Good day, everyone, and welcome to the Copart Incorporated Second Quarter Fiscal 2019 Earnings Call. Just a reminder, today's conference is being recorded. For opening remarks and introduction, I would like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart Incorporated. Please go ahead, sir.
Thank you. Good morning, everyone, and welcome to
the 2nd quarter call for Copart. On the call with me today is Jeff Real, CFO and Will Franklin, Executive Vice President. I'm going to turn it over to Jeff Liao for opening comments and then Will Franklin will give us an update on operations and then we'll be happy to answer any questions that we have at that time. All right, thanks so much. Jeff?
Thanks, Jay. I'll start with Safe Harbor. During today's call, we'll discuss certain non GAAP measures, including non GAAP net income per diluted share, which include adjustments to reflect the effects of disposal of non operating assets foreign currency related to income losses, the impact of income taxes on the deemed repatriation of foreign earnings, net of deferred tax changes and certain income tax benefits related to accounting for stock option exercises. Please provide a reconciliation of these non GAAP financial measures to the most directly comparable GAAP measures on our website under the Investor Relations link and in our press release issued yesterday afternoon. We believe the presentation of these non GAAP measures and other risks following GAAP measures is relevant in assessing corporate business spend and financial performance.
We analyze our results on both GAAP and non GAAP basis described above, introducing new calls pertaining forward looking statements within the meaning of social security laws, which are subject to substantial risks and uncertainties that could cause actual results to differ materially from those projected or implied by our statements and comments. We do not undertake to update any forward looking statements that may be made from time to time on our behalf. For a more complete discussion of the risks that could affect our business, please review the management's discussion and analysis portion in our related periodic reports filed with the SEC. Now I'll turn our attention to the Q2 of our fiscal 2019. We're pleased with our operating results.
I'll start off with a reminder that the first 6 months of fiscal 'eighteen were distorted by Hurricane Harvey. Over those 1st 2 quarters of fiscal 2018, we incurred losses of nearly $10,000,000 on an operating basis. Q2 in isolation would reflect a gain in the Q1 of 2018 to disproportionately capture storm related costs, while the Q2 will disproportionately capture storm related revenue. Well, I'll make it a point over the course of this call to communicate our key metrics with and without the effects of Hurricane Harvey. We achieved a record second quarter in revenue, gross profits and operating income, starting with our nominal global revenue growth of 5.6 percent with an unfavorable year over year currency effect of 4 point $9,000,000 from foreign operations, primarily due to the relative strength of the dollar in comparison to the pound and the Brazilian real.
Excluding the effect of Hurricane Harvey, our revenue growth was 17% even. Our global service revenue growth was 3.7% year over year and again excluding Hurricane Harvey was 13.7%. We typically suggest looking to service revenue and service revenue growth as the more accurate indicator of underlying business activity. Our purchase card growth of 19.1% year over year, driven largely by our international businesses, with approximately equally between the UK and Germany. A quick reminder that our Copart owned inventory remains relatively small at $28,300,000 at quarter end, which is small in the
context of the overall business.
Turning to unit sales, our nominal global units declined slightly at 0.6% year over year with a slight U. S. Unit decline of 3.7% and international unit growth of 18.7%. Again, excluding Hurricane Harvey, our global unit sales grew at 7.7%. U.
S. Units grew 5.7%. And excluding Harvey and Charity volumes from that U. S. Number, our volumes grew 7.5% year over year.
Our U. S. Unit growth was driven by both our insurance and non insurance segments, which Will will describe in greater detail in a few minutes. Then turning to inventory. Our nominal global inventory grew at 6.6% year over year, excluding the effective Hurricane Harvey, our inventory grew at 7.7%.
For the quarter, our gross profits grew 8.7% year over year. Including Harvey, that same number would be 13.6% year over year growth. Our gross margin rate increased from 41.7 percent a year ago to 42.9% this year, so approximately 120 basis points lift. Excluding the effective hardening, our gross margin compressed slightly approximately 1%, which is explained almost entirely by the slight mix shift to purchase car revenue. Our average selling prices for vehicles at Copart Auctions in the United States, excluding Hurricane Harvey, grew 16.1% year over year.
