Earnings Call Transcript - CPRT Q2 2026

Operator, Operator

Good day, everyone, and welcome to the Copart, Inc. Second 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 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 CEO, Jeff Liaw.

Jeffrey Liaw, CEO

Thank you, Owen. Welcome, and thank you for joining our second quarter fiscal year 2026 earnings call. I'll begin with some brief remarks on trends in our insurance business before passing the call to Leah to provide a summary of our financial results. We'll then be happy to take your questions. On our insurance business, for the second quarter, our global insurance units declined 9% or 4%, excluding the effect of catastrophic units from a year ago. Our U.S. insurance units declined 10.7% for the same period or 4.8%, excluding those catastrophic units. The underlying drivers of these changes remain consistent with what we've discussed on our prior calls. First, shifts in policies in force and exposure levels across insurance carriers who themselves are experiencing differential growth rates. Softer overall claims activity driven by a consumer pullback in auto insurance coverage, all partially offset by continuing increases in total loss frequency. On the latter point, total loss frequency continues its inexorable rise, consistent with the long-term historical trends we've observed and discussed at great length. In the United States, total loss frequency was 24.2% in the fourth quarter of calendar year 2025, a slight 10 basis point uptick from a year ago. The year-ago period, of course, does include the effects of Hurricanes Helene and Milton. It's notable that total loss frequency has increased over that period, nonetheless. Then when you step back a bit over a multiyear horizon, the upward trajectory becomes clearer still. Total loss frequency in calendar year 2015 was 15.6% in comparison to 23.1% in calendar year 2025. Against that backdrop, our focus remains on delivering superior long-term economic and service outcomes to our insurance clients. First and foremost, we maximize returns for our insurance partners. We believe our auction returns continue to reflect the structural advantages of our marketplace, and recent account wins for which we have empirical before and after returns data validate that position. As you know, industry-wide vehicle values have normalized somewhat from the elevated levels we observed during the supply chain constrained period of 2021 and 2022 as evidenced by Manheim indices and otherwise. We are nevertheless generating record average selling prices for our U.S. insurance consignors. As we discussed at great length on our first quarter call, we attribute this performance to the scale and diversity of our global buyer network, rising international participation, enhanced data-driven merchandising, and the liquidity that comes from consistently finding for each vehicle we auction its highest and best use globally. The critical driver of long-term competitive advantage for Copart is that liquidity. We migrated first to an online-only auction in 2003 and have benefited from an almost two-decade head start in comparison to the rest of the industry. In short then, we benefit from a growing base of bidders, as evidenced in bidders per auction, bidders per lot, watch list additions per lot, and so on. Our selling customers have also voted with their pocketbooks, entrusting us with more pure sale units than they ever have before, knowing our auction will achieve a full and fair market value. The ancillary benefit from that change and that evolution is that our sellers can themselves reduce their own internal administrative burdens by extension. As evidenced by marketplaces across a multitude of industries, liquidity begets liquidity. The fact that our auctions continue to drive strong returns and price discovery yields further growth by bringing new sellers to our platform and frankly, by enhancing the economic