Dialogue. Constellation Software Dying? Copart Giving up Market Share? Business Updates!

(upbeat music) Welcome to the Synopsis, a speedwell research podcast. I am your host, Alex, and of course, we are joined by none other than Drew Cohen. Drew, it's been a couple of weeks since we kind of hopped on the Synopsis. What have you been up to? Just, you know, eat a turkey, resting on your laurels, what's going on here? - Well, let's clarify something here. It's been a few weeks since we have been on the podcast, but I have been pushing out a lot of content. I feel like someone is forgetting what their obligations are to their unpaid host ship. - Listen, you know, if a tree falls in a forest and nobody hears it doesn't make it sound, if I'm not on the podcast, anything really happened. I mean, these are things that the philosophers can't discuss on any of them from now. But for now, all that matters is we're back and it's talking, co-part, we're talking constellation. Two of the companies where, I don't know, when we would come up with our kind of risk section, we felt that they were pretty formidable notes. Obviously, we would discuss pricing things of that nature. But, you know, the market has decided that these companies are not what they once were just several weeks ago. Of course, you know, not that we're going to opine on how the market works or what people think, but it is kind of funny how decades of, you know, one outcome and then all of a sudden, you get a little bit of a falter or you hear something about AI and man, these companies are called dead. - Oh, well, you know that great John Merritt Keens quote. When the stock price changes, I changed my mind. What do you do, good sir? - Exactly, not to be confused with the actual quote, which is, you know, when the facts change, I change my mind. But you're right, when the stock price is changed, when the market seems to change both to their mind. So you're right, the great Keens's quote should probably be edited to reflect reality. But I mean, I am curious. I mean, it's kind of a, it's been a funny week and not to get too current of NC, but you know, you've heard a lot of talk about, you know, Navidia, for example, there's been some pressure on the stock price in Navidia because all of a sudden, you know, people are buying Google and Amazon's, you know, AI dedicated chips. And again, I'm not going to get into the whole, you know, 10 servers, GPU versus that whole stick. But essentially, it's been very known for, you know, many years that Google and Amazon and then the big tech companies have obviously been working on an alternative to Navidia and then all of a sudden, this week, the market decided that it was a problem. And again, of course, there were some purchases of the chips that, you know, from third parties that I guess made it a little more concerning. But again, this risk existed and it's funny when it kind of comes to the forefront. I mean, I don't know any comments on kind of how that works. Yeah, I mean, Google did have, you know, their kind of test of their latest AI model that showed they outperformed on some task. And then there's always, you know, a million footnotes to that. And I don't know how useful all of that really is as a consumer because your experience of the product isn't going to parallel with whatever is, you know, the highest ranked on some sort of test. And everyone knew that they still had, you know, a pretty high up position in AI for Google. The question really was always just the consumer touchpoint. And the fact that, you know, there are 800 million users for chat GPT and how that kind of transitions over time when people search behavior changes, which it already has changed for the record. That's not to say Google won't continue to be very successful or continue to monetize search well and all that. But there's already on 800 million, you know, consumer phones, a chat GPT app where they do often go to search. And so over time, does more behavior go there or not? That's still very much an open question. Or, you know, you could also take it another direction and say the only thing we've really seen in the past, you know, a couple of weeks is how quickly leadership and AI can change. And so, you know, does something all of a sudden come out of meta? Do they actually get something for, you know, the tens of billions of dollars they're spending? Maybe, maybe not. They certainly don't seem to be near the lead. But, you know, could chat GPT take the lead back? Yeah, of course. So all of these sort of questions are all to say it's all up in the air. And, you know, the stock price movements seem to be very much driving the narratives. And, you know, as Google reaches, you know, $320 stock price, people think now that means that they won AI. But that is not what is actually happening. And, you know, we knew about Google TPUs for a long time. And they've talked about them before and all that. And that's always been the biggest risk to NVIDIA. We wrote about NVIDIA a few weeks ago. And one of the memos we had when we said one of the biggest risk is that you are able to switch developers over to TPUs, perhaps, and combined with using AI to translate code that was written for Kuda for TPUs. And we kind of wrote that up. And, you know, the TPUs have been a stocking horse for a long time. But also, nothing's really changed in this respect in the past couple of weeks. Google has always been a training on them. And there's still certain things that NVIDIA is better at than TPUs are in vice versa. And this is definitely not the right podcast where we could discuss those things. But it's not like anything really changed so much is there's just been a over recognition in a way of kind of a status quo that has been the case for a while. Yeah. And again, I mean, the point I'm trying to lose today here more so than get into the nuances of the NVIDIA AI chip war. I mean, there more has been said about that than we need to add to. But it is just comical because I woke up this morning in Wall Street Journal had an article about how NVIDIA's margin is Google and Amazon's opportunity. And it's just kind of like two weeks ago, the articles were NVIDIA, Kuda mode, and GPUs are taking over the world and demand that they keep beating earnings. And it's just like the narrative just shifted because the stock is down 8%. But it's almost like a self perpetuating cycle where all of