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Copart, Inc. (NASDAQ:CPRT)
Q2 2020 Earnings Call
Feb 20, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, everyone, and welcome to the Copart, Inc. Second Quarter Fiscal 2020 Earnings Call. Just a reminder, today's conference is being recorded.

For opening remarks and introductions, I would like to turn the call over to Mr. Jay Adair, Chief Executive Officer of Copart, Inc. Please go ahead, sir.

A. Jayson Adair -- Chief Executive Officer

Thank you, Samantha. Good morning, everyone, and it's a pleasure to welcome you all to the second quarter call. I'm going to turn it over to Jeff Liaw, our President, for safe Harbor, and then we'll give you I'll give you a quick update on the company, and he will give you an update on financial performance.

So with that, Jeff?

Jeffrey Liaw -- President

Thanks, Jay. During today's call, we'll discuss certain non-GAAP measures, which include adjustments to reverse the effect of certain discrete income tax items, disposal of nonoperating assets, foreign currency-related gains, certain income tax benefits and payroll taxes related to accounting for stock option exercises and the effect on common equivalent shares from ASU 2016-09. We've provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our website under the Investor Relations link and in our press release issued yesterday. We believe these non-GAAP measures, together with our corresponding GAAP measures, are relevant in assessing our business trends and performance. We analyze our results on both GAAP and non-GAAP basis. In addition, this call may contain forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ materially from those projected or implied by our statements. We do not undertake to update any forward-looking statements. 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.

Jay?

A. Jayson Adair -- Chief Executive Officer

Thank you, Jeff. For starters, I'd like to state that we have never been better prepared for the future. When we think about capacity, we think about it globally. And whether it's in Europe or the U.S., we have more capacity today than we have ever had. This is an effort that has been ongoing for the last five years to build out a network of locations that are closer to the car and then have more room, so that we can continue to handle vehicles that come in due to continued total loss rates, again, due to technology in cars and due to market share gains that we have seen over the last five years. We expect that both those trends will continue and I'm happy to say we have the capacity to handle that. When it comes to catastrophes, whether they be small catastrophes or super storm events, there is no match for the way that Copart handles a CAT. Our preparedness has never been better through equipment that we utilize in the field, through locations where we have large facilities that can store 20,000, 30,000, 40,000 vehicles in a super storm event, through the process we've developed over the last five years and through the technology that we deploy, it is not an understatement to say that our position in the industry is unmatched when it comes to those events. Our people are also the best in the industry.

Whether it be through our tenure as the company has achieved so many years of success now, whether it be the training or the talent, their ability is unmatched, and I put a huge, huge amount of credit on our success over the last five years in wins due to the people that run this company. Our technology continues to lead the industry. We've been a leader in the technology space now for 20 years, moving completely online back in 2003, 17 years ago. And I would put our technology teams up against any of the tech titans in Silicon Valley. What we have developed over the years and what we are developing currently and that will be rolling out in the years to come, we'll continue to keep the gap between us and our competitors and offer a service offering to our customers that is unmatched. Copart is a technology company, but we're also a land-holding company with over 10,000 acres, over 200 facilities, and we're also a logistics company. We're picking up over 250,000 vehicles a month, and we do that from assignment to pick up in less than a day. Through our people, our process and our technology, we'll continue to win. With that, it's my pleasure to turn it over to our President, Jeff Liaw for an update on the financials and the performance of the company.

Jeff?

Jeffrey Liaw -- President

Thank you, Jay. As Jay noted, we are pleased with our results for the second quarter. It's a record second quarter for Copart in revenue, gross profit and operating income. We experienced global revenue growth of 18.6% or $90 million change over last year. Our U.S. revenue grew at 23.8%. The international revenue nominally declines 2.6% year-over-year, but that's primarily due to converting a substantial U.K. customer from a purchase-based sales contract to a fee-based arrangement instead. Our global service revenue grew $93.2 million or 22.4% year-over-year, which along with units sold is a more accurate measure of the underlying activity in our business. As we've noted on our prior calls, vehicle sales and costs are disproportionately visible in comparison to their economic relevance to our business. Our purchased vehicles declined $3 million year-over-year for the second quarter or 4.4%, due primarily again to the shift of the U.K. customer from a purchase arrangement to a fee-based consignment engagement. Our global unit sales grew by 13.7% year-over-year with U.S. units growing 15.3% and international units growing 5.7%. Our U.S. unit growth was driven by organic growth from our existing insurance customers and non-insurance customers as well as market share gains. The long-term trends, we've noted in prior discussions, in favor of rising total loss frequency are continuing, driving organic growth from insurance customers as these strong salvage returns we generate at auctions continue to become more and more economically attractive compared to rising repair costs.

