Copart Inc Q3 FY2026 Earnings Call

Please stand by. Good day, everyone, and welcome to the Copart Incorporated third quarter fiscal 2026 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 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 31st, 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 CEO, Jeff Liao.

Welcome, and thank you for joining us for our call today. We're pleased to report the results of our third quarter fiscal year 2026. I'll begin with some brief remarks on our insurance business before passing the call to Leah to provide a summary of our financial results. We'll then take your questions. On our insurance business, first, for the third quarter 2026, our global insurance unit sales declined 2.7 percent or 1.9 percent, excluding the effect of catastrophic volumes from a year ago. Our U.S. insurance unit volume for the same period declined 4.2 percent, or just over 3 percent, excluding the effect of those same catastrophic units. We believe the long-term growth algorithm for our insurance business remains very much intact, that over many years we've observed modest gradual declines in accident frequency which are then more than offset by increases in total loss frequency. Total loss frequency is in turn a function of ever-rising repair costs but more importantly the differentiated returns that Copart generates by finding the highest and best use for a car globally which is often full restoration back to road worthiness. Nevertheless the underlying drivers of near-term volume trends remain consistent with those we've discussed with you in prior quarters. A portion of this volume variance reflects shifts in policy and force mix among insurance carriers. And as we indicated previously, these trends tend to have been cyclical historically, and we have observed moderation in some of these trends among large U.S. insurance carriers in recent quarters. Claims activity also remains somewhat softer as consumers continue adjusting their insurance purchasing behavior in response to rising premiums. As one indicator of this trend from a macro level, earned car years, according to ISS Fast Track, have declined 4% year-over-year in the fourth calendar quarter of 2025, while vehicles in operation grew 1.4%. We believe this divergence, declining insurance coverage against a growing vehicle fleet, is clear evidence of the consumer pullback on insurance coverage. As one other strong indication of consumers absorbing ever more of the financial burdens of their claims, CCC has published data indicating that 25 percent of repairs are now self-pay and that in response they've actually created a buy now, pay later product to support those consumers. Long-term historical data, though, indicates that this consumer retrenchment phenomenon regarding insurance coverage is cyclical and likely counter-inflationary. When consumers feel pocketbook pressure, especially on a lagged basis regarding their auto insurance rates, they dial back their coverage. The same has been true in reverse. This softness in claims activity has been partially offset by continued increases in total loss frequency consistent with the very long-term industry trend. The underlying forces here have been remarkably consistent, rising repair costs on the one hand and on the other, increasing auction returns at Copart. Total loss frequency for the first calendar quarter of 2026 reached 23.6%, an increase of almost five full percentage points over the past four years. Although we always report this metric, it sounds like we describe it as an industry metric. We are very much not passive beneficiaries of an increase in total loss frequency. We have helped to drive it upwards, and we view it as our ongoing responsibility to drive ever better auction returns, which then increases the attractiveness of the total loss pathway to insurance carriers who are considering various possibilities for resolving their claims. We are focused, as always, on delivering superior outcomes for our clients, first and foremost, through auction returns, but also, of course, through our differentiated service offerings from vehicle retrieval to title processing. We continue to invest heavily in our technology platforms, our physical infrastructure, and our global buyer network to enable those outcomes, representing absolute investment levels that substantially exceed the balance of the industry collectively. We do so proudly as stewards of the industry. On returns specifically, Despite the logistical and economic disruptions of global conflict, U.S. insurance ASPs increased 4.1% year-over-year for the quarter, reaching a seasonally adjusted all-time record high for copart insurance ASPs in the third quarter. Consistent with our prior discussions, international buyers are a critical driver of these auction returns and today represent more than a third of the volumes sold at U.S. co-part auctions and nearly half of our auction proceeds. In any given month or quarter, the precise mix of participating countries can surely vary. For example, given recent conflicts, direct participation in U.S. auctions from certain Middle Eastern markets has declined year over year. What has sustained overall demand has been the breadth and diversification of this buyer base. As certain corridors moderated, others expanded to fill the gap, including parts of Central Europe, West Africa, Central America, and the Caribbean. The virtue of robust auction liquidity is that no single seller or buyer, and in fact no single region, country, or currency unduly influences the auction outcomes we deliver to our sellers. The resilience of our marketplace comes from the depth and diversity of a buyer network we have spent decades cultivating, now spanning more than 160 countries worldwide. That network breadth is a meaningful driver of returns for our insurance clients. Our analysis also shows that international buyers, financed buyers, new buyers, and particularly crossover buyers which I'll describe in greater detail are critical enablers of the higher auction returns that we generate for our sellers we call crossover buyers those members who first discover Copart and engage with us in search of a vehicle sold by rental car companies financial institutions dealers and the like who then discover the wealth of product available from insurance sellers and then engage as buyers there as well. Looking back over the past three years of the more than 30,000 buyers who first entered the Copart ecosystem by virtue of those non-insurance vehicles, a strong majority would bid on an insurance vehicle within the first 90 days of their engagement. Whatever we or anyone else asserts about their auction liquidity, the best testimony for auction liquidity is your seller participation. Our sellers vote with their feet by entrusting ever more of their volume to us on a pure sale basis. They know that by virtue of Copart's buyer recruitment, product discovery, and auction management practices that we will yield the highest and best value the first time through our auction. And in fact, today, For U.S. insurance sellers at Copart, the mix of PureSale units is at all-time highs. We estimate that our PureSale insurance volume is literally an order of magnitude higher than what is available at other similar platforms. We recently completed our 2026 Insurance Advisory Board meeting, a gathering of our largest U.S. insurance clients together to discuss current and future catalysts of change in our industry, including, of course, very notably, artificial intelligence deployment. It marks, though, just one visible moment in our ongoing day-to-day engagement with our clients to extend and expand our commercial relationships as we handle ever more of the claims processes for them, including providing them the AI-enabled tools to make front-end total loss decisions more quickly and more accurately, through to title procurement, loan settlement, and ultimately auction as well. With that, I'll turn the call over to Leah Stearns.