a sudden, articles start coming in. You start sewing down and kind of a latent risk that was there comes to the forefront even though the dynamic hasn't changed. So it is just kind of funny how something that exists is manifested in the stock market and the timing of that is always pretty comical. But why are we bringing all this up? Let's get into constellation because again, constellation which has been down pretty significantly trading out one of the kind of lowest multiples that we've seen a trade at historically relative to its historical position. And again, a lot of the commentary around that is that AI is going to disrupt vertical market software. Again, the notion that whether it be AI or some other, I don't know, software development could disrupt vertical market software. Again, it's a latent risk. I was talking about in the long form company update. You know, the Drew did when he originally wrote it some two, three years ago. And yet now it's kind of coming to the forefront. So Drew, kind of with that framing, why don't you take us through what the market's seeing and maybe you can articulate what the, you know, so quote unquote risk that's been attributed to the pressure on the stock. Yeah, I mean, so just to kind of level set, constellation software had its largest drawdown in history, period and its entire public history. It was down about 40% from its peak, which largest drawdown ever put it at around 25 times, you know, our adjusted earnings figure, which is basically the free cash flow figure. And then we make that adjustment for the minority stake that they're going to end up purchasing. And so it's, you know, a real cash flow number. And that's what they're currently trading at in cheapest and a long time. And so what is happening is basically a lot of people have not to be disrespectful ill informed takes on how AI can potentially play out with constellation software. And I say that because the modes and the reason why constellation software and vertical market software just generally is a good business, has nothing to do with barriers to entry. And this idea of AI and vibe coding and all of a sudden, it's a lot cheaper for you to make software and more people will be able to make software was never what prevented people from making software in the first place. And so if you're thinking about the reason why vertical market software is a good business, it's for a few reasons. The first one is that the markets are very small, which means that it tends to only support one to two players, which means that the first player there, maybe if there's two players there, that's going to be the whole market. Anyone else who joins there after, they're not winning customers, they're stealing customers. If you've ever been in business or ever even thought about going in business or ever even read business books, you know it is a much harder thing to steal customers than it is to win them when they don't have any existing solution. And so a lot of, we'll call it the small businesses that have a software provider already. The software does everything they want it to do. And in fact, if you recall, that's what the professional service line item is in constellation's revenue. It is their customers often paying to customize the software that they want for their own uses. And this is something that's been happening, it's not new, it's been happening for decades. And so a customer has the software customized exactly the way they want it to be customized. They've been using it for years. And how is someone going to come up next to them and say, well, we're going to replace your software. They're going to ask a simple question, what does that do for me? And then you're going to have to be able to answer that. And the fact that AI makes it easier to make software does nothing for the customer. In fact, it could also be a negative, because presumably, a lot of this software that's made by AI doesn't have a human behind it actually checking to make sure it's right. There's no support that comes with a single person whipping up AI software where a lot of what constellation will do is supporting someone. You're also talking about a lot of software that's still on premise. They haven't even gotten to the point of servicing the software over the internet. It's still a physical disk going on a server. And then when the case is where it is, software is a service and all that, so it is a little easier to switch. It's still mission critical. It still is an integral part of your operations where if anything goes wrong with the software, either when you're transitioning or you get a new provider and it's not talking to all your other integrations the same way, you're going to lose revenue. You could lose-- the customer could lose customers the same way, too. And that's kind of just a risk that they just won't be willing to take, especially when no one's been able to provide any sort of real reason to the customer why they should switch-- software providers in the first place. Now, if you run a business, and if you don't, just try to picture yourself running a business, although I know it's harder for investors if they've never had experience, like actually making these business decisions. But when you do run a business, and you have a piece of software that's critical to it, and you have all these problems of running a business, all these problems of teaching employees, you're just not gonna wanna all of a sudden rip it out and throw in a new one because, you know, some guys may be 10% cheaper. That may sound good on paper, but in reality, even something that's 10% cheaper could cost more, 'cause you gotta retrain employees. You lose productivity too, at the same time, and then you have the possibility that something goes wrong. And so, the just very simply point is that, people who are talking about this risk of more AI software are forgetting the fact that you need to actually provide something for the customer in order to get them to switch. And yes, that could be, okay, AI software's cheaper to make. We're gonna pass off the cost savings to the customer, but it's not gonna be really that much cheaper that it's worth these whole headaches. And, you know, if someone came to them and they did have the software that really was a lot cheaper, then they went for that. Then, you know what, it probably wasn't an instance where the software was actually