Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

I've been a long-time shareholder of Copart, now in my sixth year. I'm more interested to talk to you about the international markets. You were with the company for over 15 years, eight of which were spent in the international market. Could you start by discussing how you began your career, how it progressed, and why you left?

Let me rewind a bit to give you an overview of my track record. I'll be honest, I wasn't very academic at school. I always needed to make money, always legally, but education wasn't a top priority for me. At the age of 16, I lost my father. He had been ill throughout my life, but I lost him just before what we called O Levels and CSEs back then. So, I went on to further education in electronics, but after a few weeks, I realized it wasn't for me. I returned to school for another year to improve the grades I should have achieved at 16. Then, it was time to start working.

I had no clear idea of what I wanted to do, but I had always been interested in the automotive industry in one way or another. I started, what we would refer to, as on the spanners, spent some time in workshops, and then moved on to commercial tire fitting and roadside assistance. It was a dangerous, dirty, yet well-paid job at the time. Later, I worked at a gas station as a teenager and returned there to set up a tire depot and a rental company. I was willing to work weekends, so as the company grew, I took on more responsibilities. I managed their fleet, handled all their accident management, disposals, and so on.

This led me to manufacturers. I worked with Nissan, managing their rental program in North West London. When they closed that, I managed their national car fleet for demonstration vehicles. Then, in 1992, I joined Ford but was made redundant due to a downturn in the automotive industry.

They removed a tier of management, and I was made redundant. I took 18 months out of the industry to do other things, then returned to the rental sector. I worked for a rental broker for many years. This company acts as an intermediary between the corporate user and supplier, earning a commission. They manage requests such as what you want, where you want it, how long you need it, and whether it's a one-way rental. Our supply accounts would determine which option best fit the cost model to supply the vehicle, and we would take a small commission. It was an interesting period. I spent time in operations, sales, and as a commercial director, then as a sales director. I was somewhat bored.

We then had a new managing director. She had been with us for a couple of years and came from one of the big rental companies, like SIXT Rental in the States. She previously worked at Kennings before joining us. She stayed for about 18 months before leaving. She mentioned she had something new in the pipeline and told me to give her a call in a couple of months. This led me to a company called Universal Salvage in June 2005. I went through a formal interview process, which was my first insight into the differences between the rental sector and other parts of the automotive industry.

In salvage contracts, unlike typical transactional sales of vehicles, the sales are contractual with insurance companies like A, B, C, or D. The gestation period for these contracts can vary. It might start with a tender that you win or retain, or you might need to court a company for a while until they review their salvage provider. This review process can lead to a formal tender process and can take years.

In the UK, I know one account has taken in excess of 15 years to win. The good thing is, once you secure an account, unless you make a fundamental mistake, you can keep it for a long time. This sticky effect is massively important. The more you can integrate yourself into their systems and processes, the harder it is for them to switch. So, I worked for Universal. I started as a sales director but absolutely hated it. I love the industry but couldn't deal with the long gestation period. I'm the kind of guy who knocks doors off hinges and seals the deal the same afternoon, looking for the next deal immediately after. However, it was a job. I moved from sales director to commercial director. My main role was to be a disruptor, to open as many doors and be the biggest pest in the industry, to shake things up and bring them into see what Universal Salvage was.

I got made aware that this American company was showing an interest. Being a public company, obviously, we had to announce the fact. The deal was on and off repeatedly. Finally, in 2007, Universal was acquired entirely by Copart, marking their entry into the UK. During my rental days, I worked closely with Enterprise Rent-A-Car as a supplier. In its early days in the UK, it was managed by Americans, not British people. This gave me insight into what I believe to be the UK version of American working culture. Copart's market entry strategy involved acquiring a number of companies over a short period.

Watson had three or four locations. Simpson had a large operation in Yorkshire with one location. Then we moved on to David Hales and later, Century Salvage, which had three locations. Copart, using their financial power, bought a network of different salvage companies. They cleverly eliminated all major competitors.

