Good day, everyone, and welcome to the Copart Incorporated First 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 in the company's annual report on Form 10-K for the year ended July 31, 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 Liaw.

Thank you everyone for joining the earnings call for our first quarter for fiscal 2025. On our recent calls, we've been talking about some important themes about our business, including our recent growth with bank rental and fleet sellers. We talked about Title Express, a new offering we're offering the insurance industry. We've talked about sustainability, and we talked about growth in our international businesses, as well as in the heavy equipment space as well. Today, with the first quarter past us for this next fiscal year, we thought it would be a good opportunity to reflect specifically about our insurance business specifically. There are two themes I wanted to draw upon today. First is our response to the recent hurricane activity in the Southeastern United States, and the second is the longer term trends that we observe in the insurance industry more broadly. First, regarding the recent flurry of hurricane activity. In late September of this year, Category 4 Hurricane Helene made landfall in Florida. Severe flooding of course struck the Tampa St. Petersburg area, and eventually caused significant damage elsewhere in Florida, Georgia and North and South Carolina, including areas not accustomed to dealing with storms of this magnitude. Then, less than two weeks later, Category 3 Hurricane Milton struck Florida again, the back-to-back nature of the storms added a level of complexity, to our storm response that we hadn't previously experienced, including a brief evacuation of our own people in certain most dangerous areas. In comparison to Hurricane Ian, a similarly scaled and located storm from just two years ago, our advanced preparation and our team's execution this time around yielded still better results, with approximately twice as many vehicles picked up in the first 10 days of these 2024 storms in comparison to Ian in 2022.…

Thank you, Jeff. I'll begin with our first quarter sales trends. During the quarter, our global unit sales and inventory increased 12% and 6% respectively from the year ago period and was a function of growth in total loss frequency and share gains. Focusing on our U.S. business, unit growth was about 11%, which reflects fee unit growth of 11% and purchase unit growth of nearly 6%. Consignment or fee units, continue to constitute the vast majority of our U.S. unit volume. Our U.S. insurance unit volume increased about 12% year-over-year and approximately 9% excluding cat units. We continue to grow our volume with non-insurance sellers, by leveraging our core capabilities in outdoor storage via our real estate portfolio, a strong network of logistics solutions and a global liquid buyer base. We are also seeking to optimize the mix of non-insurance units from a profitability perspective, as we continue to prune the low value unit volume. During the quarter. Our blue car business, which serves our bank and finance fleet and rental segment partners, continued its strong trend of year-over-year growth of over 20%. Our dealer sales volume, a combination of our Copart dealer services division and National Powersports Auctions, increased sales volumes by over 2% year-over-year with CDS declining less than 1% and NPA increasing nearly 14%, and low value units including charities and municipalities declining 4%. On a final note, our partner in the specialty equipment space Purple Wave, has driven double-digit gross transaction value growth year-over-year for the trailing 12-month period ending October 31, which significantly outpaces industry growth in the equipment auction marketplaces they serve. This impressive growth demonstrates, the value of our partnership and what it brings to the market. Overall, inventory levels in the U.S. increased over 5%, and decreased by about 1% when…

Great. Thank you. [Operator Instructions] Our first question here is from Bob Labick from CJS Securities. Please go ahead.

Thanks. Good afternoon and thanks for taking our questions.

Hi, Bob.

Hi. I wanted to follow-up on your earlier discussion on total loss frequency and salvage trends and whatnot. I think you said 21.7% is roughly where total loss frequency is, so it's obviously really returned and gotten high. You've mentioned on prior calls that this is obviously a combination of some of your customers, insurance companies, well above that and then therefore some are below that as well. So I was wondering if you could tell us some of the characteristics of the insurance companies that are at the higher end of that or at the lower end. Are they, you know, the big ones are higher and small ones are lower. Is it tech savvy versus old school? How should we think about that? And then maybe more importantly, what are the reasons a company would keep, have a lower total loss frequency, is that intentional or maybe just. I'll stop there?

