Copart Inc (CPRT) 2017 Q3 法說會逐字稿

(Operator Instructions) It is now my pleasure to turn today's conference over to Jay Adair. Sir, you may begin.

Thanks so much. Good morning, everyone, and welcome to the third quarter call for Copart's fiscal 2017. On the call today is Jeff Liaw, our Chief Financial Officer; and Will Franklin, our Executive Vice President.

With that, it's my pleasure to turn over to Jeff Liaw, our CFO. After the formal presentation, we'll open it up for questions. Thanks.

Thank you, Jay. Good morning, everyone. I'll start with our safe harbor. During today's call, we'll discuss certain non-GAAP measures, including non-GAAP net income per diluted share, which include adjustments to reverse the effect of foreign currency-related gains and losses on our cash balances and the adoption of an accounting pronouncement regarding the tax treatment of executive stock option exercises. We've provided the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our website under the Investor Relations link and in our press release issued yesterday afternoon.

We believe the presentation of these non-GAAP measures, together with our corresponding GAAP measures, is relevant in assessing Copart's business trends and financial performance. We analyze our results on both GAAP and non-GAAP bases described above. In addition, this call may contain forward-looking statements within the meaning of federal securities laws, which are subject to substantial risks and uncertainties that could cause actual results to differ materially from those projected or implied by our statements and comments. For a more complete discussion of these risks that could affect our business, please review the Management's Discussion and Analysis portions in our related periodic reports filed with the SEC.

We do not undertake to update any forward-looking statements that may be made from time to time on our behalf.

Regarding the third quarter fiscal year for Copart, our presentation will be on the same basis as in the second quarter, with the non-GAAP adjustments as described previously. For a representative snapshot of the business, we always recommend focusing on revenue, gross profits and operating income measures.

The third quarter represented record financial performance for Copart in terms of our units volumes, revenue, gross profit and operating income. Starting with the top line, we experienced global revenue growth of 7.7%. This includes the detrimental year-over-year currency effect on our revenue of approximately $7.4 million from our foreign operations, primarily due to weakness in the British pound, which declined over that same period approximately 12%. We experienced global unit sales growth of 8.6%, with U.S. unit growth of 8.7% and international unit growth of 8.5%. U.S. unit growth in particular has been driven both by market-driven growth within existing customers as well as wins, new territory wins with -- among existing customers as well as new customer acquisitions.

There were no substantial effects from catastrophic weather events on our unit sales in the quarter. We experienced global inventory growth of 7.9%. Excluding catastrophic inventory from both periods, inventory growth would have been just north of 10%, at 10.3%. Service revenue growth for us of $28.8 million year-over-year. That's 9.5% growth compared to purchased car revenue decline of $2.2 million or 5.1%, a function of our ongoing shift of principal units to agency arrangements.

Our gross profit grew from $157.6 million to $172.5 million, with an increase in gross margins from 45.4% to 46.1%. A handful of factors are worth describing. We experienced a modest improvement or increase in average selling prices year-over-year of approximately 4% in the U.S., largely due to increased ASPs among our sellers; it's also in part a reflection of scrap and higher ACV-valued cars. Year-over-year scrap for the third quarter was up just north of 45% from $125 per ton to $183. Our sources again are the American Recycler Magazine. They provide regional data across 5 regions. We average that data over the 3-month period in the quarter.

Higher scrap values were offset, again, by a stronger U.S. dollar, which all else equal would reduce selling prices for our cars and our U.S. auctions. For example, the U.S. dollar is approximately 8% stronger versus the Mexican peso in this third quarter versus the third quarter of 2016. Year-over-year, used car values remained flat, up slightly, based on the Manheim Index.

Our general and administrative expenses were up slightly, from $31.7 million to $32.5 million x D&A. As a reminder, long term, we continue to expect our G&A to grow for us to also generate operating leverage on top of G&A but to expect G&A to grow with both inflation and increasing complexity in the business.

EBIT for the business was up 12.2%, from $121.9 million to $136.8 million. That includes the detrimental currency related effect of approximately $2.3 million, again, due to weakness in the British pound. Net interest expense for the quarter was flat from $5.4 million to $5.5 million, due to a higher-funded debt balance but offset by lower drawn rates in connection with our financing amendments of last year.