However, under UK financial legislation, this could be perceived as a monopoly. Once it reached that point, organic growth was acceptable, but acquisition growth was scrutinized and potentially referred to a government body for anti-competitive review. Having disliked the prolonged sales process, I preferred to see immediate results from my efforts. Consequently, the management and directorship team from what was Universal just dissolved. They didn't want to be part of the story. There was a gentleman you may or may not have heard of, Vinnie Mitz. Vinnie was senior internationally with Copart and had been one of the acquisitions in the States 25 years ago. I had a meeting with Vinnie, and it was unclear initially where each of us stood, as many had jumped ship. I told him straight, "Vinnie, I like the industry, the odd end of the motor automotive industry that people don't fully understand, like the straight car auctions they do, but salvage, which was predominantly their main focus, I said I don't like the sales process."

He asked if I would go into operations. I replied yes, I've held senior operational positions, managed call centers, and handled sales. I told him there was nothing in business operations that would faze me. Consequently, I was elected as the Operations Director for the UK in 2007. In 2008, a gentleman named Nigel Paget joined the business, and I hadn't officially been promoted to Ops Director because I was still working under an American. I had to regain my position, so to speak. It was mine to lose, but it took about another year, until 2009.

Looking back, the integration could have been handled differently. However, thankfully, Copart had an immense amount of resources, and it was a time when they had to utilize those resources to make the transition as smooth as possible, at least on the surface. I worked as the Ops Director for three or four years in the UK, and I saw the business grow in many ways; in volume, opportunities, and efficiency. It was a real success story. Then, Copart decided to look at a new international system, having had a less than ideal experience with the go-live of their systems in the UK, in November 2007. We have a day similar to your Thanksgiving and Independence Day. November 5 is very important to us; it celebrates Guy Fawkes, who tried to blow up our parliament.

I vividly remember November 5, 2007, as if it were yesterday. It wasn't the best day in my working career, but we managed to get through it. I insisted that if a new system was going to be implemented in the UK, I needed to be a part of it. I attempted to juggle both jobs for a while, which nearly overwhelmed me physically. I was working from 3:00AM to 7:00AM on UK tasks, then I would shower, change, leave the hotel, and work on IT stuff in Fairfield from 8:00AM to 5:00PM. I did this for four months, going home every two or three weeks for the weekend. Eventually, it became clear that this would consume the next few years of my life as they evaluated systems. Consequently, I was replaced in my operations director position. My concern was what would happen when the projects ended, but I was advised to just trust the process, which I did.

My first international involvement was with Copart's expansion into the Middle East, starting with a small acquisition in the UAE, followed by new operations in Bahrain and Oman. We can discuss what it takes to enter a country and expand there.

My expertise with Copart was in operations in the UK. Internationally, I was never involved in the details of the deals, but I clearly understand the differences and challenges, from acquisitions to entering a country with no existing model. Then Covid-19 arrived, changing everything. International travel and expansion plans were halted. Established countries had to become self-sufficient, leading to the widespread adoption of Zoom, Teams, and other platforms. Nigel Paget, my ultimate line manager, retired, along with another senior director from Europe and the Middle East. Copart decided to centralize overseas responsibilities back to Dallas.

Unfortunately, in September 2020, I was made redundant. Looking back, I've always said that I left with my head held high and my powder dry. Copart is a brilliant company that fundamentally changed what my retirement looks like. Although sometimes challenging, it was mostly exceptionally rewarding. What I invested in the company, I received back more than what I put in.

It was a truly magical 15-year journey. Despite not being particularly well-educated when I started, being in the right place at the right time, coupled with a strong work ethic and learning from a few mistakes - fortunately, not too many severe ones - was how I got involved with Copart.

It sounds like you're a classic example of a Copart person, much like many others I've spoken to, including Willis Johnson himself.

I've spent a lot of time with Willis when they acquired businesses in the UK. I could tell you stories that might surprise you. Back then, they were perhaps a $20 billion company, and now they're a $50 billion company. Even back then, the founder and significant shareholder of a $20 billion company would jump in a loader and load someone's vehicle for them. He's not proud. I was responsible for their property estate in the UK by way of management. I would go around with Willis, and he would tell me what he wanted because he could walk onto a piece of land and in not much more than a nanosecond could tell you how the flow was going to be.

Wow.

