Copart Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 16, 2023

There are 10 speakers on the call.

Operator

Good day, everyone, and welcome to the Copart Incorporated First Quarter Fiscal 20 24 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.

Operator

For more detail on the risks associated with In today's business, we refer you to the section titled Risk Factors in the company's annual report on Form 10 ks 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, I'll now turn the call over to the company's Co CEO, Jeff Liao. Please go ahead, Jeff.

Speaker 1

Good evening. Welcome to the Q1 earnings call. Let me hand it to Leah briefly for the safe harbor.

Speaker 2

No, there isn't.

Speaker 1

Oh, there it is. Pardon. Well, let's dive in. I'll keep my comments brief. We'll highlight a few recurring themes that you've heard about that you've heard previously before handing the call to Lia For a more in-depth look at the Q1 and then we'll take your questions as well.

Speaker 1

First, as for our insurance business, We continue to observe a rebound in total loss frequency in the quarter. As you may recall, total loss frequency troughed at just north of 17% quarter of 2023. You'll note though that today's total loss frequency remains substantially below pre COVID highs of 21.7% in the 4th Calendar quarter of 2020. We continue to believe the total loss frequency will revert in time to historical levels and eventually well beyond The expectation is that new and used vehicle prices are likely to stabilize, perhaps decrease more, and if and when they do, to Do so more steeply than repair costs will, driving an ongoing recovery in total loss frequency. For the 3rd calendar quarter of 2023, Specifically, we observed a 4% decline in the Manheim Used Vehicle Value Index, while accident severity increased by 4% over that same period as reported by ISS Fast Track.

Speaker 1

Although our U. S. Insurance volumes continue to increase, up 9.7 And then as you've heard us say before, a brief reminder on the long term drivers of total loss frequency. First, vehicles become more expensive to repair with rising vehicle complexity, advanced components on the perimeter of vehicles in particular, Rising labor costs and parts prices. And then just as importantly, a rising demand for mobility in A brief note on the storm season.

Speaker 1

On our last call, we had talked about a potentially very active storm season. And At that moment, we'd experienced 12 named storms and we've had 9 more since, up over 50% versus 2022. Ultimately, only a handful of these storms made landfall in the U. S. With none of them causing a substantial number of vehicular losses in comparison to prior years.

Speaker 1

We know all of this now, of course, with the benefit of hindsight. Storms, however, are inherently unpredictable And the storm season was sufficiently active to cause us to deploy hundreds of team members, Copart owned and third party tow trucks, Copart owned loaders, telecom equipment and generators all over the country in anticipation of major loss events. Last year, Hurricane Ian, The largest storm in our history as measured by consigned vehicles caused us to incur substantial costs including in the Q1 of 2023 with those units subsequently sold largely in the 2nd 3rd quarters of fiscal 'twenty three. We view these undertakings in the aggregate as the normal cost of business in providing excellent service to our customers and our communities. Turning then to our sellers beyond insurance.

Speaker 1

We continue to grow our BlueCar business serving We increased our dealer sales volume over that same period by 13% year over year. We speak frequently about the flywheel effect of our platform and the global buyer base that we serve. Our ongoing growth in these non insurance customer segments I'll take a moment to comment about our auctions outside of the automotive arena. In addition to gains in the insurance and non insurance passenger vehicle space, We continue to grow our specialty equipment business as well. By virtue of our serving our insurance and dealer clients, we have long been a substantial remarketer of specialty Equipment, including in transportation, construction and agricultural realms.

Speaker 1

This past quarter, we were pleased to announce a strategic investment We have known Aaron and Susie McKee for over a decade and admire the excellent and growing business in Purple Wave that they and their team have built. And a digital first approach. We're delighted to welcome the Purple Wave team and community to the Copart family. Finally, on the subject of Sustainability, last November, we published our inaugural ESG report, our first ever accounts of our commitment and contributions to environmental sustainability, Global Economic Empowerment, Enterprise Sustainability and Community Sustainability. We intend to publish our 2023 update in the next month or so.

