Motley Fool: Copart (CPRT) Q4 2018 Earnings Conference Call Transcript

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Copart (NASDAQ:CPRT)
Q4 2018 Earnings Conference Call
Sep. 19, 2018 11:00 a.m. ET


Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

[Operator instructions] Good day, everyone, and welcome to the Copart, Inc. fourth-quarter fiscal 2018 earnings call. Just as a reminder, today’s conference is being recorded. For opening remarks and introductions, I would now like to turn the call over to Mr. Jay Adair, chief executive officer of Copart Inc. Sir, please go ahead.

Jay AdairChief Executive Officer


Thank you, Katie. Good morning, everyone, and welcome to the Q4 and year-end call for Copart. I’m going to turn it over to Jeff Liaw, who will give you an update on finance, and then Will Franklin will give you an update on the operations in the business, and then we’ll open it up for questions. With that, it’s my pleasure to turn it over to Jeff Liaw, CFO.

Jeff LiawChief Financial Officer




Thank you, 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 effect of income taxes on the deemed repatriation of foreign earnings net of deferred tax changes, disposals of non-operating assets, impairment of long-lived assets, acquisition-related fees and integration charges, reservers from legacy sales tax liabilities, foreign-currency-related gains and losses, 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 website under the Investor Relations link and in our press release issued this morning.

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 bases described above. In addition, this call contains forward-looking statements within the meaning of federal securities laws, which are subject to substantial risks and uncertainties that could cause actual results to differ materially from those projected or implied by our statements and comments. For more complete discussion of the risks that could affect our business, please review the management’s discussion and analysis portions in our related periodic reports filed with the SEC.

We do not undertake to update any forward-looking statements that may be made from time to time on our behalf. Now turning our attention to the fourth quarter of fiscal 2018. We achieved a record fourth quarter in unit sales revenue gross profits and operating income. We’re quite pleased by what we believe is strong underlying operational and financial performance, but it was, of course, a complex quarter given certain nonrecurring noncash charges, which I’ll elaborate on further during this call as well as a slight mix shift to purchased cars and year-over-year changes in our tax rates.

Starting with the top line. Our revenue grew globally at 18.7% year over year with a modest contribution from beneficial year-over-year currency effects of approximately $1.5 million. We experienced global service revenue growth of 16.3%, which is largely the best reflection of underlying growth in the business. Purchased car growth of 37.7%, driven by NPA Copart Direct, Germany, among others.

Actual Copart-owned inventory at the end of the quarter was $16.7 million, which, as you know, is still small in the context of the overall business. As you know, if you are following Copart for some time, you purchased car revenue on a nominal basis overstates it’s growth and contribution to the business. If we reflected only the net margin in our financials or if we were to gross up our service revenue generally for the average selling prices of cars, purchased car revenues would appear much smaller in comparison. We experienced global unit sale growth of 10.2% with U.S.

unit growth of 9.8% and international growth of 12.2%. Will will provide additional color on the growth drivers, but we did experience growth in both insurance and noninsurance volumes. Our global inventory grew by 3.8%, slightly more than that excluding catastrophic inventory from both last year and this year. Our gross profit grew from $167.5 million to $188.4 million in the quarter, or 12.5% growth.

That said, the fourth quarter of 2018 was burdened by a one-time nonrecurring depreciation charge of $10.5 million, due to assets newly placed into service as well as changes in the useful lives of fixed assets. The fourth quarter of ’18 was also burdened by $1.9 million of writedowns of assets and certain separation costs in connection with our acquisition of the business in Finland. The gross margin rates decreased from last year, 44.2% to 41.9% or a decline of 230 basis points. That said, the nonrecurring depreciation charge represents 230 basis points of that contraction by itself.

Furthermore, the slight mix shift to purchased cars represent another 70 basis points or thereabouts. The Finland writedown is an additional 40 basis points. The punchline being that in a quarter in which our gross margin rate declined year over year by 230 basis points, those factors alone represented 340 basis points or more than the total decline. We grew ASPs in the quarter year over year by 11.9% in the U.S., despite lapping a strong ASP growth quarter a year ago in fourth quarter of 2017 of 7% net.

Will will elaborate again, but this is continuing the phenomenon we talked about previously of newer cars being totaled, less severely damaged cars being totaled, increased bidding activity, strong used car price environment and a solid scrap-price environment as well. Turning our attention to general and administrative expenditures. I’ll start with the line item, excluding stock compensation and depreciation. G&A ex those factors increased from $29.8 million a year ago to $42.8 million this year.

Of that $13 million increase, $5.6 million is a nonrecurring payroll expense in connection with certain executive stock option exercises, which we have normalized in the non-GAAP EPS presentation you see in the press release. An additional $1.4 million of noncash reserves in connection with certain sales tax liabilities, those together are $7 million of $13 million increase and through one-time issues. Furthermore, approximately $2.9 million of our G&A growth is due to the acquisitions of NPA and the business in Finland. The balance then represents actual growth in general and administrative expenses for the quarter.

