Earnings Call Transcript - CPRT Q3 2023

Operator, Operator

Greetings and welcome to the Copart Incorporated Third Quarter Fiscal 2023 Earnings Call. Just a reminder, today's conference is being recorded. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Before turning the call over to management, I will share Copart’s statement on Safe Harbor and non-GAAP financial measures. During today's call, the company will discuss certain non-GAAP measures, including adjustments to income tax benefits related to stock-based compensation. The company has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on its Investor Relations website and in its press release issued at approximately 3:00 p.m. central time today. The company believes these non-GAAP measures together with corresponding GAAP measures are relevant in analyzing the company's results and assessing its business trends and performance. In addition, the company's comments today include forward-looking statements within the meaning of the federal securities laws, including management's current views, with respect to trends, opportunities and uncertainties in the company's markets. These forward-looking statements involve substantial risks and uncertainties. For more details on the risks associated with the company's business, we refer you to the section titled Risk Factors in the company's annual report on Form 10-K for the year ended July 31, 2022, and each of the company's subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today and the company has no obligation to update or revise any forward-looking statements. I'll now turn the call over to the company's Co-CEO, Jeff Liaw.

Jeff Liaw, Co-CEO

Thank you, Paul. Good afternoon and welcome to our quarterly earnings call. We're happy to share positive results for the third quarter of fiscal 2023. As a customer-focused organization, I will focus my opening remarks on our clients. Leah will provide details on our financial results afterward. We recently held our 23rd Annual Advisory Board meeting with key insurance clients, celebrating our 40th anniversary in Northern California, which felt like a homecoming for us. Each year, we meet in person to gather feedback from our clients on their challenges and opportunities, which informs our services, technology deployment, and investments. This year, key themes from those discussions highlighted significant changes in the insurance industry, including widespread inflation reflected in rising combined ratios. We are noticing a return to increasing trends in total loss frequency. Recent data shows that total loss frequency, which hit a low of about 17% in the second quarter of 2022, has increased to 19% in the first quarter of 2023, marking three consecutive quarterly increases. We expect that vehicle prices will stabilize or decrease faster than repair costs, driving total loss frequency back to pre-COVID levels and beyond. New vehicle prices are a key indicator for the used vehicle market, with data showing that average retail transaction prices for new vehicles in March 2023 fell below MSRP for the first time in nearly two years. Long-term factors influencing total loss frequency remain unchanged. Repairs are increasingly expensive due to rising accident severity, vehicle complexity, labor, and rental costs. Additionally, salvage economics are improving as the fastest growing economies in Central and South America, Africa, and Eastern Europe rely on our damaged vehicles for their transportation needs. While our U.S. insurance volumes grew about 6% year-over-year, total loss volumes remain lower than historical norms. In the recent quarter, total loss frequency reached pre-COVID levels, indicating that our insurance volumes could have increased by 10%. Another point raised was the ongoing hiring and retention challenges faced by our insurance clients, which may lead them to rely more on trusted partners like us for additional services such as virtual inspections and title procurement. Clients also showed interest in our image recognition and machine learning tools to enhance decision-making speed. For totaled vehicles, insurance companies incur significant costs for towing, storage, and appraisals, which can be minimized with more efficient decision-making. Turning to our non-insurance business, we reported growth of about 7% year-over-year in the third quarter, particularly in the bank and finance fleet and rental segments. We also saw nearly a 5% increase in dealer volume year-over-year. These segments exemplify our ability to utilize our existing infrastructure to enhance our auction marketplace. Finally, we've received inquiries from analysts and investors regarding our growing cash balance, so I'll address this upfront. We are careful stewards of capital and evaluate investment opportunities with an ownership mindset. Our core investment focus remains on our business, land, and technology. We also look for strategic extensions that leverage our strengths, following a conservative approach to M&A. Our practice is to return excess cash to investors, typically through share buybacks. Today, I want to highlight how the strength of our balance sheet sets Copart apart from others in our industry. We do not prioritize debt payments, dividends, or major cost reduction strategies, allowing us to focus on serving our clients for the long term. This includes continuing to invest in our real estate portfolio for protection against inflation, providing exceptional service in catastrophic events with necessary investments, and enhancing our tech platform to sustain our global buyer base. Our long-term focus is a distinct competitive advantage. I will now hand it over to Leah.

