Good day, everyone and welcome to the Copart Incorporated Second Quarter Fiscal 2019 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 Incorporated. Please go ahead, sir..

Thank you. Good morning, everyone and welcome to the second quarter call for Copart. On the call with me today is Jeff Liaw, CFO and Will Franklin, Executive Vice President.

I'm going to turn it over to Jeff Liaw for opening comments and then Will Franklin will give us an update on operations and then we'll be happy to answer any questions that we have at that time. All right thanks so much.

Jeff?.

Thanks, Jay. I'll start with the Safe Harbor.

During today’s call, we'll discuss certain non-GAAP measures, including non-GAAP net income per diluted share, which includes adjustments to reverse the effects of disposals of non-operating assets, foreign-currency-related gains and losses, the impact of income taxes on the repatriation of foreign earnings, net of deferred tax changes and certain income tax benefits related to accounting for stock option exercises.

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

We believe the presentation of these non-GAAP measures, together with our corresponding GAAP measures, is relevant in assessing Copart’s business trends and financial performance. We analyze our results on both the GAAP and non-GAAP basis described above.

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

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

Now I'll turn our attention to the second quarter of our fiscal 2019. We're pleased with our operating results. I'll start also with a reminder that the first six months of fiscal 2018 were distorted by Hurricane Harvey over those first two quarters of fiscal 2018 we incurred losses of nearly 10 million on an operating basis.

Q2 in isolation, would reflect a gain because the first quarter of 2018 disproportionally captured storm related costs while the second quarter we disproportionally captured storm related revenue. I will make it a point over the course of this call to communicate our key metrics with and without the effects of Hurricane Harvey.

We achieved a record second quarter in revenue, gross profits and operating income, starting with our nominal global revenue growth of 5.6% with an unfavorable year-over-year currency effect of $4.9 million from foreign operations primarily due to the relative strength of the dollar in comparison to the pounds and the Brazilian Real.

Excluding the effect of Hurricane Harvey our revenue growth was 17% even. Our global service revenue growth was 3.7% year-over-year and again excluding Hurricane Harvey was 13.7%. We typically suggest looking to service revenue and service revenue growth as the more accurate indicator of underlying business activity.

Our purchased car growth of 19.1% year-over-year driven largely by our international businesses split approximately equally between the UK and Germany. A quick reminder that our Copart owned inventory remains relatively small at $28.3 million at quarter end which is small in the context of course of the overall business.

Turning to unit sales our nominal global units declined slightly at 0.6% year-over-year with a slight U.S. unit decline of 3.7% and international unit growth of 18.7%. Again excluding Hurricane Harvey, our global unit sales grew at 7.7%, U.S. units grew 5.7% and excluding Harvey and charities volumes for [indiscernible] U.S.

number our volumes grew 7.5% year-over-year. Our U.S. unit growth was driven by both our insurance and non-insurance segments which Will will describe in greater detail in a few minutes. Then turning to inventory, our nominal global inventory grew at 6.6% year-over-year, excluding the effect of Hurricane Harvey our inventory grew 7.7%.

For the quarter, our gross profits grew 8.7% year-over-year excluding Harvey, that same number would be 13.6% year-over-year growth. Our gross margin rate increased from 41.7% a year ago to 42.9% this year, so approximately 120 basis points lift.

Excluding the effect of Harvey our gross margin compressed slightly approximately 1% which is explained almost entirely by the slight mixed shift through purchased car revenue. Our average selling prices for vehicles at Copart auctions in the United States excluding Hurricane Harvey, grew 15.4% year-over-year.

That compares to 16.1% growth a year ago, so 15.4% this year and $16.1 a year ago for the same quarter. Will again will provide more context on this phenomenon, a reflection both of the type of cars that are consigned, the Copart as well as the expansion and marketing efforts that we pursue with our Copart member base.

Turning to our general and administrative expenditures, excluding stock compensating and depreciation were up from $29.7 million a year ago to $33.2 million this year were down $1.6 million sequentially versus the first quarter of 2019.

Repeating a mantra that you've heard before in general, G&A expenditures will vary from quarter to quarter and will grow over time with inflation and complexity [ph] we continue to believe we can achieve operating leverage given the topline growth we experienced.