GAAP net income grew at 21.3%, from $74.6 million to $90.5 million. Non-GAAP net income, which adjusts for the tax -- the book tax effect of executive stock options exercises in connection with our adoption of accounting pronouncements, grew from $74.5 million to $86.4 million, a growth of 16%. Our year-over-year share count was approximately flat on a non-GAAP basis, from $234.6 million to $235.4 million. Therefore, our -- we experienced an approximate 16% increase in non-GAAP fully diluted earnings per share.

We'll turn our attention to the balance sheet and cash flow statements. A few cash flow highlights. Operating cash flow for the quarter was $192.2 million compared to $124.4 million a year ago due to increased earnings, a larger release of working capital due to higher sales. As you recall, our accounts receivable primarily accounts for advance charges paid out on behalf of suppliers when we pick up lots. So AR will move as we pick up inventory. It will decline as we sell.

We experienced also a $35.9 million reduction in deferred and current income taxes. This, you'll recall, is the offsetting benefits to our large cash tax burden in the first quarter due to executive stock option exercises. The third quarter is typically our highest cash flow generation, just given the natural seasonality in the business. On the use of cash side of the ledger, we experience -- we expended capital expenditures of $32.3 million, of which approximately 3/4 is for land development and lease buyouts, consistent with our recent past. We also invested $10 million this quarter to acquire Bright Excavation, which is -- which enhances our capabilities, in particular regarding internal land development, which has been a meaningful strategic priority for us.

With that, I'll turn it over to our Executive Vice President, Will Franklin.

Thank you, Jeff, and good morning. Let me add a little color before we turn it over to the Q&A session.

Once again, we're pleased with the results of our third of our quarter fiscal year. Our consolidated growth in revenue of 7.7% was driven by increased volume of 8.6%. In the United States, sales volume was up 8.7% and was driven by organic growth and market wins in the salvage market as well as continued growth in our nonsalvage business, which grew 8.1% and represented 17% of our total volume. Since the first quarter of fiscal 2015, our average quarterly volume growth has been 12.2%. And while we see quarterly fluctuations due to weather events, business days and changes in cycle times, we see industry dynamics that support continued growth.

In the U.S., we also saw a marginal increase in revenue per car, as ASPs increased. This is due to a reduction in charity cars as a percentage of our total cars sold and, as Jeff has already mentioned, growth in scrap metal pricing as well as the increase in the preaccident value of the cars assigned to us by the insurance companies. We continue our efforts to develop our international buyer base despite the challenges caused by the strong dollar.

In the quarter, almost 20% of our units were sold to international buyers, which is higher than the same quarter of 2015. In this fiscal year, we saw buyers join us from Indonesia, Cyprus and Bosnia. And we saw growth in volume from buyers in countries like Nigeria, Yemen, Afghanistan, Georgia, Armenia and Ukraine. In total, we sell in over 114 countries.

For the quarter, our international operations outside the U.K. remained immaterial in both revenue and EBIT; so we will discuss only U.K., where volume increased 4.1%. The volume was affected by our decision to move away from less-profitable noninsurance volume and which resulted in a growth in EBIT on a local currency basis of 11.7%. In the U.K., 18.1% of our volume comes from noninsurance suppliers. At the end of our quarter, our U.S. inventory was up 8%, and global inventory was up 7.9%. Excluding the impact of CAT volume in the third quarter of last year, U.S. inventory was up 10.8%.

On a consolidated basis, our average cost to process each car remained consistent with the same quarter last year. In a normal environment, we expect to the increase volume to yield reductions in the average process cost due to higher fixed cost absorption. However, in the current environment, new volume is frequently handled with new capacity, not idle existing capacity. Further, we incurred extra operating costs associated with temporary leases, additional trucking to move cars between locations after hours and with staffing that was well in excess of our normal operating models. Despite operating in a challenging environment, we increased our gross margin by 70 basis points.

