Good day, everyone, and welcome to the Copart Incorporated 4th Quarter Fiscal 2018 Earnings Call. Just as a reminder, today's conference is being recorded. For opening remarks and introductions, I would now like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart Incorporated. Sir, please go ahead.
Thank you, Katie. Good morning, everyone, and welcome to the Q4 year end call for Copart. I'm going to turn it over to Jeff Liaw, who will give you an update on finance, then Will Franco will give you an update on the operations in the business, and then we'll open it up for questions. With that, it's my pleasure to turn it over to Jeff Liaw, CFO.
Thank you, Jay. I'll start with the Safe Harbor. During today's call, we'll discuss certain non GAAP measures, including non GAAP net income per diluted share, which includes adjustments to reverse the effect of income taxes on the deemed repatriation of foreign earnings, net of deferred tax changes, disposals of non operating assets, impairment of long lived assets, acquisition related fees and integration charges, reserves for legacy sales tax liabilities, foreign currency related gains and losses, certain income tax benefits and payroll taxes related to accounting for stock option exercises. We've provided 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 this morning. We believe the presentation of these non GAAP measures together with our corresponding GAAP measures is relevant in assessing Copart's business trends and financial performance.
We analyze our results on both a GAAP and non GAAP basis described above. In addition, this call contains forward looking statements within the meaning of federal securities 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. For a more complete discussion of the risks that could affect our business, please review the management's discussion and analysis portions in our related periodic reports filed with the SEC. We do not undertake to update any forward looking statements that may be made from time to time on our behalf. Now turning our attention to the Q4 of fiscal 2018.
We achieved a record 4th quarter in unit sales, revenue, gross profit and operating income. We're quite pleased by what we believe is strong underlying operational and financial performance, but it was of course a complex quarter given certain non recurring non cash charges, which I'll elaborate on further during this call, as well as a slight mix shift to purchase cars and year over year changes in our tax rate. Starting with the top line, our revenue grew globally at 18.7% year over year, with a modest contribution from beneficial year over year currency effects of approximately $1,500,000 We experienced global service revenue growth of 16.3%, which is largely the best reflection of underlying growth in the business. Purchased car growth of 37.7 percent driven by NPA Copart Direct Germany among others. Actual Copart owned inventory at the end of the quarter was $16,700,000 which as you know is still small in the context of the overall business.
As you know, if you have followed Copart for some time, viewing purchase car revenue on a nominal basis overstates its relative contribution to the business. If we reflected only the net margin in our financials or if we were to gross up our service revenue generally for the average selling prices of cars, purchase car revenues would appear much smaller in comparison. We experienced global unit sales growth of 10.2% with U. S. Unit growth of 9.8% and international growth of 12.2 percent.
Will will provide additional color on the growth drivers, but we did experience growth in both insurance and non insurance volume. Our global inventory grew by 3.8%, slightly more than that excluding catastrophic inventory from both last year and this year. Our gross profit grew from $167,500,000 to $188,400,000 in the quarter or 12.5 percent growth. That said, the Q4 of 2018 was burdened by a one time non recurring depreciation charge of $10,500,000 due to assets newly placed into service as well as changes in the useful lives of fixed assets. The Q4 of 2018 was also burdened by $1,900,000 of write downs of assets and certain separation costs in connection with our acquisition of the business in Finland.
The gross margin rate decreased from last year 44.2 percent to 41.9 percent or a decline of 230 basis points. That said, the non recurring depreciation charge represents 230 basis points of that contraction by itself. Furthermore, the slight mix shift to purchase cars represents another 70 basis points or thereabouts. The Finland write down is an additional 40 basis points. The punch line being that in a quarter in which our gross margin rate declined year over year by 2 30 basis points, those factors alone represented 3 40 basis points or more than the total decline.
We grew ASPs in the quarter year over year by 11.9% in the U. S. Despite lapping a strong ASP growth quarter a year ago in Q4 of 2017 of 7% then. Will will elaborate again, but this is continuing the phenomenon we talked about previously of newer cars being totaled, less severely damaged cars being totaled, increased bidding activity, strong used car price environment and a solid scrap price environment as well. Turning our attention to general and administrative expenditures.
I'll start with the line item excluding stock compensation and depreciation.
