Copart Inc (CPRT) 2018 Q3 法說會逐字稿

Good day, everyone, and welcome to the Copart, Inc. Third Quarter Fiscal 2018 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. Jeff Liaw, Chief Financial Officer of Copart, Inc. Please go ahead, sir.

Thank you, Cathy. Good morning, everyone, and welcome to our third quarter fiscal 2018 earnings call. I'll start with the safe harbor in a moment. I'm joined today by Executive Vice President, Will Franklin, who will also provide additional commentary on the business.

First, the safe harbor. During today's call, we'll discuss certain non-GAAP measures, including non-GAAP net income per diluted share, which includes adjustments to reverse the effect of foreign currency-related gains and losses, impairment of long-lived assets, acquisition-related fees, certain income tax benefits, foreign income tax credit limitations and payroll taxes related to accounting for stock option exercises.

We've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our website under the Investor Relations link and in our press release issued 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 a GAAP and non-GAAP basis described above.

In addition, this call contains forward-looking statements within the meaning of federal securities laws, which are subject to substantial risks and uncertainties that could cause actual results to differ materially from those projected or implied by our statements and comments.

For a more complete discussion of the risks that could affect our business, please review the management's discussion and analysis portions in our related periodic reports filed with the SEC. We do not undertake to update any forward-looking statements that may be made from time to time on our behalf.

Now I'll transition to a review of Copart's third quarter. We're pleased to report all-time highs for Copart in unit sales revenue, gross profits and operating income. We experienced global revenue growth of 27.9%, including a beneficial year-over-year currency effect of $8.6 million, primarily due to relative strength in the British pound. Excluding Hurricane Harvey, which had a modest effect on the quarter, we experienced revenue growth of 27%.

Global unit sales grew at 12% versus the third quarter of last year, with the U.S. unit growth of 12.7% and international unit growth of 8.5%. Our growth in the U.S. has been driven by market growth, customer wins and acquisitions.

Inventory worldwide grew at 8% year-over-year. Less than 1% of the inventory at the end of the quarter were catastrophic vehicles related to weather events and approximately 1% of the inventory growth is attributable to acquisitions, which we'll comment on later in the call.

Service revenue grew $78.4 million versus last year or 23.6%, and purchased car revenue grew $25.9 million or 62.4%, in that case due to acquisitions and growth in certain European markets.

Our gross profit grew from $172.5 million a year ago to $219.1 million this year, with a slight decrease in gross margins from 46.1% to 45.8%, driven by a slightly higher vehicle sales mix and, importantly, Hurricane Harvey expenditures of $7.4 million for the quarter.

I'll pause here to talk about average selling prices, which, as you know, are a driver of our business. We experienced improvement in ASPs year-over-year of approximately 17% in the U.S., 16% x catastrophic cars.

Continuing the themes you've heard us talked about on the last few calls, the underlying drivers of this sales price improvement have included our auction performance and member recruitment. But additionally also newer cars being totaled, less severely damaged cars, more bidding activity, a reasonably healthy used car price environment and a solid scrap environment as well. Will will additionally comment on this matter further on our call.

I noted a moment ago that our gross margin was affected by excess catastrophic expenses of $7.4 million in the quarter. After taking into account revenue from those same catastrophic events, Hurricane Harvey represented a net effect of $3.9 million operating loss for the quarter and a $12.8 million loss through the first 9 months of fiscal 2018.

Turning our attention to general and administrative expenses. They were up to -- up from $32.5 million a year ago to $39.1 million this year x depreciation and amortization, with almost half of the increase due to acquisitions.

As we've noted consistently, our general and administrative expenditures will grow over time with inflation and with increasing complexity in the business. We continue to believe we can achieve operating leverage given the top line growth rates we've experienced.

Our GAAP operating income grew from $136.8 million a year ago to $174.6 million this year or a 27.7% change. Excluding that catastrophic loss of $3.9 million I noted a moment ago, our operating income growth would have been 30.5%. We have shown slight operating margin expansion despite the modest shift towards vehicle sales revenue.

Our net interest expense for the quarter was down from $5.5 million a year ago to $4.1 million this year due largely to a lower debt balance offset slightly by higher interest rates -- higher risk-free interest rates.

