CPRT - NASDAQ

Good day, everyone, and welcome to the Copart, Inc. Second 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 Liaw.

Thank you, Owen. Welcome, and thank you for joining our second quarter fiscal year 2026 earnings call. I'll begin with some brief remarks on trends in our insurance business before passing the call to Leah to provide a summary of our financial results. We'll then be happy to take your questions. On our insurance business. For the second quarter, our global insurance units declined 9% or 4%, excluding the effect of catastrophic units from a year ago. Our U.S. insurance units declined 10.7% for the same period or 4.8%, excluding those catastrophic units. The underlying drivers of these changes remain consistent with what we've discussed on our prior calls. First, shifts in policies in force and exposure levels across insurance carriers who themselves are experiencing differential growth rates. Softer overall claims activity driven by a consumer pullback in auto insurance coverage, all partially offset by continuing increases in total loss frequency. On the latter point, total loss frequency continues its inexorable rise, consistent with the long-term historical trends we've observed and discussed at great length. In the United States, total loss frequency was 24.2% in the fourth quarter of calendar year 2025, a slight 10 basis point uptick from a year ago. The year ago period, of course, does include the effects of Hurricanes Helene and Milton. It's notable that total loss frequency has increased over that period, nonetheless. Then when you step back a bit over a multiyear horizon, the upward trajectory becomes clearer still. Total loss frequency in calendar year 2015 was 15.6% in comparison to 23.1% in calendar year 2025. Against that backdrop, our focus remains on delivering superior long-term economic and service outcomes to our insurance clients. First and foremost, we maximize returns for our insurance partners. We believe our auction returns continue to reflect structural advantages of our marketplace and recent account wins for which we have empirical before and after returns data validates that position. As you know, industry-wide vehicle values have normalized somewhat from the elevated levels we observed during supply constrained -- supply chain constrained period of 2021 and 2022 as evidenced by Manheim indices and otherwise. We are nevertheless generating record average selling prices for our U.S. insurance consignors. As we discussed at great length on our first quarter call, we attribute this performance to the scale and diversity of our global buyer network, rising international participation, enhanced data-driven merchandising and the liquidity that comes from consistently finding for each vehicle we auction its highest and best use globally. The critical driver of long-term competitive advantage for Copart is that liquidity. We migrated first to an online-only auction in 2003 and have benefited from an almost 2-decade head start in comparison to the rest of the industry. In short then, we benefit from a growing base of bidders as evidenced in bidders per auction, bidders per lot, watch list additions per lot and so on. Our selling customers have also voted with their pocketbooks, entrusting us with more pure sale units than they ever have before, knowing our auction will achieve a full and fair market value. The ancillary benefit from that change and that evolution is that our sellers can themselves reduce their own internal administrative burdens by extension. As evidenced by marketplaces across a multitude of industries, liquidity begets liquidity. The fact that our auctions continue to drive strong returns and price discovery yields further growth by bringing new sellers to our platform and frankly, by enhancing the economic attractiveness of the total loss pathway for our insurance clients as well. Our strong returns are literally one of the critical drivers of rising total loss frequency in the industry. To that point, our U.S. insurance ASPs for the quarter increased 6% year-over-year. Excluding the effect of the catastrophic events from a year ago, our average selling prices for the U.S. insurance sector grew by 9% year-over-year, yet again outpacing industry trends. The second important element from our insurance carriers' perspective is cycle times, both from assignment to vehicle retrieval and from vehicle retrieval to vehicle sale. These are critical drivers of economic value and policyholder satisfaction for our insurance clients. To deliver excellent pickup times, we operate the largest tow network in the industry by a long shot, a unique combination of third-party subcontractors, owned trucks and employed drivers and what we call truck-in-a-box operators, who are independent third-party drivers who leverage Copart's purchasing and financing scale for their vehicles. All of these service providers benefit from Copart's best-in-class route density to optimize performance and cost. Finally, our Title Express offering, the process by which we obtain loan payoff balances and accelerate the retrieval of original titles, whether held by the banks or by individual policyholders, is by a factor of 5x or more the largest such platform in our industry. In many cases, we deliver cycle times 10 days better or more than the insurance clients can deliver on their own because we benefit from unmatched scale and the purpose-built technology platform that, that scale enables. On the specific question of claims activities, we talked at length about -- on our last 2 calls about trends we've observed in the insurance industry, including consumers paring back their coverage by foregoing collision coverage, raising their deductibles or both. These trends have continued in our most recent quarter, historical data does indicate over the long haul that these are more cyclical forces than they are secular. The last point I wanted to make was to shed some light on artificial intelligence and what it means as a critical tool for Copart specifically. We have deployed artificial intelligence at scale along multiple dimensions across our enterprise, including my own significant personal engagement in Quad code and other such platforms. We've observed, not surprisingly, an exponential monthly increase in use by our own in-house team of engineers. With approximately 1,000 full-time engineers across North America, Europe and Asia, we have by a healthy margin, the most robust and experienced bench of technology talent in the industry and the tech platform to show for it. Artificial intelligence is turbocharging their productivity day-to-day. We have also deployed our artificial intelligence in business analytics, document processing, our call for release processes, driver dispatch and so on and so forth. As one commercial example, 2 full years ago, we launched a total loss decision tool to the industry, which assists insurance carriers in making expedited total loss decisions with limited information, including, for example, a small sample of photos and otherwise. In every case, as we deploy this critical technology, we are appropriately respectful of the critical privacy and reliability considerations that our sellers will have as well as the business practices, legal and regulatory considerations of our insurance business partners specifically. We have already seen AI substantially increase our productivity across functions, and we will deploy it -- we will continue to deploy it to continue doing so. We also know that artificial intelligence will enhance the value proposition we can deliver to sellers and buyers at our marketplace over the long haul. With that, I'll turn the call over to our CFO, Leah, to discuss our second quarter financial results.

