Q3 2021 IAA Inc Earnings Call
Yes.
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Okay.
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Good morning, and welcome to the IAEA third quarter 2021 earnings call.
All participants will be in listen only mode.
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After todays presentation, there will be an opportunity to ask questions.
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Please note this event is being recorded.
I would now like to turn the conference over to Mr. Ahmed Vice President Treasury. Please go ahead Sir.
Thanks, Jay Good morning, everyone and thanks for joining us today for <unk> third quarter fiscal 2021 earnings Conference call speaking today are John Kett, Chief Executive Officer, and President and Susan Healy, our Chief Financial Officer.
After John students have made their formal remarks, we will open the call to questions.
Before we begin I would like to remind you that certain comments made during this call regarding our plans strategies and goals and our anticipated financial performance constitute forward looking statements are made pursuant to and within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
Such forward looking statements are based on management's current assumptions and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from such statements.
Those important factors are referred to in Iaa's press release issued today and in the risk factors section included in our annual report on Form 10-K for the year ended December 27 2020.
<unk> filed with the SEC on February 22021.
Forward looking statements made today are as of the date of this call and IAA does not undertake any obligation to update these forward looking statements.
Finally, the speakers will refer to certain adjusted or non-GAAP financial measures on this call.
A reconciliation schedule of the non-GAAP financial measures to the most directly comparable GAAP measures is available in Iaa's press release issued today a.
A copy of today's press release may be obtained by visiting the Investor Relations page of the website at Www Dot Dot com.
I'll now turn the call over to John John.
Thanks Ruth.
Good morning, everyone and thank you all for joining us for our third quarter earnings call.
Today, I'm, just going to make my comments around a few key items first I want to recognize the tremendous efforts of the IAA team supporting Hurricane Hydro and its remnants of the northeast U S.
The results delivered by our dedicated Cat response team are directly connected to our efforts to strengthen our market position.
Second I'll highlight our strong performance for the quarter.
And then finally I'll discuss our continued progress on our strategic initiatives, including our acquisition of <unk>, which will greatly increase our presence in the UK.
So starting with the cap I want to thank the amazing team for their efforts in response to hurricane either.
This storm initially hit Louisiana, but then really hammered the northeast U S, causing significant flooding in New York, and New Jersey and Pennsylvania.
To put it in some perspective of Ida has been the largest auto cat events since hurricane Harvey.
So if you think about our normal operation every day, we pick off a clean title market and sell vehicles for our marketplace.
To illustrate how an event like either affects our operation imagine taken our daily average volume and multiplying it by 10 and one of the country's most densely populated areas.
Well that would place a tremendous strain on any operation Ias catastrophe response strategy, which is based on continuous preparation allowed us to be exceptionally responsive and nimble when our customers needed us most.
Let me share just a few highlights of our specific.
Our efforts in the northeast.
We mobilized our people quickly and that team is ready and on the ground and we had hundreds of additional employees triage and ready to enter as we need it.
No.
Within 24 hours of the storm hitting with either exercise options on our secured an additional 100 acres of capacity and the affected markets of New York, and New Jersey, which was more than ample to service our customer needs.
Within 48 hours, we had implemented a hub and spoke tolling model to ensure that we're efficiently and effectively leveraging our transport resources across these affected areas.
Within just a few days of the storm, we were picking up more than 90% of the released vehicles on a daily basis.
And finally within 11 days of the storm, we were already selling flood vehicles through our marketplace.
While serving the customer is something we strive to do exceptionally well every day. During this event. It is performance was better than ever.
And this has really been validated by our insurance customers. Many of them have actually reached out to us to thank us for our efforts and let us know that they were hearing overwhelmingly positive feedback from both our adjusters and their policyholders on our efforts.
Knowing that we are helping our insurance customers best serve their own policyholders when it's needed most.
Great achievement and it is a validation of our revamped cat response strategy.
Our readiness response and overall execution was the strongest I've seen in my 20 years with the company and I could not be prouder of our team's performance.
And our ability to deliver for our customers. During these difficult times is paramount to us strengthening our insurance relationships longer term our performance. During this cat is reinforced in already strong measure of trust and confidence from several of our largest providers.
