Copart Investor Conference Call | New CEO Jay Adair Outlines Long-Term Strategy Priorities

Good morning. I was reflecting on the last time I did calls was a couple years ago, I think in 1996. So I thought I'd give you a little background on myself. I know most of, I think I know most of the people on this call, but for those who don't know me, I started with Copart 37 years ago in the summer of 1989 when Copart was a relatively small business. We went through a private equity or private fundraising period in 1993, and by 1994 we were publicly traded. I had the pleasure of going on that road show and it was the first time I'd been to New York. So it was an interesting experience, it was an amazing experience. Within a couple of years we were registering copart.com and I was building out and spending most of my time building out web pages and web products for copart.com. By 1998 we had gone online. We had invented, I should say, the first online bidding product. By 1999 we had vehicle images. And I remember getting a call from Scott McE, who worked down in Silicon Valley, to see what we were doing, and he came up to Fairfield to see what we were doing. We were taking so many images and changing the industry the way we were. By 2003 we had moved everything completely to online. I built that product with our team, we patented that product, and we would effectively be the only digital fully digital auction for the next 20 years. In 2004, we decided we wanted to expand and go outside the US by going to Canada. Followed that in 2006 by going to the UK, and then followed that by going to Spain and Germany and Brazil and the Middle East and Ireland. So I'll talk more about our growth, but I've got a lot of background in international expansion with the company as well.

I guess first I'll start by talking about the CEO transition and let me just make it very, very clear. Jess and I worked together for 11 years and I consider him a dear friend. I'm thankful to him for everything that he did for this company as CFO, as president, as COO and CEO. My return back to CEO is something that Jeff and I decided on together. We both agreed that it was the right thing for the company. My intent is to lead the company for the next 10 plus years. This is not an interim arrangement and I won't be going through a process of finding my successor. I'm just going to focus and double down on all of our initiatives to build Copart and to grow Copart. And when we talk about that, there are really three growth pillars that we focus on: international expansion, on insurance whole car expansion domestically, and then technology services for customers. I want to be very, very clear: this is a growth company and there is a lot of noise and a lot of rhetoric out there. And I have a pretty good history of saying I don't listen to the noise and I don't respond to things, and I'm going to continue that. So I might be asked questions that I won't answer that I don't want to answer. But at the end of the day, it's because we're going to focus on what it takes to win. And I don't plan to put my playbook for winning out there publicly for my competitor to see.

I believe, I mean I know our customers personally and I believe our customer relationships are stronger than ever. The idea that that is not the case I believe is just false. During our Q3 earnings call, we shared the total loss frequency reached approximately 23.6%, up 500 basis points over the years by repairs and by the record auction returns we generate, which make the total loss decision more attractive to carriers. When I started, total loss frequency was 8% and we watched that continue to improve and continue to increase over the decades, and we believe that will continue. Another point on our Q3 earnings call was that US insurance ASPs reached an all-time high in the most recent quarter, up approximately 4.1% year over year, and international buyers, crossover buyers, and finance buyers continue to be critical drivers of our auctions. Our global buyer network now spans more than 160 countries.

I'll talk a little bit about the cyclical headwinds that we're facing, but I think it's very important to realize that we are not only the largest, you can look at all the activity that comes onto our website and you will see that we have the best inventory in the industry. On cyclical headwinds, we are experiencing the impact of a cyclical and in our view unprecedented dislocation across the US industry, the US insurance industry. The 2022 to 2024 inflation cycle pushed carrier combined ratios out of balance, driving rate increases which drove consumers to pull back their level of insurance coverage, which was observed through a shift toward higher deductibles and liability only policies. I believe that is now softening and we are starting to see insurance companies become more aggressive again. Much of this is from 2020 COVID, the impact of that, the impact of insurers cutting dividends back and reducing insurance rates, and now we've seen kind of the flip side of that as we have seen in the past year or two, and I think we're now going to see things kind of normalize. We believe the consumer retrenchment is cyclical, not structural.

On international momentum, we are going to step back up again. We have slowed historically as we were figuring out different models to the Copart model in Germany. We have figured that out now, we are profitable and we know how to grow in that market, and so we will be expanding in other international markets in Europe and other locations as well. International unit volumes grew 5.9% and international revenue grew 14.1% year over year in Q3 2026, with both insurance and non-insurance channels contributing. So it's an area of significant focus for us as a team, and we will be, for lack of a better term, speeding that up as we go forward.