mission critical, and it means that constellation software didn't do their diligence. But, for the record, there's no incidences of this actually happening today. It's a purely theoretical claim that has not been borne out in any sort of figures whatsoever. And, you know, revenue has grew 16% year of a year at the last quarter. On top of that, organic revenue growth was also up 3%. And that's, you know, net of all churn. And so, you're not seeing it in any numbers. It's something that is theoretical, but it's also, if you think it through, it doesn't even seem that practical. - Yeah, I mean, again, I think it's a great point you did there, just to summarize briefly, right? What is the AI risk? The AI risk is that it can make software presumably that's better than constellation cheaper, make it more ubiquitous. And again, I think that, you know, the major counter-arhumans you were making, which I think are very obvious, is that the barriers are already exceedingly low. And I think you outlined that very well in the memo, which is, this is not a high barrier to entry and Mark Liner would be the first to say the only barrier to entry to constellation is a checkbook, which is to buy these software companies. And again, chicken coop software, Boeing Alley software, none of this is complicated, right? You're not building an AI chatbot or something that's going to require high-level programming skills. You're really just creating, you know, organization tools that are hyper-specific to these individual businesses. And again, it's like you mentioned, these companies might be on premise. They might have interfaces that look like they're from the 90s and they still don't want to switch because it works. It's simple, it's not a big revenue item for them. And they just don't really care, it gets the job done. And so I think the big argument you make, which is true, which is even if, like, let's say you have an AI company whose whole MO is to just pump out these software systems, you still have to hire a Salesforce and onboarding Force. Someone to, you know, troubleshoot these things are still going to be a lot of hard costs associated with them and really the software cost is not the big barrier here. >> Yeah, and let me just riff off of that for a moment because what you're really talking about with AI is lower development cost. And, you know, I talked about in the write-up in the business update we have on our website that most of this software, this VMS software, was made by one or two developers. These are not very big, you know, sort of businesses making the software. It's very simple sort of software. And so does AI mean maybe instead of a team of two people, it could be a team of one person, does it mean maybe instead of, you know, nine months it takes them two months to do, yeah, or less all of that is possible. But again, it's not like these were such formidable barriers to entry that if someone wanted to attack this market, they couldn't. The real reason again, why people have issues getting into this market is that once someone is already there, once a first mover is already there, just by virtue of them providing software that is quote, good enough, they tend to just dominate the market because that's all someone really wants. They just want to be able to, you know, count their chickens in the coop and once it could do that, that's it. And by the way, if AI comes out with a lot of great features that can help make the software better, constellation is in a much better position to just incorporate that AI into the existing software rather than, you know, a new person coming out. So all of that is to kind of say, it just doesn't really make a lot of sense that a customer would ever want to switch because these are not, you know, there's a selectivity bias here. These are not the most advanced customers looking for, you know, leading edge technology. These are people just trying to run their business and they want something that's good enough and once it checks the box, that's it. This is not a big cost center for them, as you mentioned. And it's also not going to job much better also isn't really going to change their life much. And to the extent I'm wrong on that in having a bunch of AI in the software really does help improve the software, which is possible. Constellations isn't a better position to offer that than someone else who doesn't have any relationship with them, doesn't have the customizations built, don't have integrations with their other software. Also, it doesn't even know who they are because even if you make the software, how are you going to find these businesses? A lot of them aren't anywhere. They barely exist on the internet or anything like that. And even if you can find them, you're going to have to literally go to their door and convince them to get to your software. It's not like someone is switching out their entire software, their business runs because they see an Instagram ad. - Yeah, and again, so I mean, I think I could, and I'll play Devils Advocate here for a little bit, which is, you know, essentially the multiple compress, so the market is essentially insinuating that the run way for consolation is smaller or perhaps, and we always talk about the deployment of cash flow, which is true for any business, but it's very obvious in terms of consolation for them to grow free cash flow. That growth is not really going to come from their existing businesses. Organic growth happens a little bit, but a lot of that needs to come from their redeployment of their existing free cash flow into acquisitions that are going to kind of continue that revenue growth. So again, I guess a concern could be, which is, hey, in 15, 20 years from now, perhaps the entire software paradigm is shifted and there's just less software, but you don't really see Salesforce or other similar companies where they are software-dominated, seeing like a compression like that that would insinuate that everything's gonna go to, I don't know, AI assistance or whatever. I don't know, maybe there's an insinuation that the whole software play is declining. - I could see for, without thinking about all the different, kind of competitive dynamics of every single sort of software out there. I could see why it could be different potentially for horizontal software, which caters to an entire industry. It is something very general, like booking software