We remain focused on G&A expense, and we're pleased with our efforts to gain leverage by controlling this growth. Total expenses were very consistent with the prior quarter and the same quarter last year despite the increase in both volume and the number of yards. On a consolidated basis, the stronger dollar had a negative impact on revenue and EBIT of $7.4 million and $2.3 million, respectively.

During the quarter, we continued our facilities expansion activity, announcing the opening of 6 new yards. In the U.S., we opened yards in Ogden, Utah; Long Beach, California; Alorton, Illinois, which serves the St. Louis area; and the 162-acre site in Okeechobee, Florida. The Okeechobee site will not be operated as a standalone yard this time but will serve as standby storage capacity for CATs in the Miami, Tampa and Orlando areas.

Additionally, we opened a yard in Newbury, England, which is about 60 miles west of London, and which brings our total number of yards in the U.K. to 16; and a yard in Betim, Brazil, in the state of Minas Gerais, which brings the total number of yards in Brazil to 6. In addition, we had a 20-acre expansion in San Jose, California. In total, we added over 300 acres of capacity to our network.

Year-to-date, we have announced the opening of 12 new yards and 7 major expansions, totaling almost 600 acres. Our expansion activity will continue, as we believe industry trends will drive future volume growth. That concludes my comments. Brandon, we'll now turn the call back over to you for Q&A.

(Operator Instructions) The first question will come from Bob Labick with CJS Securities.

I wanted to start up, just following up on Will's comments at the end there. You're -- clearly, you've been growing very rapidly and adding a lot of land. It sounds like you've run into a bit of constraints with the volume that you've had and that's why you're adding all this land. Do you -- have you been able, for the most part, to stay ahead of the growth? How much more land do you have to add? And just talk a little bit about the process of adding land ahead of the volume and how you can coordinate it all. Because I know it takes a long time to get the land and permits and, et cetera.

Well, I think we've done a very good job of staying ahead of the demand. And as you mentioned, it's a very challenging exercise, primarily because of the zoning but also in some areas because of the cost. I mean, the per-acre cost in Miami is over $1 million. I think the last time we looked at was $1.2 million an acre, and the South Bay in San Francisco is $1.7 million an acre. And sometimes, you can't solve the problem with money because zoning is very, very difficult to obtain. So we have, like we've said before, a team that does nothing but -- that searches for these sites and a legal team that does nothing but negotiates the contracts and tries to get them secured. We think the growth in volume it will continue. We see the drivers of the volume continuing and in some cases maybe even accelerating. So we anticipate this activity at this level will continue for at least another 24 months.

And Bob, I think it's fair to think of our land acquisition program broadly speaking as -- in 3 different ways. We -- it's a strategic matter for us, it's tactical and it's also opportunistic. But to say plainly, having capacity is critical to our providing the kind of excellence in customer service that our clients are accustomed to, so we are very proactive in staying ahead of the curve. So we will -- you heard us announce a little while ago the acquisition of a large -- a plot of land in Florida, which is both relevant for day-to-day capacity but especially for catastrophic events. So we want to be ahead of the curve 5, 10, 15 years out. It's also tactical. We know yard by yard where we experience congestion, so we are especially aggressive in targeting those areas. And finally, it's opportunistic. So there are moments when plots of land are available that they otherwise might not. be. We've talked extensively about the Los Angeles area being a part of the country we've pursued for decades, but we acquired a major plot of land last year because the right moment in time struck. So it's really all 3 for us. It's very long term, and it's also very opportunistic at the same time. Land, as we've talked about before, is episodic in nature. You can't say, I will spend X million dollars this quarter, I will spend Y next quarter because those transactions aren't always under our immediate control. But suffice it to say, we are happy with where we are but also know that we will continue to invest aggressively, as Will just articulated.

Okay, great. And then just continuing that thought. Obviously, we agreed that there should be continued growth in volume from everything we've read and could even stay at these very high levels and keep growing. In addition to buying land, what else are you doing to deal with and prepare for the greater volumes at your existing facilities?

Land is a primary concern for us, Bob. I think the rest of our business scales very nicely. I mean, we've got a tremendous management team, especially at the GM level, that we can port to new facilities. We have technology that expands very easily. So when we address the issues that surround our expansion and increase in volume, it's primarily focused on land and land acquisition.

