Copart, Inc. (CPRT) Q3 2019 Earnings Call Transcript

Copart, Inc. (NASDAQ: CPRT)Q3 2019 Earnings CallMay 23, 2019, 9:00 a.m. ET

Contents:

Continue Reading Below

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day everyone and welcome to the Copart Incorporated, Third 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 Incorporated. Please go ahead, sir.

Jayson Adair -- Chief Executive Officer

Thanks so much. Good morning everyone and welcome to the third quarter conference call for Copart. In the room today is Will Franklin, Executive Vice President and Jeff Liaw, Chief Financial Officer. We are calling from a hotel, so hopefully you can hear us OK, I know it's a little echoey.

We just finished a great week at our annual Advisory Board. This is a chance for us to invite our Canadian customers, our US customers and exchange ideas and information about the industry and items that Copart is working on, technology and process that we're working on. So it's been a great week, and I think we can share some of that with you this morning, some of the facts that we've got are quite fractions, we just completed the conference.

So with that, let me turn it over to Jeff Liaw.

Jeffrey Liaw -- Chief Financial Officer

Thanks Jay, I'll start as always with a brief 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 the impact of income taxes on the deemed repatriation of foreign earnings, discrete income tax items disposals of non-operating assets, 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. I'll provide brief remarks on our financial performance in the third quarter, before turning it over to Will Franklin for additional context.

We achieved another record quarter in both in revenue, gross profit and operating income starting with the top line. We experienced global revenue growth of 15.7% despite an unfavorable year-over-year currency effect on revenue of $7.9 million primarily due to the relative strength of the dollar versus the pound and the Brazilian real.

Global service revenue grew at 15.3% or $62.9 million year-over-year. Purchased cars grew at a rate of 17.8% driven principally by our increasing activity levels in Germany, but also by underlying growth in our large markets like the US and the UK.

Unit sales for the Company grew at 4.5% year-over-year with US units increasing 2.8% and international units rising 13.8% versus the third quarter of 2018. Our US unit growth was driven again by both insurance and non-insurance segments. Will, will describe further the underlying drivers of growth in particular in the non-insurance space. Our global inventory grew 12.2% year-over-year in comparison to the end of the third quarter of fiscal 2018.

Moving down the P&L, on gross profits, we grew 14.8% from $219 million to $251.6 million. We experienced a slight gross margin rate change from 45.8% to 45.5% or a decrease of approximately 30 basis points. This is again driven in part by a slight mix shift to purchased car volume for the reasons described a moment ago.

As we talked about on prior calls as well, we also experienced lower purchased vehicle sales margins on a rate basis, because as the average purchase price in sales price for our purchase vehicles rise, we expect a contraction in percentage margin. Some of the drivers of our mix shift to purchase vehicles, Germany, in particular are higher value on average, and therefore can cause lower percentage margins.

Overall, then turning to average selling prices, so this is literally what vehicles at Copart auction sell for, we experienced a year-over-year increase of 10.1%. Will, will also provide more context on the cars, the nature of the cars themselves as well as our efforts to continue to expand Copart's member base.

Again, moving down the P&L, our general and administrative expenditures, ex-stock comp and depreciation was down slightly from $34.2 million a year ago to $34.1 million, and up approximately $1 million sequentially versus the second quarter. As we say, in quarters in which G&A rises or declines, generally speaking G&A expenditures will rise over time for Copart as we experienced inflation, but we continue to believe that we can achieve operating leverage, given the top line growth that we have experienced.

Our GAAP operating income grew from $174.6 million to $207.5 million or a growth of 18.8% overcoming the currency effect of $1.4 million decline in and of itself year-over-year relative to the third quarter. Our net interest expense was up slightly from $4 million to $5 million given the slightly higher average net debt balance as drew on our revolver late in the second quarter in connection with our Q2 stock repurchases.

We repaid the vast majority of our revolver balance during the third quarter nonetheless and ended the quarter with a $70 (ph) million drawn revolver balance.

Turning to taxes momentarily, our third quarter income tax rate, GAAP income tax rate of 5.6% is in part a reflection of the lower US federal tax rate that we've discussed on prior calls of 21% for fiscal '19 and beyond. You may recall that fiscal '18 was the straddle period in which we had months that were both pre and post the tax reform -- tax reform bill implemented in -- at the end of calendar 2017.

The third quarter income tax rate benefited as well from certain stock option exercises as well as discrete income tax items, related to benefits recognized as a result of amending previously filed income tax returns.

The one-time benefits from those stock option exercises and discrete income tax items, you will see reflected in our non-GAAP earnings reconciliation. Our GAAP net income then increased from $127.4 million to $192.7 million or a 51% increase year-over-year.