or something like that, or something like accounting software. Why that would potentially be able to get new clientele, but that also kind of still goes back to the same idea that there's new accounting firms opening up all the time. There's new customers opening up all the time to win someone's business as a new customer who doesn't have anything that they're currently using is a lot easier to do, 'cause at that point, that you're comparing all these options, you are more price sensitive. Once you pick a software provider, and once you train all your employees on it, and once it becomes integrated with your entire business, and all your data is on it, all your customers' data is on it, then migrating is such a pain that you really have to have a big benefit to be willing to do that. And I think the cleanest example of this is the fact that there's a lot of benefits to being on the cloud. We know that there's a lot of benefits to being on the cloud. It helps run your entire operation smoother, that lets you use a lot of different software applications easier. It helps protect your data better with a lot more redundancy. You don't have to worry about having an on-prem IT department. And all of these benefits, and still most businesses are still not fully on the cloud. And this has been, you know, what, a 10, 15-year transition already, I mean, AWS started in, I believe, 2006, 2007, but you're still talking about like over 10 years where it was pretty common knowledge that being on the cloud has a lot of these positives. And so these things happen really slow, even when there is a big benefit. And now when you're talking about a situation where there's no benefit, such as AI helped me create the software, and not the software is a lot better for XYZ reason, then it's just hard to see why anything would change. Yeah. I mean, and I think it's a good articulation of the counter-arrivings of the AI thesis of, you know, kind of driving this stock decline. And again, kind of as we were joking at the beginning, which is, okay, you know, the stock price change, so I changed my mind. I mean, let me ask you, this is someone who looks at consolation very closely. What facts would actually have to change about consolation for you to become concerned about this AI threat? Like what would kind of make you feel like, hmm, okay, I have these thesis around AI. I think that for this reason, it's not relevant. What would you have to start seeing to be like, you know, maybe there's some legs to this argument? Yeah, I mean, if they're losing customers as a result of that, and that could show up in, you know, negative organic growth, or even just anecdotally, you hear customers switching to AI software, then that would be concerning. That would definitely be concerning. That you're just not seeing that, though. Well, there you go. I mean, I think, you know, the broader concern, and again, I think the thesis that is how they put it, there's always issues with companies that I think being a very close student of them, you're very aware that this is an outcome that is likely, but it wouldn't shock anybody. And there's always these distributions of known risks. And I think for Constellation, one of the, you know, biggest known risks is that they have to deploy a lot of free cash flow into a market that has historically had very high returns. They had a lot of competition. How are they going to maintain and return on a capital? And so I think a lot of investors are always very concerned about their redeployment rate. And so what have we kind of seen about that in the last couple of quarters? And could there be any of those dynamics in play here? Yeah, I mean, look, it's definitely a little volatile. When they did have a couple of these larger acquisitions, then you were looking at a deployment rate of over 100%, which was much higher than we originally saw. And the reason why it got to over 100% is because they're taking on a little bit of debt. So the amount of cash flow being deployed is not only all their free cash flow. It's a little bit more. because. they're adding a little debt to the mix. And so that was the case for the past couple of years. So far, this year it's at about 80%, which is also still pretty good. But do you wanna see it closer than 100%? Yes, could they do one more bigger acquisition and push them over that? Yeah, it's a little lumpy. If you're still taking an average over the past couple of years, it still is about 100% if not a little higher. And so the deployment's been fine. I mean, they've always talked about how they have an issue going up beyond doing about 100 of these small or acquisitions a year. And so beyond that, they're gonna have to do these larger ones. And when we originally looked at constellation software, they never really did that. They were talking about it, but they haven't done it. And now they have done it a few times. And those acquisitions have gone well. And they haven't really felt a need to lower their return thresholds that much on it. And if anything more confidence that they will be able to continue to deploy capital, at least at this scale. And of course, it gets harder if they get bigger and bigger and bigger. But if anything, I think comparing today to three years ago, there's more confidence they'll be able to deploy that capital at a high rate of return because they have had examples of doing these larger acquisitions. And some of these other things like taking the equity stake in a seco, which is another example of them deploying more capital than they would be able to just doing these smaller acquisitions. I think it's well said, which is their free cash flow deployment is not gonna come in perfect quarterly to quarterly basis. I mean, you're right, they're gonna have these kind of one-off larger acquisitions where they might deploy over 100% of free cash flow. And then some quarters might be a little below. But yeah, we're not seeing necessarily no opportunities or, you know, again, in their AGM saying, oh, we're having a lot of difficult time-point capital. So again, from ostensibly viewers, just look at the faxic constellation, there's nothing really going on at this point that is alarming. I guess if you take a very, I don't know, negative or futuristic view, perhaps you say that, I don't know, the long tail of software companies don't have as long as they run, or it's gonna be more challenging