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 second quarter, consolidated revenue declined 3.6% year-over-year to $1.12 billion. The prior year included revenue from over 49,000 CAT-related vehicles. Excluding CAT, consolidated revenue increased 1.3%. Service revenue declined 4% and purchased vehicle sales decreased 1.4%. Revenue performance was driven by higher ASPs, which were up 6% on a reported basis and 7.1% excluding CAT, which were offset by lower unit volumes, which declined 8% globally and down 3.6%, excluding CAT. Global insurance units declined 9.3% or 4.1% adjusted for CAT, while global noninsurance units decreased 2.7%. Global inventory declined 7% from the prior year, while global assignment volume declined low single digit. Global gross profit decreased 6.2% to $492.8 million. The prior year included profit from the CAT units, and this quarter included a $6.8 million onetime expense accrual related to international VAT. Adjusting for these items, global gross profit increased 0.4% and global gross margin increased 178 basis points to 45%. Operating income declined 8.8% to $388.7 million, while net income was $350.7 million, down 9.5% from last year. And earnings per diluted share decreased 9.2% to $0.36. Turning to our U.S. segment. Total units declined 9.5% or 4.5%, excluding CAT and direct buy. Insurance volumes decreased 10.7% or 4.8%, excluding CAT, which are consistent with the claims frequency trends Jeff described a few moments ago. Dealer Services unit growth was 5%, while commercial consignment units, which are marketed through our BluCar channel, declined 11.8%, reflecting higher repair activity among our rental customers, while fleet and bank finance seller volume continues to grow at a healthy double-digit pace. In addition, as we continue to shift lower value units to our direct buy channel, reported U.S. purchase units declined 23.6% or just 8% on a normalized basis. As of the end of the quarter, our U.S. inventory had declined 8.1% from the year ago period. During the quarter, U.S. assignments declined low single digit from the prior year Purple Wave's gross transaction value growth of more than 17% over the last 12 months continues to significantly outperform the broader industry and reflects our strong performance in our expansion markets as well as growth in our enterprise accounts. U.S. total revenue declined 5.5%, but was flat excluding prior year CAT events. Fee revenue declined 5.6% and was also flat, excluding CAT, as lower unit volume was offset by an increase in revenue per unit. U.S. insurance ASPs increased 6% or 9% excluding CAT, and noninsurance ASPs increased 2%. U.S. gross profit decreased 7.2% to $430 million or 1.6% excluding CAT, and gross margin was 46.6%. Operating income was $341.5 million, down 9.2% year-over-year or 2.3%, excluding CAT and U.S. segment operating margin was 37.1%. Turning to our International segment. International units declined less than 1% or grew 1%, excluding prior year CAT events. Insurance units decreased 2.6% or 1% excluding CAT, and international noninsurance units increased 9.1%. We continue to see strong noninsurance growth across our diversified international footprint, including in the U.K. and Canada. Revenue increased 6.1% or 7.7% excluding CAT to $200 million, including a $13.4 million favorable FX impact. Service revenues increased 7.7% or 9.4%, excluding CAT, which was driven by a 7.6% increase in fee revenue per unit. International insurance ASPs rose 9%. Gross profit grew 0.9% and operating income was $47.2 million or a 23.6% operating margin. Finally, turning to our capital structure and liquidity. Copart remains in an exceptionally strong position. We ended the quarter with liquidity of approximately $6.4 billion, including cash and cash equivalents of $5.1 billion and no debt. We continue to generate robust free cash flow, which has increased 58% year-to-date. This is supported by disciplined capital allocation into assets, which position us to efficiently support our growth to serve both insurance and noninsurance clients while also delivering strong operational efficiency. In addition, during the second quarter, we began to repurchase shares of our common stock through open market purchases and have subsequently repurchased shares under a 10b5-1 plan through the month of February. Fiscal year-to-date, we have repurchased over 13 million shares for an aggregate amount of over $500 million. And with that, I'd like to thank you for joining the call, and we'll open it up for questions.