Thank you, Jeff, and good afternoon to everyone on the call. I'll begin by walking through our financial results for the quarter, beginning with our consolidated performance, followed by a review of our U.S. and international segments. For the third quarter, consolidated revenue grew to $1.24 billion, up 2.1% year-over-year, driven by strength in both service and purchase vehicle sales. During the quarter, we continued to see expansion in average selling prices, which rose 4.6% and more than offset a modest decline in unit volumes of 2.4%. On the insurance side, global units were down 2.7%, consistent with the industry dynamics Jeff outlined, while global non-insurance units decreased 1.4%. Notably, while global inventory was down 2% from the prior year, global assignment volumes grew at a low single digit pace from a profitability standpoint the quarter was strong global gross profit increased 3.7 percent to 572.6 million with global gross margins increasing 71 basis points to 46.3 percent during the quarter we continued to invest across our platform to enhance the products and services we offer to participants across our global marketplace this includes the recent launch of our domestic long-haul delivery services in the US. Operating income grew 2.8% to $464.3 million, net income was $402.4 million, and earnings per diluted share increased 2.4% to $0.43, benefiting in part from our ongoing share or purchase activity. Turning to our US segment, total units declined 4.2 percent or 3.3 percent excluding copart direct units insurance volumes decreased 4.2 percent which are consistent with the claims frequency trends jeff described a few moments ago beyond insurance we are seeing encouraging momentum across our diversified seller base our dealer services and power sports businesses grew units by one percent and our blue car commercial consignment channel expanded by over four percent over the prior year combined fleet and finance seller volume grew at a healthy double digit pace which was partially offset by the continued impact of higher repair activity we've seen among our rental customers our copart direct unit volume declined 26.3 percent as we have continued to strategically shift lower value units to our direct by channel. On the inventory side, U.S. inventory was down 4.7 percent year over year, and U.S. assignments declined at a low single-digit pace during the quarter. Shifting to Purple Wave, our focus on organic territory sales expansion continues to yield strong gross transaction value growth, which was more than 25 percent for the last 12 months. The momentum we are experiencing is being fueled by strong traction in our expansion markets and and deepening relationships with select enterprise accounts, which is a real testament to the progress our team is making to scale their platform. On revenue, the U.S. segment was essentially flat, down 0.4%, as higher revenue per unit largely was offset by volume headwinds. Insurance ASPs increased 4.1%, non-insurance ASPs increased 3.7%, and purchased unit ASPs increased 23%. U.S. gross profit grew to $484.1 million, up 0.9%, and gross profit margin was 48.3%. Operating income is $390.4 million, reflecting a 38.9% operating margin. Internationally, the story is one of continued momentum. Total units sold increased 5.9%, with insurance units up 4.6%, and non-insurance units growing at an impressive 11.2% in the quarter. Inventory in our international segment increased over 10% from a year ago period, and international assignments increased at a low teens pace. These trends reflect the broad-based growth that we are seeing across our diversified international footprint, with particularly strong contributions from the UK, Germany, and Canada. For the quarter, international revenue grew 14.1%, or 7.9%, excluding the positive impact of foreign currency fluctuations, to $234.2 million. The primary source of growth internationally came from service revenues, which were up 17.9%, which was driven by a 10.5% increase in fee revenue per unit and strong volume growth. ASPs increasing 8.4% and non-insurance ASPs growing 16.7%. The profit picture was equally compelling, with gross profit increasing 21.9% and operating income reaching $73.8 million, representing a 31.5% operating margin. Finally, turning to our capital structure and liquidity, Copart remains in an exceptionally strong financial position. We ended the quarter with liquidity of approximately $5.5 billion, which includes $4.2 billion in cash and equivalents in held to maturity securities, and no debt. Our balance sheet gives us tremendous flexibility to be opportunistic investors throughout business and credit cycles. We continue to generate robust free cash flow, which has increased 12% year-to-date, supported by disciplined capital allocation into land, facilities, and technology, which positions us to efficiently serve both insurance and non-insurance clients while delivering strong operating efficiency on the capital return front we continue to repurchase shares during the third quarter through a combination of 10b51 and open market transactions fiscal year to date we have repurchased over 43.4 million shares for an aggregate amount of over 1.6 billion underscoring our confidence in the future growth prospects for copart and the long-term value of our business thank you and with that

