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Edited Transcript of CPRT earnings conference call or presentation 5-Sep-19 3:00pm GMT

Q4 2019 Copart Inc Earnings Call

FAIRFIELD Sep 12, 2019 (Thomson StreetEvents) -- Edited Transcript of Copart Inc earnings conference call or presentation Thursday, September 5, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* A. Jayson Adair

Copart, Inc. - CEO & Director

* Jeffrey Liaw

Copart, Inc. - President & CFO

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Conference Call Participants

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* Bret David Jordan

Jefferies LLC, Research Division - Equity Analyst

* Christopher James Bottiglieri

Wolfe Research, LLC - Research Analyst

* Craig R. Kennison

Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst

* Daniel Robert Imbro

Stephens Inc., Research Division - Research Analyst

* Derek J. Glynn

Consumer Edge Research, LLC - Analyst

* Robert James Labick

CJS Securities, Inc. - President & Director of Research

* Ryan J. Brinkman

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

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Presentation

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Operator [1]

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Good day, everyone, and welcome to the Copart, Inc. Fourth Quarter Fiscal 2019 Earnings Call. Just a reminder, today's conference is being recorded.

For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart, Inc. Please go ahead, sir.

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A. Jayson Adair, Copart, Inc. - CEO & Director [2]

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Thank you, Jonathan. Good morning, everyone, and welcome to the fourth quarter earnings call for Copart.

Before I start, I'm going to turn it over to Jeff Liaw for opening remarks, and then I'll give you some commentary, turn it back to Jeff for an update, and then we'll open it up for Q&A. With that, let me turn over to Jeff.

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Jeffrey Liaw, Copart, Inc. - President & CFO [3]

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Terrific. Thanks, Jay. I'll start with our safe harbor. During today's call, we'll discuss certain non-GAAP measures, including non-GAAP net income per diluted common share, which includes adjustments to reverse the effect of the impact of income taxes on the deemed repatriation of foreign earnings, net of deferred tax charges, certain discrete income tax items, disposals of nonoperating 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 and the effect on common equivalent shares from ASU 2016-09. 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 yesterday.

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 the 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.

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 portions in our related periodic reports filed with the SEC.

Now we'll turn our attention to the fourth quarter of fiscal '19 for Copart. We are pleased with our results in looking a record fourth quarter in revenue, gross profit and operating income.

Our global worldwide revenue grew 20.8% year-over-year for the fourth quarter despite unfavorable currency effects of $3.9 million or thereabouts from foreign operations, primarily due to strength in the U.S. dollar versus the pound.

Our U.S. revenue grew at 21%, international revenue grew at 20%. Global service revenue and purchased car revenue were similar for the quarter, with global service revenue growing at 20.1% and purchased car revenue growing at 25.4%, slightly outpacing service revenue.

On unit sales, we grew worldwide 7.1% year-over-year, with U.S. unit growth of 7.3% and international unit growth of

(technical difficulty)

United States, our growth is driven both by our insurance customers as well as our noninsurance customers.

On the matter of organic growth within the insurance world, we believe that long-term trends in favor of rising total loss frequency continues. Repairing vehicles is becoming relatively less attractive with repair costs rising from vehicle complexity and labor inflation, while at the same time, totaling vehicles is becoming relatively more attractive with more buyers for these damaged cars and rising selling prices as a result (inaudible) few minutes.

We also continue to grow our noninsurance business as well. Noninsurance volume represents north of 24% of our total U.S. volume sold. In that noninsurance segment, we generally include franchise and independent auto dealers, finance and leasing companies, fleets, charities, equipment dealers and wholesalers. We attribute growth in noninsurance to our increased marketing sales and operational focus, and of course, our auction liquidity and returns most of all.

We grew global inventory for the quarter at 18.4%, with U.S. inventory growing 19.8% and international inventory growing 9.8%. Inventory growth was driven by factors similar to the ones that I described a moment ago for unit trends. We grew gross profit from $188.4 million to $242.6 million or approximately 29% increase year-over-year.

Our gross margin rate increased from 41.9% to 44.7%, an increase of 280 basis points. This is partially attributable to lapping elevated depreciation from a year ago and also partially attributable to rising average selling prices for our vehicles. International gross margins declined slightly from 28.9% to 25.5%, largely attributable to purchased car activity in Germany.

I'll turn now to average selling prices within the United States for Copart auctions, which rose 8.1% year-over-year for the fourth quarter. This has been a continuation of a trend now for years, a reflection in our business of more bidders, more international bidders, and therefore, improved auction liquidity as well as increasing mix of newer, less damaged cars.

International bidding and buying activity or in turn the reflection of our proactive marketing efforts as well as the effectiveness of our all-digital auction platform, VB3. The outcome is more bids per unit and, therefore, superior selling prices for our customers as well. And in fact, our ASPs continue to outpace meaningfully the various used car indices, such as the Manheim used car price index.

