Copart, Inc.

Good day, everyone, and welcome to the Copart Incorporated fourth 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 Gavin Renfrew, Vice President of Global Accounting of Copart Incorporated. Please go ahead, sir.

Thank you, and good morning. We'll start with the safe harbor. 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, discrete income tax items and the effect of the extinguishment of debt. 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 analysing 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. 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 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. With that, I'll turn the call over to our co-CEO, Jeff Leal.

Thank you, Gavin, and good morning, everyone. I'll start with some comments about themes in our business. I'll turn it over to Gavin to walk you through some financial highlights, and then we'll take Q&A thereafter. We're pleased to report our results for the fourth quarter of fiscal 2022 and to have concluded another strong fiscal year here at Copart. We are celebrating the 40th anniversary of our company's founding by Willis Johnson, starting way back when with just a single yard in Vallejo, California. Since our inception, we believe it is our people and our values that have enabled us to build a profitable, sustainable enterprise. We're confident our formula will work for the next 40 years as well. We're well into our third year now of exceptional social and macroeconomic conditions, a virus and its attendant mutations, a war, and the disruptions on industrial production, supply chains, fuel prices, and the like. All businesses, including ours, are affected by these forces. We're happy to take questions on short or medium term volatility for the various input and output metrics for our business. But we'll focus our prepared remarks on the more durable operating beliefs and principles that guide our decision-making. Namely, that we will, one, invest in our physical infrastructure, technology platform, and customer service offerings to improve auction liquidity and returns for our sellers. We will collaboratively engage with our sellers both day-to-day and through catastrophic events 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 finally, that we'll continue our expansion into international markets around the world. In a moment, we'll discuss the quantitative indicators that we customarily provide on these calls, but I wanted to start first by addressing the subject of sustainability. We are increasingly asked by our customers, our employees, our shareholders, and other stakeholders about how Copart's business addresses the world's growing focus on sustainability. I want to offer our perspective on what sustainability means to us, how our business contributes to environmental sustainability, how we support and empower local communities, how we enable global economic mobility and development, and how we build an enduring enterprise to serve our customers for decades to come. First on the question of environmental sustainability, which is conventionally what folks mean most of the time when they say so. We have the great privilege of operating a business that is at its core green. We aren't trying to shoehorn an environmental theme into a fundamentally problematic business. Instead, Copart is a keystone enabler of the circular economy in the automotive sector. Our retrieval and storage of vehicles, title processing, and online marketplace are essential to the reuse, harvesting, and recycling of literally millions of cars per year. We estimate that approximately two out of every five vehicles we sell are driven again somewhere in the world. The remainder are harvested and recycled for parts or metals, reducing the need for de novo mineral extraction and manufacturing emissions. The benefits of the reuse and recycling of cars and their components and the attendant avoidance of carbon emissions dwarfs our actual Scope 1 and Scope 2 emissions. We estimate this benefit to be more than 100 times the quantity of our direct emissions. Secondly, we operate our business to enhance the sustainability and well-being of the communities in which we operate. Our business is essential in helping communities recover from acute weather events, which are themselves increasing in frequency as well. We currently operate purpose-built dedicated cat yards comprising hundreds of acres of vacant storage capacity reserved for responding to catastrophic events in storm-prone areas. When major weather events occur, our people and our advanced preparation enables us to clear roads, repair shops, impound yards, so that communities can quickly recover. Third, we enable global economic mobility and development. Through our unparalleled global member network, we facilitate access to vehicular transportation across the globe. We estimate that approximately two-thirds of the vehicles sold by our U.S. auctions to international members are to developing economies as defined by the U.N. Department of Economic and Social Affairs. Physical mobility, which most of us on this call have taken for granted, is essential for people around the world to access healthcare, education, leisure, and economic advancement. Finally, we