we'll open up the call for questions thank you ladies and gentlemen if you would like to ask a question please press star 1 on your telephone keypad and the confirmation tone will indicate your line is in the question queue you may press star 2 if you would like to remove your question from the queue for participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys one moment please we'll reply for questions and the first question comes from the line of Bob Labick with CJS Securities. Please proceed.

Good afternoon. Thanks for taking our questions. Hey. So I wanted to start on fuel. You know, fuel prices, transportation costs are up, you know, across the economy and talked about a lot in general. And I was wondering if you could, you know, remind us how it flows through for Copart now. I think, you know, years ago, it was all company fleet. Then you outsourced your fleet. I think you kind of have a hybrid towing fleet now. So if you could give us color on the impact and, you know, do you charge, you know, surcharges pricing to your customers or how do you mitigate fuel as well? Okay. Understood. Great. And then, you know, I guess one bigger picture question in terms of, you know, the decline in new car sales and SAR, you know, kind of started in 2020 from COVID. And, you know, how do you see that as, is there an impact on expected salvage volumes in 2027 and beyond as those cohorts start hitting the sweet spot for total loss frequency. I know there's lots of other variables. You talked about insurance affordability claims or in car years, et cetera, which can be offsetting. But I guess if I drive it down to one thing, you talk about the kind of the macro drivers and that one in particular, the, you know, the decline in SAR, and then more so just the, you know, biggest copart-specific growth drivers over the next five years, noting that macro is a little bit tough.

There are some auction houses for, at least in theory, even at the extremes, if you completely eliminated all, which is not that far.

Got it. Understood. And then just like the primary drivers, I guess is my last one I'll get back in queue, you know, four-year growth over the next five years.

We've been very much more than offset by rising total loss frequency. The catalysts for that phenomenon, we think, largely remain true. So that's the insurance business part one. In all the markets in which we're worth $5,000, $10,000, $15,000, $20,000 plus, we become, with each pass, appropriate forum for a growing variety of these. Some countries that still share.

Wonderful. That's great. Thank you so much for all the detail.

The next question comes from the line of Craig Tennyson with Baird. Please proceed.

Hey, good afternoon. Thanks for taking my questions as well. Jeff, it sounds like you hosted a forum for your insurance partners. I'm just curious, first, what are those insurance partners saying about the outlook for claims in 2026, 2027? And then you had also mentioned some catalysts for change in the industry, and I wondered if you would elaborate on some of those catalysts. Yeah, thank you. And then either Jeff or Leah, I'm just looking at that international service revenue line up, I think 18%. maybe could you just shed some light on what exactly is driving that to what extent is the market performing the underlying markets in which you participate is that performing it well and to what extent is that a representation of traction you're getting especially I'm curious about in Germany as I know you're flipping that market towards a Copa copart style remarketing service.

Yeah, Craig. So the growth internationally that we saw on the revenue side was, as I mentioned in my prepared remarks, there was contribution across many markets. The U.K. was particularly strong in the quarter. Germany followed it up as well as Canada. And so we've seen really strong demand across all three markets, both on the insurance side as well as the non-insurance business. Germany continues to perform incredibly well on a relative basis to where it was several years ago. We continue to see carriers be open-minded about how they're approaching the total loss process, and that's a market where we've seen some meaningful progress from a unit volume as well as a profitability perspective. So we're really pleased with that performance.

Thank you. The next question comes from the line of Josh Botwa with J.P. Morgan. Please proceed.