G and
A ex those factors increased from $29,800,000 a year ago to $42,800,000 this year. Of that $13,000,000 increase, dollars 5,600,000 is a non recurring payroll expense in connection with certain executive stock exercises, which we have normalized in the non GAAP EPS presentation you see in the press release. An additional $1,400,000 of non cash reserves in connection with certain sales tax liabilities. Those together are $7,000,000 of $13,000,000 increase in true one time issues. Furthermore, approximately $2,900,000 of our G and A growth is due to the acquisitions of NPA and the business in Finland.
The balance then represents actual growth in general and administrative expenses for the quarter. As we have said routinely on our calls and interactions with our investors and others, our general and administrative expenditures will grow over time with inflation and with increases in complexity of our business, but we continue to believe we can achieve operating leverage given the top line growth rates that we have experienced. Finally, 2 other points on G and A and other portions of the income statement. G and A depreciation increased by $1,600,000 year over year, of which materially all is in connection with the acquisitions described previously at MPA and ABK. Our GAAP operating income grew from $110,800,000 to $134,800,000 or 21.7%.
If you include the one time matters that I described previously, the depreciation and amortization charge of 10,500,000 dollars the $1,900,000 write down in connection with the Finish acquisition, the sales tax liability, the payroll liability as well as an additional $1,100,000 impairment of an intangible asset in connection with the historical acquisition. Those factors together represented $20,000,000 of decreased operating income in comparison to what it otherwise would have been. Our operating margin for the quarter was likewise depressed by 4.50 basis points attributable to those factors. Our net interest expense was down year over year from $5,500,000 to $4,000,000 given the lower debt balance. I'll turn our attention to income taxes.
In the Q4, as you know, there are additional complexities as tax reform comes into clearer focus with both a change to our recurring tax rate as well as one time effects on deemed repatriation and deferred taxes and the like. Our Q4 effective rate of 17.3% benefited from certain non recurring tax offsets, including the exercise of stock options, which again you see reflected in the adjusted EPS schedule. Our full year normalized rate for fiscal 2018 would have been approximately 28%, excluding those one time factors. That said, as you know, our U. S.
Federal cash tax rate for fiscal 2019 will be 5.9% lower than what we experienced in fiscal 2018 due to the full year benefits of tax reform. Because our fiscal year straddles the calendar year, we received a portion of the benefit in fiscal 2018, but the full benefit in fiscal 2019. Our GAAP net income for the Q4 increased from $70,300,000 to $109,700,000 or a 56% year over year increase. On a non GAAP basis, our net income increased from $82,400,000 to $102,600,000 or growth of 24 0.5%. In the non GAAP net income reconciliation schedule, you will see there the $2,900,000 in deferred tax adjustments, the impairments of the long lived assets, the charges we incurred in connection with the acquisition of our Finland business as well as the legacy state tax liability.
Not included in that reconciliation is the depreciation and amortization charge I described a moment ago. The effective share count, the last comment before we get to EPS, has increased from $237,600,000 a year ago to $244,400,000 or a 3% increase with the majority of this increase attributable to our increase in share price due to the treasury method of accounting for stock options. Our non GAAP EPS then has increased from $0.35 to $0.42 Regarding our balance sheet and cash flow, operating cash flow for the quarter was $157,900,000 with CapEx of $106,400,000 in the quarter. As a slight deviation from the past few quarters, 40% of these expenditures were for yard and transportation equipment. Tax reform created a one time benefit for us of acquiring equipment and placing it into service in fiscal 2018 of The balance The balance of our CapEx as usual was attributable largely to capacity expansion and lease buyouts.
And the last brief commentary I'll provide is on Germany before turning it to Will for additional explanation. As you know already, we have been running auctions at our 2 existing Copart Germany locations. In comparison to conventional remarketing methods in Germany, Copart Germany's auctions are already achieving substantially better returns at auction. As we penetrate the German market, these superior returns will ultimately accrue to the benefits of German insurance carriers, policyholders, our buyer base and Copart itself. If you consider the key drivers of our success in the markets in which we are more mature, we have world class capabilities in developing a robust fire base, real estate for vehicle storage, physical logistics for transport and access to vehicles.
On each of those four fronts, we have substantial initiatives underway that we'll discuss with you in greater detail on the next call. With that, I'll turn it over to Will Franklin.
Thank you, Jeff. First, let me provide some updates on Hurricane Florence. As we have stated previously, our goal is to be in a constant state of readiness for these cats. That requires us to have permanent cat storage capacity. Relative to Florence, in the region, we have recently added a 90 acre facility near Raleigh and a 96 Acre Facility Located in Spartanburg, South Carolina.