As we have said routinely on our calls and interactions with our investors and others, our general and administrative expenditures will grow over time with inflation and with increases in complexity of our business, but we continue to believe we can achieve operating leverage given the top-line growth rate that we’ve experienced. Finally, few other points on G&A and other portions of the income statement. G&A depreciation increased by $1.6 million year over year, of which materially all is in connection with the acquisitions described previously at NPA and AVK. Our GAAP operating income grew from $110.8 million to $134.8 million, or 21.7%.

If you include the one-time matters that I described previously, the depreciation and amortization charges of $10.5 million, the $1.9 million writedown in connection with the Finnish acquisition, the sales tax liability, the payroll liability as well as an additional $1.1 million impairment of an intangible asset in connection with the historical acquisition, those factors together represented $20 million of decreased operating income in comparison to what, otherwise, would have been. Our operating margin for the quarter was likewise depressed by 450 basis points attributable to those factors. Our net interest expense was down year over year from $5.5 million to $4 million given the lower debt balance. I’ll turn our attention to income taxes.

In the fourth quarter, as you know, there are additional complexities as tax reform comes into clearer focus, with both the change to our recurring tax rate as well as one-time effects on deemed repatriation and deferred taxes and the like. Our Q4 effective rate of 17.3% benefited from certain nonrecurring tax offsets, including the exercise of stock options, which again you see reflected in the adjusted EPS schedule. Our full-year normalized rate for fiscal ’18 would have been approximately 28%, excluding those one-time factors. That said, as you know, our U.S.

federal cash tax rate for fiscal ’19 will be 5.9% lower than what we experienced in fiscal ’18. Due to the full-year benefit of tax reform because our fiscal year straddles the calendar year, we received a portion of the benefit in fiscal ’18 with the full benefits in fiscal ’19. Our GAAP net income for the fourth quarter increased from $70.3 million to $109.7 million, or a 56% year-over-year increase. On a non-GAAP basis, our net income increased from $82.4 million to $102.6 million, or growth of 24.5%.

In the non-GAAP net income reconci — reconcilliation schedule, you will see there the $2.9 million in deferred-tax adjustments, the impairments of the long-life assets, the charges we incurred in connection with the acquisition of our Finland business as well as the legacy sales tax liability. Not included in that reconciliation is the depreciation and amortization charge I described a moment ago. The effective share count, the last comment before we get to EPS, has increased from 237.6 million a year ago to 244.4 million, or a 3% increase with majority of its increase attributable to our increase in share price due to the treasury method of accounting for stock options. Our non-GAAP EPS then has increased from $0.35 to $0.42.


Regarding our balance sheet and cash flow, operating cash flow for the quarter was $157.9 million and capex of $106.4 million in the quarter. As a slight deviation from the past few quarters, 40% of these expenditures were for yard and transportation of equipment. Tax reform created a one-time benefit for us of acquiring equipment and placing it into service in fiscal ’18 of approximately an incremental 6% that we would not receive had we made those purchases in fiscal ’19 and beyond, which cost us to accelerate the limited set of purchases into fiscal ’18. The balance of our capex, as usual, was attributable largely due to capacity expansion and lease buyouts.

And the last three commentary I provide is on Germany before turning it to Will for additional explanation. As you know already, we have been running options at our two existing Copart Germany locations. In comparison to conventional remarketing method in Germany, Copart Germany’s options are already achieving substantially better returns at auction. As we penetrated German market, these superior returns will ultimately accrue to the benefit of German insurance carriers, policyholders, our buyer base and Copart itself.

If you consider the key to drivers of our success and the markets in which we are more mature, we have world-class capabilities in developing a robust buyer base, real estate per vehicle storage, physical logistics for transport and access to vehicles. On each of those four fronts, we have substantial initiatives under way that we’ll discuss with you in greater detail on the next call. With that, I’ll turn it over to Will Franklin.

Will FranklinExecutive Vice President

Thank you, Jeff. First, let me provide some updates on Hurricane Florence. As we have stated previously, our goal is to be a constant state of readiness for these CATs. That requires us to have permanent CAT storage capacity.

Relative to Florence, in a region, we have recently added a 90-acre facility near Raleigh and a 96-acre facility located in Spartanburg, South Carolina. In addition, we have available new facilities near Charleston, Winston-Salem, Atlanta, and Fredericksburg, which are near completion, yet currently available to store cars. To supplement these new facilities and our 11 existing facilities in the CAT region, days before the storm hit, we secured 17 temporary storage locations. We also mobilized almost 100 loaders, hundreds of tow trucks, a dedicated CAT teams, and we staged in the region our six mobile command centers.

In total, we estimate that we have spent nearly $1.7 million in preparation for Florence prior to the landing of the storm. Our response to Hurricane Florence demonstrates our unmatched CAT capabilities and our commitment and our ability to execute during these events. In a CAT, we don’t have the luxury of waiting for the storm to clear and then assess our needs. We have to be on the ground days, even weeks beforehand, preparing for the worst outcome.