attractiveness of the total loss pathway for our insurance clients as well. Our strong returns are literally one of the critical drivers of rising total loss frequency in the industry. To that point, our U.S. insurance ASPs for the quarter increased 6% year-over-year. Excluding the effect of the catastrophic events from a year ago, our average selling prices for the U.S. insurance sector grew by 9% year-over-year, yet again outpacing industry trends. The second important element from our insurance carriers' perspective is cycle times, both from assignment to vehicle retrieval and from vehicle retrieval to vehicle sale. These are critical drivers of economic value and policyholder satisfaction for our insurance clients. To deliver excellent pickup times, we operate the largest tow network in the industry by a long shot, a unique combination of third-party subcontractors, owned trucks, employed drivers, and what we call truck-in-a-box operators, who are independent third-party drivers who leverage Copart's purchasing and financing scale for their vehicles. All of these service providers benefit from Copart's best-in-class route density to optimize performance and cost. Finally, our Title Express offering, the process by which we obtain loan payoff balances and accelerate the retrieval of original titles, whether held by the banks or by individual policyholders, is by a factor of 5x or more the largest such platform in our industry. In many cases, we deliver cycle times 10 days better or more than the insurance clients can deliver on their own because we benefit from unmatched scale and the purpose-built technology platform that, that scale enables. On the specific question of claims activities, we talked at length about on our last two calls about trends we've observed in the insurance industry, including consumers paring back their coverage by foregoing collision coverage, raising their deductibles, or both. These trends have continued in our most recent quarter; historical data does indicate over the long haul that these are more cyclical forces than they are secular. The last point I wanted to make was to shed some light on artificial intelligence and what it means as a critical tool for Copart specifically. We have deployed artificial intelligence at scale along multiple dimensions across our enterprise, including my own significant personal engagement in Quad code and other such platforms. We've observed, not surprisingly, an exponential monthly increase in use by our own in-house team of engineers. With approximately 1,000 full-time engineers across North America, Europe, and Asia, we have by a healthy margin, the most robust and experienced bench of technology talent in the industry and the tech platform to show for it. Artificial intelligence is turbocharging their productivity day-to-day. We have also deployed our artificial intelligence in business analytics, document processing, our call for release processes, driver dispatch, and so on and so forth. As one commercial example, two full years ago, we launched a total loss decision tool to the industry, which assists insurance carriers in making expedited total loss decisions with limited information, including, for example, a small sample of photos and otherwise. In every case, as we deploy this critical technology, we are appropriately respectful of the critical privacy and reliability considerations that our sellers will have as well as the business practices, legal and regulatory considerations of our insurance business partners specifically. We have already seen AI substantially increase our productivity across functions, and we will continue to deploy it to continue doing so. We also know that artificial intelligence will enhance the value proposition we can deliver to sellers and buyers at our marketplace over the long haul. With that, I'll turn the call over to our CFO, Leah, to discuss our second quarter financial results.