Our third quarter income taxes reflect the benefit, of course, of a lower year-over-year effective tax rate by virtue of the Tax Cuts & Jobs Act. The income taxes for the 9-month period reflect the complexities of the onetime transition tax accrual of approximately $10 million on unrepatriated foreign earnings, which will be paid over the next 8 years and is subject to further guidance and fine-tuning from the IRS.

As we've noted on the last call, we'll experience a reduction in our U.S. federal tax rate this year from 35% last year to 26.9% in fiscal '18 due to our straddling the calendar year with our fiscal year. Our fiscal '19 tax rate then will be lower still to account for the full year benefit of a 21% federal tax rate versus the 26.9% federal tax rate we'll experience here in fiscal '18.

Our GAAP net income increased from $90.5 million to $127.3 million or 40.6% growth year-over-year, due largely to revenue growth as well as the benefit of tax rate changes. On a non-GAAP basis in the schedule we've provided to you, we reflected growth of -- in net income from $86.4 million to $125 million, growth of 44.7%. This, in both cases, excludes the booked tax benefit of our early adoption of ASU 2016-09 regarding the tax treatment for stock option exercises, of $3.1 million in the third quarter of '18 and $4.0 million in the third quarter of '17. It also excludes currency-related gains on cash balances of $0.3 million in the third quarter of '18 and $0.2 million of losses in the third quarter of '17.

Our effective share count has increased slightly from 235.4 million to 239.9 million, largely attributable to increases in our share price. Our non-GAAP EPS increased substantially from $0.37 a year ago to $0.52 this year. A few notes on cash flow. Our operating cash flow for the quarter was $190.8 million compared to $192.2 million a year ago due to substantially increased cash earnings in the current year, offset by a significant cash tax benefit in the third quarter of '17.

Our CapEx of $68.8 million, consistent with prior quarters, of which over 90% is for land and development, continuing our land and facilities expansion program. We do expect that investment profile to remain elevated in the quarters and years to come.

One last comment and I'll turn it over to Will. This week, we received a jury verdict in our favor of a net $16 million in a finding of professional negligence and fraud against Sparta Consulting, now known as KPIT, a systems implementation firm we had business dealings with ending in 2013. In accordance with GAAP, this verdict is not yet reflected in our financial statements.

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

Thank you, Jeff. Let me provide some operational narrative around Copart's performance for the quarter. Some of my comments may seem familiar; however, they remain appropriate as we have not seen a meaningful change in the market dynamics or the direction of our efforts.

In the U.S., our tremendous growth in revenue was primarily driven by increased volume, which on a year-over-year basis was 12.7%. Excluding Harvey, it was 11.9% and was driven once again by organic growth and wins within the insurance market, the continued growth in most of our noninsurance segments and acquisitions.

Total volume from noninsurance sellers, which include franchise and independent dealers, finance companies who give us the repossessions and off-lease vehicles, charities, municipalities, equipment dealers and brokers, grew by almost 38%.

Within the noninsurance market, we are seeing a shift in mix as growth in volume from dealers and financial institutions was up almost 83% while volume from municipalities and other low-margin sellers declined as we've continued to dedicate our limited land capacity to the more profitable segments.

Volume from dealers and financial institutions are typically run-and-drive vehicles that yield an average ASP at an average gross margin significantly greater than insurance cars while at the same time having a shorter cycle time. In total, noninsurance cars represented almost 21% of total car volume in the U.S.

We believe growth in these noninsurance markets is attributable to the introduction of new programs, services and brands targeting each segment's specific needs as well as our ability to deliver outstanding auction results.

In the U.S., our service revenue per car on a quarter-over-quarter basis was up approximately 9%. The increase in revenue per car was due primarily to higher ASPs. As Jeff has said and I'll illustrate a little further, the increase in ASPs were driven by a number of factors: the value of used cars as measured by the Manheim index was up almost 6%; the value of crushed car bodies, as measured by indexes maintained by American Recycler, were up over 13%; benefits from mix of cars sold, as previously discussed, and increased bidding activity as both the number of unique auction participants and the number of bids per car are up significantly year-over-year. Further, we are seeing a trend from the insurance companies in which they are totaling cars that are less severely damaged as the high returns we are generating for those types of cars and the increase in repair costs make such a shift warranted.

