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.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad, and a 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. And the first question comes from the line of Bob Labick with CJS Securities. Please proceed.

Thank you for taking our questions. Hey, Bob. So, hey, so I know you don't talk about specific client accounts and things like that, but I'm having a little trouble reconciling the, I guess, larger than expected decline in unit volumes. And I don't know if there's any way you could talk about, because, you know, the trend changed, you know, both versus expectations and versus, you know, what we've been seeing. And at the same time, the, you know, the explanations are similar to previous trends, right? The U.S. insurance, you know, less collision coverage and then share shifts between the carriers, you know, those trends have been happening for a little while now. So maybe help us understand what the, you know, kind of inflection in the changes. Is there any, like, actual market share shift between carriers as opposed to, you know, from you to a competitor or a competitor, you know, et cetera? Or anyone can think about this, the change in the speed of, unit change, if that makes sense.

I don't think so, Bob. I think it is the factors you just described, which is principally that insurance coverage itself has changed. I think notably to see earned car years down 4% and change while Literally vehicles and operation and miles driven are up, I think speaks to the underlying activity, right? So our unit trends, I don't think is substantially different. If you can envision literally 4% of policies, no longer having coverage of any kind, and then some other portion migrating down the value chain, so to speak from collision coverage to liability only, or what have you. I don't think it's farfetched to extrapolate from that to the kinds of unit trends that we're seeing in our business.

Okay, great. And then, you know, slightly different question, just trying to think forward. Total loss frequency, I know it was up 80 basis points year over year, but it's been like modestly, you know, flattish for the last four quarters or so. And I know, you know, one year through Copart's lens is like a minute, you know, for the rest of us, meaning it's too short to register or matter. But, you know, that said, what do you think has caused the, you know, kind of the pause and the expansion over the last four quarters of total loss frequency? What are you seeing beneath the hood, so to speak, for decisions at carriers? Can it be as simple as one carrier is gaining share and they generally have a lower total loss frequency rate and that's impacting it? Or what could be driving this and what do you think it takes to get that to grow again?

Yeah, I think your first observation is the very correct one, which is that measured in the kinds of investment cycles through which we have to manage our business because the nature of our business is such that investments in anything, tech, land, people, et cetera, requires years of conviction. And we have that conviction in space, meaning over a good horizon. You know this story. I think maybe most of the folks listening to the call already do as well. The total loss frequency in as recently as 1990 was 5%. In 1980, it was 4%. And today, it's 22 and change. So it's up 80 basis points versus a year ago. I think, Bob, you know already that even the data in any given quarter often gets corrected the same way that the Bureau of Labor Statistics will later revise unemployment looking backwards because you now know more cars were actually totaled that were in the repair chain or cars intended to be totaled were actually owner retained. So I think reading a whole lot into 80 basis points versus 130 or versus plus 30 I think is more noise than it is signal. I don't think anything is fundamentally changed in the commercial logic that the industry will use going forward. I think we believe as much as we ever have the total loss frequency as a matter of time and different analysts will draw different conclusions on that front, but we'll reach 25% and we'll reach 30% because it's actually not, I think the intuition people struggle with is that they, they think what it means is you're abandoning a car, right? You're not fixing it. You're giving up on it. And that's, fundamentally not true for the marginal car you're not choosing not to repair it you're choosing to let somebody else manage it who has a different cost base a different regular regulatory regime and a different economic calculus than you do as a u.s massachusetts insurance carrier so the last comment i'd make bob is there's also probably unprecedented volatility in some of these input variables right in the form of tariffs parts prices Shop utilization, I think, has been quite a bit more volatile over the course of the past three years than it has been probably at any point in your career or mine. So there have been shocks to the system of that sort, and how those exactly unfold in any given month or quarter or year is harder to speak to. But our long-term conviction remains the same.

Okay, super. I'll get back in queue and let others ask questions. Thank you.

