Earnings Call Transcript - CPRT Q3 2021

Operator, Operator

Good day, everyone, and welcome to the Copart Incorporated Third Quarter Fiscal 2021 Earnings Call. Just a reminder, today's conference is being recorded. For opening remarks, I would like to turn the call over to Mr. John North, Chief Financial Officer of Copart Incorporated. Please go ahead, sir.

John North, CFO

Good morning. Thanks for joining us today. During today's call, we'll discuss certain non-GAAP measures, which include adjustments to reverse the effects of certain discrete income tax items, foreign currency-related gains, certain income tax benefits, and payroll taxes related to accounting for stock option exercises. We provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our Investor Relations website and in our press release issued yesterday. We believe these non-GAAP measures together with our corresponding GAAP measures are relevant in analyzing our results and assessing our business trends and performance. In addition, our comments today include forward-looking statements within the meaning of Federal securities laws, including management's current views with respect to trends, opportunities, and uncertainties in our markets, including the COVID-19 pandemic. These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with our business, we refer you to the section titled Risk Factors in our Annual Report on Form 10-K for the year ended July 31, 2020, and each of our subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today, and we have no obligation to update or revise any forward-looking statements. So, with the disclosure out of the way, I'll turn the call over to Jeff Liaw, our President.

Jeff Liaw, President

Thank you, John. We're pleased to report our record financial results for the third quarter of fiscal 2021. I want to start by extending a thank you to our team in the field around the world and here at headquarters for their resilience and agility over the past 14 months. For over a year now, we have faced the challenge of providing excellent service to our customers while keeping our people and communities safe, and I'm grateful and proud of our team for having delivered on both. We take very seriously our responsibility as an essential business in keeping our roads and support infrastructure clear for the movement of people and things. I'll start with some key statistics that we share each quarter, and I'll close with some remarks about the future before turning it over to John for a review of the financial results specifically. For the quarter, we experienced a global unit sales increase of 3%, with a U.S. increase of 4.5% and an international decline of 5%. We have observed more pronounced shutdowns internationally in certain countries in which we operate, and they are likewise adopting more protracted reopening plans than we're experiencing here in the U.S. Our insurance business specifically was slightly below the third quarter 2020 volumes, down approximately 3%, but effectively flat with 2019. This is the product of lower driving activity, of course, as driving activity remains suppressed relative to the norm and also decreased claims frequency offset by increases in total loss frequency and share gain. Our U.S. non-insurance business grew approximately 30% in unit volume year-over-year. This is also a reflection of a strong used vehicle price environment combined with our auction liquidity and sales efforts across non-insurance categories. Our dealer business, in particular, increased 26% in unit volume year-over-year compared to what we believe were significant declines for other whole car auction platforms that serve dealers. This is a reflection of the flywheel effect we've talked about on earnings calls previously. Our growing auction liquidity enables us to serve an expanding set of vehicles, and then those additional vehicles, of course, further enhance our liquidity as well. Our global inventory at the end of April increased 16% versus a year ago, and that's comprised of a year-over-year increase of 21% for U.S. inventory and a decline of 13% for international inventory, reflecting the dynamics described a moment ago. On average selling prices, our ASPs increased worldwide by 48% year-over-year for the quarter. Our ASP strength is a reflection of both market dynamics as well as our own member recruitment and retention efforts as we cultivate more buyers worldwide. We'll comment more on that in a moment as well. The ASP increase is not primarily due to mix shift effects. Our insurance ASPs in the U.S., for example, were up more than 50% year-over-year. And while growth in used car prices have, of course, contributed to our ASP growth, our selling price growth has far exceeded the overall used car price environment, a reflection again of our marketing and member recruitment capabilities and our broad global reach to emerging economies who are increasingly buyers of vehicles from our markets. Our auction liquidity itself also continues to grow as we observed sequentially and year-over-year more domestic and international bidders and bids per unit, a reflection both of supply growth for us as well as our active cultivation of those buyers. The natural questions that we would all pose would be what the aftermath of the pandemic might be to our business. It's certainly challenging to separate signal from noise given the abundance of confounding and extreme variables at the moment. My comments will largely be U.S.-centric but will apply largely to the rest of our markets as well. I thought I'd take a minute to talk about some of our long-term assumptions and how they may have been affected or not by the pandemic. First on driving activity, it does appear to be rebounding, but certainly still suppressed relative to pre-pandemic levels, particularly with commuting traffic still down 25% to 30% or more based on sources like Google Maps, among others. Due to increasing vaccine availability, there is certainly line of sight to reopening more fully here in the U.S., and our other markets appear to be three to six months or thereabouts behind the reopening sequence of the U.S. Longer-term, we continue to expect modest increases in per capita driving as we've observed over the past 50 years. Mobility remains essential for employment, education, healthcare, leisure, and every other aspect of our existence. We do anticipate perhaps some increase in virtual work arrangements but offset by a shift from various forms of mass transit in favor of driving. Accident and claims frequency have declined during the pandemic, as you know, though with increasing severity due to higher speed driving and increase in distracted driving. Long-term, we expect a continuation of a decade-long trend to a very modest decline in accident frequency over time due to the gradual penetration of safety technologies in new car shipments, which then in turn eventually make their way to the operating fleet. We do, however, expect an increasing severity over time as well as those safety technologies also become more expensive to repair as well. On the question of our average selling prices, I would note the longer-term trend in favor of higher ASPs. Certainly, there have been near-term pandemic effects. But over time, say over 10-years plus, it has been demand from emerging economies for wrecked vehicles from our markets, from the U.S., from the UK, Canada, Germany, Spain, the Middle East and Finland and elsewhere, combined with our member cultivation efforts that have driven ASP growth over time. I'd acknowledge that we're seeing an unusual historic moment for used car valuations given the supply shortage in new cars, but we have experienced year-over-year increases in prices for 17 straight quarters, with the exception of the third quarter of last year at the very beginning of the pandemic. We think that there are elements of the selling prices certainly that will prove much more durable over time. Our operating and strategic decisions are predicated on the expectation of volume recovery post-pandemic as well as long-term growth post-pandemic, largely consistent dramatically with what we've experienced over the past 40 years. We're grateful for our strong financial performance this quarter, and excited to continue investing in our customers' future and our own. And with that, I'll turn it over to our CFO, John North.