In addition, we have available new facilities near Charleston, Winston Salem, Atlanta and Fredericksburg, which are near completion, yet currently available to store cars. To supplement these new facilities and our 11 existing facilities in the Cat region, Days before the storm hit, we secured 17 temporary storage locations. We also mobilized almost 100 loaders, hundreds of tow trucks, our dedicated CAT teams and we staged in the region our 6 mobile command centers. In total, we estimate that we have spent nearly $1,700,000 in preparation for Florence prior to the landing of the storm. Our response to Hurricane Florence demonstrates our unmatched CAT capabilities and our commitment and our ability to execute during these events.
In a cat, we don't have the luxury of waiting for the storm to clear and then assess our needs. We have to be on the ground days, even weeks beforehand preparing for the worst outcome. Florence was a Category 4 hurricane, the same as Harvey, while out in the Atlantic. It landed as it won and quickly dissipated into a tropical storm. While it's too early in the claims cycle to know with certainty, we believe volumes generated in Florence will require only a limited use of our cat resources.
Now let me provide some commentary on our 4th quarter's operational results. In the U. S, our volume grew by 9.8% for the quarter and 12.9% for the year. When adjusted for cat activity, the year over growth was 10.7%. Our volume growth continues to be driven by organic growth and market wins within the insurance market, continued growth in the non insurance markets and our NPA acquisition.
Volume from non insurance sellers, which includes franchise and independent dealers, finance companies, charities, municipalities, equipment dealers and wholesalers grew by 27.6%. In total, non insurance cars comprised 23.5 percent of total U. S. Volume compared to 20.2% for the same quarter last year. The growth in volume was spread broadly across multiple seller segments.
Volume from dealers was up 26%, bank and financial institutions 23%, rental car companies 29%, wholesalers, which almost doubled at 99% and industrial equipment, which more than doubled at 122%. In the U. S, our service revenue per car was up almost 6%. The increase in revenue per car was due primarily to higher ASPs, which grew by 11.9%. The increase in ASPs were driven by a number of factors: a 4.8% increase in the value of used cars as measured by the Manheim Index, an 18% increase in the value of crushed car bodies, the beneficial mix of cars sold as non insurance cars and powersport vehicles are generally run and drive vehicles that yield a higher selling price and the increase in our marketing activity.
We are also seeing a behavioral change in the industry as insurance companies are totaling cars with less damage. We continue to expand our marketing activities and to enhance our auction platform. We have 2 objectives. 1st is to increase the number of bidders that participate in our online auction and second is to increase the bidding activity of those who do. We are executing well on both.
The number of unique bidders is up over 30% and the increase in number of bids received per lot is up almost 9%. Our marketing activities seek to identify and encourage buyers wherever they are in the world to search our website to join our auctions. Despite the headwinds caused by the stronger dollar, buying activity from international buyers increased. Total sales to buyers with international business addresses was 23.8%. When we include all export activity, including buyers with domestic addresses who only export based on license, our international market represented 34.2% of U.
S. Units sold. Our international buyers and exporters also influenced auctions by pushing bids higher by being the 2nd high bidder. When we include this metric, our international buyers and exporters impact over 50% of all U. S.
Items sold. Additionally, our work on auction dynamics include continues as we improve the effectiveness of our online auction platform, which we believe to be the best in the world. Due to increase due to the electronic nature of our auction platform, we can capture all search and bidding activity, including individual product preferences and bidding tendencies. Utilizing that data, we may, when appropriate, extend the auction for certain units in anticipation of further bidding activity or employ other measures to elicit additional bids. We are also addressing the change in bidder behavior as they move towards mobile searching and bidding by improving our mobile experience.
This quarter, 40% of all web traffic and 24% of winning bids were on mobile, up 80% 20% respectively. In Canada, our volume grew by 29% for the quarter and 46% for the year due to market wins as well as organic growth within the market as the Canadian salvage market like the U. S. Market has seen growth in total loss frequency. In addition to the growth in volume, we have seen a meaningful growth in revenue per car as Canadian ASPs like U.
S. ASPs have risen in Canada over 14%. To accommodate the increase in volume in Canada, last year we expanded our yard in Calgary by 14 acres and we expect to announce a 14 acre expansion of our Edmonton yard in the Q1 of our fiscal 2019. Turning to the UK, we delivered another strong quarter as EBIT in GBP and after eliminating the impact of a one time payroll tax expense associated with an option exercise was up 10.8%. The growth was driven by an 8.1% increase in volume and an increase in revenue per car also tied to higher ASPs.
