeah, it's a fair question. I think we perceive that and have 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. 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. It's a helpful fact, perhaps on the margin, but ultimately the challenge is ours and we think we're up to meet it.
Perfect. Last one, just kind of a modeling question. John, just following up. You know, we've seen another step up in the mix of vehicle sales versus 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?
Yeah, I mean, it's a combination of vehicle prices and also units. 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've made great progress there. It's incremental liquidity in the marketplace, so we're happy to have it. It doesn't displace other business in the U.S. per se, so we're 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. You know, like many nascent markets, oftentimes you're starting by 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. You've seen both of those.
Great. Makes a lot of sense. Thanks so much, guys, and best of luck.
Great. Thank you.
Our next question comes from Craig Kennison with Baird. Please proceed.
Hey, good morning. Thanks for taking my questions. Jeff, congratulations on your promotion to co-CEO. I guess what should investors, clients, or employees expect from that change?
I think Copart, as you know, has long had a very collaborative culture to begin with. We make decisions based on the data and debating the merits of paths X, Y, Z. I think in many respects, business continues as it did before. I was the president of the business before and worked closely with our international teams and our U.S. functions and our customers to drive excellent outcomes for them. I think from your perspective and for most of the outside world, not a radical change from the day before.
Got it. Thank you. You know, 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?
A recession, which of course is top of mind for everyone. I think historically, I would have told you that it can lead to higher unemployment, while of course today at nearly all-time low unemployment levels. It can lead to elevated unemployment and therefore reduction in commuting for work and otherwise. Of course, over the course of the past two years, we've seen a decline in that commuting traffic anyway, you know, even as the economy, the global economy has boomed. I think it's difficult to quite 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.
Any preparation, we're ready for it if it comes, but I don't know that it changes the trajectory of how we manage the business day to day.
I guess just as a follow-up related to National Powersport Auctions. Are you seeing any rise in repossessions as the economy slows in that particular category?
If so, modestly. I think we've been on a many year run of very low repossessions. Certainly over the course of the past few years because there's so much equity value in any loan outstanding that wasn't issued, you know, 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.
Great. Thank you.
Thanks, Craig.
Our next question comes from John Healy with Northcoast Research. Please proceed.
Thank you. Wanted to ask a big picture question. You know, obviously land has been the right move for you guys for a long period of time. Jeff, you made a comment about, you know, investing in the infrastructure at Copart. You know, as I think about the needs of the business going forward, and you talk about more volumes coming to you guys at some point, with the total loss rate getting back on that long-term trajectory, how do you think about the towing capacity in the business? And if volumes do pick up from here, are the pressures 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, you know, a fortress, and it would seem like you'd have the ability to, you know, maybe pivot to making towing an internal competency rather than an outsourced item. Would love to kind of hear your thoughts on the pluses and minuses of that.
Yeah. Great, great question, and one we are constantly reevaluating. I think first on the first 1/2 of your question, what happens when volumes pick up to our demands for towing capacity? I think there's so many confounding variables. The real question is what's caused that volume to go up, right? Is it the used car prices have softened somewhat, 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 a heightened availability of drivers, that'd be a different question altogether.
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 suddenly 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. 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 fortress balance sheet, but because it may allow us to better serve our customers. 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 footprint. You know, 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. 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.
Great. Thank you.
Thanks, John.
Our next question comes from Chris Bottiglieri with BNP Paribas Exane. Please proceed.
Hey, guys. Thanks for taking the question. Wanna 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 a, like, a related GM question for this business.
Yeah. I think we called it out specifically in the U.S., Chris, because, you know, that's been the most significant driver of the purchased vehicle volume in the U.S. market. We've seen just overall vehicle inflation, which has driven the number higher as well, as I'm sure you can appreciate. 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. 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've put pretty dramatic resources into that business over the last couple of years and have seen pretty significant growth. The average car is obviously significantly lower than our overall ASP. You know, think of these as the cars that would be a direct-to-wholesale piece, you know, if you took it to a CarMax or a Carvana. Never a car that they're gonna retail. You know, it's to the tune of, you know, $1,500 or $1,000 or something like that.
Gotcha.
The growth otherwise in our insurance also was driven by some of those other non-salvage sources that we mentioned in the opening comments, including from rental car fleets, corporate fleets, financial institutions, and the like. Both.