Speaker 1

Init will provide updated data on the enhanced mobility that our marketplace provides to developing economies, The accelerated recovery we enable in communities affected by extreme weather events and our focus on workplace diversity, equity and satisfaction. And on the critical subject of environmental sustainability, we will again underscore and quantify the emissions avoidance that our business enables. We of course invest time and resources to optimize our own CO2 equivalent emissions and energy consumption, But overwhelmingly, our most substantial contribution to environmental sustainability is in enabling the recycling and reuse of vehicles and their component parts and materials, meaningfully reducing what would otherwise be the more substantial carbon footprint of new vehicle and parts manufacturing. As our volume grows, so too does this carbon emissions Avoidance. In 2023, we estimate that we have helped the world avoid over 11,000,000 metric tons So, we will now take a look at our results of carbon dioxide equivalents up roughly 10% year over year and over 100 times more than our actual direct emissions.

Speaker 1

With that, I'll turn it over to Lydia.

Speaker 2

Thanks, Jeff. I'll begin with our sales trends for the Q1. During the quarter, our global unit sales and inventory increased Nearly 13% and 3% respectively. Given the relatively quiet hurricane season in 2023, Our inventory growth was a function of a partial recovery in total loss frequency and share gains. During the quarter, we saw global ASPs decline by approximately 1 which reflected fee unit growth over 10% and purchase unit growth of 14%.

Speaker 2

Consignment or fee units continue to generate The vast majority of Copart's volume growth with our insurance units posting nearly 10%, our dealer units posting 13% growth And our blue car units, which include units from fleet, rental and finance companies posting over 35% growth. This unit growth was modestly offset by Inventory levels in the U. S. Increased 1% or nearly 12% when excluding low value units And Cat units. In the U.

Speaker 2

S, ASPs were down 2%, and more specifically, insurance ASPs were down 1.7% With fee units increasing over 28% and purchase units increasing by over 4%. Our international business ended the quarter with inventory levels Nearly 14% ahead of the prior year. International ASPs were up 7% compared to the prior year period. Our auction returns remain strong as we continue to invest in growing our global buyer base by driving member acquisition, activation and retention. Copart's Auctions provide our insurance customers with best in class liquidity and returns, ultimately providing a more cost effective way to manage growing claims costs Specialty Equipment Auctions, which primarily sell heavy and medium duty trucks and agricultural equipment and our select auction, which sells clean title vehicles and now provides buyers with greater transparency in vehicle quality through sale lights and an arbitration policy.

Speaker 2

Turning to our financial results for the Q1. Global revenue increased $127,000,000 or about 14%, including a 1% tailwind due to currency. Global service revenue increased nearly $133,000,000 or over 18% for the Q1, primarily due to higher average revenue per unit and increased volume. U. S.

Speaker 2

Service revenue grew by 17% and international service revenue grew by 29%. Global purchased vehicle sales for the Q1 decreased about $6,000,000 or 3%, with U. S. Purchased vehicle revenue for the quarter down 19 Which was primarily due to a mix shift with the decline in our powersports business and PA being offset by an increase in our Copart Direct cash for cars purchased vehicle The U. S.

Speaker 2

Decline was offset by international growth of 19%. Global purchase vehicle gross profit decreased about $2,000,000 for the quarter, with U. S. Purchased vehicle gross profit increasing about $2,000,000 and international purchased vehicle gross profit decreasing 4,000,000 reflecting a 29% increase in cost of vehicle sales. Global gross profit in the Q1 increased over $94,000,000 or about 26% And our gross margin percentage increased by approximately 400 basis points to 45.5%.

Speaker 2

This reflects U. S. Margins, which increased to 49.9% and international margins decreasing to 24.9%. The year over year margin increase on a consolidated basis was driven primarily by a mix shift due to the strong growth in fee units in the U. S, which was partially offset by the impact of inflation and a slight decline in purchase unit margins internationally.

Speaker 2

On the cost front, during the Q1 As of last year, we incurred cap expenses specifically related to Hurricane Ian, which did not recur. Operationally, we are focusing on increasingly standardizing processes and leveraging technology and automation to mitigate the inflationary impacts we've experienced across We expect these efforts will drive greater scalability and efficiency across the organization and help mitigate longer term cost pressures. Turning to general and administrative expenditures, excluding stock based compensation and depreciation expenses. G and A spend in the quarter was 58,000,000 an increase in $13,000,000 and includes $3,000,000 due to a one time maintenance project, the financial consolidation of Purple Wave into our results and the impact of our overall growth in business. Over the long run, we continue to expect operating leverage as we grow.