Florence was a Category 4 hurricane, the same as Harvey, while out in the Atlantic. It landed as one and quickly dissipated into a tropical storm. While it’s too early and the claim cycle is no certainty, we believe volumes generated in Florence will require only a limited use of our CAT resources. Now let me provide some commentary on our fourth quarter’s operational results.

In the U.S., our volume grew by 9.8% for the quarter and 12.9% for the year. When adjusted for CAT activity, the year over growth was 10.7%. Our volume growth continues to be driven by organic growth and market wins within the insurance market, continued growth in the noninsurance markets and our NPA acquisition. Volume from noninsurance sellers, which includes franchise and independent dealers, finance companies, charities, municipalities, equipment dealers and wholesalers grew by 27.6%.

In total, noninsurance cars comprised 23.5% of total U.S. volume, compared to 20.2% for the same quarter last year. The growth in volume was spread broadly across multiple seller segments. Volume from dealers was up 26%; bank and financial institutions, 23%; railcar companies, 29%; wholesalers, which almost doubled at 99%; and industrial equipment, which more than doubled at 122%.

In the U.S., our service revenue per car was up almost 6%. The increase in revenue per car was due primarily to higher ASPs, which grew by 11.9%. The increase in ASPs were driven by a number of factors: a 4.8% increase in the value of used cars as measured by the Manheim index; an 18% increase in the value of crushed car bodies; the beneficial mix of cars sold, as noninsurance cars and powersport vehicles are generally run-and-drive vehicles that yield a higher selling price; and the increase in our marketing activity. We’re also seeing a behavioral change in the industry as insurance companies are totaling cars with less damage.

We continue to expand our marketing activities and to enhance our auction platform. We have two objectives: first, is to increase the number of bidders that participate in our online auction; and second, is to increase the bidding activity of those who do. We are executing well on both. The number of unique bidders is up over 30%.

And the increase in number of bids received per lot is up almost 9%. Our marketing activities seek to identify and encourage buyers, wherever they are in the world, to search our website to join our auctions. Despite the headwinds caused by the stronger dollar, buying activity from international buyers increased. Total sales to buyers with international business addresses was 23.8%.

When we include all export activity, including buyers with domestic addresses who only export based on license, our international market represented 34.2% of U.S. units sold. Our international buyers and exporters also influenced auctions by pushing bids higher by being the second high bidder. When we include this metric, our international buyers and exporters impact over 50% of all U.S.

items sold. Additionally, our work on auction dynamics include — continues as we improve the effectiveness on our online auction platform, which we believe to be the best in the world. Due to increased — due to the electronic nature of our auction platform, we can capture all search and bidding activity, including individual product preferences and bidding tendencies. Utilizing that data, we may, when appropriate, extend the auction for certain units in anticipation of further bidding activity or employ other measures to elicit additional bids.

We are also addressing the change in bidder behavior as they move toward mobile searching and bidding by improving our mobile experience. This quarter, 40% of all web traffic and 24% of winning bids were on mobile, up 80% and 20%, respectively. In Canada, our volume grew by 29% for the quarter and 46% for the year due to market wins as well as organic growth within the market as the Canadian salvage market, like the U.S. market, has seen growth in total loss frequency.

In addition to the growth in volume, we have seen a meaningful growth in revenue per car as Canadian ASPs, like U.S. ASPs, have risen in Canada over 14%. To accommodate the increase in volume in Canada, last year, we expanded our yard in Calgary by 14 acres, and we expect to announce a 14-acre expansion of our Edmonton yard in the first quarter of our fiscal 2019. Turning to the U.K.

We delivered another strong quarter as EBIT in GBP. And after eliminating the impact of a one-time payroll tax expense associated with an option exercise was up 10.8%. The growth was driven by an 8.1% increase in volume and an increase in revenue per car also tied to higher ASPs. U.K.

ASPs were also beneficially impacted by change in mix as dealer car volume grew by 18.7% and represented 10.2% of total volume, compared to 9.2% in the same quarter last year. We are also seeing meaningful progress in Brazil, where volume was up almost 9% quarter over and 10% year over. This growth was achieved in a very challenging market. Brazilian new car sales in 2017 were down 40% from 2013.

The car park is aging and auto policy account has been declining. Nevertheless, we have grown volume by gaining market share, due, we believe, to our ability to deliver exceptional operational and marketing results. On a quarter-over-quarter basis, our revenues and EBITDA grew by almost 11% and 30%, respectively, after adjusting for a beneficial one-time adjustment. We believe Copart Brazil will become an increasingly more meaningful contributor to our overall financial performance.

We’re see — seeing rising diesel fuel, labor, and health insurance costs across the board. Nevertheless, on a consolidated basis and excluding the costs associated with the exit of dismantling activity in Finland, our average cost to process each car grew only marginally over the same quarter last year as we leveraged our best cost model. Our inventory was up in North America, the U.K., and worldwide by 3%, 5.5%, and 3.8%, respectively. This quarter, North America sales grew by 10.2%.