On a non-GAAP net income, we grew from $125.0 million to $154.9 million, growth of 23.9%. As I mentioned a moment ago, this -- these adjustments include excess tax deductions for stock option exercises and related payroll taxes, discrete tax items of $10.2 million that are excluded from our non-GAAP net income.

These were again generated by amendments to previously filed income tax returns, we believe that excluding these benefits from our non-GAAP earnings is an appropriate reflection of the underlying performance of the business in the current period as well as our run rate tax burden.

The last note, I'll mention on our international businesses, for further background in particular on Germany, we encourage you to review the transcript of our first and second quarter earnings calls, where we describe in much greater detail the nature of the market and our approach to it.

We have continued our substantial progress in Germany and are investing in our future growth there as well. We've experienced more than ten-fold increase in volume in Germany year-over-year in the third quarter of '19 in comparison to the third quarter of 2018.

We have continued our practice of acquiring vehicles through our listing service and selling them at our Copart Germany auctions. Our experience continues to support our thesis generally that today's listing service model is shortchanging German insurance carriers and policyholders for that matter, and that ultimately a model similar to Copart we know in other developed economies will prevail in Germany as well.

We're pleased with our progress on multiple fronts, including the development of technology, our logistics processes, land and the recruitment of high quality talent to support our operations there. Leveraging the power of Copart internationally, our German auctions have seen very strong participation, particularly with buyers outside of Germany.

Excluding Germany, our international or non-US businesses continue to perform well, despite currency translation headwinds. Those headwinds of course are most pronounced in our British and Brazilian businesses.

Will Franklin will provide additional color on the underlying performance here. Collectively, excluding Germany, our international businesses have experienced year-over-year unit growth, revenue growth, profit growth and the like.

Then to the balance sheet before I turn it to Will. Cash flow for the quarter, we generated operating cash flow of $238.3 million with CapEx of $122.6 million. Well over 90% of this CapEx was attributable to capacity expansion and lease buyouts, a continuation of a theme that you've heard for several years.

We also repaid $86 million of our revolving debt facility during the third quarter. We consumed $33.5 million of cash related to stock option exercises. Think of those as de facto buybacks in connection with taxes owed on the exercise of stock options.

With that, I will turn it over to our EVP, Will Franklin.

William E. Franklin -- Executive Vice President

Thank you, Jeff. Let me provide in some more insights into our third quarter performance. Our worldwide sales volume grew by 4.5% and our worldwide inventory grew by 12.2%. Hurricane volume activity was immaterial for both this quarter and the same quarter last year.

In the US, our sales volume grew by 2.8% and our inventory increased by 14.5%. Our volume growth continues to be driven by organic growth within the insurance market, market wins within the insurance market, and our continued expansion into the non-insurance segments.

Organic growth in the salvage market is driven we believe, by an increase in total loss frequency. Published statistics suggest a total loss frequency of 19.9% for the first quarter calendar '19, an increase of 2.6% over the same quarter last year.

This metric measures the percentage of estimates written that result in total losses. What is not reflected in this metric is the increase in the instances (ph) in which insurance companies salvage cars without ever riding the repair estimate.

Our conversations with insurance company executives as well as the current trends and assignments lead us to believe that the growth in total loss frequency is higher than that published. Repair costs, particularly for new cars are trending now at a rate exceeding that inflation. An increase in the number and the average cost of replacement parts, the growth in pre and post repair scans and the supplemental damages they identify.

The lack of trained and capitalized repair capacity and the consolidation of the repair market by the three major MSOs are all leading to a rise in repair cost.

We believe the industry is simply trending, to less comparable cars. While repair costs are increasing, so too are the returns that we're generating for our sellers. The combination of our marketing (ph) efforts and the efficiency of our auction platform BB3, continues to generate returns to our sellers, far exceeding overall industry returns, as represented by the Manheim Used Car Index.

Compared to the same quarter of last year, our ASPs are up over 10%, while the Manheim Used Car Index is up 3.9%, As worldwide demand for rebuild of the cars continues to outpace the available supply. Our marketing focus on internal -- or excuse me, on international buyers has led to a significant growth in bidding activity from those buyers.

Our full US website is translated into seven languages with certain elements of the website translated into languages native to 135 countries. And from the US we sell into 147 countries.

In terms of volume, nearly 40% of all the units sold to our US auction sellers are now international buyers, increases both year-over-year and sequentially. Because international buyers generally purchase rebuildable, and therefore, higher value vehicles, they represent a still higher share of the value of the cars sold at our US auctions.

Approaching 50%, again an increase both year-over-year and sequentially. Approximately, three out of four of all vehicles sold on our US website receive a bid from an international buyer.

We continue to grow our buyer base, while we saw a 22% increase in unique international bidders on a year-over-year basis, we also saw a 14% increase in unique domestic bidders, which we believe is remarkable growth rate for what some might consider a large and already mature buyer base.

