Copart, Inc.

First 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 first quarter fiscal year 2026 earnings call. I'll begin with some brief remarks on trends in our insurance business, our progress in growing our non-insurance vehicle business, and then a short discussion The key drivers behind our auction returns before passing the call to Leah to review our first quarter financial results will then take a few questions. First, on our insurance business our global insurance units for the first quarter 2026 declined 8.4% or a 5.6% decline, excluding catastrophic volumes from a year ago. Our US insurance units declined 9.5% for the same period and 7.3% excluding catastrophic activity as well. The underlying drivers of these trends are consistent with what we have discussed in prior quarters. It's a combination of market share evolution among insurance carriers themselves. Soft claims counts as a result of consumer retrenchment in their auto insurance purchasing behavior. offset by rising total loss frequency. On that last point, total loss frequency has continued its long-term upward trend, consistent with nearly the entirety of the history of our company and our industry. In the U.S., for the calendar year 2025 through September, total loss frequency was 22.6%, an increase of 80 basis points or so year over year, according to CCC. We continue to sustain and expand what we believe to be our advantage in generating best-in-class auction returns for our insurance clients. Even including the highly inflationary 2021-2022 COVID era, when semiconductor shortages further increased vehicle prices, we are achieving all-time high average selling prices for our U.S. insurance carriers. And in fact, for the quarter, our global insurance ASPs increased 6.8%. our U.S. insurance ASPs increased 8.4%. We know from public data and disclosures that our ASPs grew at a rate that eclipsed that of the Mannheim Used Vehicle Value Index and grew at a rate more than threefold that of service providers similar to us. I'll talk in greater detail in my comments shortly on the underlying drivers of this performance. On the question of claims frequency, on our last call, we talked about this subject and its near-term effects on our business. According to ISS Fast Track, paid claims frequency for collision coverage for the second calendar quarter of 2025 compared to the same period last year was down 7.5%, and in fact, earned car years for that same period were down 4.1%. At the same time, vehicles in operation for the second calendar quarter 2025 actually increased 1.4%, and we see further data in the underlying activity that shows miles driven continue to remain robust and growing. We understand from many of our insurance partners in the industry that consumers are responding to late cycle insurance rate increases by reducing the scope of their coverage or foregoing it altogether. And as a result of that consumer retrenchment, More vehicles that historically would have entered the insurance company-mediated total loss process now do not. Over the long term, however, the penetration rate of auto insurance coverage and collision coverage specifically appear to be cyclical. I'll now turn our attention to Copart's non-insurance slash wholesale business. As we've talked about on prior calls, it's really rising total loss frequency in our insurance vehicles which enable our ongoing progress in this arena as well. Rising total loss frequency means that an increasing portion of the cars that we sell on behalf of the insurance industry are actually cars that will be repaired and drivable again both in the U.S. and overseas. As we draw buyers of those types of vehicles to our platform, they are increasingly the right fit as well for sellers such as rental car companies, financial institutions, corporate fleets, and the like. We've also contributed to this flywheel effect by building purpose-built enhancements for commercial sellers as well. with guidance from our Blue Car Advisory Board, a host of industry leaders from the aforementioned industries. We have built specialized systems for receiving inspection, condition reporting, and arbitration, all designed to meet the unique expectations and unique needs of those types of partners. The single most important lever we have in achieving commercial outcomes, excellent commercial outcomes for our sellers, is our fundamental auction liquidity. In comparison to many other pathways of disposition for these sellers, we offer an always-on digital global marketplace that is committed to finding the highest and best use for that vehicle anywhere it might be. That brings us to our last topic, which is the question of auction returns at Copart and why we believe the underlying indicators show that this advantage is not just a durable one, but in fact is expanding. We propose five core indicators. for the auction liquidity that has long distinguished us in the insurance industry. We believe that auction liquidity and returns have been a pronounced advantage for us since we became the first online-only salvage auction marketplace in 2003, but I'll focus in particular on the post-COVID, post-semiconductor period since 2022. The first indicator of the health of a marketplace is the portion of its sales that are achieved via pure sale auction. Even in 2022, a strong majority of our insurance units were sold on a pure sale basis, but the