Leah Stearns, CFO

Thank you, Jeff. Turning to the quarter. Global unit sales were primarily due to growth across our insurance business, and our purchase units declined 21%. Internationally, our unit growth came from a mix of fee and purchased units, which increased over 11% and 14% respectively. During the quarter, our U.S. insurance business grew relative to its one and two year comps of 6% and 25% respectively. This was primarily due to the continued recovery in driving activity, increasing accident frequency and severity, total loss frequency, and share gain. Our auction returns remain strong as we continue to invest in growing our global buyer base by driving member recruitment, registration, and retention. As a result, Copart's auctions provide our insurance customers with best-in-class liquidity and returns, ultimately providing a more cost-effective way to manage growing claims costs by making it more cost-effective to deem damaged vehicles as total loss. Turning to our financial results. For the third quarter, global revenue increased $82 million or nearly 9%, including a 1% or $11 million headwind due to currency. Global service revenue increased $81 million or nearly 11% for the third quarter, primarily due to higher average revenue per unit and increased volumes. U.S. and international service revenue grew nearly 11% and 9% respectively for the quarter. ASPs were down slightly year-over-year with U.S. average sale prices down about 1% compared to over 4% decline in the Manheim index, which ended April at 230.8. Purchase vehicle sales for the third quarter increased $1 million or nearly 1%, with U.S. purchased vehicle revenue for the quarter down 27% and international up 49% for the quarter. During the quarter, our purchased unit activity in the U.S. remained low as we managed our principal unit exposure in a softening vehicle pricing environment. We continue to believe that this portion of our business provides an opportunity for our future growth and is an important enabler for us in new adjacent asset classes and geographies. Purchase vehicle cost of sales grew more than $2 million or 1.4% in the third quarter. As a result, purchased vehicle gross profit decreased by $1 million or approximately 8% during the quarter. Global gross profit in the third quarter increased by about $47 million or 11%, while our gross profit margin percentage increased by approximately 100 basis points to 47.3%. U.S. margins increased to 52.2% and international margin decreased to 25.5%. The year-over-year margin increase on a consolidated basis was driven primarily by vehicle mix shifts in the U.S. towards higher margin consignment units and was partially offset by inflationary impacts to labor and fuel costs and vehicle mix shifts internationally where we had a greater percentage of revenue coming from lower margin purchase units. As noted previously, over the last three years, we have seen pressures from inflation primarily across labor and transportation costs. More recently, we have observed some alleviation in these expenses, particularly around transportation, which was partially driven by reductions to the cost of diesel, which has experienced a 20% decline year-over-year. In addition, we are constantly seeking to optimize our operational processes by leveraging technology and automation, which we expect will drive efficiency across the organic and help mitigate longer-term cost pressures. Finally, while we experienced increases in labor costs over the last 12 months, we have viewed a significant portion of this as a direct investment in our employees and as an investment to support best-in-class service for our customers. We believe we can continue to increase margins and return on capital over time as we pursue our consistent investment discipline, focusing on our real estate, logistics, and technology assets to ensure we are positioned to scale appropriately to meet the demand of our customers. Turning to general and administrative expenses excluding stock-based compensation and depreciation, G&A spend in the quarter increased $2 million. I'd like to highlight that last year we mentioned a non-recurring legal expense in Q3 excluding the impact of this, G&A would have been up $9 million, while G&A can be volatile from period to period. The longer term trends show that we are benefiting from the scale of our corporate infrastructure. Its effect can be observed on the downward trend of our G&A as a percent of revenue, which was 5.1% in Q3. The combination of our strong revenue growth and moderate cost increases drove an increase in GAAP operating income by more than 12% to $419 million for the quarter. Third quarter income tax expense was $90 million, which reflects a 20% effective tax rate. Finally, third quarter GAAP net income increased about 26% to $350 million or $0.72 per diluted common share. Our global inventory at the end of April increased 4% from last year, and when excluding low value units like wholesalers and charities, global inventory increased by 7%, that is comprised of a year-over-year increase of over 2% per U.S. inventory or 5% when excluding low value units and nearly 15% for international inventory. Turning to our liquidity and financial position. Our liquidity stood at $3.3 billion as of quarter end, which is comprised of $2.1 billion in cash and cash equivalents and our capacity under our revolving credit facility of over $1.2 billion. Year-to-date, we have generated operating cash flow of $1 billion, which is an increase of over 16% from the prior year period. In addition, we have invested nearly $347 million in capital expenditures, with over 71% of this amount attributable to our physical infrastructure, primarily capacity expansion. Finally, year-to-date, if you take our operating cash flow less CapEx, we've generated nearly $660 million of free cash flow. Given our strong financial position, we intend on continuing to invest in our business for growth and to meet our customers' needs. These investments include yard expansion, new yard acquisition, logistics and our technology platform. And as Jeff outlined in detail, we believe that these types of historical investments have differentiated Copart as a service provider while ensuring that we have the capacity necessary to serve our industry's future growth. And that concludes our prepared remarks. We'd be happy to take some questions.