Our GAAP operating income growth was $9.1% for the quarter, excluding Hurricane Harvey, that same operating income would have grown at 15.5%. Our net interest expense as you can see is down slightly year-over-year given our lower average net debt balance.

Our other income of $4.8 million is largely a gain on sale of assets specifically in our replaced data center, you also see that adjusted out in our non-GAAP reconciliation. Our second quarter income tax rate was 20.4% a reflection of the lower U.S.

federal tax rate and we discussed in our prior calls, as well as one time benefits from stock option exercises which will again reflect in the non-GAAP presentation. Our GAAP net income increased from $103.3 million a year ago to $131.4 million this year for the second quarter an crease of 27.2% year-over-year.

On a non-GAAP basis, our net income grew 11.5% year-over-year excluding the effects of Hurricane Harvey and including an assumption for tax rates that same growth rate would be 18% plus or minus for non-GAAP net income year-over-year.

The non-GAAP schedule we've already talked about the major adjustments on that page for the second quarter for this year, which include, both the disposal of non-operating assets as well as the excess tax deduction for stock option exercises.

I'll just quickly remind folks that the major adjustment for last year of the second quarter was the $10 million adjusted of the one-time transition tax charge, that’s a reflection of the tax reform spent in that quarter. I'll turn our attention briefly to Germany, before coming back then to the balance sheet and cash flow.

We encourage folks for further background to review the transcript of our first quarter earnings call where we described in much greater detail the nature of the market and our efforts there and it represented a one-time deep dive so to speak into the business.

But as a quick substantive update we now have 12 locations up and running in physical footprint across the country. At Copart Germany we are now running daily auctions across those locations with a strong majority of our volumes sold to buyers outside of Germany.

We think that reflects the power of the Copart brand name, our buyer network and technology platform and it frankly is a strong testament to the inefficiency of the current market model for total losses in Germany. Our unit sales in Copart Germany are approximately eight times the same volume for a year ago for the second quarter.

We also continue to demonstrate our ability to purchase cars through Wreck Online, the listing service that we own and to show them that a positive margin at Copart Germany auctions. As you know, we also continue our dialogue in parallel with insurance carriers in Germany and believe that a Copart model akin to what we have in the U.S.

and in the UK is ultimately the right answer for that market as well for a host of reasons including both total loss and claims costs for carriers as well as the claims experience for policy holders. Turning to the balance sheet and the cash flow statement, our operating cash flow for the quarter was $107.5 million with gross CapEx of $74.4 million.

About 60% of the CapEx was attributable to capacity expansion and lease buy outs with the balance attributable to maintenance and other activities. We also purchased 7.6 million shares of Copart stock in the open market at a weighted average price just below $48. The total outlays are approximately $365 million.

We founded these purchases with cash on hand and revolver draw of $93 million as provided at the end of the quarter. We still have available liquidity of more than $750 million. With that, I'll turn the call over to EVP, Will Franklin..

Thank you, Jeff. Let me provide a few more comments about our operational performance for the second quarter. Copart once again delivered another strong quarter. Our U.S. volume when adjusted to the Harvey activity in the same quarter last year grew by 5.7%.

Our volume growth continues to be driven by organic growth and market wins within the insurance market and our continued expansion into noninsurance markets. Organic growth in the salvage market is driven we believe by an increase in total loss frequency.

As high repair cost at our elevated auction returns are leading to a higher percentage of claims resulting in an economic total loss. The growth in our auction returns has significantly outpaced the growth in used car values. Using January 2017 as a baseline the Manheim Used Car Index has growth 8.4%.

Using the same baseline, ASPs were generating at our U.S. auctions for only insurance cars has grown by 35%. While the rest of the industry is quickly moving toward the digital remarketing convention we have been completely digital since 2003 when reintroduced our BB2 platform. We have continually improved our awesome platform, now BB3.

Over the last 16 years is commonly recognized as the standard in the industry. The addition of CO BB3 [ph] and our elevated marketing focus on international buyers have left to a significant growth in bidding activity from those buyers. Our full U.S. website is now translated into seven languages.