As you know, rising ASPs, of course, then cycles back to our unit growth drivers as well with repair costs rising, but the proceeds for total loss units increasing at the same time, the total loss path becomes relatively more compelling economically.

I'll turn now to our general and administrative expenditures. Ex stock comp and depreciation, G&A is down from $42.8 million a year ago to $39.8 million for the quarter. As we say almost every quarter, our G&A expenditures will fluctuate and they will generally grow over time, but we continue to believe we can achieve operating leverage given the top line growth we've experienced.

As with all trended data in our business, gross margins, G&A, unit sales, inventory changes, et cetera, we encourage you to review longer-dated trend lines rather than single quarter metrics for a more accurate view of the business.

Our GAAP operating income grew from $134.8 million to $192.8 million or 43% year-over-year. This is despite currency effect of a negative $1.1 million in comparison to the fourth quarter of 2018. We'll note, again, that in operating income, this increase reflects, in part, the elevated depreciation levels from a year ago.

Our net interest expense was nearly flat, up from $4 million to $4.3 million, primarily due to less interest income from lower cash balances at year-end, the product in part of our share buybacks over the course of the year. Other expense of $1.5 million was largely attributable to nonrecurring losses from our share of an equity method investment.

Then on taxes. Our fourth quarter income tax rate of 17.9% is a reflection of a lower U.S. federal tax rate, as we discussed on prior calls, of 21% or thereabouts as well as onetime benefits from stock option exercises and discrete income tax items. The onetime benefit from those stock option exercises has been reflected in our non-GAAP reconciliation, which is included in our earnings release.

GAAP net income then increased from $109.7 million a year ago in the fourth quarter to $153.5 million this year or an increase of approximately 40%.

Our non-GAAP net income increased from $102.6 million to $142.5 million or growth of 39%. This, again, adjusts for certain excess tax deductions for stock option exercises and related payroll taxes as well as certain legacy sales tax liability reserves.

Finally, on the balance sheet and cash flow before I turn it back to Jay. We finished the quarter with $186.3 million in cash on our books and a little north of $200 million in net debt.

We generated operating cash flow for the quarter of $193 million with CapEx of $114.5 million, more than 90% of which was attributable to capacity expansion and lease buyouts.

We continue our efforts to invest in land -- to purchase and develop land to meet both current and prospective demand for our services.

With that, I'll turn it back to Jay.

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A. Jayson Adair, Copart, Inc. - CEO & Director [4]

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Thank you, Jeff. Good morning, again. This quarter not only is the fourth quarter for fiscal 2019, but it is the last quarter of the decade and a quarter that is a milestone being 25 years since we went public.

Copart went public on March 17, 1994. And I literally remember it like yesterday going into New York City for the first time. We crisscrossed back and forth, meeting with investors, pitching Copart, and 2 weeks later, we were in the World Trade Center building. Must have been up about 100 floors. I know it was the highest I'd ever been in a building, and I know it was the highest I'd ever felt in my life. It was pretty incredible, pretty incredible time. And they were yelling Copart on the floor. People were screaming the name out and screaming a lot of other things that you wouldn't do today, times have changed a lot, but it was one of the most memorable and emotional experiences I've ever had in my life.

We were set. That's how I looked at it. Copart now was public. We paid off our debt. We had currency to go buy companies, and we IPO-ed that day at $0.50 a share. We closed that day up about 15%, based on my memory, which was quite a pop in the stock. So there was quite a bit of demand for the company. And we closed the year, 25 years ago, and yes, I had to look it up, because that's one thing I don't remember. We closed the year with revenues of $22.8 million as a company and operating income for the year of $4.1 million.

And we set off, and we grew and we bought companies and we built a network. And in 1996, we reserved this thing called copart.com, and we weren't really sure what the Internet was, but we thought it was pretty cool. And we, from that point on, really focused on all the things we could do at Copart and copart.com.

In 1998, we launched Internet bidding. It was the first of its kind. Willis and I were in San Francisco at an auction. It was called Butterfield & Butterfield, and we saw people sitting at a desk, on the phone, raising their hand and bidding against the live auctioneer. And we had seen that in our business with contract buyers. But in this case, these people were on the phone with the actual end buyers. And that's really where the idea came from and we thought why couldn't we allow people to submit bids over the Internet, and then we would wrap those bids at auction. It hadn't been done in the whole car world. It hadn't been done in the salvage world. It was a brand-new concept. We rolled it out in August of 1998, and from March of 1994 to August of '98, the stock had tripled. And we were pretty proud of our success in terms of what the company had done in terms of growth and in terms of what we'd seen in our stock price, but we really wanted to innovate. We wanted to change the way the cars were sold. In those days, it was 100% live auction.

