Good day, everyone, and welcome to Copart Incorporated Fourth Quarter Fiscal 2023 Earnings Call. Just a reminder, today's conference is being recorded. Before turning call over to management, I will share Copart's statement on Safe Harbor and non-GAAP financial measures. During today's call, the company will discuss certain non-GAAP measures, including discrete income tax items, the effect of extinguished debt and adjustments to income tax benefits related to stock-based compensation. The company has provided a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures on its Investor Relations website and in its press release issued at approximately 3:00 PM central time today. The company believes these non-GAAP measures together with the corresponding GAAP measures are relevant in analyzing the company's results and assessing its business trends and performance. In addition, the company's comments today include forward-looking statements within the meaning of the 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 details 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 31st, 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 Co-CEO, Jeff Liaw.

Great. Thank you, and good evening, and thank you, everyone, for joining us today. We're pleased to report our results for the fourth quarter of fiscal 2023 and the conclusion of a strong fiscal year. We continue our trend of generating excellent results for new and existing customers of growing our business profitably and of reinvesting in the future prosperity of our customers and ourselves. Today, I'll keep my comments brief focusing on some of the recurring themes that are most relevant to our business and to our customers. A year ago on this same call, we talked about the various dimensions of enterprise sustainability that we consider here at Copart, including environmental sustainability, given our critical role in the circular automotive economy. Our financial sustainability in the form of our conservative capitalization, operational sustainability through our land stewardship and ownership strategy and global socioeconomic sustainability and our providing mobility to developing economies around the world. Today, I'll spend just a few minutes elaborating on a fifth dimension, which is the proactive role Copart plays in assisting communities in their recovery from catastrophic weather events. The 2023 hurricane season has been forecast to be "above normal" according to the National Oceanic and Atmospheric Administration, a division of the Department of Commerce. That forecast feels evergreen now year-to-year. So far in 2023, we've experienced 12 named storms, more than double the number we encountered last year. Thankfully, for our insurance clients and their policyholders, the insurance loss impacts of the first hurricane to make landfall this year, Hurricane Idalia, were relatively modest in comparison to major storms in prior years. The threat of a more substantial event nonetheless remains in 2023 as many of the most significant storms in the past 20 years have occurred late in the season. Hurricane Ian,…

Thank you, Jeff. Turning to the quarter. Global unit sales increased nearly 10% year-over-year, including an increase of almost 8% in the US and over 22% internationally. For the fiscal year 2023, global unit sales increased over 5%, including an increase of over 4% in the US and over 12% internationally. In the US, our fee units grew about 8% for the quarter and 5% for the year, primarily due to growth across insurance units. Our purchase units declined 3% for the quarter at about 14% for the year. Internationally, our unit growth came from a mix of fee and purchased units, but fee units increasing over 22% in the fourth quarter and over 11% for the year and purchased units increasing nearly 21% for the quarter and 20% for the year. Our US insurance business grew relative to its one and two-year comps of 9% and 19% during the quarter and 7% and 28% for the year, respectively. This is primarily due to the continued recovery in driving activity, increasing frequency -- accident frequency and severity and total loss frequency and share gain. Our auction returns remain strong as we continue to invest in growing our global buyer base by driving member recruitment, registration and activation. As a result, our auctions provide insurance customers with best-in-class liquidity and returns, ultimately providing a more cost-effective way to manage growing claims costs by making it more cost effective to damaged vehicles of the total loss. Turning to our financial results. For the fourth quarter, global revenue increased $114 million or nearly 13%, including a 1% or $6 million tailwind due to currency. For fiscal year '23, global revenue increased $369 million or over 10%, which includes a 1% or $44 million headwind due to currency. Global service revenue increased $126 million…

Thank you. We will now be conducting a question-and-answer session.[Operator Instructions] Thank you. Our first question comes from Bob Labick with CJS Securities. Please proceed with your question.

Good afternoon. Congratulations on continued strong performance.

Thanks, Bob.

First question, I have a related follow-up as well. But could you talk a little bit about the recent announcement of, I guess, a partnership with Hi Marley tech-enabled services in general to help your insurance customers? Maybe talk about what you'll do with that company and if there's other areas of interest where you might be partnering to help your insurance customers?

Sure. Happy to address that, Bob. So Hi Marley is a service provider in the insurance ecosystem broadly speaking. They started in the messaging space, in particular, but they're committed to improving workflow efficiency as well as the interface between policyholders and companies within the insurance industry. Well I think we share that objective to improve insurance outcomes, to streamline processes and automate them on behalf of all the participants in the industry, so we're delighted to partner with them. We see that they have achieved some traction with some of the leading carriers in the space, and we think that we can develop product offerings together that will achieve those outcomes, reduce cycle times, reduce waste, increased policyholder satisfaction in total loss scenarios.