Speaker 2

Because of our strong revenue growth and moderate cost increases, GAAP operating income increased by nearly 27% to over $395,000,000 for the quarter. Finally, 1st quarter GAAP net income increased by over 35 percent to over $332,000,000 or $0.34 per diluted common share. Turning to our liquidity and financial position. Liquidity was $3,900,000,000 as of Q1, which is comprised of $2,600,000,000 in cash Investments in held to maturity securities and our capacity under our revolving credit facility of over $1,200,000,000 For the quarter, we generated operating cash flow of over $375,000,000 which is an increase of 20% from the prior year period. In addition, during the Q1, we invested about $162,000,000 in capital expenditures with nearly 80% of this amount attributable to our physical infrastructure And more specifically, capacity expansion, which contributes to our ability to serve our customers, while simultaneously reducing our transportation costs And corresponding fuel consumption.

Speaker 2

Finally, for the quarter, if you take operating cash less CapEx, we've generated $213,000,000 of free cash flow. I'll conclude with a few remarks about our capital allocation strategy, focusing on investing in our core business and corporate development. We remain focused on building long term value for our shareholders and endeavor to continue our strong track record for years to come. To achieve this, we will continue to use our disciplined approach to capital allocation and remain patient, flexible and opportunistic. Our first priority is to deploy capital to grow our core business, where we will continue to invest in our people, operational capabilities, including logistics, Technology and Real Estate, as well as our customer experience.

Speaker 2

We also focus on opportunities to diversify our business, including expanding our marketplace capabilities into new geographies or to service new asset types. A prime example of this was our investment into Purple Wave, which like NPA brings a leading marketplace for specialized unit used unit type, which in Purple Wave's case spans construction agate fleet. And further, we seek to partner with leaders in areas of technology and innovation, which expand beyond Copart's core business, but directly support our customers' needs. This includes InsurTech, where we recently announced a strategic partnership with High Marley to accelerate the total loss process for our customers and their policyholders. This approach provides us ample opportunities to grow our core and drive diversification across our business.

Speaker 2

And with that, Jeff and I would be happy to take some questions.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Bob Labick From CJS Securities, your line is now live.

Speaker 3

Good afternoon. Congratulations on continued strong performance.

Speaker 1

Thank you, Paul.

Speaker 3

I wanted to start with Purple Wave. It's an exciting announcement you made, I guess, last month. And obviously, you talked a little bit about it. But Maybe you could talk discuss further what Copart brings to the relationship in addition to obviously to capital and what are the key goals of the investment And how will you define success in 3 to 5 years?

Speaker 1

Got it. Well, Bob, as you know, having followed us for a while that we've We've talked in the past on multiple occasions about our potential interest in parlaying our expertise in managing high volume digital auctions, Parleying that expertise into other arenas, including for industrial construction and agricultural equipment. We've actually said that specifically. And as you know, we Those kinds of expansions have had to clear a very high bar. In the past, we invested or acquired National Powersports Auctions in 20 17 and have been very careful or disciplined about extending beyond that before and since.

Speaker 1

We've known Aaron and Susie forever, literally I arrived at Copart myself and we have tremendous respect for the community and the business that they and their team have built. As you noted, We'll bring capital expertise and relationships to help grow their business and they in turn provide us with additional expertise in the equipment space As MPA did in Powersports as well. So we'll measure growth as we we'll measure success or determine success as we do with our own core

Speaker 3

And then whole car market, Purple Wave, which we just talked about and your international growth. How do you prioritize Time and capital and how would you rank the time and capital investments towards those initiatives, salvage market share gains, Hold on, Car Acceleration, Purple Wave and International Growth?

Speaker 1

Yes, I think it's a fair question. And as you know, Bob, we maintain a conservative balance sheet in part so that capital is by and large not the constraint When there are opportunities to serve our sellers and buyers better, to grow our platform, to grow our business that we aren't constrained at the moment And also so that we can opportunistically acquire real estate and so forth. But the ultimate scarce resource is our own bandwidth, It's critical to us that we serve our insurance sellers and buyers better over the years to come. We mentioned in passing some of the tools that we're working on To equip them to make better and faster decisions to yield better economic outcomes, in particular, we've been focused on reducing their advance charges. In many cases, insurance companies incur literally 1,000 of dollars of storage and tear down costs on cars that any one of us And to sidestep that entire food chain just to avoid all those unnecessary costs that ultimately inflates their claims costs as a result.