Gotcha. Okay. 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? I wonder if it's maybe more stable on that metric. Just give us a sense for kind of how to think about the gross margins, the gross profit per vehicle on the purchase side.
Yes. I think there's a little bit of splitting of the difference. Your gross margin, when you say that, I think mathematically you literally mean the %, right? That phenomenon is.
Yeah.
As you know, in part a shift to purchased vehicles. In practice, these are not. We manage the duration of these assets very aggressively. We don't want to own purchased cars speculatively or purchased bikes speculatively. We want to buy them when it makes sense to and when necessary, and we want to sell them very quickly. They're not long duration assets, and therefore we manage them to absolute dollar profit. % 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 % basis.
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 % rate as a result as well.
Gotcha. Okay. All right, thank you.
Thanks, Chris.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from Bret Jordan with Jefferies. Please proceed.
Hey, good morning, guys.
Bret.
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.
Yeah. Dealer volume is incredibly important to us and has been for years. In this environment, as you're well aware, Bret, 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.
Okay. I guess as you've shifted to some of these higher value cars, purchased vehicles outside the insurance space, could you update us maybe what % of your unit volume is run and drive? You know, as we think about this as a cheap source of transportation globally, maybe, you know, how big a piece of your business is that?
Run and drive is kind of a specific technical term. 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 the like, we think it's approximately half, you know, 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, our wrecked cars are incredibly desirable and drivable cars to them.
Okay, great. 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 know, talk about the economy in the U.S., but obviously a lot of instability in Eastern Europe. You know, if you talk about the sort of the trajectory there the last couple of quarters, is it improving or, you know, any color would be helpful.
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 ten carriers in Germany, none yet with a nationwide all-in deal, but certainly doing so at volume for a good number of insurance carriers today. They are, as you noted, affected more so even than the U.S. by the instability, the regional instability, let's call it. A good number of their buyers come from countries affected by the recent conflict. They will feel that to some extent, but nevertheless, earning good consignment volume on behalf of insurance carriers and making good forward progress there.
Great. Thank you.
Thanks, Bret.
Our next question comes from Ryan Brinkman with J.P. Morgan. Please proceed.
Hi. I appreciate the comments on ADESA. Thank you. I agree there's a clear market share opportunity for you in the physical or on-premise wholesale car auctions market, including as ADESA's physical auctions business is sold to Carvana, which dealers regard as 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, you know, online off-premise commercial consigner business. I believe that you don't participate in these parts of the wholesale car market today because you take possession of all the vehicles you sell, I think. I just wanted to check in on that with you if you have any updated thoughts on the online only portion of the wholesale 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's been some speculation could, over time have attractively high margins and returns when at scale.
Yes. A fair question and many nested questions therein. As for whether that economic model is ultimately compelling, I think time will tell, and there are, as you know, 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. Whether that will someday be achieved virtually versus in our physical facilities, I think remains to be seen.
I don't think that's a structurally challenging pivot for us, per se. Today, the strong majority of our cars, as you noted, are still we are still physically touching them.
Okay, that's helpful. Thanks. Then I think that, you know, there's obviously a number of macro factors helping you, including the rebound in miles driven, the increase in commodity prices since the conflict in Ukraine. Also isn't a lower dollar generally better for Copart given, you know, a greater translation of EBITDA and pounds back into dollars and because of the greater purchasing power of overseas customers in dollar terms? You know, the dollar's been arguably surprisingly stronger. I'm just curious if you could maybe dimension that stronger dollar headwind if you see that, you know, how large or forceful is that relative to some of these other macro tailwinds. Have you seen any impact yet on overseas demand from a stronger dollar?
Yes. In short, I think the pound certainly, but also just the basket of international currencies, period, has certainly weakened relative to the dollar. For the reasons you noted, we quite 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. That has had an effect that'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 Canada, Mexico, and Central and South America and the like that are bidding.
There's enough cumulative liquidity to mitigate those effects to some extent. Yes, if we woke up with a dollar at 2019 levels, we would see auction returns all else equal be meaningfully higher.
Okay, thanks. Just lastly, could you say, you know, what % of your buyers have historically been in Russia or Ukraine or, you know, what percent of your U.S. volume those countries might represent?
We haven't disclosed that. 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 % overall.
Okay, great. Thank you very much.
Thanks, Ryan.
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.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.