Copart Inc

NASDAQ:CPRT

Earnings Call Transcript 2020-Q4

[Operator]

Good day, everyone, and welcome to the Copart Incorporated Fourth Quarter Fiscal 2020 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.

[Jay Adair, Chief Executive Officer]

Thank you, Casey. Good morning, everyone, and welcome to our fourth quarter call. I'd like to pass over to Jeff Liaw, our President, to do the safe harbor and then we'll go ahead and give you an update on the quarter. Jeff?

[Jeff Liaw, President]

Thanks, Jay. During today's call, we'll discuss certain non-GAAP measures, which include adjustments to reverse the effect of certain discrete income tax items, disposal 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 these non-GAAP measures, together with our corresponding GAAP measures, are relevant in assessing our business trends and performance. We analyze our results on both GAAP and non-GAAP basis.

In addition, our comments today include forward-looking statements within the meaning of federal securities laws, including management's current views with respect to trends opportunities and uncertainties in our markets including with respect to the COVID-19 pandemic. These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with our business, we refer you to the section titled Risk Factors in our Annual Report on Form 10-K for the year ended July 31, 2019, and each of our subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today and Copart has no obligation to update or revise any forward-looking statements.

Jay?

[Jay Adair, Chief Executive Officer]

Thank you, Jeff. Well, recently I was discussing with Willis the accomplishments achieved in 2020, and to say it was a unique year would be an understatement on so many fronts. The year started very strong, no No question about that. August was ahead of the prior year both in assignments, in units sold, and in per car yield.

The great people that make Copart perform across the organization worked executing both internationally and domestically in existing operations from picking up vehicles, imaging those vehicles, doing -- receiving inventory, processing title, and eventually auctioning and selling off those vehicles.

But also we were executing on future opportunities like finding land for capacity, making technological improvements to our internal platforms and our website, creating pipeline supply both through our marketing efforts and our sales team, and really the list of accomplishments goes on and on.

We had no reason to see 2020 as anything other than being our best year yet where Copart would achieve record financial performance in an over 26-year history of filing Ks as a public company. By mid-year, we didn't believe that was going to be the case. The world was changing by the hour and the government was actually contemplating and eventually would implement a policy of shutting down nonessential businesses and restricting how frequently and where people drive. This was not just in the U.S. but we were seeing this globally in markets where Copart does business.

Today, we have the benefit of hindsight, and despite all the challenges of 2020, it was a year where we actually did put down record performance both from an operational standpoint, but also record financial performance that outdid every year prior to 2020. And I will tell you in the past, we have had many great years where we questioned whether we could raise the bar again after such performance.

As you know from history, we have continued to grow Copart, and we've done that again in 2020 even in the face of such an unprecedented and challenging environment. So how do we do this, you might ask. Well, it's a cultural thing, and culture starts with people. We at Copart have the best people in the industry.

We talk about people, process, and technology. And while technology and process have driven our business for over two decades, it is the people that not only due to day-to-day execution, but also that can pivot and, if necessary, course correct on a dime when things get challenging, and that's exactly what happened in fiscal 2020.

We didn't let the pandemic control us or change our long-term goals, but we did course correct in the short term to address head on the safety of our customers and our employees. Throughout this period, we never dropped the ball on executing inside the organization for our members, our sellers, and our fellow employees.

While August, the first month of fiscal 2020 was a record month, April was not. April was off 37% in assignments and 16% in units sold. In terms of assignment volume, it was the worst month of the fiscal year with people not just social distancing, but staying home from school and work, failing to eat out at restaurants, seeing their hair salon and movie theaters closed and the list goes on.

Our immediate response was to communicate to all of our employees to stay focused on the job at hand, and that's exactly what our people did. And while they committed to our customers, we committed to them promising no furloughs and no reduced hours. We wanted them to know that while they had our customers back, we had their back.

We could have reacted to the environment we faced two ways, positively or negatively. The fact is, we chose the prior, not the latter and viewed this lull in volume as an opportunity, an opportunity to straighten up yards and office space, work old inventory, get zoning approved on land that might have otherwise not been approved prior to COVID and implement efficiencies in our process, all while utilizing new technologies developed during the year.

In 2020, we spent over $500 million in CapEx and added over 2,000 acres to our capacity. And I might add, the team never slowed down, during the worst of the COVID pandemic. 2020 is a great example of Copart's performance, in challenging times. We did this in 2008 during the financial crisis, and we have now done this again during the COVID-19 pandemic. Life is unpredictable, always has been, always will be, but at Copart we will always take the position of having a long-term view, and that will always include having a conservative balance sheet.

