Copart Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
September 14, 2023

There are 8 speakers on the call.

Operator

Good day, everyone, and welcome to Copart Incorporated 4th Quarter Fiscal 2023 Earnings Call. Just a reminder, today's conference is being recorded. Before turning the 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 direct with comparable GAAP measures on its Investor Relations website and in its press release issued at approximately 3 pm Central Time today.

Operator

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, opportunity 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 to you to the section titled Risk Factors in the company's annual report on Form 10 ks for the year ending July 31, 2023, and each of the company's subsequent quarterly results 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.

Operator

I'll now turn the call over to the company's Co CEO, Jeff Liao?

Speaker 1

Great. Thank you, and good evening, and thank you, everyone, for joining us today. We're pleased to report our results Q4 of fiscal 2023 and the conclusion of a strong fiscal year. We continue our trend of generating excellent results 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.

Speaker 1

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 and are providing mobility to developing economies around the world. Today, I'll spend just a few minutes elaborating on a 5th 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.

Speaker 1

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 Nonetheless remains in 2023 as many of the most significant storms in the past 20 years have occurred late in the season. Hurricane Ian, for example, the largest ever catastrophic event in our history as measured by unit volume, did not itself make landfall until the 23rd September last year. For any substantial storm likely to affect our insurance clients and their policyholders, we don't have the luxury of perfect visibility Before we deploy resources, both in the moment and in the years prior, our response to Hurricane Idelio illustrates this reality. Though the landfall of the Hurricane I was projected to be in the Big Bend area of Florida, prevailing weather models showed a wide range of possible outcomes, including a potential initial landfall in the Tampa area and eastward progression thereafter through Florida, Georgia and Carolinas.

Speaker 1

Well before landfall, we deployed hundreds of team members, Copart owned and third party owned tow trucks and Copart owned loaders, Telecommunications equipment and generators from around the country to the region. We were prepared to immediately retrieve Inventory store, process titles for and sell many thousands of vehicles in the affected areas. And of course, our real estate Investment and planning had begun years in advance, yielding more than 600 available acres of dedicated cat storage in Florida alone. For a given storm quarter or year, our investments in catastrophic readiness may appear to be overkill, But we recognize the responsibility we have to our customers and to the communities we serve together to optimize our readiness for such severe weather events. I'll touch on a few additional themes for both our insurance and non insurance businesses, but first on the in the insurance universe.

Speaker 1

According to CCC, total loss frequency troughed at 17.1% in the 2nd calendar quarter of 2022 and has subsequently rebounded to 18.8 percent in the 2nd calendar quarter of 2023. This is down a bit sequentially from calendar Quarter 1 into calendar quarter 2, though this is the result of seasonality, we've observed that same modest reduction in total loss frequency from The Q1 to the Q2 in each of the past 8 years of CCC's data. Our expectation is that new and used vehicle prices Are likely to stabilize or decrease in more swiftly than repair costs will. We believe this in turn should lead to a recovery in total loss frequency, Eventually surpassing pre COVID levels as well. In March 2023, Kelley Blue Book data Indicated that average retail transaction values for new vehicles were below MSRP for the first time in nearly 2 years.

Speaker 1

In April 2023, this average transaction price was nearly $400 below MSRP compared to being $600 above just 1 year prior. The long term drivers of total loss frequency of course remain unchanged. First, repairs are more expensive Less attractive due to increasing accident severity, vehicle complexity, labor costs and rental car costs. And 2, salvage economics are more attractive Because the growing economies in Central and South America, Africa and Eastern Europe depend on our damaged vehicles to provide the mobility they need. Although our insurance U.

Speaker 1

S. Insurance volumes continue to increase, up some 9% year over year, we estimate the total loss volumes continue to be relatively suppressed when hiring and retention challenges and we therefore believe they'll lean still more heavily on trusted partners like Copart to provide additional services including As we've noted in the past, for a vehicle that will ultimately be totaled, insurance companies often nevertheless incur literally 1,000 of dollars in towing, storage estimating Our insurance companies continue to benefit from and appreciate the importance of our global marketplace in providing superior salvage returns to the insurance industry and minimizing their claims expense as a result. Finally, a few comments on the non insurance world as well. In the Q4, we observed year over year growth of 13.8% in our Blue Card division, underscoring the realization of the benefits of our auction platform and our global member base as we serve the bank and finance fleet and rental segments as well. We likewise increased our dealer volume year over year by 5%.