We continue to grow our non-insurance business as well, nominally on a unit basis 5.8% year-over-year, which reflects growth in certain seller groups such as automotive dealers offset by proactive capacity management efforts on our part with charities and wholesalers. Excluding those charities and wholesalers, our noninsurance business grew on a unit basis 20.6% year-over-year. We attribute this growth to our increased marketing and sales efforts, but perhaps most notably to the auction liquidity we achieved at Copart. We have brought a large pool of buyers and sellers together. And the auction liquidity we deliver to our sellers, we would argue is the very best in the industry. Our global inventory increased 7.5% year-over-year, U.S. inventory grew at that same 7.5%, international inventory growth just north of that at 7.8%. This inventory growth is again driven by the same unit growth trends noted above both industry growth as well as customer wins. Our gross profit grew from $208 million $208.2 million to $259.9 million or 24.8% increase year-over-year. We experienced a gross margin rate change from $42.9 million to $45.2 million with gross margins expanding by 230 basis points. A portion of this is attributable, of course, to that same shift of the customer from a principle-based arrangement to a fee-based arrangement. In addition to that, we achieved efficiencies across the globe in the form of operational leverage, which helped to further expand gross margins.

In the U.S., and globally, we would again, as always, note rising labor, health insurance, fuel costs, selling costs, etc.; offset also by generally benign trends in ASPs as well as operating leverage. On those average selling prices, in particular, in the U.S., our ASPs grew at 0.7% year-over-year. Our ASPs continue their growth that reflects, I believe, now 13 consecutive quarters of ASP growth in the U.S. That ASP lift is a product of more bidders, more international bidders and, therefore, more auction liquidity. This is a year-over-year comparison as well as an increasing mix of newer, less damaged cars. That trend we talk about on our call now for years, and it continues to prove true. International bidding and buying activity, again, a reflection of our proactive marketing efforts as well as the effectiveness of our all-digital auction platform PV3. The outcome is that we generate more auction activity, more bids per unit and, therefore, better selling prices for our customers. Just shy of 50% of the value of our U.S. auctions are attributed or won by international buyers and the vast majority of our units have their prices affected and lifted by the participation of those same international buyers. Turning to general and administrative expenditures. I'll speak about them, excluding stock-based compensation and depreciation.

They are up from $33.2 million a year ago to $39.2 million this quarter. It's also up slightly sequentially by about $400,000 relative to the first quarter. In general, G&A expenditures will fluctuate and grow over time as with other numbers on our P&L and our cash flow statement. We generally encourage folks to take a multiple quarter view in projecting the business. We continue to believe we can achieve operating leverage given the top line growth rates we have experienced in recent years. We do believe they're like as with yard costs, there are certain inflationary pressures here regarding labor rates, healthcare costs and the like, but we believe we can achieve operating leverage, nonetheless. Our GAAP operating income grew from $164.7 million to $209.9 million, or an increase of 27.4%, reflecting 250 basis points of operating margin expansion. Our net interest expense was roughly flat year-over-year at approximately $4.5 million. Other expense/income of $400,000, in this case, largely attributable to currency gains offset by losses from certain nonconsolidated equity positions of ours. Our second quarter income tax of $36.4 million reflects a $14.8 million tax benefit on the exercise of employee stock options, which has been reflected as such in the non-GAAP earnings included in our release from yesterday. GAAP net income increased from $131.4 million to $168.7 million for the second quarter this year, or an increase of 28.4%, year-over-year. And finally, on the P&L, our non-GAAP net income increased from $124.9 million to $153.5 million, a growth of 22.9% year-over-year.