I'll tell you a true story. The guy who replaced me, everyone likes to come into a business and change things. This guy didn't do it particularly well. He was telling me this is wrong and that's wrong. I spent a day and a half on the road with him, and he was my replacement, taking a job that I really loved. It was bitter for me. It's like, we have achieved amazingly. Don't just come and criticize everything, right? I've had enough. Unfortunately, sometimes I speak before I think. We got back in the car and I said to this individual, "Hold on a second, I've got a quick phone call to make." In fairness, I dialed the head office, not Willis's mobile. While it was ringing, I said, "Do you want to speak to him or shall I?" He said, "Speak to who?" I said, "Well, speak to Willis." "So he hasn't got a clue what he's doing". I said, "I don't know where you live, but I expect it to be in a semi-detached or detached house. I don't think you're responsible for a $20 billion company." It kind of put him in his place. But, yes, it is an amazing company now. It is transitioning. I still watch it from afar. I've been out of it since 2020.

I think there are certain things, particularly when we talk about their model and why it's so well protected. Firstly, a lot of what Copart does as a business requires land. It's then a chicken and egg situation. You can't get the contract without having the infrastructure, and you can't really justify buying the infrastructure if you haven't got the business right. So when you reach a critical mass size in existing countries, it's very hard to see, if you've taken out the main players through acquisition, how is it going to be challenged? By whom? It's just very sensible business practice on what they've done. They've gone in, they've identified a new market. Let's look at the acquisition of Universal. The one thing, or the things that were really beneficial, was language.

By the way, did Universal own the land?

Yes, they owned it. Owned or extended leases. I think just one lease at the time. The rest was owned.

And then there are other acquisitions that they sort of did along the way where they also were all driven by land?

There was some land they didn't want. I'm trying to think. Hales. There was land that was under lease, so they got out of it. It was more about them wanting either the contract that Hales had, and/or the land they had, but not necessarily all of it. They sort of skimmed what they deemed to be the best for their model.

You were saying the best thing about the Universal one was the language.

Yes, the language was good. The type of salvage contracts that Universal had, as well. In fairness, up until Copart entered the market in the UK, there were only two types of contracts in the market that I saw. One was those where you collected, stored, and sold a vehicle for a fee, or we would buy your vehicle, and then we take the chance on earning some profit from selling your vehicle.

In the UK, and this is open market knowledge, there are insurance categorizations, which basically say there are four types. A, B. It used to be C and D, but it's now N and S. A is, basically, so badly burnt out or polluted, there's no salvageable parts. It's just got to be processed. Take it as waste, depollute it, get rid of it. Category B means the vehicle itself is so badly damaged or polluted - let's say seawater as an example - that there's salvageable parts off the vehicle, but the vehicle itself doesn't go back on the road. So it's okay to be sold for parts only to a licensed buyer. They can strip as many parts as they want, but the body shell itself has to be destroyed, and you have certification to prove that's actually been completed.

Then, in the UK, there's two other categorizations. One, which is structural repair. That is moderate to heavy damage, but the main body shell has been compromised in one way or another, such as an A post or B post chassis, flitch plate, whatever the case may be. So rather than the bolt off and bolt on scenario, it's a cutout, re-weld repair, put together. And then the lesser one is category N, which is non structural repair, which is literally, it's a bumper, it's a headlight, it's a grill, it's a bonnet and job done. So the salvage contracts, which were in the UK, were aligned to how Copart could do business, not necessarily wanted to do business. So that made it a wise acquisition for them.

When they started the contract, you said there were two types.

They could buy a vehicle for a fixed fee, say $100. I'm not saying that was the price, but it's like $100 and we collect a vehicle.

Or they take the risk, they buy it and take a risk that they can sell. So, in the UK, what was prominent before, when they got in, when they bought Universal, what was the main.

Most companies in the UK, most salvage operators, would buy at risk. You've got A, B, C, D, so you'd never pay anything in A and, in B, you'd pay a very small percentage going up to what was a category D, but is now category N. You would pay a much bigger percentage for those. And then you would pay more based on the value of the vehicle before the accident.