Speaker 1

These dealers are unique as they serve in some cases as both sellers and buyers on our platform. In both cases For the BlueCar and dealer sources of vehicles for Copart, we believe we are outperforming other wholesale channels for vehicles. Lastly, in July of 2023, we received approval from the competition authorities in the U. K. To complete the merger of our acquisition of Hills Motor Company, which which we had completed in financial terms a year ago prior.

Speaker 1

Hills Motor Company is a leading vehicle dismantling business in the UK. Our insurance customers in the region have made clear to us that they prefer us to be partially vertically integrated in auction vehicles on their behalf, while also directly satisfying some of their needs for recycled parts. With that, I'll turn it over to our CFO, Leah Stearns, to provide Additional commentary to walk through some key statistics in our 4th quarter financial results before we open it up for questions. Leah?

Speaker 2

Thank you, Jeff. Turning to the quarter, global unit sales increased nearly 10% year over year, including an increase of almost 8% in the U. S. And over 22% internationally. For the fiscal year 2023, global unit sales increased over 5%, including an increase of over 4% in the U.

Speaker 2

S. And over 12% internationally. In the U. S, our fee units grew about 8% for the quarter and 5% for the year, primarily due to growth across insurance units. Our purchased units declined 3% for the quarter and about 14% for the year.

Speaker 2

Internationally, our unit growth came from a mix of fee and purchased units with Fee units increasing over 22% in the 4th quarter and over 11% for the year and purchased units increasing nearly 21% for the quarter and 20% for the year. Our U. S. Insurance business grew relative to its 1 2 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.

Speaker 2

Our auction returns remain strong as we continue to invest in growing global buyer base by driving member recruitment, registration and activation. As a result, our auctions provide insurance customers with best in class Turning to our financial results. For the Q4, global revenue increased $114,000,000 or nearly 13%, including a 1% or $6,000,000 tailwind due to currency. For fiscal year 'twenty three, global revenue increased $369,000,000 or over 10%, which Includes a 1% or $44,000,000 headwind due to currency. Global service revenue increased $126,000,000 or nearly 18% for the quarter and $345,000,000 or 12% for the year, primarily due to higher average revenue per unit and increased volume.

Speaker 2

U. S. Service revenue grew by nearly 16% for the quarter and over 12% for the year and international service revenue grew over 36 percent for the quarter and over 11% for the year. ASPs were up slightly year over year for the quarter with U. S.

Speaker 2

Average Sales price is up about 2% and that's compared to an over 11% decrease in the Manheim Index, which ended July at 211.7 Purchased vehicle sales for the 4th quarter decreased $12,000,000 or 7% with U. S. Purchased vehicle revenue for the quarter down 25% and international up 29% For fiscal year 2023, purchased vehicle sales increased $23,000,000 or about 4% with the U. S. Down 15% and international up about 37%.

Speaker 2

Purchased vehicle cost of sales decreased $12,000,000 or 7.5% for the 4th quarter and purchased vehicle gross profit decreased by about 1%. For the fiscal year, purchased vehicle cost of sales increased 29 Global gross profit for the 4th quarter increased by $76,000,000 or about 20 percent and our gross margin percentage increased by approximately 270 basis points to 45.9%. U. S. Margins increased to 51.2% and international margins decreased to 21.4 Global gross profit in fiscal year 'twenty three increased by about $131,000,000 or 8% and our gross margin percentage decreased by by approximately 100 basis points to 44.9 percent.

Speaker 2

U. S. Margins for the year increased to 49.2% and international margins decreased I'd like to note the decline in our international gross margin reflects approximately $6,000,000 of prior period non cash expenses, which are primarily depreciation and amortization and the effect of marking our acquired inventory to fair market value, which was incurred due to our completion of the final purchase price accounting for a Hill's acquisition in the UK. The year over year margin increase on a consolidated run rate basis was primarily driven by a mix shift in the U. S, partially impact to labor and fuel costs and a slight decline in purchase unit margins internationally.

