Good day, everyone, and welcome to this Copart Incorporated conference 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 the federal securities laws, including management's current views with respect to trends, opportunities, and uncertainties in the company's industry. 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, 2025, 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 will now turn the call over to the company's Executive Chairman and incoming Chief Executive Officer, Jay Adair.
Thank you, Joe. I'd give you a little background on those that don't know me. I started with Copart 37 years ago in the summer of 1989 when Copart was a relatively small business. And we went through a private equity or private fundraising period in 1993, and by 1994 we were publicly held. I had the pleasure of going on that road show the time that I'd been to New York. So to say it was an interesting experience was an understatement. It was an amazing experience. Within a couple of years, we were reserving copart.com. I was building out and spending most of my time building out web pages and web products for copart.com. By 1998, we had invented, I should say, the first online bidding product. By 1999, we had vehicle images. I remember getting a phone call from Scott McNeely, who was in Silicon Valley, to see what we were doing and came up to. The company was taking so many images and changing the industry the way we were. By 2003, we had moved everything completely to online. I built that product with our team. we patented that product and we would effectively be the only digital fully digital auction for the next 20 years in 2004 we decided we wanted to expand and and go outside the US by going to Canada followed that in 06 by going to the UK and then followed that by going to Spain and Germany and Brazil and the Middle East and Ireland. And so I'll talk more about our growth, but I've got a lot of background in international expansion with the company as well. First, I'll start by talking about the CEO transition. And let me just make it very, very clear. Jeff and I worked together for 11 years, and I consider him a dear friend. I'm thankful to him for everything that he did for this company as CFO. My return back to CEO is something that Jeff and I decided on together. We both agreed that it was the right thing for Copart, and my intent is to lead the company for the next 10-plus years. This is not an interim arrangement, and I won't be going through a process of finding my successor. I'm just going to miss and double down on all of our initiatives to build Copart and to grow Copart, and we'll talk about that. What we focus on is international expansion on insurance, whole car expansion domestically, and then technology services. There is a lot of noise and a lot of rhetoric out. I listen to the noise, and I don't respond to things, and I'm going to continue that. So I might be asked questions that I won't answer or that I don't want to answer, but at the end of the day, it's because we're going to focus on what it takes to win, and I don't plan to put my playbook for winning out there publicly for my company. I believe our customer relationships are stronger than ever. The idea that that is not the case, I believe, is true. call, we shared that total loss frequency reached approximately 23.6% in the most recent period, up nearly five points over the past four years, driven by repair costs and by the record auction returns we generate, which make the total loss decision more attractive to carriers. When I started, total loss frequency was 8%, and we've watched that continue to improve over the decades, and we believe that will continue. The point on our Q3 earnings call was that U.S. insurance ASPs reached an all-time high in the most recent quarter, up approximately 4.1% year over year. And international buyers, finance buyers, continue to be critical drivers of our auction returns. Our global buyer network now spans more than 160. A little bit about the cyclical headwinds that we're facing, But I think it's very important to realize that we are not only the largest, but you can look at all the activity that comes onto our website, and you will see that we have the best auction liquidity. Experiencing the impact of a cyclical and, in our view, unprecedented dislocation across the U.S. industry, the U.S. insurance industry. The 2022 to 2023 combined ratios out of balance, driving rate increases, which drove consumers to pull back their level of insurance coverage, which was observed through a shift toward higher deductibles and liability-only policies. I believe that is now softening. Insurance companies become more aggressive again. And much of this is from 2020, COVID, the impact of that, the impact of insurers cutting dividends back and reducing insurance rates. And now we've seen kind of the flip side of that, as we have seen in the past year or two. And I think we're now going to see things kind of normalized. consumer retrenchment is cyclical not structural so I want to make that very clear on international momentum we are going to be firing that machine back up again we have slowed that historically as we were figuring out different models all in Germany we have figured that out now we are profitable and we know how to grow in that market and so we'll be expanding uh in other international markets in europe and other locations as well international unit volumes grew 5.9 14.1 year over year in q3 2026 with both insurance and non-insurance channels contributing so it's a an area of significant focus for us as a team, and we will be, for lack of a better term, speeding that up as we go forward. Looking at our balance sheet, as of Q3, fiscal year 26, we have nearly 4.2 billion. This is after recently deploying 1.6 billion into share repurchase. We have no debt on the balance sheet to speak of. We believe we have the liquidity to continue to look at all strategic options available to us. Questions, I'll point out that Leah Cerns is here in the room with me, our CFO. So if there's some questions that are funny, I'm going to let her answer those. Our customers continue to focus and be a customer-centric company to provide the best liquidity in the industry. And I will tell you after, I'm not saying I ever left because I've been executive chairman i've been involved and jeff and i over the last two years two plus years uh we speak regularly if not daily multiple times a week but i have dug in heavily in just the last week and i'm excited and i'm looking forward to the changes we're going to make um and i'm back so it's not like i'm here temporary i'm here to stay and i'm excited uh for everything that we plan to do. On that note, I'd like to open it up for questions.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and the confirmation time will indicate your lines in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants, you can speak your limit and may be necessary to pick up your handset before clicking the star keys. For a moment, please, we'll recall for questions. And the question comes from the line of Bob Lovitz, Good morning, and welcome back to the calls, Jay.