environment to redeploy this cash flow in 10 years from now in the software space at all. I guess, I mean, that's a thesis, right, which is why Speedwell provides the ship for investors to make their own calls. But-- - Butchered, just butchered. We're not talking about boats. We made a deal that we don't talk about boats every time. So yeah, I think that, how do I put it? It's not a completely far-fetched thesis. I think there's a lot of great arguments for why it might be overblown, but I don't see the whole AIR argument as, I don't know, completely nonsensical. I think it's very hard for anyone to know what the world is gonna look like, especially technology 15 years from now, but I think that that's been a challenge since the beginning of time. And again, why Buffet famously had an investment in companies like Google or any other tech companies, 'cause it is very hard to understand the world that moves very fast, and when it looks like, when you need a 20, even at a 25 times earnings multiple, you need consolation to be generated in cash for a long period of time. So I could understand investors perhaps just feel that they're not sure what's gonna happen in this space in that time. I don't know how that's fair. - Well, I would say, no, I would say, it's fine. You can always point, you never need to have an opinion on anything, but what I'm hearing is not from people who say I have no opinion on this, it's from people that say they do have opinion on it and consolation is gonna suffer because of all of these new AI startups or AI software or something like that, which just based off of today, it just doesn't seem so plausible. Yes, anything can happen. Could we reach super intelligence? That's so good that it's just some sort of AI agent that's able to do everything possibly under the sun, and you don't even need software anymore because it's able to-- - I mean, we won't even need us on this podcast. I mean, the AI agents could do it. So I mean, I just, I don't know, hopefully we have universal basic income or something to replace my zero dollars from podcasts. Listen, Alex, I keep telling you the money comes much, much later, and it's good to be like a socialist amongst friends and we're friends, so that is why I don't pay you. (laughing) - I do it for the love of the game and nothing else. But no, I think that that's, you're right. It's not people, a fun thing, if people have a very strong opinion, so fair enough on that. And of course, no commentary for management on any of this. It'll be, you know, until May that we hear kind of the official AGM and what kind of the, head of the groups are feeling, but of course, you know, through resources such as AlfaSense, I mean, we're always kind of getting an up to date on the inside of the company and what everyone's thinking. But why don't we kind of move on here? So Constellation, a vote that we felt has been pretty impregnable. There's some cracks starting to show with this whole AI debate. Again, take your opinion on it as you will. Why don't we move on to Cobra, which is again, we're hitting the two companies that I think probably are the most of the votes that are in the speed well coverage in my humble opinion. But Cobra has also seen some cracks, which they're losing market share to Richie Bros, the company that we ridiculed shamelessly for their horrible merger presentation that drew a ripped apart. Are they stealing business from Cobra, Drew, what's going on here? So we're going to have to break this one down. First of all, for the record, that CEO of Richie Bros is no longer with them. And I stand by everything I said that was wrong with that investor presentation, including which where Richie Bros said that they would be able to put salvage vehicles on the land they use for heavy machinery, not seeming to know that you need special licenses in order to put salvage vehicle on any sort of land because it leaks dangerous chemicals. And so I stand by what we said there. But this has definitely been-- I don't want to say an inflection point, but a pressure point for Cobra, because you do see a market share loss for the first time ever. But the reason why that is happening is very important. And so Cobra, similar to Constellation Software, is also down about 40% from its peak. It used to trade pretty cheaply if you rewind, like pre-2016ish, something like that, 2017ish. So it's not quite that it's like lowest valuation in recent history. But it's definitely the cheapest it's been and call it post COVID, something like that. Right now, you're looking at a company that is trading out about 23ish times earnings. And that's up from a mid 30 times multiple, just a couple quarters ago. And so let's start with the bad news. So you did have revenue growth of just 0.7%. And so that is a big contraction in revenue growth, whereas investors were probably modeling in low double digit to at least high single digit revenue growth for some period of time. Now, there's a couple things that keep in mind. So one of them is the Cat event, which is whenever there's a catastrophe, volumes jump, it impacts revenue and all that. So you back that out, then revenues were up 3%. That's still down considerably from 8% last quarter. If you break it up though, and you're looking at international, international was actually fine. International service revenue was 8%, or 14% if you're excluding the cat event. And that's up one point from last quarter. And so international is actually a little stronger. So that's kind of fine. But that also means that US was that much worse. And US is, of course, their most important market currently. If you're looking at just the US, insurance units declined 9.5%, or about 7% X cat. So that gets to be pretty interesting because they still were able to grow revenue positively. It's just that they lost a lot of volume. So what is that difference there is the ASPs. So that is the average selling prices, which for where the US insurance vehicles were up 8%. And so vehicle volumes down, ASPs up, that still is netted to a slight positive increase in revenue, but still definitely not a positive development. And we're going to unpack all the reasons why that is in the rest of this conversation. Yeah. And I mean, one thing I want to dive into, and we always talk about total loss frequency, and how all these levers play with co-part, and how some might increase volume, some might increase