And given the longer sales cycle, we believe that the work and investments that we make today for our clients will pay off in the future and strengthen our position in the market.
We do incur additional costs related to servicing these events and the full financial impact of this event will not be evident until next quarter, but in aggregate we believe.
To be minor.
So now let me discuss our strong third quarter performance.
For the period, we delivered growth in sales of approximately 25% and growth in adjusted EBITDA of nearly 17% compared to the third quarter of last year.
Our results were driven by continued higher revenue per unit as well as the continued strengthening of the economy, which impacted miles driven on volume.
Our average selling price and revenue per unit, both achieved record levels as demand has remained strong during the period in part due to the impact of supply chain disruptions, that's affecting new car production.
Also as we noted in our last call. We had expected the previously announced share shifts to be completed in the third quarter. However.
However in a couple of markets, we continue to receive volume for longer than anticipated and we now expect that portion which represents less than 10% of the overall share shift from that customer to begin transitioning in Q4.
We've also had some net share wins from other insurance customers.
Are expected to benefit us in the fourth quarter.
And if you put it all together in the aggregate the strong trends in our business more than offset the net impact of the share shifts as well as the cost pressures, particularly related to <unk>.
Now, let me turn to our strategic initiatives with.
With respect to strengthening our service offerings, we've continued to grow our loan payoff tool.
We now have nearly 1800 lenders on the platform and year to date, our volume is over three five times more than last year.
We also hit a significant milestone for this product year to date, we have processed over $1 billion in transactions on the portal.
This is further evidence that that loan payoff is the most comprehensive solution in the industry.
Our progress here continues to demonstrate how we can create meaningful cycle time reductions build deeper customer relationships expand wallet share and create additional value for our sellers.
Another development during the quarter was the launch of <unk> transport a tool that enables buyers to digitally order transportation for vehicles they purchased.
Buyers can now schedule door-to-door vehicle delivery completely online and receive real time status updates.
Additionally, the IAA transport product makes the process seamless for international buyers by procuring all of the required export and import documentation.
Inventory capacity is another area, which is critical to our growth strategy.
During the quarter, we broke ground on new branches across five states and we also have in process at existing locations. Several capacity expansion projects that we that we expect to complete by the end of the year.
So in addition to these service offerings and growth in capacity. We are also continuing to expand our international buyer network growing it by 41% in the third quarter year over year.
Our continued focus on digital marketing efforts process efficiency improved transparency and best in class service are all driving this continued buyer base growth that increased engagement.
Next let me talk about our data and analytics practice.
This is foundational to all of our service offerings.
Our data gives us and our customers the insight to make better decisions and allows us to operate in a more efficient and effective manner.
Our practice and our data ecosystem are focused on three things.
Number one it's about accelerating process automation and digitization.
Secondly, delivering insightful and transparent reporting to our clients and third improving vehicle condition transparency for our buyers.
Okay.
We also continue to make progress on our margin expansion plan as you may recall theres three areas of focus pricing optimization branch process and efficiency improvements and in tolling.
Tell you that we're tracking well on pricing optimization, and making progress on the branch process and efficiencies.
But in regards to tolling, we are experiencing cost pressures given the broader issues in the labor market as well as the impact of the cat.
As a result, we have paused or delayed some of our activities in this area, but we will continue to execute on our plan, where we can this quarter and into 2022.
My final item of strategic initiatives is in regard to our international expansion just last week, we closed on the acquisition of somatic.
This is an important strategic transaction for <unk> in the United Kingdom the.
The Synetic business has strong customer relationships 14 locations throughout the country and a high quality energetic management team.
In terms of <unk> revenue mix, approximately 80% is from auction related sales with the remainder from the sale of reasonable parts and scrap.
We believe this ability to also sell reusable parts is a true differentiator as insurance customers in the U K market are increasingly requesting this capability.
The company also has a strong focus on sustainability and on maximizing the value of electric vehicles.
For the 12 months ended September 30.
Synetic generated revenue of 154 million pounds, and adjusted EBITDA of 17 million pounds.
And as we noted in our press release Synetic will operate independently from IAA UK until the completion of a regulatory review process.