In addition, we have elements of our website that accommodate languages native to 135 countries and currently we sell from the U.S. into 147 countries. In the quarter, 38.4% of all U.S. units sold were to international buyers and 46.9% of the value of the units sold were to international buyers. In total, over 70% of all the vehicles sold on a U.S.

website received at least one bid from an international buyer. Our marketing efforts have two goals, to bring more buyers to our auctions and to get those who attends to place more bids. We have been successful in both efforts. The number of unique bidders was up 13% and the number of bids received per lot sold was up 8%.

Breaking down the growth in unique bidder further, we saw an 11% increase in domestic bidders and 22% increase in the international unique bidders. Growth in ASPs [ph] has been the primary driver and 6.4% increase in the U.S. per car. Also contributing to that growth are the additional services we are providing to both, the buyers and the sellers.

The non-insurance markets continued to be a focus of growth in our U.S. strategy. These markets include franchise independent dealers, finance and leasing companies, fleets, charities, equipment dealers and wholesalers. Excluding the charity and municipality markets in the U.S.

our noninsurance volume grew by almost 20% and by more than 100% over the same quarter last year, same quarter two years ago, respectively. The growth in volumes was spread broadly across multiple seller segments. Volume from dealers was up 14%.

Finance companies 24%, wholesalers 24%, rental car companies 62% and fleets and industrial equivalent were up 41%. We have successfully grown our non-insurance volume as we develop better systems integration and deflates banks and dealerships as we have developed sales and operational programs targeting individual segments.

And as we continue to increase the auction returns that we're delivering to our non-insurance sellers. Turning to the UK, we delivered another very strong quarter as we saw growth and volume of 11.8%. In local currency, revenue and EBIT grew by 21.7% and 23% respectively.

The growth in volume came from increases in both the insurance business driven once again by market wins and organic growth and growth in our non-insurance business as we grew out UK volume. We also continue to see meaningful growth in both Brazil and Canada.

As the value we offer in terms of technology, processes, land and people, has allowed us to expand our market share in those countries. In Canada we increased our volume in our local currency revenue by 8.4% and 21.5% respectively.

In Brazil our growth was even more remarkable, increasing our volume and our local currency revenue by 22% and 36.5% respectively. Jeff has already provided commentary on Germany. With that, we note that our operations outside of the Americas, the UK and Germany for the quarter remain immaterial in both revenue and EBIT.

Globally we are seeing raising labor, health insurance and sample cost all of which have led to an increase in our average cost to process each car. Our inventory was up in the U.S. internationally and worldwide by 5.9, 11.1, and 6.6 respectively. When adjusted for Harvey, the growth in the U.S.

internationally and worldwide with 7.2, 11.1, and 7.7 respectively. The year-over-year growth in our U.S. inventory over the prior eight quarters, has averaged over 9% and we expect this trend to continue.

To accommodate this growth and to provide standalone capacity along the Gulf of Mexico and the East Coast we have engaged in a massive capacity expansion.

In the last three weeks alone we have announced New York and Harleyville, South Carolina serving the Charleston area, [indiscernible] California serving the North Bay and Sacramento areas and Mocksville, North Califormia serving the Charlotte area. Until these three are exited over 114 anchors of capacity.

So far this fiscal year, we have announced 14 new facilities, 4 in the U.S., one each in Brazil and Canada, and 8 in Germany. Currently in the U.S. we have 17 expansion projects in the construction phase and 29 projects in the engineering phase.

These 46 projects alone represent thousands of acres of capacity and will consume several hundreds of millions of dollars in capital. That concludes my comments. Todd, I'll turn the call back over to your for the Q&A session..

Thank you. [Operator Instructions] We will take our first question from Bob Labick of CJS Securities..

Good morning, thanks for taking my questions..

Hi Bob, good morning..

Hi, a couple real quick questions on Germany and then one on the noninsurance group which is very impressive that you just talked about.

Starting with Germany, obviously over the last, I guess six to 12 months you've really accelerated your pace of rollout in your road share, can you talk about what has surprised you the most over the last 6 to 12 months during this kind of acceleration phase?.

I think the biggest surprise is just how well the team performed in terms of opening up so many yards so quickly.

When we got there this summer and started looking at changing our strategy in terms of what would make us the more successful, we realized we needed a network and that's what worked for us in the U.S., the UK and other markets, Brazil, Canada.