Got it. Great. And then my last one, I'll get back in queue, I promise. Just asking for the quarterly update on Western Europe, Germany and Spain in particular. Anything new in the last few months since we've talked that would suggest either a faster or slower rollout than you've previously thought? I know it's an undefined time frame to get moving, but is there any new events there? Or how is it going and what's the progress?

Well, I don't think we ever actually laid out a timetable, other than to say that the discussions are taking place at a number of different levels, and the results are encouraging. And I think the best evidence of our confidence is our initiative to buy 7 new facilities in Germany.

Next question will come from Craig Kennison from Baird.

Will, I think you mentioned that you had downsized your noninsurance activity in the U.K. Could you add a little more color to that decision and give us some feel for how that might shake out down the road?

Yes, we have 2 efforts on the noninsurance side in the U.K. One is similar to our CDS, where we're selling as agents for dealerships and institutional sellers, and the other is where we're actually buying and selling cars from our account. And it's the latter in which we had made some acquisitions, some purchases that were less profitable than we desire. And so we're just more prudent in our buying activity, which decreased our margin but certainly helped our -- decreased our revenue and our volume but increased our margin percentage.

And should we expect for the next 3 quarters for that trend to persistent on a year-over-year basis as we look at revenue growth?

The trend being a reduction in nonsalvage volume in U.K. No, I think we've rightsized it. So I don't think any more adjustments are necessary. But I mean, like I said in my initial comments, there's always fluctuations that -- and influences that impact our volume on a quarterly basis. We look at things on more of a long-term way or a long-term basis.

And then a question for you, Jay. With the additional physical capacity you've added recently, what are you doing on the human capital side to run these operations? I don't think you've had to recruit as aggressively as you may be recruiting now.

Yes, I know last year we added 20% to the company in terms of operating employees. So I think the number was 500 new employees in the field. So we have upped -- I mean, it's a good point. We have upped our recruiting efforts in the field. As you've seen with G&A, we've been able to hold that pretty steady for the year, which has been nice, so there's been some leverage there. And we'll continue -- as we're opening yards in advance of volume, you'll have a period where you continue to hire at a more aggressive rate. And then as you fill those yards, you'll get some leverage. But we've done a great job, we're happy with where we're at, and the operations teams continue to stay ahead of the ball, so we're happy with that.

And as a final follow-up to that, I know you've invested in some excess capacity to handle catastrophes when they arise. How do you plan to change your human capital as it relates to catastrophes? Do you have to add temporary labor? Or do you just shift it around the country as you've done in the past?

Yes, we've got a team of special ops folks that have already identified themselves and let us know they're willing in a CAT situation to spend multiple weeks on the road in affected areas. We've got plenty of people that have signed up for that. So we -- last year, do you remember the number? Was it 7 CATs, 9 CATs? How many do we have last year?

There were 4 major CATs...

4 Major CATs and then...

And several small.

And several small, okay. So at one point, I do remember us having 3 different teams deployed for CAT situations. And the point is -- the point I was simply making, Craig, is it was a very busy CAT year, and busier than normal. So one never knows how busy it's going to be this year and in future years, but we were more than prepared last year. And I'm very confident that we're prepared for our customers as we sit today.

Let me add another comment to that. So one of the concerns when a CAT situation arises is our ability to get transportation and sub-hauling capacity. And for that reason, we actually developed our own internal fleet of 50 trucks. So that in a CAT situation, we're not negotiating with others or bartering with us to get volume. We can dedicate our own volume to that area to address the extra need. So we've got the extra equipment. We've got mobile facilities that we can put on site when needed. So I think we -- we've learned so much from Katrina all the way through Sandy that I think we're in a pretty good shape when it comes to addressing CATs.

Your next question will come from Ben Bienvenu with Stephens.

This is Daniel Imbro on for Ben. I wanted to start with operating margin. We saw a pretty nice expansion in the quarter. What were the puts and takes to that line item? And then maybe following on that, what do you think is proper operating leverage in the business in a normal ex-CAT environment?