UK ASPs were also beneficially impacted by a change in mix as dealer car volume grew by 18.7% and represented 10.2% of total volume compared to 9.2% in the same quarter last year. We are also seeing meaningful progress in Brazil, where volume was up almost 9% quarter over and 10% year over. This growth was achieved in a very challenging market. Brazilian new car sales in 2017 were down 40% from 2013. The car park is aging and auto policy count has been declining.
Nevertheless, we have grown volume by gaining market share due, we believe, to our ability to deliver exceptional operational and marketing results. On a quarter over quarter basis, our revenues and EBITDA grew by almost 11% 30%, respectively, after adjusting for a beneficial one time adjustment. We believe Copart Brazil will become an increasingly more meaningful contributor to our overall financial performance. We are seeing rising diesel fuel, labor and health insurance costs across the board. Nevertheless, on a consolidated basis and excluding the costs associated with the exit of dismantling activity in Finland, our average cost to process each car grew only marginally over the same quarter last year as we leveraged our fixed cost model.
Our inventory was up in North America, the UK and worldwide by 3%, 5.5% and 3.8%, respectively. This quarter, North America sales grew by 10.2%. Over the last 16 quarters, our year over year quarterly volume growth has averaged 11.3%.
We have
previously discussed extensively the drivers for the growth in the North America total loss market. While the growth rate and accident frequency is moderating, we see no such trend in total loss frequency. We expect to see continued growth in both car park and total loss frequency. Accordingly, we remain extremely active in our yard expansion program to accommodate the growth produced by both market wins and organic growth in the insurance market, our continued expansion in the non insurance markets and our need for additional cat capacity. We did not announce the opening of any new yards this quarter.
However, in addition to the yards in Leipzig, Germany, Spartanburg, South Carolina, Coturchiva, Brazil and our new MPA site, Madison, Wisconsin, which we have all opened after the close of the last quarter. We currently have 28 other land development projects currently under construction, representing over 1500 acres of new capacity, 26 of those in the U. S. And each in Canada and Germany. That concludes my remarks.
Katie, now I'll turn the call back over to you for Q and A.
Thank you, sir. At this time, we'll open the floor for questions. Our first question will come from Bob Labick with CJS Securities.
Good morning.
Hey, Bob. Hi, Bob. Hi. I wanted to
just take a step back on G and A. You gave us a lot of detail there and I'll certainly go back through the transcript and stuff. But just I know you won't guide to numbers specifically. Could you talk a little bit about the profile as a percent of sales? Has anything materially changed, whereas there'd be negative operating leverage going forward.
Do you still expect to get operating leverage on that line? And how should we think about G and A going forward given the significant volatility over the last few quarters?
Thanks, Bob. In short, yes, we do expect to achieve as we have very consistently in history operating leverage on G and A. This quarter, as you know, was noisy. We on the non stock comp, non D and A, G and A line item, the $13,000,000 increase included $7,000,000 itself just on the payroll taxes and the legacy sales tax liabilities. So those are true non recurring, not in the baseline, so to speak.
Then there was about $3,000,000 that we picked up from the acquisitions of our businesses in Finland and in MPA. And the balance is the actual growth in G and A for the quarter. So yes, we do expect to achieve leverage. There will be some inflation as we add complexity in the business, as we expand into Germany and the rest of Western Europe, initiatives of that sort. There can be modest increases, but still on balance, we will achieve better growth in operating income than we do in gross profit and revenue.
Okay. Super. And then, I think Will touched on this in the end and on last call. You've something like 11% or close CAGR and volume over the last 4 years in the U. S.
Car volume. Have you kept up with that in land? I know you've reported lots of land acquisitions, but you haven't given us a sense of how much you've picked up. And so I guess the question is, have you kept up with the volume with land? And if not, what have you done to maintain the efficiencies in the yards as the utilization rate seemingly creeps up?
We have kept up, Bob. I can't say this though that whatever excess capacity we had 3 years ago has dissipated. But our procurement, our acquisition and our development activity is one of our primary focuses here as across the world. We employ, I think, a very aggressive and when I say aggressive, I mean, a high assumption in terms of growth rate when we plan our expansion and our capacity needs. I think we're developing to that number.