At this point, we don't know the exact timing of the review, but we are truly excited about this combination and the long term opportunity for growth and innovation.
So to close out let me talk about our 2021 outlook.
As we enter the final months of the year, we are again, increasing our 2021 guidance.
We now expect organic revenue growth of 25%, 27% and organic adjusted EBITDA growth in the range of 35% to 37%.
I will tell you that the fourth quarter is off to a good start and our level of responsiveness and service around Hurricane Ida continue.
Continues to be excellent.
So I now have the pleasure of introducing our new CFO, Susan Healy, who joined our team just a couple of months ago soon.
Susan brings an impressive track record of experience across a variety of industries and have some really specific experience in M&A high growth retail and innovative technology companies and we are incredibly pleased to have her on board as part of the IAA team.
So with that I'll turn it over to Susan to review, our financial results and guidance in more detail Susan and good morning.
Thank you John I'm really glad to be part of the IAA team. As this is an extraordinary company with a strong business model and I look forward to helping to navigate the next phase of growth.
During my first two months here I've been impressed by the capability at incredible dedication of our employees.
This is particularly evident during a visit to New York, and New Jersey, where I met many employees, who attacked up and relocated to the east coast for more than a month to assist our customers impacted by Hurricane Ida It's great to see so many IAA employees willing to go above and beyond for our customers as also been greatly impressed by the level of innovation.
The team is focused on developing new products and quickly bringing them to market is a true differentiator and a key to our continued success.
My discussion today will focus on our adjusted non-GAAP results. Please see today's press release for more details on our financial performance and our methodology when calculating non-GAAP results.
For the third quarter.
<unk> revenues increased 24, 5% compared to the prior year to $427 million.
Organic consolidated revenue, which excludes the impact of foreign currency and the revenue from auto exchanged.
Increased 23, 1% to $416 2 million.
The drivers of this organic growth for any increase in volume up 9%, primarily due to higher vehicle miles traveled against the pandemic impacts in Q3 last year that more than offset the net impact of market share movements. We have discussed in the past as well as higher revenue per unit up 13%.
Service per quarter of fiscal 2000 $20 million to $359 million in vehicle sales increased 69% to $61 $7 million.
The increases in both service revenues and vehicle sales were primarily due to higher revenue per unit and higher volumes and vehicle sales were positively impacted by an international provider switching from a consignment model to purchase vehicle model in the fourth quarter of 2020.
It's worth noting that all buyer fees, including those for purchased vehicles are included in service revenues.
The loss ratio for the quarter was 18, 9% compared to 21% in the third quarter of fiscal 2020.
Looking at our geographic performance revenue increases in both our U S and international segments were driven by higher revenue per unit and a higher mix of vehicle sales.
Volume increase in the U S. So it was slightly lower in our international segment, driven primarily by lower volume in Canada, where miles driven and traffic congestion have not recovered to the same extent as in the U S.
Turning now to gross profit gross profit increased to $167 8 million from $138 $3 million in the third quarter of 2020, and this was primarily due to higher revenue per unit higher volume and the benefits from our margin expansion plan.
Overall gross margin declined 100 basis points to 39, 9% from 49% in the prior year, which is really driven by the mix of vehicle sales as a proportion of total revenues vehicle sales accounted for 14, 7% of total revenue this quarter compared to 18 <unk> compared to <unk>.
8% in the prior year.
However, gross margin as measured on a net revenue basis, netting out purchase vehicle costs from vehicle sales was 110 basis points higher than the prior year driven by leverage in indirect costs, such as occupancy and yard overhead.
Partially offsetting these benefits <unk> cost increased due to higher demand for towers across all regions.
SG&A expenses for the quarter were $49 8 million compared to $34 9 million in the prior year. Adjusted SG&A was $46 8 million, an increase of 35, 7% compared to the prior year.
In 2020.
Last year, given the uncertainty around COVID-19, we managed our discretionary SG&A in terms of head Count addition, salaries and travel.
Incentive compensation was lower due to the impact of COVID-19 on volumes as a result of all of that last year. Adjusted SG&A was actually six 8% lower than the third quarter of 2019 2021 represents a more normalized level of SG&A spend as we have resumed normal levels of staffing and spending in it.