As we have a stronger network we have a better an easier ability to pick up cars quickly and provide our services and really just the team's performance and ability to do that is probably the most surprising thing. Second I would say is just the amount of buyers that we've been able to bring in.

Once we started to hold auctions and we're auctioning well over 500 cars a week now, once we started that process and had regular auctions available to the members, the marketing teams has just done a really great job on getting our brand out there and cultivating buyers for our auction. So it's been very positive. We talked about it in the past.

And like Jeff's comments which are let us succeed and performed and then we'll report on those results, but we're very happy with what we see in Germany..

Okay, great and I know you want to succeed and perform first, but I just wanted one more question and then I'll move off it. I know you talked about potentially over the next severe quarters flipping your insurance company to the U.S.

style, do you still believe that's possible or likely and if that doesn’t happen over the next couple of quarters what would be the reason that it wouldn’t happen?.

Well, I do think it's going to happen. The reason that will happen is associated with friction that you have today with the process.

So you are acquiring the insured to hold the vehicle and then have some buyer come to their house and pick the vehicle up and there is an insurance company the IMET in Germany, yes it isn’t concerned with customer service and net promoters scores and giving the best possible brand experience that they can give.

And obviously when we send uniformed driver in and pick the vehicle up, bring it to our location, then auction it. The end buyers picking up at our location, you don’t have that touch with the buyer and the insurer and that could be a negative.

There could be a number of scenarios that I could outline for you where the buyer ends up playing double conversations with the insured about the salvage, and clearly there has not the insurance company that wants that. Second reason is returns. We are able to buy cars.

As Jeff has mentioned on previous cars we're able to buy cars basically through the platforms and then bring them over to the yards and auction them off and get a higher return. And that is just very, very simple. You are allowing buyers from around the country and the world to bid on product that they know they are going to get.

There is no contingency, there is no question if they bid they are going to own it, whereas when they bid on the platforms there is less than 10% chance of knowing you're going to get the vehicle.

If they are a high bidder they may not get the vehicle because insurer may sell it somewhere else trough a body shop or through some other, through the dealership rather than to the buyer. So you're taking away that element of unknown and making it a sure guarantee that you're going to get the vehicle. And then you have the logistical component.

And we said this before it should not be underestimated.

When a buyer has to, when a buyer bids on something and has to pick it up and go to three different locations, three different insurance homes and pick that vehicle up within a certain amount of timeframe that as a degree of difficulty, when a buyer can bid on three different Copart locations and buy a half a dozen or a dozen vehicles, so they can get a lot more product.

And then they can take three weeks to pick it up as opposed to having to get it out within four days. That's just better experience for the buyer as well. So I guess, I don't have any doubt at this point that we're going to see continued traction in that market..

Great, that was very helpful color. Thank you.

And then just one last quick one, obviously you just discussed very impressive growth of non-insurance from dealers finance, wholesalers, rental cars, et cetera, who are the primary buyers of these, are these the new unique bidder is coming online or just talk a little bit about the buyer base there, how may be different than your core or if it is exactly the same?.

No, Bob I think the profile of our buyer base changes constantly based on the product that we're offering and you're seeing buyers that have an appetite for these different types of cars and even heavy equipment that we're offering and that's that just demonstrates the efficiency of our auction platform.

We easily get those buyers, those buyers easily get us and are able to view these cars..

Bob I'll just add to that, but I think both are true. So we expand as the nature of the cars that we offer evolves our buyer base expands further as well, but it's also true that the existing buyer base is thirsty for the kind of cars that are offered by the dealer and consigners.

Otherwise by the way they wouldn't consign through us, as much as we'd like to say we're fantastic four independent dealers and so forth. They vote with their feet and they vote as a reflection of the auction prices they achieve at Cobalt auctions.

So I think it's a testament to the power of that buyer network that they're doing quite well and bringing more cars to go cart over time. I think that also has a virtuous slight cycle effect as well because then those newer or less damaged or non damaged cars then bring further buyers into the network as well.

So I think it's a marketplace that continues to expand on both sides, buyers and sellers..

Great. Thanks very much..

Thanks Bob..

Thank you. We'll take our next question from Craig Kennison of Baird..