Speaker 1

So insurance is critical. The international markets, as you noted, are critical to us as well. As you know, also, even using one word to capture all of them It's an oversimplification. Canada and Brazil and Germany and UK and Finland are all radically different from one another, the Middle East and Spain and so forth, But growth there is a priority as well. And then certainly, as you know and as you've seen in the unit growth trajectory, The non insurance domain is important to us, not just in isolation, not just because it is a profitable and growing enterprise, But because we view it as instrumental to serving our insurance companies better as well.

Speaker 1

The liquidity flywheel is real and it's our job to make sure that we're spending it

Operator

Thank you. Next question is coming from Craig Kennison from Baird. Your line is now live.

Speaker 4

Hey, good afternoon. Thanks for taking My question as well, I wanted to follow-up on Purple Wave. And I'm curious, is there a chance that your real estate footprint So I'm curious if your real estate is part of the synergy you see?

Speaker 1

Craig, they have built one of the very largest Yellow Iron auction platforms without any real estate whatsoever. So they have a digital only platform as you noted to Of the investment itself, it really is backing an exceptional team that's built an exceptional community and business. So we'll explore those kinds of Way to cooperate, whether it comes to customer relationships, certain technology expertise, Real estate in some cases and so forth. Those are all on the table, but fundamentally, it is about backing an exceptional team.

Speaker 4

And are you in a position now to bid on large liquidations? We know there was Yellow, for example, are you able to help them bid on those types of deals? Or was that always possible for them given their footprint?

Speaker 1

I think we are Abel, I'm not that doesn't mean we will, but really across our entire business, principal investments in inventory are Just a necessary enabling mechanism to ultimately win consignment volume. So there was an era in which we bought the vast majority of the vehicles We sold on behalf of insurance companies from them, so we took the principal risk on the cars. Over time, the better customer service Outcome is for us to sell it on a consignment basis for our sellers and we to sit on the same side of the table rooting for the highest possible prices. So if we were to do so in the yellow iron arena, it would again be as an enabling mechanism to a consignment future. It is not an end statement in and of itself.

Speaker 4

Thanks. And one for you, Leah, if I could. I think you mentioned incurring some costs as you deployed resources in advance of A potential hurricane situations, even though that didn't produce volume, you still had to incur that cost. Is there a way to quantify the implication there?

Speaker 2

No, it's really just part of our ongoing normalized cost structure. We do it every year in anticipation of hurricane season And we did the same thing this year as we had done previously. We just did not experience the elevated level of repositioning folks And the kind of acute cost levels that we experience when there is a severe storm that does actually hit and there is significant recoveries that happen shortly thereafter. So, I would not look to call it out specifically because it's just part of our ongoing cost structure.

Speaker 1

Craig, I would characterize in the aggregate, it's very substantial, right? Meaning, we could undertake the rigorous accounting exercise of figuring out how much have we spent once and on an ongoing basis to maintain ex hundreds of acres of available land in Florida, North Carolina, New Jersey, New York, etcetera. We could quantify the elevated tow expense We pay year round by virtue of operating our own trucks, etcetera, etcetera, and try to capture the full life cycle elevated costs that we incur as a result. But in the end, we just accept that it's a necessary cost of doing business. It helps empower our customers to trust us In a time of need and if volume suddenly spikes 10 times or 20 fold in a given region that we very much are positioned to handle it.

Operator

Your next question today is coming from Daniel Imbro

Speaker 5

Jeff, I want to start maybe on the insurance side, maybe ask another way on the market share. Obviously, there was a Peter talking about some share shifting. I don't think you'll comment on it, but More curious around when you measure success or how you measure your comparative returns to the industry or it appears, are you seeing that gap widen? And if so, is that accelerating with all the investments, the strategic investments you're making?

Speaker 1

Yes. Daniel, I think it's a fair question. I think you Rightly anticipated, our reluctance. As you know, we don't comment, yes, out of respect, frankly, for the confidential decision making processes of our And so if I had to more generically say how does an insurance company decide We believe we're truly differentiated by virtue of our global buyer base and our auction platform, we believe. And Brett, by the way, we define our competition Pretty expansively, right?