ASPs. What does that mean for co-part? But I really want to dive into IA in their business. I mean, why does a customer, especially a large insurance company, place any volume with IA, given the-- I don't know, all the advantages co-part has, and you can kind of list those off. But essentially, I mean, they seem to be the vastly superior service. How does IA win a business from co-part? My guess is it's probably price. And it's not like IA is like that incompetent. They're definitely much worse in catastrophes. But for the most part, they do fine. And there's always a kind of inertia to switching. And again, my guess is they probably do give a lot of price concessions that co-parts probably not willing to do. Yeah, fair enough. So IA, they're not completely out of the game. They do provide a service. But I do want to kind of bifurcate discussion into, again, share loss from perhaps dynamic to the IA and then broader market discussion. So one thing that Jeffrey Law was kind of giving us-- and they never name insurance companies or anything on the earnings call. But I know Drew and with AlphaSense, they've kind of discerned who the insurance company is. But the analyst named it on the earnings call, he just acknowledged it. He didn't acknowledge it, right? So they're class acts over there. They're not going to comment on any of the-- they'll say some carriers. But I mean, again, one of the largest insurance carriers that IA has is progressive. And progressive has, and Jeffrey Law kind of alluded to this, has been trying to take share from larger insurance companies being pretty aggressive with their pricing and things of that nature. So why don't you talk about those competitive dynamics, and then we'll kind of get into, I would say, out of co-parts hands some of the market dynamics that I'm contributing to this as well. Yeah, it's pretty simple. Basically, progressive is using IA, and progressive has been relative to other insurance carriers gaining market share. And so as they gain market share, and there's more accidents, that means more volume that used to go to other competitor insurer carriers are now going too progressive and going through IA. [BLANK_AUDIO] And from hearing them talk, it sounds like that's roughly half of what this volume decline was. Could be a tribute to the fact that Progressive has been gaining market share. And since Progressive isn't on Coupard and it's on IAA, that means they're losing market share. And again, as someone who's read pretty much every earnings call in the history of Coupard, I mean, is this kind of a unique dynamic? I mean, have they kind of had periods of history where I don't know, insurance company, market shift has led to issues for them? Yeah, this is a unique dynamic. First time that this has happened where it's been so notable of a shift that it's actually led to a volume decline. And part of that too is, Coupard for almost all their history was a market share grower because they were such big underdogs, whereas, you know, market share has basically more or less settled to kind of be in between Coupard and IAA. And then, insurance companies, they don't want there to only be one provider for this service. And so if someone does get a little bigger than someone else, they might shift some volumes or they might choose to go with someone else just because they could get better pricing and because they want this dynamic there where they're not going to be beholden to just one player. But yeah, this is definitely a new dynamic and it is, you know, mostly because they're just a lot bigger now, market shares are more settled. And so they now are more at the whims of whatever their customers are going to be able to do in terms of market share because in the past, they would be able to grow through that and now it's not growing to that extent where they are taking market share like that. Got it. And so again, we're kind of layering in the picture of what investors are becoming a little, not afraid, but, you know, there's definitely going to shift from Coupard, which is, we've gone from growth and, you know, mid-double digit growth for a long period of time and now we're all of a sudden almost in a, almost flat period. And again, there's some lapping of the catastrophe event. But again, significant deceleration and comments around market share loss, which are kind of unique. And now so we have that kind of independent event, which is market share loss and now we're going to layer on some kind of negative market dynamics that are going to that we have alluded to in previous discussions. One being kind of the auto insurance, I don't want to call it a crisis, but obviously insurance companies have taken an immense amount of premium since COVID. And so obviously everyone, I think the average human really feels auto insurance rates have gone up significantly and in the auto insurance companies defense, you've had tariffs and higher costs of repairs and, you know, they have good arguments. But again, I think the average consumer has felt that, which has kind of led to a much higher increase of one larger deductibles for the consumer. And then secondly, I would think a lot more people who are just risking the uninsured motorist because, you know, canally they have to get to work or whatever it is and they can't afford car insurance. And so they're just going to have to do what they have to do. And so how are those dynamics which we've spoken to? Have those been progressing in what are Jeffrey Law's comments around any alleviation in those? Yeah. So they've talked about this for the past couple quarters. And this is something that has happened before in different economic cycles where basically as consumers at the low end get pressured, they are going to forego insurance. Now it isn't legal to drive without insurance, but they're just in such a tough position that they have to or they basically raise their deductibles. So even if there is an accident, insurance releasing and it covered and so they're kind of on their own. And so in both of those cases, you're talking about accidents happening where the vehicle doesn't actually get into the insurers system. You know, it's a broken vehicle and instead of them sure picking it up and putting it to co-parter IAA to sell it, it doesn't get into the insurance company's systems. And so as a result of that volume drop. And so that's about the other half of the