And so now we were introducing this Internet experience, but you really had to physically be at the auction to see the car and then submit the bid online. So in 1999, we started putting images online. And that was another first for the industry, and we chose 5. I'd like to tell you there was some kind of thought process behind it, but there's 4 corners on a car and an interior shot, and that was it. So we put 5 images of every vehicle online and continued thinking about ways to improve the experience for our customers.

By 2003, and clearly, we were ahead of our time in terms of really pushing towards a digital platform and towards an online platform, but by 2003, we rolled out and tested our virtual bidding technology, and it was June 23, 2003, in Bakersfield, California. We chose Bakersfield because it was the smallest yard we had in the company. And if we are going to test it, let's test it in a small environment, and see how it does or

(technical difficulty)

and what we saw on that sale was the strongest returns out of the whole year. It was a biweekly auction. So it was probably about 12 or 13 auctions so far that year, and it was the highest return we had ever seen as a company in that location.

So we had to roll another site. We chose Syracuse, New York because it's on the other side of the country, because it was also a small site and it was a completely different experience, and we saw the exact same results. Within 6 months, Copart would roll the whole company to virtual bidding technology, to VB2.

It was our second generation of virtual bidding technology, hence the name. And from there, we would see returns just continue to increase, and they would increase and they would increase all the way to 2008. And anybody who lived through 2008 in the business world knows what happened next.

And so after the financial crisis, Copart had a decision: What do we want to do? And we chose to double down.

We doubled down on our expansions going international, expanding into the U.K. and eventually Germany and Spain and Brazil, the Middle East, Canada, and other -- a number of other locations that we went into or that we opened up internationally. And then we also doubled down on our marketing efforts, and this was really the first time that Copart had taken an aggressive marketing stance.

We started with NASCAR, with NHRA and with television: SPEED Channel and ESPN2 and a number of other methods. That would evolve from that point on into a massive social media platform that we dominate today, whether it's Twitter, Facebook, YouTube. There are a number of channels where people have over 1 million followers, and they talk about nothing but Copart on their channel, buying cars, fixing cars and how they love to do business and to work with Copart, find cars at Copart and build cars and sell them.

While this was happening, technology started to go into cars at a rapid rate. The interesting thing about 2019 is today, you can buy a Kia that has everything from lane assist, adaptive cruise, adaptive headlights, every single thing you'd expect on a Mercedes-Benz, except the interesting part is back in 2009, none of those things existed on a Mercedes-Benz. So what we saw over the last 10 years is where the top car that you could buy in America had none of that technology, an average car in America is standard with that type of technology. We saw that trend starting about 5 years ago, and we kicked off a program called 20/20/20. This allowed us to expand our network, expand our locations and start to get really prepared for the volume that we knew was going to be coming in.

Many of you who follow the company for a long time know that we also doubled down by acquiring a bunch of the company back, doing stock repurchases, but to me, what's more important is how we operated the business. We focused on the marketing efforts to build ultimate demand for the product we're selling, to have room for all the vehicles through our expansive network of locations. And if you combine those 2, you achieve record ASPs, achieve record volumes, achieve -- you achieve record successes.

So I'm very excited about what has happened in the last 25 years. How could I not be? For a kid that went to New York City for the first time and looked up, couldn't believe it. I just could not believe. Couldn't believe what I saw, it was that incredible. Never been emotional on an earnings call. But it was a really, really incredible experience. And to be sitting here today and looking at a company that has gone from just over $20 billion a year in revenue -- $20 million a year in revenue to a company that's broke the $2 billion revenue number, it's damn impressive.

We have over 7,000 people that make up Copart. They are led by the best people in the world at what they do. The team that we have built over the last 25 years are amazing. That's why we've seen the kind of results we've seen.

I've never seen Copart. In all my years, never seen Copart in a better position, in a better opportunity to seize the future. With Will Franklin at my side and Jeff Liaw as our President and with the rest of the team and the 7,000 people that make up Copart, I'm enormously excited. I can't say it enough. I'm enormously excited about what we're going to do in 2020, but I'm enormously excited about what we're going to do for the next 10 years.

I was going to speak first, but Jeff was on a roll, so I was going to turn it over to our new President, but now I'll turn it over to questions.

So with that, Jonathan, if you'd open it up for questions, that would be great.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Bob Levick (sic) [Bob Labick] of BJ Securities (sic) [CJS Securities].

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [2]

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It's Bob Labick from CJS. First, congratulation to Jay, to you and to Copart on 25 great years, and then congratulations to Jeff and to Will on their new roles as well.

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A. Jayson Adair, Copart, Inc. - CEO & Director [3]

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Thank you. Thank you, Bob.

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Jeffrey Liaw, Copart, Inc. - President & CFO [4]

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Thank you, Bob.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [5]

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Excited for you guys. So one question I wanted to start with, you've said for several quarters and mentioned it, I think you mentioned it today, Jeff, I'm not 100% sure, but you've been saying it for the several quarters that you've been winning share in the U.S. And I was just hoping you could discuss what's going on. What are you doing differently to gain the share? What are your key selling points with customers? And how do you continue to show this strong growth in share gain?