It might be that if the value of the vehicle falls within a certain band, you would pay a bit for a B, slightly more for a structurally repaired vehicle, and even more if it's a non-structural repair. The higher the pre-accident value, or actual cash value as you call it in the States, the more you pay as a percentage as well. It's not an exact science. The desirability of salvage is really interesting. For example, if you take two manufacturers, Volvo and VW, with the same actual cash value of, let's say, $10,000. So, you have a VW and a Volvo both valued at $10,000.

If both vehicles have damage of, let's say, $4,000, you might pay the same amount for them on a purchase contract. However, a VW is more desirable, offering a better rate of return on resale than a Volvo. Even though the cost of repair is the same, there's a difference between a rear-end accident vehicle and a front-end accident vehicle. The reason is that if you walk around any salvage yard, you will see more vehicles with front damage than rear damage. This is because only a small proportion of vehicles are hit from behind, while most either rear-end another vehicle or drive into something else.

This means that parts for rear-end damage are easier to source because fewer vehicles are dismantled with rear damage than with front damage. If you have an undamaged vehicle to be dismantled that has a clean front end, it will fetch more money because those parts are more desirable. It's a basic rule of economics. Forget Copart, it's a basic rule of supply and demand. Add to that the complexity of repair. Today's motor vehicles, unlike in the past where you would just weld, now have different types of metals and attachment methods.

For instance, I had an XF Jaguar. I had a very low-speed impact with an electric gate. It was just a barrier. I didn't see it, to be honest, and drove underneath it. I broke the screen and creased the roof.

They had to replace the roof, but the roof is glued in. It's a stronger bond than welding two pieces of metal together. The whole repair mechanism has become quite scientific, in terms of how vehicles are repaired and also the availability of skill sets. 20 years ago, most people could use a Mig welder and could weld in a chassis leg or a flitch plate or A post. Now, with aluminum and composites coming through, and the need to glue parts with specific technologies, repairing vehicles has become much more of a science. This continually affects how the buyer base values vehicles. How easy it is for them to make a profit, how quickly they can repair it, the availability of parts, and the cost of those parts. They might be available, but the costs are very high. Ultimately, it's about how much money they can make on the flip. They can buy X, put Y in for parts, and sell it for Z.

And Copart would prefer the model where they do not buy at risk?

Yes. So, what Copart does - again, this is now one of their USPs - is that if you were to sell a vehicle, rather than charging you $100, they take a percentage of the sale price. Both parties have skin in the game; the seller has it too. So, the better Copart performs, the higher the returns for the seller. The more returns the seller gets, the more they pay Copart.

Yes; a beautiful thing.

Absolutely. So, what are the key influences of that type of model? Used car prices; because when used car prices are going higher, you will find that salvage prices will normally follow suit. When an economy is tightening, people will look at other ways of generating income. So, some people who are not necessarily getting as many repairs through the door may start looking to buy salvage because that's an additional way to earn money.

Over time when you were there, were they successful in getting more people to convert to selling and getting a percentage?

Yes. And, at the end of the day, no company would walk away. It wouldn't be sensible to walk away from any account that was profitable. Pay me $100, if my cost is $60 and I've got my buyer's fees on top, happy days. If it's so much for tow, so much for the pooling charge, that's another opportunity. If you've got to buy your salvage, there's a risk involved because you only need a negative turn in the market. And actually, you've set your rates for five years, let's say. And as an example, they lose a big commercial fleet - I don't mean truck, I mean commercial as in business to business fleet - where they were getting a proportion of their salvage that was high quality, low age, low mileage vehicles, which get much better returns.

If they suddenly start what we would call the vicar's wife or the priest's wife, they're 20-year-old Hondas that might have only done 15,000 miles, but nobody wants them. There are so many things that once you're buying on purchase, you're kind of hoping nothing major changes.

What does the competition look like then?

In the UK? Limited. I mean, they are out there.

But nobody has that scale.

If you are in a country that Copart comes to, I'd try and sell your business, if you could.

Yes, well, it's like you mentioned before, it's kind of a chicken and egg thing here, in that you need the land to get the accounts, but you kind of need the accounts to justify buying the land. So it makes it really, really hard.

Yes. So to get started, in different countries, they've had different opening strategies.