Operator, Operator

Thank you. We will now be conducting a question-and-answer session. Thank you. Our first question is from Bob Labick with CJS. Please proceed with your question.

Bob Labick, Analyst

Good afternoon. Congratulations on another great quarter.

Jeff Liaw, Co-CEO

Thanks, Bob.

Bob Labick, Analyst

I wanted to begin by asking about your expansion into whole car, especially in the dealer and blue car commercial sectors. Are there new features or products you are planning to introduce? Is there room for mergers and acquisitions in this area, or do you generally prefer to develop these initiatives organically? How do you view these aspects in light of your cash balance and the new markets you are entering? Are there any opportunities for M&A, or what is your perspective on this?

Jeff Liaw, Co-CEO

Thank you for your question, Bob. Regarding our cash balance, I want to clarify that we've not been capital constrained. We have remained an unlevered company for an extended period, allowing us the financial capacity to pursue acquisitions. For instance, we acquired MPA nearly six years ago to expand into the power sports sector. We believe our organic growth potential is strong, which requires investment in technology that serves financial institutions, a process that involves different nuances compared to our work with insurance clients. The advantages for both sectors are clear, as improved liquidity benefits all parties and broadens the buyer base. Therefore, we are focusing on organic investments in this area. If the right acquisition opportunity arises at a favorable valuation that aligns with our growth strategy and strengthens our capabilities, we will consider it. However, it must meet our high standards for evaluation.

Bob Labick, Analyst

Okay, great. And then just kind of sticking with this expansion into whole car and whatnot. Are the blue car particular buyer base the same as your core buyers or are they different? And are you marketing to these new buyers or are they finding you? How are you kind of growing the buyer base, which I know, obviously benefits everyone as you go, but how is it coming? Is it organic? Are you getting them or are they coming to you?

Jeff Liaw, Co-CEO

Very much both. So I think we are at this point a well-known liquid marketplace. So folks come to us. But certainly, we proactively approach folks who may be aware of us, but think of us in one specific context, and we inform them now of the newer and emerging portfolio vehicles available at Copart. So it is very much both.

Bob Labick, Analyst

Got it. Super. Okay. I'll jump back in queue. Thanks.

Jeff Liaw, Co-CEO

Thanks, Bob.

Operator, Operator

Thank you. Our next question is from Dan Imbro with Stephens. Please proceed with your question.

Dan Imbro, Analyst

Yes. Hey, good morning, everybody. Maybe to start, I want to follow-up on Bob's question. A little bit around customer acquisition, more focused on the international buyer, Jeff. For a couple of years, you've been talking about growing into these new markets and kind of growing this international buyer base. Curious from here, I mean, how much of the low hanging fruit on SEO has been captured? Maybe kind of what inning are we in? And then the deeper question there is I guess when you look at these new customers you brought in, in these new markets, like how deep are the moats that you've built to keep them on Copart's platform versus long-term the risk of competition coming in and maybe taking some of those customers? Thanks.

Jeff Liaw, Co-CEO

Daniel, I believe you are referring to our members and buyers specifically. There are certainly other options available for purchasing vehicles, including various well-known auction platforms. Our liquidity has improved over time, making us a more attractive platform for enrollment and vehicle acquisition compared to a decade ago. One clarification I would like to make regarding your comments is that our expansion into the international market has not been a recent development; it has been a project over the last ten years. The changing mix of vehicles, partly due to the increasing frequency of total losses—which indicates that cars are in better condition and less damaged—along with our efforts to source cars from non-insurance sellers, has naturally expanded our buyer base. Using a baseball analogy, we are in the early stages of this journey because the fastest-growing economies will continue to outstrip growth seen in Western Europe, the U.S., Japan, Canada, and other established markets where vehicle ownership is prevalent. These markets will increasingly supply vehicles, whether older, damaged, or otherwise, to the economies that require greater mobility. The ratio of cars to population in the countries where we operate our auctions remains quite high, while it is relatively low in the destination markets that purchase these vehicles.