Speaker 1

It's not just the competitor that you have in mind, but it's all the other possible outcomes for vehicles, whether it's repair, Owner retention, sales through other auction platforms, hand selling, retailing from the perspective of our rental car customers, We define that competition very expansively. But nonetheless, the 5 principles are or the 5 priorities are delivered auction returns, The service that we provide to our sellers as measured in our ability to recover vehicles, in some cases from very difficult circumstances, our ability to process titles efficiently And to provide them with the tools they need to make better and faster decisions. The third element I'd cite is the service we provide to our clients' clients. So in the case of insurance, to the policyholders, to whom we believe we provide a differentiated title retrieval and loan payoff process We will now begin to gracefully manage all of these processes even if volume again spikes 10 fold or 20 fold in a given period of time in a given region. And then 5th, and I think this is more esoteric, but I think it's real, is the assurance that due to our land ownership, our technology So to your narrower question about the auction returns, I do believe the gap is substantial.

Speaker 1

I do believe that it's growing. Now, It's difficult to quantify because no given car is ever transacted on multiple platforms, whether the car sells here or it is Sold at a rental car retail lot or it's sold at a different auction house. And so a true perfectly apples to apples comparison in a given moment It's difficult, but I think the evidence the preponderance of the evidence based on seller behavior over the years is, yes, that we deliver superior

Speaker 5

And then maybe a Follow-up on the non insurance side. You've gained obviously a lot of market share in the last few years. Into 'twenty four, obviously, that wholesale volume backdrop should improve just as we look across Dealer or commercial. I guess, can you talk about incremental cost to serve? Are those vehicles any more cumbersome on the income statement as you think about any selling costs associated With that volume or would it be a similar kind of incremental flow through as we think about just typical insurance volume?

Speaker 1

Individually, they're not materially different, I think, to serve financial institutions. There are certainly a different level of Compliance in certain different processes. So it's more like when we choose to emphasize a new type of seller, we have to develop certain capabilities, Vehicle disclosure and otherwise. So it's not per se volume driven, it's more just the nature of The sellers that we're targeting, I think by and large the categories we've now all touched, so I don't think the contribution economics are materially different.

Speaker 2

And Daniel, I would just add that we've spent a lot of time over the last 12 months developing the capabilities across our technology platform to address some of those needs. So the sale as I talked about arbitration policy that is now available at Copart. Those are all Items that are more familiar to our BlueCar seller sorry, the members who are purchasing those BlueCar units. And so we've been forward thinking about preparing ourselves for that potential future demand.

Speaker 6

Great. Thank you both for all

Speaker 5

the color and best of luck.

Operator

Next question is coming from Bret Jordan from Jefferies. Your line is now live.

Speaker 1

Hey, good afternoon, guys. Hi, Brett.

Speaker 6

On the international side, could you talk a bit more specifically about what you're seeing in the EU? Obviously, Germany, Finland, Spain have been potentially large growth markets. Could you address those?

Speaker 1

Yes. And I'll separate Finland for a moment. Finland is frankly more like the U. K, Canada and the U. S.

Speaker 1

And that has long been a gross settlement market in which insurance carriers simply pay The owner's PAB or ACV, the intact value of the car, and then they consign that vehicle to the salvage auction. We acquired that salvage auction some years ago and the business is trending well. Some of the same underlying trends that you expect here rising total loss frequency With a dip during the COVID-nineteen period when vehicle prices skyrocketed, but otherwise fundamentally similar though fundamentally of course not a huge Population or a huge market in and of itself. Then the U. K, I'll set aside as well.

Speaker 1

That mirrors the U. S. In some regards. Obviously, some noise from Brexit Otherwise, but by and large, similar overriding picture there, overall picture there, which Total loss frequency growth, market share growth and good marginal economics there as well. As for Germany and Spain, I think that's probably what you Have in mind, Germany and Spain and by extension the rest of Western Europe, those are the net settlement markets to which we have offered, As you know, a handful of different service propositions, including initially buying cars more aggressively than migrating more to a consignment model.

Speaker 1

We continue to Build our businesses in both countries. We continue to earn the trust of our insurance company sellers, continue to innovate and experiment with them. So there's not nothing radically new to report there.

Speaker 6

Okay. And then I guess housekeeping, the non insurance business Blue Cars plus 35 and Dealer's Could you size those two businesses relative to each other within non insurance?

Speaker 1

I don't think we have. They're both meaningful to us in terms of the P and L, both BlueCar and the dealer segments are both meaningful volume, meaningful You'll hear the carve out when we describe the wholesalers and charities. That's business also that we endeavor to serve. We call these the lower value vehicles, those together Copart Direct as well, would constitute or be characterized as the non insurance space, but dealers And BlueCar are the large ones among them.