So when you look at those elevated growth rates we're anticipating and additional permanent cat capacity that we're pursuing. It's a big job. But to answer your question, we think we've got it covered. Like I said, we've got 28 projects in construction. I think you'll see a number of those being announced in the next two quarters.
And if you look at the targets that we're pursuing, and I would say contracts that we have entered into, there's about another 45 of those. So I think we're well situated to accommodate the growth in the market as well as any cat needs.
Okay, great. And last one for me, just on Germany. Can you give us some updates in terms of the number of either insurance companies or rental car companies that are participating in those auctions and other milestones we should look forward there as you build out? I think you mentioned there's another yard to come there as well.
Hey, Bob, Jay. Yes, we've changed some of our approach and strategy in the German market, and we're going to give you an update on that in the next quarter. So where we've got 2 locations today, we're going to be opening a significant number of locations in this quarter. I don't like to talk about what we're going to do. I like to talk about what we've done.
So in the next Q, we'll be reporting on how many new locations we've opened. And we're clearly looking at the market as we've got to have the logistics and the facilities in place to service the insurance industry. With that said, we are handling some insurance volume in that market, but primarily the majority of the volume that we're handling right now is non insurance. And that allows us to build their salvage vehicles, they're just not procured directly from the insurance. They're procured directly from owners of vehicles.
These are owner retentions where the insurance company has had the insured retain the vehicle, and we've reached out to the insured and acquired the vehicle from them to flip it through auction. And in that environment, what we're doing is we're creating a marketplace where today we're the largest auction house in the country that you can come. I'll give you a great example today. We had 150 cars on auction in Hanover. All those vehicles, if you bid, you own them.
And that is the only auction environment I know of in Germany where you have 100% chance of getting the car if you bid on it. Everything else is in the country is contingent auction environment where you may not end up getting the vehicle. So we're selling you can go online. I can tell you we're selling over 400 cars a month right now, but you can go online, look at the auctions. I'd encourage everyone to do that.
And then let's wait until next quarter and we'll report on a much bigger update on our strategy and our approach in that market. But I'll finish by saying it's taking up a significant amount of my time now. I'm spending a fair amount of my own time on Germany and we are very committed to the market and succeeding before the end of the calendar year in terms of large locations and large volume.
And Bob, just to elaborate briefly on that point. So the sourcing cars from policyholders directly is largely a function of the way the German insurance markets and its indemnification provisions have evolved over the years. Our then sales at Copart Germany, that's what led me to the statements that we clearly are achieving better returns. So our conviction that the Copart model is the right one for the German insurance market long term remains as true as ever. And the evolution Jay described is merely how we achieve that outcome.
Okay, great. Super color. I appreciate that. Thank you very much. Thanks, Will.
Thank you. Our next question will come from Stephanie Benjamin with SunTrust.
Hi, thank you. I just wanted to, sorry, go back and follow-up on the G and A or I'm sorry overall operating income and kind of the one time expenses. And happy to do this offline if that's easier. But I think you mentioned that there's about $20,000,000 in non recurring in the quarter. Of that, what was broken out in the non GAAP kind of adjustment schedule in the press release?
I just want to make sure I'm getting it correct based on that.
Sure. Fair, Stephanie. In the non GAAP schedule, you have everything but the $10,500,000 of depreciation and amortization that burdened gross profit for the quarter. Otherwise, in the non GAAP reconciliation, you see on a post tax basis, the pre tax numbers that I just walked through.
Got it. Okay. So that's helpful. So really and you said the operating income had $20,000,000 of one time that we would not expect to occur kind of going forward.
Correct. Got
it. Okay. That's very helpful. My next question is actually just on Brazil. I think that very positive there and kind of it almost seems like and I think the comment that it's going to be a more meaningful contributor.
Is there something that has materially changed just in the last couple of months in that market, either on your end or from just the market standpoint to cause this to be a larger contributor or kind of just more color there would be really helpful? Thanks.
Yes. No, there's a change. It just wasn't recent. It's taken we entered the market in I think 2012 and it takes a while to build out not only your team, but your processes and to gain the kind of reputation that you need to grow the business, the kind of reputation, the kind of brand that we have here in the United States. And in Brazil, we're starting to gain that brand recognition, especially with the insurance companies.