So I was having a hard time understanding the question. The question was, what's the future of our operating margins?

Yes. We saw a nice -- we saw a good expansion in the quarter, as we didn't have any catastrophic events. I was wondering what's a good run rate for operating leverage in a normal growth environment.

I'm not sure how to quantify that. It depends on a number of different things, the location, the nature of the cars, the number of purchased cars versus agency cars. We -- what we focus on is -- our primary metric is EBIT per car. And we do that by controlling every aspect of our operating cost. And so we -- every month, we spend an extraordinary amount of time dissecting all of our cost and identifying areas that we can improve. In terms of where you get your best operating leverage is when you can pump more cars through existing capacity. And it's been challenging more recently because we've had to go out and locate [good] capacity to address the current volume influx. And as Jeff has already alluded to, we've done a great job in leveraging our G&A to expand our operating margins. Our business is very scalable to G&A level, and so we expect while G&A costs will continue to grow, we think the leverage on those G&A costs will also continue.

And Daniel, we don't a have precise number. We've never guided to what our marginal contribution would be. I think we -- what we've said before and can reiterate here is that on an incremental unit a substantial portion of our costs are variable and a substantial portion are fixed. The variable portions are the sub-haul expense, of course, titling expense, et cetera, those happen literally on a per-car basis. But there are aspects of our cost, labor and otherwise, utilities, and so forth, that are fixed or semi-fixed. As you've heard us describe and just heard, we'll say again, there are constraints to that. And we've experienced that over the past few years, which is why we have invested in additional capacity in New York.

And then maybe following on that capacity investment, are these investments still margin neutral, with the increased G&A being offset by increased efficiencies in the yard? Are you seeing that right now?

So I think the best way to think about it, first of all, it doesn't affect G&A that substantially. Most of the expenses that we incur in connection with a new yard would be at the yard level and, therefore, show up in our yard expenses. I think you're rightly attuned to the point that there are puts and takes. The day 1 savings for us are that we save money on sub-haul because a new yard is, by definition, closer to some of the accidents than your -- some of the accidents and repair shops than your prior network of yards were. Day 1 savings can also include the relief of some congestion. So as yards become overstocked, it can be expensive to touch a car multiple times or make it more difficult to access the vehicles you want to reach. There are also, of course, offsetting labor considerations. And the day you open a yard, you've added headcount that won't be as fully leveraged as you were prior. So those offsetting considerations will then layer in. As we've added new yards every quarter, there are some yards that are "maturing" and then also some yards we're newly adding. So I think the effect in our business over the long haul won't be pronounced. I think you see it over the past few years as we've added capacity.

The next question will come from Ryan Brinkman with JPMorgan.

This is Samik on behalf of Ryan Brinkman. The first question we had is looking at the volume growth this quarter. I think you mentioned 8.7% in the U.S., and while that's pretty much in line with I think what you've guided medium term of 8% to 10%, that's still a desperation from the 18% you had last quarter. So I just wanted to get your thoughts on probably what drove that desperation as well as what you are seeing in early half, fourth quarter in terms of trends and if all the self-congestion that you're seeing in the yards had a role to play in that desperation?

We don't typically provide forward guidance, and we'll continue to adhere to that general policy. But as for the difference in growth rates in any given quarter, there are a number of different factors can affect it. But most importantly, as you heard us talk about on the last call and on prior ones, there was a major customer win in the second quarter of last year, which we are lapping. The business continues to grow including with new account wins. But I think tracking any individual quarter and overanalyzing I think will leave you astray. If you compare our inventory growth numbers and our revenue growth numbers, they tend to move in relationship but not in a perfectly correlated manner. So that -- there's no one-sentence explanation for the difference between 8%, 9% versus the mid-teens you saw previously.

Okay. Got it. And just last one from us. You ended the quarter here with $200 million of cash, is there -- roughly $200 million of cash. Is there a minimum level of cash that you look for to maintain in the business? And as we look at like capital allocation opportunities that you have between investing in the business and buybacks, et cetera, what are the areas that you're looking at, and how are you prioritizing them right now?