[Operator Instructions]. And our first question comes from the line of Bob Labick with CJS Securities.

So Jeff, you talked a little bit about some of the macro factors, claims frequency and lower earned car miles we talked about last call and stuff, trending similarly to prior calls. What are the kind of -- what are the things you guys are watching to see changes that will change this trend line and get the industry volumes back to growth going forward? I know, obviously, total loss frequency will impact that as well. But excluding total loss frequency, what are the other kind of macro factors that we can watch and you're watching to get industry volumes back to growth?

Yes. Fair question, Bob. I think there is -- as you know, there's cyclicality in the auto insurance industry itself, which you'll see in the form of premium growth and contraction. You'll see in the form of combined ratios and so forth. And I think a good portion of the industry, as you know, had passed through finally with the approval of various regulatory bodies, rate increases over the course of the past few years, long after, frankly, the carriers themselves had experienced underlying cost inflation in the repair universe, labor and otherwise. So there's a lagging effect where it took them a while and which it took them a while to pass the rate increases through, and so today, they have now far healthier income statements, but also compromised growth as a result. I think historical trends or any guide, there are ebbs and flows in that regard and many or some -- some or many will begin reinvesting in growth and driving policy growth in the form of both marketing dollars as well as more competitive approaches to rates as well. So I think those are the kinds of things I'd look to as the consumer always weighs various -- their basket of goods and services purchased, I think more so than on average over the course of my time in the industry and over -- in comparison to Copart's own history, I think consumers have felt the pain more in the past year or so, relatively speaking, and have pared back their insurance coverage as a result. I think the numbers do bear that out.

Okay. Great. And then just one more for me, just changing gears a little. SG&A has been back to getting generally operating leverage have been flat after a period of time where you had growth for multiple reasons. One of them was the sales force buildup. So I was wondering maybe if you could just give us a sense of what you've learned from that sales force -- what you've learned from the buildup? What are the expected returns and outcomes from the larger sales force? And how have they been -- what are the successes and failures so far from that?

Yes, fair question, Bob. And I think it probably oversimplifying the picture to say it's merely the sales force itself for sure. We have invested in our commercial capabilities, as you described them, but also in product and tech. And along these other dimensions you've heard us talk about, whether it's the services we provide to the insurance carriers in the form of Title Express, the artificial intelligence back to tools and so on and so forth. So there's more to the picture than just that alone. But yes, we do believe it drives differential returns to us, both in the form of unit volume, better selling prices, better economics period overall. I don't tend to read too much into any given quarter or any given quarter's percentage change versus a year ago. I understand for a host of reasons why you and other analysts might, right? But we basically treat each expenditure as its own decision that needs to be warranted by the economics. Every investment we make is justified by the economics of this specific project itself. And so in the aggregate, there will be periods in which SG&A grows more than in others. I wouldn't have read that much into even the past few years as you described, just as I wouldn't read a whole lot into today's results either. The calculus remains the same, invest the capital on behalf of our shareholders as though it's ours because it is to generate profitable growth for the enterprise hard stop.