Dan Imbro, Analyst

That's helpful. And I think about maybe one follow-up on that. How capital-intensive is it to enter a new country? I know in some countries, you've done Copart lounges. I guess, like is there a big capital investment to doing this? Or what is the cost of growth as you continue on this journey if we're still early innings?

Jeff Liaw, Co-CEO

Yes. I draw a distinction there between expanding internationally in the sense that we are operating auctions in a new country. So now 16 years ago, if I have my date straight, we entered the U.K., and our investment there has been very capital intensive in the sense that we've had to acquire land and build systems and hire people and acquire loaders and trucks and so forth to serve that market. That is, by its nature, capital-intensive, ultimately rewarding as well, the capital-intensive at the outset. As far as attracting new buyers and buyers from new countries, that is not per se capital-intensive. It does require meaningful investment in resources in the form of our internal bandwidth; it also requires spending on SEO and SEM and third-party expenditures of that sort, but not capital in the sense that you're describing it.

Dan Imbro, Analyst

Great. That's super helpful. And I'll just squeeze one more in for Leah. You mentioned at the end there, the falling transportation cost. I think about maybe last year, that was a big headwind on the industry. As those prices come down, I'm curious how you guys view that. Does that become a tailwind to gross margin? I know you've owned some of your own transportation, so maybe it's less directly flowing through. But how should we think about that impacting gross margins during the past quarter when we look at the service gross margin expansion?

Leah Stearns, CFO

Yes, that definitely was a benefit on the sequential margin improvement. So I would continue to expect that as diesel prices remain low and we then get the benefit of some of our investments around our logistics and transportation capabilities that we would continue to see that be a benefit. Certainly, the labor and inflationary pressures on towing costs around labor availability was a big pressure about a year ago, so we're beginning to see the other elements of the cost of transportation come down, which is nice to see, and that should flow through from a margin perspective.

Jeff Liaw, Co-CEO

Daniel, broadly, I'd characterize transportation costs as having stabilized as opposed to reverted to anything resembling pre-COVID norms. And so the inflationary pressure, I think, is abating or stabilizing, but it certainly has not reverted.

Dan Imbro, Analyst

Appreciate all the color. And guys best of luck.

Jeff Liaw, Co-CEO

Yes, thank you.

Operator, Operator

Thank you. Our next question is from Craig Kennison with Baird. Please proceed with your question.

Craig Kennison, Analyst

Hey, good afternoon. Thank you for taking my question. I appreciate the new conference call time for what it's worth. I wanted to dig into ASP, Leah. I think you said that ASP was down a little bit versus the Manheim Index down maybe 3%. Last quarter, if I recall, you were flat on ASP in the Manheim environment down 13%. I'm wondering why that gap closed, if it was a function of mix or another dynamic?

Leah Stearns, CFO

Yes. No. So we saw ASPs down across the board at about 1.4%. In the U.S., that was down 1.1%. And that was compared to a 4% decline on the Manheim Index. And again, most of that is driven by mix. It's hard to obviously pinpoint the exact drivers of it. But I think what's important to appreciate is that we certainly have an evolving mix of vehicles that are coming through our auctions quarter-to-quarter, and there's a fairly static set of units that are being measured through that Manheim Index. So I do think there is less of a correlation today than what you've historically observed between those two.

Craig Kennison, Analyst

That's helpful. Thank you. And then a question on National Powersports Auction or NPA. Are you seeing an uptick in volume from repossessions in that powersports business? And then to what extent are new, I'll call it, captive marketplaces from Harley-Davidson or from Polaris impacting your volume opportunity?

Jeff Liaw, Co-CEO

In response to your question about repossessions, I would say we anticipate a modest increase, but not significant changes at this point. Vehicle values in powersports and light vehicles have generally decreased. Most loans are still in a favorable position, although that could change over time. Regarding your question about Harley, our captive marketplace hasn't significantly impacted us. The business is continuing to perform well, and we still have a steady supply of bikes and other related powersports vehicles.

Craig Kennison, Analyst

Alright, thank you.

Jeff Liaw, Co-CEO

Thanks, Craig.

Operator, Operator

Thank you. Our next question is from Chris Bottiglieri with BNP Paribas. Please proceed with your question.