John North, CFO

Thank you, Jeff. As we mentioned, I'll make a few brief comments on our results to provide a little more color on the earlier remarks, and then we'll be happy to take a few questions this morning. Global revenue increased by $184 million or 33%, including an $8 million benefit due to currency. Global service revenue increased by $132 million or 27%, primarily due to higher ASPs. The U.S. service revenue grew by 27%, and international experienced an increase of 23%. Purchased vehicle sales increased by $51 million or 87% due to higher ASPs and increased volumes. U.S. purchased vehicle revenue was up 103% over the prior year, and international grew by 64%. As a result, purchased vehicle gross profit, defined as vehicle sales less cost of vehicle sales, increased by almost $11 million overall. Global gross profit increased by $138 million or 57%, and our gross margin percentage improved by approximately 788 basis points to 52%. U.S. margins improved from 46% to 55%, and international margins increased from 32% to 37%. For both segments, margin improvement was driven primarily by higher ASPs. Moving to G&A expenditures, excluding stock compensation and G&A and depreciation expense, our spend increased by $2.2 million from $37 million a year ago to $39 million in 2021. We anticipate G&A will be lumpy quarter-to-quarter but will continue to improve as a percentage of revenue over time as we grow. As a result, our GAAP operating income increased by 68% from $195 million to $328 million. We delivered 926 basis points of operating margin improvement due to revenue growth from strong ASPs and controlling costs. Net interest expense decreased by $0.2 million or 4% year-over-year, primarily due to lapping last year's decision to draw on our revolver in the initial days of the pandemic to ensure adequate liquidity. Q3 income tax expense was $36.7 million, at an 11.4% effective tax rate, reflecting a $20 million tax benefit from the effect of certain discrete income tax items and a $5 million tax benefit from the exercise of employee stock options, both of which have been adjusted out for purposes of non-GAAP earnings, included in our earnings release. On a non-GAAP basis, our effective tax rate would have been 19%. In summary, GAAP net income increased by 95% from $147 million last year to $267 million this year. Adjusted to remove the effects of currency and the tax benefits described above, non-GAAP net income increased by $89.8 million from $138 million last year to $262 million in the third quarter of '21. For the first nine months of fiscal '21, GAAP net income increased by 27% from $534 million last year to $681 million this year, and non-GAAP net income increased by 44% from $447 million last year to $642 million this year. Now to briefly highlight our liquidity and cash flow. As of April 30, we had $2 billion of liquidity comprised of $912 million of cash and cash equivalents, and an undrawn revolving credit facility with a capacity of over $1 billion. This is an increase of $434 million over July 31, 2020. Operating cash flow for the quarter increased by $75 million year-over-year to $369 million, primarily driven by stronger earnings that were partially offset by working capital consumed by building consignment on inventory. We invested $81.2 million in capital expenditures for the quarter, approximately 95% of this amount was attributable to capacity expansion. This investment continues to ensure adequate capacity for additional business and creates a wider economic moat for potential market entrants given the difficulty in sourcing appropriately zoned facilities. In conclusion, our conservative capital structure and strong and durable cash flow enable us to continue to make decisions for the long-term interest of both our customers and our shareholders. And with that, that's the end of our prepared remarks. We're happy to take some questions.