Speaker 2

On the cost front, our teams remain focused on optimizing our operational processes By leveraging technology and automation to mitigate the inflationary impacts we've experienced across our labor and transportation costs. In addition, we have recently observed Some attenuation in certain expenses, particularly transportation, which was partially driven by reductions in the cost of diesel, which has experienced a 29% decline year over year. In addition, we are constantly seeking to optimize our operational processes by leveraging technology and automation, which we Continue to expect will drive scalability and efficiency across the organization to continue to 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 increased $12,000,000 $23,000,000 for the fiscal year and G and A as a percentage of revenue was 5.6% in Q4 and 5.1% for the fiscal year 2023. Because of our strong revenue growth and moderate cost increases, GAAP operating income increased by more than 4th quarter income tax expense was nearly was near $76,000,000 which reflects an 18% effective tax rate.

Speaker 2

And for the year, income tax expense was nearly 3 dollars which reflects effective tax rate of 20%. Finally, 4th quarter GAAP net income increased about 32% to almost $348,000,000 or $0.36 per diluted common share, while GAAP net income for the year increased 13.5 percent to over 1,200,000,000 for $1.28 per diluted common share. Our global inventory at the end of July increased 9.5% from last And when excluding low value units like wholesalers and charities, global inventory increased 11%. That is comprised of a year over year increase of over 8% for U. S.

Speaker 2

Inventory or over 10% when excluding low value units and nearly 16% for Turning to our liquidity and financial position. Liquidity stood at $3,600,000,000 as of year end, which is comprised of $1,400,000,000 in investments and held to maturity securities, dollars 1,000,000,000 in cash and cash equivalents and our capacity under our revolving credit facility of over $1,200,000,000 For the year, we have generated operating cash flow of nearly $1,400,000,000 which is an increase of almost 16% from the prior year. And in addition, during 2023, we invested nearly $517,000,000 in capital expenditures with over 80% of this amount attributable to our physical And corresponding fuel consumption. Finally, year to date, if you take our operating cash flow less CapEx, we've generated over $847,000,000 Given the strong financial position, we intend to continue to invest in our business to meet our customers' needs. These investments include yard expansion, New yard acquisition, logistics and our technology platform.

Speaker 2

As Jeff outlined in detail, we believe that these types of historical investments have differentiated Copart as a service provider, while ensuring that we have the capacity necessary to serve our industry's future growth. With that, we're concluding our prepared remarks and we're happy to take some questions.

Operator

Thank you. We will now be conducting a question and answer session. One moment please while we poll for questions. Thank you. Our first question comes from Bob Labick with CJS Securities.

Operator

Please proceed with your question.

Speaker 3

Good afternoon. Congratulations on continued strong performance.

Speaker 1

Thanks, Bob.

Speaker 3

First question, I have a related follow-up as well, but I want 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 Would that company and if there's other areas of interest, where you might be partnering To help your insurance customers.

Speaker 1

Sure. Happy to address that, Bob. So High Marley is a service provider in the insurance Policyholders and companies within the insurance industry. I think we share that objective to improve insurance outcomes, To streamline processes and to 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, Reduced cycle times, reduced waste, increased policyholder satisfaction in total loss scenarios.

Speaker 3

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 evaluation of autos, other damage or evaluation 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

Speaker 1

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 that sophisticated, right? A car that has multiple airbags delivered, Pardon me, deployed and collided at 35 miles an hour that is 5 years old is highly probable to be a total loss And the image recognition will only enhance the conviction of that call.

Speaker 1

Where I think the image recognition becomes a more complicated Endeavor is when there is slight damage and to estimate the actual repair costs 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.

Speaker 1

If there is a product they prefer instead, that's great too.

Speaker 3

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 $500,000,000 80 percent for capacity additions essentially. Where do you stand in terms of your capacity and your yard efficiency based on the capacity in those yards?

Speaker 3

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 $400,000,000 in the last year and tons and tons of capital, but how do you see the yard's current efficiency and where do you stand in

Speaker 1

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 51020 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 are 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.

Speaker 1

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 has 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.

Operator

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

Speaker 4

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?