operate our business in a manner that ensures enterprise sustainability. We believe that a truly sustainable business makes decisions so that it can serve its customers not just in the weeks, months, and years ahead, but for decades to come. To that end, we have always taken the strategic approach of owning the vast majority of our real estate and storage capacity. We've heard the sometimes persuasive arguments in favor of more, quote, capital-light approaches, but we're steadfast in our belief that owning our facilities enables us to control our own destiny and Ensuring the sustainability of our business for our customers, we are not just participants in our industry, we are stewards of it. Today we operate on nearly 16,000 acres of land worldwide and own approximately 90% of it controlling it in perpetuity over the last five years alone we've invested nearly $2 billion in land acquisition and development. Similarly, we have maintained a conservative balance sheet since our founding we recognize the arguments in favor of more financial leverage, but we know that our approach assures our customers that whatever comes our way. The 2009 financial crisis massive storms and sandy Harvey Ida coven 19 and all that lies ahead copart will stand uncompromised and ready to serve our customers. As noted on our last earnings call, we intend to publish our inaugural ESG report in the next few weeks, in which we will, of course, more fully articulate these themes. I'll turn now to the operating statistics that we provide each quarter. Our global unit sales for the fourth quarter increased 5.1% year-over-year, with the U.S. increasing 4% and our international unit volume increasing 12%. Our insurance business was likewise above the fourth quarter of 2021. We grew on both a one- and two-year basis due to a combination of share gains and a continued recovery in driving activity and accident frequency and severity. Notably, of course, record high used vehicle prices have for the past several quarters negatively impacted total loss frequency and have tempered overall insurance volume growth relative to what it otherwise would have been. Driving activity itself, as measured in vehicle miles driven, continues its rebound to pre-pandemic norms in the aggregate. Seasonally adjusted miles traveled for the month of May, for example, in the US is up about a percentage point versus last year. Gasoline consumption statistics mirror the same themes as well. Contrary to consistent long-term trends, we have observed declining total loss frequency on a sequential and year-over-year basis. Our selling prices have kept pace or more than kept pace with a strong used car price environment on a percentage basis. But the persistent lack of replacement vehicle availability and record high retail transaction values continue to reduce assignment volume for us relative to what it otherwise would be. Total loss frequency for the second calendar quarter in 2022. 16.9% in comparison to 19.7% for the same quarter a year ago. If vehicles had been totaled at the same rate as last year, we would have observed insurance industry volumes 15% higher than what we actually experienced. In simple layman's terms, in a world in which replacement vehicles are harder to come by, total loss settlements are a less attractive resolution to an auto accident claim than they otherwise would be. While total loss frequency has declined over the past year and a half or so, the 40-year trend is unambiguous. We believe firmly that the market will revert to the historical norm of steadily rising total loss frequency in the months and years ahead. And in fact, a number of other variables, accident severity, repair duration, repair labor costs, rental car costs, part costs, should contribute to that reversion and long-term trend as well. The history of total loss frequency from 4% in 1980 or so to 20% as of a couple of years ago has been the product of two key factors, vehicle complexity and composition making cars more expensive to repair, while our auction liquidity and global buyer base has made them more efficient to total instead. While we will all no doubt struggle to predict precisely when supply chain bottlenecks will clear and new vehicle production will return to historical levels, we do anticipate an eventual unwinding of these conditions, which will lead to a moderation of used vehicle values. We may well see a moderation of ASPs in that environment as well, but we'll almost certainly benefit from volume recovery or volume increases as well. We continue to invest in growing our business beyond insurance total losses, excluding lower-value cars from sources such as wholesalers and charities. Our U.S. non-insurance unit volume grew approximately 6% in the quarter, driven by a combination of rental cars, corporate fleets, financial institutions, and our power sports business. Our growth across the full spectrum of vehicles enhances our auction liquidity and returns for our sellers. The more cars we sell on behalf of dealers, the more our insurance company sellers will benefit as well. With that, I'll turn it over to our VP of Global Accounting, Gavin Renfrew, to walk through the fourth quarter financial results before we open it up for Q&A.