We are seeing a significant benefit from our international buyers as total bidding activity from this group is up over 46% year-over-year. The percentage of the value of cars sold to international buyers, based on the buyer's business address, increased over 10% and stands at 22.3%.

However, we know this percentage significantly understates the number of cars being exported as many exporters have domestic addresses. Based on the IP address, we estimate 30% to 35% of our -- all cars sold in the U.S. are ultimately exported.

During this quarter, Jordan became our fourth largest export market, following Mexico, UAE and Nigeria. Canada continues its remarkable growth. Year-over-year volume grew by over 45% as our Canadian leadership team matures, our infrastructure expands and we grow our share with the Canadian market. Due to this growth, we are actively searching for land in Moncton, Halifax and Toronto, and we will soon be announcing a significant expansion of our yard in Edmonton.

Turning to the U.K., we are also generating another strong quarter. We saw a marginal growth in the units sold, resulting in part from our decision to eliminate the low-margin cars from our direct purchase program and to eliminate, in total, cars sold from certain municipalities. Nevertheless, expressed in GBP, revenue grew almost 10% as these strategic moves resulted in a significantly higher yield per car.

Volumes in Germany continued to grow. Volumes for March and April were more than double their run rate for the previous 4 months. We have now entered into arrangements on a limited basis to remarket cars for 4 insurance companies and 3 rental car companies. We hold biweekly auctions at our Hanover yard. And in April, we had our first auction at our new Leipzig yard. The Leipzig auction will continue to be held on a monthly basis.

We're also very pleased with our German auction results. Auction buyer participation continues to exceed our expectations as the number of participants and the number of unique bidders per auction are actually higher than those same metrics for North America. Returns achieved through our German Copart auctions significantly exceed those achieved through the existing remarketing conventions currently available to the German insurance industry.

Key to growth in volume in Germany is the expansion of our network of facilities. In addition to our operational facility near Hanover, which was opened in our first quarter of fiscal 2017, and our new facility in Leipzig, which, while not officially opened, is in a state of development that allows us to hold auctions, we had 5 other locations in Germany targeted for acquisition and development, including Germany, on which we expect to break ground within the next 2 quarters.

In March, we announced the acquisition of AVK, a salvage operation in Finland. AVK has 4 yards and a robust base of buyers, including buyers in Russia and the Baltic states. It was an opportunistic acquisition and it fits in well with our goal of expanding our footprint throughout all of Europe.

We are also seeing meaningful progress in Brazil, where expressed in reals, revenue grew by almost 16%. As our Brazilian operations matures and we continue to gain market share, we expect it to become a more meaningful contributor to our overall financial performance.

Turning to our operating cost, we are seeing rising diesel fuel, labor and health insurance costs. These increases have impacted our average cost to process each car. On a consolidated basis and excluding the abnormal costs associated with Hurricane Harvey, our average cost to process each car grew marginally over the same quarter last year.

Our inventory in North America was up 7.3%. Inventory outside of North America was up 13.6%, and consolidated inventory was up 8%.

As we have previously discussed extensively, the drivers for the growth in North America total loss market -- we will continue -- we see the continued trends in both accident frequency, total loss frequency and growth in car park. We expect to see continued growth in car park and accident frequency. Car park growth has been driven by new car sales, which have remained surprisingly robust, with the SAR hovering around 17 million and, more importantly, by the decline in used car scrappage as the number of registered cars over 10 years old continues to grow.

We also expect continued growth in total loss frequency as we believe car complexity in terms of materials, technology and manufacturing challenges will accelerate the growth and repair cost. While at the same time, our scale, technology and member recruitment efforts, both domestically and internationally, will continue the current trend of increasing auction returns.

Last quarter, our North America volume, excluding cats, grew by over 10%. Over the last 17 quarters, our year-over-year quarterly volume growth has averaged 10.9%. Accordingly, we continue to be extremely active in our yard expansion programs. While we did not announce the opening of any new yards in North America this quarter, we did announce the expansion of 4 existing facilities.