Thank you for taking my questions. Well, I wanted to start with you on the non-insurance business continue to see great growth there.

Can you just provide examples of systems integration tools that you're using to drive your non-insurance volumes with dealer's, fleet operators or rental companies?.

I mean each species segments tend to migrated to a different platform for their system operations. For example, the finance companies use a system called Auto IMS. The dealers use a dealer track or dealer socket.

Number of those other systems, the buyers seem to come to us Auction access and it's extremely important for us to write the integrations that are needed to reduce any friction that is caused by operating two different systems, our systems and their the resistance our system and theirs.

And we have a sniff gate initiative along the lines of creating those integrations and that's just part of, it is not just the systems it's the processes. For example, heavy equipment, transportation piece of heavy equipment could cost 4, $5,000 as opposed to well under a $100 for an insurance company.

The tiling process for charities where you got to pick up the title when you pick up car is completely different the tiling processes for dealerships. Dealers are much more concerned and in need of after auction services like counter bidding. And I can go on and on.

Finance companies have rules that surround repossessions even voluntary repossessions with which we have to provide special documentation and compliance. And so it just not a matter of being integrated into their software systems as it is being able to change our process to accommodate their specific needs..

That helps, and then to what extent is the growth fueled by new customers trying your services versus customers that you've already landed that are dramatically increasing the use of your service?.

It's both. We're seeing organic growth. We're seeing people, customers that we've had for years that we're contacting again. We're like I said eliminate the friction, whether it's systematic or process, encouraging them to send us cards and the returns that they're receiving have driven more and more volume. It is not one of the big things.

It's a combination of a lot more things that we're doing internally..

Got it. And then I also wanted to ask about the total loss rate trend in the U.S. and in Europe. Where do you think that loss rate is headed in 2019 and beyond. And then when you look at Europe, do you have any data to frame where the total loss rate is headed in 2019 and beyond and where that may be headed..

Right, I'll comment on the first part of your question. That's total loss rate, I think this is as you know the one way tailwind behind the business for the last 40 years, so that there are cars that went through accidents are ever prone to be in totaled than repaired.

I think that's an unassailable macro factor that's really hard to read on a micro basis, so trying to forecast that quarter-to-quarter or even year-to-year is tough. We do think the overwhelming forces at work here will drive it upwards over time, there is no particular ceiling that we have in mind.

So I don't have a good point in time forecast for Q4, 2009. As for Europe, I think the data we haven't seen a comprehensive data source that's quite as exhaustive as CCC here in the U.S. so don't have a comparable number to share with you.

The UK as you know is very different from Germany for example even at how they practice or how they handle total losses. But no we don't have any point estimates as precisely as the major sources we have here in the US..

Got it. Thank you..

Thanks Craig..

Thank you. We'll take our next question from Bret Jordan of Jefferies..

Hey good morning guys.

On the purchased car trend in Germany is it possible to get the agency volumes up without flipping the insurance companies in the sense that, if the individual is still selling the car once you have enough option traffic will they send you the car on consignment as opposed to you having to buy it?.

Right now we're acquiring cars so that we can hold auctions, so we're doing that through the platform. We do have some non-insurance volume coming in now as well. So we're starting to process the vehicles for companies that service the insurance industry as well as rental car companies.

But currently the strategy is to illustrate the benefits to the large insurers and then have them switch over to our model..

Okay great.

And then on Will's comments around the real estate pipeline, could you put maybe some timeframe around those thousands of acres, is that going to be a very large near-term acquisition of real estate or is that 46 projects over a period of years?.

I think years is too long. I think within 24 months, the vast majority of all those 47 projects should be delivered..

Okay great. Thank you..

Thank you. We'll take our next question from Gary Prestopino of Barrington Research..

Hey good morning everyone.

Hey Will, when you talked about the non-insurance did you give the percentage breakdown of what percentage of vehicles were non-insurance this quarter versus last year or can you give that? Hello?.

Yes, so do you have any other question [indiscernible]?.

Oh certainly I do. In terms of the gross margin on the purchase vehicles it was - sequentially it was down a couple hundred basis points.

Is that just an impact of more growth in Germany or is that currency or what?.