Speaker 4

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

Speaker 1

In a word, no, which is not to say that That picture can't change in the years ahead, but the international demand and to be fair, There are countries that emerged that they in the aggregate international demand for cars from Copart has expanded very significantly on a 1, 5, 10 year basis. For any individual country, The demand can be subject to economic volatility, inflation, unemployment, etcetera. 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 U.

Speaker 1

S. Quality vehicle, U. K, 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.

Speaker 4

Great. Then maybe more near term, looking at the quarter, Leah, I think you mentioned U. S. Vehicle sales, We're 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?

Speaker 4

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 is to convert them to agency?

Speaker 2

So in terms of U. S. 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 And 2023 was really a temporary phenomenon for the business. So we would expect to see that continue to grow going forward on As the market becomes more stable from an ASP perspective and more of the whole car space.

Speaker 2

And then as it relates to the second part of your question, can you repeat that?

Speaker 4

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

Speaker 2

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.

Speaker 1

Yes, the purchasing approach is a necessary enabler. I think that was the You were hinting at when it comes to our institutional clients. In the U. S, 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 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 ourselves.

Speaker 1

If we could sell those cars purely on a consignment basis, we'd probably prefer it. And that certainly holds true for institutional clients as well in the U. S. And elsewhere. In the U.

Speaker 1

Okay. When we entered in 2007, so that's now almost 16, it is 16 years ago when we entered the U. K. For the first time, the mix there for insurance clients was very heavily principal 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.

Speaker 1

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 opposite sides of the trade. When we instead are 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.

Speaker 5

That makes

Speaker 4

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

Speaker 1

Thank

Speaker 5

you.

Operator

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

Speaker 5

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 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 non insurance ASPs and whether that's the fundamental driver to that Outperformance?

Speaker 1

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, There are 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 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 non insurance units.

Speaker 1

So that outperformance is not principally a shift from insurance to non insurance. 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 would generally sell for more than the average vehicle before it. So I think 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, etcetera, etcetera, all the traditional metrics we 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

Speaker 5

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?

Speaker 1

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.

Operator

Thank you. Our next question comes from Bret Jordan with Jefferies. Please proceed with your question.

Speaker 6

Hey, good afternoon guys.

Speaker 1

Hi Bret.

Speaker 6

When you look at the blue car and the dealer cars that you're selling, is the mix of foreign buyers higher in that Space or do they prefer the salvage cars because they have the arbitrage of low repair cost?

Speaker 1

I think it's similar, Brett. So Yes, they like the arbitrage of repair costs, but and we're going to pull this up and double check it real time, but I think it's Directionally similar.

Speaker 6

Okay.

Speaker 1

They also like these cars once brought to the marketplace. That's a 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 develop an interest with the cars we incrementally bring to the auction as well.

Speaker 3

Okay.

Speaker 6

And then you called out Hurricane Adalia 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?

Speaker 2

That, Adelia happened in the Q1 of 24% and so that's not reflected in these numbers.

Speaker 6

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

Speaker 2

Yes. Any cost associated with servicing the hurricanes that occur in this quarter would impact this quarter.

Speaker 6

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 Q1?

Speaker 1

It is, but also just 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 encourage some mobilization costs in preparation for a storm that didn't ultimately materialize. No, 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 And as for the towing, the towing largely never materialized at all because the cars weren't there.

Speaker 6

Okay. And then 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 +1,000,000,000

Speaker 2

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 if Jeff? Yes.

Speaker 1

Brett, over the very long haul, We've returned capital to shareholders via stock buybacks and no doubt we will 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 is 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.

Speaker 1

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? I know it feels like a distant memory now, but there's a moment in 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 can 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.

Speaker 6

Great. Thank you.

Speaker 1

Thanks, Brett.

Operator

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

Speaker 7

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 And as we think about what you could potentially do with your cash word, etcetera, your Desire or 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, is it somehow more restricted to the UK or Is there maybe opportunity in the U.

Speaker 7

S? Or are there other potential vertical integrations or adjacencies that Maybe we're not thinking of that that could potentially be attractive to expand into inorganically.

Speaker 1

Yes, I think that's An appropriate question. And when we consider areas in which we would expand strategically, we certainly always start 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 Over the years and think we have a best in class online digital real time auction platform, part 1. Part 2, 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 retrieve them.

Speaker 1

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 Powersports Auction 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.

