Copart, Inc.

Good day, everyone, and welcome to the Copart Incorporated first quarter fiscal 2023 earnings call. Just a reminder, today's conference is being recorded. For opening remarks, I would like to turn the call over to Gavin Renfro, Vice President of Global Accounting of Copart Incorporated. Please go ahead, sir.

Thank you, and good morning. During today's call, we'll discuss certain non-GAAP measures, including adjustments to income tax benefits related to stock-based compensations. 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 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 details 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, 2022, 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. Good morning and welcome, everybody, to our first quarter call. We're pleased to report strong results for the first quarter of fiscal 2023 in the context of a complex global economic backdrop and a significant weather event we'll describe in more detail today. Many of the unusual conditions that we've described on our previous calls persist today, though with some apparent stabilization, including new vehicle shipment shortages, high used car prices, and a broadly inflationary environment. Gavin and I will provide our customary data points throughout our call on these themes and others, but I wanted to start by highlighting our recently published inaugural ESG report. If you haven't read it already, I'd encourage you to do so. In that report, we addressed the topic of sustainability across a number of different dimensions, environmental sustainability, global economic empowerment, enterprise sustainability, and community sustainability and recovery. Events of the past few weeks have in particular underscored our commitment to the fourth of these pillars, but I'll take a moment to briefly summarize the first three. On the first of these subjects, environmental sustainability, COPART is a keystone enabler of the circular economy. Our business enables the reuse and recycling of vehicles, their components and materials, substantially reducing what would otherwise be the carbon footprint of the transportation sector. In fact, upon tabulating our scope one and scope two emissions, as well as the carbon emissions that are averted by our marketplace, we estimate that we save 100 times as much in carbon dioxide equivalents as we emit in our business. On the second aspect of sustainability, global economic empowerment, our business is instrumental in improving access to mobility for residents of developing economies. In fiscal 2022 alone, we sold vehicles to members in 160 countries with approximately one quarter of our volume purchased by members in emerging economies as defined by the United Nations. While those of us on this phone call today likely take physical mobility for granted, it is undoubtedly a critical enabler for access to education, healthcare, economic advancement, and leisure worldwide, and we're proud to play an important role in increasing its availability for people around the world. On the subject of enterprise sustainability, we make strategic decisions with a 20-year horizon. As a result, we own the vast majority of our real estate, ensuring its availability for our business and our customers for generations. We maintain a strong balance sheet to ensure that we have the flexibility to invest in our business and our customers' success, regardless of economic conditions at the time. And finally, we are committed to our role in ensuring the sustainability and health of the communities we serve, most notably in our rapid response to major weather events. In late September of this year, Hurricane Ian made landfall in Florida. On a unit volume basis, Ian will be the single largest storm event in Copart's 40 year history. This category four storm included heavy rainfall and winds in excess of 150 miles per hour and cut a path through the heart of the state. Ian proved to be a storm of historic proportions. The robustness of our response was the fruit of seeds we've been planting for years. As you've heard us articulate at length on prior calls, In anticipation of increasing storm frequency and severity, we've made proactive investments in land, technology, heavy equipment, trucks, drivers, and personnel in the form of our dedicated CAT response team. In this instance, of course, our investments paid off, perhaps in economic efficiency, yes, but most importantly in substantially enhancing the service we can provide our clients and their customers in their most acute times of need. We deployed more than 800 Copart employees from around the country to the affected areas, many while the hurricane still lingered over the state. In just the first 10 days of the event, we retrieved over 15,000 units, an unprecedented effort enabled both by our third-party sub-hauler network as well as our company-owned tow trucks, transporters, loaders, and Copart-employed drivers. From the first day of this event, we leveraged nearly 350 acres of Copart-owned dedicated cat-only storage capacity within the affected region, allowing us to quickly receive and inventory nearly 70,000 units through the end of the quarter, in turn expediting the settlement process for policyholders who are eager for economic relief. To put our catastrophic storage capacity in context, the 1,500 acres of land that we own for the purpose of catastrophic storage alone represents as much land as another major provider of insurance auction services owns in total. As we've noted following major storms in the past, we view our pre-storm preparations and our robust response as investments in the strong and durable partnerships we enjoy with our insurance sellers. We tend to experience operating losses in major weather events. Hurricane Ian in the first quarter is no exception. with $25 million in extra costs incurred by our business, offset by $9 million of revenue in the period. Our elevated CAT-related expenses include premiums paid for towing and transport logistics, travel and lodging, and increased overtime and labor expenses for our team. As such, in the quarter, the impact of Hurricane Ian was approximately 200 to 250 basis points of gross and operating margin rate compressions. Finally, in November, we completed a two-for-one stock split, our sixth such split since 1999. We view this split as an opportunity to improve the liquidity of our stock, making it more accessible to our employees and retail investors. And with that, I'll turn it over to our VP of Global Accounting, Gavin Renfrew, to walk through some key operating and industry statistics and our fourth quarter financial results.