Over the last 16 quarters, our year-over-year quarterly volume growth has averaged 11.3%. We have previously discussed extensively the drivers for the growth in the North America total loss market. While the growth rate and accident frequency is moderating, we see no such trend in total loss frequency. We expect to see continued growth in both car park and total loss frequency.

Accordingly, we remain extremely active in our yard expansion program to accommodate the growth produced by both market wins and organic growth in the insurance market, our continued expansion in the noninsurance markets and our need for additional CAT capacity. We did not announce the opening of any new yard this quarter, however, in addition to the yards in Leipzig, Germany; Spartanburg, South Carolina; Curitiba, Brazil; and our new NPA site, Madison, Wisconsin, which we have all opened after the close of the last quarter. We currently have 28 other land development projects currently under construction, representing over 1,500 acres of new capacity. 26 of those are in the U.S.

and one each in Canada and Germany. That concludes my remarks. Katie, now we’ll turn the call back over to you for Q&A.

Questions and Answers:

Operator

Thank you, sir. [Operator instructions] Our first question will come from Bob Labick with CJS Securities.

Bob LabickCJS Securities — Analyst

Good morning.

Jeff LiawChief Financial Officer

Hi, Bob.

Bob LabickCJS Securities — Analyst

Hi. Wanted to just take a step back on G&A. You gave us a lot of detail there, and I’ll certainly go back to the transcript and stuff. But just — I know you won’t guide to numbers specifically, could you talk a little bit about the profile as a percent of sales? Has anything materially changed, whereas there’ll be negative operating leverage going forward? Do you still expect to get operating leverage on that line? And how should we think about G&A going forward, given the significant volatility over the last few quarters?

Jeff LiawChief Financial Officer

Thanks, Bob. In short, yes, we do expect to achieve, as we have very consistently in history, operating leverage on G&A. This quarter, as you know, was noisy on the nonstock comp, non-D&A, non-G&A line item. The $13 million increase included $7 million itself just on the payroll taxes and the legacy sales tax liabilities, right? So those are true nonrecurring not in the baseline, so to speak.

Then there was about $3 million that we picked up from the acquisitions of our businesses in Finland and in NPA, and the balance is the actual “growth” in G&A for the quarter. So yes, we do expect to achieve leverage. There will be some inflation as we add complexity in the business, as we expand into Germany and the rest of Western Europe initiated the best work. There can be modest increases, but still, on balance, we will achieve better growth in operating income than we do in gross profit and revenue.

Bob LabickCJS Securities — Analyst

OK. Super. And then I think Will touched on this in the end and on last call. You’ve, something like an 11% or close CAGR in volume over the last four years in the U.S.

car volume. Have you kept up with that in land? I know you’ve reported lots of land acquisitions, but you haven’t given us a sense of how much you picked up. And so I guess the question is, have you kept up with the volume with land? And if not, what have you done to maintain the efficiencies in the yards as the utilization rate seemingly creeps up?

Will FranklinExecutive Vice President

We have kept up, Bob. We — I can’t say this, though, that whatever excess capacity we had three years ago has dissipated. But our procurement, our acquisition and our development activity is one of our primary focuses here as across the world. We employee — I think, a very aggressive — and when I say aggressive, I mean, a high assumption in terms of growth rate when we plan our expansion and our capacity needs.

I think we’re — we’re developing to that number. So when you look at those elevated growth rates we’re anticipating and the additional permanent CAT capacity that we’re pursuing, it’s a big job. But to answer your question, we think we’ve got it covered. I’d like to say we’ve got 28 projects in construction.

I think you’ll see a number of those being announced in the next two quarters. And if you look at the targets that we’re pursuing and I would say contracts that we have entered into, there’s about another 45 of those. So I think we’re well situated to accommodate the growth in the market as well as any CAT needs.

Bob LabickCJS Securities — Analyst

OK. Great. And last one from me, just on Germany. Can you give us some updates in terms of the number of either insurance companies or rental car companies that are participating in those auctions and other milestones we should look for there as you build out? I think you mentioned there is another yard to come there as well.

Jay AdairChief Executive Officer

Hey, Bob, Jay. Yes, we’ve changed some of our approach and strategy in the German market, and we’re going to give you an update on that in the next quarter. So where we’ve got two locations today, we’re going to be opening a significant number of locations in this quarter. I don’t like to talk about what we’re going to do.

I’d like to talk about what we’ve done. So in the next Q, we’ll be reporting on how many new locations we’ve opened. And we’re clearly looking at the market as we’ve got to have the logistics and the facilities in place to service the insurance industry. With that said, we are handling some insurance volume in that market, but primarily, the majority of the volume that we’re handling right now is noninsurance, and that allows us to build their salvage vehicles they’ve just not procured directly from the insurance, they’re procured directly from owners of vehicles.

These are owner retentions where the insurance company has had the insured retain the vehicle, and we’ve reached out to the insured and acquired the vehicle from them to flip it through the auction. And in that environment, what we’re doing is, we’re creating a marketplace. So today, we’re the largest auction house in the country that you can come. I’ll give you a great example today.

