Chapter 6

Segment Economics

Copart reports in two geographies, and they have moved in opposite directions. The United States — 83% of revenue — has seen its operating margin compress from 45% to 38% since fiscal 2021. International — the other 17% — swung the other way in fiscal 2025, its operating margin jumping from 18.7% to 27.3% and adding more operating-income dollars than the far larger U.S. segment. That swing is a real, management-confirmed profit lever running independently of the stalled U.S. insurance volume — but it works off a small base and much of it is a one-time contract shift, not a repeatable engine.

Sources: FY2025 Form 10-K, Item 1 Business [1] and Note 14 Segments [2].

Two segments moving apart, then converging

The United States and International regions are Copart's two reportable segments; in fiscal 2025 the U.S. generated 83.0% of revenue and International 17.0% [3]. The two have not earned the same return on that revenue, and the spread between them has been anything but stable.

Source: derived from segment disclosures, FY2022 Form 10-K Note 14 (FY2021–2022) [4] and FY2025 Form 10-K Note 14 (FY2023–2025) [5].

The U.S. line traces the margin compression documented in the financials chapter: 45.0% in fiscal 2021 down to 38.4% in fiscal 2025, on rising facility-operations and general-and-administrative costs. The International line tells a rounder-trip story. It ran near 27% in fiscal 2021, sagged to 17.4% by fiscal 2023 as the segment took on low-margin business, then recovered to 27.3% in fiscal 2025 [6]. The gap between the two segments has closed from roughly 25 points in fiscal 2023 to about 11 points in fiscal 2025 — but that narrowing is the product of two forces, one flattering (International improving) and one not (the U.S. compressing).

The lever: purchased vehicles giving way to consignment

The International margin swing is not vague operating leverage; it is a specific change in how Copart books international business. Copart's core model is consignment — the seller keeps title, Copart charges auction fees, and only the fee is recorded as service revenue [7]. But under certain contracts, "primarily in the U.K.," Copart acts as principal: it purchases the vehicle, takes title, resells it for its own account, and records the entire resale price as vehicle sales revenue with the vehicle's cost in cost of sales [8]. That principal model books gross revenue on a thin spread, so it structurally dilutes segment margin.

International has been migrating away from it. Purchased-vehicle (principal) revenue fell from $337.2M in fiscal 2024 to $274.8M in fiscal 2025, while consignment service revenue rose from $434.9M to $517.1M — pushing the purchased share of International revenue from 44% to 35% in a single year [9].

Source: FY2025 Form 10-K, Note 14 Segments [10].

Management has narrated the shift on each recent call. In the first quarter of fiscal 2026 the CFO tied a 9.4% decline in international purchased-vehicle revenue directly to "a few of our insurance customers who have migrated from a purchase contract to a consignment contract structure," and reported International operating income of $56M at a 27.5% margin "which continues to expand" [11]. The same quarter carried an 8.1% increase in international fee revenue per unit [12]. The pattern is a year old: back in the third quarter of fiscal 2025, International fee units grew 9% while purchase units fell 13%, and "consignment or fee units continue to constitute most of our global unit volume" [13]. Two things are happening at once: a mix shift toward the higher-margin fee model, and better pricing on the fees themselves.

What the lever is worth

Because International improved while the U.S. was flat-to-soft, the smaller segment did the heavy lifting on profit growth in fiscal 2025. Consolidated operating income rose $124.7M year-over-year; International contributed $71.8M of that (a 49.9% jump), against just $52.9M from the U.S. (a 3.7% jump) [14]. A segment that is 17% of revenue delivered 58% of the operating-income growth.

Source: FY2025 Form 10-K, Note 14 Segments [15].

The improvement has carried into fiscal 2026, with quarterly noise. International operating margin was 27.5% in the first quarter, dipped to 23.6% in the second (depressed by a $6.8M one-time VAT accrual), then reached 31.5% in the third — against a 38.1% U.S. margin the same quarter [16][17][18]. By the third quarter the segment gap had narrowed to under 7 points, and International — unlike the U.S. insurance business — was still growing units: revenue rose 14.1% (7.9% excluding currency) to $234.2M, with non-insurance units up 11.2% [19].

Sizing the remaining headroom keeps the lever in proportion. If International's fiscal 2025 margin (27.3%) rose all the way to the U.S. level (38.4%) on its existing $791.9M of revenue, operating income would gain roughly $88M — about 5% of consolidated operating income, or under $0.10 per share after tax [20]. That is a genuine cushion, and it comes without any help from U.S. insurance volume. It is not, on its own, enough to offset a sustained decline in the 83%-of-revenue U.S. business.

The limits of the read

Three qualifications keep this from being an outright bull point. First, the contract migration is largely a one-time re-rating of the segment's economics: an insurer can move from a purchase contract to a consignment contract once, and the margin step that follows does not repeat annually. The 50% operating-income jump is a level change, not a growth rate. Second, part of the fiscal 2025 recovery is a return to International's own fiscal 2021 profitability (~27%) after a low-margin purchase-contract experiment, not new ground — and part of the segment-gap narrowing is U.S. margin compression rather than International strength [21]. Third, some reported international growth is currency: favorable foreign exchange added $13.4M to second-quarter international revenue and roughly six points to third-quarter growth [22][23].