It's pardon me, 15.4% year over year. That compares to 16.1% growth a year ago, 15.4% this year and 16.1% a year ago for the same quarter. Will again provide more context on this phenomenon, a reflection both of the type of cars that are consigned to Copart as well as the expansion in marketing efforts that we pursue with our Copart member base.
Turning to
our general and administrative expenditures, excluding stock compensation and depreciation, were up from $29,700,000 a year ago to $33,200,000 this year or down $1,600,000 sequentially versus the Q1 of 2019. Receiving a mantra that you've heard before, in general, G and expenditure will vary from quarter to quarter and will grow over time with inflation and complexity. So we continue to believe we can achieve operating leverage given the top line growth we experienced. Our GAAP operating income growth was 9.1% for the quarter, excluding Hertz and Harvey. That same operating income would have grown at 15.5%.
Our net interest expense, you can see, is down slightly year over year, given our lower average net debt balance. Other income of $4,800,000 is largely a gain on sale of an asset, specifically a now replaced data center. You also see that adjusted out in our non GAAP reconciliation. Our 2nd quarter income tax rate was 20.4%, a reflection of the lower U. S.
Total tax rate that we've discussed on prior calls, as well as one time benefits from stock option exercises, which we again reflect in the non GAAP presentation. Our GAAP net income increased from $103,300,000 a year ago to $131,400,000 this year for the Q2, an increase of 27.2 percent year over year. On a non GAAP basis, our net income grew 11.5% year over year excluding the Texas Hurricane Harvey and including an assumption for tax rates, that same growth rate would be 18% plus or minus for non GAAP net income year over year. The non GAAP schedule, we've already talked about the major adjustments on that page for the Q2 for this year, which include both the disposal of non operating assets as well as the excess tax deduction for stock option exercises. I'll just quickly remind folks that the major adjustment for last year for the Q2 was a $10,000,000 adjustment of the onetime transition tax charge as a reflection of the tax reform effect in that quarter.
I'll turn our attention briefly to Germany. We encourage before coming back then to balance sheet cash flow. We encourage folks for further background to review the transcript of our Q1 earnings call where we described in much greater detail the nature of the market and our efforts there. And it represents a one time detail, so to speak, in this business. As a quick substantive update, we now have 12 locations up and running in pursuit of a critical, critical footprint across the country.
EchoPark, Germany, we're now running daily auctions across those locations with a strong majority of our volumes sold to fires outside of Germany. We think that reflects the power of the total brand name, our buyer network and technology platform, and it frankly is a strong testament to inefficiency of the current market model for total losses in Germany. Our unit sales in Cohorts Germany are approximately 8x the same volume for a year ago the Q2. We also continue to demonstrate our ability to purchase cars through Wreck Online, a listing service that we own, and to sell them at a positive margin at Copart Germany Auctions. As you know, we also continue our dialogue in parallel with insurance carriers in Germany and believe that a coke model akin to what we have in the U.
S. And in the U. K. Is ultimately the right answer for that market as well for a host of reasons, including both total loss and claims cost for carriers as well as the claims experienced from policyholders. Turning to the balance sheet and the cash flow statements.
Our operating cash flow for the quarter was $4,400,000 About 60% of the CapEx was attributable to asset extension lease buyouts with the balance attributable to maintenance and other activities. We also purchased 7,600,000 shares of Copart stock in the open market at a weighted average price just below $48 for total outlays of approximately $365,000,000 with funded fee purchases with cash on hand and a revolver draw of $93,000,000 as reflected at the end of the quarter, we still have available liquidity of more than $760,000,000 With that, I'll turn the call over to CVP, Will Franklin. Thank you, Jeff. Let me provide a few more comments about our operational performance for the Q3. So far, once again delivered another strong quarter.
Our U. S. Volume on adjusted Harvey activity in the same quarter last year was 5.7%. Our volume growth continues to be driven by organic growth and market wins within the insurance market and our continued expansion into the non insurance market. Organic growth in the salvage market is driven, we believe, an increase in tool loss frequency as higher repair costs and our elevated auction returns are leading to a higher percentage of claims resulting in an economic coal loss.
The growth in our auction returns has significantly out pace the growth in used car values. Using January 20 14 as a baseline, the Manheim Used Car Index has grown 8.4%. Using the same baseline, ASPs we are generating at our U. S. Auction for only insurance cars as owned at 35%.