There is a minimum level of cash needed to run the business day to day. That level is meaningfully below what we have on our balance sheet. But the cash on our balance sheet is a function of a number of different things, including our reinvestment expectations overseas, part 1; part 2, tax policy considerations as well. And as you know, there may be changes on the horizon or not and then, of course, our own balance sheet optimization in terms of debt levels and so forth. I think the question you're getting to is stock buybacks and capital deployments. I think our script will remain the same as always. That is how long term we have returned the capital to shareholders. That will continue to be our approach for the future. But as for precisely when and how much and where, we don't have specific plans and can't comment on them.

The next question will come from Gary Prestopino with Barrington Research.

Most questions have been answered, but in the U.K., can you maybe tell us -- you said 18% of your business is noninsurance at this point, which should make 82% insurance. In terms of that insurance business, where do you stand with cars that are purchased versus cars that are auctioned off on a fee basis? Can you give us some percentages there?

Yes. It's about 25/75. About 75% of our volume is fee-based, about 25% is sold on a principal basis.

Okay. So that's a significant flip, right? Because when you first got into the U.K., you were purchasing almost everything, right?

That's correct. Yes.

Okay. And then lastly, and I know I asked this question in the Q2 call, about the tax rate. I think the tax rate was down like 34% in Q2, and I think I said, going forward, what kind of tax rate should we use. And I think you guys said 36%. Obviously, it was down again in Q3. And if you back in that -- add back that benefit, it looks like it's about a 34% tax rate overall. Is that like a new lower level tax rate for you guys, somewhere in the 34%, 33% range?

No. We -- and I think when you said -- we said 36%, I think Will -- I want to say it was 5 or 6 quarters ago, we said 35% to 36% is the ongoing rate. And barring statutory change, that's still the right starting point. There will be fluctuations up and down depending on the particular events of a quarter.

Okay. So just use the 35%, 36% range on a GAAP basis going forward?

Yes. Correct.

The next question will come from Elizabeth Suzuki with Bank of America.

Can you just talk a little bit about international markets? And do you think there are international markets outside of the U.K. and Germany that would be good opportunities for future growth? Maybe markets that have somewhat similar fleet and insurance dynamics and would be good candidates for market share expansion over time?

We do. In fact, when we talk about Germany, we're really talking about all the E.U. And depending on how you define the E.U., if you include Turkey, you've got a market that's actually larger than the United States. And we think the value that we bring to that market is demonstrated not only in how receptive Germany is to it, but I think we provide a better solution for both the buyer and the sellers and national policyholders themselves. So we think that once we have the infrastructure in place that we have an opportunity to grow throughout all of the E.U. In the other parts of the world, we've analyzed I think the markets in terms of attractiveness, and we're pursuing those, one in Brazil or in India, and we have incipient efforts in China. So I think we have opportunity. We'll pursue them. And it'll take several years and won't have any short-term impact on our -- we don't anticipate any short-term impact on our financial results.

Great. And just one more quick one, which is, some of the other auction companies are working to monetize the data that they collect on a daily basis from their auction transactions. What do you view as the potential opportunity, if any, to use your data, given the sheer number of transactions you're involved with every month?

Well, I think that the best opportunity to monetize our data is to provide their service to our sellers and our buyers. And so to the extent we can predict with accuracy the ultimate auction value of a car, then that helps them in making their salvage decision. That's probably one of the primary focuses. I think the other areas to find out on the buyer side, which buyers have propensity to buy certain types of cars and how we can best market those types of cars to those specific buyers. So that's the primary focus for developing our business intelligence efforts. Then on the operational side, there's opportunities to become more efficient by utilizing technology to make some of the decisions that now are made manually, for example, the severity of damage decision that we make at the time that we receive a car. So we're exploring a number of different ways that we can use this data and new technology to make our operations not only more efficient and more profitable and more attractive to our sellers.

Okay. But no immediate plans to like sell that data to outside sources or anything like that?

None.

(Operator Instructions) The next question will come from Matthew Paige with Gabelli & Company.

Just one final question for me is, could you provide any regional color for the U.S. in terms of volume increases and if there's any outliers there?