We are owners and thus behave like owners. We challenged the norm every day, we get results; and in the process, it all comes down to our people. People who we celebrate with passion and people who act with integrity in every decision and every action that they make.

I used to say before 2008 that we were a recession-resistant company. After 2008, I started saying that we were recession-proof. And now, after 2020, I can confidently say we are a pandemic-proof company.

When Willis and I ended our call, I reflected on all that we'd achieved in the year, and all that I'm thankful for. And when talking specifically about Copart, it's our people. I couldn't be prouder of the year and all their achievements.

I'd now like to introduce our President, Jeff Liaw.

[Jeff Liaw, President]

Thank you, Jay. Before turning to our financial performance for the quarter, which will provide the metrics we do customarily, a handful of observations about of course the COVID-19 crisis specifically. We anticipate many questions about recent trends, for which we'll provide you our most informed perspectives of course.

We also want to draw you back, as Jay just did, to the strategic and operational principles that guide our decision-making. And have guided us through the pandemic, including investing in people, technology, and process, as Jay just articulated. We are immensely proud of our people for delivering our essential service to the communities we work in around the world.

We elaborated in more detail on our last call about how important it is that we do what we do to enable the roads and our society's infrastructure to function as it does. We've done so while adapting on the fly to keep our employees members and customers safe. History has shown that, we distinguish ourselves in a time of crisis and investing in our people, processes, technology, and land against the backdrop of arguably the biggest economic disruption of our lifetimes. We think, we've done so again.

Our aspiration throughout the crisis has been to deliver much, much more than business as usual. We have adapted real-time to our customers', workflow, modifications, their process changes. We've deployed new technology that has enhanced what we do. And what they do as well.

I wanted to make a handful of observations about, some of the key industry drivers that we talk about regularly, including miles driven, accident frequency, total loss frequency, and matters like that before talking about the details of the quarter. As we noted on our last call, and in Jay's overview, we'd observed substantial declines in driving activity, in March and April. And therefore, assignments and inventory as well.

Since June, we've seen a gradual and steady improvement in activity levels, with the United States generally recovering more quickly than some of our international markets. Miles driven in the U.S. appears to have toughed in April, with data sources showing a substantial recovery since then, but very mixed on the magnitude of the recovery.

We track sources many of which I'm sure you do as well, including Google, Apple, INRIX, University of Washington's, Institute for Health Metrics and Evaluation, all of which or most of which show, substantial declines still, in comparison to last year.

As another guidepost, we track data published on gasoline consumption, by the United States Government's Energy Information Administration, which shows that at least for recent weeks gasoline consumption downed mid-to-high single digits, year-over-year.

We do believe, we've seen evidence of relative increases in driving activity, as a substitute for mass transit and ride sharing, with good evidence that either or both of those channels of transportation have declined over 50% year-over-year, during the course of the pandemic.

On accident frequency, the conventional wisdom has been that accident frequency is positively correlated with miles driven, because congestion naturally contributes to accident frequency.

During the pandemic we've seen very strong evidence that the opposite has proven true, with our roads less crowded, speeding and distracted driving had both increased substantially, contributing at least in the near-term to increase accident frequency per miles driven.

Over the very long haul, over Copart's, near 40-year existence, we have generally seen accident frequency decline, as cars get safer. The overwhelming offsets to that of course has been, total loss frequency. And on total loss frequency itself, we have seen evidence of increasing total loss frequency, during the pandemic, as well.

There are some near-term catalysts, including repair shop interruptions, supply chain interruptions for repair parts and the like, but there are also key critical long-term durable drivers of the same including our improving auction returns, which I'll address next. But auction returns repair costs vehicle complexity those same things remain the case, in the quarter as well.

Turning to average selling prices, we experienced a 26.4% increase in global average selling prices year-over-year, for the quarter. That is a record change for Copart and occurred despite some natural headwinds in the business. We've talked at length in the past about the importance of cultivating our international buyer base in particular. And in this quarter and really for the past five years and more it has paid dividends to the business and has done so very much during the pandemic as well.

Our member recruitment and retention efforts when married with our auction technology, as a reminder, we have been natively and exclusively a digital auction platform since 2003. Together those have contributed and caused substantial ASP outperformance year-over-year.