Could you discuss some of the different strategies for entering specific countries and how they vary?

The most important lesson learned is to truly understand the behavior of the insurance industry, the insured, and the actual claims process. In some countries, the insurance company will issue a check for the value of your vehicle minus what they consider the salvage to be worth. Additionally, you keep the salvage, like in Germany, for the policyholders to dispose of. It's not a customer.

That's specific to Germany, right?

There are a number of countries like that.

In Europe?

There are several countries where you can buy salvage, but you might be picking it up from someone's front drive instead of a tow shop. The buyer will find it much harder to understand their onward movement costs, not to mention how it will be done. Remember, when you go to a Copart yard, except for the largest vehicles, most are ready to be loaded for you. If a vehicle has no keys or two wheels missing, a loader will take it out and put it on the back of your tow truck or trailer. If you arrive at 4:00PM, you may not be able to get your 32 ton truck down the road. And, oh, by the way, actually, all I have is planks to get up onto the back of my articulated lorry or your tractor trailer unit. It's not pretty.

That sounds very challenging to change.

Yes. In some countries, the policyholder believes it is their right to retain the salvage. The worst aspect is that, through personal experience, the longer the claim takes from the incident date to the point where a settlement is agreed and the salvage route is determined, the more problematic it becomes. By that time, you might have been to the bar on Friday night, and your friend might say, 'Oh, I can repair that for five grand.' But in reality, it's a BMW with an engine management system behind the rear bumper that has a cracked casing, which alone will cost four grand to replace. People often think of the old cost to repair, not today's cost. And manufacturers are very clever because they're always designing vehicles that are almost built to be disposable.

Yes.

Regarding the cost of repair, people often think, "If I keep the vehicle, it's only going to cost me this amount to repair," or "The insurance company is going to retain the salvage." They've offered you 4,000 for your vehicle, and your car's worth far more than that. You retain that and get your 5,000 for it all day long. The more people get involved, the cloudier the water becomes. One of the things Copart excels at is speed; they're quick, they get it assigned, collect the vehicle, and you can significantly reduce the claims process time. Going into new countries is always a challenge, whether you're starting from a small acquisition that's localized and needs to be expanded to regional and national levels, or from a brownfield site where you have to hit the ground running on day one.

Were you involved at all with India?

I worked in India for a while.

Did it work there?

Copart withdrew from India and China.

Yes, that's what I thought. So that one didn't go well. What are your thoughts on that?

I can't tell you about China other than from what I've read. This isn't from Copart; I was post-working for Copart. I spent quite a few months benefiting from the EV bubble, so I had quite a lot of stock in almost every electric vehicle company you can imagine. I kind of got my head more around China. It's a bizarre economy, and some of the processes that you need to do in China are just prohibitive. I think they would have to change the national processes before you could effectively run any type of auction, whether it be Copart or anybody else. I don't know. Absolutely bizarre.

Yes. India is similar, I guess.

There are some legal challenges on ownership of vehicles; how long you may need to keep it before you can sell it. India is massively advanced in certain areas. They're sending rockets to the moon, yet it's primitive in other areas. The rich are getting richer in India, and the poor will always remain poor. I think at the moment, there will be a number of countries where the auto insurance market isn't mature enough yet.

Yes, I saw another market on your resume there. I think Finland, and I was kind of like, going to ask you about that. Why Finland?

I spent, I don't know, 15 to 16 months on the acquisition of a salvage company co-owned by a number of Finnish insurance companies. I'm going to say six; it could be eight. So, six to eight. AVK was the acquisition. It was literally a transition from AVK, which was co-owned by six or seven major stakeholders, all of them generators of motor vehicle salvage through their insurance. It was an interesting purchase because you're dealing with six or seven different companies.

So, that was a situation where the timing was right. You had this transition going on, and Copart came in with a big checkbook and said, "We'll take it."

Yes.

How were you involved in deciding which markets to be in? Because that may be an interesting thing.

I had no involvement in that. I was involved in some due diligence of other countries, like Ireland. I was just told, "We bought a piece of land, go and set it up." So, literally going, "Okay, what do we need to do to get it Copart compliant?" We asked, "What do we need to do to get it compliant legally?"

