Copart, Inc.

Good day, everyone, and welcome to the Copart Incorporated Third Quarter Fiscal 2022 Earnings Call. Just a reminder, today's conference is being recorded. For opening remarks, I would like to turn the call over to Mr. John North, Chief Financial Officer of Copart Incorporated. Please go ahead, sir.

Thanks. Good morning. During today's call, we'll discuss certain non-GAAP measures, which include adjustments to income tax benefits related to stock-based compensation, legal matters, and discrete income tax items. We've 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 the 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 in the meaning of federal securities laws, including management's current views with respect to trends, opportunities, and uncertainties in our markets. These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with our business, we'll refer you to the section titled Risk Factors in our annual report on Form 10-K for the year end of July 31st, 2021, 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 so with that out of the way, I'd like to turn the call over to our co-CEO, Jeff Leoff. Great.

Thank you. Good morning, everyone. We're pleased to report our results for the third quarter of fiscal 2022. As you are all no doubt well aware, our industry and the global economy in general are experiencing a number of variables at unusual levels. New and used vehicle shortages, evolving workplace practices and traffic patterns, volatile and elevated fuel and commodity prices, and global instability. Against that backdrop, we continue to perform well for our customers and therefore by extension for our business as well. Our long-term core operating beliefs and principles remain unchanged. Above all else, we'll invest in our physical infrastructure, our technology platform, our people, and our customer service offerings to improve auction liquidity and returns for our sellers in our more mature markets. We'll continue to collaboratively engage with our sellers both day-to-day and through catastrophic events, including what appears to be an active storm season ahead, to protect them and their policyholder relationships. We will actively expand our addressable market by growing our volume of lesser damaged and whole cars from both insurance and non-insurance sellers. And we'll continue our expansion into international markets in Western Europe and beyond, including Germany and Spain. But turning to the events of the quarter, starting with units volume trends and our auction performance. Our global unit sales increased 12% year over year for the quarter, with a U.S. increase of 11% and an international increase of 18%. Our insurance business itself grew relative to the third quarters of both last year and the year prior on a two-year basis. due to a continued recovery in overall driving activity and accident frequency and severity. We'd also note, however, that record high used vehicle prices have, for the past few quarters, negatively impacted total loss frequency and have tempered overall insurance volume growth relative to what it otherwise would have been. On the notion of driving activity, at least as measured in vehicle miles driven as tracked by the U.S. Department of Transportation, for example, We've seen a rebound in driving activity now to levels similar to pre-pandemic levels, including as measured by gasoline consumption and the like. The character of driving has evolved with less, of course, workplace commuting, more leisure travel as a substitute. On the question of total loss frequency, contrary to very consistent long-term trends, total loss frequency has declined sequentially over the past few quarters and year over year. With a strong used car price environment and vehicle availability, reducing assignment volume relative to what it otherwise would be. While our auction returns themselves are at all-time highs and have kept pace with the used car market in general, higher pre-accident values do reduce volume relative to what it otherwise would be. In layman's terms, in a world in which replacement vehicles are hard to come by, total loss settlements are less compelling than they otherwise would be. While total loss frequency has declined over the course of the past 12 months or so, the 40-year trend is nonetheless clear. We believe the market will ultimately revert to the historical norm of steadily rising total loss frequency and, in fact, a number of other variables, increasing accident severity, repair duration, repair labor costs, rental car costs, and the like should contribute to that reversion as well. The history of total loss frequency is quite clear. It was 4% or thereabouts in 1980 and is approximately 20% today. And it, in turn, has been the product of two key factors. Vehicle complexity and composition have made cars more expensive to repair over time, while our auction liquidity and global buyer base have made them ever more efficient to total instead. As used vehicle values eventually moderate and potentially trend back to lower levels in the future, we may see a moderation in our average selling prices as well. In that scenario, however, we believe we will benefit from volume increases, perhaps substantially so. We continue to grow our business as well in non-insurance vehicles, excluding, pardon me, cars from sources like wholesalers and charities. Our U.S. non-insurance business grew approximately 3% in unit volume year over year, driven in part by growth in our consumer-based cash for cars business, as well as growth in non-salvage sources of volume, such as rental car fleets, corporate fleets, and financial institutions. Overall, our growth across the full spectrum of vehicles generates improved auction liquidity, auction attendance, and returns for our sellers as well. The greater number of non-insurance cars we sell, whether they're from dealers or rental car companies, fleet managers, lenders, or from consumers, ultimately contributes to auction liquidity and generating better returns for our insurance sellers in turn. I wanted to provide a few comments on environmental sustainability and governance matters before turning it over to John. We play a meaningful role in the global circular economy. We sold more than 3 million vehicles in our last fiscal year and estimate that 40 to 50 percent of those vehicles are ultimately returned to drivable service somewhere on the planet. And, of course, the balance are subsequently harvested for parts and raw materials. In both cases, we provide meaningful benefits to the world environmentally through the avoidance of manufacturing of vehicles and of replacement parts. According to recent research from Argonne National Laboratory, a science and engineering research house operated by the University of Chicago on behalf of the U.S. Department of Energy. The vehicle manufacturing process produces nearly two metric tons of CO2 per new vehicle manufactured. We estimate therefore that our business facilitates the avoidance of literally millions of carbon dioxide, millions of tons of carbon dioxide per year. Our business, especially given our emphasis on providing access to international buyers, also contributes to the advancement of other important societal objectives, including the reduction of global poverty, with affordable transportation as a crucial lever in improved outcomes for people around the world in commuting to work, advancing their education, or accessing medical care and the like. In the weeks ahead, we intend to publish our inaugural ESG report, in which we'll provide additional disclosure about our role and impact in the circular economy. And with that, I'll turn it over to John North, our CFO, to walk through the third quarter financial results.