It is a reflection in parts of growth in Germany. It is largely not currency because currency would affect both sides of that ledger area right across – partially Germany, it is partially also that purchased car mix can affect this as well.

So as the prices for example can rise for certain purchased cars, we've talked about this before, but the more a car bought and sold for more - dollars spread grows shrink not expect on a $10,000 car to make double the profit that you would on a $5,000 purchased car for what it's worth..

Okay.

And then lastly, I wanted to ask about the vehicle pooling costs they were - year-over-year they were up pretty dramatically, what would account for that?.

That's largely the effect of the accounting change Gary.

So it - to make a long story short, anyway check this [indiscernible] I think quite a pretty robust discussion there of how the accounting now forces us what revenue, we use to pull more revenue forward, now we push more to the back which hangs more of it on the balance sheet which is - and the corresponding costs which is why BPC is up so dramatically..

Yes, okay, that would explain it. And then lastly Jeff, I got on the call late, I actually got booked into the wrong call.

Could you give me some of those unit volume numbers that you generally address at the beginning of the call or unit volume changes or whatever?.

Yes I'll give you the big one, so unit sales, nominal unit sales declined 0.6%, U.S. unit declined 3.7%, international growth of 18.7%, excluding Hurricane Harvey, global unit sales growth of 7.7%, U.S. unit growth of 5.7 ex Harvey and ex charities we said in the U.S. with 7.5%..

Okay, thank you..

Gary, I got that number for you on the percentage of non-insurance vehicles sold last quarter, the U.S. is 22.9% and the same for last year was 20.8%..

Okay, thank you..

You’re welcome..

Thank you. We'll take our next question from Chris Bottiglieri of Wolfe Research..

Hi, thanks for taking the question. Just hoping you could disaggregate the increase in average selling prices.

I would think some of its mix, or it may be just look at what the ASPs have done to sort of the insurance segment?.

You're right. Of course some of it is mix and we don’t - we haven’t separated the impact of the change in mix versus the increase in ASPs solely for insurance companies. So I'm not sure we could provide that to you on the call..

I think Will will provide the stats on Manheim on a two-year basis and U.S. insurance only being up 35%/.

Right, but not the impact it has on revenue..

So, right not the impact on revenue. But the point is that ASPs are up and up significantly year-over-year including for the insurance segment in isolation. So it's not just mix shift, it is also significant increases in insurance ASPs in the United States..

Got it. That's what I am trying to arrive at.

So when you think about what's driving this, is there any metrics you can cite in terms of like the total loss rates, are you saying that total loss rates are increasing and more of younger vehicles than for older vehicles or anything you can demonstrate, you used to demonstrate that like there's a younger vehicle being totaled today than maybe historically?.

I think the themes you've heard us talk about on the last few calls all still hold true, which is that we are seeing on average slightly newer cars being totaled. So if we look at the model year of the car we sell. We are selling more newer cars today than we were a year ago and that's been true for a while.

We are also selling less damaged cars, so the cars are totally more easily. We have certain metrics to the insurance companies do rather they provide them to us regarding repair estimates. So how much is the repair estimate relative to the intact value of the car.

And we are seeing by that particular barometer, less damage cars entering our system over time. On the flip side of this is all the bidding phenomenon that Will described. So I think we are seeing newer and less damaged cars on the supply side and on the demand side you are seeing more international buyers, more buyers.

By the way domestic and international, but also more diversified and global buyer base for our cars. So it's both of those things working in concert that has driven selling prices up..

Got you. And then just lastly Well just last year there I mean the total loss rates are pretty amazing and it sounds like still looking for that 79% volume growth.

Do you have any data on accident frequency or what are you seeing there? Are accidents still down year-over-year and do you think some of this collision avoidance technology is yet impacting actual frequency. I think it's still too far off..

We probably don't have any better data than you do. So we follow third party sources like the fast track data and so forth. And what I would say first is that for the vast majority this company's history.

Accident frequency has declined slightly, steadily but very slightly over time and it's been dwarfed by of course total loss frequency on the other side of the equation. So that has driven organic unit volumes up very meaningfully over time.

I do think that the rapid increases in accident frequency we saw from 2011, 2012, 2016 have tapered so accident frequency may be declining somewhat maybe flat. But it's not rising at the rate that it had previously. Total loss frequency as far as we can tell continues its upward trend..