I'm not saying Copart operates illegally, but to make sure it's compliant. You know, it was transitioning from a fabrication of farming equipment business that had gone into receivership, now going to be a salvage yard. So, it's a transitional process. Deal with resistance from the market, deal with resistance from the local community, set up a national tow structure, work out some regional service agents to act as sub-lots. Look at systems and processes, how the insurance market works versus the systems they use. Bridge the gap, you know, so have to do some workarounds to make it fit, employ the staff, train them, and sweep the yard before you go home on Friday night. I did kind of everything out there for 18 months.

That's a lot of stuff. I mean, was there resistance when Copart would come in, like in Ireland?

Yes. So, I think, firstly, Ireland respects the fact that they're Irish. Irish people don't particularly like Brits. In the Irish salvage market, here's a lot of typical Irish mentality and culture.

That's what you were saying earlier. The culture matters for this kind of thing.

Culture is massive in Ireland. They're all up for a quick buck. You never know; if you shake hands with most of them, you count your fingers afterwards just to make sure they're all still there. You've got to be very quick in Ireland. It was a very different market. I'm not comparing North America to the UK - one quarter of Texas is the size of the UK - but we have got 67 million people and most of them seem to drive cars and crash them.

I've never been to North or South Dakota, but it looks, from what I've seen on TV and films, there's a lot of sparse areas. That's like Ireland. There are little hamlets and villages. But, you know, there are four maybe, you know, major cities. You've got Dublin number one, Cork number two, Limerick number three, Galway number four. Outside of there, almost forget it. It's just like 100 people live there, 40 people live there. You drive not a particularly big distance, but there are no highways. So it's like, it's not dirt track roads, but not much better. There are yards that Copart have in the UK and other countries, where just one yard would do several multiples of what the whole country does.

Wow.

When considering which countries to enter, you must be strategic about the end price. Now, if you think about it this way - and this is not a Copart secret, this is just thinking about business - the Copart auction model is the same as any other salvage company. They collect, they store, they sell vehicles. Now, Copart, they have an amazing piece of technology, which is VB3. They have a good back end systems as well. They've got a lot of land, they've got scalability.

By chance, you can see the pictures behind me. The one in the middle is Texas World Speedway. I went there as an operational lead after Hurricane Harvey, and that became my wall of fame, so to speak. Copart was able to take over a deserted racetrack 24 hours after the storm hit Houston and, within 28 days, placed 45,000 vehicles on it. Their response capability is unparalleled. We need land, people, and systems to set up our own salvage facility.

You need to consider potential market competitors. If you are a straight car auction company, there are several sizable ones in the UK and national ones in the US. Their model is similar. They may not collect, but the vehicle will come to their facility, they store it and they sell it. But the fundamental difference is, how long do they store the vehicle for? It's days, because it comes in on a Thursday, it gets inventoried, it's on the sales platform, it's gone the following week.

If you think about their model and their infrastructure, if these companies were to start writing salvage contracts, they would face challenges. They lack the equipment to move vehicles around the yard and, depending on the country, the necessary licenses to store certain types of vehicles, which could be classified as hazardous waste. in certain countries. They also lack the land needed for longer storage times compared to the traditional auction model.

On the other hand, if you work for a company that strives to reduce cycle times as much as possible, you work proactively with the seller and the insured, offering added services. This could include assessments, total loss negotiations, and other services.

In the US, the major stumbling block is always the vehicle title, which always takes time.

I was actually reflecting on the whole issue around titles because it is quite confusing. When we were examining systems, I collaborated with the US team, and it seemed like every state had its own procedures. I wonder how long it will be before they apply AI to title management.

That could be a huge win.

Absolutely. We're talking about hundreds of heads.

Yes, it's mind-blowing.

In the UK, we don't have a title; we have something called a V5, which is essentially the same. You can sell a vehicle with or without a title. You just apply for a new one as the new registered keeper and then, if you have it, you submit it. The wise thing to do is to keep your title, give most of it to the new buyer, and keep a section that you send off to the authorities indicating that Mr Smith has now bought this vehicle from this date and the mileage was recorded. So, there is a record. But you can buy and sell vehicles without a title.