That had been deferred and have begun to travel to service our customers. In addition, higher incentive compensation costs. This year are a function of our strong performance versus plan.
While this was the first quarter, where we didn't have any TSA costs. The costs are minimal in last year's third quarter as well and didn't have an impact on year over year results.
Adjusted EBITDA in the quarter increased by 16, 7% to $121 1 million from $103 8 million in the third quarter of 2020.
Excluding the impact of foreign currency as well as the acquisition of auto exchange organic adjusted EBITDA increased by 15, 3% to $119 7 million for the third quarter of 2021.
Interest expense was $11 1 million compared to $13 3 million in the third quarter of 2020.
The decrease in interest expense was primarily due to a low level lower level of debt and lower interest rates as a result of the refinancing completed in the second quarter of 2021.
The effective tax rate in the quarter was 23, 2% versus 25, 5% last year, we benefited from the impact of our tax optimization initiatives this quarter.
Net income increased by 24, 4% to $65 7 million from $52 8 million in the prior year and adjusted net income increased by 25, 3% to $69 8 million or <unk> 52 per.
Diluted share compared to $55 7 million.
A <unk> 41 per diluted share in the third quarter of fiscal 2020.
Now turning to our balance sheet and cash flows net cash provided by operating activities for the quarter was $32 7 million, which was down 31, 7% from the prior year.
During a cat event, our cash requirements are elevated as our level of vehicle assignments and therefore advanced charge payments are increasing also advanced charges tend to be higher in New York and New Jersey. So this also impacted our cash flow during the month of September as almost all of the cat vehicles assigned in September were not yet sold by quarter end.
Capital expenditures for the quarter were $22 2 million compared.
Compared to $19 8 million in the prior year, primarily due to higher spending on IP.
We did not purchase any land during the quarter.
We ended the quarter with net debt of $894 million and a leverage ratio of one seven times total liquidity was $805 $5 million.
When you look at leverage pro forma for the acquisition of the genetic net debt would have been approximately $1 2 billion and our net leverage ratio would have been $2. Two times, we used $100 million of our.
Revolving credit facility to finance the acquisition with the remainder from cash on our balance sheet.
For the first nine months of 2021, we generated free cash flow of $203 4 million.
Compared to $223 3 million in the prior year with a lower cash flow primarily due to the incremental cash deployed in the cat response, this quarter as well as higher capital spending including for land purchases and for IP.
So now turning to our outlook for fiscal 2021, we are again, raising our outlook, primarily reflecting continued strength in revenue per unit relative to what we had forecasted last quarter.
As you know the Manheim used car index increased by over 5% in September versus August and approximately 27% on a year over year basis to a new record high and net increase again in the first half of October compared to September.
On the cost side like most companies we are experiencing some higher costs and we do expect these to continue this quarter, particularly telling in labor we are.
Also expect hurricane either to be a tailwind to volume and revenue, but a headwind to gross margin and adjusted EBITDA for the quarter.
Just a couple of points before I walk through the guidance.
As a reminder, fiscal 2021 is a 53 week year with the extra week coming in the fourth quarter. This 50 <unk> week is included in our organic growth and dollar range guidance.
For the 50 <unk> week, the revenue is expected to be in the range of $20 million to $24 million and adjusted EBITDA is expected to be in the range of $10 million to $12 million.
We're providing in our guidance, both organic percentage growth percentages and dollars ranges when it comes to the impact of currency and the auto exchange of genetic acquisitions. They are included in the dollar guidance that excluded from the organic growth percentages.
Yes.
So now for the guidance for the year, we now expect organic revenue growth of 25% to 27% and total revenues of $1 78 billion to $1 eight 1 billion.
We're expecting organic adjusted EBITDA growth of 35% to 37% and total adjusted EBITDA of $545 million to $553 million.
Interest expense will be between 57, and a half and $58 million and this includes the $10 $3 million write off of deferred financing fees that we incurred in the second quarter.
The effective tax rate is expected to be in the range of $24, 5% to 25%.
Depreciation and amortization is expected to be 83% to $85 million and thats before any impact from purchase accounting we.
We are still in the early stages of assessing the potential impact of purchase accounting from Synetic on our depreciation and amortization, but we do expect this analysis to be done prior to the issuance of our fourth quarter results.