Thanks, Bob. How are you?
I'm doing well, thank you. It's great to hear your voice. I know you've stayed active with the company, but we haven't talked in quite a while, so it's really nice.
Jeff was really good at investor relations, so you are correct. I was not that engaged in that component, but good to hear your voice as well.
Thank you. Thanks for the background. Obviously, we've known you guys forever. I wanted to get your thoughts on how AI is shaping the industry and how Copart is positioned and positioning yourselves to excel and how you see the industry evolving over the next 5 to 10 years with the understanding that you don't want to give away too much of your playbook. But kind of big picture on that stuff if you could.
It won't be 5 to 10. It's less than 5. We think of AI in quarters, not years. And it might be the only time in my life that I've thought in quarters and not years, but it's happening that quick. AI is something that if you're not doing it, you're missing out. We often refer to it. We've actually given guidance to our team on what tools are the best, and we often refer to AI as if you're not utilizing it, you're doing the company a disservice. So there's a big focus internally. Internally, we have a head of AI, and so that's something that we'll continue to, you know, the obvious things are efficiencies, and we'll do, you know, we're doing that already. The less obvious is strategic, and that I won't comment on, but we are looking at strategic availabilities in AI as well.
Okay, great. And then just, you know, kind of also big picture, just remind us in terms of you outlined your priorities for growth. But how do you think about, you know, build versus buy given the, you know, fortress balance sheet that you have? And, you know, what are your thoughts there?
We're going to do both. We will be doing M&A, obviously, and we'll be building as well. And, you know, as you all know, we're sitting on a ton of cash, and we have the ability to do both, so we will.
And then maybe last one, and I'll certainly jump back in queue, but kind of in your mind, what do you think investors are missing on the Copart story now? And, you know, how can you guys get that best out there?
I think, you know, and I never like to, you know, one, Wall Street's fickle, and two, I never like to predict what investors are going to do and how they're going to think. a narrative potentially that's out there in the industry potentially from a competitor and you know there's always two sides to the story and at the end of the day we're a phenomenal company we've got amazing people we've got phenomenal relationships with our customers and we we're going to do what copart has always done we're just going to execute we're not going to talk about it we're not going to tell people what we're about to do and then when we do win we're not going to tell people that we won. We're just going to do it. Let the results speak for themselves.
Super. Well, welcome back, and thanks.
Thanks, Bob.
The next question comes from the line with Gary Pascatino with Barrington Research. Please proceed.
Jay, how are you?
I'm good, Gary. How are you?
No, just fine. It's been a while. Good. Hey, a couple of questions, and welcome back. I'm really looking forward to working with you again. A couple of questions here. Well, one question you talked about the changes uh that you're going to implement and does that really um revolve around the growth pillars the international salvage whole car u.s and tech services customers it does yeah we're going to be speeding up some of those uh initiatives and so to do that we've got to have a more robust team okay so so in terms of of starting that whole process and how, how long does it take you? I realize that you've been in, you know, your, your leadership in there for about a week now, how long does it take for you to re reinvigorate that growth engine?
Well, I think, I think, I think that everyone in the company is excited. I think they're, they're already feeling like, let's go do some of these things. And so it's going to take me time to, you know, we're promoting people already, but it's going to take time to hire people. And so, you know, You know, it's not years, it's quarters, but it's going to take some time.
Okay, that's great. And then just in terms of what's going on in the industry, the cyclical headwinds, in terms of the consumers actually repairing their cars versus just getting a check or whatever, Do you think that if the premiums just continue to stabilize, you'll see a shift, or do we have to see more downtrend in the policy costs for consumers for them to step up to the plate and get a car repaired?
