Copart, Inc.

Please stand by. Good day, everyone, and welcome to the Copart Incorporated fourth quarter fiscal 2024 earnings call. Just a reminder, today's conference is being recorded. Before turning the call over to management, I will share Copart's safe harbor statement. The company's 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 the company's markets. These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with the company's business, we refer you to the section titled Risk Factors in the company's annual report on Form 10-K for the year ended July 31, 2023, and each of the company's subsequent quarterly reports on Form 10-Q. Any forward-looking statements are made as of today, and the company has no obligation to update or revise any forward-looking statements. I'll now turn the call over to the company's CEO, Jeff Liao.

Thank you, Owen, and good evening. We're pleased to report our results for the fourth quarter of fiscal 24 and the conclusion of another successful fiscal year for our customers and for Copart. I'll begin with a few comments on our business before handing the call to Leah to review our financial results in greater detail, and then she and I will take your questions. Turning first to the insurance industry, we continue to grow our business with insurance sellers of 6% year over year, a reflection of our compelling and growing service offerings and industry-leading auction liquidity. The recent decline in used vehicle values in particular has driven total loss frequency upwards back in line with pre-pandemic historical norms. During our fourth fiscal quarter 2024, we observed an 8.6% year-over-year decline in the Mannheim Used Vehicle Value Index. As Leah will more fully describe later in her comments, our insurance company's selling prices significantly outpaced those of the broader used vehicle markets. All indications are that the long-term trends in the repair industry towards increasing vehicle complexity, as measured, for example, by the average number of parts to repair a vehicle, as well as rising labor rates, continue to tip the scales in favor of totaling vehicles rather than repairing them. In fact, at 21.4% for the second calendar quarter of 2024, total loss frequency is some 200 basis points higher than for the same three-month period a year ago. This, of course, is itself a blended average. Some of our customers' total vehicles at rates significantly higher still. We continue to observe an ever-increasing economic incentive for insurance carriers to total vehicles rather than repair them, a long-term trend we firmly believe will continue. Today we offer a range of sophisticated tools to our insurance clients to assist them with optimizing these decisions. Another theme I'd like to highlight is the deepening of our relationships with our insurance company clients, as reflected recently in the ongoing expansion of our Title Express service offering. Historically, auction houses like ours have obtained salvage certificates from the states in which we do business after the insurance companies have first obtained the original title either directly from policyholders if they own their cars outright, or from lenders if the vehicles have liens outstanding. Insurance companies have always reasoned that for a pivotal touchpoint with their own customers, typically after a claims event, it would be best to keep this function in-house. Today, however, our offer of an integrated one-stop solution for title procurement, which we call Title Express, has achieved substantial traction in the industry. On behalf of our carrier clients, we obtain original titles from policyholders and from lenders. Each state has its specific nuances in what it requires as documentation, signatures, secured forms, powers of attorney, and so forth. And each lender, too, has its own requirements for the provision of payoff balances and per diems and the releasing of liens and titles. The lender universe in particular is an especially fragmented constituency. Between our online lender portal, AI-powered outbound calling systems, and access to other intermediaries, we believe we offer a substantially more efficient title procurement process than our insurance customers can otherwise achieve. Today, we're pleased to note that we are approaching a run rate of 1 million titles obtained per year on behalf of our insurance clients, a testament to their trust in us to provide excellent service to them and, importantly, to their own customers as well. One additional note on the insurance industry regarding the storm season of 2024. As anticipated by many, the 2024 storm season is off to an active start relative to other seasons in recent years. Hurricane Beryl, the earliest Cat 5 Atlantic hurricane on record, caused widespread damage across Texas, Louisiana, and neighboring states, though the storm's path fortuitously bypassed major population centers. Other named storms this season, including hurricanes Debbie and Ernesto, have required significant mobilization of resources on our part, which we are happy to undertake on behalf of our insurance clients. I'll turn our attention to our non-insurance sellers as well. We've continued to grow our volume