Got it. Bob, a very fair question and for one, one for which there isn't a tidy one paragraph answer, the reality is if you even took one insurance carrier and compared them regionally against themselves, I think you'd find meaningful variation even within a given company. Broadly speaking, I think you highlighted a couple of axes on, which our insurance clients can vary, including their book of business. Where there are certain types of cars, certainly high end luxury automobiles, for which some policyholders are less open minded about retaining a heavily damaged and now heavily repaired vehicle after the fact. So for customer service accommodation reasons, sometimes those cars are totaled more readily than they otherwise would be. In terms of total loss practices, I think that some of the variations we'll see are literally the decision making criteria. So at one end of the spectrum you'll have folks who if anything, still have the statutory mindset, for lack of a better expression, which is to say that in certain states, if damage exceeds X percent of the intact value of the car, by statute, a carrier must offer the policyholder a total loss, at least as an option. And so, some carriers to this day still adopt that a 75% threshold or whatever arbitrary threshold for the repair estimate divided by the intact value of the car, to determine the absolute line above which all cars are totaled and below, which none of the cars are totaled. Others are adopting a more like a more individual underwriting, so to speak on an individual claim. So a claim comes in, what is the repair cost for this claim? How long will it take? What will the rental charges be on this repair, while it's in the shop? How much can we generate for that car at Copart instead? And then make an individual economic decision? Every carrier is somewhere on that spectrum. But as you noted, there's a huge dispersion among insurance carriers today and we certainly provide them with a number of tools, to help them make that decision better and help them make that decision faster. I think we've made strides in that regard, but certainly with many years of progress still to come.

Okay. Great. And then just one other question for me. Obviously continued nice success with the blue car initiative there with the reduction, the kind of near term current reduction in off lease vehicles, which I know you don't participate in really, but how does it impact the supply, if at all of from your blue car customers, because there's less younger cars kind of going into the reconditioning market. Is this impacting the total loss frequency on the blue car area, versus just the regular salvage cars or have you seen any impact thus far? Are you expecting any over the next couple quarters?

I'll take that one Bob. Just in terms of how we see off lease volumes impact our non-insurance business, it's more impactful to our CDS business, more of our dealer services. It's just the overall volume impact to the wholesale market, and how that can influence pricing and unit availability. It's less impactful from a blue car perspective, because again remember many of those blue car units still have some level of damage. And increasingly, we're working towards being close to having lower damaged vehicles flowing through blue car. But the off lease units are more impacting the overall unit volume, within the wholesale market as a whole, and that can impact pricing and availability for the broader dealer wholesale space.

Bob, I'd say for our business off lease volume is not per se, a specific catalyst, it's just one contributor to the supply and demand dynamics, for new and used vehicles overall. So it perhaps is somewhat softening used vehicle supply, but that's one variable amidst a large range of them that influence those used car prices.

Okay. Super, thank you very much. I'll jump back in queue.

Our next question is from Chris Bottiglieri from BNP Paribas. Please go ahead.

Hi guys, thanks for taking the question. Jeff two for you. The first one I want to ask about is following up the question from last core ask on insurance, uninsured motorists. I was wondering what he's historically seen when there's been changes like from cat events. We have large hurricanes. On one hand, you think the higher insurance costs afterwards could be problematic for insurance participation. On the other hand, it might be a stark reminder that you need comprehensive insurance, because your losses go up when there's major cats. So just curious if you saw an impact in the past?

Chris, I'd say the data we've seen, and I was going to give you the citation here as well, it's from I think the Insurance Institute, I believe, and they tracked uninsured motorists back to call it the late 1980s plus or minus with an annual figure. That annual figure would be for the country overall. There are other sources from, which we derive liability coverage also. And I'd say given the nationwide nature of the data, trying to find that finely parsed question as to whether Hurricane Sandy led to changes in the Northeast or Ian and Hilton [ph] and Milton and Helene caused changes in Florida, Harvey and Texas that I don't think we can quite see in the data, right. So when I look at 2017, for example, Hurricane Harvey, major event, there's not per se an attributable change to the uninsured motorist population then.