Got it. That's helpful. Thank you..

Thank you. We'll take our next question from Daniel Imbro of Stephens Inc [indiscernible]..

Hey, good morning guys. Thanks for taking my questions. One on store in Germany, I think you mentioned Jeff you guys are at twelve locations as a footprint. Is that a sufficient network to service the country today? And then how is the salvage industry in that market growing.

Obviously you guys are growing rapidly taking share but is the market also growing high single digits similar to the U.S..

So, as for the footprints. I think the this is this is sufficient for us to participate actively in Germany. There's no doubt in my mind that over time, as we kind of trade the market grow our platform we will invest dramatically more still in landing capacity there. So the 12 is a good spread geographically across the country.

But in terms of sufficiency of capacity we are still in the very early innings of our participation in Germany.

Your second question again was there?.

Just on industry growth in Germany, is it similar to the US and kind of that high single digit range?.

That's a tricky question to answer.

So even your point about our taking shares is a very nuanced concept in the sense that we are taking share from what is a very different traditional salvage model through the listing service et cetera which I'm sure you heard and can review again from the first quarter call but in a nutshell I don't think the underlying characteristics should be different from the U.S.

and the UK in the sense that the cars are relatively old across the system. So Germany is a mature economy that has had cars for a long time so the average fleet age likewise is old, in comparison by the way to developing markets or to economies that have grown tremendously in the last decade or two.

China and India and like where the cars are old could be new by comparison so the cars are old. The cars are expensive for repair meaning labor costs are high, parts costs are high. Regulatory Burdens are also meaningful meaning you have to restore airbags back to tax condition to drive cars.

All of those same underlying forces are similar in Germany, but for like for like salvage auctions it's just statistics in Germany we don't because they don't exist, but we are the first ones to attempt to deploy the Copart model so to speak in Germany..

Thanks. Will I think you mentioned over 30% of U.S. vehicles are now going abroad and I'm assuming that some of those vehicles are going over to Europe. So can you talk about the buyer base in Germany to the extent. I would just love to hear your thoughts around over time as you develop the German market and the further EU market.

Does that cannibalize any of the international demand that you're seeing at your U.S.

auctions today?.

No, it really doesn't. Most of our international activity is in the less developed countries. Most of our cars provide affordable transportation and our top three are Mexico which is obvious because of its proximity to the United States and the next two are the UAE and to Nigeria and we're also seeing significant growth in the Caucus countries.

There is some cross pollination in our buyers in Germany, but it's not significant in scope and we don't think it will have a cannibalization impact on our international activity as Germany develops..

Okay great. And then last one from me just on capital allocation, you guys obviously chose to deploy capital towards share repo in the quarter and you funded it with some short term debt.

Understanding you don't want to comment on any future activity, but has your appetite culturally to maybe carry more leverage on the business changed today given some of the scale you've seen you've gained in the recent years?.

No, I don't think there's been a philosophical shift so far if you go back. Just a few years even at the end of 2014 we had leverage on the balance sheet for share repurchases we consummated in the summer of 2015 and December 2015. So we had a little bit more leverage then even then we do now.

But no, there's no philosophical shift in how we think about leverage. We generally prefer to be, to have meaningful financial flexibility which gives us strategic flexibility when it comes to acquiring land, pursuing international growth and so forth. So we'll continue to be a relatively low leveraged institution..

Got it. Thanks a lot guys..

Thank you [Operator Instructions]. We'll take our next question from Derek Glynn of Consumer Edge Research..

Thank you for taking my question. As you think about additional growth opportunities outside of North America or Europe, China and India stand out as potentially two large markets in the long run.

Can you provide an update on how you view those opportunities and whether investments have been made to expand that?.

I think you captured the thought well there and they are very promising markets long term for a host of reasons. That markets haven't yet materialized to nearly the same extent that they have in Europe and the United States. So we'll be there when it emerges but it's not in the next couple of years anyway..

Okay, Understood. Thank you..

Thank you. This concludes our question and answer session. I'll turn it back to management for closing remarks..

Thank you for coming on the call and we look forward to reporting on the next call on Q3. Thanks again. Bye-bye..

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