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Jeffrey Liaw, Copart, Inc. - President & CFO [6]

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A good question, Bob, and I think you know we generally don't comment on individual accounts, but if you look at multiple quarters, multiple years, really, I think it becomes self-evident that we have grown faster than the industry overall. And the reasons we think are manifold, a handful that I'll describe here, but certainly, auction returns, the economics. The economic proposition we offer is first and foremost. You heard us both talk about our technology platform, member recruitment, global marketing and so forth, which drives superlative auction results, which ultimately drives unit volumes and account wins in our favor. We, as you know from prior calls, pride ourselves on superior service as well both in the ordinary course of business, there are a number of details that I want to drag you through, but when we talk about operational performance with our customers what that means I think is a manifold experience with Copart. And then of course, we also take pride in our superior service in catastrophic events as well. So depending on where you are in storm cycles, economic cycles, et cetera, certainly different customers have different priorities, but we work day and night to deliver excellent results on all those dimensions.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [7]

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Got it. Great. And then on the ASP side, you've had obviously terrific results. I was hoping maybe you could break it down a little bit. Is it both in terms of the insurance ASPs and noninsurance growing? Or is it just a mix towards noninsurance? And if it's both are growing, within insurance, is it like-for-like growth? Meaning if you have like a 10-year-old car with 150,000 miles this year, are you getting a higher ASP than you did a year ago? Just any color on the ASP growth would be great.

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Jeffrey Liaw, Copart, Inc. - President & CFO [8]

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To answer your question technically is difficult because there is no -- it is not like-for-like, meaning a 10-year-old car today is not the same as a 10-year-old car a year ago, and that's one of the drivers thought has changed. But yes, this is -- what we are describing is not just mix shift from insurance to noninsurance, it is also like-for-like increases in the selling prices which -- of insurance vehicles. So I think the answer to your question is yes, they're both increases in the 10-year-old car as well as an increasing mix of newer cars within the insurance world as well.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [9]

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Got it. Great. And then last one quickly. I think last quarter we talked about Germany and building out the distribution kind of network within the country before flipping insurance companies. Can you talk about your latest thoughts and hurdles to getting that market to a Copart style?

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Jeffrey Liaw, Copart, Inc. - President & CFO [10]

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Certainly. I think we have continued to invest in Germany. We've experienced strong growth in both our traditional listing service business as well as the Copart style -- Copart model auctions that we're running in Germany. We continue to invest in land member recruitment, seller -- sales efforts and so forth. So the progress continues there. We continue to believe the economic proposition is compelling.

(technical difficulty)

quarters ago, Bob, where we got into [detail]. I think the story still very much holds from there.

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Operator [11]

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We'll take our next question from Craig Kennison of Baird.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [12]

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Congratulations on all those fronts. Wanted to ask about Hurricane Dorian and in general, your hurricane preparation this season. What have you done to prepare for Dorian? And as that moves up the coast and maybe doesn't track towards Florida but threatens other states, how has your response evolved?

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A. Jayson Adair, Copart, Inc. - CEO & Director [13]

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Well, thanks, Craig. Copart started on getting experience, I would say, in super storms back in 2005. Sure, we dealt with storms prior to that, but 2005 was really the eye-opener. Following that would be Sandy and Harvey. And today, we've got an amazing team that is just dedicated to CAT. We've got land dedicated to CAT, and we've got equipment dedicated to CAT. So I can get into all the details when we just say this, we're prepared and we're ready across the eastern seaboard. So whether the hurricane was going to impact Miami or whether it's going to impact New York, we've got the people, the equipment and land in place and ready to go to serve our customers. So we're good.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [14]

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Good. I'm assuming you have no exposure to the Bahamas?

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A. Jayson Adair, Copart, Inc. - CEO & Director [15]

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No, none.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [16]

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Okay. And then, Jay, maybe in the spirit of long-term thinking, based on your comments, could you just talk about the sharing economy and what that means for Copart? You've got potentially a major shift in car ownership from individuals to fleets? How do you think that plays out for Copart? And was that a big trend? Or are you looking towards other big trends as you look at the next quarter, century?

