Copart, Inc.

Good day, everyone, and welcome to the Copart Incorporated fourth quarter fiscal 2025 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 and the company's annual report on Form 10-K for the year ended July 31st, 2024, 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. Welcome and thank you for joining us for our fiscal year 2025 call. We're pleased to announce the results of another record year for Copar to cross a number of dimensions, including units sold, revenue, and operating profits. For that, I wanted to extend our gratitude to our clients, our members, and our people who enabled our success. I'll begin today with some brief remarks on our insurance business and trends in the industry. followed by a discussion about Copart's auction liquidity before passing the call to Leah to discuss the results of our financial performance for the fourth quarter and the full fiscal year. We'll then take your questions. First, regarding our insurance business, for the full fiscal year 2025, Copart grew its global insurance volume by 4.5% and our U.S. insurance volume by 4.2%. During the fourth quarter itself, global insurance volumes sold decreased by 1.9%, and U.S. insurance volumes declined by 2.1%. Year-over-year growth rates for the second half of our fiscal year were softer than in the first half for several reasons, including the ebbs and flows of business activity among individual auto insurance carriers themselves as they optimize for growth and profitability. We also note ebbs and flows of uninsured and underinsured motorist populations, the result of substantial increases in insurance premiums over the course of the past several years. As one specific citation, earned car years for the first calendar quarter of 2025 declined by 4.3% versus that same quarter in 2024, according to ISS. all while the vehicle car park grew at 1.3% for the same period. You might surmise that under insurance is less relevant for vehicles that have encountered accidents severe enough to consider a total loss, but consider the scenario in which a policyholder has downgraded from collision coverage to liability only, or has elected to forego insurance coverage altogether. those vehicles may bypass the traditional insurance total loss funnel altogether other industry sources such as ccc have observed what they describe as a cyclical disconnect between accident activity and insurance claims frequency as well we also track other industry indicators such as traffic fatalities some of which are published much more episodically but which generally indicate that accident rates are declining, but that they're doing so at rates consistent with longstanding historical trends. We've talked in the past before about how accident frequency has declined virtually every year since Copart's inception, and almost certainly for decades preceding that. These declines have generally occurred very gradually as new safety technologies, such as anti-lock brakes in the 1970s and 80s, penetrate the installed base with each vintage of newly manufactured vehicles. Over those same long-term horizons, however, total loss frequency has generally increased at a rate far exceeding the decline in accident frequency itself. And in fact, for the quarter, total loss frequency has continued its long-term upward trend, consistent with, again, the entire history of our company. In the United States, total loss frequency for the second calendar quarter of 2025 was 22.2%, up from 21.5% in the same quarter in 2024. As a tidbit for context, according to CCC's most recently published crash course report, calibrations occurred on 31% of DRP estimates in the first calendar quarter, up from 24% a year ago, an indication of further vehicle complexity, complexity of repairs and repair costs for vehicles that enter the repair window. We've long noted that vehicle repairs become less attractive with the passing of time as vehicle complexity increases, parts and labor costs increase as well. We've also talked at length about how total loss itself becomes more attractive as growing economies seek more and more U.S. salvage vehicles to satisfy their demand for more mobility. On recent earnings calls, we've talked at great length about the importance of our differentiated service offerings, including our efforts to help insurance companies mitigate their advanced charges, the decision support tools we provide to help them make calls quicker and better, as well as a range of titling and loan payoff services we offer to them. But we also know that above all else, the critical value we provide sellers at Copart is that our auction platform will find the highest and best use of every vehicle anywhere in the world. I wanted to spend a few minutes today to underscore the importance of that auction liquidity and to describe why our liquidity is a distinct advantage for Coparts. First, I would note that Copart's auction is uniquely digital. We have been exclusively an online auction platform since 2003, almost two decades before our competitors followed suit and only when they were compelled to do so by the COVID-19 crisis. By extension, we are also uniquely global. We have some 300,000 paying registered members at Copart, from virtually every non-sanctioned country around the world. The result of that is unmatched global breadth. International members account for approximately 40 percent of all vehicles sold at COPAR's U.S. auctions, comprising almost half of auction proceeds, because international buyers generally purchase vehicles that are more valuable than those acquired by domestic buyers. We invest heavily in marketing resources, in product, and the member experience more generally to ensure a deep pool of demand for the vehicles we auction on behalf of our sellers. As context, the top 10 individual buyers of vehicles at Copart collectively purchased a low single-digit percentage of all the vehicles we sell at U.S. auctions. The nature of the vehicle wholesaler and rebuilder economy is of frequent disruptions, exits, and new business formations, and we invest in the resources to ensure that we continue to maintain a deep pool of demand for our vehicles. The fruits of our labor are visible in the selling prices we generate for our clients in the past quarter, in the past year, and, frankly, for the past 43 years as well. For the quarter specifically, we experienced ASP growth globally of 5.4 percent for all insurance vehicles sold, and for our U.S. insurance clients, growth of 5.7 percent for the fourth quarter versus a year ago. We know from public data and from public disclosures that our ASPs grew at a rate that eclipsed that of used vehicle value indices like the Mannheim Used Vehicle Value Index and grew at a rate more than five-fold that of service providers similar to ours. I wanted to spend those few minutes to talk about auction liquidity as one of the critical propositions that we deliver to our sellers, frankly, across both insurance as well as our non-insurance sellers as well. With that, I'll pass the call to Leah to talk about our fourth quarter and our full fiscal year.