If you work as a business to get the cycle time as short as possible, and you know that any competitor needs far more land per thousand units because the amount of time that vehicle is with you is far longer than at a straight car auction, and you don't have the equipment or you have the systems, the barrier to market entry is fairly high. Let's flip it. If I were working for a company that has a lot of land, good systems, and good equipment, but actually if we started accepting straight cars that come in on a Thursday, get inventoried on a sales platform next Tuesday, and sold on Thursday or Friday, the cycle time - so the number of times I can utilize that square acre of land per year - would see exponential growth. So, I can attack my marketplace of straight car auctions knowing that the straight car auction providers are going to be very troubled, at best to try and get back at me by attacking my core market.

Now, that's not a Copart secret. That's understanding the industry.

But what would be your view then, just overall, on the future of international expansion at Copart? Do you think there's a lot of room to grow and expand there?

That's a really interesting question. There's definitely room for expansion. To get it right, it has to be with like-minded insurance industries that are at the right stage of their development, who are not driven by a third-world mentality and don't have bad cultural hurdles to overcome, with the right size volume over the limitation of landmass. So, if you went to Australia, you'd probably be a regional player in four or five regions, like the Gold Coast, Sydney. But if you've got to drive four days to go and pick your vehicle up, either way, it combines so many factors. So, if you put a map of the world and ask, 'Okay, where would a company go next?' There are some real dynamics, right?

Yes. Maybe the market is not as big as it seems then.

It depends. So, I would say a lot of valuable experience has been gained with Germany that will influence what the future will look like. I don't know what the future looks like. It involves considering a tremendous number of factors. But is there opportunity out there? Absolutely.

It will take time. Setting up systems and processes will likely take the same amount of time, almost irrelevant to the size of the goal. For example, if you're entering a country like another Finland, the amount of technical resource needed is substantial. When you have seller contracts in established countries, where one contract alone is several times the size of what the countries were, Copart has always delivered growth. To me, it's about stepping back, learning the lessons along the way, and looking at maximizing growth opportunities in relatively untapped markets in established countries.

One important thing is to buy with trust. This means you don't just become the flushing mechanism for all the undesirable items in the market. You actually become a good market for rental fleets. The company cars, where the company owns the actual asset and disposes of it at risk, are preferable to dealership parts that have been tampered with and all the rest that you buy in good faith. When you take it back to your shop and find that half of it is missing, it's a major issue.

When I opened in Ireland, I always described it as being a boutique. Regardless of what the Irish buyers thought of Copart, whether good, bad, or indifferent, Copart Ireland had the opportunity to set their own standards as high as they wanted. If you trust what you are buying because the last 10 vehicles you had were without major shocks, with maybe a couple that you thought, that's a real shame, you're going to pay a bit more for your next vehicle. If you've bought 10 cars and two of them were total failures and not as you thought, you might think twice next time. You're not prepared to go that extra increment because you've been burned a couple of times.

Now, when you buy from an auction, unless it's underwritten as what you think you see is what you're going to get, it's particularly hard, especially with older, part-exchange vehicles.

Yes, I've heard about this in other markets where people buy things at auction and they don't deliver the car, things can happen.

Yes, absolutely. A good salvage buyer can look at a vehicle and determine if it's a good or bad buy. When you have a vehicle that doesn't start, you might think there's no reason why it shouldn't, especially if it's an accident-damaged vehicle. This could be due to a fuel cut-off switch or a pyro fuse that blew at the point of impact, cutting off the electric feed to the fuel pump and hasn't been reset. Simply resetting the fuse might get the car to start. However, when you're buying a part-exchange vehicle, you have far less idea of what you're actually purchasing. This isn't meant to reflect on Copart; it's just that in my opinion, when looking at companies, it's crucial to be aware of what you're selling. If it's an accident-damaged vehicle, you can only assume that before the damage, it was a roadworthy running vehicle. Auction houses are already selling these vehicles, but just ensure you're not the one selling the most of them. You only have to look at the different sales lanes. Currently, in the States, they are making significant headway with some great fleet options.