Additionally, during the quarter, we closed on 17 -- 7 new land transactions, including 3 leased buyouts. We now own over 80% of our land. In total, we have closed on 22 land transactions in the last 2 quarters. We currently have 18 land development projects under construction, which when completed, will deliver over 650 acres of capacity and includes a nonoperational CAT yard of over 100 acres in North Carolina.

That concludes my brief remarks. Now I'll turn the call over to Cathy for the Q&A session. Cathy?

Our first question comes from Bob Labick of CJS Securities.

A couple of questions. I wanted to start with cycle times. Volumes remain very strong. Inventory growth is strong as well, but volumes continue to exceed that. Can you talk a little bit about the drivers behind that, if you're seeing changes in cycle times? And if so, how are you achieving that or how you're getting the throughput that you're getting?

I'm not sure I understand your question, Bob. Do you mind elaborating and give me...

Sure. If inventory's up 8 and volumes in the subsequent quarter are up 12, and typically maybe it would have been in -- I know it's never the same every quarter, but they usually will line up over a number of quarters. We've been seeing trends of multiple quarters with the volumes exceeding the inventory, which could imply increased cycle times or, I guess, decreased cycle times on the lot. And so I was just trying to see if you could talk a little bit about the flow-through of cars. And perhaps it's related to that shift to noninsurance that Will, I think, talked about on the run-and-drive cars or any explanation or help and color behind that would be great.

Sure. I'd say, broadly speaking, Bob, there hasn't been any systemic shift in cycle time in terms of what it takes for us to process a car through the Copart system. I think as you note that Will did provide the additional color today that the growth in our noninsurance business, it ebbs and flows relative to the insurance business in the past quarter plus the growth has substantially outpaced our insurance growth. Therefore, the cycle times on those cars are certainly shorter, and that has helped to drive some of the "outperformance" of unit sales. But no, not an underlying systematic shift in the business.

Got it. Okay, helpful. And then maybe just a little more color regarding that shift to noninsurance. Is it a quarterly ebb and flow? Is it a longer-term shift we could expect to see in the future? Or how are you thinking about the shift to noninsurance and then the shift within noninsurance?

So when I said -- and I misspoke. And so when I say ebb and flow, I certainly don't mean the growth in the business. The growth has been consistent. I just mean that we have had calls in the past few years, for example, in which the insurance growth outpaced the noninsurance growth. The noninsurance business has grown consistently. We think it's a reflection in part of our excellent auction results, our member recruitment, which is a virtuous cycle. So the dealers and the like are achieving excellent results and, therefore, are more inclined still to consign cars through Copart.

As for the shift among noninsurance, we tend to talk about it as one chunk of business. As Will noted, the business is very different. There are dealer cars, certainly financial institutions as well and charity volumes as well. Recognizing we have scarce resources, we, of course, want to deliver, first and foremost, excellent results and excellent service to our insurance carriers but also to our noninsurance providers. We have to prioritize accordingly within that segment. That's why you heard Will describe growth in the dealer segment, for example, outpacing growth in our charities volumes.

Got it. Okay. Great. And thank you for the color on Germany. It sounds like things are going really well, so I won't ask questions on that, but I will ask -- you mentioned Brazil. It was an exciting topic a couple of years ago and kind of got superseded, so to speak, by Europe. Can you just give us a little update on the market in Brazil and how that is progressing and maturing?

Sure. I'll provide some comments, and Will can jump in as well. I think the Brazilian investment at the outset we made as a long-term strategic play for Copart. We were temporarily affected, of course, by Brazilian macroeconomic and social issues that caused, for example, the currency to crater relative to the dollar. In and of itself, the Brazilian business has performed quite well. And we, as you heard today, we believe our growth prospects there remain quite promising. So the business is doing well. Absent the currency and macro issues that, that economy has faced over the past few years, I'd say it's objectively been very strong for us.

Okay, great. And then last one and I'll jump back in. The G&A, you noted, jumped from the acquisition and other growth. Is there a kind of a quarterly run rate? Is this the right run rate or -- that we should be thinking about on a go-forward basis?