There are no doubts, some near-term technical factors worth commenting on as well, including strong used car prices against a scarce new car environment, given production constraints, there are some supply chain issues regarding automotive parts replacements and forward repair network as well. But nonetheless, despite very substantial currency headwinds on a year-over-year basis, we have experienced average selling prices for Copart vehicles at all-time highs.

With that I'll turn to the actual fourth quarter financial results. We're pleased with the results of the quarter. We experienced a global revenue decline of 3% or just shy of $17 million year-over-year, including an unfavorable year-over-year currency effect of $2.2 million from foreign operations, primarily due to the strengthening of the U.S. dollar but also partially due to a shift of a customer from a purchase arrangement to a consignment engagement instead.

Our global service revenue, which we have generally informed you is a better barometer for business activity declined 2.7% year-over-year with the U.S. down 2.5% and our international business down 4.5%. We experienced purchase vehicle decline in revenue of $4.2 million or just shy of 6% year-over-year, as growth in the U.S. was more than offset by decline internationally including that customer shift to a fee-based sales arrangement in the United Kingdom.

Our global unit sales decreased by 18% year-over-year with U.S. unit decreases of 16.3% for the quarter and international declines of 27.1%. I'll elaborate on that separation momentarily.

Our U.S. unit decline was of course driven primarily by COVID-19 and its impact on miles driven and therefore consignment volume to Copart. Our non-insurance volume declined 16%, though there is a significant divergence of the underlying sources of automobiles within that segment, I'll comment on momentarily as well.

Our international markets encountered in some cases more aggressive responses to COVID-19, affecting driving activity but also title processing and therefore units sold. Within our non-insurance business, our charities and wholesalers business were the most significantly impacted by COVID-19.

Excluding those two portions, our non-insurance volume actually grew year-over-year. Our dealer platform in particular serving automotive dealers who consigned their non-damaged vehicles through Copart increased year-over-year. We continued to attribute our strong non-insurance and dealer performance to our mature natively digital auction platform. We've seen persuasive evidence that otherwise a dealer consigned wholesale auction volumes have declined industry-wide but we experienced year-over-year growth as a result of the liquidity and service that we can provide.

On global inventory, we decreased 10.8% compared to the same moment July 31, 2019. In the U.S., we experienced inventory decline of 12.3%, international inventory declined 1.1%. You'll note that our international unit sales declined more significantly than U.S. sales but international inventory did not decline as much.

That's a reflection in part of some of the title processing issues I mentioned a moment ago, which has challenged our ability to move cars through the pipeline in certain of our international markets. We don't believe this will have any long-standing or long-lasting effects on the business. It's merely a reflection of near-term technical considerations in light of COVID-19.

Our gross profit increased 3.2% from $242.6 million to $250.4 million. Our rate change – our gross margin rate increased from 44.7% to 47.6%. In the U.S., our increase from 48.8% to 50.1% is a reflection of a number of offsetting forces, including increased average selling prices, which we've talked about at length already, but offset by yard efficiencies or relative inefficiencies due to cost absorption of fewer than expected volumes. Our international gross margins increased substantially due in part to the shift of the customer from a purchase arrangement to a consignment agreement instead.

Turning to general and administrative expenditures for the quarter. We have always said that G&A expenditures will fluctuate and grow over time. We will continue to leverage G&A over the long haul. But that's taking a perspective across multiple quarters really for G&A and other drivers as well is the best measure of our actual investments in general and administrative costs.

On a year-over-year basis, we're down from $39.8 million a year ago to $34.6 million in the fourth quarter of 2020 including reductions in travel expenditures and other such changes that would be attributable to COVID-19.

Our GAAP operating income increased from $192.8 to $205.7 million for the quarter or an increase of 6.7%. Our net interest expense was up 12.9% year-over-year due in part to our upsized revolver and fees incurred as a result as well as lower interest earned on our cash balances.

On our fourth quarter income tax, we incurred expenses of $36.3 million, which reflects the $6.6 million tax benefit on the exercise of employee stock options offset by a $4.7 million impact from discrete income tax items all of which have been reflected in the non-GAAP earnings reconciliation you've seen.

GAAP net income decreased from the fourth quarter of 2019 of $153.5 million to $165 million -- pardon me, increased from $153.5 million to $165.5 million or an increase of 7.8% year-over-year. Non-GAAP income increased by 14.7% from $142.5 million to $163.4 million year-over-year.

Last few comments on the balance sheet and our cash flow. On July 21, we increased or upsized our revolver from $850 million to $1.050 billion and extended the maturity through July 21, 2023. It's a reflection of our conservative capitalization and strong credit profile that we were able to achieve that extension and upsizing in a financial or in an economic crisis.