Leah Stearns, CFO

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 second quarter, consolidated revenue declined 3.6% year-over-year to $1.12 billion. The prior year included revenue from over 49,000 CAT-related vehicles. Excluding CAT, consolidated revenue increased 1.3%. Service revenue declined 4% and purchased vehicle sales decreased 1.4%. Revenue performance was driven by higher ASPs, which were up 6% on a reported basis and 7.1% excluding CAT, which were offset by lower unit volumes, which declined 8% globally and down 3.6%, excluding CAT. Global insurance units declined 9.3% or 4.1% adjusted for CAT, while global noninsurance units decreased 2.7%. Global inventory declined 7% from the prior year, while global assignment volume declined low single digit. Global gross profit decreased 6.2% to $492.8 million. The prior year included profit from the CAT units, and this quarter included a $6.8 million one-time expense accrual related to international VAT. Adjusting for these items, global gross profit increased 0.4% and global gross margin increased 178 basis points to 45%. Operating income declined 8.8% to $388.7 million, while net income was $350.7 million, down 9.5% from last year. And earnings per diluted share decreased 9.2% to $0.36. Turning to our U.S. segment, total units declined 9.5% or 4.5%, excluding CAT and direct buy. Insurance volumes decreased 10.7% or 4.8%, excluding CAT, which are consistent with the claims frequency trends Jeff described a few moments ago. Dealer Services unit growth was 5%, while commercial consignment units, which are marketed through our BluCar channel, declined 11.8%, reflecting higher repair activity among our rental customers, while fleet and bank finance seller volume continues to grow at a healthy double-digit pace. In addition, as we continue to shift lower value units to our direct buy channel, reported U.S. purchase units declined 23.6% or just 8% on a normalized basis. As of the end of the quarter, our U.S. inventory had declined 8.1% from the year ago period. During the quarter, U.S. assignments declined low single digit from the prior year Purple Wave's gross transaction value growth of more than 17% over the last 12 months continues to significantly outperform the broader industry and reflects our strong performance in our expansion markets as well as growth in our enterprise accounts. U.S. total revenue declined 5.5%, but was flat excluding prior year CAT events. Fee revenue declined 5.6% and was also flat, excluding CAT, as lower unit volume was offset by an increase in revenue per unit. U.S. insurance ASPs increased 6% or 9% excluding CAT, and noninsurance ASPs increased 2%. U.S. gross profit decreased 7.2% to $430 million or 1.6% excluding CAT, and gross margin was 46.6%. Operating income was $341.5 million, down 9.2% year-over-year or 2.3%, excluding CAT and U.S. segment operating margin was 37.1%. Turning to our International segment, International units declined less than 1% or grew 1%, excluding prior year CAT events. Insurance units decreased 2.6% or 1% excluding CAT, and international noninsurance units increased 9.1%. We continue to see strong noninsurance growth across our diversified international footprint, including in the U.K. and Canada. Revenue increased 6.1% or 7.7% excluding CAT to $200 million, including a $13.4 million favorable FX impact. Service revenues increased 7.7% or 9.4%, excluding CAT, which was driven by a 7.6% increase in fee revenue per unit. International insurance ASPs rose 9%. Gross profit grew 0.9% and operating income was $47.2 million or a 23.6% operating margin. Finally, turning to our capital structure and liquidity, Copart remains in an exceptionally strong position. We ended the quarter with liquidity of approximately $6.4 billion, including cash and cash equivalents of $5.1 billion and no debt. We continue to generate robust free cash flow, which has increased 58% year-to-date. This is supported by disciplined capital allocation into assets, which position us to efficiently support our growth to serve both insurance and noninsurance clients while also delivering strong operational efficiency. In addition, during the second quarter, we began to repurchase shares of our common stock through open market purchases and have subsequently repurchased shares under a 10b5-1 plan through the month of February. Fiscal year-to-date, we have repurchased over 13 million shares for an aggregate amount of over $500 million. And with that, I'd like to thank you for joining the call, and we'll open it up for questions.

Operator, Operator

Our first question comes from Bob Labick with CJS Securities.

Bob Labick, Analyst

So Jeff, you mentioned some of the macro factors like claims frequency and the decline in earned car miles that we discussed last time, which are showing similar trends to previous calls. What are the key elements you are monitoring to identify any changes that could reverse this trend and lead to growth in industry volumes? I understand that total loss frequency will influence this as well, but aside from that, what other macro factors are you observing to help drive industry growth?

Jeffrey Liaw, CEO

Yes, that's a fair question, Bob. As you know, the auto insurance industry experiences cyclicality, which is reflected in premium growth and contraction, as well as combined ratios. A significant part of the industry has recently, after receiving approval from various regulatory bodies, implemented rate increases over the past few years, which came long after the carriers had faced underlying cost inflation in repairs and labor. There was a delay in passing these rate increases through, and as a result, they now have much healthier income statements but compromised growth. If historical trends are any indication, there are fluctuations in this regard, and many companies may start reinvesting in growth and increasing policy numbers through marketing and more competitive rate strategies. These are the aspects I would focus on, as consumers constantly evaluate their purchases of goods and services. Compared to my experience in the industry and Copart's history, consumers have felt the financial strain more intensely over the past year, leading them to reduce their insurance coverage. The figures do support this observation.

Bob Labick, Analyst

Okay. Great. And then just one more from me, shifting focus a bit. SG&A has returned to generally achieving operating leverage, remaining flat after a period of growth for several reasons, one of which was the increase in sales personnel. I was wondering if you could share what you've learned from expanding the sales force. What are the anticipated returns and outcomes from this larger team? Additionally, what successes and challenges have you encountered so far?