Thanks, Bob. The next question comes from the line of Craig Kennison with Baird. Please proceed.

Hey, good afternoon. Thanks for taking my questions. I'll follow sort of a similar line of questions, but Jeff, are you confident that this broader trend in accident claims, which are down, is more of a cyclical phenomenon tied to this increase in uninsured motorists, or is there any evidence that ADAS technology is finally starting to move the needle?

Yeah, it's a very good question, Craig. And I would tell you that safety technologies very much have moved the needle and have done so for 40 years. So if you go over decades of history and divide police reported crashes or fatalities, which are often published a little bit further in arrears, and divide that by vehicle miles traveled, you'll find that it's declined forever, very steadily. very slightly, but very constantly with one historical blip in the 2013, 14, 15 timeframe. I may have my years off by one year or the other when smartphone adoption and the more addictive apps really began achieving adoption levels that had previously not been seen. So that caused a blip, an upward increase in accident frequency with the same numerators and denominators. But otherwise, over the course of long-run history, it has declined. It's been more than offset by total loss frequency. That's the importance of Bob's question from a moment ago. It's always been dwarfed by that, right? Accident frequency has decreased, but not nearly enough to offset the five-fold, five-and-a-half-fold increase in total loss frequency over that same 45-year horizon. I think the algebra is such that even if there were excellent technologies that were being released now that would altogether arrest vehicles from colliding, The algebra is such with annual shipments into the existing fleet that it still takes decades to turn the fleet over. So I don't think you could see something in a year's time that would reflect a fundamental change in vehicle mix and ADAS penetration.

Thanks. And then just following up on something you said earlier, Jeff, but what happens to those cars that are involved in a severe accident but are not covered by insurance? And are those vehicles you're able to capture on your platform somehow?

Greg, the answer to that is yes, I think somewhat less efficiently. So we have a consumer business in cash for cars that sources vehicles directly from consumers. While you and others on this call certainly recognize the Copart brand name, we are not yet a household consumer name. So we have a different business that purchases those cars from consumers. So they don't sell on a consignment basis to us. They sell the cars to us directly. And those are often the types of cars that our cash-for-cars platform will acquire because those are vehicles that are much less easily traded in to dealers to buy the next car. So we are a natural outlet for those cars. But as you might imagine, it's a far less efficient pathway for that kind of sourcing of vehicles than is a longstanding institutional relationship with a major insurance carrier. Makes sense. Thank you, Jeff. Yep. Thanks, Rick.

The next question comes from the line of Chris Pettiglieri with BNP Paribas. Please proceed.

Hey, guys. Thanks for taking the question. I have two for me. What does it delve into the 38% disparity between international and U.S. bidders? Are you saying that international bidders bid on average 38% more than domestic vehicles in the same vehicle? And that's the case, I would think, with your international mix versus your peer, that that 38% price differential in a $5,000 vehicle would be pretty insurmountable, given the average fee is only $1,000. Just curious how you think about that, this advantage you have on international mix, why it's not leading to – it almost seems irrational not to use you at that point since the disparity is that big. Just curious how you think about the backdrop of all that.

Sorry, Chris. The impact that Jeff was alluding to is that on average – international buyers, the ASP of the vehicles that they purchase is 38% higher than the average ASP of buyers from the U.S. And so their inclination is to pursue lighter damage, higher value vehicles, and that trend has persisted over that timeframe. So we continue to see them be more focused on those borderline total losses and repairable vehicles.

Do you have stats on the question I asked? Do you have a sense for how much more international bidders bid on the same vehicle than domestic? Have you ever parsed any of that?