Turning then to the balance sheet and cash flow statements. We finished the quarter with $93.5 million of cash on the balance sheet and $320 million and change of net debt. We adopted a new lease standard, as you likely know already this year, last quarter and the first quarter of 2020. And we now show $104 million as an operating lease right-of-use assets with a corresponding $105 million liability on the balance sheet as well. On the cash flow statement, we generated operating cash flow of $144.5 million for the quarter, an increase of $37 million, driven principally by higher earnings year-over-year. Our capital expenditures of $269 million in the quarter, the strong majority of these capital expenditures were for capacity expansion per our practices in the per our practice in recent years. I'll note here that we continue to invest aggressively in capacity expansion to serve both industry growth as well as our market share wins, as we've discussed at great length in the past. Permitting is a complex and collaborative dialogue with communities in which we do business, so the timing of the completion of certain purchases is always subject to lumpiness in our cash flow statement. We will invest millions; and in some cases, tens of millions of dollars at a time for single asset single site completions. We're delighted for ourselves and our customers that we're able to achieve and to execute this past quarter's worth of capital projects. That said, even in this capacity growth period of Copart's history, the quarter obviously is an outsized capex quarter for us.

We would look at the last few years as more indicative of our general run rate in a growth period. With that, I'll make a few final comments on our efforts in Germany, and then we can open it up for Q&A. Regarding our efforts in Germany, our strategy and approach continue unabated. We are investing very substantially in people and technology and in land. We continue to source cars as a principle to build liquidity and we're getting progressively better at it. However, the real long-term objective remains unchanged as well, which is to earn consignment volumes, to serve the insurance industry there, both for the carrier's direct economic benefits and lower claims costs as well as their benefits in improved policyholder experiences in the cases of total loss. We have active dialogues with decision-makers at major carriers and have sold cars on a consignment basis for the insurance industry in Germany. We look forward to discussing that further with you on future calls as well.

With that, Samantha, I'll ask you to open it up for Q&A.

Questions and Answers:

Operator

[Operator Instructions] Our first question will come from Bob Labick with CJS Securities.

Bob Labick -- CJS Securities -- Analyst

Morning. I just wanted to start, on the last call, you alluded to helping some carriers optimize their claims process. Can you talk more about that, how it's going? Have there been any initial results or is that a long-term game plan? Is that a 2020, 2021? How should we think about that?

Jeffrey Liaw -- President

Bob, I'd characterize that as a 40-year journey. That's something we do literally every day. We may have spoken about it in somewhat greater detail on the last earnings calls, but we view it as our principal job is to improve the claims process and economic outcomes for our insurance customers and their returns. So there are certainly individual products that we have in the queue, products we have released, products we are already selling, but I wouldn't view that as a discrete change per se in what we do, Bob. Just an ongoing purposeful commitment to that very outcome.

Bob Labick -- CJS Securities -- Analyst

Got it. Okay. And then you just spoke about, obviously, the highest, I guess, capex quarter you've had? And is this was all the land in the U.S.? Is this international as well? Are you still looking to keep a similar pace for the last two years going forward? Can you just give us a little more color on that.

Jeffrey Liaw -- President

Yes, the vast majority of the capital expenditures would be in the U.S. with some internationally, but the vast majority in the U.S. So I called it out because it is, obviously, a much higher rate that we have incurred in recent years. We have announced our 20/20/20 initiative in April of 2016, if memory serves, so approximately four years ago, we began this aggressive capacity expansion phase in our history. I would look to the past few years as more indicative of the run rate of our expenditures in this capacity growth phase more so than this past quarter. It is the nature of the beast, Bob, as you know, you have involved with the industry for a long time, that capex by its nature is lumpy. Because you close on a property that could have been literally tens of millions of dollars and then or it is delayed by six months, and so the tens of millions of dollars of expenditures await you in a few quarters' time. So we don't endeavor to smooth it. We are we simply want to acquire and develop the land, so we have it available for our customers and ourselves as soon as we can. And sometimes, it happens all at once.

Bob Labick -- CJS Securities -- Analyst

Got it. Okay, great. And it sounds, I guess, it's crazy to ask this given the, I think, 14% volume growth in the quarter and this and for several years, the double-digit volume growth, but are you currently constrained on growing faster based on your capacity? Have you reached a kind of equilibrium now that you're just acquiring new capacity for future growth? How can you talk about where you stand, if there have been constraints before? If you've reached what you need to get for current levels?

