Capital and Control

Capital and Control

For most of the past decade Copart returned almost nothing to its owners: no dividend since its 1994 IPO, and no share buyback at all between fiscal 2019 and fiscal 2025 [1]. Cash and Treasuries built to $4.8 billion while the share count drifted higher. In fiscal 2026 that reversed sharply — Copart repurchased $1.6 billion of stock as the multiple fell, and founder Jay Adair returned as chief executive. The stewardship is unusually low-extraction and owner-aligned; what remains unproven is whether the capital return is a durable turn or a one-off.

A decade of accumulation

Copart's operating machine throws off far more cash than the business can absorb. Operating cash flow rose from $991 million in fiscal 2021 to $1.80 billion in fiscal 2025, and the only material claim on it was capital expenditure — roughly $460 million to $570 million a year, spent mostly on acquiring land and building out yards [2]. Acquisitions have been small and infrequent: National Powersport Auctions (2017), a U.K. parts recycler (2022), and a majority stake in Purple Wave (2024), none individually material to the financials [3].

Everything left over was retained. Copart bought back no stock under its program in fiscal 2020 through 2025, its last repurchase having been in fiscal 2019 [4], and it has never paid a dividend, intending "to retain any earnings for use in our business" [5]. The surplus was parked in U.S. Treasury bills: cash plus held-to-maturity securities reached about $4.79 billion at the end of fiscal 2025, against retained earnings that grew from $2.9 billion to $8.1 billion over four years [6]. In effect, the de facto capital-allocation policy became: reinvest what the business can use, and lend the rest to the Treasury at a few percent.

Source: FY2025 10-K, Consolidated Statements of Cash Flows [7]; nine-month figures from the Q3 FY2026 10-Q [8].

The green bar is the story: flat at zero for five straight years, then a step-change in fiscal 2026.

The buyback turns on

In the second quarter of fiscal 2026 Copart began repurchasing stock in the open market and under a 10b5-1 plan [9]. Through the first nine months it bought back 43,433,164 shares at a weighted-average $37.63, totalling $1,632.5 million — its largest capital return ever, and the first repurchase of any size since fiscal 2019 [10]. The effect on the share count was immediate: shares outstanding fell from 967.5 million at the end of fiscal 2025 to 925.8 million by late May 2026, a 4.3% reduction that reversed years of slow drift upward from option exercises [11]. Cash and Treasuries were drawn down from $4.8 billion to about $4.2 billion to fund it [12].

Source: Q3 FY2026 10-Q, Note 6 Stock Repurchases and cover page [13].

Source: FY2025 10-K stockholders' equity rollforward [14]; Q3 FY2026 10-Q [15].

The timing carries a defensible logic and an honest blemish. Copart declined to buy back stock through fiscal 2020–2025, when it traded at 30–40 times earnings, and stepped in only after the price had roughly halved — the finance chief called it "an opportune time to proceed" and "a sensible way to return capital to shareholders" [16]. Buying near a lower multiple beats buying near a peak. The blemish: the $37.63 average paid still sits above the roughly $29 the shares fetched by the end of July 2026, so the fiscal 2026 repurchases are, for now, underwater — the company bought into a continuing decline. The program is also discretionary rather than a committed framework; management describes repurchases as its "lever to return capital" when valuation is compelling, ranked behind reinvestment and M&A [17], and for the first time now lists "the payment of dividends" among the alternative uses under consideration [18].

One second-order effect is worth noting for anyone modelling earnings: drawing down the Treasury pile trades interest income for a lower share count. Copart already flagged lower interest earned on Treasury bills as a drag on other income in the third quarter [19]. The interest income that has been flattering earnings per share (Financials and Estimates) will fade as the cash is spent, even as fewer shares divide the profit — the two partly offset.

The stewards: owned, not paid

What makes the accumulation easier to read charitably is who is doing it. Copart is run by its founders, and their incentive is the stock, not the salary. Willis Johnson — who founded the company in 1982 and was chief executive until 2010 [20] — and his son-in-law Jay Adair are named as the company's founders [21] and rank among its ten largest holders [22]. As of October 2025, Johnson held 5.75% and Adair 3.14% — together about 86 million shares, worth roughly $2.5 billion at the July 2026 price — and directors and officers as a group held 9.60% [23].

Against those stakes, cash pay is nominal. Adair, as executive chairman, drew a $1.00 annual salary [24]; his roughly $432,000 of total compensation was almost entirely perquisites, chiefly $349,638 for company-mandated aircraft use [25]. Chief executive Jeff Liaw's total pay of about $2.07 million put the CEO-to-median-employee ratio at 46-to-1 [26], modest for a company of Copart's size, and the professional managers' equity is genuinely performance-gated: Liaw's option awards cannot be exercised unless the stock trades at or above $39.28 — a 25% premium to the grant price — for twenty consecutive days, a hurdle unmet at the current price [27]. Stock-based compensation ran just $38.0 million in fiscal 2025, about 2.4% of net income [28], and a clawback policy has applied since 2023. This is a low-dilution, low-extraction ownership culture — the opposite of the equity-heavy pay that erodes per-share value at many peers.

Source: FY2025 Proxy Statement — Summary Compensation Table and Security Ownership [29]. Johnson is compensated as a non-employee director; Liaw's and Stearns' individual holdings are each below 1%.

The control question: the founder comes back

The alignment story gained a twist in mid-2026. On June 29, 2026 Copart announced that Jeff Liaw — its third-ever CEO, appointed only in 2024 — would step down as chief executive and director effective July 31, 2026, and that founder Jay Adair, the executive chairman and a former CEO, would resume the role; Liaw would stay on as a special advisor [30]. Days later the company promoted its U.K. managing director, Jane Pocock, to president. The founder is retaking operational control at the same moment the capital return begins.

For a reader underwriting a founder-run business, this cuts both ways. It deepens the alignment and continuity that anchor a founder-run thesis — the largest individual owners are once again running the company day to day, and Adair's compensation gives him almost nothing to gain except through the share price. It also reverses the orderly, professional-management succession the company had spent a decade building, and concentrates responsibility in founders who are no longer young: Johnson is 78 and Adair 56. The re-engagement is a vote of confidence; the succession question it reopens is real, and there is no institutional answer to it yet.

What the evidence supports, and what would change it

On the axis that protects capital, Copart's stewardship is close to a model: founders with billions at stake and nominal pay, no debt, no dilutive deal-making, disciplined restraint from buying an expensive stock, and equity awards that pay only on appreciation. On the axis that builds per-share value, the record was, until this year, passive — a decade of letting cash compound at Treasury yields well below the mid-teens returns the operating business earns. Fiscal 2026 is the first evidence that management will convert the fortress into per-share value rather than hoard it, and it did so at a sensible entry multiple. That is the more constructive reading, and it is the one the FY2026 actions support.

The main risk to that read is durability. The buyback is discretionary and, so far, modest against a $4.8 billion starting pile; management has drawn down roughly a third of the surplus and could revert to accumulation once the price recovers. The signals that would confirm a genuine turn are concrete: repurchases sustained across fiscal 2027, a formal capital-return framework or the dividend now under open consideration, and a credible long-term succession plan behind the founder's return. A reversion to letting cash pile back up in Treasuries, with the share count creeping higher again, would confirm the passive read — and cap per-share compounding near the organic growth rate of a business whose volumes have stalled.