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4Q26 Update.
Copart reported fiscal 4Q26 earnings and the stock sold off-2% the next day, but has since recovered. This was the first earnings call after Jay Adair returned as CEO at the end of June.
The quarter was pretty meh as revenues grew just +2.4% y/y and gross profits were -5.5%. The past few quarters represent rare negative growth for the business. Outside of Covid, revenue growth has only dipped negative in 2015 and 2009. While there certainly is a level of cyclicality to revenues, the base in the past has tended to be higher. Ignoring Covid, which provided abnormally strong growth (after 2 quarters of negative growth), Copart continued to put up strong numbers until around the middle of 2025.
As we noted in prior updates, management attributed these current revenue headwinds to more drivers going with less insurance or no insurance at all. In these circumstances, if a car is totaled the insurance company wouldn’t be on the hook for it and so it meant less supply for Copart. (Industry stats do broadly corroborate this). The other reason they mentioned was that the market share among insurance companies had been changing in favor of insurance businesses who used IAA more than Copart. While this made sense, investors were worried that IAA had been improving their service levels, driving insurers to leave Copart in favor of IAA.
Jay Adair is dismissive of this on the Special call saying: “I think they’ve [IAA/ Ritchie Bros] espoused some rhetoric that’s out there in the marketplace. I haven’t seen where their products have dramatically changed”.
U.S. insurance volumes fell -7.5% this quarter, which is down from -4.2% last quarter and represents the 6th consecutive quarter of shrinking volumes. This larger volume loss was driven by 1 single customer loss, which they believe was very idiosyncratic and specific to that customer. On the Special call they alluded to the fact that they weren’t willing to offer the pricing that they demanded. Outside of that one customer loss insurance assignments would have been +2.3%, showing that their underlying growth is positive once they lap this customer loss.
Total units were negative -2.9%, as international was a strong contributor at +11.2%. This is not to say they are happy with this performance. In our opinion one of the main reasons Jay Adair is back is to return Copart back to real growth.
Operating profits fell -11% y/y to $369mn due to higher expenses in yard operations, and investments in their long-haul delivery service expansion, Title Express, and their wholesale facilities. CFO Leah Stearns stated that these costs were largely discretionary and driven at longer-term growth. To the negative, OpEx per car in 4Q26 rose 13% y/y. The volume headwind is certainly one aspect of this, as fewer cars means fewer units to spread cost across. While they didn’t mention any clear timeline on when this cost will come down, they state that as volume increases and they embed more technology throughout the company (including AI) the cost should come down. Jay Adair is not big on guidance and is more of a “let-me-show-you” manager. This does require trust on behalf of investors though.
While we mentioned that Copart attributable poor volume performance to underinsured drivers and market share shifts among insurers, this was the first call in the last few quarters when they didn’t cite that as a reason why the U.S. insurance business was suffering. But Jay Adair did take a moment on the call to state that if a competitor was to cut price that was because they couldn’t deliver competitive returns to Copart (returns here means the % of the car’s pre-accident value that is recovered). Copart doesn’t see a need to be competitive on price.
U.S. insurance ASPs grew 3.7% y/y in the quarter, which helped offset the volume declines. The international business, as mentioned, was a bright spot with international insurance units up 11.2% y/y, with fee units increasing 11.5% y/y primarily driven by their UK and Canadian operations. They also noted that they are now profitable in all of their international markets. With experience in how to attack these international markets, which often operate differently than the U.S., they are going to continue to invest in these markets and are looking to expand into new ones as well.
With over $5bn in cash on their balance sheet at the beginning of the year, they had ample room to aggressively buy back shares and cash-fund acquisitions. For the full fiscal year, they bought back $1.6bn of shares. Last quarter alone they repurchased $1.4bn in stock. This quarter though they shifted capital allocation priorities to the acquisition of ACV.
Jay Adair alluded to acquisition opportunities to stoke growth on the last call. We are mixed about this. While a good acquisition at the right price can certainly help them grow (more on ACV below), it also suggests a limiting of growth opportunities in their core business.
They announced a tender offer for ACV at a value of $1.9bn. ACV is the largest digital automotive marketplace in the United States with over $10bn in GMV in 2025, >22,000 active buyers, and selling over 800,000 vehicles each year, all without any land of their own. The idea is that ACV will help them penetrate more franchised dealers (improving auction liquidity) and help them get more into whole car.
This is a bit ironic of a turn of events because if we rewind to 2005/06, Copart entered the whole car business with Motor Auction Group, but ultimately decided that the opportunity and returns in their core salvage auction business were better. Over the past few years though they have been pushing more into whole car and attracting higher end units (higher end here is relative to literal salvaged vehicles). In the past few updates, we predicted that Copart’s real growth opportunity would be to continue to move up into whole car as it provides them a new avenue to grow volumes and they carry higher ASPs. Although, it is a much more competitive business.
The acquisition makes sense for Copart, but it does suggest that their domestic insurance operation is perhaps more mature than they want to openly admit. Jay Adair coming back to help Copart grow more wasn’t just about fixing some operational issues (which it does sound like there were some, noted below), but rather about Copart pushing into their next chapter.
ACV has messy financials with a ~$55mn operating loss over the past 12 months and negative ~$35mn in operating cash flow after subtracting SBC out, so Copart will need to find meaningful synergies.
The slide below notes that salvage vehicle auctions see around ~5mn in annual volume from the U.S. whereas used vehicle transactions are about 4x larger at 20mn (but much more competitive too).
The advantages of bringing these two platforms together are outlined in the slide below.
Jay Adair said more about combining these two companies together on the call:
While Copart positioned the CEO transition as being primarily about jump starting growth, there are signs that they were having some operational issues as well. Admittedly, we found this surprising as Liaw seemed on top of it during earnings calls and they still had founder involvement. No doubt the need to find new growth opportunities for Copart was a big reason that Jay came back, but it also looks like the culture of Copart was degrading under Liaw. An AlphaSense expert call transcript from a GM of Copart of 15 years surfaces…
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