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A. Jayson Adair, Copart, Inc. - CEO & Director [17]

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Well, if we go back maybe 5 years-ish, on these earnings calls, I remember making a comment that I didn't believe autonomous driving was going to be at the level that everybody was predicting back in those days. And in fact, we actually -- as I said on the opening call, we doubled down on our belief and started acquiring quite a bit of Copart stock because I think it was just a general belief at that time that volumes would shrink over time, not increase. The -- I could get into all of the sharing economy and I could sum it up with a bunch of examples and analogies, but there is nothing practical about buying a Mercedes-Benz or a BMW or any luxury car. It's a personal choice. There's nothing practical about living in a large home. And most of America today, while could live in a much smaller home, chooses a larger home because it's convenient, it's nice. Cars are the same way. I think they're personal, and while there will be some sharing involved just like there's some Uber involved, I think for the most part, when it's convenient, it's not always convenient in New York City to own a car, but while it's convenient in most of America to own a car, I think you'll see that. I'm of the belief, putting that aside, that we're going to see increased volume just as an industry. Regardless of market share wins that Copart has had, you're going to see increased volume because the market's just going to continue to grow because the trend that's most important is technology being put into cars. That's not going to stop. People love technology, and they love additional technology going in the cars and that will cause cars to be tougher to repair 10 years from now, and those vehicles will be more likely to be written off as a total loss than repaired. So I think the trend of volume is going to continue to increase.

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Jeffrey Liaw, Copart, Inc. - President & CFO [18]

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Craig, I was just going to jump in, add a little further. And as you might imagine, we spent a lot of energy tracking technologies, changes in behavior, ridesharing and the like because we do make long-term, multiple-decade investments in land and technology, et cetera, to support our business. So we very much need to understand it. And at the risk of being pedantic, I think I'd drag this back to the basic algebra of what drives unit volume for Copart and that is vehicle miles traveled, accident frequency and then total loss frequency and then I ask myself what does ridesharing mean for each of them. Ridesharing, I think, for miles traveled almost certainly would drive up the number of miles on the roads today. I've seen consulting study that indicates that every mile of self-driving is replaced by 2.8 miles of ridesharing miles instead. That may be bullish, but the point is that almost certainly, we have reduced the friction for driving. It's easier now to drive after a couple of drinks, easier for younger or older people to get a car as well. Vehicle miles will rise.

Accident frequency. I think all else equal, I think it's likely neutral. I don't think that Uber and Lyft drivers are systematically superior drivers than the rest of us. You may be more bullish on that front than I am.

And then lastly, total loss frequency. Ridesharing, I think, has no effect here. Total loss frequency has been the one-way tailwind for the past 50 years in the business. In 1980, total loss frequency was 4% or thereabouts. Today, it's more than 5x that. So to me, that is -- those are the individual drivers. So vehicle miles traveled and total loss frequency almost certainly will continue to move in our favor. Accident frequency, you'll form your own point of view as to how much of the growth in the other 2 is offset by accident frequency. But in the aggregate, I don't think ridesharing changes the calculus for our business.

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Operator [19]

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We'll take our next question from Bret Jordan of Jefferies.

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Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [20]

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Congratulations, Jeff. The question on scrap rate. Do you feel that maybe -- is there an upper bound on the percentage of crash is that total and what point the insurance companies no longer see the benefit of totaling even if the repair cost is higher? I think we're at the high teens now. And is there a number you see that getting to in the next 3 to 5 years?

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Jeffrey Liaw, Copart, Inc. - President & CFO [21]

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Bret, in short, no. I think you've mixed a few things in there that I will try to piece apart. One, you made the comment about scrap rates, which are clearly lower and more than 20% down year-over-year. We used to have that in our script every quarter. We literally didn't even include it this year because I think it's increasingly irrelevant for our business. Our cars, as you know, some are sold for parts, many are sold to be rebuilt and repaired, many go overseas for both purposes. And therefore, the actual metal content in the car is less and less relevant for our fundamental business.

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Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [22]

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Yes, Jeff, but secondly, I should have said total rates as opposed to scrap, but that option to total the car as opposed to repair.

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Jeffrey Liaw, Copart, Inc. - President & CFO [23]

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I think in a vacuum that question may be reasonable, which is to say what if -- in other words, if I were to say to you hypothetically, what if total crash cars, total lost cars were to multiply by 5-fold, will you go to the point where it doesn't make economic sense to total anymore? All else equal, I think the answer might have been yes. But if I told you total loss vehicles can grow by 5-fold, while selling prices for those total cars keep rising and substantially so, then I think the problem is solved, right? If there were a finite demand, a fixed demand for that supply of vehicles, I think the answer is yes. I think we have proven, especially over the past 3 years, that, that demand is very much not finite that, that global buyer base for Wreck to U.S., and U.K. and Canadian cars, et cetera, is robust and growing.

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Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [24]

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Okay. Great. And then a follow-up on the land purchase, you commented in the prepared remarks and then you also commented in Germany. Could you talk about what your acreage add in '19 was and maybe what you see acreage expectations for '20 or maybe on sort of an average go-forward basis?

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Jeffrey Liaw, Copart, Inc. - President & CFO [25]

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We generally don't provide that, Bret. And for a multitude of reasons including that the gross number of acres is actually not all that informative, but because the land is not fungible, so what you have in Florida is not relevant to what you have in Texas, in California and so forth. So we don't provide that level of details. I think it's almost misleading in its precision, but I think the punchline is we invested very meaningfully in land in fiscal 2019. We don't see that trend abating anytime soon.

