Copart, Inc. (NASDAQ: CPRT) Q3 2025 Earnings Call | 05/23/2025

Q3 Fiscal 2025 Financial Highlights

Copart reported an increase in global unit sales and revenue, although some metrics were impacted by the leap year in 2024.

• Global Unit Sales: Increased 1% (over 2% on a per-business-day basis), with consignment units continuing to be the majority.
• U.S. Unit Sales: Flat year-over-year, with a slight decrease in U.S. insurance unit volume (down almost 1%). Non-insurance U.S. unit volume, particularly Copart Direct (servicing banks, rental, and fleet partners), saw strong growth of almost 14%. Dealer sales grew over 3%.
• International Unit Sales: Grew 6% (about 5% excluding catastrophic event units), with fee units up 9% and purchase units down 13% as some insurance customers shifted to consignment models.
• Average Selling Prices (ASPs): Global ASPs increased approximately 3%. U.S. insurance ASPs rose over 2%, and international insurance ASPs increased about 5%. Copart attributes this to its global member base and digital auction platform.
• Global Inventory: Decreased nearly 10% year-over-year (U.S. inventory down 11%), driven by lower assignments, faster cycle times, and reduced aged inventory of low-value units. This reflects cyclical impacts from under/non-insured motorists and varying growth among carriers.
• Global Revenue: Increased to $1.2 billion. Global service revenue rose $88 million (over 9%), driven by international volume and higher revenue per unit. U.S. service revenue grew 8%, and international service revenue grew 18%.
• Purchase Vehicle Sales & Profit: Global purchase vehicle sales decreased 2%, while gross profit decreased 60%, largely due to a $12 million out-of-period adjustment related to Q1 and Q2 costs in the U.S. In Germany, a shift from purchase to consignment for higher ASP insurance vehicles positively impacted international gross profit.
• Gross Profit: Global gross profit was approximately $552 million (up about 5%), with a gross margin of 46%. U.S. gross profit was $480 million (up about 3%, 48% margin), and international gross profit was $73 million (up about 26%, 35% margin).
• Operating Income: GAAP operating income increased over 3% to approximately $452 million.
• Net Income: GAAP net income increased over 6% to $407 million, or $0.42 per diluted common share, benefiting from a nearly $7 million increase in interest income from Treasury securities.
• Cash Position: As of the end of April, Copart had over $5.6 billion in total liquidity, comprising nearly $4.4 billion in cash and approximately $1.3 billion under its revolving credit facility.

Strategic Focus and Market Dynamics

CEO Jeff Leal highlighted the ongoing evolution of the insurance business and preparations for the storm season.

• Total Loss Frequency: Continues to rise in the U.S., reaching 9.8% in Q1 2025 (up ~100 basis points year-over-year). This is driven by increasing vehicle complexity, rising repair costs (parts, labor, storage, rentals), and the attractiveness of salvage vehicles for emerging economies.
• Insurance Volume Discrepancy: Nominal insurance volumes haven't kept pace with rising total loss frequency partly due to the imprecision of total loss frequency measurements and cyclical forces like an increase in uninsured and underinsured drivers. Such drivers may not enter the traditional insurance claim pathway. This is seen as a cyclical phenomenon, historically reversing over time.
• 2025 Storm Season Preparation: Copart is continuously investing in real estate, infrastructure, technology, and personnel readiness. A significant example is the acquisition of Hall Ranch in South Florida, providing nearly 400 usable acres for vehicle storage, tripling their capacity for large Florida storms. This preparedness is a year-round effort.
• Land Asset Strategy: Copart views its expanding physical storage (land) as essential for its value proposition to both insurance and "blue car" (finance, rental, fleet) customers. It supports processing salvage titles and logistics, complementing their digital auction platform. They consider it their responsibility to ensure sufficient capacity for the industry, especially as land for storage becomes harder to acquire.
• Purple Wave Partnership (Heavy Equipment): While currently experiencing flat Gross Transaction Value (GTV) due to widespread uncertainty regarding infrastructure spending and tariffs, Copart remains confident in the partnership. Purple Wave's expertise in heavy equipment is beneficial to Copart, which is a major equipment purveyor.
• Tariff Implications: Tariffs on parts (mostly from Canada, Mexico, China, South Korea, Japan, Germany) increase repair costs and delays, making the repair path less attractive for the insurance industry. For total losses, tariffs could lead to higher used car prices and Actual Cash Values (ACVs), potentially resulting in higher salvage returns for Copart. While overall demand might see a "mild suppression," the shift towards making repair less attractive is seen as "marginally more favorable" to Copart than the semiconductor shortage. Significant uncertainty remains as government guidance on exceptions is pending.
• Market Share: Copart believes its long-standing trend of gaining market share is driven by its commitment to delivering the best net returns to clients through investments in land, digital platforms, and tools that enhance client efficiency (e.g., advanced charges, AI-enabled solutions).
• International Buyer Pricing: Prices in Copart's end markets are set by the dynamics of a global auction. While U.S. vehicle prices influence domestic buyers, international buyers from emerging economies (especially those without local auto production) have a high incentive due to the high cost of mobility solutions in their home markets. This arbitrage opportunity means international buyers are willing to bid competitively, and Copart's global platform finds the "highest and best use" for each vehicle.
• GNA Expenses: Year-over-year increases in General and Administrative expenses reflect global investments in projects and solutions aimed at driving future operating leverage and efficiency.
• Under/Uninsured Motorists Impact: While damaged vehicles from under/uninsured motorists may not enter the traditional insurance claims funnel immediately, Copart still aims to acquire them through its "cash for cars" business or dealer services, though this is a less efficient process.
• Legislative Actions:
  • Capped Storage Fees: Legislation capping storage fees by unaffiliated repair shops would benefit insurance companies by reducing costs, which Copart views as beneficial to the overall ecosystem.
  • Total Loss Thresholds: While some legislation might raise the statutory total loss threshold, Copart believes insurance companies typically total cars at lower economic thresholds anyway. The company sees mandatory repair legislation as a greater concern, but believes the insurance industry will advocate to retain discretion in total loss decisions.