The growth in ASPs has been primarily -- a primary driver in the increase in revenue per car in the US. In addition, we continue to provide more services to our insurance customers. There are certain tasks between the first notice of loss and auctioning of the salvage car that we can contribute to, or perform more efficiently, because of our broad industry knowledge, our scale and our technology.

The non-insurance markets continue to be a focus of our growth strategy in the US. It represented 23% of our overall US volume this quarter compared to 21%, the same quarter last year and 17% same quarter two years ago. These markets include franchise and independent dealers, finance and leasing companies, fleets, charities, heavy equipment, wholesalers. Excluding the charity market in the U.S., our non-insurance volume grew by 18%, and 93% over the same quarter last year and the same quarter two years ago respectively.

The growth in volume was spread broadly across multiple seller segments. Volume from dealers was up 14%, wholesalers 39%, rental car companies 79%, and fleets and industrial equipment, 7%.

We attribute this growth to our increased marketing, sales and operational focus and the growth in returns generated for these segments.

Turning to our international operation, the performance of the UK and Canada remained relatively consistent with the same quarter last year in terms of volume, revenue and EBIT, after adjusting for currency fluctuations.

In Brazil however, we continue to see meaningful growth as the value we offer in terms of technology, process and land has allowed us to expand our market share in that country. In Brazil, our volume and local currency revenue and EBIT grew by 43%, 55% and 61% respectively. This is remarkable growth considering the declining number of auto insurance policies written due to the economic conditions in that country.

Additionally, in Brazil, like in the US, we are growing our non-insurance business, which represented 9.8% of the total volumes sold compared to 3.6% in the same quarter last year. Jeff has already provided commentary on Germany. Our other operations outside of the Americas, the UK and Germany for the quarter remained immaterial in both revenue and EBIT.

In the US and globally, we are seeing rising labor health insurance and cellphone costs, all of which have led to an increase in our average cost to process each car.

Year-over-year, our US inventory was up 14.5%, which is significantly higher than the growth in sales volume of 2.8%. We attribute the difference to an unusually mild weather that affected assignments at the beginning of the quarter.

However, assignments after the first month of the quarter have been and continue to be robust. The year-over-year growth in our US inventory over the last 16 quarters has averaged over 12%, and we expect this trend to continue. To accommodate this growth and to provide stand-alone capacity along the Gulf of Mexico and the East Coast, we continue our land expansion activities.

Since the last earnings call, we have announced the opening of four new facilities, three new Copart facilities in Fredericksburg, Virginia, Rainbow, Kentucky and West Mifflin, Pennsylvania, and one new NPA facility at Sacramento, California.

In addition, we are expanding existing facilities in Atlanta, Chicago, Austin and Newburgh, New York. In total, these three new Copart yards and four new yard expansions, have added over 150 acres of storage capacity. So far this year, we have announced 22 new facilities, 12 in the US, one each in Brazil and Canada and eight in Germany, as well as ten yard expansions in the US.

Currently, in the US and Canada, we have over 21 new yard in yard-expansion projects in the construction phase and 33 projects in the engineering phase. These projects alone represents thousands of acres of capacity and will consume hundreds of millions of dollars in capital.

That concludes my comments, we'll now proceed to the Q&A session of this call.

Operator -- Executive Vice President

Thank you.

Jeffrey Liaw -- Chief Financial Officer

Operator, you could open it up for questions, please.

Questions and Answers:

Operator

At this time, we will open the floor for questions. (Operator Instructions). Our first question comes from Bob Labick with CJS Securities.

Robert Labick -- CJS Securities -- Analyst

Good morning and congratulations on a nice quarter.

Jayson Adair -- Chief Executive Officer

Thanks a lot, Bob.

William E. Franklin -- Executive Vice President

Thank you.

Robert Labick -- CJS Securities -- Analyst

So thanks for some of the color. I want to follow up on Will's comments on the international buyer base first. You may or may not have this with you, but I was just wondering if you could give us a sense of where that was sort of the percentage of sales of that base three or five years ago would be one part of the question.

And then the second part, which is probably more important anyway is, talk about some of the drivers that have changed in the US just in salvage, the salvage market that have led to more international buyers getting into this market.

Jeffrey Liaw -- Chief Financial Officer

Got it. Much appreciate your question, Bob and this is actually a topic we addressed and discussed at some length with our customers this week. As for the underlying drivers of that shift over time, I think there are two major ones worth mentioning.

The first is that, of course we are observing a higher economic growth in a lot of countries outside the huge developed economies, like the US and the UK, and therefore there is just more natural demand for vehicles including rebuildable cars that come from Copart auctions.

The second is the nature of total loss frequency, I think you've been following the industry for a long time Bob, so you know that even what was a 50% damaged car 20 years ago, looks very different from one today, because the cars today are much more easily rebuilt, some of the damage maybe technological modules that could be fixed more simply in places outside the US.