In summary, we delivered a strong quarter with continued outperformance in revenue per unit, partially offset by higher costs, we stepped up and delivered for our provider customers before during and in the aftermath of Hurricane Ida and we're very excited about the opportunities we have to grow in the U K with our acquisition of synthetic.
With that I'll turn it back to the operator for questions operator.
Okay.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time your question has been addressed and you'd like to withdraw. Your question. Please press Star then two at this time it would be a pause momentarily to assemble our roster.
The first question is from Asquith anymore with choice. Please go ahead.
Hi, good morning.
Good morning, sorry, good morning.
Susan Congrats on your first call here.
See here.
What your initial thoughts are.
Capital allocation moving forward.
This is maybe taking a different approach.
<unk> just the opportunity ahead. Thank you.
Sure. Thanks, Stephanie.
On capital allocation I think that first and foremost priority is investing in the business, whether it's organic investments such as we've done in IC and land in other areas or acquisitions Opportunistically like synthetics that are going to be very complementary to our business. So we are going to take any.
All of those internal growth opportunities and then I.
We've got the right strategy in terms of share repurchase its a great way for us to return capital to shareholders and.
Still leave opportunity for those organic investments I mentioned.
Great. Thank you and then on the margin initiative program I believe you called out that.
Some of the branch optimization initiatives.
Initiatives.
Schedule, but.
I think some pressure with you at all its effect on the accounting side.
When does initiatives. So first of all about last year I believe that.
Actual EBITDA contribution dollars that was provided of course. This is all pre COVID-19 and the world was very different at that alright. Thank you Melanie and understand that but as we look today than they were.
Recovery going on are those dollar contribution still a rough ballpark that we can look at or should we kind of view that.
And changes to those.
Thanks.
Thanks Duffy.
We're still.
Still believe in the numbers that we put out again as you said covered was a little bit of a sidetrack.
This tolling, we're going to get through this tolling, we believe and again as I mentioned certainly in pricing and in the branch operations. We still are feeling pretty good about the estimates on what we're doing to help improve margins there Tony.
Take a little longer because of some of the.
Near term effects of what's happening in the market.
Sure absolutely well that's it for me thank you.
Thanks, Tim.
The next question is from Craig Kennison with Baird. Please go ahead.
Hey, good morning, Thanks for taking my questions I wanted to start with who trends again remain positive here you mentioned positive trends in the Manheim index as well, but wondering if you could just deconstruct our pool going forward and to what extent you think these.
These levels are sustainable and to what extent, they're purely tied to used car prices, which may peak at some point.
Okay.
Alright, Thanks, Craig.
As we've talked about there's so many drivers of of our used.
Used car prices is a big one the scrap market at the low end, what's happening with part prices, what's happening with the dollar I mean, all those things have some relevant to proceeds and so and then obviously that's a driver of our proof does also the things that we're doing.
What we've done around our digital transformation, what we're continuing to do with.
Growing our product suite I talked about the transport tool, which we believe is going to be.
Really.
Favorable for us so there's a lot of things that go into our approved besides used carpet's used cars.
As a good indicator just to understand at a very high level, what's going on but there's so many other factors that drive.
The driver of our <unk> and.
And again were.
We're on this journey with using our data and width and digitizing our business, we still see opportunities to continue to grow.
And influence what we generate in our pool irrespective of what happens in the used car market.
With respect to synthetic and that transaction I'm wondering if you can.
You had mentioned I believe 80% of sales come from auction.
Is that purchased vehicles or would.
Those deal on consignment and if Theres a mix, maybe you could share that with us.
They are predominantly purchase vehicles.
Sinopec is buying.
They have contracts with insurance companies that are buying the inventory and then they're effectively making decision about the best venue.
So in some instances, they're auctioning the vehicles in other instances, they're taking parts off and are distributing parts and then in some very small portion of it is going to scrap. So it is primarily purchase vehicles from insurance companies.
So.
The vertical integration, if you will in Europe, having parts plus the auction it's different from what you do in the U S. Do you see this as the as the model in Europe.
Thanks, maybe Europeans catch up on the use of recycled parts.