That becomes, I mean, of course, that's a function of literally a microeconomic question per auction instance, right? Almost by definition, if the institutional buyer wins the vehicle, and that speaks for approximately half of our U.S. auction value is going to an international buyer. Or they are the, quote, push bidder, right? They're the second high bidder, which helps to dictate the ultimate sale price of the vehicle. That is a strong majority of the vehicles that we sell today. So they are there. They do drive value upwards and very meaningfully so. To your question from a moment ago, to make sure you understood the algebra precisely, it is literally that the average car bought by an international buyer is 38% more valuable than the average car bought by a domestic buyer. that is largely because yes they favor the higher end vehicles you can imagine that if you are incurring the freight costs to move a car from here to poland it has to be worth your while right you're not moving a 400 vehicle that's mostly just it's metal right that will never be worthwhile to move halfway across the world and so by definition you're buying cars that are valuable enough you can add and capture enough value downstream gotcha okay and then um unrelated big picture question

If I kind of zoom out, your gross pre-P&E in land is up 155% since 2019. Your volumes are up about 30, let's call it, since then. So just curious how you think about capacity and investment, not only for 26 and beyond. Obviously, that is a ton of capacity, no matter how you cut the data the last six years. What do you do from here, given how much you've already grown in capacity?

Sure, Chris. I mean, I think some of the assets that we've acquired over the last several years have been for events, particularly around hurricanes in the U.S., and those may operate at a lower average utilization than the average co-part facility. So taking those out of the mix, I think we continue to have certain areas of the country where we continue to have capacity needs or are projecting capacity needs over the next five to ten years. I would say the population or the size of that list is much smaller today than what it was clearly five years ago. And so we'll continue to, in a disciplined manner, allocate capital into assets that fit that classification in terms of our capacity needs. And we do also continuously look for ways to bring down our logistics costs to the extent that we can add another node to the overall network that can materially bring down the distance that we need to tow units into our facilities, that's another consideration for us to make. But I would say certainly the list of areas of the country where we do have needs over the next five to 10 years is shorter than it was five years ago.

Thank you. Next question comes from the line of Brett Jordan with Jefferies. Please proceed.

Hey, guys. Going back to one of the early questions, I guess around market share and obviously the optics given Progressive having gained share within the insurance business, you either need your partners to gain share from Progressive or you need to gain Progressive volume. Is there any outlook for that? Either any indication that you see that some of the insurers that you do business with are becoming relatively more competitive with Progressive or... Is there an outlook for picking up some of that volume given your higher ASPs?

Yeah, those are totally reasonable questions. As you know, we don't comment on individual accounts. I would say that the insurance industry itself has proven over the long haul very dynamic with different players gaining and losing share significantly. episodically over many years. So we have observed that trend. There certainly have been some long-term secular gainers as well, Progressive being one of them. But generally over the very long haul, we do see a very dynamic picture in that regard, both quote for and against us in that sense, assuming a static set of accounts. But as for the prospects of winning or losing any individual accounts, as you've heard at great length today, the overwhelming focus is on delivering excellent growth in net returns. And we trust that the rest of it will take care of itself over the long haul.

Do the optics of the share improve as you laugh? Did progressive pickup share that if the market stabilizes, at least the year-over-year compares become more favorable? Or is there share continuing to trend up?

Yeah, probably a better question or analysis of their data than of ours. But I would point you in their direction. I'm probably not positioned to comment in great detail on their relative market share growth in comparison to the industry overall. Obviously, they have outgrown the market over the course of the past few years and in general over many, many years. But as for what happens from here on out, we have some visibility, but frankly, not better than what you and a good analyst would figure out in a hurry.

A quick housekeeping for Lee. The non-insurance, CDS versus Blue Card, could you give us sort of a sort of a size rough estimate, sort of versus each other, CDS larger than Bluecar or Bluecar larger than CDS, just so we can get a feeling for, you know, measuring these growth rates?

Sure. No, so CDS is larger, continues to be larger. It's been growing. While Bluecar has been growing at a very healthy clip, it still remains a larger unit, business unit for us in the first quarter.

breadth for both is huge in terms of the total volume mediated by dealers and by institutions of the sort that we described earlier today.