Operator, Operator

At this time, we will be conducting a question-and-answer session. Our first question is from Bob Labick with CJS Securities. Please proceed with your question.

Pete Lucas, Analyst

Yes, good morning. It's Pete Lucas for Bob. Could you discuss how the increased supply-demand imbalance affects auctions beyond just price? For example, are cars selling faster, is there less need for service, and how does this impact your ability to raise fees? Anything you can comment on this would be appreciated.

Jeff Liaw, President

Pete, thanks for the question. I'm not sure I entirely follow, but certainly, if you're talking about the strong used car price environment, I think it has helped with the conversion rate of consigned vehicles for customer dealers. However, I don't think there are any unusual effects beyond what has already been reflected in price. Everything else regarding bidding activity has remained consistent for many years, where we've discussed having more domestic and international bidders, as well as an increase in bids per unit. This has been a recurring theme since before the pandemic.

Pete Lucas, Analyst

Great. Thanks. And sticking with dealers, you mentioned there, can you just kind of talk about, I think you’ve mentioned Copart taking some significant share there. What advantages or disadvantages does Copart have? And in terms of dealer cars, are you seeing them sell disproportionately internationally or domestically or a similar mix to your overall …?

Jeff Liaw, President

I'd say in the first instance, it’s similar but indexed more internationally because they tend to be higher-value cars than our insurance cars. Of course, the insurance mix will include some very low-value cars that end up transacting almost locally, though economically the ones that matter of course are the higher-end units. Those tend to go internationally as do the dealer cars as well. In terms of the share capture that you described, as with all of our customers, what matters to them are the results in the end and what are the delivered prices that we can achieve at auction. So, it's auction liquidity and prices that matter the most to dealers by far, and we continue to deliver for them, and thus earn the right to sell still more of their cars.

Pete Lucas, Analyst

Great. And just one last one for me sticking with dealer cars. Do all your dealer cars go to a Copart location or can you sell them without bringing them to a yard? And if not, do you anticipate being able to do that in the future?

Jeff Liaw, President

I think we're today not commenting long-term on where our products might go. Today, when a vehicle sells either before or after it is sold, it is brought to a Copart location.

Pete Lucas, Analyst

Great. Very helpful. Thanks. Congrats on the quarter, and I'll jump back in the queue.

Jeff Liaw, President

Thanks, Pete.

Operator, Operator

Our next question is from Stephanie Benjamin with Truist. Please proceed with your question.

Stephanie Benjamin, Analyst

Hi, good afternoon.

Jeff Liaw, President

Hey, Stephanie.

Stephanie Benjamin, Analyst

I wanted to touch a little bit on some of the demand levels you're seeing, particularly from international buyers. Do you feel like they're buying at a greater rate than we saw pre-COVID levels? I'm just trying to get a function of what has been lower assignments versus the supply side and just the demand level. So, I'm just trying to get an idea of how healthy the buyers are at this point in time.

Jeff Liaw, President

I would describe the buyers as very healthy in the aggregate. The international buyers are bidding and purchasing at roughly the same rates as they were pre-pandemic. Now, that's with everything having shifted very meaningfully with ASPs up 48%. They tend to buy higher-value cars on average than our domestic buyers, and their activity has grown proportionately during the pandemic.