As you know, Bob, we don't provide any forward guidance. I think we have been consistent in saying that always taking a multiple quarter view on things like G&A and is the right analytical approach, so I wouldn't take one low quarter or one high quarter and necessarily extrapolate forever off of that basis alone. So the acquisitions that you heard us describe were NPA and the Finland business, AVK, which we acquired as well. NPA, I think you know, occurred almost a year ago. AVK is smaller in comparison. I would take a multiple quarter view as opposed to extrapolating solely from the third quarter, the second quarter, the first quarter alone.

(Operator Instructions) Our next question comes from Ben Bienvenu from Stephens Inc.

I wanted to ask about the cash generation of the business. It is significant. You've shown, at least episodically, a willingness to acquire. I know Europe is kind of the next frontier of growth for you guys. To what extent are there incremental acquisition opportunities like AVK versus just building that out organically? And how do you envision deploying cash and prioritizing your cash flow deployment over the next several years?

Sure. Thanks, Ben. We always remain open, of course, to strategic investments that help to enhance our core business and are themselves financially attractive. So we, of course, wouldn't rule anything out in that regard. That said, the major European markets that we're pursuing in earnest, Germany most prominently among them, don't have like-for-like Copart auction model businesses in them, so we are developing the business for the first time in those countries as opposed to acquiring existing enterprises. So if they happen, they won't be substantial acquisitions in the core markets in which we're participating today.

Understood. And then just a clarifier or follow-up on the whole car noninsurance business. Is that flowing both through the service and vehicle sales revenue? And I have one quick clarifier on the vehicle sales revenue as well.

In short, yes, both, but not disproportionately one way or the other.

Okay, great. And then on the vehicle sales revenue, I think last quarter, you had said that's predominantly being driven by ASP growth. Is that still the case today? And is -- as you think about the growth within that business, do you expect to devote a similar amount of your own capital to sustaining volume growth there? And if so, why or why not?

You're talking specifically about our purchased car revenue, Ben?

That's right. Exactly.

No. So the ASPs would have a modest effect there, meaning for the like -- for the same volume in this quarter versus a year ago, yes, selling prices are higher, so that has caused some of the lift. I think it's -- there's a tendency to overweight the vehicle sales revenue because it is a much bigger portion of the revenue, of course, than it is of our actual contribution. Because in effect, the gross merchandise value, the GMV, is in the revenue number as opposed to the rest of our business. So it's still small on balance. We don't view it as contributing or consuming a meaningful portion of Copart's capital base. I think it's more noise than substance, frankly, in the P&L.

Our next question comes from Ryan Brinkman of JPMorgan.

(technical difficulty) my question. Just relative to the noninsurance business, how high do you think that your noninsurance mix could get over the next few years? And what might that mean for your profitability or margin? And then maybe just more generally, how would you sort of subdivide the opportunity between those kind of nontraditional salvage cars sold by noninsurers versus more whole car type of cars sold by dealers, et cetera, more similar to like ADESA and Manheim today?

Ryan, thanks for the question. We're not prepared to comment on the forward market size or revenue size for Copart. I think it's fair to say that the growth potential for us remains substantial for those cars, as we've demonstrated in this quarter and in recent quarters as well.

Okay, great. And then just lastly -- go ahead, please.

We're not looking to change our model to go to live auction or to change the operational structure at our facilities. We're reaching out and trying to enhance and add volume that fits well within our model. And if we can do so by introducing new brands or back-office programs, then we're very attracted to those opportunities.

That's helpful. And then just lastly for me, I appreciate the color and the materially higher volume in Germany. I'm curious if your experience there so far suggests that other continental European markets might be attractive for you to expand into with physical locations. Have you done any work on that potential opportunity? And then when IAA is an independent company, do you think that they might represent more competition for you in international markets? Anything to think about there?

Yes. All of Europe is attractive market to us. Our focus right now is Germany. And if we're successful in Germany, we think that the rest of Europe will follow suit just by virtue of the fact that many insurance companies are pan-European. And understanding the effort it takes to expand internationally, which is tremendous, and it's just not a matter of learning the laws. It's developing the systems and buying and developing the facilities, which require not only time but a lot of capital. It would take years for anyone to enter the market and compete against us at this point.

Yes, I think it's worth noting here that Copart extended internationally or overseas more than a decade ago into the United Kingdom. And the capital, the management bandwidth, the expertise, the technology it takes to pursue opportunities like that is substantial. So not commenting per se on what any competitive -- competitors might do, we recognize the investment is substantial and that we control our own destiny. So we intend to invest thoughtfully and aggressively to expand those markets and believe that it's largely in our control.