Looking at our balance sheet as of Q3 fiscal year 2026, we have nearly $4.2 billion of cash. This is after recently deploying $1.6 billion into share purchases. We have no debt on the balance sheet to speak of. We believe we have the liquidity to continue to look at all strategic options available to us. Before I open it up to questions, I'll point out that Leah is here in the room with me, CFO. So if there are some questions that are financially focused, I'm going to let her answer those. I'll say this: we continue to deliver for our customers. We will continue to focus and be a customer-centric company. We continue to provide the best product in the industry. And I will tell you, after not, I'm not saying I was ever left because I've been executive chairman, I've been involved. Jeff and I over the last two-plus years, we speak regularly if not daily, multiple times a week. But I have dug in heavily in just the last week, and I'm excited and I'm looking forward to changes we're going to make. And I'm back, so not like I'm here temporarily. I'm here to stay, and excited for everything that we plan to do for this company. On that note, we'll open up for questions.

It won't be 5 to 10, it's less than five. We think of AI in quarters, not years. And it might be the only time of my life that I've fought in quarters and not years, but it's happening that quick. AI is something that if you're not doing it, you're missing out. You know, we often refer to it. We've actually given guidance to our team on what tools are the best and we often refer to AI as if you're not utilizing it, you're doing the company a disservice. There's a big focus internally. We have a head of AI and that's something that will continue. The obvious things are efficiencies, and we are doing that already. Less obvious is strategic, and that I won't comment on, but we are looking at strategic availabilities in AI as well.

We're going to do both. We will be doing M&A obviously and we will be building as well. And you know as you all know, we're sitting on a ton of cash and we have the ability to do both, so we will.

I think you know, and I never like to, you know, one Wall Street analyst... I think the narrative out in the industry from competitors and you see the story, and at the end of the day, we are a phenomenal company. We've got amazing people, we've got phenomenal relationships with our customers, and we're going to do what Copart has always done. We're just going to execute. We're not going to talk about it. We're not going to tell people what we're about to do. And then when we do win, we're not going to tell people that we won. We're just going to do it. Let the results speak for themselves.

It does. Yeah, we're going to be speeding up some of initiatives and to do that have more team members.

I think that everyone in the company is excited. I think they're already feeling like let's go do some of these things. And so it's going to take me time to, you know, we're promoting people already, but it's going to take time to hire people. And so you know it's not years, it's quarters, but it's going to take some time.

I think as things normalize, people will get coverage again. I just think when insurance rates get that outrageous, it causes people to drop their coverage and go with liability only. And I think as rates come back down and things improve, people will say that's only X a year more, go ahead and get me full coverage.

Yeah, we've got an amazing network of locations - not just the number of locations, but the number of acres per location. So I think we're in a good spot. We have to do a little bit of development still, and we got a little bit of add, but nothing like you saw the last 10 years. The last 10 years was just half a billion a year in buying land and developing those locations. That's definitely going to slow down.

Thank you.

Yeah, I mean we've already got access to our locations for Purple Wave. I think you know I am focused right now on international and domestic Copart. I'll focus on that next. I can give you a better answer in a quarter. Leah is here. She's happy to give you her response. I just have not been that close to it.

Well, it's historically been a nice growth engine for Copart. I'd like to see that increase dramatically. To do that, we're looking at restructuring and we're looking at some other strategic moves that would help that. But the intent, I'm not going to tell you exactly how we're going to get there, but I'll tell you that the goal is that it looks very different in two to four quarters.

Well, I think we've got to focus on M&A and also investing and making some of the products that we've got already more robust. So it's hard for me to tell you it's a third or 40/20, but I will tell you they're all going to be material investments.

If you look historically, all of the M&A has been in our industry. They've been acquisitions that made sense. They plug into our business, utilize our land, our auction technology, our knowledge. And so we're going to continue to do that. We're not going to go out and buy something that has nothing to do with our industry. You know, we have it's no secret, you guys know how we think about ROI. So we will be disciplined. We will be focused on making sure we're getting the right return on investments. But it's to buy and build in our respective industries, not to go jump into something totally different.

To do the right deal, I would take on some debt.

Yeah, you too, CR. Look forward to it.

It's not an easy answer because I think we can leverage it, but I don't want to be pigeonholed. So I'm going to tell you, I think we can leverage it, but I'm not going to make a statement like that on a call and then stop me from making a good long-term decision to invest in the company. So that would be my intent, but if something comes up that I see that I need to make the investment to grow even faster, and when we talk about growth, our growth is the right kind of growth. You don't see us growing and doing enormous volume and not bringing that to the bottom line. So given that, I would say I think we can leverage it, but I would leave our options open.