So that's been the 30, 40 year trend really starting with airbags, many years ago, but more recently with the arrival of newer technologies in the cars as well.

So a combination of growing economic activity and therefore demand for cars in these countries with higher economic growth, but much lower vehicle penetration, number one. And number two the changing nature of the cars as well. As I told more easily, the cars have value, not just as dismantled parts, that's probably one fundamental misunderstanding of this business is to assume that the cars really go only to dismantles.

Over time, they are increasingly going to rebuilders, many of them international in nature.

William E. Franklin -- Executive Vice President

Let me add one more element to that growth and that is that, the cars rebuilt in foreign markets are generally not held to the same standards as the cars that are rebuilt in domestic markets.

For example, a car in the Eastern Europe may or may not have their air bags replaced at all. So that gives them an advantage in terms of lowering the cost of converting that car to a drivable vehicle.

Robert Labick -- CJS Securities -- Analyst

Okay, great, that's super color. Thank you. And then just kind of sticking with the trend of technology going into cars, you know, the centers, et cetera, and what you've talked about over several calls that younger and less damaged cars are being totaled.

Just wondering, if you could give us a sense of where you believe we are in that process. And this is, are we in a early innings, middle, late where do you think the trend to more younger and less damaged cars being totaled stands?

Jeffrey Liaw -- Chief Financial Officer

I think as a general matter Bob, the nature of total loss frequency is big and slow moving in the sense that it reflects the installed base of cars in the growth. Right? So, our business principally serves those cars that are literally being driven or the insurance carriers, of course to insure that.

And therefore there aren't step function changes in any given month or quarter or year, we're talking about 250 million 300 million cars in the road registered vehicles in the United States, for example. So I don't think those are spiky sudden changes. I think it's a gradual change that has generally been a favorable one for decades now.

As for the precise age of the fleet and the precise age of vehicles that are involved in accidents and therefore totaled, I don't think we expect dramatic changes. But collectively, the changes will ultimately be favorable to total loss frequency.

Robert Labick -- CJS Securities -- Analyst

Got it. Great. And then one last quick one, if I could on just on Germany, I know you went on about it quickly the ten fold increase in volumes is tremendous, but could you just give us a sense of the feedback you're getting from the insurers right now as to what's holding them out from switching to the Copart model, if there is any specific things that still need to be worked on or addressed?

Or if they just need a year or two of data? Or what do you think is the kind of -- I guess last or hopefully near the end of impediments toward switching over to the Copart model?

William E. Franklin -- Executive Vice President

Sure. I mean, it's a great question. Right now, Bob, we're focused on -- for this fiscal year was getting the network build. So we've got the network of facilities in place. We've got the trucks now and carriers in place to tow vehicles.

And I would say the best way I can explain is we're pressure testing the team now. We're achieving the results that we have in the UK, that we have in the US, that we have in Brazil, where a vehicle can be assigned and picked up in sometimes hours, but within a day or two as opposed to a longer period of time.

So we're getting all of the operational performance in place and we do have a couple of accounts already, but we are not going out and hitting -- swinging big or swinging for the fences with some very large carriers until we've got everything working the way it should.

So it's a process of building the team, the network, pressure testing, and then this year, we will be going out and speaking with some carriers about switching over to the model. But, you know, we want to have everything working perfectly before we do that. You get really one shot at success.

Robert Labick -- CJS Securities -- Analyst

That's great. Okay. Thanks so much.

William E. Franklin -- Executive Vice President

Thanks, Bob.

Operator

Our next question comes from John Healy with Northcoast Research.

John Healy -- Northcoast Research -- Analyst

Continue to be really impressed with the on the non-insurance business that you guys are putting up. When I first started covering the Company, I used to think non-insurance business was all about charity, I mean, clearly, it's not anymore.

And I was just hoping you guys could talk a little bit about what's the value proposition or what's the message that you're sending and allowing you to win that share from dealers and then even more specifically the growth that you cited in the rental car industry is really interesting. Curious to know, how you are getting that business? And kind of how you're convincing some of these fairly decent sized consignors to work with you?

Jeffrey Liaw -- Chief Financial Officer

So thanks for your question, John. I think in short, it's not particularly about messages or marketing, it's just fundamentally about returns. And so we offer a buyer base, including large quantities of international, active buyers of rebuildable and driveable vehicles. And so it's really the net auction results that we can deliver to the non-insurance segment.

I think you're mentioning dealers in particular that has proven persuasive. So it's not particularly any silver tongued communications on our part. It's really just that we demonstrate week after week and month after month, that we can generate better returns for them on their vehicles. And to do so quickly with new logistics and the infrastructure to deliver those outcomes.