mix has increased today to comprise a strong supermajority of insurance units sold. Our consignors know that with an always-on global digital marketplace, they will trust the platform to find the highest and best value for a vehicle based on the attendance of any given auction or copart. And in fact, for the typical institutional carriers, they hold only unique exotic vehicles on occasion to be managed with reserve prices and such. The second indicator for a strong marketplace like ours is international participation in our auctions. Global demand leads to more bidders, more competition and higher price and better price discovery. And again, since 2022, against the backdrop of global economic uncertainty, tariffs and so forth, the share of our U.S. vehicles and auction value that have been purchased by international buyers has continued to grow. In the First quarter of 2026, international buyers have purchased vehicles that are 38% higher in value than comparable US buyers by comparison. We believe that these are long-term durable trends as population growth and mobility demand growth outside the United States, outside the UK, Canada, and so forth, continues to outpace what we were experiencing firsthand in our origin markets. The third indicator we would propose would be the unique bidders per auction. We sometimes face the question as to whether a marketplace like ours can ever experience saturation. That is, the unit volume can grow so much that it eclipses the buyer base's ability to absorb it. I would argue that most historical marketplace analyses in other industries would say quite the opposite. Liquidity begets liquidity. And in fact, since 2022, our unique bidders per auction instance have grown steadily to today's all-time highs as well. The fourth indicator we look at is to assess preliminary bid activity. Our live auction technology is distinctive in its ability to dynamically draw full and fair prices, but preliminary bids are also one indicator of auction health, i.e. the quantity of proxy bids submitted before the auction even begins. And in fact, preliminary bids as a portion, preliminary bids per lot auction instance have increased steadily since 2022 as well. and finally the one measure that much of the insurance industry uses is gross returns i.e selling price for a salvage vehicle divided by its acv or pre-accident value this is a single simple metric that the industry commonly uses and since 2022 again our u.s insurance returns have increased substantially and are in fact at an all-time high watermark during my own personal 10-year journey here at copart taken together we believe that higher pure sale rates, expanding international demand, greater bidder participation, stronger pre-auction engagement, and rising gross returns collectively attest to our principal competitive advantage with our consignors, and that is delivering full and fair prices according to the global marketplace. They, in turn, are the hard-won results of our aggressive investments in storage capacity, technology, and people for years and decades. They're also the best long-term indicators of the strength of our business. And with that, I'll turn it over to our CFO, Leah Stearns, and then we'll take your questions thereafter.

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 segment performance. For the first quarter, total global units sold decreased 6.7%, with fee units decreasing 6.3%. During the prior year period, Copart responded to several catastrophic events around the world, from Hurricanes Helene and Milton in the U.S. to catastrophic flooding in the Middle East, Germany, and Brazil. These events, which did not recur this year, impacted our reported year-over-year unit growth. Normalizing for the impact of these CAT events, our global units sold decreased 4.6%. Global insurance units declined 8.1%, or 5.6%, adjusted for CATs. while global non-insurance units declined 1.5%. For the first quarter, consolidated revenue grew just under 1% year-over-year, or 2.9%, excluding CAT, to $1.16 billion, with service revenue increasing just under 1% and purchase vehicle sales increasing nearly 2%. Our fee revenue per unit increased over 7% during the quarter, which was primarily driven by growth in our average selling prices. which have increased 8.5 percent from the prior year period. Global gross profit increased 4.9 percent, or 3.7 percent, excluding CAT, to 537 million. Gross profit per fee unit increased 12.3 percent, and purchase unit gross profit decreased 3 percent to 22 million from the prior year period. Gross margin improved 184 basis points to 46.5 percent, reflecting the non-recurrence of one-time expenses related to our CAT response. Operating income rose 6%, or 4.5% excluding CAT, to $431 million, while net income was $404 million, up 11.5% versus last year, and earnings per diluted share increased 10.8% to $0.41. This was driven by revenue growth, margin expansion, and the continued growth in interest income we've earned due to our growing cash balance. Turning to our U.S. segment, in the first quarter, total units sold declined 7.9% or 5.2% excluding CAT and direct buy units. U.S. insurance volumes declined 9.5% or 7.3% excluding CAT. Our insurance unit volume trends are consistent with the industry themes Jeff described a few moments ago. Our U.S. non-insurance business continues to perform well, led by dealer unit sales, which