Stephanie Benjamin, Analyst

Great. Thank you. And then I'd love to get an update on where you stand internationally, particularly with the Germany operation and continuing to switch over to a consignment model. I believe beforehand, you were doing some pilots with the consignment model, so any update there.

Jeff Liaw, President

Briefly, so we continue to invest in Germany in the form of land, technology, people, and infrastructure. We are, as you know, selling vehicles on a consignment basis for multiple insurance carriers as well as selling vehicles as a principle there as well, as I think we described in much, much greater detail, probably six, seven, eight earnings calls ago. But we continue to make good progress there. The key linchpin, as you noted, being to convert the markets to a Copart style auction and gross settlement away from the historical listings service/net settlement model. The results continue to bear out. This is an economically superior path for insurance carriers long term as well as a superior policyholder experience as well. So, nothing has particularly changed in our approach, and our results continue to warrant further investment in Germany and elsewhere in Western Europe.

Stephanie Benjamin, Analyst

Got it. And then last for me more high level. I'm curious, especially given the events over the last year, as well as some significant investments that you guys have made, but when you guys have conversations with your insurance customers as well as even some of your non-insurance customers, what are they asking for from you guys as a preferred partner and what are they looking for in terms of services, digital tools, and has that changed at all in the last year?

Jeff Liaw, President

Great question, Stephanie. I think it has changed. I think there is certainly much more virtual work being done by all participants in the ecosystem, ourselves included, but certainly our insurance carriers among others of our sellers. They want more handled virtually, more by phone, more by text, more through our various applications that we provide to them, so that's certainly one of the demands that we have met. It has helped that we've been natively digital so to speak. We've been operating online-only auctions since 2003, so this is already a language that we spoke fluently. We've already been operating internationally, so we know what it means to operate this business remotely in many cases, and we're able to do so well and to accommodate our customers who in some cases had not been accustomed to such an approach. So, those are some of the specific pandemic-related requests we've gotten for certainly video services or virtual communication in lieu of in-person interaction.

Stephanie Benjamin, Analyst

Great. Thank you so much.

Jeff Liaw, President

Thanks, Stephanie.

Operator, Operator

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

Craig Kennison, Analyst

Hey, good morning, and thanks for taking my questions as well. It's really a big picture question that goes to one of your core advantages, which I think is your member consolidation and cultivation globally. How would you frame the size and scale of your global buyer network and how does it compare to your competition?

Jeff Liaw, President

I think the latter half of your question, Craig, is harder for us to opine on since we don't have firsthand visibility into their own buyer network. But, I would say, this is largely the result of having what I think is a multiple decade advantage in pursuing the international markets. Being online, I think is essential to accessing that portion of the marketplace. We have been investing for years in physical and digital media, in physical infrastructure and physical presence in those markets. We respond to early signs of a market showing promise as buyers of Copart vehicles. We also will anticipate certain markets that make sense for Copart vehicles and plant seeds there. So, this is the product of multiple decades of investments in that regard, which we think ultimately manifests itself at auction in the form of returns, but comparatively difficult for us to know. We do believe it's a distinct advantage for us.

Craig Kennison, Analyst

Thanks, Jeff. And then John, maybe, could you frame your CapEx outlook for this year, and maybe the next couple of years, and where you expect to target your investment dollars?

Jeff Liaw, President

I think, in short, Craig, we are still very much in investment mode. So, you may remember from, if I get my date straight, probably the May 2016 earnings call when we launched the 20/20/20 initiative, which was to open 20 new yards and expand 20 yards inside of 20 months. As it turns out that was not nearly ambitious enough, we have far exceeded that and continue to expect to invest in land and infrastructure for at least the next few years. I think this is always a dynamic question. As you know, Craig, it takes a long time to permit and acquire land. We've taken the pandemic as an opportunity to opportunistically buy land or permit land that perhaps would have previously been difficult to pursue. So, we view ourselves very much still in investment mode.

Craig Kennison, Analyst

And lastly, maybe just a follow-up on the land acquisition piece. When you buy land, to what extent do you have knowledge of potential share gains that would immediately consume that land or is it not the case that you can kind of align your share gain opportunity with where you acquire that property?