We had 150 cars on auction in Hanover. All those vehicles, if you bid, you own them. And that is the only auction environment I know of in Germany, where you have a 100% chance of getting the car if you bid on it. Everything else is — in the country is contingent auction environment, where you may not end up getting the vehicle.

So we’re selling — you can go online. I can tell you we’re selling over 400 cars a month right now. But you can go online and look at the auctions, I’d encourage everyone to do that and then let’s wait until next quarter and we’ll report on a much bigger update on our strategy and our approach in that market. But I’ll finish by saying, it’s taking up a significant amount of my time now.

I’m spending a fair amount of my own time on Germany, and we are very committed to the market in succeeding before the end of the calendar year in terms of large locations and large volume.

Jeff LiawChief Financial Officer

Bob, let me elaborate briefly on that point. So the sourcing cars from policyholders directly bars the function of the way the German insurance markets and its indemnification provisions have evolved over the years. However, then sales at Copart Germany, that’s what led me to the statements that we clearly are achieving better returns. So our conviction that the Copart’s model is the right one for the German insurance market long term remains as true as ever, and the evolution, Jay described, is merely how we achieved that outcome.

Bob LabickCJS Securities — Analyst

OK. Great. Super color. I appreciate that.

Thank you very much.

Jeff LiawChief Financial Officer

Thanks, Bob.

Operator

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

Stephanie BenjaminSunTrust Robinson Humphrey — Analyst

Hi, thank you. I just wanted to, sorry, go back and follow up on the G&A — or I’m sorry, overall operating income and kind of the one-time expenses. I’m happy to do this off-line if that’s easier. But I think you mentioned that there’s about $20 million in nonrecurring in the quarter.

Of that, what was broken out in the non-GAAP kind of adjustment schedule in the press release? I just want to make sure I’m getting it correct based on that.

Jeff LiawChief Financial Officer

Sure, Stephanie. In the non-GAAP schedule, you have everything but the $10.5 million of depreciation and amortization that burdened the gross profit for the quarter. Otherwise, in the non-GAAP reconciliation you see on a post-tax basis the pre-tax numbers that I just walked through.

Stephanie BenjaminSunTrust Robinson Humphrey — Analyst

Got it. OK. So that’s helpful. So really — and you said the operating income had $20 million of one-time that we would not expect to occur kind of going forward?

Jeff LiawChief Financial Officer

Correct.

Stephanie BenjaminSunTrust Robinson Humphrey — Analyst

Got it. OKy, that’s very helpful. My next question is actually just on Brazil. I think that — very positive there and kind of almost seems like — and I think the comment that it’s going to be a more meaningful contributor.

Is there something that has materially changed just in the last couple of months in that market either on your end or from just the market standpoint to cause this to be larger contributor or kind of just more color there would be really helpful? Thanks.

Jeff LiawChief Financial Officer

Yes. No, there is a change, it just wasn’t recent. It take — We entered the market, I think, in 2012. And it takes a while to build out not only your team but your processes and to gain the kind of reputation that you need to grow the business, the kind of reputation, the kind of brand that we have here in The United States.

And in Brazil, we’re starting to gain that brand recognition, especially with the insurance companies. And you saw that we had expanded north in Betim. Recently, we added a new yard south in Curitiba. And we think there’s opportunity to grow simply because we operate better than everyone, we think, and we provide the highest returns through our remarketing efforts, and we just think it’s — the byproducts of that will be growth in our volume and our presence in the market.

Stephanie BenjaminSunTrust Robinson Humphrey — Analyst

And are you — will you be able to provide the percent contribution Brazil had in the quarter? Or by top — or should I wait until the 10-K? Or kind of how should we go around that?

Jay AdairChief Executive Officer

Yeah. No, we haven’t sized in that respect, and we probably won’t until it becomes a material number with respect to the total.

Stephanie BenjaminSunTrust Robinson Humphrey — Analyst

Absolutely. All right. Well, thanks.

Jay AdairChief Executive Officer

Thanks, Stephanie.

Operator

Thank you. Our next question comes from Craig Kennison with Baird.

Craig KennisonRobert W. Baird & Company — Analyst

Hey, good morning. Thanks for taking my question. Jeff, I think you mentioned a small issue, but a change in lives of fixed assets, some change in assumption there. Can you shed more light on that decision?

Jeff LiawChief Financial Officer

Yes. So in short, I was commenting in total on the $10.5 million nonrecurring depreciation charge that burdened yard expenses showed up in gross profit. And the two drivers there are: one, assets newly placed into service with a substantial depreciation charge associated with that as well as change of certain useful lives, and this is based on change in management estimates. We have a number of facilities with different useful lives, and we harmonized them, so to speak, and adjusted them accordingly.

So that charge is not one you would see on an ongoing basis quarter to quarter.

Craig KennisonRobert W. Baird & Company — Analyst

Yes. And I guess, I’m just trying to understand what drove that decision to change the length of the lives?