Speaker 6

Right. But relative to each other, is dealer larger and that's why it grows at a lower rate or are they similarly

Speaker 1

The dealer is larger, more mature, meaning we've been pursuing that business for longer. So I think you've heard us say in the past, As the insurance business evolves, as more cars look like perfectly intact drivable vehicles, The buyer base for our vehicles is relevant for more and more of the dealer cars as well. So it's not a static game with every Week or month or year that goes by, more dealer cars are addressable than in the period prior.

Speaker 6

Okay. And it looks like you Converted the treasury position to cash just on the cash flow statement. Is there anything there?

Speaker 2

No, that's just really a reflection of the movement in the yield curve. So the Longer than 90 day maturities did mature and we've held them in shorter than 90 day treasury securities since then.

Speaker 6

Okay, great. Thank you.

Operator

Our next question is coming from John Healy from Northcoast Research. Your line is now live.

Speaker 7

Sorry about that guys. Just wanted to ask a little bit about the whole car opportunity. I think you guys talked about the finance business Growing double digits for you, I assume that's kind of analogous to repo. When you look at the repo business, Have you made good strides there? I mean, is that the right way to read it?

Speaker 7

And when you look at how repo cars kind of move through the process, I've always thought they went through repo agents And then they go to impound lots and things like that. Is there any structural difference with how you're going to market that maybe presents the savings These finance companies, maybe in terms of storage and maybe what the traditional model held on, maybe through other mechanisms of remarketing?

Speaker 1

John, I think you're right that the vehicles from financial institutions are in large part repossessions. There are other use cases. And repossessions, of course, in some cases are very straightforward and come straight to us from the financial institution. In other cases, the cars can be trapped at impound We do think we bring some unique capabilities there in terms of the ability to navigate the vehicle Retrieval process, it's both it's a combination of technology as well as human expertise. I think we offer both in that regard.

Speaker 1

Then of course, again, the auction platform itself generates strong returns. So in the aggregate then, the ability to get the car faster, the ability, in some cases, And then to generate good returns on all of the above is what's enabled our growth there.

Speaker 7

Okay, great. And then just one clarification question. I think when you guys press release Purple Wave, you guys called it an Investment, I think you've used that phrase today a few times, but you've also talked about consolidating that business. Can you just confirm to us how much of that business you bought? And Really, what drove you guys from being familiar with them to in your words, family with them now?

Speaker 7

What drove the timing? And just any thoughts on where we're at in the equipment

Speaker 1

On that, I don't think We would never characterize ourselves as particularly savvy in timing of the market. So it's not that we see At Rebounder, not in the yellow iron space. I think for VoWave, it's just a company we have profoundly respected and have had a Multiple years long dialogue with how and why deals ultimately come to by the way, the same is true for NPA leading up to June of 2017. We've been in dialogue with them for a decade as well. And what ultimately causes the deal to get over the finish line and for 2 parties To reach that conclusion together is a mix of, of course, objective fact and serendipity and just random timing as well.

Speaker 1

So it was not We have acquired a majority stake in the business, but important it was important for us and important For Aaron and Susie, they continue to retain a meaningful economic share as well. And we are committed and they're committed

Operator

Thank you. Next question is coming from Chris Bottiglieri from GMP Power BI. Your line is now live.

Speaker 8

Hey, thanks for taking the question. I guess the first one is on the like where is non insurance today in mix to give you another past? And then 2, like the 35% growth in blue collar sounds really high. Is that just broad based? I would think a lot of those markets are like cyclically depressed right now.

Speaker 8

So is it broad based or did you win like a couple of large accounts that are driving some

Speaker 7

And it

Speaker 1

varies seasonally too, Chris, frankly, with charity volumes spiking in the 4th calendar quarter 1st calendar quarter. Recall it, 1 out of And just from memory, over a longer period of time, so 1 out of 4 cars is from someone that's not an insurance carrier. But And then as to your question about growth within the BlueCar arena, it is across different types of sellers. It includes banks, it includes rental car companies, it includes corporate fleets, and it's multiple accounts in

Speaker 8

And then second question is more of a cost question, but when you onboard a larger customer, this has happened periodically as you've won a lot of accounts over the years, What does this mean for expenses? Do you typically feel like an increase in headcount or capacity? Is there anything you can do differently when you're anticipating a 4%,

Speaker 1

That's a fair question, Chris. And I would say What I assume you intend the question largely for insurance. Is that fair?