Jeffrey Liaw, CEO

Yes, fair question, Bob. And I think it probably oversimplifying the picture to say it's merely the sales force itself for sure. We have invested in our commercial capabilities, as you described them, but also in product and tech. And along these other dimensions you've heard us talk about, whether it's the services we provide to the insurance carriers in the form of Title Express, the artificial intelligence back to tools and so on and so forth. So there's more to the picture than just that alone. But yes, we do believe it drives differential returns to us, both in the form of unit volume, better selling prices, better economics period overall. I don't tend to read too much into any given quarter or any given quarter's percentage change versus a year ago. I understand for a host of reasons why you and other analysts might, right? But we basically treat each expenditure as its own decision that needs to be warranted by the economics. Every investment we make is justified by the economics of this specific project itself. And so in the aggregate, there will be periods in which SG&A grows more than in others. I wouldn't have read that much into even the past few years as you described, just as I wouldn't read a whole lot into today's results either. The calculus remains the same; invest the capital on behalf of our shareholders as though it's ours because it is to generate profitable growth for the enterprise hard stop.

Operator, Operator

The next question comes from the line of Craig Kennison with Baird.

Craig Kennison, Analyst

I wanted to ask about your land capacity needs. If you look at or project your volume for the next 1-, 5- and 10-year period and take into account faster cycle times that you've experienced, but also whatever market share dynamics are out there, how would you frame your need to invest in additional land capacity?

Leah Stearns, CFO

Sure, Craig, I'll take that. Today, I think we are in an incredibly strong position relative to where we were, say, a decade or even longer ago. That has been a result of very disciplined and focused investment in the magnitude of several hundreds of millions of dollars per year. But we are still focused on where we want to be positioned 10 years from now. And that ultimately may require additional investments in land. Certainly, faster cycle times will allow us to use our land on a more efficient basis. And we take all of that into consideration as we look at individual assets, as Jeff said, even on the investment front, whether it's G&A or incremental land parcel, we look at it on a specific investment basis to ensure that it's adding capacity and capabilities for Copart to serve our customers in the future. So ultimately, we'll continue to use that same discipline and that same approach. I certainly think that relative to where we were, like I said at the outset, 10 years ago, we're in a much better position from a land ownership perspective than capacity, but we do anticipate continuing to invest in our portfolio on a disciplined basis to ensure that in a decade from now, we will be well positioned as well.

Jeffrey Liaw, CEO

Craig, I'd like to add that in April 2016, we launched the 20/20/20 initiative, planning to acquire and expand 20 facilities over 20 months due to the industry's growth and our capacity constraints. Over the past decade, we have made significant investments to develop new capacity, purchase land for new and existing facilities, and buy out facilities we had leased. We understand that long-term stewardship requires ownership, as leasing limits our control over how we service the insurance industry. Currently, as Leah mentioned, we are in a much stronger position than we were then. We now have dedicated catastrophic facilities on hundreds of acres of previously idle land, ready for storm anticipation. However, I must note that land acquisition and development involve long lead times, so we cannot suddenly require much more land and respond immediately. We must plan with some margin, which we effectively do across the United States. Nevertheless, as Leah highlighted, we are indeed in a significantly better position than before.

Craig Kennison, Analyst

Yes. And then, Jeff, just a follow-up on your AI commentary. Certainly, it's been a big topic, especially in the last week. But could you maybe share with us where you see any disruption risk to what Copart does and where you feel well defended by your moat as it stands today?

Jeffrey Liaw, CEO

I believe we are consistently mindful of potential disruptions and their possible sources. We recognize the importance of innovating within our own organization and integrating technology wherever we can enhance productivity and improve the experiences for both our sellers and buyers. There are various players in the market today, some long-established and others more innovative and virtual. The core strengths that distinguish us include our substantial physical storage capacity, a globally active buyer base, a well-known online auction platform, and in-depth regulatory knowledge across all 50 states and many countries, which creates significant barriers to entry. In terms of disruptive technology, we are determined to lead the way. While I don't perceive any immediate threats, we remain vigilant and aware of our environment.

Operator, Operator

The next question comes from the line of Bret Jordan with Jefferies.