As of July 31, we had $1.5 billion of liquidity, which we continue to use to invest in our business. Operating cash flow for the quarter was $267 million, an increase of $74 million relative to the fourth quarter of 2019 driven by a combination of higher earnings as well as working capital.

As noted previously, we continued to invest in our business long-term with land as one critical dimension, but certainly not the exclusive one. We invested $112.7 million of CapEx in the fourth quarter alone 90% of which was attributable to capacity expansion alone.

We finished the quarter with just shy of $0.5 billion worth of cash on the balance sheet $477.7 million of cash. We remain well equipped then to invest in our business for the long-term. We're pleased with our fourth quarter.

And at this point, Casey will open it up to questions.

[Operator]

Thank you. [Operator Instructions] We'll take our first question from Robert Labick with CJS Securities.

[Robert Labick, CJS Securities]

Morning. Congratulations on strong operating performance in a uniquely difficult environment.

[Jeff Liaw, President]

Thank you, Bob.

[Robert Labick, CJS Securities]

I wanted to start -- you mentioned obviously used car pricing is opposite at all-time highs according to Manheim, pretty much anywhere you look. So, two questions related to that. I'm just trying to tease out the drivers for your strong ASPs -- your record ASPs. Can you talk a little bit about, is it more from the dealer or drivable cars or more from the insurance cars being bought by dismantlers, which was a bigger component in driving the ASP growth?

[Jeff Liaw, President]

Just the sheer volume of the cars, Bob would just mathematically make it so that it has to be the insurance volume driving the 26% increases year-over-year. As you know, the non-insurance cars in the aggregate only comprise about a quarter of our units sold. So it is like-for-like insurance vehicles.

[Robert Labick, CJS Securities]

Got it. Okay. And those were generally speaking, close to the 26% I guess, it probably would have been a better way to ask it in terms of the overall ASPs were 26%, were insurance close to that as well?

[Jay Adair, Chief Executive Officer]

Yes. Correct. Yes.

[Robert Labick, CJS Securities]

Okay. Got it. Great. And then generally speaking as used car pricing rises there may be an offsetting impact to total loss frequency, but obviously we're in a different or unique world, and it's a short time period, but has there been any suppression on total losses or is there -- how is that dynamic working out in the current environment?

[Jeff Liaw, President]

Well, the dynamic is -- it's the relative value of the cars when it comes to that total loss equation Bob that you know well from having tracked us forever. But it is the relative value of the intact car versus the wrecked cars that drives total loss frequency. And while certainly yes, used car prices are high and all else equal, those used car prices being that robust suppresses volumes that would come to Copart increasing salvage returns by as much as we have arguably drive total loss frequency on a net basis up nevertheless, right? So yes, if our salvage returns were going up 25%, while used car prices were flat or down, that would drive still more volume. The point is that at least for the quarter, used car prices were very strong but salvage returns almost certainly were stronger still.

[Robert Labick, CJS Securities]

Got it. Okay. Great. And then has there been any change in the supply dynamics because of the higher proceeds you're receiving? Meaning, are you getting different sellers coming into the market that before maybe weren't interested in using Copart, but seeing the record proceeds are starting to either give you more cars or any kind of change in supply?

[Jeff Liaw, President]

That's been true within the non-insurance space for years Bob that as our cars gravitate more from back in the day 40 years ago, 35 years ago selling metal by the pounds to selling parts 20 years ago to selling intact drivable cars today even within our insurance cars themselves, that liquidity has naturally invited more and more participants to the auction, and that's certainly been true over the past quarter and the past year and the past five years as well. So yes, in short but not disruptively so in the last 90 days.

[Robert Labick, CJS Securities]

Got it. Okay, great. Last one for me, I promise. Just curious about -- I know in the past certainly [audio disturbance] cars that went to auction sold but that was mostly when it was all insurance cars, and as you've had more dealer or non-insurance, I know conversion rates are very high. But has there been any change in conversion rates given the scarcity of vehicles during the quarter so that maybe you even benefited from even higher conversion rates than in the not-too-distant past?

[Jeff Liaw, President]

Not unusually so Bob. I think conversion rates are very robust and we track and manage carefully, but I would -- again wouldn't say there was an unusual disruption in the quarter.

[Robert Labick, CJS Securities]

Got it. Okay, super. Thanks so much.