Jeff Liaw, President

I think our aperture is wider than that. It’s not per se customer-specific or even time-bound or narrowly so. I think we buy land when we are currently congested or foresee potential congestion and are serving the industry broadly, and that could include market share gain in certain markets, but it's about being a good steward of the industry owning this land to make sure that we can control our own destiny and deliver that service for our customers for the next 50 years, not the next three. So, in short, yes, those kinds of account-specific considerations certainly factor into our decisions, but overwhelmingly, it's more about just having enough to serve the industry today and tomorrow.

Craig Kennison, Analyst

Got it. Thank you.

Operator, Operator

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

Bret Jordan, Analyst

Hey, good morning, guys.

Jeff Liaw, President

Hey, Bret.

Bret Jordan, Analyst

To follow up on that CapEx question, I guess, if you could talk maybe about land investment in U.S. versus international markets, sort of how much of that CapEx is weighted to geographic expansion? And then if you could talk a little bit about capacity utilization, you talked about when you feel congestion building out incremental real estate, but could you maybe give us a feeling for capacity utilization as we stand?

Jeff Liaw, President

Sure. To your first question, the strong majority of the capital expenditures is still in what I think in your mind we would characterize as incumbent Copart markets, so that's the UK, Canada, U.S., and Brazil, with growth to come in Germany and Spain and Western Europe, but that is certainly not a very substantial portion of the CapEx to date. Your second question, Bret, was?

Bret Jordan, Analyst

Capacity utilization, we sort of looked at your existing real estate footprint, what are we utilizing?

Jeff Liaw, President

Capacity utilization is a complex topic to address directly because our land is not interchangeable. For instance, having excess capacity in one city does not provide any advantage in another city. Therefore, it becomes a decision based on specific local markets rather than a broader economic perspective. We do not track or report on capacity utilization on a national or global level; instead, we focus on metropolitan areas. We base our capital expenditures on current capacity utilization levels or potential high utilization in extreme circumstances. All these factors inform our localized decision-making, but it does not serve as an overarching global metric.

Bret Jordan, Analyst

Okay. And then a quick question on ASP. You’ve said that it was not really mix-driven, but it sounds like the dealer cars are typically higher value. Could you sort of just give us sort of a description of what a dealer car looks like versus the company average, maybe transaction value? And is the fee structure comparable for dealer cars as it is for the insurance business?

Jeff Liaw, President

Our auction platform regardless of the source of the vehicle has the same fee structure. So, as a buyer at one of our auctions, you would be indifferent as to the source of the vehicle. In terms of the selling price, we haven't provided that specific disclosure, but it is higher, meaningfully higher than our average insurance car, though they over time I think is the rising insurance values as well. It is decreasing total loss frequency. It is the safety technology that makes the typical Copart salvage car look a whole lot more like a drivable car than a wrecked vehicle that will be parted or dismantled or melted down for metal. It's that big shift over time, I think is expanding the relevant dealer universe to us as well. So, there is some overlap. We view them as both curves. The curve for the dealer car certainly has its midpoint higher than the curve for insurance vehicles, but with heavy and increasing overlap as well.

Bret Jordan, Analyst

Great. Thank you.

Jeff Liaw, President

Thanks, Bret.

Operator, Operator

Our next question is from Daniel Imbro with Stephens Inc. Please proceed with your question.

Daniel Imbro, Analyst

Yep. Good morning, guys. Thanks for taking our questions. Jeff, you noted the increased buyers, particularly in emerging markets are improving liquidity. First, sorry if I missed this, but did you provide global bidder growth or buyer activity growth in the quarter? And then secondly, are we seeing the mix of international bidders increase from newer countries or is this further penetration of existing markets where you’ve already kind of have a foothold?

Jeff Liaw, President

We didn't specifically disclose the percentage increase, but we did mention that we're raising bids from domestic buyers and bids per unit both domestically and internationally for the quarter. This has been consistent over many quarters, and you can verify that in past transcripts. Regarding the mix of countries, both aspects are true. Some microeconomic factors will cause certain countries to have a stronger currency in different quarters or years, leading to shifts over time. Local economic variables will also fluctuate, especially considering the significant impact of the pandemic. Overall, we expect to see countries rise and fall in terms of activity. The advantage of having a truly global online platform is that we can effectively smooth out all this activity by tapping into various economies worldwide.