While the rest of the industry is quickly moving towards the difficult remarketing convention, we have been completely digital since 2003 when we introduced our BB2 platform. We've continually improved our auction platform, now BB3, over the last 16 years and it's commonly recognized as the standard in the industry. Efficiency of BB3 and our elevated marketing focus on international buyers have led to significant growth in ticketing activities from those buyers. Our full U. S.
Website is now translated into 7 languages. In addition, we have elements of our website that accommodate languages native to 135 countries. And currently, we sell from the U. S. Into 147 countries.
In the quarter,
48.4% of all U. S. Units sold were to international buyers. 46.9% of the value of the units sold were to international buyers. In total, over 70% of all the vehicles sold on our U.
S. Website received at least one bid from an international buyer. Our marketing efforts have two goals: to bring more buyers to our auction and to get those who can the placement of bids. We have been successful in both efforts. The number of unique bidders was up 13%, and the number of bids received per lot sold was up 8%.
Breaking down the growth in unique bidders further, we saw an 11% increase in domestic bidders and a 22% increase in the international unique bidders. Growth in our ASPs has been the primary driver and a 6.4% increase in the U. S. Revenue per car. Also contributing to that growth are the additional services we're providing to both the buyers and the sellers.
The non insurance markets continue to be a focus of growth in our U. S. Strategy. These markets include franchise to independent dealers, finance and leasing companies, fleets, charities, equipment dealers and wholesalers. Excluding the charities and municipality markets in the U.
S, our non insurance volume grew by almost 20% and by more than 2 by more than 100% over the same quarter last year
the same
quarter 2 years ago respectively. Growth in volume was spread broadly across multiple tower segments. Volume from dealers was up 14%. Finance company to 24% wholesalers, 24% rental car companies, 62% and fleets and industrial equipment were up 41%. We have successfully grown our non insurance volumes as we developed better systems integration into fleets, banks and dealerships.
We have developed sales and operational programs targeting individual segments and as we continue to increase the option returns we're delivering to our non insurance sellers. Turning to the U. K, we delivered another very strong quarter as we saw growth in volume of 11.8%. In local currency, revenue and EBIT grew by 21.7% 23%, respectively. The growth in volume came from increases in both insurance business driven once again by market wins and organic growth and growth in our non insurance business and grew our U.
K. EBITDA volume. We also continue to see meaningful growth in both Brazil and Canada. As the value we offer in terms of technology, processes, land and people has allowed us to expand the market share in those countries. In Canada, we increased our volume and our local currency revenue by 8.4% to 21.5%, respectively.
In Brazil, our growth was even more remarkable, increasing our volumes and our local currency revenue by 22% and 36.5%, respectively. Jeff has already provided commentary on Germany. With that, we note that our operations outside of the Americas, the U. K. And Germany for the quarter remain immaterial in both revenue and EBIT.
Globally, we are seeing rising labor, health insurance and sub haul costs, all of which have led to an increase in our average cost to process each car. Our inventory was up in the U. S. Internationally and worldwide by 5.9%, 11.1% and 6.6%, respectively. And adjusted for Harvey, the growth in the U.
S, internationally and worldwide was 7.2%, 11.1% and 7.7%, respectively. Year over year growth in our U. S. Inventory for the prior 8 quarters has averaged over 9%, and we expect this trend to continue. To accommodate this growth, we provide standalone capacity along Gulf of Mexico.
In the East Coast, we have engaged in a massive capacity expansion initiative. In the last 3 weeks alone, we've announced new yards in Hardeeville, South Carolina serving the Charleston area, Cantaloupe, California serving the North Bay Sacramento areas and Mossville, North Carolina serving the Charlotte area. In total, these 3 yards added over 114 acres of capacity. So far this fiscal year, we have announced 14 mixed soles, 4 in the U. S, 1 each in Brazil and Canada and 8 in Germany.
Currently, in the U. S, we have 17 expansion projects in the construction phase and 29 projects in the engineering phase. These forty six projects alone represent thousands of acres of capacity and will consume several 100 of 1,000,000 of dollars of capital. That concludes my comments. Todd, I'll turn the call back over to you for the Q and A session.
First question from Bob Labbe of CJS Securities. Good morning. Thanks for taking my questions. Good morning, Bob. Good morning.