Jeffrey Liaw -- President

Yes, it's a fair question. I think we as Jay noted at the top, we've invested in the land, so that we could serve our customers exceptionally well across all markets, if and when they're ready to do business with us. So that's our commitment to them, which is also, as you may have heard during the discussion there, within certain noninsurance sellers of ours, we've made proactive decisions to free capacity in that respect for these critical insurance customers in particular. So we I wouldn't say it's been a gating factor, Bob, but it has required us to make an all hands on deck efforts to acquire and develop that land.

Bob Labick -- CJS Securities -- Analyst

Okay, super, thank you so much.

Operator

Thank you. Our next question will come from Craig Kennison with Baird.

Craig Kennison -- Baird -- Analyst

Good morning. Thank you for taking my questions. I wanted to ask about industry trends. What you're seeing in terms of claims activity and the total loss rate and how you see that unfolding in 2020?

Jeffrey Liaw -- President

Yes. I'll take a bigger step back, Craig, and make a broader observation. I think we are seeing claims activity that's relatively flat year-over-year in terms of the nominal claim. So these are the same data points, I'm sure, that you track already regarding certain carriers who disclose publicly their claims results as well as certain industry aggregators who do the same. Over most of our 40-year history, I think we've seen claims frequency generally decline very modestly over time as cars get safer and perhaps drivers get better. Though one anomalous period for that trend, of course, was 2011 to 2016 when smartphone penetration, smartphone distraction was perhaps at its peak. But otherwise, for most of our 40-year history, accident frequency has generally declined over time. However, the one-way tailwind in our business, as you know, has been total loss frequency, which has increased very steadily over time. I think individual months and quarters are tough to measure. I think there's always going to be a lot of noise in that number. But I think if you take any kind of step back at all, you would see that trends continues to move up.

And for reasons I think that become reasonably clear once you dig the half step below the surface, which is that the cars are becoming our cars are becoming more sophisticated over time, more technologically involved and, therefore, all of the sensors and cameras that are fitted in the car are making it more difficult to repair. So repair costs are rising, which makes repairs less compelling. While at the same time, our auction liquidity is improving. Our international buyer base is expanding. So quite literally, at the same time, repairs are worse, salvage is literally better, which is what has driven the total loss frequency increase to sixfold fivefold to sixfold over the past 40 years and why we think it will continue to rise over the years to come. I expect that in 2020. I know that's a bit of a long-winded answer, but I expect that this year and but frankly, for years and decades to come.

Craig Kennison -- Baird -- Analyst

And then looking at your European business and the European car park, are there substantial differences in the constitution of that car park, such that we'd see a different trend in total loss rate or claims frequency?

Jeffrey Liaw -- President

In broader strokes, no. There certainly are local and country-specific idiosyncrasies that can affect exactly how we enter, how we participate. But in broad strokes, no. The cars are similar. The underlying drivers that make the total loss such a compelling economic proposition here in the U.S. and in the U.K. are by and large true there too, which is to say, high labor repair high labor cost, repair costs, vehicle complexity. And frankly, again, emerging and growing international demand for those same wrecked cars.

Craig Kennison -- Baird -- Analyst

And lastly, how would you frame the conversations you're having today with European insurance carriers versus those conversations maybe a year or two ago, now that you've got sort of assets on the ground and an active platform working in Europe?

Jeffrey Liaw -- President

Fair question, Craig. I'd characterize this much more productive. It's one thing to discuss analogues to the U.K. and the U.S. in why the economic proposition can or should be compelling, it's another matter to have yards open, people engage, trucks towing cars as well as, by the way, actual sales results at auction, which demonstrate the superior economic outcome. So literally buying cars on the platform they're using and trading them at a profit on the ground in Germany to buyers outside Germany, in many cases, is the most compelling argument of all. Like, which is not, "Hey, Germany can be like the U.S." It's that Germany on February 19, 2020, February 20, is delivering auction results of XYZ. So the conversations have advanced in part for that reason.

Craig Kennison -- Baird -- Analyst

Great, thank you.

Operator

Thank you. Our next question will come from John Healy with North Coast Research.