Okay. Super. And then kind of as a related follow-up, we're increasingly seeing AI-based programs just using smartphones for enhanced inspections or valuations of autos, other damage or valuation of the car. Do you see this as an area that you're interested in investing in? And is this a buy, build or potential partnership opportunity for you?

I think it's likely a mix of the above. So we have developed and continue to refine our own image-based tools. And the more precise the exercise is certainly the more difficult the development challenge. But to assess a vehicle as a total loss, I think, for a healthy portion of them, the AI required is not best sophisticated, right, a car that has multiple airbags delivered, pardon me, deployed and they collided at 35 miles an hour that is five years old, it's highly probable to be a total loss, and the image recognition will only enhance the conviction of that call, where I think the image recognition becomes a more complicated endeavor is when there is slight damage and to estimate the actual repair cost and to try to forecast from deflection in a given panel, how much damage has been done to the underlying drivetrain or computing capabilities of the car, that's harder to do. But for the total loss application, we have a robust product ready to be deployed and deployed in some cases with insurance companies. But likewise, if there are other service providers that insurance companies prefer, we're happy to plug in with them as well. Ultimately, we share the same objective, maximum efficiency, maximum speed on behalf of our clients. If that happens through our natively developed products, great. If there is a product they prefer instead, that's great, too.

Okay. Super. Thanks for that. And then one last one, I'll jump back in queue. You kind of touched on this already, but just -- you mentioned obviously CapEx this year, $500 million, 80% for capacity additions essentially. Where do you stand in terms of your capacity and your yard efficiency based on the capacity in those yards? Obviously, you've had record volumes. You keep increasing that volume. And there's still a lot of room to run with total loss frequency, as you pointed out today as well. So just I know you're investing $400 million in the last year and tons and tons of capital. But how do you see the yards current efficiency? And where do you stand in terms of capacity that you want/need?

Yes. I think it's a great question and tough to answer in a single paragraph in part because the answer varies very significantly by geography, by region, by city, even by areas in a given city. So as a blanket statement, we are certainly in a good place in terms of capacity and being able to serve our customers as they stand today. But we forecast 5 and 10 and 20 years at a time. And so very much still have the appetite for significantly more investments as well in land and capacity in part to support the growth that Bob you observed at the outset here. So we are -- if you were to look across our system, there's certainly pockets in which we know we need land relatively soon. There are other areas in which we know we are in good shape for 5, 6, 7, 10 years even, but I think we would expect to continue to deploy capital in support of our growth. If we look back now with the benefit of hindsight after 40-some years, the land we have bought is generally proven to be objectively a good financial investment regardless, which is not to say we would be wasteful or reckless about it. But in general, land itself is not consumption. It's investment in a durable asset that has proven to accumulate value as well over time.

Okay. Super. Thanks so much.

Thank you. Our next question comes from the line of Daniel Imbro with Stephens. Please proceed with your question.

Yeah, good evening, everybody. Thanks for taking our questions. Jeff, I want to start on the demand side, maybe the equation. You mentioned these emerging markets need Copart to provide affordable transportation. I'm curious where else can those markets supply vehicles from at scale? There have been some headlines around maybe Asian manufacturers, especially China, exporting more cheap cars. But are you seeing any change in the need for those cars or the availability maybe from outside of your channel that you would compete with in the buyer side?

In a word, no, which is not to say that picture can't change in the years ahead. But the international demand and to be fair, there are countries that are -- they -- in the aggregate, international demand for cars from Copart has expanded very significantly on a one, 5, 10 year basis. For any individual country, the demand can be subject to economic volatility, inflation, unemployment, et cetera. But in the aggregate, the developing economies have seemingly perpetually growing appetite for our cars. Could that be satisfied by other providers, perhaps. But it seems that a high-grade US quality vehicle, UK, Canada, for that matter, that can be repaired is the better instrument to address that demand. And it has been -- at least that's been true for the past 20 years. I think we don't expect that to change.

Great. And then maybe more near term, looking at the quarter, Leah, I think you mentioned US vehicle sales maybe units were down a few percent, but there was a nice pickup sequentially in the service vehicles. Was that just a customer shifting maybe from principal to agency? And is that still something you see in your new markets? I'm curious, internationally, vehicle sales units were up a lot. Is that just the onboarding of customers that still want you to take principal risk, but the long-term strategy to convert them to agency?