I think as things normalize, people will get coverage again. I just think when insurance rates get that outrageous, it causes people to drop their coverage and go with liability only. And I think as rates come back down and things normalize, you'll see people saying, okay, yeah, that's only X a year more. Go ahead and get me, you know, collision or comprehensive coverage.
Okay. And then one last quick question, and I'll jump off. You know, you've gone through a pretty strong exercise of buying land over the last couple of years. Are you at the point now where you don't need to buy any more land, particularly for catastrophic events, and you can shift resources to your three growth pillars in a bigger way?
Yeah, we've got an amazing network of locations, and not just the number of locations, but the number of acres per location, so I think we're in a good spot. We'll have to do a little bit of development still, and we've got a little bit of add-ons. So nothing like you saw the last 10 years. The last 10 years was just, you know, half a billion a year in buying land and developing those locations. That's definitely going to slow down.
Okay. Thank you so much.
Thank you, Gary.
The next question comes from the line of Chris Partiglieri with the NT Paribas. Please proceed.
Hey, Jay. This is Ian Davis on for Chris. Thanks for the time here. I wanted to ask you one on Purple Wave. So I know that Jeff and Leah had sounded constructive on the expansion there. How are you thinking about the go-forward strategy for this segment? Is it reasonable to think that some of your more recently acquired land is going to perhaps be targeted more towards supporting heavy equipment?
Just want to get some of your thoughts and thinking there. yeah i mean we've already got access uh to our locations for purple wave um i think uh you know i am focused right now on um international and domestic copart i'll focus on that next um i can give you a better answer in a quarter leah's here she's happy to to give you her response i just have not been that close to it so i think what what we've primarily focused on with respect to Purple Wave has been the expansion foundational.
So as we think about the continuation of the expansion, we'll be principally focused on the execution on that front, actively taking a sale.
That's helpful. And then I know you spoke to it, Jay, a whole card domestically. Maybe just some brief thoughts on where you're most excited, some of the unturned stones that you think are going to help support the next leg of growth. Just, you know, maybe one or two pieces or thoughts there.
Well, it's historically been a nice growth engine for Copart. I'd like to see that increase dramatically. To do that, we're looking at restructuring and we're looking at some other strategic moves that would help that. But the intent, I'm not going to tell you exactly how we're going to get there, but I'll tell you that the goal is that it looks very different in three to four quarters.
Got it. Thank you. The next question comes from the line of Craig Tennyson. Who cares? Please proceed. Hey, good morning. Thanks for taking my question, Jay.
Good to hear from you as well.
Hey, Craig. Good to hear you.
Yeah, I'm doing great. Thank you for taking my question as well. You know, you mentioned, Jay, three growth pillars, international, the whole car, domestic, and then tech services. Where do you need to invest the most in terms of resources, and how do you intend to fund that? Is it a reallocation, or could you be looking at an era of investment before we start to see sort of the returns on the bottom line?
Well, I think we've got to focus on M&A for all three, and then in addition to doing M&A for all three, we've got to focus on investing and making some of the products that we've got already more robust. So it's hard for me to tell you it's a third, a third, a third, or 40-40-20. But I will tell you they're all going to be material investments.
And when you look at your own M&A history, what sort of lessons do you lean on in terms of what makes for successful M&A within Co-Part?
If you look historically, all of the M&A that we have done has been in our industry. They've been acquisitions that made sense. They plug into Copart, and we can utilize our land or utilize our auction technology or our knowledge. And so we're going to continue to do that. We're not going to go out and buy something that has nothing to do with our industry. You know, we have, look, it's no secret. You guys know how we think about ROI. So we will be disciplined. We will be focused on making sure that we're getting the right return for our investments. But it's to buy and to build in our respective industries. I'm not going to go jump into something totally different.
And then just thinking about your balance sheet, any of us who have read Junk to Gold know your aversion to debt. But is that still true, or could you lean into the balance sheet to do the right deal and take on some debt?
To do the right deal, I would take on some debt.
Well, thanks. Look forward to working with you again, Jay.
Yeah, you too, Craig. Look forward to it.
The next question comes from Warren of Brett Germany, the Jeffers.