[Operator]

And our next question comes from Craig Kennison with Robert W. Baird & Company.

[Craig Kennison, Robert W. Baird & Company]

Thanks. Thanks for taking my questions. Congratulations. Wanted to follow-up on the non-insurance market. I mean you've got this all digital platform. You've had it for a long time now. That should have been an ideal platform for you during the pandemic when a lot of the physical competitors were closed. I'm curious to what extent Copart was able to capitalize on this opportunity specifically to grow in the used car market?

[Jeff Liaw, President]

Fair question Craig. I think the math we do isn't any different what you would. So, when you track the other publicly-traded auction houses for whole cars, I think you can see what relative performance would have been. I think we've noted that others have experienced declines in a period and meaningful declines in a period where we actually experienced growth.

So, I think that's about all we know directionally, so we don't have any insider perspective in particular on those other companies, but we do believe against a backdrop of generally declining wholesale dealer volume that we have increased year-over-year.

[Craig Kennison, Robert W. Baird & Company]

Am I right that this was a unique opportunity for you to really pitch the service to potential sellers and maybe you’ve got a better look this time than in past pitches?

[Jeff Liaw, President]

I'd say yes and no. COVID-19 certainly has underscored how powerful Copart's natively digital platform, which has been exclusively digital since 2003. And having lived that way for 17 years means that we have honed that platform and understand it well. And other competitors had to do so at the tip of the spear had to virtualize overnight. And yes, I think Copart is distinct in that regard. So, on the margin, surely, it has enhanced our value proposition.

In COVID-19, of course, it's also across any walk of life difficult to meet new people. So, it has reduced what otherwise might be the natural selling cadence as you get to know new parties, dealers, and otherwise, but I think on balance it has been a very positive force for Copart.

[Craig Kennison, Robert W. Baird & Company]

And then circling back on the ASP commentary, I mean it's just an incredible number. To what extent do you think that reverses over time knowing that the pandemic was a factor? I know the long-term trend has been up, but for those of us who have to build a model should we bake in some year-over-year decline as we lap that next year?

[Jeff Liaw, President]

The short answer Craig is that I don't know. There are -- as I noted in those comments a moment ago certainly some near-term technical factors to consider. The underlying drivers I think are still very long-term favorable. But as for predicting precisely what happens next quarter next year, I think that remains challenging.

I would say that there's been some -- as one tidbit here. When we look at the buyers non-U.S. buyers of Copart cars at U.S. auctions we note that the currencies declined very meaningfully year-over-year. So, their purchasing power was meaningfully compromised relative to a year ago.

But nonetheless the value of the cars they purchased increased substantially plus or minus in proportion with our overall ASP increase which meant that in their local currency, they're spending still more and dramatically more. So, I think the power of that liquidity is never going away. There is the flywheel effects now of driving more total loss frequency with outstanding returns we get lighter damaged cars which brings more buyers. But we do think that this is a productive period for us in further spinning that flywheel. Exactly what the year-over-year comparison will look like Craig we don't know.

[Craig Kennison, Robert W. Baird & Company]

Great. Thank you so much.

[Jeff Liaw, President]

Thanks Craig.

[Operator]

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

[Daniel Imbro, Stephens Inc.]

Good morning guys. I wanted to start on the G&A side, really impressive control. I think probably one of the biggest surprises in the composition of the quarter to us. You mentioned travel being down. But can you provide any more color on kind of where you did remove costs? You mentioned, I think there wasn't any furlough employee removal. So, how do you think about like the sustainability of the cost cuts? Has anything changed there in your thinking?

[Jeff Liaw, President]

No. Nothing has changed in our thinking. We did not furlough employees and continued to invest in our people. We continued to hire, to train, to promote, because that's what it takes to build a successful business over the next 20 years hard stop.

On G&A, I'll be militantly consistent right in quarters where it's up a couple of million or down a couple of million. I'll ask you to use many quarters to draw your trend lines. No individual quarter is the right predictive model for future trends.

[Daniel Imbro, Stephens Inc.]

That's helpful. And then, maybe a follow-up on Craig's dealer question. You clearly gained share in the quarter. When you talk to the dealers on your platform, are you seeing them stay on Copart as some of the competitors reopen? And if they are, does that change you guys' long-term strategy around how much of your business could be dealer or should be dealer? I think in the past you've mentioned, you don't want that to be a majority of your business. But, yes, how has the success in that during the pandemic maybe impacted those long-term thoughts?

