Copart, Inc.

Good day, everyone, and welcome to the Copart Incorporated Second Quarter Fiscal 2021 Earnings Call. Just a reminder, today's conference is being recorded. For opening remarks and introductions, I would like to turn the call over to Mr. John North, Chief Financial Officer of Copart Incorporated. Please go ahead, sir.

Thanks. During today's call, we'll discuss certain non-GAAP measures, which include adjustments to reverse the effect of certain discrete income tax items foreign currency-related gains, certain income tax benefits, and payroll taxes related to the accounting for stock option exercises. We provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our investor relations website and in our press release issued yesterday. We believe these non-GAAP measures, together with our corresponding GAAP measures, are relevant in analyzing our results and assessing our business trends and performance. In addition, our comments today include forward-looking statements within the meaning of federal securities laws including management's current views with respect to trends, opportunities, and uncertainties in our markets, including the COVID-19 pandemic. These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with our business, we refer you to the section titled Risk Factors in our annual report on Form 10-K for the year ended July 31, 2020, and each of our subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today. and we have no obligation to update or revise any forward-looking statements. And now that the disclaimer is out of the way, I'd like to turn the call over to Jeff.

Thanks, John, and thank you for joining us, everyone, for our second quarter call here. We are very pleased with our results for the second quarter and look forward to discussing the trends in our business throughout today's discussion. As an appropriate cap to a bizarre 12 months, we are now experiencing the major weather system in the U.S., of course, including here at headquarters in Dallas, where four inches of snow qualifies as a snowstorm of epic proportions. So we start by extending our well wishes to our team, our customers, and their families, and a special thanks this week to the Coparch headquarters team, including our tech, people, operations, finance, and accounting, for keeping us in business to serve our customers, and in this case, our investors today as well, without disruption. The national questions today will, of course, focus on the pandemic. Since our last call in November, we have all experienced firsthand the holiday season and therefore the accelerating and now decelerating caseloads across the world. We've seen new viral strains and, of course, we are observing the emerging logistics challenges of the global vaccine distribution phenomenon as well. And therefore, we've seen mobility modulate up and down over the course of that time as well. We have throughout remained honored to be recognized as an essential business in serving our customers in the communities in which we do business. The themes remain overwhelmingly consistent. We have observed reduced activity offset by the substitution of driving for other forms of transit, including air travel, buses, trains, and the like. We continue to observe accident frequency that remains higher than what would have historically been projected given recent driving trends. We've also observed higher total loss frequency in parts empowered by very strong returns at our auctions. If anything, our long-run views remain very much reinforced. that the 40-year trend of rising total loss frequency remains the most important underlying driver of our business and has been a continuous trend despite some major macroeconomic disruptions over the course of the past 12 months. In pausing to reflect on the almost now full year of pandemic life, I think we've remained incredibly true to our foundational principles. We continue to focus day-to-day on serving our customers exceptionally well in both good times and bad, in snowstorms and otherwise. We've been flexible in accommodating their workflows. We have also noted the importance of auction liquidity, that being the flywheel of our marketplace business. At a time when others may well be retrenching, we continue to invest very substantial resources in growing our global buyer base. We continue to believe that physical capacity is a key enabler of our business as well and have invested accordingly, including making some opportunistic purchases over the course of the past year or so. And we certainly have seen the power of deploying technology in every corner of our business to make ourselves more efficient, our customers more efficient, and to drive superior returns as well. In our auctions, in our member recruitment and retention efforts, in customer integration, in reporting, loan payoff tools, our vehicle valuation tools, and on and on and on, there is no end to the power of technology, both past, present, and future in Cobart. Our people and culture have also been remarkably durable and essential, despite the disruptions of various remote work requirements, quarantines for exposure to coronavirus. And otherwise, it is the durability of co-parts culture, I think, that has proven to be the strongest thread that keeps us together. We've invested substantial resources throughout the pandemic and all of the above in the face of massive economic disruption. We continue to make decisions all day, every day, to support our customers for 20 years. That remains our horizon as we make day-to-day decisions. On our business specifically, we certainly did observe volume declines in the second quarter due to reduced driving activity and high car prices, of course, which all else equal would lead fewer cars to being totaled. obsessed by higher than expected accident frequency, very strong auction rate, and therefore a total loss frequency as well. Our global unit sales decreased by 13% for the quarter, with a U.S. unit decrease of 13% and an international unit decline of approximately 15%. We've observed that slightly more pronounced international decline as certain countries in which we have implemented more severe shelter-in-place orders due to high COVID-19 case counts and population density as well. Within our U.S. non-insurance business, we continue the trend of seeing charities and wholesalers volumes contracting the most significantly, perhaps affected most directly by COVID-19. Excluding those two categories, our non-insurance volume continued its year-over-year growth trends. And in fact, our dealer business grew 10% year-over-year in unit volume compared to what we believe were significant declines for other whole car auction platforms. This is both a product of our auction liquidity, the flywheel I described a moment ago, and certainly a contributor to it as well. Every dealer car we earn the right to sell empowers us to serve our insurance customers still better with superior returns and vice versa. Our global inventory at the end of January decreased 1.1% versus a year ago. That is comprised of both a slight increase in U.S. inventory of 1% and a decline of 15% for international inventory last primarily driven by those countries where we have experienced more severe COVID-19 lockdowns. On our average selling prices, they remain robust with substantial increases year over year. ASPs worldwide grew 35% for the quarter, with USPs up 36%. And while there are various offsetting mixed shift considerations for that US number, our insurance ASPs are up 36% year over year in the US as well. The natural question, of course, is how durable those are. We note that there are certainly favorable underlying drivers as well, including strong used car prices. Folks like Mannheim and NADA citing increases in values of 15% or thereabouts, substantial increases, but certainly shy of the mid-30% range that we've experienced firsthand. Are selling prices have grown, we think, as a reflection of our ongoing marketing member recruitment capabilities and broad global reach. With the exception of the one quarter at the beginning of the pandemic last year, we've now experienced 16 straight quarters of ASP increases year over year. International buyers, after experiencing a slight decline in terms of the mix of vehicles purchased at the height of the pandemic, are now purchasing cars again at a greater rate than before the pandemic, despite logistics challenges and the headaches that might come with shipping cars in 2021, a reflection of the decades-long trends that we've discussed at great length previously. I think it's difficult to project any given month, any given quarter or year, but the secular trends for ASPs, including our international buyer recruitment and retention, total loss frequencies certainly as well, remain durable. We are grateful for our very strong financial performance this quarter, excited to continue investing in our customers' future and our own. And with that, I'll turn it over to our CFO, John North, to discuss the second quarter financial results.