Hey, good morning. Good morning, Brett. I guess when you think about the margin profile, in the last few years you've added some operating expense for CDS and Blue Car and Purple Wave. Are we going to start leveraging that in the nearer term, or is there sort of another phase of investment to get to the end game? Obviously, you're talking a lot of growth and maybe some hiring, but how do we sort of think about the cadence of the SG&A growth in the last three years versus levering that maybe in the next year or two?
It's not an easy answer because I think we can leverage it, but I don't want to be pigeonholed. So I'm going to tell you I think we can leverage it, but I'm not going to make a statement like that on a call and then stop me from making a good long-term decision to invest in the company. So that would be my intent, but if something comes along and I see that I need to make the investment to grow even faster. And when we talk about growth, our growth is growth. You don't see us growing and doing enormous volume and not bringing that to the bottom line. So given that, I would say I think we can leverage it, but I would leave our options open. All right. That's fair.
Pastor French, we're on with John Healy with North Coast Research. Please proceed.
Thanks for my question. Welcome back, Jake. Thank you, John. I wanted to ask a question about the timing of all of this. I appreciate all of the, you know, initiative, but we're just trying to maybe dig in just a little bit more on, you know, why in July of 26 is this happening and, you know, and kind of the impetus of the timing per se right now. Thank you.
Well, I think from a timing standpoint, you know, I'm not technically CEO yet. We're going to transition that at the end of the month. I was, you know, back and forth with Jeff this morning. So, you know, that's all coming, and I'm very, you know, I'm digging in, but I'm digging in in a very short period of time compared to being in an executive chairman role. I think it was the right thing to do. I mean, Jeff and I had these conversations, and as I said already, we're friends, and he lives maybe 10 houses down from where I live. I mean, at the end of the day, I've got enormous respect for him. He does for me. None of that changes, but what was decided in our conversations was for me to get back involved and start to drive the company as CEO, and so that's what we decided.
Thank you. And then just, you know, you talked about the competitive set and not putting your cards on the table about, you know, what the playbook is. But, you know, trust us, you've got a playbook. I'm curious your thoughts of, you know, while you've kind of taken a reprieve, your competitor has, you know, obviously changed and evolved and new owners and all those things. What do you think the biggest, like, difference is in terms of how you're competing with them? Is this, you know, just them, have they have caught up a little bit to you guys in terms of maybe service and attention? Or, you know, I guess if you look at your competitor, maybe just talk to us how you feel the landscape has changed a little bit.
Yeah, I think they've, you know, espoused some rhetoric that's out there in the marketplace. I haven't seen where their products have dramatically changed. But, you know, historically, you can go back and listen to 30 years of transcripts from me, and you're not going to see me talk about my competitor a lot. so I'm not going to change that. Copart has got, just in the last year, has invested in a number of initiatives that we're working on, just like we had a decade ago and two decades before that. Online bidding started in 98. That's almost 30 years ago. When you think about digital auctions and virtual bidding, we were signing people onto AOL, and they were dialing in to be able to bid in our auctions i mean we have we have tried to be very cutting edge not bleeding edge and we'll continue that we'll continue to have differentiators in the space and i look at a number of our products are just significantly better today than they were a year ago and we're going to we're going to double down on those initiatives so there will be a little bit more spending, but it's going to drive, it'll drive the business forward, so it's necessary.
Thank you, and good luck.
Thanks, Sean.
The next question comes from the line of Jeff Lick with Stevens. Please proceed.
Good morning. Thanks very much for taking my question. Jay, I was wondering, you know, you talk about the narrative that's developed, which, you know, is primarily, I think, the simple narrative is if you look at your competitors' units, which are positive in your insurance units or, you know, different units that you disclose have been negative. So it has the, you know, look that you're losing share. But when you dig in, you know, whether you want to look at the progressive or, you know, the underinsured and uninsured, maybe it isn't the case. Could you maybe just expound upon anything that you're looking at, whether you want to talk about, you know, pure sale or, you know, how should investors just focus on Copart and see that you're going in the right direction and maybe not even, you know, focus on the differential between units?
Yeah, I mean, there is a unit loss. There was an account that was lost in some ways, and in some ways Copart chose not to do business. And so that has historically happened, and I won't mention the company. I don't view that as some fundamental change in the relationship we have with all of our clients. So if you look at the rest of our clients, we've got great relationships with them. They recognize us for delivering not just the service but the liquidity and being not just the largest but the best place for them to liquidate their vehicles. If we didn't have the kind of liquidity that we're talking about, we couldn't be growing all the non-insurance business. We couldn't be growing all the dealer volume. These are folks that would look at that and say, you know, why would we give you more cars unless you're getting the return? So there has been that. I don't think that that's, you know, going to continue throughout the organization, and I think corporate has the ability to win that business back. And I suspect over time you'll see that kind of behavior. you'll see us winning business. So that's our plan, Jeff.