Yes. Okay, that makes sense. It's tough. All right similar question that's probably equally hard to answer and ask anyway, if you go back to the Trump tariff, I know you don't have any direct impact, but I was just curious your ASP surge then obviously a lot of factors of Harvey and I think just changes in security vehicles. But just curious, like was there any noticeable impact on your business from the Trump tariff regime in '18, '19? Did you see impacts on ASP or total loss rates or anything else, would it be obvious someone in my suit?

Not one we could isolate, no. And I think even the natural, the nature of your question is probably looking forward, what it means for our business. And I think there are certainly, certainly elements of this that are unknown. I would say that most of the countries, I think, with which the administration has those tariffs in mind, China, for example, are not per se meaningful importers of cars to the United States, nor are they particularly meaningful export markets for Copart either. So could we. We could face some contradictory effects here in our own business. You can imagine scenarios in, which the value of the cars we sell are certainly higher, because they're already landed on U.S. shores, and so they're now competing against vehicles, or parts from overseas that may now face new tariffs. You could also imagine a scenario in, which it causes used car values to be higher than they otherwise would be. Which could bring back some of the phenomenon we saw in late 2021 and 2022 in which demand for our services otherwise is suppressed relative to where it otherwise would be, right. Because if ACVs are sky high, our unit economics are better. But total loss frequency can also be softer as a result. How that all plays out over the course of the next 12 months, the next four years, I don't think we know precisely, but I would say the last time around there was not a meaningful disruption to the business.

Got you. Okay. Thank you.

Our next question is from Bret Jordan from Jefferies. Please go ahead.

Hi, good morning. Good evening. I guess question on the G&A, Leah, I think you said a lot of that $36 million was specialty sales team growth that might recede over the next 12 months. In the shorter term, do you expect to continue to build that up as you're focusing outside, into the incremental markets outside of salvage, or are we sort of added G&A spend level that you see flatlining?

We'll be disciplined in terms of when we make those investments. Specifically, attributable to your point around the specialty sales team expansion, we're being opportunistic. And so, to the extent that we find the right sales team members will bring them on board, we have targeted areas that we're focusing on initially. But if there are opportunistic hires that we can make, that makes sense for us, we certainly will pursue that. That G&A investment that we've made, we've basically doubled the headcount in our sales team since the acquisition. And so, it's a fairly sizable increase. And we're likely to digest that for a period of time. But I don't want to take anything off the table, and assume that we won't be pursuing hires to the extent that we find the right folks.

Okay. And then Jeff, you mentioned that three of four cars, of cat cars in Florida were going via Copart. I guess. How does that compare to your market share in Florida? Is it an example that you are just cross collecting and processing cars faster and they're languishing on competitors lots, you know, sort of. How does that three of four cars…?

Yes, I think that'd be. It's probably speculation. I'm not prepared to undertake at the moment. But I think it reflects, yes, our market presence there and it does reflect speed. So I think our ability to process cars the time both retrieved, and have the salvage titles issued. To be fair, Florida is one of the more efficient states among the 50s in terms of how quickly they issue salvage titles back to us. So it's a function of all of those things. But I think they're - we do perceive a competitive advantage in terms of how quickly we respond to catastrophic events.

Is Title Express playing a role in that salvage title, or is it just the state is more cooperative than others?

It can. So as you - as I think we talked about last time, we're now managing the titles for approximately 1 million vehicles per year. So now it's a sizable portion of every - of all the titles due process on behalf of insurance carriers. The salvage title issuance is the speed with, which the state responds to us once we submit the original title. Our Title Express team determines - can help determine how quickly we retrieved that original title. So their ability to do so, yes, yields a competitive advantage. Their ability to do so quickly yields an advantage in Florida and elsewhere.