[Jeff Liaw, President]

We've grown that dealer business in very steadily and very consistently for years. So, I don't -- we don't perceive this as a temporary one-time pickup. We invest in that business, because it is an excellent and profitable business for us and we invested it, because it's an excellent and profitable addition to our auction liquidity, which ultimately benefits our insurance customers as well as we draw evermore buyers to our platform we also will drive salvage returns upwards.

So, I would say even before COVID-19, the whole car auction business is as competitive as it has ever been with very strong incumbents, with strong venture-backed new entrants into the business as well. And even against that backdrop, we continue to grow our volume virtually every quarter for, as many years as I've been here certainly, and we don't expect. We believe that competitive advantage is that is the auction liquidity point. And if anything our liquidity will improve as a result of COVID-19.

[Daniel Imbro, Stephens Inc.]

Got it. That's helpful. And then last one for me, touching on the balance sheet. As we think about uses for cash, I wanted to hear your thoughts on capacity. I mean to handle more volume and continued growth we kind of have two choices. You add capacity or you improve your throughput pretty hard. Is there a meaningful opportunity to really improve throughput from here? Or as we think about long-term CapEx, is that going to have to -- should that continue to grow to support future volume growth? Thanks.

[Jeff Liaw, President]

Thanks, Daniel. We will do both and have to do both. So we focus very much on improving cycle times and turning cars more quickly, both because it is capital-efficient for us, but also because it is a better outcome for our customers, who can settle claims and close files more quickly who can achieve better auction returns with less depreciation with the cars sitting on our properties.

So, that is an evergreen initiative on the part of Copart and has been forever. So yes, we will invest in reducing cycle times and can improve. But also, yes, we will continue to invest in our land and capacity, because it is absolutely necessary to serve our customers well, both in the ordinary course and in catastrophic times. We have to be prepared to absorb volatility. So, we are happily investing and have invested through the pandemic in additional capacity and expect to do so for years to come.

[Daniel Imbro, Stephens Inc.]

Great. Thanks so much guys, and best of luck.

[Jeff Liaw, President]

Thank you.

[Operator]

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

[Bret Jordan, Jefferies]

Hi. Good morning, guys.

[Jeff Liaw, President]

Good morning.

[Bret Jordan, Jefferies]

I got cut off for a second. So hopefully, I'm not going to ask this question twice. But, I guess, if you think about pricing and its role in the quarter, could you talk year-over-year about maybe what you've seen from a pricing increase? And as you look at the whole cars, as you get into the dealer space and you're competing with some legacy players, is there any bias to move prices lower as people will compete for share in that space?

[Jeff Liaw, President]

I want to make sure I understand precisely your question Bret. You mean the prices we achieved at auction for the vehicles or the prices -- the fee...

[Bret Jordan, Jefferies]

The fee -- the buyers -- yeah, the rate on buyer fees year-over-year in the insurance space, and then whether or not there's any bias to be increasingly competitive on the fees charged as you get into the dealer cars?

[Jeff Liaw, President]

On fees, we don't comment, Bret. Publicly available of course on our website is a fee schedule that our members incur when they purchase cars at Copart and for other services that we provide.

[Bret Jordan, Jefferies]

Okay. Anything that you're seeing as far as dealer volumes and pricing?

[Jeff Liaw, President]

Dealer volume noted -- you may have clicked off the call at that moment, but we have experienced increases year-over-year in dealer volumes for the quarter, and that's against what we believe our competitors who have experienced very meaningful declines in dealer consigned volumes for the quarter. So, we believe that we have grown our dealer business relatively speaking much faster than the rest of the industry.

That is not a reflection of, of course, aggressive fees on our part. We believe that we have a very competitive offering, and ultimately deliver the best possible returns to our dealers. But that's easy to say. But, we think the very consistent growth in our Copart dealer services volume is a reflection of the actual reality in practice.

[Bret Jordan, Jefferies]

Okay. And I guess did you comment on capacity utilization? I think you said, you've added over 2000 acres. Did you talk about what your average utilization is?

[Jeff Liaw, President]

Yeah. Average utilization I think not super meaningful, because the land isn't fungible and each yard is its own -- certainly each metropolitan area is its own island. And even though Dallas and Texas are in -- Dallas and Houston are in the same state, you can't really use one city's facilities as fungible capacity for the other. So, we certainly monitor our metropolitan areas very carefully and invest accordingly based on our baseline expectations over the next five or 10 years.