John Healy -- North Coast Research -- Analyst

Thank you. I wanted to ask you guys about the comments you made about technology. Clearly, you guys have led the industry for a long time on that front. And when I think about kind of the last few years, I feel like you guys have made some nice upgrades to the buying and selling applications. So I was hoping to understand from a technology standpoint, where you guys are pushing the envelope? And one area that kind of I've always thought about and we talked about that potentially could create service benefits would be if titling with the states could become a little bit more seamless and maybe you guys could develop applications there. So just trying to understand on the back-end side of things. If what technology can bring to the industry. And that said, if you bring technology into the industry, potentially cars move quicker, does that erode some of the economics that you guys have been able to benefit from associated with the storage and the cradling of the vehicle for the extended period of time?

Jeffrey Liaw -- President

Thanks, John. My answer to you probably will be similar to what I said to Bob, which is that, that is a nonstop investment for us when it comes to technology to improve outcomes, in particular, for our sellers. And for them, outcomes means in the ordinary course, shortening cycle times, allowing them to close claims more quickly, selling the cars, we're titling them we're treating original titles and processing the salvage titles to the states more quickly and, therefore, auctioning them more quickly to a global liquid platform. That there are literally dozens of steps in that process, each of which has its own process and technology to-do list for us internally. So the answer to your question broadly is yes. The technology is by far, our single biggest corporate investment here, besides our land. If you were literally to walk through Copart headquarters and meet with group by group, you'll find the technology group is overwhelmingly the largest in numbers and resource expenditures. So it's it has been a huge part of what we do. We talk about it, frankly, more with our sellers than we do on calls like this, but it is our single biggest corporate investment.

John Healy -- North Coast Research -- Analyst

Got you. And I would have missed it. I probably did. Did you guys mention what inventories were at the end of the quarter in the U.S.?

Jeffrey Liaw -- President

Inventory is up 7.5% year-over-year.

John Healy -- North Coast Research -- Analyst

Great, thank you so much.

Jeffrey Liaw -- President

Thanks, john.

Operator

Thank you. Our next question will come from Daniel Imbro with Stephens Inc.

Daniel Imbro -- with Stephens Inc. -- Analyst

Hey, good morning, guys. Thanks.for taking our questions. Jay, a quick clarifier on your opening comments. Talking about capacity growth and incremental market share, are you seeing incremental market share out there today? Are there any large contracts coming up for RFP in the next year? Or was that just a comment on kind of overall strategy and recent trends?

A. Jayson Adair -- Chief Executive Officer

Well, we never get into specific clients or talking about whether they're up for tender or up for RFP. But we have succeeded, historically, at having market share wins, and the point I was making was twofold: one, that we have the capacity to do that going forward; and the second was that I anticipate that trend will continue. I think the other thing I was going to add on the previous question, there was a comment about whether or not, if we sell vehicles quicker, if that would be detrimental from a storage standpoint? And for the most part, we benefit when vehicles are sold quicker. Our goal just so that all the investors understand, our goal is to move those vehicles as quickly as possible for the customer so that the vehicle generates a higher return. And storage or storing of the vehicle is an insignificant part of the business, so I wanted to just add some clarity on that.

Daniel Imbro -- with Stephens Inc. -- Analyst

That's helpful. And then, Jeff, maybe a follow-up. You continue to call out a benefit from this mix shift within noninsurance toward dealer and all fleets away from municipality and charity, how far along in that mix shift are we? Should that continue or have we largely phased out a lot of the legacy municipality charity to where that should be more steady state, kind of going forward? What's the right mix longer-term strategically?

Jeffrey Liaw -- President

Complicated question. We, of course, value our customers across all of these categories. We just also do face somewhat some resource constraints from time to time and had to make decisions accordingly. I would think of that shift as largely complete. We don't that's the level of detail we wouldn't get into what happened in which quarter and what how deep into the quarter to perfectly model a year-over-year. But I would think that I think of that as largely complete.

Daniel Imbro -- with Stephens Inc. -- Analyst

That's helpful. And then just one last one for me. Historically, if we look at warm winters, 2012, 2017, there does tend to be some negative impact on volume growth in the coming quarters just due to less accident frequency. Are you guys thinking that this winter should have any kind of impact on your results today in the back half of the year? Or industry dynamic is strong enough to where we shouldn't really see that show up in the business?