Speaker 8

Yes, correct. For insurance, if you want a large insurance customer,

Speaker 1

It's highly idiosyncratic. There are some insurance carriers that we will serve for the first time I will sign them up for the first time. And in that case, the start up costs, so to speak, and in large part on their choice Technology platforms, what their business process looks like and what it takes for us to integrate with them. In other cases, we'll have customers That we already serve and vary substantially so and we're merely taking on additional states that we don't already have. The marginal corporate cost, so to speak, at headquarters for technology and process development and so forth is more modest in that case as you might imagine.

Speaker 1

In the field, the costs certainly are substantial. We will hire additional folks in our facilities to handle Both the physical movement and receipt of cars as well as the back of the house title processing, the title transfer process, Loan payoff, title procurement, etcetera, that we scale up as well to serve the customer. And as you noted, generally speaking, somewhat in advance of that customer Turning on their new business, we can't afford to drop the ball once it's on. So we make sure we scale up operations beforehand.

Operator

Thank you. Next question is coming from Ryan Brinkman from JPMorgan. Your line is now live.

Speaker 9

Hi. This is Josh Batra on for Ryan Brinkman. Congrats on a solid quarter. Just wanted to get a sense of how you're thinking about the cadence of auction fees going forward? Do you continue to see room for price increases Even as used car pricing has started to moderate meaningfully over the past few months.

Speaker 9

And then it seems like some of your peers on the dealer side have increased their fees and Wondering if Copart has followed suit? Yes.

Speaker 1

The fees, as you know, from having followed us for a while, something we Evaluate on an ongoing basis, we don't adhere to a regular schedule, so to speak, because there's not an annual schedule change of any kind. We evaluate the market, we evaluate competitors and we evaluate our own value proposition and what we think we're bringing to So we have not in the past commented on this matter specifically. I don't expect that we will anytime soon.

Speaker 9

Got it. That's helpful color. And then as a follow-up, the broader wholesale industry environment seems to We're getting more supportive of the Blue Car and dealer wholesale initiative. And while growth is already very solid there, just wondering, Given the backdrop, would you be considering to accelerate the growth in those segments into 2024?

Speaker 1

No step function changes. I think it's a matter of further execution on our part. We continue to invest very aggressively in our international buyer base. And there are, as I noted, a host of different competitors that we encounter in this space. We think that our value proposition is principally that we are very efficient at retrieving vehicles And we are very effective at finding the highest and best use of that vehicle wherever that is in the world.

Speaker 1

That international buyer base It's powerful for that business segment as well. And our online platform digital first sales, I think ultimately identifies the right buyer for that car wherever that person is in the world. So there's no step function change. You'll see or our sellers will see additional enhancements, additional capabilities, But I wouldn't characterize any of them as being a meaningful step function change. Great.

Speaker 9

Thanks for taking my question and good luck.

Operator

Thank you. Thank you. Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to Jeff for any further or closing comments.

Speaker 1

Thank you, everybody. We'll talk to you after the Q2.

Operator

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time

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Key Takeaways

  • Insurance volumes rebounded in Q1 with total loss frequency at just north of 17% (down from pre-COVID highs of 21.7%) and U.S. insurance unit sales up 9.7% year-over-year; management expects loss frequency to recover further as vehicle prices stabilize or decline.
  • Non-insurance segments saw robust growth, with dealer sales up 13% and BlueCar (fleet, rental, finance) units up 35%, while the strategic Purple Wave investment expands Copart’s specialty equipment auctions into construction, transportation, and agricultural markets.
  • Copart delivered strong financial results: global unit sales rose 12.9%, service revenue increased 18% (17% U.S., 29% international), gross profit jumped 26% with a 45.5% margin (+400 bps), GAAP net income grew 35% to $332 million ($0.34 per share), and free cash flow reached $213 million.
  • The company maintains a disciplined capital allocation strategy, prioritizing investments in its core business (logistics, technology, real estate), international growth, new asset classes, and technology partnerships such as the InsurTech alliance with HighMarley.
  • On sustainability, Copart plans to publish its 2023 ESG update, showcasing workplace diversity efforts, community recovery contributions, and an estimated avoidance of over 11 million metric tons of CO2e by enabling vehicle recycling and parts reuse.
A.I. generated. May contain errors.
Earnings Conference Call
Copart Q1 2024
00:00 / 00:00