John Healy -- Northcoast Research -- Analyst

Well, (multiple speakers)

William E. Franklin -- Executive Vice President

Let me just add a couple of comments there. Our return is obviously a huge part of our ability to be successful in that market. I think the other thing that we don't ignore is the operational aspects and the ability to eliminate any friction to send us these cars. So everyone of these segments is significantly different, charity cars completely different than these heavy equipment, which is completely different than a car coming from a franchise or independent dealership.

So to the -- and each of them have their own operating systems. So to the extent that we can integrate our operations into their systems. To the extent that we need to change our process to accommodate their specific needs, it makes it more likely that there you -- that they will be testing us on their volume and the results of the test have been such that they continue to increase the volume that they sent to us.

John Healy -- Northcoast Research -- Analyst

Great. And then, just wanted to ask about the -- the real estate investment. I think last call you guys noted 45 or 46 projects, kind of under way. And you've got maybe 24 months to kind of tie that up. Any updated thoughts on the real estate investment, do you expect to do more than that or you're ahead of pace there? Just kind of how you're thinking about that investment?

William E. Franklin -- Executive Vice President

Yeah. There is no cars slowing down our expansion with -- we project out five years in terms of volume needs, and the reason we project out so far is because of the gestation period. Some of these new properties can be two and three years very easily, especially in these high -- these expensive markets. And so our activity I don't see decelerating at any point in next two or three years.

John Healy -- Northcoast Research -- Analyst

Great. And I guess I'm going to hook in on that five-year forecast that you just kind of mentioned there Will. When you are kind of our building out that five-year forecast for your needs in terms of real estate, obviously it's going to correlate to the volume and the capacity.

So when you look at those forecast, are the forecast meaningfully different than the volume numbers globally that you're seeing today? So and I know, you guys don't have long-term growth targets. But as you think about those needs and what you're buying forward -- does the year in, year out kind of movement look a lot like what you've put up in the last few quarters? Or do you guys think that the growth in the market accelerates or decelerates and you know, thus far in your business?

William E. Franklin -- Executive Vice President

So I'm not really motivated to share our exact projection numbers. I can tell you this, though. We have a couple of absolutes (ph) in our business. One is auctions have to run every day and our auctions do, our KTLO on our auction sites is 3 or 4, 5, times. The other absolute is land, we have to have land. So we really can't risk under projecting our land needs going forward. And so once again, we are very aggressive in our pursuit of the land capacity to accommodate the growth that we're anticipating.

John Healy -- Northcoast Research -- Analyst

Understood. Thank you, guys, and congrats.

William E. Franklin -- Executive Vice President

Thanks, John.

Operator

Our next question comes from Stephanie Benjamin with SunTrust.

Stephanie Benjamin -- SunTrust -- Analyst

Hi, good morning. My first question is just a clarification, and I apologize if I missed it, did you give the revenue per unit that you saw during the corner, I don't know both in the US or internationally or in total?

William E. Franklin -- Executive Vice President

No, we don't generally provide that metric. We did talk about a couple of the levers that are driving up that revenue per car, primarily on higher ASPs, and secondarily, the increased in services that we're providing to our sellers and our buyers.

Stephanie Benjamin -- SunTrust -- Analyst

Great. And then you talked about this kind of in your opening remarks in terms of the comments you had in the last week and some of the -- maybe the technology investments that you're looking at -- or potential investments, but maybe you could speak a little bit more about the technology side of your business and what can be done, it's being moved forward? Thanks.

William E. Franklin -- Executive Vice President

Sure. So the selling (ph) process that the insurance companies go through sounds very simple. But in reality is is fairly complex. I mean you have a lot of constituents in that whole process. You got the insurance company, you've got the policyholder, you're going to need an appraisal and a repair estimate both which can be provided by different people. You can have a lean payoff, you're dealing with a DMV.

And all these activities and transfer of information need to be coordinated and sequenced in the right order. And we work with virtually every insurance company in the United States, and so we're able to identify best practices and develop technology around those best practices and offer that technology and those best practices to all the insurance companies.

But in generally smaller insurance companies will take advantage of it, the large ones will too. So we're -- so to answer your question, we generating the technology that allows us to integrate the flow of information, flow of documents, the flow of the process around that total (ph) loss process.

Jeffrey Liaw -- Chief Financial Officer

Stephanie, the only -- the only thing I'd add there is when I think about technology for Copart, find a framework for it, I'd say, think of it in three pieces. The first is the importance of technology in helping our customers perform better and faster from their side, and that's the integration that we'll talk about providing data at the right time to better enable their own decision making processes.

Second aspect of technology for us is to help us perform better. So we have different applications, different technologies, for example, that help us manage our towing network better to dispatch trucks more efficiently. And then thirdly, of course technology enhances our own reliable -- reliability. You heard Will talk about investing for KCLO (ph), which is in our province to keep the lights on in auction reliability and so a good part of our technology investment as well is to prepare us for the growth that we are serving to make sure that we continue to serve our customers well.