Yeah, the TAB is larger than salvage, isn't it? Right, yes. Thank you.

The next question comes from the line of Jeff Lick with Stevens. Please proceed.

Good evening, Jeff and Leah. Thanks for taking the question. I apologize for the background noise. I'm stuck in the airport. Jeff, I was wondering if you could just maybe opine a little bit, you know, if you look at the factors that would kind of drive the business going forward. You know, we have vehicle depreciation now, you know, picking up. That probably picks up a little more with lease returns, you know, so the cost of replacing could go down, whereas, you know, on the flip side, you've got parts inflation going that's up, you know, 4% or 5%. And, you know, CCC did talk about the cost of repair, you know, not growing quite that much. And then, obviously, you've got insurance rates appear to be coming down in certain instances. And, you know, obviously, they get the combined ratio at all-time, you know, all-time lows. You know, those all kind of point towards total loss frequency picking up and then the issue with the uninsured and less insured, you know, Do you kind of view that, you know, I obviously should view that as a tailwind maybe picking up in your business?

Got it. Let me try to address them one by one. I think when you say vehicle depreciation, you just mean softness in general in the used car market, possibly on the horizon. And all else equal, that is a supportive factor for volume for our business. A soft market means that the economics of total loss, all else equal, are less costly to the insurance carrier than it otherwise would be. They're writing a check for $15,000 instead of $17,000 to total the vehicle. It would, on the margin, drive more volume to us. It probably also means, though the U.S. market can be divorced somewhat from the international market, they do overlap in some regards. But it could also be to somewhat softer selling prices for us, which of course has the opposite effect. So you can imagine more unit volume, somewhat lesser unit economics if it were to happen to a meaningful degree. Your second question about parts prices and repair costs and others tracking that, that's been the million-dollar question of this era in light of the various tariff regimes proposed, implemented, unwound, and otherwise. is what is the total landed cost of a given repair. We do think there's still fundamentally inflation there, not just because a like-for-like part has inflated relative to where it was before, but also because of vehicle complexity, also because there are more sensors on the perimeter of a car that are increasingly difficult to repair. That drives more cars certainly to total loss as well. And for another day, we can talk about how so many of those complex parts and modules actually aren't necessarily fundamental to the operation of the car itself, which makes that car acutely valuable to South America, Eastern Europe, Africa, and the like. And then the last question you asked was about the potential softening in insurance rates as well. That would be supportive of our business as well. That would cause the cyclical phenomenon we described earlier about underinsurance or foregoing insurance, presumably to reverse, right? It increases or enhances the affordability of insurance policies. And the more cars that are effectively covered by one of our clients or one of the folks in the industry, the more cars that are processed in an accident through their funnels, so to speak.

Just a quick follow-up. I'm wondering with respect to the whole car business and, you know, the non-damaged whole car business and dealer to dealer, do you have any more kind of evolved or thoughts in terms of how you guys may address that market, you know, B2B organic versus acquisition?

Yeah, it's a fair question. I think you're aware probably from having followed us for a while. Our default approach is always organic. We prefer to build on the backs of the liquidity we have, the technology, the facilities, the people, the capabilities we've built over decades. That is often the best, most harmonious way to build a business within Copart. That said, from time to time, we have made strategic moves as well. We acquired National Power Sports Auctions some years ago made a big investment in Purple Wave to step into the yellow or heavy equipment space as well. So those arrows are both in the quiver. To date, we've been satisfied with the levers available to us to build organically, piggybacking largely off of the liquidity we've talked about at great length on this call. But could there be an acquisition that is compelling enough to pursue? We would always look at it as we always have.

Great. Well, thanks for taking my question, and best of luck on the next quarter.

Thanks, Jeff.

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 John Healy with North Coast Research. Please proceed.

