Copart, Inc. Q3 FY2025 earnings call

Insurance Business

• Global insurance volume remained relatively flat year over year with a nominal decline of 0.3% globally in unit sales and 0.9% in the United States. Accounting for the extra business day of leap year 2024, global insurance and US insurance units sold grew by 1.3% and 0.6%, respectively. Total loss frequency continues to rise in the US, reaching 22.8% in the first calendar quarter of 2025.

2025 Storm Season Preparation

• Invested in real estate infrastructure, technology, people, and other aspects of operational readiness. Acquired Hall Ranch in South Florida, which offers nearly 400 usable acres of vehicle storage for a storm, allowing handling of a storm more than three times the size of the largest Florida storms on record in Copart history.

Financial Performance Trends

• Global revenue increased to $1.2 billion. Global service revenue increased nearly $88 million or over 9% from the third quarter of 2024. Global purchased vehicle sales for the third quarter decreased approximately 2%, and global purchase vehicle gross profit decreased 60%. US purchase vehicle revenue was up about $20 million or 22%, while purchased vehicle gross profit decreased $13 million or about 187%. Internationally, purchase vehicle revenue decreased by over $23 million or 25%, and gross profit increased by over $2 million or about 22%. Global facility-related costs increased $51 million or about 12%. Third quarter GAAP operating income increased over 3%, and third quarter GAAP net income increased by over 6% to $407 million or $0.42 per diluted common share.

Capital Structure

• As of the end of April, had over $5.6 billion of liquidity, comprised of nearly $4.4 billion in cash and a revolving credit facility of approximately $1.3 billion.

Global unit sales increased 1% during the quarter, reflecting a modest headwind from the prior period being a leap year. On a per business day basis, global unit sales grew over 2%. Consignment or fee units continue to be the majority of global unit volume. In the U.S. Segment, unit sales were flat with flat fee unit growth and nearly 7% purchase unit growth. US insurance unit volume decreased close to 1% year over year. BlueCar, servicing bank, rental, and fleet partners, had year-over-year growth of almost 14%. Dealer sales volume grew over 3% year over year. Low-value units increased just over 4%. In the international segment, unit sales growth was 6% for the quarter, about 5% excluding cat units. Fee units increased 9% and purchase units decreased 13% for the quarter. Global ASPs increased by approximately 3% for the quarter. Global gross margin percentage was 46% for the quarter. US gross profit was approximately $480 million, an increase of about 3%, with a gross margin of about 48%. International gross profit was approximately $73 million, an increase of about 26%, with a gross margin of 35% in the quarter.

Continue to invest in physical storage capacity, technology platform, people, and seller member ecosystem to grow and enhance capabilities for storms and day-to-day business. This includes investing in physical storage, technology, people, and the seller member ecosystem to deliver superior auction outcomes to sellers and purchasing experience for members.

• Total loss frequency continues to rise due to factors like increasing vehicle complexity, rising parts prices, labor rates, etc.
• Cyclical forces including increase in uninsured and underinsured drivers, which may affect insurance volume.
• Uncertainty regarding infrastructure spending and tariffs, impacting the heavy equipment auction space.

Q: How do you think about the land asset and its benefits for BlueCar or whole car customers?

A: Physical storage and logistics are essential to the value proposition for many sellers, including insurance companies, BlueCar (finance companies, rental car companies, corporate fleets, etc.). Physical storage is necessary in many instances, and it is viewed as an essential portion of the service offering.

Q: What have you learned so far about Purple Wave and how will you invest in it going forward?

A: The original thesis for Purple Wave was that we liked it as an investment and it benefits Copart's core business. Purple Wave is facing inertia due to uncertainty regarding infrastructure spending and tariffs. We will continue to evaluate and invest based on whether it aligns with our objectives and helps Copart's business.

Q: What sets prices in your end markets?

A: The arbitrage available for the global buyer base due to affordability of mobility solutions locally is significant. In emerging markets, the spread between the alternative is dramatic, and we haven't seen significant impact to buyer activity due to tariffs so far. The value of a vehicle varies by car, and it's ultimately an auction where the highest and best use is found.

Q: Trends in G&A spend and if 3Q run rate is a new baseline?

A: Year over year increase in G&A was attributable to investment in the sales force within Purple Wave and minor investments across platform services. We make investments with an investment mindset to drive operating leverage, and it's not a steady state run rate as we make investments for future returns.

Q: Channels for remarketing vehicles of underinsured and uninsured motorists?

A: Vehicles can end up at Copart via cash for cars business, Copart dealer services business, or policyholders trading in damaged cars to local dealers.

Q: Impact of legislative actions on storage fees and total loss thresholds?

A: Reducing storage fees benefits the insurance industry and we equip them with tools to resolve claims quickly. Legislation on total loss thresholds, where insurance companies should make best decisions, is not a huge distortion as insurance companies are motivated to make their own decisions.