Certainly capacity utilization is lower during the pandemic than it otherwise would be, for all the reasons you already know about, inventory and driving activity and so forth. But capacity utilization is a microeconomic evaluation, which then drives our investment decisions on a micro basis. But in the aggregate, we will continue to invest in land for years to come.

[Bret Jordan, Jefferies]

Okay. Thank you.

[Jeff Liaw, President]

Thanks, Bret.

[Operator]

Our next question comes from Ryan Brinkman with JPMorgan.

[Ryan Brinkman, JPMorgan]

Hey, great. Thanks for taking my question. I think it's really incredible the increase in average selling prices that you reported. Can you just help us think about the ways that that helps Copart? Is it the case that you generally charge buyers a fixed percentage of the transaction price in agency model transactions anyway such that the revenue from higher prices falls just pretty well through to profit?

And then also it'd be great if you could comment on the reasons for such a large increase in prices and the sustainability of the various factors driving prices higher?

[Jeff Liaw, President]

Got it. On your former question Ryan that member fee schedule is readily available online. So we encourage you to look there and you can see what happens to the fees that our buyers incur based on changes in the selling prices of vehicles. As for the pricing changes and the actual pricing at our auction or the selling prices for cars that are auctioned they are high for a combination of technical, but also fundamental reasons.

The technical reasons you heard us comment on are the used car prices are robust against the supply-constrained new car environment. But the fundamental reasons are rising total loss frequency new or less damaged cars being totaled better auction liquidity we have driven more bids per vehicle by far than we did a year ago in the fourth quarter of 2020 than 2019.

So those are the fundamental drivers which we think ultimately are the most important ones. There will be near-term technical changes certainly some of which we are benefiting from today, but others of which are unfavorable including volumes for example.

But over the long-haul, the flywheel of auction liquidity the recruitment of international -- recruitment and retention and cultivation of international buyers we think will continue to drive selling prices upwards, total loss frequency upwards which in turn of course is self reinforcing, self reinforcing bringing ASPs up as well.

[Ryan Brinkman, JPMorgan]

Okay, thanks. And then just finally are you able to comment on the trend in assignments here in 1Q? Do you have a timeframe in mind for when miles driven or assignments will return to pre-pandemic levels? Thanks.

[Jeff Liaw, President]

Appreciate the question. That remains I think largely unknowable. We have generally seen a continuation of the trends that we were marked on in the fourth quarter and the first quarter, but we'll talk much more about the first quarter of course including storms and so forth on our first quarter call. But we've generally seen a continuation as for when society returns to normal practices we'll leave that to the experts.

[Ryan Brinkman, JPMorgan]

Okay. Thank you.

[Operator]

Our next question comes from Gary Prestopino with Barrington Research.

[Gary Prestopino, Barrington Research]

Hey good morning everyone. Just looking at the change in the purchase margin -- gross margin sequentially and year-over-year you mentioned it was being -- some of that was driven by a move from a purchase to a consignment agreement. Are we to assume that that move in and of itself, was that agreement that you had on a purchase pretty detrimental to the margins overall? And that getting that out of the mix just led to those vehicle sales margins going up pretty dramatically? And is that gross margin sustainable?

[Jeff Liaw, President]

The answer to your first question is, no. It's not that the purchase vehicles of that particular customer were very, very unprofitable somehow and we removed them. We don't much these days Gary about -- we prefer consignment arrangements because we think it generally is a better alignment of interest between us and our customers, but it's not per se a profitability decision.

The purchased vehicle changes year-over-year the decline in revenue is in part attributable to this shift in that customer because now instead of showing up as purchased vehicle sales and purchased vehicle COGS, it now shows up instead as service fees. But otherwise no that was not any meaningful driver for the change in purchased vehicle profitability.

[Gary Prestopino, Barrington Research]

Well was it ASPs? And...

[Jeff Liaw, President]

Yes. In short, yes.

[Gary Prestopino, Barrington Research]

Okay. And then could you give us some idea. I know you said your dealer business was up, but could you put a number on that in terms of the growth in units year-over-year?

[Jeff Liaw, President]

It's up meaningfully. I think we've historically said -- disclosed we've been up double digits. In this case it wasn't double digits but meaningfully so.

[Gary Prestopino, Barrington Research]

Okay. And then just getting back to my other question, I'm sorry about the sustainability of that gross margin. Is that something that again that's going to really be driven by what the ASPs do in the future?