volume decline is the fact that this has been happening. And so they've more cyclical and they have observed this before. Yeah, again. And so bringing all together, you got the IAA issue. You've got this kind of historic problem that has happened with some cyclicality. But again, it's kind of being layered on the IAA issue with underinsured motorists. People probably driving, you know, you see these cars all around. They're driving, their mirrors broken, whatever it is. They're just, they're not going to fix these cars at the moment. And then there's kind of this third layer coming in, which again, the autonomous vehicle threat, which is a latent risk of co-part, I think, group dedicated, many pages to that and the kind of the initial coverage of co-part. And there's kind of commentary and questions being asked that is there already an impact? Are they seeing such a great impact from all the new auto collision technology that's also driving volumes down? That's outside some of these kind of more traditional problems they've had. Yeah, and that would be the most problematic is basically if the reason why there's fewer accidents is now autonomous technology got so good that it is avoiding accidents. Now to that, and Jeff Law actually talked a good amount about this on the earnings call and we wrote this all up in our earnings update for co-part. But in short, it's just, it's not so likely that you saw such a big change in, you know, the matter of one quarter because it's not like, you know, there's all set in a big push for autonomous vehicles in the past three months that wasn't existing before. And so it just doesn't seem like that likely that that's actually what's being observed. The basically what's been happening is there's been fewer in fewer accidents over time. But then the accidents that do happen are more likely to result in a total loss. And so there's more damage and that's because cars get more technologically advanced. Even now a fender bender can throw off the computer, cause rewiring. It's more expensive, more likely to get totaled. So basically there's been these two offsets, one accidents falling. So this has been happening for a long time, even way before computers and all that. Just other safety features in the car have been reducing the amount of accidents, you know, stuff like, you know, anti locking brakes, for example. And so frequency of accidents have been falling for the past 40 years, 50 years. But then the accidents that do end up happening are more likely to result in a total loss of the car in the car being salvaged, which means that they get that volume to auction off on their auctions. Now at some point, this is going to hit a sort of plateau where the increasing rate of a car being salvaged is no longer being offset by the reduction in accident frequency. And so accident frequency because a better autonomous vehicle is better sensors, all that are going to result in less and less and less accidents. And at some point, there's going to be a plateau where the accidents that do happen are not increasing the likelihood of a total loss. When that happens, co-part is going to be in, I guess we could say, run off a little bit because the amount of volume they'll be facing is going to be a headwind from there on out. Now the reason why we talked about work comfortable with this risk, which on a long enough time frame seems a little inevitable, is because there's about 300 million cars in the US. And in an average year, only about 20 million cars are purchased. And so the amount of time it would take to replace the entire car stock, assuming 100% of cars today are autonomous, would be 15 years. So you're already looking at 15 years in the future. However, even when we get fully autonomous cars, and yes, I know Tesla is all that, or good and certain ring fence areas, and same with Waymo, but still not a fully autonomous car, even when we get one that is fully autonomous, what portion of cars sold are going to be autonomous. It's going to take a while before a majority of them are autonomous. Electric penetration is still very low. And so if you add on the fact that maybe it takes another 10 years to get to 100% autonomous vehicle sold, which seems kind of unlikely, now you're already pushing out 25, 30 years. And okay, by then, the DCF, the 30 year out kind of number you're picking up is getting kind of pretty discounted. And then there's also the fact they have international, which is going to be their next sort of legs to the story, and has a lot more kind of room to run, because there are a lot earlier innings there. And so that is kind of what I'd say on that, with kind of a one last thought, which is that when you do get to a point, I don't know when this is going to be 50 years out, or something like that, maybe longer, where all of a sudden, you know, in a very idealistic world, there's just very few accidents. So we don't need all of these lots dedicated to vehicles. Well, guess what, that land is still very valuable, because it's near a lot of city centers, and it will have its own value, and how much we've never done that kind of analysis, but it definitely does have some sort of residual value there. And it's not that you want to value the business as a going concern, which means like it's going to be bankrupt. But my real point here is that, and it's more likely than not, in my opinion, volumes continue to go up for many years, even if they're flat in the US, you still have international operations kind of boosting them there. And then again, we had ASPs going up, and so this is part and parcel of a different aspect of the story, which is that co-part has been moving up the chain in the quality of car that it's been attracting. And you know, with co-part blue, which is kind of their direct initiative to buy cars directly from consumers, which may be, you know, pretty low quality from a consumer standpoint, but are higher quality than their salvage cars. And it puts a more in place of, you know, almost a used car marketplace. And the more they kind of move up there, the more that's also potentially their future. And I'm talking way down the line when there's not as many accidents, they could basically just turn into, you know, a used car marketplace. That could be one of their futures. If you really want to look, you know, 50 plus years out. And of course, you know, the stock market's taking a very