Thank you, Jeff. I will begin with our 2025 sales trends. For fiscal year 25, global unit sales increased 4.8% and declined in the fourth quarter by 0.9%. Focusing on our U.S. business, for fiscal year 25, unit growth was 4.1%, with fee units growing 4.1% and purchase units growing 4.7%. For the fourth quarter, unit sales declined 1.8%. This reflects fee units declining 1.2% and purchase units declining 16.7%. Over the past several months in the U.S., we have transitioned a significant volume of low-value non-insurance units from our copart direct channel, which are purchase units, to our direct buy channel. This change has allowed copart to more efficiently market lower ASP vehicles by directly connecting sellers and buyers, and avoiding the unnecessary costs associated with transportation and storage at a copark facility. As a result, they are not captured in our unit sold metrics. Normalizing for this, U.S. units declined 0.6% for the fourth quarter. Our global and U.S. insurance volume grew 4.5% and 4.2% respectively for fiscal year 25 and decreased approximately 2% for the fourth quarter versus the prior year period. For the fiscal year 25, our non-insurance unit volume increased 2.8% and decreased 2.1% in the fourth quarter. The fourth quarter decline in non-insurance U.S. volume was driven by our direct buy strategy, which resulted in Copart Direct or Cash for Cars business line unit sales to decline 5.4% in FY25 and 32.6% in the fourth quarter. Normalizing for this, non-insurance unit volume continues to grow faster than our U.S. insurance business. BlueCar, which services our bank, rental, and fleet partners, continued its strong trend with 15.3% growth in fiscal year 25 and growth of 2.8% in the fourth quarter. We continued to see double-digit growth in BlueCar across our bank and fleet partners. This was partially offset during the fourth quarter by certain rental partners who retained or repaired a greater number of vehicles than we had seen historically. Dealer sales volume consisting of co-part dealer services and national power sports auctions increased 1.4% for the fiscal year 25 and 2.1% for the fourth quarter. Low value units including charities and municipalities increased 4.9% year over year and increased 1.2% for the fiscal year 25. Our international segment units sold grew 8.1% for fiscal year 25 and for the fourth quarter grew 3.3%. Fee units increased 9.8% for the full fiscal year and 3.6% for the quarter. Purchase units declined 1.8% for the full year and increased 1.9% for the quarter. Fee unit growth continues to benefit from the shift of insurance units, primarily in Germany, transitioning from purchase contracts to consignment. Turning to Purple Wave, their GTV grew 9.4% for the fiscal year And while we are observing an industry-wide trend across the heavy equipment and agricultural sectors of sellers taking a cautious wait-and-see approach due to uncertainties in the broader macro environment, PurpleWave's overall GTV continues to significantly outpace the industry from a growth perspective. Our global ASPs increased by 5.6% in the fourth quarter and 2.4% for the full year. Our global inventory decreased 13.1% from the year-ago period. Overall, inventory levels in the US decreased 14.8% year-over-year. There are three main drivers of the US inventory decline. First, we saw low double-digit declines in assignments. Second, faster cycle times overall for vehicles sold. And three, the reduction in overall aged inventory. Over the past several years, we have observed that trends in assignment volumes have proven to be a more accurate predictor of future unit sales than static inventory levels. Our inventory business ended the quarter compared to prior year with inventory levels decreasing 3.9%, which is primarily due to the sale of several CAT units in the Middle East. International assignments grew just over 1% for the quarter. Turning to our financial performance, global revenue increased to $1.13 billion for the quarter and $4.65 billion for fiscal year 25, reflecting a 5.2% and 9.7% growth, respectively. Global service revenue increased $63.1 million, or 7% from the same period last year, and increased approximately $407.7 million and 11.4% for the full fiscal year, due primarily to increased volumes and overall