Daniel Imbro, Analyst

That's helpful. And to follow-up on that, just a theoretical question on the international buyer, if prices keep going up at auction, which it makes sense why they are and maybe why they will, is there a limit or a natural limit, where they still need to make money on the backside of that purchase to where ARPU or ASPs cannot continue to increase or maybe how do you guys think about that just longer-term as factoring in your business?

Jeff Liaw, President

I believe that for an individual buyer, it is true they need to ensure a profit margin to cover the costs of rebuilding, restoring, and reselling a car in the used car market. This means that at some point, they will reach a limit. However, the significant growth in our international demand is driven by an expanding number of countries and their populations wanting access to automobiles. It's not just about individual buyers; it's about more countries developing a desire for used cars from the U.S., UK, Canada, and the Middle East, which fuels growth over time. As countries become wealthier, they show greater interest in vehicles. While the richest economies are in the U.S. and Western Europe, along with China, Japan, and other Asian countries, it's important to note that wealthier nations usually have a higher number of cars per capita, but they also experience slower GDP growth rates. In contrast, rapidly growing economies are eager for vehicles, which many of us often take for granted, as they need cars for education, employment, healthcare, and leisure, among other reasons. This trend, I think, is a long-term one that will persist for the next several decades.

Daniel Imbro, Analyst

That's perfect, really helpful color. And then last one on the non-insurance. I think you mentioned total units were up 30%, dealers were up 26%. Both are impressive, but that does imply that something else within the non-insurance is, as you know, up well over 30% to bring that average up. Curious what other sources of volume within non-insurance were outperforming this quarter to get you to that 30% unit growth?

Jeff Liaw, President

I believe that sharing that level of detail might create more confusion than clarity, but generally, the rest of that segment encompasses charities, cars, wholesalers, rental car fleets, banks, and similar entities. As you know, non-insurance serves as a broad category for us. We do view them as distinct businesses or customer segments to address. Collectively, they have indeed grown more than 26%, but I think providing more detail would likely be more confusing than beneficial.

Operator, Operator

Our next question is from Ali Faghri with Guggenheim. Please proceed with your question.

Ali Faghri, Analyst

Hi, thanks for taking my questions. I guess, starting on the pricing strength, is there anything that's occurred during the pandemic, changes in the industry dynamics or your company specifically that would suggest ASPs could remain structurally higher even after some of the more cyclical factors like constrained used car supply and higher pricing normalized?

Jeff Liaw, President

Before the pandemic, we experienced several consecutive years of year-over-year increases in average selling prices. The total loss frequency is a key long-term driver for our business that also pushes average selling prices upward. As insurance carriers become more inclined to total more vehicles over time, these additional cars tend to be higher quality and less damaged, often equipped with cameras and sensors rather than drivetrains. This creates a broad market for these vehicles. Our average selling price growth is significant and driven by secular trends. While there are cyclical factors, such as the fluctuations in used car prices, which are important now, I believe the more lasting aspects of this growth will show greater resilience. However, determining the exact contribution of each factor is complex and intellectually challenging.

Ali Faghri, Analyst

Okay, great. And I guess just as a follow-up, has the recent surge in pricing caused insurance companies to maybe change the way they think about the total loss formula, perhaps factoring in salvage pricing to a greater degree than what they've done historically, which should help increase total losses, maybe at a faster rate than in the past?

Jeff Liaw, President

I'd say overall, we have seen total loss frequency increase during the pandemic, and as we anniversary the pandemic, we haven't seen a dramatic shift either. It is more a continuation of the many decade-long trend, and I think you're well aware of it Ali, as well. If we were in 1980, a total loss frequency of 4%, today north of 20%, total loss frequency over 40 years has grown fivefold. I'd say over the course of the past year, we've seen a continuation of that trend, not a dramatic shift. The reason for that is that, of course, the used car price environment has been strong as well. And as you know, the higher the value of the intact car before the accident, the more prone the carriers are to repair it. So, we have had the offsetting effect of very strong salvage returns, which would otherwise all else equal drive more volume to total loss. We also had increase in used car values themselves, which all else equal would drive more cars to repair. The net effect of that, I think is a gradual continuation of the favorable trend we've seen for 40 years.