[Jeff Liaw, President]

Yes. And I forgot that third or that quarter of your prior question. We don't manage the business to gross margin rate per se Gary, we're of course optimizing for service and returns and profitability and so forth. So the margin rate is really just a byproduct metric that we track at the end of the month and the quarter as a matter of visibility but it's not -- we think about the business on a per car basis and how much profit and contribution we generate per unit.

So the rate is not something we consider, but your point about ASPs very strong average selling price performance contributing to our profitability, yes that's certainly true. To the point about consignments, we want to work with our customers on that basis to drive the highest possible returns which yield the very best outcomes for them and for us.

[Gary Prestopino, Barrington Research]

Okay. And then last question just on your dealer business. I would assume that most of your dealer customers are independent. So is that correct?

[Jeff Liaw, President]

Yes.

[Gary Prestopino, Barrington Research]

So, is the assignment from the independent dealers of a car, is that driving a lot of the growth? Or are you finding a lot of the independents are also buying cars from you?

[Jeff Liaw, President]

Don't follow -- didn't follow the question. Meaning, yes, we are growing go ahead.

[Gary Prestopino, Barrington Research]

Yes, I guess, what I'm trying to get at is that, if an independent takes in a trade that they don't want to keep on their lot. Are they handing it off to you to sell? Or are you seeing more of the usage of the platform, the independent dealer buying cars to replenish inventory?

[Jeff Liaw, President]

Well, they certainly participate on both sides. So, yes, we are growing the consignment volume. And yes, we are also a viable purchase channel for dealers as well.

[Gary Prestopino, Barrington Research]

Okay. But you have very few franchise dealers that are using your platform right now.

[Jeff Liaw, President]

We have a good variety of non-insurance consignment sources including dealers of all types.

[Gary Prestopino, Barrington Research]

Okay. Thank you.

[Jeff Liaw, President]

Thank you.

[Operator]

[Operator Instructions] Our next question comes from Joseph Hafling with Truist Securities.

[Joseph Hafling, Truist Securities]

This is Joe on for Stephanie. How are you guys doing?

[Jeff Liaw, President]

Good. How are you Joe?

[Joseph Hafling, Truist Securities]

I just had a couple of quick questions maybe quickly shifting back to the non-insurance business. I was wondering if everything which is going on with rental, if you guys could talk about maybe how that was going, if you had any opportunities on the rental side of non-insurance?

[Jeff Liaw, President]

In short, that's a relevant target segment for us. We have served that segment of the market for some time. Plenty of disruptions as you know Joe in that corner of the universe given what's happened to travel trends over time. So, for all the same reasons that we are increasingly a compelling offering to the dealer universe, we think that's also true for the rentals and financial institutions and otherwise.

[Joseph Hafling, Truist Securities]

Okay. Great. And then maybe just another one from me. I was wondering, if you can give an update on Germany, particularly with maybe some of the problems with some pandemic maybe causing that to accelerate the insurance company there?

[Jeff Liaw, President]

Yes. We remain very excited about our long-term prospects in Germany and continue to invest in our business there, including all the dimensions we've talked about before which is in people and technology, and land capacity, in trucks and equipments and certainly in customer relationship building as well. I think we noted a couple of calls ago that we are selling cars for insurance carriers on a consignment basis. We're delivering some very strong returns and remain very optimistic about Germany and frankly about Western Europe in general.

[Joseph Hafling, Truist Securities]

Okay. But -- you haven't seen anything as far as like the productivity of this conversation increasing because of the disruptions the pandemic caused over there?

[Jeff Liaw, President]

I think, it's too early to tell. I think, there's some -- your intuition is probably reasonable in that if there is a -- I think we have demonstrated that the Copart Germany model is economically superior and frankly even experientially superior for policyholders than the status quo. We talked about that at length in the past, so I won't rehash that entire narrative. But one of the big barriers to out converting the market is just inertia. And so yes to the extent that COVID-19 has forced us all to confront inertia and has up ended a lot of what we consider the ordinary course. I think in that respect yes, this can cause customers to contemplate radical changes in their business.

[Joseph Hafling, Truist Securities]

Okay. Great. Thank you. That was everything I had. Congrats on the quarter.

[Jeff Liaw, President]

Thank you.

[Operator]

At this time, there are no further questions. I'll now turn it back to today's speakers for closing remarks.

[Jay Adair, Chief Executive Officer]

All right. We appreciate everyone showing up for the call and we look forward to reporting Q1 in the future. Thanks again. Bye-bye.

[Jeff Liaw, President]

Thanks everyone.

[Operator]

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