The next question comes from the line of Craig Kennison with Baird.

I wanted to ask about your land capacity needs. If you look at or project your volume for the next 1-, 5- and 10-year period and take into account faster cycle times that you've experienced, but also whatever market share dynamics are out there, how would you frame your need to invest in additional land capacity?

Sure, Craig, I'll take that. Today, I think we are in an incredibly strong position relative to where we were, say, a decade or even longer ago. That has been a result of very disciplined and focused investment in the magnitude of several hundreds of millions of dollars per year. But we are still focused on where we want to be positioned 10 years from now. And that ultimately may require additional investments in land. Certainly, faster cycle times will allow us to use our land on a more efficient basis. And we take all of that into consideration as we look at individual assets, as Jeff said, even on the investment front, whether it's G&A or incremental land parcel, we look at it on a specific investment basis to ensure that it's adding capacity and capabilities for Copart to serve our customers in the future. So ultimately, we'll continue to use that same discipline and that same approach. I certainly think that relative to where we were, like I said it's at the outset, 10 years ago, we're in a much better position from a land ownership perspective than capacity, but we do anticipate continuing to invest in our portfolio on a disciplined basis to ensure that in a decade from now, we will be well positioned as well.

Craig, I'd add to that point that I think it was now April 2016, so almost exactly 10 years ago, we launched the -- what you remember you were here at the time, the 20/20/20 initiative in which we were going to acquire 20 facilities, expand 20 facilities in the course of 20 months in recognition that the industry was growing and that we were shorter on capacity than we should be. We've invested very aggressively over the decade since to develop both new capacity -- purchase new land to develop new and existing facilities and to frankly, buy out facilities that we had largely leased over the years. We recognize that long-term stewardship for the industry really requires ownership. Leasing means you don't ultimately control your ability to service the insurance industry. We want to ensure that we could do just that. Now sitting here where we are, as Leah just described in February of 2026, we are in a considerably stronger position than we were then. We now have dedicated catastrophic facilities, as you're well aware, in the many hundreds of acres of otherwise idle land in anticipation of storms. The one caveat I'd provide to you is that this is a dynamic puzzle, as you know, with industry trends and distribution of vehicles and population and so forth that land acquisition and development by its nature is a long lead time activity, right? So we can't wake up one morning and discovered that we suddenly need dramatically more land in the state of X and be able to respond accordingly. So we have to account for some margin, which we effectively do across the United States and invest accordingly. But for sure, as Leah said, we are in a far more robust position than we once were.

Yes. And then, Jeff, just a follow-up on your AI commentary. Certainly, it's been a big topic, especially in the last week. But could you maybe share with us where you see any disruption risk to what Copart does and where you feel well defended by your moat as it stands today?

I think we're always appropriately paranoid about disruption and the directions that it could come from. So we are always acutely aware of the need to disrupt ourselves and to inject the technology in all the places where we could enhance productivity first, but also deliver a better experience still to our sellers and buyers. So there are certainly a range of different folks, different purveyors of vehicles today, some that have been in existence for decades, others of which are more upstart by nature, virtual only, et cetera. I think the fundamental moats that ultimately define who we are, still are physical storage capacity for sure, a global liquid buyer base for sure, a highly recognized online auction platform, deep regulatory knowledge across 50 states, across a multitude of countries right? that is in and of itself a barrier entry as well. And then as for where those disruptive dimensions might be on the technology front, we're hell bent on making sure that we do it first. So I would say I don't see a specific threat on the horizon, but I'm also -- we're always looking over our shoulder as well.

The next question comes from the line of Bret Jordan with Jefferies.

I've a question about market share dynamics. Do you think it's becoming more price competitive as the other player in the space doing, I guess, either rebating or discounting or pricing delta to you that would explain what seems to be a differential in unit growth. Obviously, you've got the title transfer product and the cycle times and the foreign buyer base that would suggest that Copart might be a better outcome. But I guess how do we think about the differences that we're seeing in units recently?