Speaker 1

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 U. S.

Speaker 1

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. And so there are many companies, including public companies that are in that business today. I think it's unlikely we would ever ourselves enter that space, in part for the reasons Best possible economic outcome is that that car is dismantled, the dismantler will buy it. If the best possible outcome for that car is that it is driven again In the U.

Speaker 1

S. Or in Poland or in Nigeria, then our auction will find that buyer as well. As you noted, in this case in the UK, Perhaps elsewhere in Europe, there has been less penetration in alternative parts utilization. And so to help turbocharge that, some of our customers have made that specific request that they would like us to assist them in that. They don't I don't believe they expect us ultimately To dismantle a majority or anywhere close to a majority of the vehicles, the point is that having that capability as well at their request, Right.

Speaker 1

We are very happy, as you know, to be the auction intermediary and to sell the car first and foremost to a third party, wherever that third party may be, whether it's in the UK Or elsewhere. But in this case, we'll meet our customers where they are and where they were is specifically asking us to take this on and we're happy to do it.

Speaker 7

That's very helpful. Thank you. 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 the represented by the traditional whole

Speaker 5

car market. If you have any

Speaker 7

thoughts on The 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?

Speaker 1

It's possible I'm misunderstanding your question, but we certainly have expanded into and are

Speaker 7

Well, like what Open Lane and ACV might do, for example, Online only full car.

Speaker 5

I

Speaker 1

think we do, I mean, in some respects, compete with them as it stands today. We are trying to earn the rights 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 Three quarters 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.

Speaker 1

But our non insurance business itself would be a large scale Auction House without insurance whatsoever. Now, so it turns out that having the 2 combined massively enhances the value proposition

Operator

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

Speaker 5

Hey, thanks for letting me back in the queue. I just wanted to follow-up on the U. K. Business. You mentioned, Jeff, that insurers I want you to be more vertically integrated there and you're going to meet them where they're at, which I understand.

Speaker 5

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 U. K. And I just don't understand it.

Speaker 1

Well, there's no expectation that we're going to divest. We don't generally Take on initiatives like that intending for them to be temporary. But intellectually, I think the reason you struggle with it, Craig, is you are natively a U. S. Analyst 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.

Speaker 1

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 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 it. In the U. K, we've heard loud and clear and it's not a one off request, but it is a near consensus And so we want to address that head on. Ultimately, the customers' preferences prevail.

Speaker 1

We can certainly articulate to them Why we think the circular economy can be equally supported with 3rd parties doing the dismantling, but we are also happy to do it if that's what they would like us to do.

Speaker 5

And is that unique to the U. K. Or are there other markets in Europe, for example, that have that same request?

Speaker 1

I think it remains to be seen. 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 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.

Speaker 1

But this is also a dynamic game, right? There's no question that preferences will change over the course of the next year, 35, in many of the countries in which we do business.

Speaker 5

Great. Thank you.

Speaker 1

Great. Thanks, Greg.

Operator

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.

Speaker 1

Great. Thanks everybody for joining us for the Q4 and we'll talk

Operator

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

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Key Takeaways

  • Copart reported Q4 fiscal 2023 revenue up 13% and net income up 32% year-over-year to $348 million ($0.36 per share), while full-year net income rose 13.5% to $1.2 billion ($1.28 per share).
  • U.S. insurance volumes grew 9% in Q4, with total-loss frequency rebounding to 18.8%, and average sale prices held steady or rose even as broader used-car indices declined.
  • International unit sales jumped 22% in Q4, non-insurance segments saw 13.8% growth in the Blue Car division and dealer volumes climbed 5%, and the UK acquisition of Hills Motor Company adds vehicle dismantling capacity.
  • Copart invested $517 million in capital expenditures in FY 2023—over 80% for new yard capacity—supported by a $3.6 billion liquidity position and $1.4 billion operating cash flow to fund yard expansion, technology and logistics.
  • The company highlighted its proactive disaster readiness—deploying tow trucks, equipment and 600+ acres of dedicated storage in Florida for Hurricane Idalia—underscoring its commitment to insurance clients amid rising storm risk.
A.I. generated. May contain errors.
Earnings Conference Call
Copart Q4 2023
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