Well right now is the focus obviously is on the U K.
Is what we're seeing happening in the UK is that there is increasing demand for <unk>.
What they call green parts within the U S. My call recycle parts are used parts, but we certainly are seeing the increase in demand there that's really.
Really solving that problem and how to focus on delivering that so were.
We're interested in again.
With them in the UK to really see if we can drive even higher levels of performance.
What happens beyond that.
It remains to be seen if that model can be deployed in other markets.
Got it okay. Thank you.
Thanks, a lot Chris.
The next question is from Chris <unk> with <unk> BNP Paribas. Please go ahead.
It's a good question.
Questions.
The first one is on the hurricane I know, it's difficult, but can you help parse out the effects of the hurricane on Q3 Q4, it sounds like you've heard a lot of cost to ensure good customer service sounds like you executed there but.
This stuff's complicated you incur cost upfront and then you sell the units.
Any sense of how much volumes helped in Q3 versus Q4, then cost would be really helpful.
Yes, so I'll start Chris and then Susan certainly Dropdowns, we sold very few cars in the third quarter related to the cat.
And a lot of the expenses are a lot of the costs that we incur are really around towing. So those costs get capitalized and then we recognize them when they sell a vehicle later on so the cross that really were incurred in the third quarter were some of the travel a little bit of a ramp some of the true.
Fixed expenses that we incurred to get this event started up so Susan correct.
And just to provide a little bit of quantification as John said kind of a fairly small impact in the third quarter, just over $1 million of a negative impact on EBITDA from the cat and as you said, it's pretty tough to estimate what the impact is going to be eminent in the fourth quarter, that's where we will be selling most of the car.
And the impact depends on proceeds.
We're not calling that out separately, but it is embedded in our guidance.
Got you. Okay. That's really helpful. And then just a follow up on the selling environment. So excluding the hurricane does it sounds like the pressures youre seeing there.
So systemic it's market driven but on a per unit basis would you say that those are.
Is that in the worst in Q3 than they were in Q2 are fairly similar.
And then when you think about the longer term opportunity is it just is the reason you're pausing at right. Now is just because the market has gotten so tight from supply. It's like you just need as many sources as we can get it doesn't make sense to use fewer providers or something some other recent deposit because it would be helpful.
Yes, I mean.
The second part of your question, Yes, I mean, there is constrained supply in the tow market. So some of the changes that we've talked about doing making shifts from the sources and the types of towers there because of the shortage were slowing down in Boston some of that and then really the cash we had to draw upon tow resource.
Those from all over the country to help support that event, which again then.
Compounded the pressures that we're already feeling at the local market.
The combination of those two is really why we're having to slowdown some of the initiatives around talent, but.
We still believe in the plans that we put in place the redistricting moving from anchor tower, we still think those have.
Long term favorable outlook on our tow costs. So we're going to continue to execute against them as.
As we go in.
We believe that the market will normalize.
Okay. Thank you I appreciate it.
Thanks, Chris.
The next question is from Bob in Lubbock CJ Securities. Please go ahead.
Good morning, Thanks for taking my questions and welcome and congratulations to Susan.
Thank you.
So.
I'm still trying to just kind of get through the gross margin impact youre, giving us plenty of information here I want to make sure I understand it in terms of.
The biggest moving parts in the quarter it was.
Towing and Ida I don't know if you can you may have just quantified it with $1 million negative EBITDA at a cat, but if you can give us a sense of the kind of impact on was that in the gross margin line from either in Q3, I'm trying to get a sense of.
Gross margins and cost per unit Cogs per unit, which look to us to be about 7% sequentially or $25 a car I'm trying to.
We'll see how much of that might've been.
Iden related versus towing related and therefore, how long those impacts should last.
Yes.
Bob.
Answer that so when I mentioned, a little bit over $1 million impact that was all in gross margin. So when you do the math on that that would be part of the impact in gross margin offsetting of course, the leverage we got from the indirect costs. So there is an <unk>.
<unk> is not all Ida.
Alright, alright, Tony generally across the nation as well so the Ida Okay perfect. That's helpful.
<unk>.
And then you mentioned.
The $46 million or so.