So in terms of US purchased vehicle sales, we were actually up sequentially. But year-over-year, that was down slightly. So that does appear. And we do believe that the reduction in purchased vehicle sales earlier in 2023 was really a temporary phenomenon for the business. So we would expect to see that continue to grow going forward on a sequential basis as the market becomes more stable from an ASP perspective and more of the whole car space. And then as it relates to the second part of your question, can you repeat that?

Just internationally, that continues to grow very quickly. I'm curious if that is more of the long-term strategy? Or if that is a -- helping onboard new customers remove the risk from the seller, but ultimately shift them to agency is the strategy?

It's really the latter initially. And to the extent that we find opportunities to continue to expand in international markets, we may use that. But I don't think you'll see us grow significantly on the international side, particularly for the insurance business. We may increase our full car cash for cars business internationally, but that is a separate endeavor.

Yes. The purchasing approach is a necessary enabler. I think that was the -- what you were hinting at when it comes to our institutional clients. In the US, a healthy portion of our purchase volume is our direct-to-consumer business, so to speak. This is Cash For Cars in which we buy cars from customers because, to date, it hasn't proven to be a scalable solution to create a consumer-branded Copart. So the better solution for an individual vehicle owner is to buy the car to offer a certain value to them and to sell the car at a profit or so. If we could sell those cars purely on a consignment basis, we probably prefer it. And that certainly holds true for institutional clients as well in the US and elsewhere. In the UK when we entered in 2007, so that's now almost 16, it is 16 years ago when we entered the UK for the first time, the mix there for insurance clients was very heavily principal oriented. Today, we migrated to be a strong majority of those cars being sold on a consignment basis. That is generally our preferred approach, not necessarily because we make more money doing so, but because it is a better alignment of interest with our customers. When we buy cars from them, they want to sell them for the lowest possible value. We want to sell them for the highest possible value, and we're on the opposite side of the trade. When we instead our selling cars on their behalf, we're both rooting for the highest possible outcome and working collaboratively to do so. So it's a better alignment of interest with our institutional clients. It's more conducive to a constructive 20-year relationship than a principal trading counterparty arrangement.

Yeah, the Makes a ton of sense. I appreciate all the color and best of luck, guys.

Thank you.

Thank you. Our next question comes from Craig Kennison with Robert W. Baird. Please proceed with your question.

Hey, good afternoon, and thank you for taking my question. I wanted to circle back on ASPs. I think the surprise for me this year is how strong your ASP has been, despite the drop in used car prices as measured by the Manheim index or other sources. I think you've explained that in part as a function of mix. And I'm wondering if you can help us understand the -- how wide the gap is between your insurance ASPs and your noninsurance ASPs and whether that's the fundamental driver to that outperformance?

In this case, Craig, it's not the fundamental driver of the performance in the quarter. I would and I think it's fair to acknowledge that if you track Copart ASPs versus Manheim every quarter and go back a lot of years, they're certainly positively correlated and there are certainly some leads and lags. You would have seen our prices jump well before Manheim in the pandemic after the initial declines in the spring of 2020. Our prices increased far earlier than Manheim's ever did. And then in late 2021, if I have my date straight, we would have seen the wholesale market as reflected in that Manheim Index increase rapidly then, we continue to grow as well, but not at the same rate because we had grown earlier still. Today, with Manheim declining somewhat meaningfully year-over-year, our prices have held steady or grown, both for insurance units and noninsurance units. So that outperformance is not principally a shift from insurance to noninsurance. What I would observe, I think, is fair is that with used vehicle prices softening, we see total loss frequency rebounding. When total loss frequency increases and Copart earns the right to sell the marginal vehicle, those marginal vehicles will generally sell for more than the average vehicle before it. So I think that's -- that partially explains the strong performance on price on the insurance side as well as, of course, the auction performance itself. We see more bidders, more bids per vehicle, et cetera, et cetera. All the traditional metrics we used to talk about quarter-to-quarter we're seeing still better auction liquidity even per unit sold than we did a year ago, than we did 5 years ago and so on. So that explains part of it as well.

And as a follow-up, within your, let's say, dealer service cars or Copart Blue, are you continuing to mix up, in other words, earn the right to sell a more expensive car? And is that in any way a driver to ASP?

Less so in this, yes, but less so in this case. In terms of the pure arithmetic for the quarter, that's not the principal driver of our outperformance relative to the Manheim Used Vehicle Index.

