The operator welcomes everyone to the Copart Incorporated Second Quarter Fiscal 2024 Earnings Call and reminds listeners that the call is being recorded. The Safe Harbor Statement is shared and the company's Co-CEO, Jeff Liaw, begins by discussing the company's business and recent additions to the senior leadership team. He then hands the call over to Leah to review the financial results. Liaw mentions the company's ongoing profitable growth with insurance sellers, despite the impact of hurricane Ian in the first and second quarters of last year. He notes a decrease in new and used vehicle prices and an increase in repair costs, leading to a strong recovery in total loss frequency.

During the second fiscal quarter, there was a 7% decline in the Manheim Used Vehicle Value Index and a 1.7% increase in accident severity. Despite this, U.S. insurance selling prices remained flat due to auction liquidity and buyer activity. Total loss frequency increased by almost 1% year-over-year and 1.5% sequentially. This is due to the long-term trend of repairing vehicles becoming less economically attractive for insurance carriers. U.S. insurance volumes increased by 0.3%, but when normalized for the impact of Hurricane Ian, there was a 9.2% increase. The Blue Car business, which serves bank and finance fleet and rental partners, saw a year-over-year growth of over 30% in the second fiscal quarter of 2024.

The company's dealer sales volume increased by 21% year-over-year, driven by their commitment to customer service and auction liquidity. The company's U.S. non-insurance automotive volume also increased by over 30%. The company welcomes three new members to their executive team, including a new Chief Marketing Officer and Chief Product Officer, who bring valuable experience and expertise. The company also thanks their longtime Chief Operating Officer and welcomes his successor.

Hessel is the new supply chain leader for DB Schenker, a logistics provider for companies like Procter and Gamble and BMW. He will help sustain and expand the company's competitive advantage. The CFO, Leah Stearns, discusses the sales trends for the second quarter, which saw global unit sales and inventory increase by 7% and 6%, respectively. In the US, unit growth was driven by fee and purchase units, while the non-insurance unit volume outpaced the insurance business. In the international market, unit growth was over 21%, with fee and purchase units increasing by 22% and 19%, respectively.

In the second quarter, the company's international business saw a 16% increase in inventory levels compared to the previous year. Global average selling prices (ASPs) and U.S. insurance ASPs declined by 5%, while international ASPs increased by 1%. Despite this, the company's ASPs showed resilience compared to the overall decrease in the Manheim used vehicle price index. Global revenue grew by 7%, with a 0.7% boost from currency. Service revenue increased by 9%, driven by higher average revenue per unit and increased volumes. Purchased vehicle sales and gross profit decreased slightly, but overall gross profit increased by 9% and gross profit margin increased by 100 basis points. This was mainly due to a revenue mix shift towards higher margin fee units and a decline in direct cost per unit sold.

In the first and second quarters of last year, the company incurred cat expenses for a hurricane that did not occur. General and administrative expenditures increased by $24 million, including one-time costs related to the conclusion of a CMA process. The company has also invested in technology and sales to support growth. GAAP operating income increased by 4%, and GAAP net income increased by 11%. The company has a liquidity of $3.9 billion, including cash, investments, and credit facility. Operating cash flow decreased by 14% from the previous year, and capital expenditures were $123 million for real estate and infrastructure. These investments help the company serve customers and reduce transportation costs and fuel consumption.

The company generated $39 million of free cash flow for the quarter and has invested over $540 million in its real estate portfolio, fleet, and technology to grow its core business. The company's platform is unified globally, but there may be separate registration paths due to regulatory and licensing requirements. The market for non-salvage vehicles has changed in recent years, and Copart's role in this market is constantly evolving.

The speaker discusses how their company's offering has evolved over the years in response to the needs of different types of sellers. They mention that their offering has become more sophisticated and will continue to expand in the future. The total loss rate, which is currently at 20.9%, is expected to increase in the long term, possibly reaching 30%. They also mention that different carriers on their platform may have varying total loss rates.

The speaker is responding to a question about total loss practices in the insurance industry. They note that there is a wide dispersion of practices among insurance carriers, with some continuing to sponsor repairs of cars that they economically should not. They also mention that total loss frequency has been increasing over time and may exceed 30%. In terms of financials, there has been a multi-quarter trend of accelerating G&A spend, and the speaker believes this is due to the company's growing capabilities.

The company has recently brought on new senior talent and expanded their offerings in the car and insurance industries, resulting in some growth in G&A expenses. However, they expect to see operating leverage over the medium to long term. The consolidation of Purple Wave also contributed to expenses in the quarter, but the company is focused on driving incremental operating leverage in the future. They have the operational capacity to onboard more accounts if needed, as they have been investing in their infrastructure for years.

The company invests in various geographies and has the capacity to serve new volume. Their logistics capabilities, trucking assets, people, and technology are scalable. The rising ocean freight rates may lead to international buyers bidding less for vehicles, but the demand for mobility in developing economies remains high and they may still turn to Copart cars.

The speaker makes several points about ocean freight rates, including that they can rise but are still generally cheaper on backhaul legs. They also mention that there have been no issues in the Red Sea due to conflicts. The speaker then discusses the factors behind the resilience in average selling price, including a shift in mix towards higher ASP units and an increase in total frequency due to used car prices coming down.

The speaker discusses the performance of the company in different international markets, noting strong unit volume across all geographies. The U.K. market is similar to the U.S. market, while markets in Germany and Spain are newer and driven by market share wins and conversions. There are also local dynamics specific to each country.

The company's performance has improved year-over-year, particularly in their non-insurance business. They do not disclose the seller fees they charge and aim to provide specific value to each seller. The non-insurance side has high ASPs, but can be more transactional and less scalable compared to larger insurance companies. When it comes to capital allocation, the company's top priority is their core business, but they are also considering capacity expansion and category diversification for 2024.

The company is focused on adding capacity and managing costs to serve customers efficiently. They prioritize investing in real estate, logistics, and technology. They also consider expanding geographically and entering partnerships with complementary companies. They have a high threshold for M&A and investments and are patient and disciplined in their capital allocation. Their conservative balance sheet allows them to be patient even during a crisis.

The speaker discusses how their business was able to continue operating during the pandemic without laying off employees or suspending capital expenditures. They also mention their willingness to acquire land for future use despite high costs. The speaker then talks about their preparedness for potential weather events in California and their commitment to invest in response to increased activity. They thank the audience for joining the call.

The operator is announcing the end of the conference and instructing participants to disconnect their lines. They also thank everyone for their participation.

This summary was generated with AI and may contain some inaccuracies.