Jeffrey Liaw -- President

Yes, it's a very fair question. We tend with the exception of, of course, extreme weather events, we tend not to talk about weather because it sometimes feels like it's both difficult to quantify and becomes an explanation of that can be become an excuse for factors in the business. I do agree with you that it was, by all measures, a benign winter, higher temperatures, lower precipitation at least across the United States. And that, yes, therefore, that generally means fewer claims at the top of the funnel. Quantifying that precisely, I don't know. Our inventory was up 7.5% year-over-year, nonetheless, so whether that was depressed by temperature's precipitation is a judgment probably better left to others than to me personally.

Daniel Imbro -- with Stephens Inc. -- Analyst

Thanks, guys.

Operator

Thank you. Our next question will come from Stephanie Benjamin with SunTrust.

Stephanie Benjamin -- SunTrust -- Analyst

Hi, good afternoon. Jeff, I was hoping you could talk a little bit more about what you're seeing on the, call it, the pricing, revenue per unit side of the equation. I think you called that another quarter of ASP growth. But on a year-over-year basis, maybe it's a little bit slower from some historical trends. I think some are kind of calling for some declines in used-vehicle pricing this year? I don't know if that's going to materialize or not, but maybe if you could speak to that side of the equation on the pricing and revenue per unit side and what you're seeing in the market?

Jeffrey Liaw -- President

Thanks, Stephanie. I think in that, I think you're asking really about two different economic phenomenons, one of which is the selling prices for our cars at auction. That itself is a function of both cyclical and secular forces, some of which you mentioned. The cyclical X variables that can affect the selling prices of cars at our auctions, of course, include used car prices, as you noted, currency fluctuations and the like, among other things. The secular forces, we think, are that total loss frequency rises. And at total loss frequency rises, we get more marginal totals, more drivable cars, that would drive ASPs up. So the combination of the two over the very long haul, we think, will drive ASPs up in any individual quarter or year, month, week, day, etc. The projections become perhaps too fine to parse all of those variables. But generally speaking, we believe the secular tailwinds are ultimately net driven. The second part of your question on revenue per unit. That's not something per se that we expressly disclose. We, of course, drive revenue, we drive unit volume as much as we can. Revenue grows also with the addition of services we provide to both sellers and buyers.

Stephanie Benjamin -- SunTrust -- Analyst

Great. And then I just had a clarification. I know it was asked twice. I apologize for hearing it. But on Germany, did you say that you were testing some consignment models or testing that consignment model with some carriers in Germany? Or did I mishear that twice. So just a clarification.

Jeffrey Liaw -- President

You heard correctly. We have sold cars on a consignment basis for insurance carriers in Germany. That said, we also continue to purchase cars. So our principal activity is continuing as well as we build the physical infrastructure, people base and technology and talent to serve that industry long term.

Stephanie Benjamin -- SunTrust -- Analyst

Great, thank you so much.

Jeffrey Liaw -- President

Thank you.

Operator

Thank you. Our next question will come from Bret Jordan with Jefferies.

Bret Jordan -- Jefferies -- Analyst

Good morning guys. When you think about the inventory growth in the quarter, and you had some pretty big share gains last year, is there any way to look at what was the contribution from new customers versus what was core legacy inventory growth?

Jeffrey Liaw -- President

I would characterize, but I think that's a level of detail we probably wouldn't get into. But I would the way I characterize it is that there was both underlying market growth as well as market share gains in that year-over-year number.

Bret Jordan -- Jefferies -- Analyst

Okay, great. And I guess, this we don't talk about the scrap pricing anymore. But do you see any impact, I guess, from the Chinese market demand relative to what's going on with coronavirus? Is there any pending volatility on scrap price there?

Jeffrey Liaw -- President

I'll answer that in two parts. Scrap price maybe effect on Copart, I would say, largely de minimis. So the Chinese buyers in part for regulatory reasons, but are a very tiny portion of our overall sales below 2% when I last checked. So they're not a significant buyer of Copart cars. And that said, Coronavirus, obviously, will not necessarily observe specific national borders. So if it spreads, there could be an effect downstream. But to date, no.

Bret Jordan -- Jefferies -- Analyst

Okay. And then just one question on Germany. What's the total acreage there? I guess, when you think about the yard size in Germany, I think of it being somewhat smaller than a U.S. Yard, so I guess, is it better to think about it in acres versus locations?