Our next question comes from Gary Prestopino of Barrington.

I wanted to touch on these noninsurance cars. Could you -- noninsurance was about 21% of your volume this quarter. Do you have the number of what it was last year at this time on a percentage basis?

No, but we can get that for you.

Okay. And then with this mix shift to dealer cars was up -- you said the units were up about 83%. Are they starting to become more of a contributor to your noninsurance cars? I mean, relative to the charity cars or whatever, how has that mix evolved over the last -- on a year-over-year basis? Is it more than 50% dealer cars now?

In our noninsurance business, no. It's not. I'm going to -- we were at 16.1% in North America, third quarter of last year for noninsurance.

Okay. So that's still (multiple speakers).

Yes. And most of the growth, like we've said, has been with the higher end cars from dealers and financial institutions. And these are really nice cars. They bring a high ASP. And we wouldn't be getting these cars if we weren't develop -- returning a nice return to these suppliers. They can remarket these cars anyplace and they're selling to us. So we're very happy with the returns that we're providing, very happy with some of these programs that we've put in place to help reduce friction at any point in the process for both the buyers and the sellers with respect to buying these cars. And we don't -- while we don't make any predictions, we think the dynamics we're currently experiencing should continue.

Well, that's what, I guess, I'm just trying to get at here to get an understanding. This is great that you're doing this. But whereas maybe a year or 2 ago, most of your account base may have been independent dealers with this product. It sounds like it's moving more towards franchise and maybe towards commercial consignors. Is that a correct assessment?

No, we really don't do much with franchise dealerships. It's just an expansion of our independent dealership program.

Okay. So all right, all right. Okay. So you're just getting -- because of what you're doing, and you're doing it well, you're just getting a more higher-quality car from the independent dealers?

Yes, both in volume and in quality, better cars.

(Operator Instructions) Our next question comes from Craig Kennison of Baird.

This is on the German market again. I think in the U.S., you have said that approximately 35% of your bidders are coming from outside the United States. I'm wondering what that metric looks like in Germany and really to what extent you're able to leverage an existing buyer base that you have cultivated while those bidders were looking at U.S. cars maybe several years ago, but now can look at German cars today.

I don't think there's been an extensive utilization of U.S. buyers on the German market. I think they developed their own market, their own buyer base. I can tell you that in terms of the number or the volume of cars that are going outside of Germany is very, very high, approaching 80%, mostly to Eastern Europe and Poland.

I guess that was my question. It was my understanding that many of those Eastern European buyers were, at one time, bidders at U.S. auctions and maybe you've been able to leverage that customer base to buy cars that are located in Germany.

No, we really haven't seen that. We did have a -- (inaudible) and that remarketed cars under the old convention, or I guess the existing convention for establishing residual values on salvaged cars. And many of those buyers are transitioning to the Copart platform, but we really haven't seen many of the U.S. buyers transitioning.

And Craig, further to that point, as for the international activity on U.S. cars, that continues to rise year-over-year in terms of the number of bidders, the number of bids, the number of cars that go internationally. That trend for U.S. supplied cars continues to shift internationally.

And then as it relates to your Finnish acquisition, to what extent does it bring new insurance customers or a new buyer base that you could leverage beyond what you're doing in Finland, but even with respect to other aspirations in Europe?

Well, actually, the acquisition was from an insurance consortium that owned this salvage enterprise. So we feel very comfortable that we'll retain that business. In fact, there aren't many other options. One of the things that was attractive about it was the fact of enhancing our buyer base in Germany and other European locations.

Our next question comes from Chris Bottiglieri of Wolfe Research.

So if I hit back on the, I guess, non-salvaged vehicles for a second. Could you tell us like who the primary buyers of these vehicles are that you're sourcing from the dealers and the fincos? Because an off-lease vehicle is pretty -- it's not typically what you sell to an independent dealer. So I guess my question is, are you finding that you're actually, I guess, one, selling to like other dealers now that are transacting on your platform? And then, two, are you running these like non-salvaged vehicles on your existing auctions that would be the same ones that run the salvaged vehicles? Or are you running like actual separate auctions for these vehicles?