Thanks for taking my question. Jeff, I'd love to get your thoughts just on where do you think we are in the continuum of premium to the consumer from the insurance industry? Do you view 26 as a year where, you know, the consumer might still feel some headwinds there? Or, you know, as you look at insurance industry profitability and what goes on to the, you know, the prices that are offered in terms of the different ratios, I think that they're kind of mandated to abide by. I mean, how do you see that kind of playing out in terms of the repairable claims equation for 26? Yeah.

John, that is both a great question and probably the wrong one for us, meaning if you just imagine the tapestry of variables that will dictate that outcome, it's some combination of the general consumer sentiment in turn a function of unemployment, wage growth, et cetera. inflation in a whole wide variety of different baskets of goods and services and then inflationary and then insurance rates themselves, right? So it is, there's so many moving parts there that offering my own prognostications is probably just reckless conjecture at this point. It does seem like there are insurance carriers committed to growing and growing again. There's some of them that talked more publicly about that as well that uh there have been they've been whipsaw right in their defense it's not that not that long ago in 2020 insurance carriers were issuing policy credits because so many people weren't driving accident frequencies way down they feared the churn that would come from folks who were sitting at home and not driving again so they issued credits uh they literally were giving money back to consumers they woke up a year later acvs spiked parts prices spiked labor wage rates went crazy, the repair costs spiked, and they suddenly found themselves underwater. They retrenched, they pursued rate relief, they made all the operational decisions you might in that environment. Now, some are, of course, asking the question, have we overcorrected? Are we now foregoing growth too much so in pursuit of combined ratios and so forth? That is such a dynamic puzzle that you're better off pursuing those avenues rather than asking us. We have a view, but it's indirect enough that I think it's better to ask them correctly.

Understood. So maybe switching gears to something unique to you guys, the cash on the balance sheet at record levels, I think the multiple on the shares right now are very close to the multiple that you last time bought stock back. Just given all of the noise in the ecosystem, you know, what are the reasons for, you know, maybe not being active on the buyback front maybe over the next six to 12 months? Would there be gating factors or do you just view the economic outlook as too uncertain or kind of what are your thoughts there? Thanks.

So, John, on that, I would just say I think generally you can expect that cohort will continue to focus on deploying capital when we see areas that we believe will create meaningful long-term value. for the business and for our shareholders. And we'll continue to do that. That's our responsibility from a management perspective and our board. So today, as we think about opportunities to reinvest back into the business, our first priority remains being to drive as much expansion as possible for the business through investments, whether it's in CapEx or M&A. We'll continue to evaluate opportunities to do that and drive long-term growth of the business. And then to your point, to the extent that we have a view that long-term from a valuation perspective, there's an opportunity to create meaningful value. We've historically used the share purchase program through a couple of different means, open market purchases, tenders, et cetera, that that would be our lever to return capital to shareholders. And nothing has changed on that front.

John, just a slightly finer point to it. I think the The fear, and it wasn't that long ago, I suppose a decade and change ago, that I was an active investor myself. And one of the fears for a given company in accumulating too much cash or too strong a balance sheet is that they would in turn become reckless with their capital. And that, I think, the evidence is there, that there's very little risk of that at Copark. We still treat each dollar as though it's as precious as the last, and our P&L should reflect that. And our capital spending and our M&A activity should reflect that as well, meaning the standards for what We will invest capital and have not changed in the 10 years I've been here. I don't think they changed in the 20 years before I got here either. So we will treat that cash as though it is dear to us as it is to anyone. We understand how important it is to our shareholders, so we'll do the right thing with it. And as Leah articulated, we know it ultimately belongs to shareholders, and we have bought shares back in the past. That's always been the mechanism by which we return cash to shareholders. There for sure will come a day we do that again. And exactly as to how, when, and where, I think we always defer. We always suggest that that's a conversation for another day.

Understood. Thank you, guys.

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

Thanks, everybody. We'll talk to you in a quarter. Have a good holiday season.

This concludes today's conference. You may disconnect your lines at this time and enjoy the rest of your day.