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Operator [26]

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We'll take our next question from Daniel Imbro of Stephens.

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Daniel Robert Imbro, Stephens Inc., Research Division - Research Analyst [27]

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I add my congratulations to the list. Wanted to start on the noninsurance business. I know we've talked about this in recent quarters, but your language seems to be getting more positive. And Jeff, I think you mentioned it was up to 24% of volume. Can you talk about or update us on your strategic approach to the business? I mean do you foresee that becoming a much larger portion of your volume going forward? And on the margin, where are you winning these units from? Where are they going today that you're taking the units?

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Jeffrey Liaw, Copart, Inc. - President & CFO [28]

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Thanks for your question, Dan. In short, I think I get that question a fair bit when I'm on the road as to whether it will grow as a mix of our overall business. And I think what I'd tell you fundamentally, that's not really how we think about running the business. We want to grow our insurance business and we want to grow our noninsurance dealer business, equipment dealers, wholesalers, the entire universe of customers we want to grow. So whether, one

(technical difficulty)

or even a given year or 5-year period is "outgrowing the other" is less relevant to us than the fact that we want to continue to pursue and grow our business there. I think you heard me briefly allude to the economic proposition or the value proposition we offer these sellers. In the noninsurance universe, I think again, first and foremost, is a massive liquid digital auction platform that will yield full and fair values to them. That hard stuff is the most important thing by far. Beyond that, of course, is the service and the sales force and the marketing efforts that we have underway to pursue and win those customers. I think we win that business from a multitude of different places. From the dealer world, some of those folks may well floor and sell the cars directly themselves and instead opt for

(technical difficulty)

look to the large whole car auctions. Others look to newer, modern digital apps, C2C, B2C, B2B and otherwise, through which they dispose the vehicles. So there is no doubt it's a competitive universe. I think our growth in the past few years is a reflection of our success in our -- both our marketing efforts but ultimately, the auction platform itself and the prices it yields.

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Daniel Robert Imbro, Stephens Inc., Research Division - Research Analyst [29]

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That's really helpful. And then touching on something you mentioned, I think, during your remarks. I think you said inventory was up over 18% to end the quarter. That's much higher than last quarter and kind of last few. I know that can move quarter-to-quarter due to timing, but did we see anything accelerate during the quarter that led to such a strong inventory build? Or was it just the timing issue or a comparison issue that led to that big number?

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Jeffrey Liaw, Copart, Inc. - President & CFO [30]

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I think the inventory growth, as you know from having followed us for a while, is the best but also still imperfect indicator of unit volume for the next quarter or 2 or 3. It's certainly been an indication of strong growth in the business, and that's how I would interpret it. I would, again, reiterate that in looking at any of these measures, we look at multiple quarters at a time, not an individual data point. That's literally 1 day, July 31, 2019, versus July 1 -- 31, 2018. But nonetheless, that growth rate is not accidental, it is a reflection of both growing market volumes, account wins and growth in our business.

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Daniel Robert Imbro, Stephens Inc., Research Division - Research Analyst [31]

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Perfect. And then last one from me. Just touching on international growth, I think you guys mentioned it was about 6% on the unit side. Again, I know it can be noisy quarter-to-quarter, but it is a step-down from, call it, 4 quarters in a row of double-digit growth. Is there anything that changed there? Any of your markets -- or any -- did any specific market weaken or soften through the quarter?

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Jeffrey Liaw, Copart, Inc. - President & CFO [32]

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There's no particular sustained change that's reflected in that number. So I'll be internally consistent and tell you in both directions that a single quarter indicator is not the best and most reliable indicator for the business.

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Operator [33]

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We'll take our next question from Ryan Brinkman of JPMorgan.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [34]

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Just curious if you've thought about entering the portion of the dealer-to-dealer whole car market that is not physical but entirely software related. So for example, similar to car auction services, TradeRev business or ACV auctions. But I think whole car has not been a strong focus for you. I know your technology platform is highly regarded in the industry. And just wondering if maybe there is a way to leverage that in an asset-light way. And then perhaps, more generally following on the earlier question, if you could elaborate on which parts of the noninsurance market do you consider to be in your addressable market?