Stephanie Benjamin -- SunTrust -- Analyst

That's really helpful. Thanks for all the color.

Jeffrey Liaw -- Chief Financial Officer

Thanks Steph.

Operator

Our next question comes from Craig Kennison from Baird.

Craig Kennison -- Baird -- Analyst

Yeah, good morning. Thanks for taking my questions. Wanted to start on the insurance side with RFPs, I know in the past five years or so you've landed a handful of very large national contracts with insurers, with that in mind has the trend stabilized, are there any upcoming renewals or RFPs with new prospects?

And then additionally, what's the dynamic in Germany and are there any big RFPs that would be a national contract there?

Jeffrey Liaw -- Chief Financial Officer

Got it, Craig thanks for the question. As to your first question, if we don't -- we're not like a subscription business that has a bunch of customers coming due or upon their contract expiration, at the same time. Our dialog with our customers is literally on a daily basis, so no, there is not a particularly lumpy either opportunity or risk for us to win or lose a big chunk of business simply by the nature of contract expiration in and of itself.

That said, we think our -- all of what you've heard today about our auction platform, the returns we generate, technology, etc., generally enables us to win market share over time, which we have done now for decades, and believe we will continue into the future as well.

As for Germany, the issue isn't principally RFPs, as someone posed a question earlier, it's principally about changing the way business is done altogether by the German insurance carriers. So it's a shift in a way they think (ph) not a contract expiration, per se, or an RFP that triggers the opportunity for us. Copart certainly is a well known enough and obviously very successful enterprise in salvage auctions around the world generally. So those dialogues are available to us, when we are ready, when they are ready for them, that is not per se in RFP.

Craig Kennison -- Baird -- Analyst

Thanks. And then, Will I had a question for you on real estate and hoping you can share some metrics to frame that spend, but maybe what are the economics of the typical real estate project due to the average cost of an acre or the range you might pay depending on the market.

What kind of capacity do you get in terms of car volume on a project like that, and then what's the path to break even or to corporate average returns on that investment? Anything you can shed light on would be helpful.

William E. Franklin -- Executive Vice President

Sure, let me start by saying there is no typical transaction. So we can buy a land for $50,000 an acre in some parts of the country. We just bid our land to the equivalent over $3 million an acre and didn't get into the second round of the bidding for that plant.

You can't -- so continuing on some of your questions, you can't look at the economic output from one yard, because we don't service one insurance company in one yard, we service insurance companies nationwide. So you can't really ignore these very expensive markets, because they may not be as economically profitable as the less expensive real estate markets.

So that's really not even a consideration for us, we just know that we have to have the land whenever insurance companies need it.

Jeffrey Liaw -- Chief Financial Officer

Craig, I -- even to put it in financial terms, I think if you took snapshots at any moment in Copart's history and said, does this next parcel of land generate an ROI in the form of its cap rate that exceeds Copart's weighted average cost of capital, the answer is almost certainly no.

But, if you had the benefit of a time machine if you go back to the early 1990s and decide Copart, whether we should buy a land or not, now that we have the benefit obviously at hindsight having acquired massive parcels of real estate in the United States, in the United Kingdom and elsewhere around the globe is one of the key economic enablers of our business. It's proving to be incredibly strategically valuable.

We believe that will be true going forward as well. So as Will noted, it's not about the cap rate on any given parcel of land, it's about building the network that allows you then to amass a global liquid market of buyers as well. So it's a two-sided auction and owning our land has been a critical enabler of that two-sided auction.

Craig Kennison -- Baird -- Analyst

That is super helpful and maybe just to follow-up, Will, with your point on the property, where you didn't make the second round, what is the consequence of that, does that mean longer towing distances or higher costs, I mean, what is your backup plan given you need to service customers in that market?

William E. Franklin -- Executive Vice President

Well, there's a number of ways to approach markets like that typically, we like to have one large yard, and certain situations will settle for a multiple smaller sites. We'll also look at trucking and we'll do that tracking in a manner that does not negatively impactful to our sellers. For example, a truck in the evening. We can operationally address some of the yard constraints by taking older inventory and moving it off site.

There is ways (ph) around it, but ultimately land will continue to become more expensive and the development costs will become more expensive as well.

Jeffrey Liaw -- Chief Financial Officer

And Craig, let me add to that, Will talked about a five year plan, we get bumped on land all the time. That example he gave, it is just another example of land that we've tried to buy, we couldn't buy and there will be another piece of land we can buy, but we can't get zoning, because we're working on this five years out, we're not out of capacity there. We've got room and we can service customers.

