Copart, Inc.

Please stand by. Good day, everyone, and welcome to the Copart Incorporated third quarter fiscal 2026 earnings call. Just a reminder, today's conference is being recorded. Before turning the call over to management, I will share Copart's safe harbor statement. The company's comments today include forward-looking statements within the meaning of the federal securities laws. including management's current views with respect to trends, opportunities, and uncertainties in the company's industry. These forward-looking statements involve substantial risks and uncertainties. For more detail on the risks associated with the company's business, we refer you to the section titled Risk Factors in the company's annual report on Form 10-K for the year ended July 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 Liao.

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

Thank you, Jeff, and good afternoon to everyone on the call. I'll begin by walking through our financial results for the quarter, beginning with our consolidated performance, followed by a review of our U.S. and international segments. For the third quarter, consolidated revenue grew to $1.24 billion, up 2.1% year-over-year, driven by strength in both service and purchase vehicle sales. During the quarter, we continued to see expansion in average selling prices, which rose 4.6%, and more than offset a modest decline in unit volumes of 2.4%. On the insurance side, global units were down 2.7%, consistent with the industry dynamics Jeff outlined. while global non-insurance units decreased 1.4%. Notably, while global inventory was down 2% from the prior year, global assignment volumes grew at a low single-digit pace. From a profitability standpoint, the quarter was strong. Global gross profit increased 3.7% to 572.6 million, with global gross margins increasing 71 basis points to 46.3%. During the quarter, we continued to invest across our platform to enhance the products and services we offer to participants across our global marketplace. This includes the recent launch of our domestic long-haul delivery services in the U.S. Operating income grew 2.8% to $464.3 million. Net income was $402.4 million, and earnings per diluted share increased 2.4% to 43 cents. benefiting in part from our ongoing share purchase activity. Turning to our U.S. segment, total units declined 4.2% or 3.3% excluding co-part direct units. Insurance volumes decreased 4.2%, which are consistent with the claims frequency trends Jeff described a few moments ago. Beyond insurance, we are seeing encouraging momentum across our diversified seller base. Our dealer services and power sports businesses grew units by 1%, and our blue car commercial consignment channel expanded by over 4% over the prior year. Combined fleet and finance seller volume grew at a healthy double-digit pace, which was partially offset by the continued impact of higher repair activity we've seen among our rental customers. Our Copart direct unit volume declined 26.3% as we have continued to strategically shift lower value units to our direct buy channel. On the inventory side, U.S. inventory was down 4.7% year-over-year, and U.S. assignments declined at a low single-digit pace during the quarter. Shifting to PurpleWave, our focus on organic territory sales expansion continues to yield strong gross transaction value growth, which was more than 25% for the last 12 months. The momentum we are experiencing is being fueled by strong traction in our expansion markets and deepening relationships with select enterprise accounts, which is a real testament to the progress our team is making to scale their platform. On revenue, the U.S. segment was essentially flat, down 0.4%, as higher revenue per unit largely was offset by volume headwinds. Insurance ASPs increased 4.1%. Non-insurance ASPs increased 3.7%. and purchase unit ASPs increased 23%. U.S. gross profit grew to $484.1 million, up 0.9%, and gross profit margin was 48.3%. Operating income is $390.4 million, reflecting a 38.9% operating margin. Internationally, the story is one of continued momentum. Total units sold increased 5.9%, with insurance units up 4.6%, and non-insurance units growing at an impressive 11.2% in the quarter. Inventory in our international segment increased over 10% from a year ago period, and international assignments increased at a low-teens pace. These trends reflect the broad-based growth that we are seeing across our diversified international footprint, with particularly strong contributions from the UK, Germany, and Canada. For the quarter, international revenue grew 14.1%, or 7.9%, excluding the positive impact of foreign currency fluctuations, to $234.2 million. The primary source of growth internationally came from service revenues, which were up 17.9%, which was driven by a 10.5% increase in fee revenue per unit and strong volume growth. Revenue per unit was positively impacted by strong ASP growth with insurance ASPs increasing 8.4% and non-insurance ASPs growing 16.7%. The profit picture was equally compelling with gross profit increasing 21.9% and operating income reaching 73.8 million representing a 31.5% operating margin. Finally, turning to our capital structure and liquidity. Cohort remains in an exceptionally strong financial position. We ended the quarter with liquidity of approximately $5.5 billion, which includes $4.2 billion in cash and equivalents in health and maturity securities and no debt. Our balance sheet gives us tremendous flexibility to be opportunistic investors throughout business and credit cycles. We continue to generate robust free cash flow, which has increased 12% year-to-date. supported by disciplined capital allocation into land, facilities, and technology, which positions us to efficiently serve both insurance and non-insurance clients while delivering strong operating efficiency. On the capital return front, we continue to repurchase shares during the third quarter through a combination of 10B51 and open market transactions. Fiscal year to date, we have repurchased over 43.4 million shares for an aggregate amount of over $1.6 billion, underscoring our confidence in the future growth prospects for Copart and the long-term value of our business. Thank you, and with that, we'll open up the call for questions.