The quality of the assigned vehicles is good. The only thing that drives the price is the underbidder. If you run out of bids, it's yours. If you have two people fighting over the same desired stock, the price goes up. The more you pay, the happier the seller is, and the more fees you pay.

Yes, it's a good business that way.

Absolutely. It's been three and a half years since I left the business in 2020. In some ways, Covid has been a real game-changer, positively, because of some of the changes I've noticed. In the UK, getting buyers to have their vehicles delivered was really challenging. Now, you often see a Copart truck leaving the yard in the morning with five or six cars. They use six or seven-car carriers in the UK. Where previously they would go out empty in the morning and come back with six, halfway through the day, maybe do a second run. Now they go out with five and come back with six. Suddenly, all your stem mileage is covered by delivery fees. They've got so much of it right. How much more potential is there in any of the markets they're in? I think some will be more successful than others. The Middle East is a prime example. I don't really know many people out in the Middle East, but from what I watch of auctions, they are doing well, as anyone is entitled to.

Yes, that's another one where it's just not very big. I think it's 150,000 cars.

It's not very big but the quality is amazing. However, one thing that becomes evident is our consideration of what our competitors are doing. If I'm with insurance company A and companies B and C have made a move, maybe I need to consider this too. When you go in, it's a slow burn. You need someone to come on board. Once they start seeing the results and realize that the process delivers more than just talk, it changes their appetite.

But when you have such a Goliath already working very well, like an amazingly well-oiled ship, it's impressive. With the ability, when the chips are down, they deliver.

People think, "Oh my God, it's 100,000 units for Copart." It doesn't do Copart any favors because there's a massive temporary infrastructure cost. You're paying towing companies a premium to tow over far greater distances. When you run out of space in the metropolis where the hurricane hit, you've got to tow it 40, 50, 60 miles. But what it does do is massively secure the contracts. There's nobody like Copart.

So the core markets, I personally think, are poised for very strong growth. I think it will happen with very well-built foundations, and it won't be at a heinous cost to dip our toes in the waters of India or China and decide it isn't right for us at this moment. Will it be in the future? I don't know about China, because not everyone trusts China at the moment. but I think, for the Indias of the world, it's all about understanding the buyers, logistics, the claims process, understanding the park data. What is actually being totaled at the moment? Put that together, then understand who's currently dealing with the disposal of vehicles. There are some countries, I think, which are more aligned. But is it an acquisition versus starting from scratch? I kind of think acquisition, but I don't know.

For me, it's been a magical 15-year journey.

Yes, it sounds like it was a real adventure.

Yes, I was very thankful for all that. It gave me experiences. I mean, I was privileged. I worked all over the world. I really did. I faced some amazingly hard difficulties and challenging times. I also had some amazing rewards because of it. You know, as a boy of 16 that started on the spanners, I kind of did well. It's the Copart story. People started as CSRs and, you know, did you ever come across Sean Eldridge? Sean was the Chief Operations Officer. As I understand, he was working at Vacaville, which was the second yard just south of Fairfield in California. He was using that money to put himself through police academy. After he went through the academy, Willis Johnson said to him, when he was ready to go off to the sheriff's department or local PD, that we would like him to stay working for us rather than becoming a cop. He started literally with a broom in the yard and went on to be the Chief Operations Officer in the States. It's an amazing company. Personally, I still hold stock in it.

I was going to ask you if you still have your stock.

Yes, I'll be honest, I've liquidated some. But yes, I think it's a great company. I really do. And I think the future, they understand a lot about what makes it a good company and what's transferable. There's a lot of opportunity based on the fact that they've got land, infrastructure, a buyer base, and systems. They can take on more volume without utilizing more land. For potentially every one salvage car, they could probably handle three cycles of a straight car. Now, looking at the competition, they haven't got licenses. There's some really expensive equipment needed for not a lot of volume to start off with. And when they get the volume, there are so many barriers to competition. There'd be little niches, like motorbike insurance, maybe one prestige car insurance, but there's not a lot of volume. And when a buyer can buy four cars from an auction where there's a thousand cars for sale this week, they can buy four cars, take one trailer, load up four cars, and go with it. You can't do that anywhere else.