Jeff LiawChief Financial Officer

It’s a — well, I think you know, in the past few years alone, we have significantly increased our own experience in acquiring land and developing it, including with our own in-house team in Bright Excavation. So I think our — the information we have available to us, our understanding even of our land has improved significantly even — over the past few years. So in reviewing historical fixed asset ledgers, we bring that heightened awareness to bear and that caused us to revise certain of those numbers accordingly.

Craig KennisonRobert W. Baird & Company — Analyst

Thanks. And then as we think about Germany and maybe the acceleration in activity there through the end of the year, should we anticipate costs running ahead of revenues for a period of time here?

Jeff LiawChief Financial Officer

Craig, I think from the perspective of the overall P&L, I think the effect would not be that pronounced of what you just described. So there are certainly will be moments when we invest when we have costs that are ahead of the contribution. There will be moments when the opposite is true, when we see the flow through of the contribution in connection with costs that we had previously invested. I don’t think that on balance, you would see, from your perspective, a meaningful drive on the P&L.

Craig KennisonRobert W. Baird & Company — Analyst

Got it. And then with respect to capex, could you just lay out your plan for capex spending in fiscal ’19 and maybe give us some of the bigger buckets where you expect to allocate capital?

Jeff LiawChief Financial Officer

Capex in fiscal ’19 will — will continue to be dominated by capacity expansion. So it will be land developments and acquisitions, in some cases, lease buyouts. So I think the rough number, over the past eight quarters, would be 85% or so of our capex has been for those ends. As for capacity, in general, you know that our capital expenditures have been in the past few years.

We largely expect that to continue into fiscal ’19.

Craig KennisonRobert W. Baird & Company — Analyst

Thank you.

Jeff LiawChief Financial Officer

Thanks, Craig.

Operator

Thank you. [Operator instructions] Our next question comes from Ben Bienvenu with Stephens Inc.

Ben BienvenuStephens — Analyst

Hey, guys.

Jeff LiawChief Financial Officer

Hey.

Ben BienvenuStephens — Analyst

I wanted to ask about revenue per unit. It’s been really strong for some time here. Obviously, ASP growth has contributed to that. But you guys have also talked about some of the things that you’ve been doing around being dynamic in the auction.

So I’ll be curious to fix what you can to delineate between how much of the ARPU increase is from external factors, a reflection of the market and how much of it is because of decisions you guys are making?

Jeff LiawChief Financial Officer

Ben, I think to be fair those variables would be really hard to isolate because they both happen concurrently with literally every auction we run, right, so we can’t isolate either the market effects or what we do as opposed to what we do we can to some extent. But what I would tell you is that both have been meaningful. That is, we’ve looked at the market for used car prices, they are very strong, but they are certainly not up 12% year over year either, right? So there’s some function of the marketplace being strong. There’s also some meaningful function of our innovations, our member recruitments, our auction management.

Ben BienvenuStephens — Analyst

Fair enough. And then my second question is just around a follow-up on capital allocation. Cash continues to build on the balance sheet. And I know you don’t make a practice of talking about your future plans for buyback, but I’d be just curious, we haven’t heard an update around the M&A landscape in some time.

I’d just be curious to hear a little bit more about how you think M&A fits into your future prioritization of use of cash flow?

Jay AdairChief Executive Officer

Fair question, Ben. M&A certainly has been a part of Copart’s journey over the past few decades. It has driven growth in the business in some cases. I think that will continue to be true going forward.

That said, I think, as you know, in our core markets, in which we are strongest, the U.S. and U.K. and so forth, there are more limited opportunities to acquire companies. Beyond that, we do revisit this topic from time to time.

We always have our hurdles that: one, we have to like the acquisition in isolation, that it has to make financial sense, it has to generate the kinds of returns on capital that Copart is going to expect; and secondly that it has to dovetail well with our strategic initiatives broadly, whether that’s international expansion in Brazil, Europe, and the like or expanses into additional future spaces. So that ruborous calculus hasn’t changed at all. We won’t largely comment on this kind of activity until, after the fact, as you know, for all these reasons. But M&A will be a part of Copart’s future as well.

Ben BienvenuStephens — Analyst

And just a quick follow-on to that. A lot of the acquisitions you guys have made historically have been either geographically or capacity focused. When we think about building out future capabilities, are those all elements of your business that you can build organically? Are you looking at targets from time to time that potentially bring capabilities to bear fruit for Copart as well?

Jeff LiawChief Financial Officer

The latter. So two illustrations, National Powersport Auctions, an acquisition we completed in June of last year, clearly an extension into the non-salvaged powersports arena. So the additional capabilities via acquisition, that was not organic per se. And even in Germany, our first foray into Germany was in connection with the acquisition of WOM, which is one of the lifting services you heard us describe on prior conference call as well.

So from time to time, we will expand beyond what I would characterize as Copart’s traditional salvage auction business in our M&A activities. But for the reasons we just described, those, of course, have had higher hurdles still. If it deviates from what we know and have done day-to-day forever, we have to be that much more sure.