with them, leveraging our core capabilities in having physical storage capacity via our real estate portfolio, a strong network of logistics solutions, and a global liquid buyer base. we continue to grow our blue car business, which serves our bank and finance fleet and rental segment partners. In the fourth quarter, we observed year-over-year volume growth of 20.4% in comparison to a year ago. Likewise, our dealer sales volume, a combination of our co-part dealer services business and MPA, our power sports auction platform, increased volume sold by 9.5% year-over-year as well. Excluding our low-value and wholesale units, a customary measure we provide, increased 12.6% year-over-year. We view our growth among these non-insurance sellers as attractive not only for the economic benefit that these incremental units provide to our business, but also as a critical factor in sustaining and extending the liquidity advantage of our auctions. We have seen abundant examples of first-time buyers attending co-part auctions in pursuit of a vehicle we sell on behalf of a rental car company or a financial institution only to then begin purchasing vehicles from insurance companies thereafter. As total loss frequency rises and insurance companies elect to total ever more drivable vehicles, the power of the crossover buyer will only grow. We're committed to investing our time and our resources to cultivate this aspect of our business. This, in a nutshell, is the flywheel effect you've heard us talk about at length in the past. Finally, as an additional note, our partner in the equipment arena, Purple Wave, led by Aaron and Susie McKee, Hatton, Kansas, drove 17% year-over-year growth for the full fiscal year, outpacing industry growth in the equipment auction markets they serve. We're excited about what the future holds for our partnership with them. With that, I'll turn it over to Leah for her comments on the financials.

Thanks, Jeff. I'll begin with our fourth quarter and fiscal year 24 sales trend. During the quarter, our global unit sales and inventory increased 8% and about 7% respectively from the year-ago period. For fiscal year 24, global unit sales increased nearly 10%. This growth was a function of an increase in total loss frequency and share gains. Focusing on our U.S. business, unit growth was over 6%, which reflected fee unit growth of over 6% and purchase unit growth of over 13%. For fiscal year 24, unit growth was nearly 8% with fee units growing over 7% and purchase unit growth of almost 14%. Consignment or fee units continue to constitute the vast majority of our U.S. unit volume. Our U.S. insurance unit volume increased 6% year over year and about 7% for fiscal year 24. As Jeff mentioned, our non-insurance unit volume growth has continued to outpace that of our insurance business. This volume growth substantially came from fleet rental and finance units, which increased over 20% in Q4 and nearly 28% for the year, and dealer units, which increased nearly 10% for the quarter and over 15% for the fiscal year 24. Inventory levels in the U.S. increased over 6% and nearly 9% when excluding low-value and CAT units. Turning to our international business, we saw unit growth of almost 17% in the quarter and 21% for fiscal year 24, with fee units increasing over 17% in Q4 and 22% for the year. Purchased units increased by nearly 13% for the quarter and almost 16% for the fiscal year. Our international business ended the quarter with inventory levels over 9% ahead of the prior year. Global ASPs declined by approximately 5% for the quarter relative to a year ago period and about 3% for the full year. Our US ASPs continue to show resilience and are significantly outperforming the used vehicle market more broadly. While the Mannheim used vehicle price index declined by nearly 9% from the year ago quarter and almost 2% sequentially, our US insurance ASPs declined less than 4% from a year ago for the quarter and increased over 2% sequentially. Turning to our financial results, global revenue in the quarter increased to nearly 1.1 billion, representing growth of over 71 million, or about 7%. For the year, global revenue increased to more than 4.2 billion, representing growth of over 367 million, or nearly 10%. Global service revenue increased nearly 59 million, or over 7% for the fourth quarter, and almost 363 million, or over 11% for the fiscal year, primarily due to increased volumes. Our US service revenue grew by over 6% for the quarter and 10% for the year and international service revenue grew by nearly 14% for the fourth quarter and 22% for the year. Global purchase vehicle sales for the fourth quarter increased over 12 million or 8% and over 4 million or about 1% for the fiscal year. Global purchase vehicle gross profit decreased by about 1% in the fourth quarter and for the fiscal year. In the US, Purchase vehicle revenue was up over $10 million, or 12%, while purchase vehicle gross profit increased less than $1 million, or about 11% in the quarter. And for the fiscal year, purchase vehicle revenue decreased about $9 million, or almost 3%, and purchase vehicle gross profit increased about $4 million, or over 18%. Internationally, purchase vehicle revenue