Jeffrey Liaw -- President

Probably so, though not something we would discuss yet. We are investing in acreage. I think your intuition generally is correct. In that our yards would be smaller today, in part, because we needed to get going. The lead time here in the U.S. and for that matter in Germany to develop a 50-acre parcel for vehicle storage is long, and we weren't willing to wait to do that. So we have gotten achieved operations in a number of facilities there more quickly by starting with smaller facilities, and in some cases, leasing them.

Bret Jordan -- Jefferies -- Analyst

Okay, great. Thank you.

Operator

Thank you. Our next question will come from Gary Prestopino with Barrington Research.

Gary Prestopino -- Barrington Research -- Analyst

Good. Hey, Could you tell me, just as a percentage of the vehicles you're selling, insurance versus noninsurance, how has that mix changed? I mean, what is the current percentage now versus where it was maybe last year?

Jeffrey Liaw -- President

The current percentage is approximately 21%. And I think a year ago, it was a little bit north of that. There is some seasonality to it I suppose not year-over-year, there's no seasonality. So a year ago, it was 22%, I believe, and now it's 21%, and that's partially a function of the shift within noninsurance that we just talked about a moment ago.

Gary Prestopino -- Barrington Research -- Analyst

Right. So and one can assume that most of the growth there is dealer cars, correct? And if there is, the growth is of dealer cars.

Jeffrey Liaw -- President

That is a meaningful source of the growth in our noninsurance business. Yes.

Gary Prestopino -- Barrington Research -- Analyst

Do you have the capability, and I probably should know this, but I'm asking the question. With the dealer cars, do you have the capability to sell it at the lot their lot? Or do you have to take it to one of your facilities to sell it?

Jeffrey Liaw -- President

So there are I'd say, probably the safest way to the best way to characterize it is that we are exploring multiple ways to service those automotive dealers, I think, clearly, from their perspective today, our principal value proposition is the buyer base that we offer in comparison to other offerings in the marketplace. For example, we have a global buyer base, we already have the folks looking from all over the world. And that is the value we offer. And how we deliver that and whether, physically, we require a facility or not? Those are all variables that are relatively simpler to manage, quite candidly, Gary. But I think the value proposition side, I think, is clear. And how we deliver it, we are experimenting with a number of different avenues.

Gary Prestopino -- Barrington Research -- Analyst

Okay, thank you.

Operator

Thank you. Our next question will come from Derek Glynn with Consumer Edge Research.

Derek Glynn -- Consumer Edge Research -- Analyst

Yeah, thank you for taking the question. Actually I had a follow-up on the noninsurance business and, specifically, your relationship with the independent dealers. I'm curious how the vehicles sourced from them or that are purchased by them at your auctions differ from their own core inventory offering at retail? Are there any key differences in terms of age or quality? I'm just trying to get a better sense for how they're leveraging your platform?

Jeffrey Liaw -- President

I think the trends would be hard to draw as they're very broad sweeping ones. But I'd say, in general, of course, if a dealer tends to specialize in brand X and receives a trade-in in brand Y that would be a natural car to process through a Copart or consign through a Copart auction. But I think the financiers are all over the map. And automotive dealers sometimes simply want to achieve near term liquidity and consign a number of cars through us, so you'll see a wide-ranging mix. Sometimes damaged cars are often intact cars that are perfectly drivable, sometimes older cars on their facilities, sometimes newer ones as well. So tough to provide rules of thumb.

Derek Glynn -- Consumer Edge Research -- Analyst

Great, thank you.

Operator

[Operator Instructions] Our next question has come from Chris Bottiglieri with Wolf Research.

Chris Bottiglieri -- Wolf Research -- Analyst

Hey, guys, thanks for the question. Question for you on the European rollout. So it sounds like you've you're proving out the capabilities and the data to the insurers, right, like with actual data and actual service. So besides for like the red tape of highly regulated industry, like what are the other friction points that are preventing insurers from acting more quickly, given what's presumably compelling data? And then two, like once they've made that decision, like how long does it take for them to like change the disposition model and onboard? And like what's kind of like the timeline of conversion once they've decided this model is like a better model?