Chris Bottiglieri, Analyst

Thank you for the questions. To follow up on your comment regarding the trade show with the insurers, I'm curious about the application of the several thousand dollars spent on cars that are totaled. I'm not sure how often this occurs, but it seems like it's nearly half of the proceeds. It appears that insurance companies utilized your advanced data to make quicker decisions. What impact would this have on total loss rates? Specifically, how does a 50% reduction in costs relate to revenue, and what implications would that have?

Jeff Liaw, Co-CEO

Yes, I think it's a fair question, Chris. That was the multiple thousands of dollars is an illustration. I would say that the strong majority of cars that Copart sells on behalf of insurance companies have advanced charges on them in the many hundreds of dollars range, right? So it is serious money that the insurance companies are paying to towing companies, repair shops, and frankly, their own employees as well to touch and see vehicles that arguably did not require any of that intervention. The cars could have been towed directly to Copart and been sold and have the title processed without anyone ever having touched it otherwise. So the economic opportunity there for our insurance companies is massive. And so we take it very seriously and are engaged with them on various initiatives to varying degrees in terms of their flexibility and ability to change the way they handle their own business processes. I would say that there is a long-standing industry bias, which I think is now evolving to repair cars, when possible, right? I think there's a long-held view that people grow attached to their vehicles, and policyholders grow attached to their cars and want them back. And I think that line of thinking has changed a lot even over the course of the past eight years, and we think will change over the next 20 as well. And so the default repair mindset will change. As for your specific question about how it affects total loss frequency, the total loss economics would be still better if you could forgo all of that waste in the system. And could it, therefore, drive total loss frequency up? Yes. In terms of the elasticity, I think it's hard to comment on, except to say that the economics we're talking about here are very substantial. It is a good portion of the ultimate claims cost for a totaled car for an insurance company.

Chris Bottiglieri, Analyst

Got you. And then I just want to ask about the used car pricing, which has been volatile more recently. I mean it seems like you got to hit this inflection point where total loss rates were starting to pick back up again as car prices softened. I think we went through like a multi-month period where car prices actually started to appreciate again, and now we're depreciating. But what's the net of all that? Like do you think we've just kind of hit a trunk corner now with total loss rates kind of just keep sequentially building? Or is there any risk that you see as like a small air pocket just given the appreciation we saw?

Jeff Liaw, Co-CEO

I think to be fair, Chris, we don't know. I don't think we don't make management operational decisions on month-to-month or quarter-to-quarter blips like that. I think the five-year trend, I bet a lot of money that in five years, the total loss frequency rate will be meaningfully higher. But that's what happens in the next quarter or two or three. I think the volatility you cite is unprecedented in your career and mine in terms of what we observed over the past three years. So forecasting that and its derivative effects on our assignment volume, tough to do from where we sit. But I think we generally expect total loss frequency to rise over the long-term period.

Chris Bottiglieri, Analyst

Got it, okay. Thank you.

Operator, Operator

Thank you. Our next question is from Bret Jordan with Jefferies. Please proceed with your question.

Bret Jordan, Analyst

Hey, good afternoon, guys.

Jeff Liaw, Co-CEO

Hey, Bret.

Bret Jordan, Analyst

Quick question. I think you guys called out some of your services, including loan payoff. And just on the loan payoff product, I think your peer was having something that's sort of automated and integrated into the insurance and bank systems that didn't involve human interaction. Is that something that is the same as what you're offering? Or is that something you're developing that's automated?

Jeff Liaw, Co-CEO

In a word, yes, Bret. And I think the financial institution universe, as I think you appreciate, is very fragmented. So there are literally thousands of lenders who participate in auto lending, some of which are technologically advanced and some of which are tiny credit unions that no matter what you do, require faxes and phone calls and so forth to settle claims. I think we are at the forefront of the digital integration. And in fact, although others in the industry may have announced partnerships with certain integrators, we'd actually started with them, I think, six or nine months prior to even their engagement with Dealertrack, for example. So we have been at the forefront of obtaining the loan payoff balance, and we are at the forefront of servicing and paying that loan balance in the letters of guarantee and the other ancillary services and offerings that come with it. So I think, as much as you can be, given the fragmented nature and the highly varying degrees of technological sophistication among financial institutions, I'd say we're at the forefront of that.

Bret Jordan, Analyst

Great. And then a quick question on international. I think you saw 12% unit growth. Could you talk about what markets is Germany gaining traction? Is it the addition of Finland and Spain? Maybe give us some puts and takes on the international volumes.