And specifically in the market, he is talking about, we've got plenty of room and we can service customers. But we've eventually got to get land in that market. And if we didn't, then we would do some of the things that Will just spoke of.

Craig Kennison -- Baird -- Analyst

Great, thank you.

William E. Franklin -- Executive Vice President

Thanks Craig.

Operator

Our next question comes from Daniel Imbro with Stephens Incorporated.

Daniel Imbro -- Stephens Incorporated -- Analsyt

Yeah, good morning guys, thanks for taking my questions.

Jeffrey Liaw -- Chief Financial Officer

Good morning, Dan.

Daniel Imbro -- Stephens Incorporated -- Analsyt

Good morning. I want to start on a comment you made on ASP strength, and the growing number of bidders in the US despite it being a more mature market. I think in recent quarters, you've noted that you've increased your international marketing to bring more international bidders to auction, but there are -- are there any initiatives you can point to that you guys are doing to help bring domestic buyers to auction? Or what do you attribute that strength in bidders to?

Jeffrey Liaw -- Chief Financial Officer

Yes, yeah, we have specific initiatives for both domestic and international buyers. We work with a buyer profiles and through our marketing efforts, whether they're social or PPC or SEO, we're targeting those buyers to make more aware of our auction, and particularly the cars are available. So when we introduce or we go on to a new segment that may not be a familiar segment to our existing buyer base, we'll spend an -- an extra amount of time and resources to identify that segment, and to those particular buyers. And Jay just handed me some of my call notes. Obviously, we've been successful. We've increased our unique bidders on the domestic side by 14% when I say, that's 14% of a very large buyer.

International is more segmented, because it's country by country. So two of the countries that are drawing are Georgia and Jordan. And Georgia for whatever reason, they're buying electric cars. So Teslas and Preaus are finding their way to Georgia to a very, very high ASPs.

And so we are from -- we are obviously promoting that. And in China, they're buying Harley-Davidson. In Mexico they're buying pickup trucks. In the Netherlands, they are buying sports cars. So we're getting to know the demand in these particular regions. In Nigeria, they just want affordable transportation and our marketing efforts reflect that knowledge that we are gaining.

Daniel Imbro -- Stephens Incorporated -- Analsyt

Got it. That's really helpful color. Jeff, switching gears a little bit, looking at the revenue growth in the quarter, kind of the implied revenue per unit remaining strong, especially considering the scrap steel headwinds, that we saw during the quarter, can you maybe just give us the reminder on how scrap steel impacts your business and your ASPs. I feel like like a few years ago, it felt like a bigger driver of ARPU, but had anything changed, can you just give us a refresh on about how that impacts your business?

Jeffrey Liaw -- Chief Financial Officer

That's a great question and I think the answer is a strong yes, that the nature of scrap and its influence on our business has shrunken over time. It declined very meaningfully. And as a flip side of the coin of the issue we talked about a few moments ago, that a car -- imagine a car has a spectrum of potential value and at the very low end it is literally worth its weight in steel and its metal content.

And in the other extreme end of the spectrum, it's a driveable car the next day, a perfectly intact automobile. As our -- as the nature of technology and the increasing complexity of cars has made more the totals -- more of the total cars at the end of this -- closer to the end of the spectrum of driveable cars, they're more rebuildable, they're more driveable, they're certainly worth more as parts than they are as a metal.

And therefore scrap is not something by the way operationally, we particularly focus on day to day at all. It's really about finding the right buyers of the cars and the high value -- that the higher value cars for us assuredly are not being sold for scrap. The international buyers are obviously not shipping a car several thousand miles to melt it down. So the scrap matters, but increasingly less overtime.

Daniel Imbro -- Stephens Incorporated -- Analsyt

So yeah, we should change how we're thinking about it. That's helpful.

And then maybe last one internationally. We've touched a lot on Germany, but looking -- it looks like you're growing scaling your offering in Spain, pretty nicely. Although it's still pretty small. Can you just update us on how you're thinking about that opportunity? Or any kind of feedback or learning on that market as we think about what's next beyond Germany and Europe? Thanks.

Jeffrey Liaw -- Chief Financial Officer

Sure. So we implemented a new playbook, if you will in Germany to build the network out. And we're letting the teams in Europe, basically take that playbook and implement it in Spain. So they've added locations and they are in many ways mimicking what we're doing in Germany to achieve their own success.

There is -- there is focus in both markets, but clearly, we're putting the vast majority of our efforts right now into Germany to get that market to see a big win in terms of volume and a switch over.

And, you know, this has been a continued investment in the market in terms of people, process, technology, land etc. And once we start to see that transition over, it will be even further growth into expanding locations. Will's example of the US for land is what we're doing right now in Germany. We've got a dozen sites we're looking at, and we are trying to purchase and then beat -- and then we'll develop those sites. So that the ability to build that network and to achieve success takes time.