Ben BienvenuStephens — Analyst

Great. Thanks for taking my question.

Jeff LiawChief Financial Officer

Thanks, Ben

Operator

Our next question comes from Bret Jordan with Jefferies.

Bret JordanJefferies — Analyst

Hey, good morning, guys.

Jeff LiawChief Financial Officer

Good morning.

Jay AdairChief Executive Officer

Hey, Bret.

Bret JordanJefferies — Analyst

As we, maybe, accelerate the business in Germany, I think in the early comments, you discussed your purchased vehicle volumes were up partially as a result of Germany. Do we think the purchase mix is going to accelerate from here? And I guess, what do you think about the gross margin impact going forward?

Jeff LiawChief Financial Officer

Bret, I think to be — I think, it’s a fair question. I think, to be fair, we don’t — we wouldn’t manage the business that way, right? I understand that if the purchased car volume were to increase, that would, quote, depress our nominal margin rate, but that’s not a particularly sophisticated way to run the business where we want to maximize contribution and profit. And so we wouldn’t speak in those terms except when we end up on quarterly calls like this one.

Bret JordanJefferies — Analyst

I was just wondering whether we should think about that going forward as we try to project your nominal margin rate. Is Germany’s acceleration going to be meaningful from here?

Jeff LiawChief Financial Officer

On Germany specifically — let me comment more generally, on Germany, specifically, I think you heard Jay and I both say, we’ll have a whole lot more to say on the next call than on this one. But more generally when Copart has grown into new spaces, we have often expanded first through the purchase car model, right? Until we have achieved liquidity and proven it to the various counterparties in the market, we are often better off buying the cars ourselves, selling them in auction, generating a profit and including to all the market participants that we do so. Over time, that very naturally evolved the consignment model as was true, for example, in the U.K., most notably. Or you may remember from back in the day, we were heavily tilted to the purchase model when compared to consignment.

The opposite is true today, as we’ve achieved that liquidity. So when we are growing in new spaces — NPAs is another example. NPA has a five — historically, had a five-store footprint, so to speak, in The United States. They had tremendous credibility among dealers, in and around those locations.

As they expand beyond those geographies, initially will they buy more bikes to prove their model? Yes. And the same will be true in Germany and could be true in other international markets as well. So it will have an effect, but as per that too lengthy paragraph about purchased cars, I wouldn’t overweigh that in the overall analysis. But yes, I think purchased cars could or will outgrow consignment sales for the near future.

Bret JordanJefferies — Analyst

OK. And then a follow-up question to Will’s commentary around Florence. Sounds like an incremental $1.7 million spent to prep, and I think volumes may be light coming out of that storm. Is that about the magnitude of the loss? Was there — or the impact of the CAT that may come from Florence? Or are they incremental expenses that have — that will come along the way? And obviously, I guess there will be some volume to offset that expense? So it may be less than that one, seven?

Jay AdairChief Executive Officer

Yes. It’s really too early to tell. When all the water subsides and the claims start coming in, the assignments come in, then we’ll have a better picture. The $1.7 million that I quoted was just what we spent to prepare for the storm.

So there’ll be other expenses to follow on throughout the course of next weeks and months.

Bret JordanJefferies — Analyst

OK Thank you.

Jay AdairChief Executive Officer

You’re welcome.

Jeff LiawChief Financial Officer

Thanks, Bret.

Operator

Our next question comes from Gary Prestopino with Barrington Research.

Gary PrestopinoBarrington Research — Analyst

Hi, good morning, guys. U.S. inventory was up 3% year over year. Were you comping against the impact of catastrophic events last year?

Jeff LiawChief Financial Officer

Not largely. Hurricane Harvey hit in August of last year. So July 31, ’17, would — had some catastrophic events, hailstorms and the like, but not the meaty ones you might have in mind.

Gary PrestopinoBarrington Research — Analyst

So it’s more of a seasonal impact then. It’s just ebbs and flows, but this is a seasonally slow time for accidents. Is that more a way we should read that?

Jeff LiawChief Financial Officer

The seasonality, I don’t think, would factor into a year-over-year number, but I think this even should be said the same year over year.

Gary PrestopinoBarrington Research — Analyst

OK. And then your tax rate, you said, was I think somewhere around 28% for the year or — and then you said something about a 5.3% decrease for next year. Is that 5% decrease of that 28%?

Jeff LiawChief Financial Officer

Yup. Fair question. And I would reference here — the fiscal ’18 normalized tax rate u include big lumpy stuff like the stock option exercise would have been approximately 28% blended for the company. That 28% includes the 26.9% U.S.

federal and that includes state income taxes and foreign taxes and the like. The point about fiscal ’19 is that for the U.S. portion of our income, which historically is in the 80% to 85% range of the total income for the company, on that specifically, our U.S. federal rate will decline from 26.9% in fiscal ’18 to 21% fiscal ’19.