increased by over $2 million, or about 3%, and gross profit decreased by almost $1 million, or about 11% in the fourth quarter. And for the full year, purchase vehicle revenue increased almost $14 million, or over 4%. And purchase vehicle gross profit decreased about $4 million, or over 12%. Global yard operations cost, excluding stock-based compensation and depreciation expense, increased about $59 million, or about 17% for the prior year period. This growth reflects the increase in unit volume, as well as approximately $16 million of non-recurring expenses, primarily related to operating taxes. In addition, as Jeff noted, given the active and early start to the storm season in 2024, our CAT storm response teams incurred seasonally higher costs preparing and positioning resources for several storms which did not produce significant unit volumes. Given the unpredictable nature of catastrophic events during storm season, we absorbed these costs as part of our normal course of serving our customers and their policyholders. During the quarter, global growth profit was over 453 million, a decrease of 4 million or about 1%, and our gross margin percentage decreased by approximately 340 basis points to 42.4% in the fourth quarter. For the fiscal year, global gross profit was over $1.9 billion, an increase of over $170 million, or about 10%, and gross margin percentage was 45%, an increase of about 10 basis points. In the US, our gross profit margin decreased to 46.5% for the quarter and increased to 49.4% for the year. The key drivers of margin compression during the quarter included the impact of nearly $12 million of out-of-period expenses as well as increased salary and benefits expense associated with our yard operations personnel. Our international gross profit margin increased to 24.2% in the quarter and 25.5% for the year. Turning to general and administrative expenses, excluding stock-based compensation and depreciation expense, spend in the quarter was about $81 million, reflecting an increase of $26 million over the prior year, and about $5 million on a sequential basis. For the year, spend was about $288 million, an increase of about $88 million. As we highlighted last quarter, our year-over-year G&A increase continues to reflect our investments in organic product development, our platform functions, the financial consolidation of PurpleWave into our results, as well as an increase in third-party project-related costs associated with system implementations. Across our organization and as we are investing in our In expanding our whole car and heavy equipment sales functions, our teams are simultaneously focused on deploying emerging technologies to enhance our business processes and systems in pursuit of scalability and operating leverage over the long term. GAAP operating income for the quarter decreased by 8% to over $359 million, and for the fiscal year, GAAP operating income increased by over $85 million, or nearly 6%. Finally, fourth quarter GAAP net income decreased by over 7% to over $322 million, or $0.33 per diluted common share. For the fiscal year, GAAP net income increased by over 10% to over $1.4 billion. During the quarter, we benefited from over $14 million of incremental interest income as we have actively invested our cash into Treasury securities. And for the quarter, our tax rate was 21.1%, and for the fiscal year, it was 20.5. Turning to our capital structure, as of the end of July, we had over $4.6 billion of liquidity, which is compromised with nearly $3.4 billion in cash and investments and held to maturity securities, and our capacity under a revolving credit facility of over $1.2 billion. We believe that our conservative capitalization is a distinct competitive advantage in our industry. enabling us to operate our business with a horizon that prioritizes ours and our clients' long-term success. For the year, we generated free cash flow of $962 million, reflecting our operating cash flow generation of $1,473,000,000 and capital investments of about $511,000,000. Our investment focus in 2024 remains steadfast, with nearly all of our capital being deployed into assets which drive best-in-class outcomes for our customers, including more than 1,100 acres of land acquired and 370 transportation assets, as well as enhanced physical infrastructure. With a new year upon us, I wanted to reiterate that our multi-decade investment horizon and long-standing approach to capital allocation is unwavering. We continue to prioritize investments that grow and diversify our existing marketplace businesses, including differentiated products and service capabilities. This includes our approach to yard infrastructure investments, which are critical to ensuring that we are positioned to serve our customers' needs for the long term. We remain focused and disciplined on deploying capital through M&A and strategic partnerships, with valuation and or strategic fit being the major hurdles that opportunistic transactions typically fail to clear. This consistent approach has positioned us to deliver outstanding business outcomes while generating long-term value creation for our shareholders. And with that, Jeff and I would be happy to take some questions.