No, I really can't think of an area which we have outliers absent the acquisition of new business. In terms of organic growth, I think is we haven't seen an area that exceeds others. I can tell you that in terms of some of the new business we've acquired that has required us to focus more efforts on capacity expansion in a very short horizon.

Got it. And just to sneak one in to follow up on that. I know you've talked about how land is purchased opportunistically, but is there any area that you wish you could buy more land today?

Sure. Yes. There's several. I mean, Southern California, Miami, New England, Minneapolis. I -- just almost every place. We're -- we've absorbed almost all our excess capacity, and so we have a lot of ongoing efforts to expand in almost every part of the United States.

Your next question will come from Bret Jordan from Jefferies.

It's David Kelley on for Bret. Just a quick follow-up to the earlier regional performance question. We're hearing from other auto sectors, really in the aftermarket, that mild February weather negatively impacted volumes. Is that something that you observed as well? Anything related to the Northeastern Midwest markets in particular on your end?

No, we really don't. We're so broadly focused that weather patterns in one particular area aren't something that gain our attention. They -- and there's ebbs and flows to them, so we plan our capacity around peak need. And so if we do that, then the fluctuations that occur in the spring really don't have that much of an impact on our operations.

Okay. Perfect. And I guess, on that note, any change in the usual cadence of RFP activity on the horizon here? Maybe at a higher level, given your recent land investments, how does that ultimately play into the kind of the RFP bidding process going forward here?

RFP, that process continues. It's ongoing, and we're involved in that process continually. And I really can't say that there's been any spike in recent activity. It's just ongoing as normal, and we're aggressively pursuing every opportunity.

The next question will come from Bill Armstrong with CL King & Associates.

When we look at organic volume growth, we've got some drivers like miles driven, accident frequency, total loss frequency. When you kind of look at those factors, what do you think are the most important ones that are driving in volume? Do you think they're sort of equally weighted across those factors? Or maybe there -- is there one that's maybe dominating more than the others?

Yes, by far, it's total loss frequency.

And Bill, over what period of time do you mean?

Over the last year, let's say. Or maybe just year-to-date for this fiscal year?

So [if it's] total loss frequency, primarily driven by the increase in repair costs. And then -- there's a number of factors that influence that growth, and frankly -- and we've talked about all of them. We've talked about the complexity and the content of cars and the precision of the manufacturing process and the difficulty in achieving that in the collision repair environment without special skills and tools. And we see that accelerating. What some people sometimes ignore is the fact that the collision industry itself is changing. There's a tremendous consolidation process that's ongoing. And we see that continuing. We see that the repair facilities that are successful in this environment are those that have the capital to spend it on deploying internal skills and internal training programs as well as buy the specialized equipment that are needed. So all those lead us to expect that repair costs will continue to grow and perhaps even accelerated in their growth.

And Bill, I think Will's good color is backed up by the basic math, right? So if you compare the growth in miles driven isn't -- the economy still remains reasonably healthy. It's still in the low single digits. Accident frequency is up, but again modestly, low single digits. But if you look -- if you take it a proxy for industry growth, the unit growth trends for us and our major competitor together, that rate is much higher than the growth you would see in miles driven and in accident frequency. So the only thing left then is total loss frequency. That is both the near-term and long-term driver. That's been the big change over the past 15 or 20 years in our industry. Historically, a function we think of vehicle age as the fleet's gotten older, the propensity for total loss has increased going forward. That likely remains true. And also with the added vehicle complexity you just heard Will described, you'll see that as a factor as well.

And it doesn't sound like those secular drivers are going away anytime soon either?

The secular drivers being, you have miles driven...

No, in terms of vehicle complexity and just a lot of older cars on road.

Agreed.

That's for sure, Bill. But I would add the -- all the technology that's going on the outside of the car, from cameras to lidar, radar to -- all that is going to increase cost of repair. So that's a big piece and what we're also looking at. Going forward, we think there's going to be higher total loss frequency associated with technology.

There are no further questions at this time. I'll turn the conference back over to you.

All right. Thank you so much again for attending the third quarter conference call. And we look forward to reporting on Q4 and the year-end on the next call. Thanks so much. Bye.

Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect your lines. Have a great day.