Jeff Liaw, Co-CEO

Yes. I would say that we are consistently experiencing growth across various countries, including long-standing markets like the U.K. and Brazil, where growth is driven by both market trends and share acquisition. In our emerging markets, such as Germany, Spain, and Finland, we are also seeing growth. However, these markets are still relatively small, so they do not significantly impact the overall growth figures.

Bret Jordan, Analyst

Okay, great. Thank you.

Operator, Operator

Our next question is from John Healy with Northcoast Research. Please proceed with your question.

John Healy, Analyst

Thanks for taking my question. Just wanted to talk a little bit about the Blue Car opportunity. As you look at that business, do you see it running complementary kind of side by side with the legacy insurance business? Or do you run it as kind of one business? Just from a technology standpoint or just from a day of auction standpoint, like how are you thinking about the actual auction event with dealers engaging? And is there any sort of thought process about what the incremental spend in terms of technology or platforming that we might think about just kind of over the next few years? Thanks.

Jeff Liaw, Co-CEO

Got it. I appreciate the question, John. And those are good questions. And as you might imagine, we do test to those specific notions. So are certain cars or certain products better off in their own stand-alone auctions virtually across the country or in a region or appended to the existing Copart auctions that are increasingly twice weekly at each of our facilities? So we test those things. And ultimately, we'll do what is best for returns. The question would be how we drive the superior economic outcomes for our sellers. So I don't think we have a definitive rule of thumb that it must be 1 giant auction or that it must be highly specialized. I would say we have examples of both. So our NPA auctions continue to operate on a stand-alone basis. Our big auctions that, for example, our Grand Prairie Yard in Dallas continue to run, I think, twice weekly, big auctions that include most of the product types that we might sell out of that facility. So we see both, and I think we could very well evolve over time. That's just a function of observed behavior and observe the outcomes.

John Healy, Analyst

Sure. No, that makes sense. And then just one kind of question on whole car as well. We're roughly 12 months out since the ADESA deal with Carvana closed. I always thought of those guys as the big repo house in the auction world. Curious to know if you're seeing any, I don't know, RFP upticks or opportunities that could be sizable on that front? Because when I think about where everyone is going with their platforms in real estate, it seems like you guys might be in a position to have a high value-added mousetrap there?

Jeff Liaw, Co-CEO

No, pretty good question. I think we see opportunity to win the right to sell cars on behalf of financial institutions, including ones handled by ADESA and including cars handled by other folks as well. So perhaps not uniquely so, but of course, there is obviously some press, some noise in that specific circumstance that has given rise to discussions and conversations with prospective sellers.

John Healy, Analyst

Okay, thank you.

Jeff Liaw, Co-CEO

Thanks, John.

Operator, Operator

Thank you. Our next question is from Gary Prestopino with Barrington Research. Please proceed with your question.

Gary Prestopino, Analyst

Hey, Leah. Hey, Jeff. How are you doing? Hey, I couldn't write this down fast enough, but Leah, did you say units were up 4% in the U.S. and 12% internationally?

Leah Stearns, CFO

Yes, units increased by 4%, and they rose by 7% when excluding low value, and they grew by 12% internationally.

Gary Prestopino, Analyst

Okay. 12% internationally. What were the units up on a combined basis?

Leah Stearns, CFO

Combined was up 5%.

Gary Prestopino, Analyst

Okay. And then, Jeff, in the meetings that you had with your insurance customers, was there any really new issues that kind of cropped up that insurance companies want you to maybe start addressing? Or is it still really decreased cycle times and increased salvage returns? I just want to get a feel for what they're thinking.

Jeff Liaw, Co-CEO

I think it's more evolutionary than not in the sense, Gary, that we talk to our customers literally every day. So there aren't going to be any new bombs dropped at an event like that. But I think it's a nice opportunity to crystallize some of that thinking and to gather more consensus views on what the priorities are. And so for sure, cycle times, for sure, salvage returns. And I think as I noted in the introductory remarks, people pressure on their front that leads them to want to lay more of the work on Copart to have us perform more services for them. That's probably the biggest emerging theme we've seen over the past couple of years. So we have virtual inspection services that we've seen a very dramatic uptick in the adoption across many of our customers.

Gary Prestopino, Analyst

Thank you.

Operator, Operator

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Jeff Liaw to close.

Jeff Liaw, Co-CEO

Great. Well, thank you, everyone, for joining us, and we'll talk to you next quarter.

Leah Stearns, CFO

Thank you.

Operator, Operator

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