Ali Faghri, Analyst

Do all insurance companies factor in salvage returns into their total loss formula?

Jeff Liaw, President

I think to varying degrees, some carriers will evaluate that economic proposition on every car. Others, meaning they will literally access our machine learning-enabled pricing tool, we call ProQuote, which estimates the value that an insurance carrier can achieve at auction. And some carriers will run a ProQuote for every perspective, total loss or literally every claim to see if it makes economic sense to total the car. Others will rely more on rules of thumb that the repair cost exceeds ex-percent of the intact value of the car and use those guideposts to make total loss decisions. Over time, more and more are accessing that specific economic decision, which I think leads to a better economic outcome for them.

Ali Faghri, Analyst

Great. Appreciate that color. And last one for me is, with nearly a billion dollars of cash on the balance sheet, can you talk about your priorities for deploying that capital? I know investing in capacities is your priority, and you're still very much in investment mode for your earlier comments. But it does seem like you're going to have excess cash beyond that. So, I want to see how you think about maybe potential M&A and buybacks specifically, and how you balance those two?

John North, CFO

Hey, Ali, it’s John. I think obviously, the first priority is capacity investment, as you mentioned. As we've talked about and it has been the trend over the past number of years, all the way back to '16 with the 20/20/20 plan. That still remains a primary focus. There are obviously other markets in Western Europe, our expansion in Germany, Spain, and otherwise that are there as well. And then we've been opportunistic to return capital to shareholders at times in our past, and we think that makes sense. I think overall, we like the flexibility. We think that we've been able to take actions in the pandemic that wouldn't have otherwise been possible without the balance sheet that we have. And so, I think we view that as a structural advantage we want to maintain. And other than that, we're capitalists. So, we're certainly thinking about how to generate the highest return on capital overall, return on invested capital for our shareholders.

Ali Faghri, Analyst

Great. Thanks, Jeff and John for taking my questions.

Jeff Liaw, President

Thanks, Ali.

Operator, Operator

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

Chris Bottiglieri, Analyst

Hey guys, thanks for taking the question. The first one is on the deployment of 360 technology. Just wanted to see where you stand in terms of the rollout of that technology. How prevalent do you think this will be across your inventory? And early but are you seeing any kind of measurable impact on selling prices because of the technology?

Jeff Liaw, President

In summary, these are variables that are difficult to separate in a dynamic environment where multiple factors are shifting simultaneously. For us, technologies like 360, among others, are crucial for the services we offer to sellers. They have specific applications for images like this, and we monitor them closely to ensure we deliver the best service possible. I don’t believe we can discuss differences in auction returns right now, as there’s no significant shift related specifically to 360 images.

Chris Bottiglieri, Analyst

That's interesting. And then two, can you talk more about the dealer consignment channel? Are you seeing increased engagement on the buy side of the equation, the sourcing at the buy side of the equation as inventories become more constrained in the industry? And is this how they are going to get a flywheel effect on your ability to source more vehicles from these same dealers?

Jeff Liaw, President

I think in a word, yes, but I'm not sure it's unique to the moment. By that I mean the dealers have grown as a share of our activity on both the sell side and buy side and defined more broadly to include not just U.S. and Canadian dealers, but dealers all around the world. A dealer who buys a car and sells it as is or a dealer who buys it but will recondition to some extent and then sell as is, that has been very much part of the flywheel effect over the past 10 years plus.

Ryan Brinkman, Analyst

Hi, thanks for taking my question. I wanted to ask again around inflation just given it is now a larger part of the national conversation and given the quarter looks to have benefited from higher used car and metals prices, but primarily I'd like to try to zero in if I can on the value of your land holdings. So, I've been seeing these headlines about how the average price of a home has risen by an incredible like 16.2% year-over-year in April and haven't really seen or done much research into what the price of, say, undeveloped land or land generally has done. But I've seen some other articles recently about big increases in the value of farmland, etc. So just wanted to get your sense of what might be happening with the value of your land. Given that you've been out there in the marketplace so much in recent years buying land, I would think that you have a good sense of the value of your existing properties, too? So what is happening with the value of the land? And, given that it doesn't get captured into the P&L, how are you thinking about or are you thinking about any actions to ensure that increased value gets reflected into the equity value of the company? I know you have historically preferred to be conservatively capitalized, but would you ever consider maybe like sale leasebacks to raise capital for shareholder-friendly actions or any other kind of actions to try to tap into the value of that land or even just put some estimates out there for shareholders to see, so that they could better appreciate any increase in the value that you might have captured here?