higher revenue per unit. Our U.S. service revenue grew by 6.2% for the quarter and 10.4% for the year and international service revenue grew by 13% for the fourth quarter and 18.9% for the year. Global purchase vehicle sales for the fourth quarter decreased 7 million or 4% and increased 2.5 million or about 0.4% for the fiscal year. Global purchase vehicle gross profit increased by 53.3% in the fourth quarter and 33.7% for the fiscal year. In the U.S., purchase vehicle revenue was up 4.1 million, or 4.2%. However, purchase vehicle gross profit decreased 1 million, or about 14.2% in the quarter. And for the fiscal year, U.S. purchase vehicle revenue increased 64.9 million, or 19.2%, and purchase vehicle gross profit remained largely flat. Year-to-date, our U.S. purchase unit margins were 6.3%, a decrease of about 113 basis points compared to FY24. Internationally, purchase vehicle revenue decreased by 11.1 million, or 14.2%, and gross profit increased by 8.5 million, or 127.5% in the fourth quarter. And for the full year, purchase vehicle revenue decreased 62.4 million, or 18.5%, and purchase vehicle gross profit increased 18.7 million, or 60%. The reduction in international purchase vehicle revenue accompanied by an increase in gross margin continues to be driven by an increase in German units being consigned which were previously subject to a purchase contract, as well as stronger purchase unit margins in the UK. Global facility-related costs, which include facility operations, depreciation, amortization, and stock-based compensation, increased 14.4 million, or 3.2%, in the fourth quarter, and 234.2 million, or 13.7%, for the full fiscal year. In the U.S., facility-related costs increased 13 million, or 3.4%, for the fourth quarter, and facility-related costs per unit increased 5.4% from the prior year period. This increase in per-unit costs reflects our ongoing investments in expanded operational capacity to support our continued growth. For the full fiscal year, U.S.-related costs increased 205.5 million, or 14.3 percent, and facility-related costs per unit increased 9.7 percent. For the quarter, international facility-related costs were up 1.4 million, an increase of 1.9 percent, or a decrease of 1.4 percent on a per-unit basis. And for the full fiscal year, international facility costs increased $28.8 million, an increase of 10.7% or 2.4% on a per-unit basis. During the quarter, global gross profit was $509.7 million, an increase of $56.2 million or 12.4%, and our gross margin percentage was 45.3% in the quarter. For the fiscal year, global gross profit was $2.1 billion, an increase of $192.4 million, or 10.1%, and our gross margin percentage was 45.2%. In the U.S., our gross profit was $440.3 million, an increase of 8.4% for the quarter and an increase of 7% for the full fiscal year. Gross margin was 47.5% for the quarter and for the full year. Our international gross profit was $69.5 million, an increase of 47.1% for the quarter and was $268 million for fiscal year 25, an increase of 36.7%. And gross margin was 34.9% in the quarter and 33.9% for the year. Turning to general and administrative expenses, spend in the quarter was $97.1 million, reflecting an increase of $3.1 million year-over-year. For the year, spend was $402.9 million, an increase of $67.7 million. Fourth quarter gap operating income increased by 14.8% to $412.6 million, and for the fiscal year, gap operating income increased by 8% to $1.7 billion. Finally, fourth quarter gap net income attributable to Copart Inc. increased by 22.9% to $396.4 million, or 41 cents per diluted common share. During the quarter, we benefited from an increase of 6.4 million from interest income as we have actively invested our cash into Treasury securities. For the quarter, our tax rate was 17.4%, which reflects the impact of increased tax credits and a reduction in state tax expense. For the fiscal year, gap net income attributable to Copart, Inc. increased by 13.9% to $1.55 billion or $1.59 per diluted common share. Turning to our capital structure, as of the end of July, we had $6 billion of liquidity, which is comprised of $4.8 billion in cash and held to maturity securities and our capacity under our revolving credit facility. With that, Jeff and I would be happy to take some questions.