And so Spain is doing the exact same thing, they are much smaller weighed than Germany, but nonetheless, doing the exact same thing in that market. And they are seeing success. So we're excited about that.

Daniel Imbro -- Stephens Incorporated -- Analsyt

Great, thanks so much guys. Best of luck.

Jeffrey Liaw -- Chief Financial Officer

Thank you.

William E. Franklin -- Executive Vice President

Thank you.

Operator

(Operator Instructions). Our next question comes from Chris Bottiglieri of Wolfe Research.

Chris Bottiglieri -- Wolfe Research -- Analyst

Hi, it's Chris Bottiglieri. Thanks for taking the questions. So first one was, did I hear correctly that international buyers are 40% of units, but 50% of revenue?

Jeffrey Liaw -- Chief Financial Officer

40% units is 50% of the value of everything that we auction. And that's because of buying the rebuildable cars and not the cars that are being part of that.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got it. That makes sense. And can I -- as a rule of thumb that would suggest that the selling price of those cars is 25% higher than the non-international bidders. So would it be fair to kind of use as a rule of thumb for the impact on ARPU growth, the 25% premium as international mix grows?

William E. Franklin -- Executive Vice President

Yes. I can't validate that precise arithmetic, but directionally yes. They are buying meaningfully higher valued cars on average. In part because of that scrap phenomenon you heard a few moments ago repeat, very low end cars of course none of them go internationally many of the high-end cars do.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got it. Perfect. Okay. The next question I had was, can you, I don't think you've heard talking this a lot recently, but can you talk about kind of within the US, the mix of fees, like excluding purchase vehicles, that just makes the math fuzzy, but can you give us a sense of what percentage of revenue is fee-based versus ancillary service based and kind of like to what extent that's contributed to ARPU growth in the last couple of years?

Jeffrey Liaw -- Chief Financial Officer

I think Chris by now, we've -- on fee schedule we tend not to discuss them in any great substance. I think we have delivered additional services, as you heard Will talk about a few of them including our title procurement services, loan pay-off, loan payoff amounts, and so forth. But we -- our reschedules are competitive and sensitive matters for us. We delivered we believe very strong value to both our sellers and buyers.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got you. Then just a quick question on rent expense, that's doubled over the past years. I was wondering if this is driven entirely by international expansion or you had a change in philosophy like rent versus on own or cap rates or what not.

And is there way to bifurcate the rent expense between the US international business force? Thank you.

Jeffrey Liaw -- Chief Financial Officer

You were posing the question about the lease versus own decision on real estate.

Chris Bottiglieri -- Wolfe Research -- Analyst

Well, yeah, like if you look at the facility's rent expense and for the Company, it's doubled over the last two years. So trying to figure out what's driving that. Is it all international? Or is it something else going on with driving that like doubling of rent expense?

Jeffrey Liaw -- Chief Financial Officer

I would think of rent expense a little bit like purchased cars for Copart. They are, it's a number that you'll see, and therefore, and we reported publicly and therefore it draws attention, but in practice, we buy what we can.

So we buy anything we can and we lease when it's operationally necessary. We intend to when we enter a particular market when we are adding capacity to a metro area, in our existing markets, our expectation is that we're there for decades, and so we're always better off buying.

There are some circumstances in which the land that's available can't be bought and therefore has to be leased. There are some circumstances for example in Germany, as you mentioned a moment ago in which our desire to be up and running very quickly compels us to pursue actionable properties in some cases or in many cases lease properties instead of purchasing them.

But our preference fundamentally in almost every case would be to buy and not to lease and any additional rental properties are by necessity, not by desire.

Chris Bottiglieri -- Wolfe Research -- Analyst

Got you. Okay, thank you.

Operator

Thank you, everyone. At this time, that concludes today's question-and-answer session. I will now turn the call back over to Mr. Adair.

Jayson Adair -- Chief Executive Officer

Thanks so much. We appreciate you all attending the call and we look forward to reporting on the end of the year and the fourth quarter on the next call. Thanks so much. Bye-bye.

Operator

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

Duration: 51 minutes

Call participants:

Jayson Adair -- Chief Executive Officer

Jeffrey Liaw -- Chief Financial Officer

William E. Franklin -- Executive Vice President

Robert Labick -- CJS Securities -- Analyst

John Healy -- Northcoast Research -- Analyst

Stephanie Benjamin -- SunTrust -- Analyst

Craig Kennison -- Baird -- Analyst

Daniel Imbro -- Stephens Incorporated -- Analsyt

Chris Bottiglieri -- Wolfe Research -- Analyst

More CPRT analysis

All earnings call transcripts

10 stocks we like better than CopartWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Copart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

Motley Fool Transcribers has no position in any of the stocks mentioned. The Motley Fool recommends Copart. The Motley Fool has a disclosure policy.