Jeff Liaw, President

Certainly, I appreciate the question and appreciate the thoughts. I think history would show that the shareholder-friendliest action we have taken is to buy the land and hold it forever, and we view that also as the customer friendliest approach as well, and that we own the land, we control it, we are the stewards of that facility, that capacity on behalf of the insurance industry for the next 50 years plus. So, that to me is overwhelmingly the default approach that we would take. As to your question, your IR question more narrowly about how to ensure that that value is reflected in our stock price, I think, to some extent that's academic for us. We own it, we use it, we have virtually never repurposed land that have been permitted for Copart use in part because it's so hard to achieve that. We don't repurpose it for other uses. We are there today and tomorrow to serve the insurance carriers and to serve our expanding non-insurance sellers as well. So, unfortunately, I think the intention, I know your question is good, but the outcome is effectively academic for us. That land is there to serve our customers.

Ryan Brinkman, Analyst

Very helpful. Thank you. And then I would be curious if you have any thoughts on this emerging digital dealer-to-dealer marketplace that ACV Auctions and KAR Global's, TradeRev, and BacklotCars businesses operate. And is that a market that you might be interested in participating in? I was just thinking that, given that you're primarily a salvage car auction company and need to have I think capacity, including search capacity for catastrophe events, etc., if that might be a way to sort of participate more in the whole car market without crowding out space on your lots for salvaged cars?

Jeff Liaw, President

We definitely assess and consider strategic expansions similar to what you mentioned. We acknowledge that the automotive market is changing in how transactions occur. As we mentioned earlier, we were pioneers in 2003 by transitioning to a fully digital auction platform, which wasn't a conventional move at the time. Now, as we look to the future, we will continue to explore and test ways to capture a larger market share over time. It's important to note that we have maintained healthy double-digit growth in our dealer business for many years, despite the presence of companies running digital-only options and providing onsite services at dealerships. This underscores the strength of auction liquidity. While funding can enable the replication of applications and inspector services, replicating auction liquidity and the participation of thousands of bidders and buyers in online auctions worldwide is a different challenge. Regardless of whether you are in Estonia, Honduras, Poland, or any other place, we will help you attain the best possible value for your vehicle. Many other platforms may not be able to deliver the same level of service.

Ryan Brinkman, Analyst

Okay. Interesting, thank you. And then just last question, I wanted to ask about the types of things that you consider within your wheelhouse to auction. I know that you've obviously focused on salvage cars, but now also increasingly on whole cars and have gotten more into sort of the crash toys market, right with the personal watercraft and the motorcycles. I don't know if you're doing ATVs or just what other things you might potentially consider doing, heavier equipment, RVs I don't know. I was at one of your auction yards, it was 10-plus years ago, but you were auctioning then some like fire-damaged or smoke-damaged furniture or something like that. I don't know if that's ever anything that you would consider again, any sort of tangential moves, or you've got enough in the air already? What do you think?

Jeff Liaw, President

I think that's a long-term possibility, though I think that furniture is low on that priority list, but we have extended our auction technology and approach to other arenas. As you know, we acquired National Powersport Auctions, which is not per se in the salvage business, but sells motorcycles, watercraft, and other powersports equipment on behalf of financial institutions as well as dealers, and that we continue to expand that business as well. So, we do believe that our auction technology, our logistics management, our understanding of the regulatory environment, etc. could well be applicable to other markets. We would experiment cautiously and thoughtfully because our core business is obviously critical to us in serving our existing customers, our existing markets as well as priority number one. But we would consider other such extensions as well.

Ryan Brinkman, Analyst

Very helpful. Thank you.

Operator, Operator

We have reached the end of the question-and-answer session. And I'll now turn the call over to Jeff Liaw for closing remarks.

Jeff Liaw, President

Great. Thanks, everyone for joining our call. We look forward to talking to you after the fourth quarter as well. Thanks, everyone. Have a good day.

Operator, Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you and have a great rest of your day.