And you saw that we had expanded north in between. Recently, we added a New York South in Guertachiva and we think there's opportunity to grow simply because we operate better than everyone. We think and we provide the highest returns through our remarketing efforts. And we just think it's the byproduct of that will be growth in our volume and our presence in the market.
And will you be able to provide the percent contribution Brazil had in the quarter? Or by top or should I wait up to the 10 ks or kind of how should we go around that?
Yes. No, we haven't sized in that respect and we probably won't until it becomes a material number with respect to the total.
Absolutely. All right. Well, thanks.
Thanks, Stephanie.
Thank you. Our next question comes from Craig Kennison with Baird.
Hey, good morning. Thanks for taking my questions. Jeff, I think you mentioned a small issue, but a change in the lives of fixed assets some change in assumption there. Can you shed more light on that decision?
Yes. So in short, I was commenting in total on the $10,500,000 non recurring depreciation charge that burdened yard expenses and shows up in gross profit. And the two drivers there are 1, assets newly placed in service with a substantial depreciation charge associated with that, as well as change to certain useful lives. And this is based on a change in management estimates. We have a number of facilities with different useful lives and we harmonize them, so to speak, and adjusted them accordingly.
So that charge is not one you would see on an ongoing basis quarter to quarter.
Yes. And I guess I'm just trying to understand what drove that decision to change the length of the lives?
It's a well, I think as you know, in the past few years alone, we have significantly increased our own experience in acquiring land and developing it, including with our own in house team in Bright Excavation. So I think our the information we have available to us, our understanding even of our land has improved significantly even over the past few years. So when reviewing historical fixed asset ledgers, we bring that heightened awareness to bear and that caused us to revise certain of those numbers accordingly.
Thanks. And then as we think about Germany and maybe the acceleration in activity there through the end of the year, Should we anticipate costs running ahead of revenues for a period of time here?
Craig, I think from the perspective of the overall P and L, I think the effect would not be that pronounced of what you just described. So there certainly will be moments when we invest and when we have costs that are ahead of the contribution, but the moments of the opposite truth. When we see the flow through the contribution in connection with costs that we have previously invested, I don't think that on balance, you would see from your perspective a meaningful drag on the P and L.
Got it. And then with respect to CapEx, could you just lay out your plan for CapEx spending in fiscal 2019 and maybe give us some of the bigger buckets where you expect to allocate capital?
CapEx in fiscal 2019 will continue to be dominated by capacity expansion. So it'll be land developments and acquisitions, in some cases, lease buyouts. I think the rough number over the past, say, 8 quarters would be 85% or so of our CapEx has been for those ends. As for capacity in general, you know that our capital expenditures have been for the past few years. We largely expect that to continue into fiscal 2019.
Thank you. Thanks, Greg.
Thank you. Our next question comes from Ben Benaview with Stephens Inc.
Hi, Ben. I wanted to ask about revenue per unit. It's been really strong for some time here. Obviously, ASP growth has contributed to that. But you guys have also talked about some of the things that you've been doing around being dynamic in the auction.
So I'd be curious to the extent you can delineate between how much of the ARPU increase is from external factors a reflection of the market and how much of it is because of decisions you guys are making?
Dan, I think to be fair, those variables would be really hard to isolate because they both happen concurrently with literally every auction we run, right? So we can't isolate either the market effects or what we do. I suppose what we do, we can to some extent. But what I would tell you is that both have been meaningful that as we've looked at the market for used car prices, they are very strong, but they're certainly not up 12% year over year either, right? So there's some function of the marketplace being strong, but also some meaningful function of our innovations, our member recruitments, our auction management.
Okay, fair enough. And then my second question is just around a follow-up on capital allocation. Cash continues to build on the balance sheet. And I know you don't make a practice of talking about your future plans for buyback. But I'd just be curious, we haven't heard an update around the M and A landscape in some time.
I'd just
be curious to hear a
little bit more about how you think M and A fits in to your future prioritization of use of cash flow?
It's a fair question, Ben.
M and A certainly has been a part of Copart's journey over the past few decades. It has driven growth in the business. In some cases, I think that will continue to true going forward. That said, I think as you know, in our core markets in which we are strongest, the U. S.
And UK and so forth, there are more limited opportunities to acquire companies. Beyond that, we do revisit this topic from time to time. We always have our hurdle that one, we have to like the acquisition in isolation, that it has to make financial sense, it has to generate the kinds of returns on capital that Copart is trying to expect. And secondly, that it has to dovetail well with our strategic initiatives broadly, whether that's international expansion in Brazil, Europe and the like or extensions into additional strategic spaces. So that rubric, that calculus hasn't changed at all.