Currently, we're running them on our existing auction platform under the Copart brand. And I will tell you that the buyers are primarily dealers and exporters. So if these -- recall the comments I made earlier, our international buyers besides Mexico, which you would expect because of its proximity, are the UAE, Nigeria and now Jordan. People are buying these cars, taking them to those locations and then redistributing them throughout the region in those areas.

Got you. Okay. And then it sounds like online's like a -- this drive online platform that you have. Can you talk a little bit about this? I would think that's a whole car initiative. It sounds maybe similar to what a TradeRev or a ACV does, but maybe just provide some context for that.

Sure. It's a new brand that we've added to our portfolio. We have CrashedToys and NPA and Copart. And it's a brand targeted at the whole car buyer, providing them information and assurances that don't normally exist on the Copart auction. For example, we'll provide a condition report and in certain situations, we'll provide a vehicle grade based on the Manheim metrics. We're just in the very initial phases of rolling this out.

Got you. Okay. And then maybe unrelated or related, so I'm trying to figure out, your purchased vehicle mix really spiked this quarter. Would you say this is all coming from international growth or could some of this be tied to some of your initiatives on the whole car side of the U.S.?

Per the other commentary, I think there's a lot of noise because it's just not that substantial a portion of our business overall. The international business is one factor. I don't think the noninsurance business per se affects this mix one way or the other.

Got you. Okay. I'm going to be a little greedy here. Just one quick question on currencies, it's getting more important now. Can you just maybe give us a refresher on how do we think about the impacts of kind of the weakening dollar right now across your business? Like to what extent that like the sensitivity is for international buyers? And then two, is the U.K. business -- does that -- is that just translational accounting impacts or something else to think about there? And then I'll hop off.

Sure. So in the near term, we are, generally speaking, short the dollar. A stronger dollar makes our cars more expensive for international buyers. I'm talking first about our U.S. auctions. So a weaker dollar enhances the purchasing power of international buyers, and we would therefore see lists in our selling prices accordingly. So for the purpose of U.S. auctions, we're short the dollar. When it comes to the U.K. earnings, as you note, there is, first, the effect of "converting" or translating. Those are fraught words in GAAP territory. But nonetheless, the point is that our British pound earnings are worth more in U.S. dollars when the dollar is weaker, not when it's stronger. Then, of course, within the U.K. itself, there is that similar effect, that the stronger the pound, the less that non-U. K. buyers can afford to pay for cars. And the opposite is true as well, that the weaker the pound is relative to the currencies of the buyers for U.K. cars, the higher the selling prices would be for those cars in the U.K. But if you had to put just a 5-word explanation, you would conclude that we, generally speaking, favor a weaker U.S. dollar.

And the final question comes from Stephanie Benjamin of SunTrust.

I guess I will not ask a nonsalvage question here. My first one is just on just like U.K. clarification question, and I'm sorry if I missed this. But did you give what the U.K. profitability improved year-over-year? I know that's been an initiative that you've been working on, so just a clarification there would be great.

No, we didn't. We didn't provide that metric.

Okay. And then just moving on to the U.S. service revenue per car and higher ASPs. Obviously, the used car index and crushed body index we can all monitor, but I was wondering if you can comment just on the increased bidding activity you're seeing, so what could possibly be driving this? Is this a function of a changing dynamic or are we lapping lower activity last year? Any color there would be helpful.

Sure. I'd start, first, we're certainly not lapping a soft quarter last year or a soft quarter even in terms of bidding activity. We think the increased bidding, number of bidders and bidding activity is a reflection in part of our own investment in marketing and member recruitment here in the U.S. and internationally. So we've invested meaningful resources in expanding that buyer base over time. And that is, of course, reflected in the bidding activity as well. To a lesser extent, perhaps, but also relevant is that currency matter we just talked about, that the dollar is weaker again year-over-year relative to some relevant currencies, and that has enhanced the buying power of non-U. S. buyers within our U.S. auctions.

We have no further questions in queue.

Terrific. Well, thanks for joining us for the third quarter fiscal '18 earnings call. We look forward to talking to you next quarter. Thank you.

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