Hi, good evening, and thanks for taking my questions. Could you just give us an update on the size of the non-insurance or whole car business? And it would be really helpful to get a sense of the typical profile of a crossover buyer. You know, how does their wallet share with Copart tend to evolve over time? If possible, it would be helpful to hear an example or anecdote of how a dealer maybe initially engages with Copart and what that early exploration phase looks like and how that activity typically ramps up as the relationship develops. Thanks and have a follow-up. Got it. Thanks a lot, Jeff. That's very helpful. Just as a follow-up, could we double-click on the pure sale mix with U.S. insurance sellers? I just wanted to understand if this is, you know, more contractual in nature or something more dynamic that can be toggled up or down and whether a higher mix of pure sale units has positive implications for co-parts earnings profile. Thank you. Understood. Great caller. If I could just sneak one more in on RPU, you know, continued strong growth here, despite having fully lapped prior pricing actions. Could you maybe unpack the drivers of the strength, you know, maybe break it down between contribution from PRESP expansion versus other vectors like mix and initiatives like Tidal Express? Thank you.

Next question comes from the line of John Healy with North Coast Research. Please proceed.

Thanks for taking the question. Jeff, I appreciate the comments on the whole car side. And frankly, that's kind of one of the areas we're getting most questions about from investors. So we'd love to spend a couple more minutes there. Can you just remind us again, just the size of the business, maybe either in terms of, you know, dollars or units again. And when you look at kind of the whole car business, I think there's different definitions that probably different folks in the industry use. You know, when I talk to people in the industry, they seem to tell me that you guys are selling a lot of hail damage type vehicles. So we'd love to know from a consignor standpoint, not necessarily the demand side that you talked about in the last question, but from a seller standpoint, where those whole car units are coming from, and are they still largely attached to some sort of, what I would say, damaged vehicle, not necessarily a complete salvage? But we'd just kind of love for you to kind of dive in to help us think about your definition of whole car. And secondly, as you think about growing that business and aspirations to be more on the dealer side. I know you've had Copart dealer services for a number of years. Is that a strong enough presence brand to do what you want to accomplish there? And I know you've kind of toyed around with Blue Car for the last couple of years. But what's your level of satisfaction with Blue Car? And, you know, do you think you maybe need a different tool, different platform, or maybe just a brand that doesn't say Copart to be as successful there as you want it to be?

Yeah, that's great.

And then just, you might have mentioned it and I missed it. Maybe talk a little bit about the industrial side of the business. Maybe, you know, where you're at, you know, as you think about investments there. maybe I don't know if you mentioned how the GTV performed. Any call outs for us to think about how Purple Way is performing? Thanks.

Sure, John. I'll take that. Just in terms of GTV, we look at it on an LTN basis, and GTV has grown over 25 percent year over year, and so we're very pleased with that. The majority of the growth is coming from territory expansion. We started out the business with a principally central time zone focused territory sales force and have expanded out to the coast. The majority of our investment in Purple Wave has been in headcount in that territory sales force, as well as some very focused enterprise-level accounts that are focused on building relationships with large nationwide sellers. So the GTV growth that we're seeing is a result of the success that we've had with that territory expansion and the enterprise relationships. We're pleased with that. I'd say we're probably about, in In terms of overall size, the team is about 2 1⁄2 to 3x, the size it was when we acquired Purple Wave. And we still have some ways to go in terms of achieving full nationwide coverage, but we've certainly hit the top areas that are most important for Copart to penetrate from a territory presence perspective, and we're pleased with the progress we're seeing so Great.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. And the next question comes from the line of Jeff Lick with Stevens. Please proceed.

Thanks for taking my questions, actually. Yeah, most of them on the whole car side. But I was wondering if you could talk a little bit on the recent long haul that you referenced, you know, what exactly you're doing there and how does that impact and how you're adding that into your business?

Sure, Jeff. On the long haul side, that's an additional product that we have really always offered to our members. However, we shifted our product offering a little over 12 months ago. We've seen rapid adoption of it and are quite pleased with the level of buyer participation that we've seen effectively procure long-haul delivery through the co-part-delivered product. So we believe it reduces friction. It gives our buyers certainty in terms of cost up front. And like I said, we're pleased with how that's progressing. And just in terms of overall impact for the quarter, we saw about $15 million a year-over-year increase in cost on the facility ops line related to our long-haul delivery product. and that product is generating a nice margin for us as well at the revenue line.

And just a quick point of clarification on pure sale units, is that just analogous to a non-reserved sale or is there any nuance there? Okay, thank you. Best of luck in the next quarter.

Thank you. This concludes question and answer session. I'd like to turn the call back to Jeff Leal for closing remarks.

Thank you, everybody. We'll talk to you next quarter.

And this does conclude today's conference. You may disconnect your lines at this time, and we thank you for your participation.