We won't largely comment on this kind of activity until after the fact as you know for obvious reasons. But M and A will be a part of Copart's future as well.
And just a quick follow on to that. A lot of the acquisitions you guys have made historically have been either geographically or capacity focused. When we think about building out future capabilities, are those all elements of your business that you can build organically? Or are you looking at targets from time to time that potentially bring capabilities to bear for Copart as well?
The latter. So, but two illustrations, National Powersports Auctions, an acquisition we completed in June of last year, clearly an extension into the non salvage powersports arena. So the addition of capabilities via acquisition that was not organic per se. And even in Germany, our first foray to Germany was in connection with the acquisition of WAM, which is one of the listing services you've heard us describe on prior conference calls as well. So from time to time, we will extend beyond what I would characterize as Copart's traditional salvage auction business in our M and A activities.
But for the reasons we just described, those of course have higher hurdles still. If it deviates from what we know and have done day to day forever, we have to be that much more sure.
Okay, great. Thanks for taking my questions.
Thanks, Ben.
Thank you. Our next question comes from Bret Jordan with Jefferies.
Hey, good morning, guys.
Good morning. Hey, Bret.
Hey, as we maybe accelerate the business in Germany, I think in the early comments you discussed your purchase volume purchase vehicle volumes were up partially as a result of Germany. Do we think the purchase mix is going to accelerate from here? And I guess as we think about the gross margin impact going forward?
And Brett, I think it's a fair question. I think to be fair, we don't we wouldn't manage the business that way, right? I understand that if the purchase car volume were to increase that would depress our nominal margin rate, but that's not a particularly sophisticated way to run the business where we want to maximize contribution and profit. And so we wouldn't think in those terms except when we end up on quarterly calls like this one.
Well, I
was just wondering whether we should think about that going forward as we try to project your nominal margin rate. Is Germany's acceleration going to be meaningful from here?
On Germany specifically, let me comment more generally. On Germany specifically, I think you heard Jay and I both say we'll have a whole lot more to say on the next call than on this one. But more generally, when Copart has grown into new spaces, we have often expanded first through the purchase car model, right? Until we have achieved liquidity and proven it to the various counterparties in the market, we're often better off buying the cars ourselves, selling them at auction, generating a profit and improving to all the market participants that we do so. Over time, that very naturally evolved the consignment model as was true, for example, in the UK, most notably.
You may remember from back in the day, we were heavily tilted to the purchase model in comparison to consignment. The opposite is true today as we've achieved that liquidity. So when we are growing in new spaces, NPA is another example. NPA has a 5 historically had a 5 store footprint, so to speak, in the United States. They had tremendous credibility among dealers in and around those locations.
As they expand beyond those geographies, initially, will they buy a few more bikes to prove their model? Yes. And the same will be true in Germany and could be true in other international markets as well. So it will have an effect, but as per that the 2 lengthy paragraphs about purchase cars, I wouldn't overweight that in the overall analysis. But yes, I think purchase cars could or will outgrow consignment sales for the near future.
Okay. And then a follow-up question to Will's commentary around Florence. It sounds like an incremental $1,700,000 spent to prep and I think volumes maybe light coming out of that storm. Is that about the magnitude of the loss? Was there or the impact of the cat that may come from Florence or are there incremental expenses that have that will come along the way?
And obviously, I guess there will be some volume to offset that expense. So it would be maybe less than that $1,700,000,000 Yes.
It's really too early to tell. When all the water subsides and the claims start coming in, the assignments come in, then we'll have a better picture of that. The $1,700,000 that I quoted was just what we spent to prepare for the storm. So there'll be other expenses to follow on throughout the course of next weeks months.
Okay. Thank you.
You're welcome. Thanks, Brett.
Thank you. Our next question comes from Gary Prestopino with Barrington Research.
Hi, good morning guys. You said your U. S. Inventory was up 3% year over year. Were you comping against the impact of catastrophic events last year?
Not largely. Hurricane Harvey hit in August of last year. So July 31, 2017 wouldn't had some catastrophic events, hailstorms and the like, but not the meaty ones you might have in mind.
So it's more of a seasonal impact then. It's just ebbs and flows, but this is a seasonally slow time for accidents. Is that more a way we should read that?