So that will, in and of itself, somewhat meaningfully lower our tax rate in fiscal ’19.

Gary PrestopinoBarrington Research — Analyst

OK. So that’s real helpful. And then could you just — I was trying to write this down. Could you just give me your unit growth in the U.S.

and international and then on a combined basis in the quarter?

Jeff LiawChief Financial Officer

9.8%, U.S.; 12.2%, international; global, 10.2%.

Gary PrestopinoBarrington Research — Analyst

Ok. And then, lastly, on your ASPs, you said the U.S. were up about 11.9%. I couldn’t write this down.

Again, how much of that change was due to scrap?

Jeff LiawChief Financial Officer

It’s tough to quantify. We can tell you how much scrap was up. The scrap year over year, it remains a pretty healthy environment; it was up 18%. I think sometimes the perception is a little overwhelmed on the importance of scrap in our business.

So if you consider the typical car at Copart’s sales, the passengers may have had a ton and a half of total content, a crushed car body, just to use rough numbers, $200 per ton. So it’s $300 of scrap content in a car for a car that sells for thousands, right? So even if the scrap is up 18%, you’re talking about a $40 or $50 change to the underlying value of the car that sells for thousands of dollars. So the expected matters, in particular on our lowest-end vehicles, I expect it has virtually no effect on the cars that will be rebuilt and brought back onto the roads. Instead on a theoretical forum, you can imagine that 10 years from now when that car is done, that scrap value will be back.

But I think the scrap matters; it’s a contributor, but I don’t think it’s nearly — it’s not that meaningful portion of that ASP.

Gary PrestopinoBarrington Research — Analyst

OK. Thank you.

Operator

Thank you. [Operator instructions] Our next question comes from Chris Bottiglieri with Wolfe Research.

Chris BottiglieriWolfe Research — Analyst

Hi. Thanks for taking the question. Wanted to follow up on the dealer first, kind of, descriptive details. I’m not sure I got them all, but I think you’re up 90% last quarter year over year.

Maybe I’m misinterpreting that metric. But can you give the comparable metric, like for it was this quarter? And then collectively you’ve given these like different subsegments, like in rental cars and the whatnot. If you’re kind of aggregating what you are doing in the whole car space and how that’s growing, maybe just provide some context to what that also had done last quarter?

Will FranklinExecutive Vice President

Well, I’m not sure what the numerical questions that you had. I can talk about the segments in general. I think we’re finding that — we’re attracting more and more buyers for these types of cars, which allows us to — just the chick and egg, provide higher returns, which allows us to approach those who have these types of cars and ask them to test our remarketing and our auction platform. And through that process, they’ve founded to be fruitful in terms of increasing their returns, and in turn, has grown that market.

We’ve also developed specific programs for different buyers. So we have a different program for equipment sellers, we have a different program for wholesalers, or may have a separate program for financial accounting. So we’re getting more astute in identifying their specific needs and addressing those through our processes and our technology.

Chris BottiglieriWolfe Research — Analyst

Got you. Let me rephrase it differently. Did your growth in dealer cars accelerate or decelerate, and what you’ve done last quarter is the simple question?

Will FranklinExecutive Vice President

It accelerated.

Chris BottiglieriWolfe Research — Analyst

Accelerated? OK. That’s helpful. OK. And then maybe, just holistically, as you think about the strategy, given that you are growing pretty aggressively, but I would think your capabilities and service are lower and than — like your platform effect is a little bit lower right now.

Can you talk about how your product is differentiated relative to the incumbents? And what’s deriving that growth? And how we think about the sustainability of how much longer you can compound this growth and dealer consignment?

Will FranklinExecutive Vice President

We think there’s long runway ahead of us in terms of growth and dealer consignment. I think we’re in the first or second inning of this game. And I think we’re refining our processes. We’re adding more resources to the pursuit of this volume.

And we think that the sellers who are trying and utilizing our platform are very happy with the results. So I think there’s a robust opportunity ahead of us with respect to dealer cars.

Chris BottiglieriWolfe Research — Analyst

Gotcha. OK. Thank you for the time.

Will FranklinExecutive Vice President

Thanks, Chris.

Operator

Thank you. At this time, I am showing no further questions. I’ll now like to turn it back over for closing remarks.

Jay AdairChief Executive Officer

All right. Thanks, Katie. Thank you, everyone, for attending the call, and we look forward to reporting on Q1 in November. Bye-bye.

Operator

[Operator signoff]

Duration: 52 minutes

Call Participants:

Jay Adair — Chief Executive Officer

Jeff Liaw — Chief Financial Officer

Will Franklin — Executive Vice President

Bob Labick — CJS Securities — Analyst

Stephanie Benjamin — SunTrust Robinson Humphrey — Analyst

Craig Kennison — Robert W. Baird & Company — Analyst

Ben Bienvenu — Stephens — Analyst

Bret Jordan — Jefferies — Analyst

Gary Prestopino — Barrington Research — Analyst

Chris Bottiglieri — Wolfe Research — Analyst

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