Hi. One, a couple questions on Germany and then one on the non insurance group, very impressive that you talked about. Starting with Germany, obviously, over the last 6 to 12 months, you've really accelerated your pace of rollout in your growth there. Can you talk about what has surprised you the most over the last 6 to 12 months during this kind of acceleration phase?
I think the biggest surprise is just how well the team performed in terms of opening up so many yards so quickly. When we got there this summer and started looking at how we needed a network.
And that's what's worked
for us in the U. S, UK and other markets, Brazil, Canada. If we have a stronger network, we have a better and easier ability to pick up cars quickly and provide our services. And really just the team's performance and ability to do that probably the most surprising thing. 2nd, I would say is just the amount of buyers that we've been able to bring in.
Once we started to hold auction and we're auctioning well over 500 cars a week now. Once we started that process and had regular auctions available to the members, Marketing team has just done
a really great job on getting
our brand out there and cultivating buyers for auction. So it's been very positive. We've talked about it in the past. I like Jeff's comments, which are let us execute and perform and then we'll report on those results, but we're very happy with what we see in Germany.
Okay, great. And I know you want to succeed and perform first, but I just wanted one more question and then I'll move off it. I know you talked about potentially over the next several quarters flipping an insurance company to the U. S. Style.
Do you still believe that's up or likely? And if that doesn't happen over the next couple of quarters, what would be the reason that it wouldn't happen? Well, I do
think it's going to happen. The reason it will happen is associated with attrition that you have today with the process. So you're acquiring the insured to hold the vehicle and then have some buyer come to their house and pick the vehicle up. And there isn't an insurance company that I have met in Germany yet that isn't concerned with customer service and that promotion scores and giving the best possible brand experience that they can give. And obviously, when we send uniform driver in and pick the vehicle up, bring it to our location, then auction it and the end buyers picking up at our location, you don't have that touch with the buyer and the insured.
And that can be a negative. There can be a number
of scenarios that I could outline for you where
the buyer ends up wanting to have a conversation with the insured about the salvage. And clearly, there's not an insurance company that wants that. The second reason is return. We're able to buy cars. As Jeff has mentioned on previous calls, we're able to buy cars basically through the platforms and then bring them over their yards and auction them off and get a higher return.
And that is just very, very simple. You're allowing buyers from around the country and the world to bid on product that they know they're going to get. There's no contingency. There's no question if they did, they're going to own it. Whereas when they bid on the platform, there's a less than 10% chance of knowing you're going to get the vehicle.
Even if they're high bidder, they may not get the vehicle because the insured may
sell it somewhere else through a
body shop or through some other through the dealership rather than to the buyer. So you're taking away that element of unknown and making it a sure guarantee that you're going to get the vehicle. And then you have the logistical component. And we said this before, it should not be underestimated. When a buyer has to bids on something and has to pick it up and go to 3 different locations, 3 different insured tones and pick that vehicle up within a certain amount of timeframe that has a degree of difficulty.
So, buyers can bid on 3 different Copart locations and buy half a dozen or a dozen vehicles so they can get a lot more product. And then they can take 3 weeks to pick it up as opposed to having to get it out within 4 days. That's just better experience for the bottom 12. So I guess I don't have any doubt at this point that we're going to we're going to see continued traction in that market.
That's really helpful color. And then just one last quick one. How do you think you just discussed very impressive growth in non insurance from dealers, finance, wholesalers, rental cars, etcetera. Who are the primary buyers of these? Are these the few unique hitters coming online?
Or just talk a little bit about the buyer base there, how it's been different in your core or if it is exactly the same?
No, Bob. I think the profile of our buyer base changes constantly based on the products that we're offering. And you're seeing buyers that have an appetite for these different types of cars and even heavy equipment that we're offering. And that just demonstrates the efficiency of our auction platform. We easily get those buyers and those buyers easily get their options are able to use these cars.
Bob, I'd just add to that that I think both are true. So we expand as the nature of the cars that we offer with all buyer base expands further as well. It's also through the existing buyer base is a courtesy for the kind of cars that are offered by the dealers and designers. Otherwise, by the
way, they wouldn't be done to us, right?