Bret Jordan, Analyst

I've a question about market share dynamics. Do you think it's becoming more price competitive as the other player in the space doing, I guess, either rebating or discounting or pricing delta to you that would explain what seems to be a differential in unit growth? Obviously, you've got the title transfer product and the cycle times and the foreign buyer base that would suggest that Copart might be a better outcome. But I guess how do we think about the differences that we're seeing in units recently?

Jeffrey Liaw, CEO

Yes. The phenomenon of unit growth can be partially attributed to differing growth rates within the insurance industry itself. This means that even if we do not acquire any new accounts from competitors and they do not gain any from us, the growth rates of our existing customers can still indicate a shift in market share without any actual loss of accounts. However, your second point is crucial: our industry has been highly competitive on price for many years, including the entire time I've been with Copart. Currently, we are increasingly focusing on the economic outcomes we deliver, which provides a better perspective on our business. It is our duty, as a company and personally, to communicate this to our clients and the industry. They need to recognize that it’s not solely about the amount paid to Copart or competitors, but the economic results delivered, primarily the selling price for vehicles on our platform. Additionally, cycle times have significant direct economic effects, like storage costs, as well as indirect effects, such as policyholder satisfaction. The fees charged are less critical in this context. Our job is to clearly communicate this message, taking care to engage the appropriate audience and provide supporting data. In almost every instance where we have tested this empirically, the data supports the idea that our returns significantly surpass any perceived differences in the complete profit and loss statement.

Bret Jordan, Analyst

Okay. Great. Did you provide an update on how CDS has been performing?

Leah Stearns, CFO

Yes. CDS had a nice quarter. They were up 5% year-over-year in terms of unit volume.

Bret Jordan, Analyst

Okay. Is that growth with various dealers, or is that growth from existing dealers? Are you expanding to a broader user base, or are you increasing within the current user base?

Leah Stearns, CFO

We're always growing the user base.

Operator, Operator

Our next question comes from the line of John Healy with Northcoast Research.

John Healy, Analyst

I wanted to spend a little bit of time just on accident frequency. For the last 3 or 4 quarters, I feel like it's been a hot button debate. And knowing Leah and Jeff, I'm sure you guys don't stop thinking and working on this viewpoint. I would love to spend a little bit of time there. Just any updated thoughts about ADAS view of kind of the algorithm that investors might be able to use to think about the nuances of growth. Obviously, the volume numbers are down big, but there's some explainable reasons in terms of policies in force that you noted. But I was just hoping we can try to get some comfort with thinking about that overarching volume number for the industry, put aside whatever you or IAA are doing. Just what does this business really grow, do you think in the next 3 to 5 years?

Jeffrey Liaw, CEO

That's a fair question, John. Throughout our adult lives, accident frequency has generally decreased year after year. This trend is due to improvements in car design and safety features over the years. We first saw the introduction of anti-lock brakes in the 1970s and 1980s, followed by traction control and other advancements. Today, we have safety technologies like forward autonomous braking modules, lane departure warnings, and various sensors. Therefore, accident frequency has consistently declined, with a few exceptions, such as a slight increase between 2013 and 2015 when smartphone use surged. The number of vehicles involved in collisions has also decreased in line with this trend. However, this change has been gradual because there are hundreds of millions of vehicles on the road in the U.S., and the number of new vehicles sold each year varies, typically ranging from 14 to 18 million. As a result, changes in accident frequency occur slowly. Moreover, although the number of cars involved in accidents is decreasing, the total number of vehicles that are totaled is still increasing. This is due to the growth in the total loss frequency, which outweighs the drop in accident frequency. Based on our current understanding, we believe this calculation will remain the same. While some in the autonomous driving sector may differ, we maintain that there is still a large number of vehicles that will experience collisions, especially during the transitional period when many older cars lack the latest technology. Additionally, newer cars are often driven by distracted drivers, which contributes to the complexity of the situation. We have discussed how this may lead to increased risk as drivers rely more on technology. Consequently, we anticipate that the industry-wide number of totaled vehicles will likely grow over the medium to long term, which remains our position. Regarding accident frequency, it's important to note that much of the data is often reported later. The metrics for crashes and fatalities tend to be published with some delay. However, according to the data we regularly monitor, our fundamental viewpoint remains consistent.