Got it. Thank you.

Thanks, Craig.

[Operator Instructions] Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.

Hey, good afternoon, guys. When you look at the Blue Car and the dealer cars that you're selling, is the mix of foreign buyers hire in that space? Or do they prefer the salvage cars because they have the arbitrage of low repair cost?

I think it's similar, Bret. So, yes, they like the arbitrage or repair costs, but and we're going to pull this up and double check at real time. But I think it's directionally similar. Also like these cars, once brought to the marketplace, that's the point we've made in the past about the flywheel of liquidity. We bring buyers -- we bring vehicles to the buyers and therefore, buyers of the vehicles. And those buyers in turn development an interest for the cars we incrementally bring to the auction as well.

Okay. And then you called out Hurricane Idalia in the prepared remarks. I guess that was a Q1 event. Was that -- was the cost associated with prepping for that versus the limited cars delivered by that a negative in the quarter? Or is that just sort of a wash?

That Idalia happened in the first quarter of '24 and so that's not reflected in these numbers.

No, no, I was asking whether that's an impact in the quarter that we are currently in or?

Yes. Any costs associated with servicing the hurricanes that occurred in this quarter would impact to the quarter.

Okay. My question was more like was that a very high-cost prep event that didn't generate the return? I guess, is it a negative for the first quarter?

It is, but also to what extent that's just the cost of doing business in 2023 and beyond, right? So we'll talk about next quarter next quarter. We definitely incurred some mobilization costs in preparation for a storm that didn't ultimately materialize. Now I think to be fair, if you look back to major storms like, Harvey, let's go all the way back to 2017, a lot of the massive expenses would be towing costs, temporary leases, short-term leases of racetracks and so forth. In this case, we haven't incurred those kinds of costs in part because we deployed the capital to own the land to be ready for it. So we would likely not have entered into meaningful emergency leases in this case, even had the storm arrived. And as for the towing, the towing largely never materialized at all because the cars weren't there.

Okay. And then just a quick question on sort of thoughts around the cash balance. Obviously, you guys are still piling it up, despite buying a fair amount of real estate every year. Do you have any, I guess, is it just interest income off of that or are there longer-term strategies around what you do with $2-plus billion?

Sure. With respect to the current investment strategy, given the fact that we are earning in excess of 5.25 on government T-bills that are short duration and tenure, we are currently comfortable using that until we find a higher and better use, and we continue to look at opportunities to invest. Everything across the spectrum of additional technology, land, logistic opportunities to bring down cost and obviously looking at ways to enhance the broader business that we have. So I don't know, Jeff, do you want to add?

Yes. Bret, over the very long haul, as you know, we've returned capital to shareholders via stock buybacks. And no doubt, we will -- we'll do that again. It's a question of when and how. And historically, we've done so both via open market purchases as well as through more structured Dutch tender offerings and so forth. So that is the long-term answer. In the near term, yes, we are investing that cash in treasuries, which are certainly yielding better returns than they would have historically. And we think the fortress balance sheet is of value to ourselves and to our clients. I think it positions us to act very aggressively when we see land purchase opportunities, for example. It equips us to respond to a pandemic in a way that a lesser capitalized company could not, right? The pandemic arrived. I know it feels like a distant memory now, but there's a moment which we wondered if we'd be able to sell a car or if every DMV would shut down. And knowing that we have the capitalization we do, we're able to operate without furloughing employees, without suspending CapEx and we continue our business as is, and we will bend so that our insurance companies can rely upon us. That balance sheet is part of what enables us to be that resilient in that environment.

Right. Thank you.

Thanks, Bret.

Thank you. Our next question comes from the line of Ryan Brinkman with JPMorgan. Please proceed with your question.

Hi. Thanks for taking my question. I thought to ask on the Hills Motors acquisition that's gone through with the regulatory approval now. And I heard you say that it was driven by customer preferences in that region. But just curious about maybe gauge your interest in as we think about what you could potentially do with your cash word, et cetera. Your desire inclination to participate in these other sort of adjacencies which might, in some cases, maybe be, I think, competing with buyers of vehicles at your auctions, although not sellers. And is it somehow more restricted to the UK or is there maybe opportunity in the US or are there other potential vertical integrations or adjacencies that maybe we're not thinking of that could potentially be attractive to expand into inorganically?