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Jeffrey Liaw, Copart, Inc. - President & CFO [35]

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Got it. First on the all-digital question, I think for us, we're always exploring ways to better serve our sellers and buyers, and that's certainly one of the paths that we consider evaluating on an ongoing basis. I think I would note, there are folks who are investing very heavily, quite literally losing money and spending cash in -- on those pathways, while we continue to generate very positive returns on our auction platform. So the overall value proposition for Copart against the backdrop of, in some cases venture-backed businesses and so forth, continues to grow very well, meaningfully faster than the used car market overall. So I think it's a reflection, at least in part, that the Copart auction platform is succeeding in that world as is. To your second question about the addressable universe, I don't know that we'd exclude anyone. I think there are folks who are more targeted risked than others, but these are leasing companies, fleets, dealers, independent franchise. So I think anyone with a vehicle to sell we consider a fair game for Copart.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [36]

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Okay. Great. That's very helpful. And then just my last question, I was curious if you thought that there might be any change to the competitive environment now that your primary competitor in the U.S., IAA, is a stand-alone business. There's been some speculation that they might wish to more closely emulate Copart strategy, I don't know, with regard to investment in different areas, including internationally. Just curious if you have any thoughts on that.

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Jeffrey Liaw, Copart, Inc. - President & CFO [37]

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I think almost certainly a better question for them.

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Operator [38]

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We'll take our next question from Chris Bottiglieri of Wolfe Research.

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Christopher James Bottiglieri, Wolfe Research, LLC - Research Analyst [39]

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Jay, I don't think I've ever heard a more impassioned earnings call. Is this mostly from hitting the milestones and some of the significant promotions that were announced last night? Or is there something in the business that suddenly inflected that has you like very impassioned? Because frankly, looking at the fundamentals, this is the best insurance unit volume we've seen in quite some time in accident rate in terms of inventory growth. So just curious like what's behind this enthusiasm.

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A. Jayson Adair, Copart, Inc. - CEO & Director [40]

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We're doing very well right now. There is no question about that, but I felt I should at least tell some of the story of the last 25 years, and I promised not to get verklempt as the woman on My Coffee Talk does. But when I look back in my head and think about going to New York for the first time, seeing the process and how you take a company public and watching Willis give his spiel to the investment community 10 times a day for 2 weeks. And then to hear that Copart being yelled and screamed and sworn across the floor, I thought it was just a story that had to be told. Yes, it's something we talk about sometimes internally, but I think the investment community may not really appreciate the humble beginnings of this company and what this company has achieved and the people that make up this company and how incredible they are. So it's just -- yes, we are doing well right now. But it's just that I try not to get emotional sometimes, but it happens. And in that case, it happened. I guess maybe reflecting back in my mind Willis having a conversation with Willie Weinstein and us getting ready to open up on the floor, the next thing you know, they're spinning Copart and there is a bottle of champagne and everybody's taking a sip at 10:00 in the morning or 9:00 in the morning or whenever the hell The Street opens up. That just -- that was just such a great memory, and it's a once in a lifetime I think. And Copart, over the years, was viewed as, "Aw, jeez, you guys have tripled the stock now. Aw, jeez, you guys have 6x the stock now." And I don't know what the stock's trading at today, but at $0.50 a share, it's $80. We've 160x the stock. And the future, for me, has never been brighter. I've never seen the market share gains that we've -- that we are seeing right now. And in the history of the company, I've never seen the kind of volume that's coming in from a market share win, and I've never seen the kind of organic growth because of the technology in cars, and I've never seen us operate at such a high level in terms of delivering on the service. So that's it in a nutshell.

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Christopher James Bottiglieri, Wolfe Research, LLC - Research Analyst [41]

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No, that's awesome. That's really helpful. And then I wanted to ask maybe a bigger-picture, long-term question. Do you think like some of this accident avoidance technology fears overblown for your industry specifically at least near term anyway? I wonder if like the accident frequency is more prone to low-speed accidents, so what's actually left that is an accident is more likely to be totaled. Have you looked at that at all in terms of figuring out like that impact it has had?

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A. Jayson Adair, Copart, Inc. - CEO & Director [42]

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Well, we're now -- let me make this 2 parts, let me turn over to Jeff after I make this comment because he'll give you, I think, a more precise response or answer to it. Will Franklin coined the term risk homeostasis. And I think it makes a lot of sense. And that is that if you've got auto breaking or you've got adaptive cruise or you've got lane assist and the -- or the car literally drives itself down the road, keeping in the lane, you just got to keep your hands on the wheel. I think those are technologies that allow you to take more risk, hence the term risk homeostasis. I think it causes people to be distracted more and in some ways, makes the car no more safe. I would -- as a recipient of damaged cars, I would like to see people drive safely. And that, at the end of the day, is most important. But when you have technology on cars that allow you to be less engaged, people don't multitask well. You're either good at driving the car, or you're good at not driving the car being a passenger. But to drive the car and not fully focused on the car in front of you, the car that's in the lane next to you because you've got technology that assists you, I don't think it's the best idea. Me personally, I'd shut all that stuff off in my cars. I go in, hit all the buttons. I don't have any of that stuff working when I drive. I don't want the car trying to keep me in my lane. I don't want any of that. On the flip side, when the car does get in a wreck, all that technology has to be replaced, it raises the cost to repair, increases total losses. So that's my take. I'll turn it to Jeff.