John Healy, Analyst

Got it. That's helpful. And just on capital allocation, obviously, you're being pretty direct with the repurchase visibility now. But is this the right tool for you guys? Do you see yourselves just using open market purchases? Or do you look to kind of evaluate maybe something more formal or conceptual in terms of an accelerated program or something like that? Or do you think this is just the right approach for right now?

Jeffrey Liaw, CEO

Yes. Throughout my time here, and considering Copart's over 40 years of history, we have utilized a variety of strategies, including open market purchases and more structured approaches like Dutch tenders. We continuously assess all available methods to execute our strategy. In my view, the nuances of these methods are relatively minor. What we've determined is that repurchasing Copart shares is a sensible way to return capital to shareholders, effectively distributing some of the cash flow we've generated over the years. We felt this was an opportune time to proceed, and this was the approach we opted for. As you can imagine, the factors influencing such decisions can vary, affecting the scale or nature of the buybacks we might pursue. It is challenging to predict the implications of this going forward.

Operator, Operator

The next question comes from the line of Jeff Lick with Stephens Inc.

Jeffrey Lick, Analyst

Jeff, I know you're always thinking about long-term stuff. I was wondering if we just think about the next year that's in front of us, year or two, things that are changing. Obviously, you've got an insurance cycle, rates are coming down and marketing dollars going up, so they'll be more focused on profitability and lease returns that will be ramping up. Potentially, a lot of those lease returns will be EVs. And then obviously, we've talked about the interesting kind of transition where you'll have some autonomous in the hands of a select few. I'm just curious if any of these things you view affecting your business in some kind of nonlinear way? And then just as a follow-up, I'm just curious since you guys did make the decision to buy back shares and you're very deliberate in how you do everything, why did you view now as the time to do it?

Jeffrey Liaw, CEO

Sure. To tackle those questions separately, I don't know that the catalysts you described, whether it's a mix of technologies, lease returns, and so forth, could have an effect on the business and the trajectory of the business in the near and medium term. From our vantage point, it doesn't change the trajectory over a 5- or 10-year term, insofar as that would inform how we choose to invest in physical capacity, technology, our people, business process, artificial intelligence. It doesn't per se change what we do day-to-day, right? I think we are always most keenly focused on the metrics and the forward indicators that would guide decision-making, right, as opposed to what might guide near term, what might influence near-term results, right? It's more the decision-making that we're focused on day-to-day. As to your question about the share buybacks, there's no particular witchcraft or anything magical to it. I think it's a function of what general valuation multiples are and where interest rates are, our own views of Copart relative valuation in comparison, and also the general long-term perspective that we return capital to shareholders via buybacks, right? So the fact that we're doing them is, in some respects, inevitable. I think we plus or minus said that in the past. The fact that we're doing them right now is a function of all of the aforementioned. So there's nothing unusual. No aspects of that decision that you would find particularly creative, right? It's the ordinary calculus that would go into a decision like that.

Jeffrey Lick, Analyst

And then just one last quick follow-up. As you think about units inflecting positive, is there any particular catalyst that you look for? Or will it just be the law of negative numbers getting less negative? Is there anything that you're looking for that says, hey, this might drive an inflection back to positive unit growth?

Jeffrey Liaw, CEO

Yes, the question is quite broad. We operate in various geographies and businesses, and we are still experiencing growth in the BluCar segment. Leah mentioned that the rental car sector is taking a different approach this quarter. There are cycles in rental car dispositions that aren't necessarily linked to the overall economy. The same applies to repossessions from the financial sector and fleet management clients. However, if we look at the bigger picture, our growth outside of insurance continues. Within the insurance sector, we've talked about consumer behavior regarding underinsurance and purchasing patterns being cyclical. We believe this is accurate and supported by historical data. As for policy shifts between different carriers, we also see that as somewhat cyclical, with growth varying among individual carriers. Currently, we may be experiencing a period that isn't favorable for Copart, as some of our strongest carrier relationships haven't seen much growth over the past one to two years. Nevertheless, we generally see these trends as more cyclical than fundamental.