Yes. The unit growth phenomenon, I think, is described -- is explained in part by just differential growth rates in the insurance industry itself, right, which is to say if we didn't win any accounts from others in the industry and they didn't win any from us. There still is a delta in the growth rate of our underlying customers themselves that can explain a "market share shift, " right, without literally losing one account one way or the other. That said, I think your point -- your second point is the important one, which is that our industry has always been price competitive for the years that I've been here and many years before that. Probably for the entire existence of Copart, we have competed against others in the industry on the basis of price. Today, we are increasingly competing on the basis of delivered economic outcomes, which is a far better lens through which to view the Copart business. It's our responsibility as an enterprise, our commercial team's responsibility and my personal responsibility to make sure that we convey that message to our customers and to the industry that they understand it's not just the X that you are paying to Copart or to your alternative providers, but it is the delivered economic outcome, which is, first and foremost, overwhelmingly so the selling price for the vehicle that you're selling at the platform. Secondarily, the cycle times, which have both direct economic consequences in the form of storage, for example, and indirect consequences in the form of policyholder satisfaction and the like. And on a tertiary, maybe further down still than that, the fees that you're paying us or to others in the industry. It's our job to convey that message. It's a complex nuanced one. We have to make sure we have the right audience for it and the data behind it. But I would say, in virtually every case in which we have run the test empirically, the data bears out of that thesis that the returns that we generate dwarf any other differences that you could perceive in the full stack P&L.

Okay. Great. And could you -- I might have missed this. Did you give us an update on how CDS has been doing?

Yes. CDS had a nice quarter. They were up 5% year-over-year in terms of unit volume.

Okay. Is that growth with various dealers? Or is that comp store -- is that comp dealer growth? Are you expanding it to a broader user base? Or are you growing within the current user base?

We're always growing the user base.

Our next question comes from the line of John Healy with Northcoast Research.

I wanted to spend a little bit of time just on accident frequency. For the last 3 or 4 quarters, I feel like it's been a hot button debate. And knowing Leah and Jeff, I'm sure you guys don't stop thinking and working on this viewpoint. I would love to spend a little bit of time there. Just any updated thoughts about ADAS view of kind of the algorithm that investors might be able to use to think about the nuances of growth. Obviously, the volume numbers are down big, but there's some explainable reasons in terms of policies in force that you noted. But I was just hoping we can try to get some comfort with thinking about that overarching volume number for the industry, put aside whatever you or IAA are doing. Just what does this business really grow, do you think in the next 3 to 5 years?

Fair question, John. And I would say it has been true for probably all of our adult lives, if not our entire lives, that accident frequency, generally speaking, declines year-over-year. That has always been true because cars are designed better and they're safer over the years. In the 1970s and the 1980s, we saw for the first time the proliferation of anti-lock brakes. Eventually, we'd see traction control and so on. Today, of course, the safety technologies are arriving in the form of forward autonomous braking modules, lane departure warning, sensors, rear cameras and so on and so forth. So accident frequency has declined always, plus or minus year-over-year. I think there's one blip from -- if I have my years straight from 2013 to '15 or '14 to '16, some short period of time in which that wasn't true. I think cell phone proliferation, smartphone use accelerated in a way then it was unusual in [ mice ] or standards. So accident frequency declines, it always has. And as a result, the number of cars involved in collisions declines generally. The reason it historically has happened very gradually is because the relevant population of vehicles is in the hundreds of millions in the U.S. and the number of new vehicles we'll ship in a given year, depending on the state of the economy, is 15 million or 14 million or 18 million, right? The vehicle park of 300 million or so in the U.S. can turn over only so fast. So the changes in accident frequency end up being gradual. And the tailwind in the business is that even if the number of cars that are in accidents decline, the number of cars that are totaled in absolute terms still grows because there are more -- enough total loss frequency increases to more than offset the decrease in accident frequency. Based on what we know now, I don't think that calculus changes. I think there are certainly folks in the autonomous driving universe who may have a different view, but we continue to believe that the algebra is still the same. There is an installed base of vehicles that will collide. There is an awkward transitional period also as many of those cars don't have the newest and best technology while cars are on the road that do. The cars that do are often driven by drivers who are still more distracted than they otherwise would be. We've talked about that thesis some in the past as well, the notion of risk homeostasis and folks tolerating more risk as they drive as they depend still more on technology. So the interplay of all of the above still leads us to believe that the number of cars that are totaled industry-wide is likely to grow over the medium to long term. That's still the calculus as we see it. To your question also on accident frequency, the reality is that a lot of the data often happens in arrears, right? The [ police ] reported crashes, fatalities, the most objective such indicators sometimes are published on a lagging basis. But based on everything we track on a regular basis, our fundamental thesis remains unchanged.