Thank you.

Thanks Bret.

[Operator Instructions] Next question here is from Alice Wycklendt from Baird. Please go ahead.

Hi guys, thanks for taking my question. I think maybe the off lease discussion kind of touched on this a little bit, but wanted to just hit on the dealer services side again. I think you said it was down just under 1%. Can you confirm that? I have that number, right. And then if that's the case, maybe a little bit more detail about what you're seeing in that market, as it seems like a slowdown from the kind of prior four quarter trend?

So Alice, I think what we saw in the first quarter was just a pause in September, some slightly lower volumes related to some specific accounts. But we saw October come back. So I don't think it's a headwind that will persist. But we are obviously watching that closely. I think generally speaking the wholesale space was a bit soft in September, so it was correlated with what we saw in the broader market.

Great. That's it from me. Thanks.

Thanks, Alice.

Next question is from Jash Patwa from JPMorgan. Please go ahead.

Hi. Thanks for taking my questions. I wanted to follow-up on your comments on the shift towards consignment models or model units in Germany. Curious if you could elaborate on what you are seeing in the market there, and whether we are arriving at a turning point with a broader shift towards consignment based units from the insurance carriers there? Thanks, another follow-up.

Jash, appreciate the question. I think as you probably know, if you followed Copart for a while, it's often the case that when we enter new markets, and enter new quote seller segments. For example in the U.K., when we first launched our business we were largely a principal shop, so we'd buy cars from insurance carriers. As we proved to the marketplace that we had a liquid auction platform. And that in fact the sellers could achieve better results by letting it ride, so to speak, by selling the cars at Copart auctions. We invariably migrated them over time to an auction like, to a pure auction arrangement. And that is now true in the U.K. In the U.S., the example would be there are certain cars, we once would have bought from certain institutional sellers like charities and so forth that, over time again eventually migrate to an auction format instead. In Germany the journey has been much the same as you might imagine. All of these progressions are gradual, so it's not an overnight snapping of the fingers. But that's certainly the direction in, which we want to move the business, the direction in which the business should move as well, right. It's the right economic outcome for us to all, for us and our clients to be on the same side of the table rooting for the same outcomes. And that's ultimately why we want to achieve that destination. So we have made progress. There's still room to go in that respect.

Understood. That's very helpful. I also noticed an uptick in CapEx spend, relative to the run rate over the past couple years. Could you share any details around the nature of these investments, and if we should expect a similar run rate going forward? Just any granularity around the cost pockets, whether it's primarily land oriented, or any other investments that you're making? Thanks.

I think it's fair to say in this period and in virtually any historical period, capital expenditures for Copart will largely be land and development and in technology, really those two or those three dimensions. And they're a reflection of immediate need and a reflection of growth expectations as well. I wouldn't read a whole lot into quarter-to-quarter variations. You might imagine there are facilities that we have diligence and have been pursuing, have been negotiating for months, in some cases years, and believe it or not, in some cases decades, that finally come to fruition and we don't schedule them, right so to speak. We buy the land when we can, either land we've already leased, or land we can immediately use, or raw land we then subsequently have to develop, before we can use it ourselves. All of those things are folded into that one number in capital expenditures. So it's hard to read a whole lot into it. But we are delighted to invest in land, in capacity and in technology. We think it equips us to serve our insurance clients, as I noted at the beginning of the call, to support their growth. The industry's growth over time, and to support industry volatility over time. I think requires us to invest more capital, thoughtfully of course, always diligently, of course. But we're delighted to do it, because we think it's necessary to serve our clients.

Thanks for all the color. Good luck.

Thank you.

This concludes the question-and-answer session. I'd like to turn the floor back to CEO, Jeff Liaw for any closing comments.

Yes, thanks for joining us. We'll talk to you next quarter. Have a good afternoon.

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