long-term patient view of this, and you know, they've got a lot of faith in co-part. And by that, I'm being very sarcastic down 40 percent, and with the stock prices down, everyone's mind seems to change. But again, we're going to stay true to the figures here. And this report of course is behind the Speedwell members plus Paywall, but the reverse DCF, I think, is always very telling and keeps, you know, the investors around that, okay, what do I need to have happen in this company for me to earn an adequate return? Just to kind of clarify something, I was saying, what I'm talking about, you know, the volumes of cars, there's two kind of sources of volumes. There's the insurance volume, and then there's the non-insurance volume. And they've been growing the non-insurance volume, and that could continue to grow. grow even if the insurance volume continues to slow a little bit. And so that's kind of an aspect there versus keeping in mind. But even as technologically as advanced as a lot of cars are today, most cars don't have that level of technology. There's still a lot of cars that don't have even basic parking sensors, stuff like that. So it's going to be a long time before all of the technology gets into all these cars. And as it gets into all these cars, again, it's just increasing the likelihood of cars going to be salvaged. And so it still has been a trend and it hasn't been reversing that the loss rates or the amount of cars that are in accidents that get totaled has been increasing. And so it hasn't seen any difference. It's just kind of a fear that part of the volume declines our result of autonomous vehicles. Yeah, of course, you know, the autonomous vehicle risk that growth risk all comes down to the price you pay, what you expect and what the reverse DCF shoots out. So I think that it's always good to see the range of outcomes in kind of an explicit fashion. Again, there's some management discussion about, you know, with the stock price being down. So significantly, are there any share buybacks? Are we doing any dividends? Are we doing anything to kind of, you know, help the investors out or presumably take an advantage? And again, if management has a perspective, this is kind of a temporary loll, you know, an IAA and this progressive thing is temporary. Then again, I mean, maybe there could be an argument for a share we purchase, but has there been any comments about that taking advantage of the price at its current levels? Yeah, there was a question on that on the call. And they basically kind of just grandstand it a little bit and said that is an option they could have. The one thing they did add those that they said they could do it through, you know, an over the market purchase or a potential tender offer. And I don't think people remember this, but if you read our research report, which you can find at speedwellresearch.com, most of the stock buybacks they did were in conjunction with the tender offer because I actually want to buy back a good amount of stock. So to me, it kind of alluded that if they were going to do it, it could be a potential tender offer. They also though never really bought back stock unless it was like pretty cheap. So I don't want to say offhand, but offhand, it's like mid teens, multiple, something like that. And so they're still at 23. So I don't know if they're they're going to wait until it's really cheap because they do feel like they have a good amount of high ROIC growth opportunities. Although on the other hand, they do a $5 billion of net cash. So they definitely could be buying back some sort of stock or doing something else with the money than letting it sit. I guess time will tell as always, but again, definitely an interesting kind of company to watch at this point at a bit of an inflection in a way, right? I mean, this is kind of the first time that a bit of we'll say a pressure point. You're right. It's the first time that co-part has done wrong. And so to speak with the company was on quite a march, march upwards for a long period of time. Isn't it funny though? How everyone calls these these great quality compounders. They want to own forever. And then, you know, one thing happens in the business and they throw at that playbook and 40% of investors are now out the door. You know, that's how it goes. I mean, listen, you're only as good as your last hit, right? So there you go. What do you do, good, sir? I think that that's probably it. I think that's a pretty telling quote, obviously. And I know it's a fake quote, but it's kind of funny because I do think that that's a much more accurate depiction of how things work. But this was kind of our breakdown of consolation and co-part will continue to keep you updated really quickly. Some exciting things on the horizon drew interviewed what a managing director Prada, what exactly was the former board of director at Prada. And this is another one of those alpha sense webinars. And so we got a lot of good information insight from her. I was able to ask her a lot of questions that investors have about luxury, etc. And you can actually get access to that for free. You just have to put in a corporate email, but there's a link to it in the show notes below. Just click into that and you should definitely check that out. And on the horizon, we've got some long form company updates going on. We got quite a backlog. We've got an app folio, LVMH, KC, maybe a KC Walker Dunlop four years ago. I think we're just going to call it a day on that. Not one walker Dunlop. Yeah, we're not going to lock it down. Not guys. It's not happening. KC's could be fun. A little gas station pizza action. You know, if you guys like it, maybe we'll fly to Iowa and do a real taste test. I mean, I think that's pretty poor diligence. Do you have you tried the KC's pizza yet? I think you're trying to finagle some sort of benefits for your unpaid internship here. Oh, yes. And not to say anything. It's a great state of Iowa, but a vacation to Iowa is not exactly what I had in mind at this juxtapher, but you know, maybe you're ready thinking it's a vacation. That was a Freudian slip, sir. You're right. All right. So no, no gas station pizza for me, but hey, we will publish your address. And maybe a listener will send you some pizza from Iowa. Yeah, there you go. Want to tell the people your address? Not great. All right. And without further ado, until next time. Until next time.