Got it. That's helpful. And just on capital allocation, obviously, you're being pretty direct with the repurchase visibility now. But is this the right tool for you guys? Do you see yourselves just using open market purchases? Or do you look to kind of evaluate maybe something more formal or conceptual in terms of accelerated program or something like that? Or do you think this is just the right approach for right now?

Yes. Over the course of my tenure, and I think over the course of Copart's 40-something year history, we've used a range of different tools including open market purchases as we've recently executed all the way to more structured Dutch tenders and the like. We always evaluate the full range of tools by which to execute the strategy. I think on the margin, I think that's ultimately more rounding error than it's not. I think [ what you've ] seen us conclude is that it made sense to buy Copart shares back as a way to distribute capital back to shareholders to distribute some of the cash flow that we had generated over the years back to shareholders. We thought this was an opportunistic time to do so, and this is the mechanism we chose to use in the moment. As you might imagine, the calculus, the various inputs into that kind of decision can change as to the magnitude or the form of the buybacks that it might take. I think it's difficult to predict in the vacuum what that means as we look forward.

The next question comes from the line of Jeff Lick with Stephens Inc.

Jeff, I know you're always thinking about long-term stuff. I was wondering if we just think about the next year that's in front of us, year or 2, things that are changing. Obviously, you've got an insurance cycle, rates are coming down and marketing dollars going up, so they'll be more focused on profitability and lease returns that will be ramping up, potentially a lot of those lease returns will be EVs. And then obviously, we've talked about the interesting kind of transition where you'll have some autonomous in the hands of a select few. I'm just curious if any of these things you view affecting your business in some kind of nonlinear way? And then just as a follow-up, I'm just curious since you guys did make the decision to buy back shares and you're very deliberate in how you do everything, why did you view now is the time to do it?

Sure. To tackle those questions separately, I don't know that the catalysts you described, whether it's a mix of technologies, lease returns and so forth, could have an effect on the business and the trajectory of the business in the near and medium term. From our vantage point, it doesn't change the trajectory over a 5- or 10-year term, insofar as that would inform how we choose to invest in physical capacity, technology, our people, business process, artificial intelligence. It doesn't per se change what we do day-to-day, right? I think we are always most keenly focused on the metrics and the forward indicators that would guide decision-making, right, as opposed to what might guide near term, what might influence near-term results, right? It's more the decision-making that we're focused on day-to-day. As to your question about the share buybacks, there's no particular witchcraft or anything magical to it. I think it's a function of what general valuation multiples are and where interest rates are, our own views of Copart relative valuation in comparison and also the general long-term perspective that we return capital to shareholders via buybacks, right? So the fact that we're doing them is, in some respects, inevitable. I think we plus or minus said that in the past. The fact that we're doing them right now is a function of all of the aforementioned. So there's nothing unusual. No aspects of that decision that you would find particularly creative, right? It's the ordinary calculus that would go into a decision like that.

And then just one last quick follow-up. As you think about units inflecting positive, is there any particular catalyst that you look for? Or will it just be the law of negative numbers getting less negative? Is there anything that you're looking for that says, hey, this might drive an inflection back to positive unit growth?