Well, I think from a timing standpoint, I'm not technically CEO yet. We're going to transition that at the end of the month. I was back and forth with Jeff this morning. So that's all coming and I'm digging in in a very short period of time compared to being in an executive chairman role. I think it was the right thing to do. Jeff and I had these conversations and as I said already, we're friends and he lives maybe 10 houses down from where I live. At the end of the day, I've got enormous respect for him and he does for me. None of that changes. But what was decided in our conversations was for me to get back involved and start to drive the company as CEO. And so that's what we decided.

Yeah, I think they've espoused some rhetoric that's out there in the marketplace. I haven't seen where the products have dramatically changed, but you know, historically you can go back and listen to 30 years of transcripts from me and you're not going to see me talk about my competitor a lot. So I'm not going to change that. Copart has, just in the last year, invested in a number of initiatives that we're working on, just like we had a decade ago and two decades before that. You know, online bidding started in '98, that's almost 30 years ago. When you think about digital auctions and virtual bidding, we were signing people on to AOL and they were dialing in to be able to bid in our auctions. I mean, we have tried to be very cutting edge, not bleeding edge, and we continue that. We continue to have differentiators in the space, and I look at a number of our products and they are just significantly better today than they were a year ago, and we're going to double down on those initiatives. So there will be a little more spending, but it will drive the business for so necessary reasons.

Yeah, I mean there is a unit loss. There was an account that was lost in some ways, and in some ways Copart chose not to do business. And so that has historically happened and I won't mention the company. I don't view that as some fundamental change in the relationship we have with all of our clients. So if you look at the rest of our clients, we have great relationships with them. They recognize us for delivering not just the service but the liquidity, and being not just the largest but the best place for them to liquidate their vehicles. If we didn't have the kind of liquidity that we're talking about, we couldn't be growing all the non-insurance business. We couldn't be growing all the dealer volume. These are folks that would look at that and say, why would we give you more cars unless you're getting the return? So there has been that. I don't think that's going to continue throughout the organization, and I think Copart has the ability to win that business back, and I suspect over time you'll see that kind of behavior. You'll see us winning business. So that's our plan. And then on the whole car front, you know, the one asset you appear to have is the ability to take your international buyer base and liquidity and offer that to the dealers and the commercial sellers. Is that an area you would incrementally focus on and try to build relationships that way? We have historically, but you know you said dealers and whole car, but it's also insurance. And we were the first to build an international base. That was back in the 90s. I remember seeing various countries coming into our website first, and then it got to a point where I was looking up to see where countries were from because there were so many different countries that were buying at Copart. Not just the fact that we've been marketing and working that for 30 years, but the fact that we've got Middle Eastern presence, European presence, Eastern European presence, all of that is part of what drives that buyer base and that buyer liquidity. And yeah, we'll continue to do that. We're not going to move away from that. That's a big differentiator for our sellers to see where those vehicles are selling to when we sell them. Just an educational point of view, how does an insurer become the owner of record of a whole car? I thought the transmission mechanism is a salvage and the titles transfer to them. They don't really become... when we talk about whole car, we're talking about non-insurance. So we talk about banks, finance companies, and things like that. Insurance is going to be a damaged vehicle for the most part.

Yeah, I mean like I said earlier, the focus is going to be on international. It's going to be on growing the existing core business. It's going to be on technology. For me to break it out, I can't break it out and tell you a third, a third, a third. It's that that is the focus. And you know, the team at Copart has heard me say before, I can't remember four, five, or six things, three things. FBI, CIA, I can remember three things. So when we talk about our growth, those are going to be the three pillars and the three legs, and that's going to be the focus. And we are not a rigid organization. We're a flexible organization, and we will flex as we need to put more effort into one area versus the other.

We're going to focus on things that fit our industry. We're not going to be going outside of our industry.

Yeah, happy to talk about the operations. They seem amazing. I mean, we've got amazing systems, people, all of our facilities we've continued to invest in them over the last decade, let alone the last year. So they're great. I feel very happy with where the company is sitting. It has been well operated and there's nothing I can say about that that I'm displeased with. I'm very happy with everything. But if you're going to grow at a little faster rate, it does take some changes with respect to structure, with people, organization, how we move people around the organization, hiring some people from the outside. So in addition to that.

I'm going to look forward to the earnings call when we come. I think it was just important for us to do this call. It's the first time we've ever done a call between earnings releases in 30 years, 32 years as a public company. But we just felt it was important for you to hear some of this and not wait until the actual quarter comes out. Given that, it was a pleasure to talk to you all again, hear voices that I haven't heard in a while, and look forward to reporting on the quarter and the year in the coming months. And Leah and I will have a lot to tell you then. So thanks for your time today, guys. We appreciate you and we sign off. Bye bye.