Operator, Operator

The next question comes from Jash Patwa with JPMorgan.

Jash Patwa, Analyst

Just wanted to start with a question on the headwind from rising mix of uninsured customers. Jeff, as you've noted previously, these vehicles are still getting into accidents, but maybe flowing through alternate channels. With Copart having deemphasized the low-value units from some of these channels, has this led to an additional pressure on Copart's overall volume growth relative to the broader salvage industry, including the noninsurance channel? And I have a follow-up.

Leah Stearns, CFO

Jash, I'll take that. I don't think so. Most of the lower value units are units that are less than $1,000 in pre-accident value. So they are very old nondrivable what the industry would consider junk units. I think the units that we are seeing flow through on the uninsured or underinsured side, are likely ending up in impound yards. They're likely ending up retained with the driver, but they then need to find a way to either get it repaired or dispose of the vehicle. So ultimately, some of those vehicles end up at our cash for cars business. Some of them may end up being auctioned or sold through an impound yard. So there are other avenues in which those vehicles could be disposed of. It just so happens that it's a highly fragmented market, given that it's the consumer's decision to determine where that ultimate vehicle goes if it's not going through the insurance channel.

Jash Patwa, Analyst

Understood. That's helpful. And then I just appreciate your perspective on the heavy equipment expansion. How has this initiative performed relative to your internal expectations a couple of years ago when Purple Wave was integrated? While the industry cycle has been challenging, curious like what areas do you see as a room for improvement? And given the significant consolidation opportunity in the sector, what has kept Copart on the sidelines from pursuing more M&A activity over the past couple of years?

Jeffrey Liaw, CEO

Jash, that's a fair question. When we made the investment in our Purple Wave platform, we did not fully grasp the disruption that the tariff situation would bring to the industry and the uncertainty it would create for heavy equipment. This has led to a sort of medium-term paralysis, as people were unsure whether to sell because prices might rise, or to buy because prices might fall. This has added some friction to an industry that was previously more fluid. We have noticed similar trends from other players in the market, both public and private. As for your question about business growth, we have focused on organically building our platform by hiring more sales talent, investing in technology, and improving our products. We've seen strong growth in that area, outpacing the overall industry. M&A is, of course, an option available to us given our resources, but it's not our primary focus. We have traditionally been builders at Copart, with only one significant acquisition years ago related to New England recovery. Most of our growth has come organically, which we believe is the most sustainable way to create long-term value for our shareholders. While acquiring companies is the quickest way to expand territory, our priority is on creating lasting value instead of just increasing our footprint. So, unless we find compelling M&A opportunities in heavy equipment or other areas, we will stick to our current approach. However, it's important to note that our standards for acquisitions are very high. In the ten years I've been here, we've made only a few acquisitions, which have represented a small fraction of our enterprise value. That high threshold will remain, not to say we wouldn't consider it, but I want you to understand that our preference is to grow organically.

Jash Patwa, Analyst

Understood. That's very helpful color. And if I could sneak one more in here. Could you double-click on the sequential moderation in service revenue gross margin in the quarter and whether there were any one-time factors that may have impacted it during the quarter?

Leah Stearns, CFO

Sure, Jash. I had mentioned in my prepared remarks that there was a $6.8 million one-time tax accrual in the International segment. If you look at the ex-CAT margins, I think you'll see that year-over-year on a gross margin basis, we performed quite well. And then on the international side, there was that one-time item.

Operator, Operator

There are no further questions at this time. I'd like to turn the call back to Jeff Liaw for closing remarks.

Jeffrey Liaw, CEO

Thank you for joining us, and we'll talk to you next quarter. Have a good afternoon.

Operator, Operator

Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.