And mothers who'd like to say were fantastic for independent dealers and so forth, they vote with their feet and they vote as a reflection of the auction prices they achieve at Copart Auction. So I think it's a testament to the power of that buyer that works that they're doing quite well and bringing more cards to Copart over time. I think that also has a fluctuate specific oil type as well because then those newer or less damaged or non damaged cars then bring further buyers into the network as well. So it's a marketplace that continues to expand on both sides, buyers and sellers.
We'll take our next question from Craig Kennison of Thank you for taking my questions. Will, I wanted to start with you on the non insurance business. Continue to see great growth there. Can you just provide examples of systems integration tools that you're using to drive your non insurance volumes with dealers, fleet operators or rental companies?
Sure. I mean each of these segments tend to migrate to different platforms for their system operations. For example, the finance companies use a system called Auto IMS, which either use a PureTrack or either a pocket, a number of those other systems. The buyers seem to come to us from auction access. And it's extremely important for us to write the integrations that are needed to reduce any friction that is caused by operating through the system, our system and theirs.
And we don't we have a strategic initiatives along the lines of creating those integrations. And that's a part of it. It. It's not just the systems, it's the processes. For example, heavy equipment, transportation of piece heavy equipment could cost $4,000 or $5,000 as opposed to well under $100 for an insurance company.
The filing process for charities where you got to pick up the title when you pick up the car is completely different to filing processes for dealerships. Leaders are much more concerned and in need of after auction services like counter bidding. And go on and on. Finance companies have rules that surround repossessions, even voluntary repossessions in which we have to provide special documentation to clients. And so it's just not a matter of being integrated into their software systems.
It's being able to change our processes, compensate their specific needs.
That helps. And then to what extent is the growth fueled by new customers trying your services versus customers that you've already landed that are dramatically increasing the use of your service?
It's both. We're seeing organic growth. We're seeing people customers that we've had for years that we're contacting again. We're, like I said, eliminating the friction, whether it's systematic or process, encouraging them to send us cars. And the returns they're receiving have driven more and more volume.
It's not one of the big things. It's a combination of a lot of the things that we're doing internally.
Got it. And then I also wanted to ask about the total loss rate trend in the U. S. And in Europe.
Where do you think that
loss rate is headed in 2019 and beyond? And then when you look at Europe, do you have any idea to frame where the total loss rate is today and how that may be headed?
I'll comment on the first half of your question. That's total loss rate. I think this is, as you know, the one way tailwind behind the business for the last 4 years. So that the cars that once you're in accidents are ever more prone to being totaled then repaired. I think that's an unavailable macro factor that's really hard to read on a micro basis.
We're trying to forecast that quarter to quarter, even year to year is tough. We do think the overwhelming forces at work here will drive it upward over time. There's no particular ceiling that we have in mind. So we don't have a good point in time for Q4 for 2019. As for Europe, a source that's quite as exhaustive as CPC here in the U.
S, don't have a comparable number to share with you. The U. K. As you know is very different from Germany, for example, even in how they practice or how they handle total losses. We don't have any point estimates as precise as the major sources we have here in the U.
S. S. Got it. Okay. Thank you.
Thanks, Fred. Thank you. We'll take our next
question from Bret Jordan of Jefferies. Hey, good morning guys.
Hi Bret.
On the purchase car trend in Germany, is it possible to get agency volumes up
without flipping the insurance companies in
the sense
that if the individual is still selling the car, once you have enough option traffic, will they send you the car on consignment as opposed to you having to buy it?
Right now, we're acquiring cars so that we can hold options. So we're doing that through the platform. We do have some non insurance volume coming in now as well. So we're starting to process vehicles for companies that service the insurance industry as well as rental company. But currently, the strategy is to illustrate the benefits to the large insurers and then have them switch over to our model.
Okay, great. And then on Will's comment around the real estate pipeline, could you put maybe some time frame around those thousands of acres? Is that going to be a very large near term acquisition of real estate? Or is that 46 projects over a period of years?
I think years is too long. I think within 24 months, the vast majority of all those 47 projects should be delivered.
We'll take our next question from Gary Prestopino of Barrington Research. Hey, good morning, everyone. Will, when you talked about the non insurance, would you give the percentage breakdown of what percentage of vehicles were non insurance this quarter versus last year? Can you give that?
Hello? Yes. So do you have any other questions?