Yes, I think that's an appropriate question. And when we consider areas in which we would expand strategically, we certainly always start with the question, what are we good at and where can we deploy those capabilities most profitably? And I think what we know we're good at is managing a high-volume digital auction platform, which we've done now for literally 20 years. So we started that in 2003 and have refined our approach repeatedly over the years and think we have a best-in-class online digital real-time auction platform, part one. Part two, I think we're good at managing the complex physical logistics of moving cars around, literally millions of vehicles that we retrieve from various places, including homeowner premises, dealers, repair shops and the like and deploying all of the employees and subcontractors to retreat them. We think we're good at managing complex regulatory environments as well. So we have 50 different DMVs, a multitude of different countries that we serve that have different title processes and so forth, and we can navigate those universe as well. And so knowing all of that, we consider strategically how do we deploy those capabilities. You know, having followed us for years that we are careful about that. We acquired National Powersport Auctions in 2017, which sells wholesale motorcycles. And we have not expanded beyond the perimeter of Copart except to expand ourselves into new countries very meaningfully since then. So all of those investment opportunities would face a very high bar for us to pursue. In the specific question you raised, there are markets in which we participate today. For example, the US in which the dismantling industry and the use of alternative parts is a well-trodden path already. The insurance industry, the repair industry here is well accustomed to that.…

That's very helpful. And then just lastly, I'd be interested to get any updated thoughts that you might have on the whole car market. I'm not sure what percentage of the Copart Blue is sort of represented by the traditional whole car market. If you have any thoughts on -- because you still participate there via, I think, physical auctions, right, although you're selling them virtually. Does that meet the requirements for selling repossession vehicles, which I think can't be sold like just purely online? And just get your thoughts on the kind of online-only whole car space? And if that's anything you might ever desire to expand into?

It's possible. I misunderstand your question, but we certainly have expanded into and or?

Like what openlane and ACV might do, for example, online-only

We do, I mean, in some respects, compete with them as it stands today. We are trying to earn the right to sell those cars from financial institutions, from corporate fleets, rental car fleets and the like. So we compete with many industry participants, including the traditional physical auction houses you have in mind. So that's a reality and has been for a long time, call it 3/4 of our business or thereabouts is insurance and the balance is not. And so if somehow the insurance -- if somehow we were to separate the businesses, which for all the reasons you've heard on this call today, we never would. But our noninsurance business itself would be a large-scale auction house without insurance whatsoever. Now so it turns out that having the two combined massively enhances the value proposition for both sides of it as well.

Very helpful. Thank you.

Thank you. Our next question comes from Craig Kennison with Robert W. Baird. Please proceed with your question.

Hey, thanks for letting me back in the queue. I just wanted to follow-up on the UK business. You mentioned, Jeff, that insurers want you to be more vertically integrated there and you're going to meet them where they're at, which I understand. But is there some future state of the world where you could divest that dismantling business piece or is there a fundamental need for that to be connected in the UK, and I just don't understand it.

Well, there's no expectation that we're going to divest it. We don't generally take on initiatives like that intending to -- for them to be temporary. But intellectually, I think the reason you struggle with it, Craig, is you are natively a US analyst and you are accustomed to decades of an industry in which the auction houses and the dismantlers and the repair shops are altogether separate pieces of the value chain, right? You've never seen them intermingled, and that's how we've operated now for 40 years and change. We've always preferred the notion of pure neutrality, and we'll sell the car to whomever values it -- to whoever, pardon me, values the car, the most whatever they're going to do with. In the UK, we've heard loud and clear, and it's not a one-off request, right, it is a near consensus view among the industry that there is value in their salvage auction provider, likewise providing access to dismantle parts. And so we want to address that head on. Ultimately, the customers' preferences prevail. We can certainly articulate to them why we think the circular economy can be equally supported with third parties doing the dismantling, but we are also happy to do it if that's what they would like us to do.

And is that unique to the UK or are there other markets in Europe, for example, that have that same request?

I think it remains to be same. There are a lot of different forces at work here, including divergent views about alternative parts utilization. So there are some countries you can imagine in which the OEMs are very influential and they're able to preference insurance companies and repair shops to use first fit parts. There are other countries in which the carbon reduction initiative is more critical. And therefore, the use of recycled parts is more important. So I don't think it's the UK alone, but it was certainly the UK most acutely, but this is also a dynamic game, right? There's no question that preferences will change over the course of the next year three and five in many of the countries in which we do business.

Great. Thank you.

Okay. Thanks, Craig.

Thank you. There are no further questions at this time. I would now like to turn the floor back over to Jeff for closing comments.

Great. Thanks, everybody, for joining us for the fourth quarter and we'll talk to you after Q1. Thank you.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.