The seasonality, I don't think would factor into a year over year number, right, because the season should be set the same year over year.
Okay. And then your tax rate you said was I think somewhere around 28% for the year or and then you said something about a 5.3% decrease for next year. Is that percent decrease off of that 28%?
Yes, fair question. And I would perhaps unclear. The fiscal 2018 normalized tax rate, if you include big lumpy stuff like the stock option exercises, would have been approximately 28% blended for the company. That 28% includes a 26.9% U. S.
Federal and that includes state income taxes, some foreign taxes and the like. The point about fiscal 2019 is that for the U. S. Portion of our income, which historically is in the 80% to 85% range of the total income for the company, Then on that specifically, our U. S.
Federal rate will decline from 26.9% in fiscal 2018 to 21% in fiscal 2019. So that will in and of itself somewhat meaningfully lower our tax rate in fiscal 2019.
Okay. So that's real helpful. And then could you just I was trying to write this down. Could you just give me your unit growth in the U. S.
And international and then on a combined basis in the quarter?
9.8 U. S, 12.2 international, global 10.2
percent. Okay.
And then lastly, on your ASPs, you said
the U. S. Were up about 11.9%.
I couldn't write this down again. How much of that change was due to scrap?
It's tough to quantify. We can tell you how much scrap was up. So scrap year over year remains a pretty healthy environment. It was up 18%. I think sometimes the perception is a little overwrought on the importance of scrap in our business.
So if you consider the typical car Copart sells, a passenger sedan has a tonne and a half of total content, a crushed car body, just the huge numbers is $200 per ton. So it's $300 of scrap content in a car for a car that sells for 1,000. So even if the scrap is up 18%, you're talking about a $40 or $50 change to the underlying value of a car that sells for 1,000 of dollars. So the effect matters in particular on our lowest end vehicles. I suspect it has virtually no effect on the cars that will be rebuilt and brought back onto the road.
In some theoretical forum, you can imagine 10 years from now when that car is done, that scrap value DCF back. But I think the scrap matters, it's a contributor, but I don't think it's nearly it's not that meaningful a portion of that ASP lift.
Okay. Thank you.
Thank you. Our next question comes from Chris Bottiglieri with Wolfe Research.
Hi, thanks for taking the questions. Wanted to follow-up on the dealer first, ton of descriptive details. I'm not sure I got them all, but I think you're up 90% last quarter year over year. And maybe I'm misinterpreting that metric, but can you give the comparable metric like where it was this quarter? And then collectively, you've given these like different sub segments like rental cars and the 1 dot.
If you were to kind of aggregate what you're doing in the whole car space and how that's growing, maybe just provide some context to what that also done last quarter?
Well, I'm not sure the numerical questions that you had. I can talk about the segments in general. I mean, we're finding that we're attracting more and more buyers for these types of cars, which allows us to it's the chicken and the egg, provide higher returns, which allows us to approach those who have these types of cars and ask them to test our remarketing and our auction platform. And through that process, they found it to be fruitful in terms of increasing their returns and in turn has grown that market. We've also developed specific programs for different buyers.
So we have a different program for equipment sellers. We may have a different program for wholesalers or we may have a separate program for financial companies. And so we're becoming more astute in identifying their specific needs and addressing those through our processes and our technology.
Got you. Let me rephrase it differently. Did your growth in dealer cars accelerate or decelerate what you've done last quarter? That's a simple question.
It accelerated.
Accelerate. Okay. That's helpful. Okay. And then maybe just like holistically as you think about this strategy, given that you're growing pretty aggressively, but I would think your capabilities and service are lower and then like your platform effect is a little bit lower right now.
Can you talk about how your product is differentiated relative to the incumbents and what's driving that growth and how we think about the sustainability of how much longer you can compound this growth in dealer consignment?
We think there's a long runway ahead of us in terms of growth in dealer consignment. I think we're in the first or second inning of this game. And I think we're refining our processes. We're adding more resources to the pursuit of this volume. And we think that the sellers who are trying and utilizing our platform are very happy with the results.
So I think there's a robust opportunity ahead of us with respect to cars.
Got you. Okay. Thank you for the time.
Thanks, Chris.
Thank you, sir. At this time, I am showing no further questions. I'd now like to turn it back over for closing remarks.
All right. Thanks, Katie. Thank you, everyone, for attending the call, and we look forward to reporting on Q1 in November. Bye bye.
Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect. Have a great day.