Certainly, I do. In terms of the gross margin on the purchased vehicles, sequentially, it was down a couple of 100 basis points. Is that just an impact of more growth in Germany? Or is that currency or what? It is a reflection in part
of growth in Germany. It is largely not currency. The currency would affect both sides of that ledger area, right? Okay. Largely, German is partially also that purchase car mix can affect this as well as the price, for example, can rise for certain purchase cars.
We've talked about this before, but the more a car bought and sold for dollars spread grows and shrink. I'd expect on a $10,000 car to make double the profit that you would on a $5,000 purchase car for what it's worth. Okay. And then
lastly, I wanted to ask about the vehicle pooling costs. They were year over year, they were up pretty dramatically.
What would account for that?
That's largely the effect of the accounting change, Jerry. So to make a long story short, the anyway, check with the report, essentially, we've seen quite a pretty robust discussion there of how the accounting now for revenue. We used to pull more revenue forward. Now we push more tack, which hangs more of it on the balance sheet, which is and the corresponding costs, which is obviously due to our first
Okay. That would explain it. And then lastly, Jeff, I got on the call late actually, that's booked into the long call. Could you give me some of those unit volume numbers that you generally discussed the beginning of the
call or unit volume changes or whatever? Yes. I'll give you the same one. So unit sales, nominal unit sales declined 0.6 percent, U. S.
Unit declined 3.7%, international growth of 18.7%. Percent. Excluding Hurricane Harvey's, global unit sales growth of 7.7%, U. S. Unit growth of 5.7 percent, tax Harvey and securities we said in the U.
S. Was 7.5%. Okay. Thank you. Gary, I got the number on the percentage of non insurance vehicles sold last quarter.
In the U. S, it was 22.9%. The same quarter last year was 20.8%.
Thank you. We'll take our next question from Chris Bottiglieri of Wolfe Research. Hi. Thanks for taking the question. I was hoping you could disaggregate the increased average selling prices.
I think some of it's mix. Is there a way to maybe just look at what the ASPs have done for the insurance segment?
You're right. Of course, it is mix. And we don't we haven't separated the impact, the change in mix versus the increase in ASPs solely for insurance companies. So I'm not sure we can provide that to you on the call. I think Will did provide the stats on May and I on a 2 year basis and U.
S. Insurance only being up 35%. Right. So not the impact it has on revenue. Right.
Not the impact on revenue. But the point is that ASPs are up and up significantly year over year, including for the insurance segment in isolation. So it's not just mix shift, it is also significant increases in insurance ASPs in the United States.
Got you. That's something to write at. So when you think about what's driving this, is there any metrics you can see in terms of the total loss rates? Are you seeing that total loss rates are increasing more from younger vehicles than other older vehicles? Or anything you could demonstrate use to demonstrate that like the other vehicles being sold today historically?
I think the things you've heard
us talk about on the last few calls all still hold true, which is that we are seeing on average slightly newer cars being totaled. So if we look at the model year of the car we sell, we are selling more newer cars than today than we were a year ago. That's been true for a while. We are also selling less damaged cars, so the cars are totaling more easily. We have certain metrics to the insurance companies do rather than they provide them to us regarding repair estimates.
So how much is the repair estimate relative to the intact value of the car And we are seeing by that particular barometer less damaged cars entering our system over time. On the flip side of this is all the bidding phenomenon that Will described. We are seeing newer and less damaged cars on the supply side. And on the demand side, you are seeing more international buyers, more buyers, period, by the way, domestic and international, but also more diversified and global buyer base for our cars. So it's both of those things working in concert and the strip and selling prices up.
Got you. And then just lastly there, I mean, the total loss rate has been amazing and it sounds like double take that 7% to 9% volume growth. Can you give any data on accident frequency, what are you seeing there? Are accidents still down every year that are I think some of this collision avoidance technology is
yet impacting access frequency or
I think it's still too far off?
We probably don't have any better data than you do. We follow 3rd party sources like the fast track and so forth. And what I'd say first is that for the vast majority of the company's history, accident frequency has declined slightly, steadily but very slightly over time and it's been dwarfed by, of course, total loss frequency on the other side of the equation. So that has driven organic unit volumes up very nicely over time. I do think that the rapid increases in accident frequencies we saw from 2011, 2012, 2016 that tapered.