increased 5.3%. Commercial consignment units, which are marketed through our blue car channel, were down just over 1%, which was primarily a result of timing related to the sale of rental units as our fleet and bank and finance seller volumes continue to grow. We continue to focus on driving higher value units through our marketplace and have developed a more profitable channel for Copart to manage lower value units through, which we have branded Direct Buy. These are units which Copart would have previously purchased through its Copart Direct Cash for Cars business unit and instead now is earning a referral fee to connect a junk buyer to the individual seller. As a result, the units are not part of Copart's inventory, and we do not incur costs associated with the processing and handling of the unit. Normalizing for this shift, U.S. purchase units increased 6.2% from the prior year period, compared to a decline of 19.2% on a reported basis. U.S. purchase vehicle sales, which is primarily comprised of our Copart direct units, increased 10.9%, which reflects the lower unit volume being offset by substantially higher average sale prices, which increased over 50% from the prior year period. From an operational perspective, we continue to drive forward initiatives which are reducing our overall cycle time. This includes managing title procurement on behalf of our insurance customers, which has grown at a double-digit rate over the past year, while simultaneously reducing aged inventory at our facilities. In addition, as non-insurance units are contributing a greater percentage of our overall unit volumes, we naturally have a greater proportion of units which have substantially shorter cycle times being processed through our facilities. During the quarter, in the U.S., our cycle times have decreased by 9% from the prior year period. And these improvements, while these improvements in cycle time are decreasing inventory levels, they are increasing the overall processing capacity of our existing facilities. As at the end of the quarter, these trends were the main driver of our U.S. inventory decline of just over 17% from the year-ago period, while U.S. assignments declined 9.5%, or low single-digit, excluding CAT. We also continue to invest in PurpleWave, our online equipment auction platform. PurpleWave's GTV growth of over 10% over the last 12 months continues to outperform the broader industry and reflects strong buyer engagement in our expansion markets growth in our enterprise accounts, and sustained demand in the heavy equipment category. The market continues to experience the impact of broad uncertainty, which is causing customers to delay decisions around equipment purchases and sales as they contemplate the impact of the broader macro and geopolitical environment. From a U.S. segment perspective, total revenue increased 0.5% or 2.3% excluding cap, which reflects the decline in unit volume offset by an increase in revenue per unit. On a per unit basis, U.S. fee revenue increased 7.5%, which reflects the positive impact of higher average selling prices, including our U.S. insurance ASPs, which have increased 8.4% from the year-ago period. U.S. gross profit increased 3.7% to $464 million, and U.S. gross profit per fee unit increased 13.2%. supporting an increase in our U.S. segment gross margin up to 48.7%. As a result, U.S. segment operating income was $375 million, up 5.6% year-over-year, reflecting strong execution and continued cost control, even against a backdrop of lower insurance volumes in the prior year. U.S. segment operating margin was 39.4%, reflecting a nearly 200 basis point increase from the prior year period. In our international segment, total units sold declined by less than 1%, or grew 4.5%, excluding the CAT units in the prior year. International insurance units increased less than 1%, or 8.3%, excluding CAT, and international non-insurance units declined 2.2%. We continue to see strong insurance growth across our diversified international footprint, including in the UK and Canada. International revenue increased 1.6%, or 5.7%, excluding CAT year-over-year, and increased to $202 million. International service revenues increased 7.9%, or 13.9%, excluding CAT, which primarily reflects higher international fee revenue per unit, which increased 8.1%. Our average selling price for international insurance units declined 2.4% from a year-ago period. Purchase vehicle revenue declined 9.4%, which reflects the impact of a few of our insurance customers who have migrated from a purchase contract to a consignment contract structure. Gross profit for the international segment grew 13%, and operating income was $56 million, or a 27.5% operating margin, which continues to expand even as we invest in yard capacity, technology, and logistics infrastructure to support our long-term international growth. Turning to our balance sheet, Copart remains in an exceptionally strong position. We ended the quarter with liquidity of approximately $6.5 billion, including cash and cash equivalents of $5.2 billion and no debt. We continue to generate robust free cash flow supported by disciplined capital allocation into assets, which position us to efficiently support our growth to serve both insurance and non-insurance clients, while also delivering strong operational efficiency. With that, we thank you and we'll open up the call for your questions.