Copart, Inc.

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

Good morning. Thanks for joining us today. During today's call, we'll discuss certain non-GAAP measures, which include adjustments to reverse the effects of certain discrete income tax items, foreign currency-related gains, certain income tax benefits, and payroll taxes related to accounting for stock option exercises. We provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on our 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 that respect 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. So with the disclosure out of the way, I'll turn the call over to Jeff Liao, President.

Thank you, John. We're pleased to report our record financial results for the third quarter of fiscal 2021. I want to start first by extending a thank you to our team in the field around the world and here at headquarters for their resilience and agility over the past 14 months. For over a year now, we've faced the challenge of providing excellent service to our customers while keeping our people and communities safe, and I'm grateful and proud for our team for having delivered on both. We take very seriously our responsibility as an essential business in keeping our roads and support infrastructure clear for the movement of people and things. I'll start with some of the key statistics that we share each quarter, and I'll close with some remarks about the future before turning it over to John for a review of the financial results specifically. For the quarter, we experienced a global unit sales increase of 3% for the quarter, with a U.S. increase of 4.5% and an international decline of 5%. We have observed more pronounced shutdowns internationally in certain countries in which we operate, and they are likewise adopting more protracted reopening plans than we're experiencing here in the US. Our insurance business specifically was slightly below the third quarter 2020 volumes, down approximately 3%, but effectively flat with 2019. This is the product of lower driving activity, of course, as driving activity remains suppressed relative to the norm. and also decreased claims frequency, offset by increases in total loss frequency and share gain. Our U.S. non-insurance business grew approximately 30% in unit volume year over year. This is also a reflection of strong used vehicle price environment combined with our auction liquidity and sales efforts across non-insurance categories. Our dealer business, in particular, increased 26% in unit volume year over year, compared to what we believe were significant declines for other whole car auction platforms that serve dealers. This is a reflection of the flywheel effect we've talked about on earnings calls previously. Our growing auction liquidity enables us to serve an expanding set of vehicles, and then those additional vehicles, of course, further enhance our liquidity as well. Our global inventory at the end of April increased 16% versus a year ago. That's comprised of a year-over-year increase of 21% for U.S. inventory and a decline of 13% for international inventory, a reflection of the dynamics described a moment ago. On average selling prices, our ASPs increased worldwide 48% year-over-year for the quarter. Our ASP strength is a reflection both of market dynamics as well as our own member recruitment and retention efforts as we cultivate more buyers worldwide. We'll comment more on that in a moment as well. The ASP increase is not primarily due to mix-shift effects. Our insurance ASPs in the U.S., for example, are up more than 50% year-over-year. And while growth in used car prices have, of course, contributed to our ASP growth, our selling price growth has far exceeded the overall used car price environment, reflection, again, of our marketing and member recruitment capabilities and our broad global reach to emerging economies who are increasingly buyers of vehicles from our markets. Our auction liquidity itself also continues to grow, as we observed sequentially and year over year, more domestic and international bidders and bids per unit, a reflection both of supply growth, of course, as well as our active cultivation of those buyers. The natural questions that we would all pose would be what the aftermath of the pandemic might be to our business. It's certainly challenging to separate signal from noise, given the abundance of confounding and extreme variables at the moment. My comments here will largely be U.S.-centric, but will apply by and large to the rest of our markets as well. I thought I'd take a minute and talk about some of our long-term assumptions and how they may have been affected or not by the pandemic. First, on driving activity, it does appear to be rebounding, but certainly still suppressed relative to pre-pandemic levels, in particular with commuting traffic still down 25 to 30 percent or more based on sources like Google Maps, among others. due to increasing vaccine availability there is certainly line of sight to reopening more fully here in the u.s and our other markets appear to be three to six months or thereabouts behind the reopening sequence of the u.s longer term we continue to expect modest increases in per capita driving as we've observed over the past 50 years mobility remains essential for employment education health care leisure and every other aspect of our existence We do anticipate perhaps some increase in virtual work arrangements, but offset by a shift from various forms of other mass transit in favor of driving. Accident and claims frequency have declined during the pandemic, as you know, though with increasing severity due to higher speed driving and increasing distracted driving. Long term, we expect a continuation of a decades-long trend to a very modest decline in accident frequency over time due to the gradual penetration of safety technologies in new car shipments, which then in turn eventually make their way to the operating fleet. We do, however, expect an increasing severity over time as well, as those safety technologies also become more expensive to repair as well. On the question of our average selling prices, I would note the longer-term trend in favor of higher ASPs. Certainly, there have been nearer-term pandemic effects, but over time, say over 10 years plus, it has been demand from emerging economies for wrecked vehicles from our markets, from the U.S., from U.K., Canada, Germany, Spain, the Middle East, and Finland, and elsewhere, combined with our member cultivation efforts that have driven ASP growth over time. I'd acknowledge that we're seeing an unusual historic moment for used car valuations given the supply shortage for new cars, but we have experienced, with the exception of the third quarter of last year, the very beginning of the pandemic, we've now experienced year-over-year increases in prices for 17 straight quarters. So we think that there are elements of the selling prices certainly that will prove much more durable over time. Our operating and strategic decisions are predicated on the expectation of a volume recovery post-pandemic. as well as long-term growth post-pandemic, largely consistent thematically with what we've experienced over the past 40 years. We're grateful for our strong financial performance this quarter and excited to continue investing in our customers' future and our own. And with that, I'll turn it over to our CFO, John North.