So accident frequency may be declining somewhat, maybe flat, It's not rising at the rate it had previously. Total occupancy, as far as we can tell, continues to temperate trend.
That's helpful. Thank you. Thank you. We'll take our next question from Daniel Imbro of Stephens and Wilfred.
Yes. Good morning, guys. Thanks for taking the question.
Warren's on Germany. I think you mentioned, Jeff, you guys are at 12 locations. As a footprint, is that sufficient network to service the country today? And then how is the salvage industry in that
market growing? Obviously, you guys
are growing rapidly taking share, But is the market also growing high single digits lower to the U. S?
Sure. As for the footprint, I think the this is sufficient for us to participate actively in germinate. There's no doubt in my mind that over time as we penetrate the market, grow our platform, we will invest dramatically more still in landing capacity. In terms of sufficiency of capacity, we are still in very early innings of our participation in Germany. Your second question again was there?
Just on industry growth in Germany, is it similar to the U. S. And kind of that high single digit range?
That's a tricky question to answer. So even your point about our taking share is a very nuanced concept in the sense that we are taking share from what is a very different traditional salvage model through the listing service, etcetera, which I'm sure you heard and can review again from the Q1 call. But in a nutshell, I don't think the underlying characteristics should be different in the U. S. And the U.
K. In the sense that the cars are relatively old across the system since Germany is a mature economy that has had cars for a long time, so the average fleet age, likewise, is old. In comparison, by the way, to developing markets or to economies that have grown tremendously in the last decade or 2, China and India and the like where the cars are relatively flat compared. If cars are old, the cars are extended to repair, meaning labor costs are high, parts costs are high, regulatory burdens are also meaningful, meaning you have to restore airbags, tax and tax condition to drive cars. So all of those same underlying forces are similar in Germany, but for like for like salvage cautions, it's just statistics in Germany.
We don't have them because they don't exist, But we are the first ones to attempt to deploy the Copart model, so to speak, in Germany.
Thanks. Will, I think you mentioned over 30% of U. S. Vehicles are now going abroad. And I'm assuming that some of those vehicles are going over to Europe.
So can you talk about the buyer base in Germany to
the extent, I would just love
to hear your thoughts around over time as you develop the German market and the further EU market, does that cannibalize any of the international demand that you're seeing at your U. S. Auctions today?
No, it really doesn't. Most of our international activity is in the less developed countries. Most of our cars provide portable transportation. Our top 3 are Mexico, which is obviously because of its proximity to the United States, and the next 2 are the UAE and to Nigeria. And we're also seeing significant growth in the Caucasus countries.
There is some stockpile nation in our buyers in Germany, but it's not significant in its scope. And we don't think it will have a cannibalization impact on our international activity as Germany develops.
Okay, great. And then last one for me. Just on capital allocation, you guys obviously showed sort of full of capital towards share retail in the quarter. You funded it with some short term debt. Understanding you don't want to comment on any future activities, but has your appetite culturally maybe carry more and less on the business change today given some of the scale you've seen gained in recent years?
No, I don't think there's sort of philosophical shifts at Copart. If you go back just a few years, even at the end of 2014, we had leverage on the balance sheet for share repurchases we consummated in the summer of 2015 and December 2015. So we had a little bit more leverage than even than we do now. So no, there's no possible shift in how we think about leverage. We generally prefer to be to have meaningful financial profitability, which gives us strategic flexibility when it comes to acquiring land, pursuing international growth and so forth.
So we'll continue to be a relatively low leverage institution.
Got it. Thanks so much again.
Thank you.
We'll take our next question from Derek Glynn of Consumer Edge Research. As you think about additional growth opportunities outside of North America or Europe, China and India stand out as potentially 2 large markets in the long run. Can you provide an update on how you view those opportunities and whether investments have been made to stand there?
I think you captured the thought well there and they are very promising markets long term for a host of reasons. The markets haven't yet materialized at nearly the same extent that they have in Europe and United States. So we'll be there when it emerges, but it's not in the next couple of years anyway.
Thank you. This concludes our question and answer session.
I'll turn it back to management for closing remarks. Thank you. Thank you for coming on the call, and we look forward to reporting on the next call on Q3. Thanks again. Bye bye.
Ladies and gentlemen, thank you for your participation. This concludes today's conference. Have a great rest of your day.