Jeffrey Liaw -- President

I think the single biggest barrier, Chris, is simply inertia, which is that, it's an insurance industry that is accustomed to a set of historical practices literally for decades from their interactions with their policyholders all the way back through claims. So the practice habits are difficult to break. I do we do believe that when carriers shift meaningful volume in this direction and improve the policyholder experience, that there certainly should be some momentum that ultimately causes it to accelerate from there. But speculating as to exactly what that conversion time frame is, it's tough to do. But the barrier, I think, is more habits than anything else.

Chris Bottiglieri -- Wolf Research -- Analyst

That's helpful. And then can you help us think through kind of the capex the implications of capex on kind of yard op cost? Like, I mean, the capex has been super robust lately, but like how does that translate near term? Is there a certain tier, which used to lag? Or how do we like basically translate the capex to yard op cost in the coming quarters or years for that matter?

Jeffrey Liaw -- President

Maybe if you had access to literally every data point inside our company that would be too noisy, a correlation to try to draw to capex. I'll just give you some directional indications. capex, when we open a new facility is net helpful because we certainly, the new site is closer to some of the seem to be accident or the repair shops, where the cars are being retreated from, so we would achieve immediate savings in terms of the retrieval of the vehicles. We may achieve savings because there are yards that are very congested nearby and, therefore, are incurring extra labor costs and the likes to manage the vehicles inside the facility. However, of course, opening new facilities incurs some level of "fixed costs," including utilities and telecom, management, labor and the like. So there are puts and takes. I would say across the system, the capex, we are opening enough new facilities, expanding enough current facilities and have done so very steadily that the effect in any given quarter won't be that pronounced. That's one reason you don't hear us discuss. We don't explain gross margin variations or cost variations because the facilities newly opened is now a big enough set of facilities that the opening of any given set in a quarter does not affect the financials visibly anyway from where you sit.

Chris Bottiglieri -- Wolf Research -- Analyst

That's very helpful. Thank you for the time.

Operator

Thank you. Our next question will come from Daniel Imbro with Stephens, Inc.

Daniel Imbro -- Stephens, Inc -- Analyst

Thanks for taking the follow up. Jeff., a quick follow-up on the European market commentary. While the car park is similar, I believe alternative park usage is lower, particularly, in collision repair in Europe. So I guess the question is, is there an existing collision salvage marketplace in Europe to support traditional salvage volume? Or were the units you sell over in Germany or what you're selling in Germany more the run-and-drive vehicles today?

Jeffrey Liaw -- President

So the your industry observation, I think, is fair, which is that alternative park utilization in Europe is considerably lower here than here in the U.S. That said, there are clearly cars that economically should not be repaired. And so even within Europe today, they will find a home, one way or the other, with their cars that are 110% damage, which you could not possibly justify the repair costs to restore it back to. The economic value proposition for the carriers is that we can help them achieve full and fair value for those salvaged vehicles. Whether it will ultimately fuel dismantling or simply be scrapped altogether or be rebuilt and redriven again somewhere else, we simply help the carriers to achieve that full fair liquid market value instantaneously as opposed to today's traditional path of disposition, which don't do best. But I think your industry observation is fair, but nonetheless, there still there still are many cars that are totaled in Europe to date.

Daniel Imbro -- Stephens, Inc -- Analyst

Make total sense. Thanks so much.

Operator

At this time, I am not showing any further questions in the queue. I would like to turn the floor back over to the speakers for closing remarks.

A. Jayson Adair -- Chief Executive Officer

Okay. Thank you, Samantha. Thank you, everyone, for attending the call. We look forward to reporting Q3 in the next quarter. Thanks so much. Bye-bye.

Jeffrey Liaw -- President

Thank you, guys.

Operator

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

A. Jayson Adair -- Chief Executive Officer

Jeffrey Liaw -- President

Bob Labick -- CJS Securities -- Analyst

Craig Kennison -- Baird -- Analyst

John Healy -- North Coast Research -- Analyst

Daniel Imbro -- with Stephens Inc. -- Analyst

Stephanie Benjamin -- SunTrust -- Analyst

Bret Jordan -- Jefferies -- Analyst

Gary Prestopino -- Barrington Research -- Analyst

Derek Glynn -- Consumer Edge Research -- Analyst

Chris Bottiglieri -- Wolf Research -- Analyst

Daniel Imbro -- Stephens, Inc -- Analyst

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