And then on the whole car front, the one asset you appear to have is the ability to take your international buyer base and liquidity and offer that to the dealers and the commercial sellers.
Is that an area I think that you guys would incrementally focus on and try to build relationships that way? we have we have historically but you know you you said dealers and whole car but it's also insurance and we were the first to build an international uh buyer base that was back in the 90s i remember seeing buyers from tijuana uh coming into our website first and then it got to a point where i was looking up to see where countries were from because there were so many different countries that were buying at copart um not just the fact that we've been marketing and working that for 30 years, but the fact that we've got Middle Eastern presence, European presence, Eastern European presence, all of that is part of what drives that buyer base and that buyer liquidity. And, yeah, we'll continue to do that. We're not going to move away from that. That's a big differentiator for our sellers is to see where those vehicles are selling to when we actually when we actually sell them just from an educational point of view how does an insurer become the owner of record of a whole car i thought usually the transmission mechanism is it's a salvage and the titles transferred to them they don't really become when we talk about whole car we're talking about non-insurance so we're talking about banks finance companies and things like that insurance is going to be a damaged vehicle for the most part might be a recovered theft that has very little damage to it but for the most part it's a damaged vehicle Okay.
Thanks very much, and best of luck. Look forward to working with you.
Thank you. Appreciate that.
The next question comes from the line of John Babcock with Barclays. Please proceed.
All right. Good morning, and thanks for taking my questions. I guess just the first is on really overall strategy. I was wondering how much, as you're focusing on growth, you're thinking about the salvage auction business versus some of the other areas like international car and tech, And if you could just broadly talk about where perhaps more emphasis is needed, that would be helpful.
Yeah, I mean, like I said earlier, I mean, the focus is going to be on international. It's going to be on growing the existing core business. It's going to be on technology. For me to break it out, I can't break it out and tell you, you know, a third, a third, a third. It's that that is the focus. And, you know, the team at Copart have heard me say before, you know, I can't remember four or five or six things, three things, FBI, CIA. I can remember three things. And so when we talk about our growth, those are going to be the three pillars and the three legs, and that's going to be the focus. And we are not some rigid organization. We're a flexible organization, and we will flex as we need to put more effort into one area versus the other.
Okay, gotcha. And just back to the M&A side of things, Are you thinking about something that, you know, and again, recognizing that it's probably still early, you're probably still not even at the point where you're really even looking at things, but do you envision doing something that may be transformative, something that's more tuck-in? How do you kind of envision that going forward?
We're going to focus on things that fit our industry. We're not going to be going outside of our industry.
And then just last question before I pass it over. Now that you're coming in, do you think that there is more need for a strategy shift here? Do you think there is need for changes on the operational front? You know, I was wondering if you could talk about that.
Yeah, happy to talk about it. No, the operations team has been amazing. I mean, we've got amazing systems people, all of our facilities. We've continued to invest in them over the last decade, let alone the last year. So, no, they're great. I feel very happy with where the company is sitting. It has been well-operated, but there's nothing I can say about that that I'm displeased with. I'm very happy with everything. But if we're going to grow at a little faster rate, it does take some changes, like with respect to structural setup with people, the organization, how we move people around in the organization, hiring some people on the outside. So, in addition to that, we'll be M&A. Thanks, John. I think that's it, isn't it? All right. No further questions. Is that right?
Mr. Ben, you go ahead with closing remarks.
Yeah, I appreciate that. Thank you. I'm going to look forward to the earnings call when we come out. I think it was just important for us to do this call. It's the first time Cobart has ever done a call between earnings releases in 30 years, 32 years as a public company. But we just felt it was important for you to hear some of this and not wait until the actual quarter comes out. Given that, it was a pleasure to talk to you all again, hear voices that I haven't heard in a while, and look forward to reporting on the quarter and the year in the coming months. and Lee and I will have a lot to tell you then. So thanks for your time today, guys. We appreciate you, and we're signing off.
This concludes today's conference. You may disconnect your life at this time, and enjoy the rest of your day.