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Jeffrey Liaw, Copart, Inc. - President & CFO [43]

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Chris, what I was going to add is that I think it can be -- I think what you're alluding to is not simply the one-metric measure of accident frequency but also potentially reduce the severity as well. And I think the answer to that is yes, you could see less physical severity in an accident, so to speak. But I think, by the way, if you went back and looked -- say, go back 10-year increments and take a picture of a borderline salvaged car, a total loss car, that car has changed a lot in the last 50 years. 50 years ago, the car was obliterated. It was hammered, barely recognizable, the vehicle. Today, a car that is mildly hit from the rear or the front can easily be totaled by virtue of the technology you just described. Accident detection and avoidance systems are effectively high-value, no generic available sensors on the perimeter of a car. There is a lane departure sensors in the mirrors, the cameras and LIDAR in the front and rear bumpers, those are technologies that are expensive to repair literally for the parts themselves as well as the skill required to install and calibrate them. So while the physical severity may be decrease, I think the economic severity is unlikely to. The cost of repair, we don't think is going down anytime soon. And I think there's decades worth of evidence to suggest that's true.

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Operator [44]

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(Operator Instructions) We'll take our next question from Derek Glynn of Consumer Edge Research.

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Derek J. Glynn, Consumer Edge Research, LLC - Analyst [45]

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Just wanted to follow up on ASPs, up 8% in the U.S., still a strong number, but also decelerating from prior quarters. Are there any cause or factors in particular that are causing that rate of change to be a little bit lower than prior periods?

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Jeffrey Liaw, Copart, Inc. - President & CFO [46]

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No. Not particularly. I think that ASP number is meaningfully -- is still growing meaningfully more than the used car market in general, meaningfully more than the ACV or the pre-accident value, so to speak, of the cars that are being consigned through us. So I don't think it's a reflection of any particular change.

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Derek J. Glynn, Consumer Edge Research, LLC - Analyst [47]

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Okay. Understood. And then Jay, you talked a lot about the marketing efforts of the company historically. Just curious how you see that marketing program and message unfolding or evolving in the future, particularly as you expand further into international markets.

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A. Jayson Adair, Copart, Inc. - CEO & Director [48]

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Well, let me start with this. For 16 years, we've had data that nobody else in the industry has because every single bid goes through the Internet. We've got every single high bid, every single second high bid, what we call a push bid, every single bid on that vehicle. So we can see what customers are looking for. It's analogous to Amazon. If you are looking at an iPhone or iPad or iPod or something of that nature on the site, and you don't buy it, they know you were looking, they know you are interested, they know that you may actually want Quartz or some other features. So we have the same ability. Because they look at every single vehicle and bid online, it allows us to tailor the technology towards pushing vehicles to them. In the old days, we used to say, a buyer comes to the yard, looks at the car and has to find it. We put it online, the buyers can go online and find it. But we've taken down the travel friction, but we haven't taken down the friction of finding. And now we find it for you. So if you're online, we're going to very quickly be able to tailor the types of vehicles that you're looking for and what you want. So that's one massive component. The other component I talked about already is the social media piece. We've really been able to create a buzz around the amazing product and the technology that Copart has. And so that, when you think about, you put both of those together, it allows you to create an enormous demand for the cars. Like, well -- like Jeff said, we're not thinking about scrap prices today. That vehicles are much different, and the demand on the vehicles is much different than it was 10 years ago. So it's really changed from that standpoint.

Now when you think internationally, these trends are happening in Germany, in the U.K. and other big markets that we're active in. And so we're leveraging knowledge across multiple markets, which is a wonderful thing and different maybe than Walmart is in the U.S., and Walmart has ASDA in the U.K. I don't know if someone who buys at ASDA in the U.K. is going to buy something in the U.S. With Copart, there is a cross-pollination of buyer base, where buyers that are looking at a product in the U.K. may go online and find that Harley they were looking for in the U.S. and then bid on it. So there's a fair amount of that, that exists across the -- I give that example, but there's a fair amount of that, that exists across Polish buyers buying in the U.K., become aware of Copart, start to bid in U.S., that kind of thing. So it's -- that's why you see so much focus from Jeff on talking about international bidding and the rest because it's a very different game than it was 10 years ago when scrap prices mattered.

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Operator [49]

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At this time, there are no further questions in the queue. I would like to turn the floor back over to Mr. Jay Adair for closing remarks.

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A. Jayson Adair, Copart, Inc. - CEO & Director [50]

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Okay. Thank you, Jonathan. Appreciate everybody coming to the call. We look forward to reporting on Q1, and we'll talk to you then. Thanks so much. Bye-bye.

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Operator [51]

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Ladies and gentlemen, thank you for your participation. This concludes today's conference. Have a great rest of your day.