Yes. I think the question is probably almost too general, right, meaning we have so many different geographies and businesses, and we continue to drive growth in the BluCar segment. You heard Leah's color about the rental car universe being -- having a slightly different approach this quarter. There's cyclicality that's not necessarily tied to the macro economy when it comes to rental car dispositions. And the same is true, frankly, for repossessions from the financial industry or fleet management from corporate clients and such. But nonetheless, taking a step back, our growth in the noninsurance world has continued. In the insurance universe, I think you've heard us describe the under insurance or insurance purchasing behavior of consumers as a cyclical matter. We believe that's true. We believe the historical numbers would back that up. As for the shifts of policies among different carriers, we believe that to some extent, that's cyclical as well, right, that we do see growth ebb and flow across any individual carrier. We may be in a uniquely or unusually Copart adverse moment in time in that respect, right, that some of the carriers that we are strongest with, have not grown as much in the course of the past 12 or 24 months. But over the long haul, we view those trends as often more cyclical than they are secular.

[Operator Instructions]. The next question comes from the line of Jash Patwa with JPMorgan.

Just wanted to start with a question on the headwind from rising mix of uninsured customers. Jeff, as you've noted previously, these vehicles are still getting into accidents, but maybe flowing through alternate channels. With Copart having deemphasized the low-value units from some of these channels, has this led to an additional pressure on Copart's overall volume growth relative to the broader salvage industry, including the noninsurance channel? And I have a follow-up.

Jash, I'll take that. I don't think so. Most of the lower value units are units that are less than $1,000 in pre-accident value. So they are very old nondrivable what the industry would consider junk units. I think the units that we are seeing flow through on the uninsured or underinsured side, are likely ending up in impound yards. They're likely ending up retained with the driver, but they then need to find a way to either get it repaired or dispose of the vehicle. So ultimately, some of those vehicles end up at our cash for cars business. Some of them may end up being auctioned or sold through an impound yard. So there are other avenues in which those vehicles could be disposed of. It just so happens that it's a highly fragmented market, given that it's the consumer's decision to determine where that ultimate vehicle goes if it's not going through the insurance channel.

Understood. That's helpful. And then I just appreciate your perspective on the heavy equipment expansion. How has this initiative performed relative to your internal expectations a couple of years ago when Purple Wave was integrated? While the industry cycle has been challenging, curious like what areas do you see as a room for improvement? And given the significant consolidation opportunity in the sector, what has kept Copart on the sidelines from pursuing more M&A activity over the past couple of years?

Jash, fair question. I'd say that the -- at the time we made the investment in our Purple Wave platform, I think we had not -- we had not fully appreciated the disruption that the tariff complex would introduce into the industry and the uncertainty that it would inject into the industry for heavy equipment, right? It has caused something of a medium-term paralysis as folks didn't know if they should be selling because prices might go up or they should be buying because prices might go down. It has introduced some friction into an industry that had previously been more liquid. And I think we've seen that from other providers in the space, publicly traded and otherwise. On your question of how to grow the business, we have invested in our platform organically in the form of hiring more sales talent, again, investing in the tech platform, investing on the product side as well. And we've grown that business well, growing that business at a rate that outpaces the industry generally. M&A is always a lever available to companies like ours, of course, with our capitalization and capabilities. It's not our general inclination, right? We have been long-term company builders and have built Copart with the exception of one very meaningful M&A transaction some decades ago in the form of New England recovery. We've by and large, grown the business organically. That is certainly the most durable way to create value for our shareholders long term. The fastest way to grow territory is, of course, to acquire companies, we're most interested in building durable value as opposed to simply building terrain. So I think that's our approach by default, if there arise compelling M&A opportunities in heavy equipment or otherwise, we certainly would pursue them. But you probably know from having followed us over the years that our bar is very high, right, that in the 10 years I've been here, we've only done a tiny handful of acquisitions collectively representing a very tiny percentage of enterprise value. That hurdle will always be high, which is not to say we wouldn't do it. But I just want you to understand the cultural bias, which is to grow and to grow organically.

Understood. That's very helpful color. And if I could sneak one more in here. Could you double-click on the sequential moderation in service revenue gross margin in the quarter and whether there were any onetime factors that may have impacted it during the quarer?

Sure, Jash. I had mentioned in my prepared remarks that there was a $6.8 million onetime tax accrual in the International segment. If you look at the ex-CAT margins, I think you'll see that year-over-year on a gross margin basis, we performed quite well. And then on the international side, there was that onetime item.

There are no further questions at this time. I'd like to turn the call back to Jeff Liaw for closing remarks.

Thank you for joining us, and we'll talk to you next quarter. Have a good afternoon.