Adjusted SG&A in the quarter as is the normalized level I wanted to just confirm that and then ask roughly how much SG&A should be added from synetic going forward just when we're modeling SG&A.
Yes, I would say.
The $46 $8 million.
Most of that most of the Delta versus Earl Y is normalized.
Normalized go forward part of that is incentive comp that we don't expect so we expect you said so you've got that kind of puts and takes in 2020 incentive comp was way below.
Normalized level, given where we were versus plan. This year, it's up above a normalized level. So some of that increase is due to incentive comp which won't be a go forward I know it would be more helpful. If we could break it out dollar for dollar.
Which we can't do but that should at least give you some guidance directionally.
Okay, Great and then one last one for me.
Obviously with the continued rise in used car prices.
There may be an impact on total loss frequency you wanted to know if you have any like.
Update on the most recent total loss frequency information and if youre seeing that as a headwind to industry volumes yet.
We're not Bob I mean, we still we will look at the fundamentals of what's been driving total loss frequency over the long term, we don't see those drivers changing.
Repair costs age of the fleet complexity of vehicles those things in our view are changing so.
That number.
Bounces around a little bit.
So.
We're not we're not alarmed by bio.
A quarter change, we still think again the fundamentals are there and from what our what our carrier customers tell us they don't expect that number to materially diverge from what it's been doing.
Okay, great. Thank you very much.
Thanks, Bob.
The next question is from Daniel <unk> with Stephens. Please go ahead.
Hey, Thanks, guys. Thanks for taking my question.
I wanted to start on the comment you made on share shifts John obviously, continuing here into the fourth quarter, maybe longer than you guys thought it would I guess when you are having those conversations with insurance customers. What are the reasons in some markets. They're telling you you are losing share Conversely, when youre winning share unexpectedly or continuing.
Why or why are you winning share and do you think your performance in this storm hurricane either feels like it was much better than Hurricane Harvey was a few years ago is that going to help you from a competitive standpoint is that helping your conversations with the generic companies just trying to weigh those theres multiple factors as we think about Sharon for the next couple of years.
Great. So just to be clear, what we've talked about that actually it was the decision that was made earlier in the year, we expect that to be done in the third quarter and it spilled it's spilling over into the fourth quarter. So it wasn't a new decision or a new change. It really was just the timing of the of.
The previously announced one so just super clear on that.
And.
Despite that we have been doing reasonably well in the market we are.
Whether it's demonstrating what we're doing around buyer, how we're using our analytics to help as I said help carriers. My criticism that is resonating and they are recognizing what we're bringing to the market.
And then certainly loan pay off again, we believe is a differentiator so all those things.
Are resonating with carriers and we do believe longer term it is going to strengthen our position the cap is.
That is a very.
Evident way to demonstrate your capabilities with the customer and it really between events, it's hard to demonstrate what you've planned and what you've put together because until you actually put them in place. It's just words. So I think I think this year, we really were able to demonstrate.
Lessons, we've learned from all of the events that we've been a part of and I really think that.
And this particular event in New York, New Jersey, we really demonstrated that.
As I said in my comments, we certainly heard it from virtually all of our customers that we really delivered for them.
Revised it so.
I believe that that is going to be good for us longer term. In addition to all the other things. We're doing is not just the catheter truly the cap plus all the other things that we're providing so I really like how we're attacking the market.
Again.
Bullish long term on our capabilities.
Got it that's helpful and I wanted to follow up on Bob's question on total loss rate. So obviously higher used values, all else equal or probably bad but at the same time right now it does feel like we're seeing parts of inflation higher than the while labor inflation in the repair market.
And there's just no rental cars is that are those factors may be driving up total loss rate in the near term do you think that could support another step function change higher from there just kind of curious how your insurance company or <unk>.
Customers are viewing all of those factors is it making it more economical, especially when coupled with higher auction returns. It seems like it would making it more economical to send more vehicles at auction.
Yes, that's certainly one line of thinking is that actually the higher recoveries as theyre, making that total loss decision again, all other things being equal than mine.
Mike total more because.
Begin to recognize the level of recovery.
Sort of back to the earlier comment around us using our data analytics, that's actually a really important element of what we're now helping or excuse me, helping our customers do is using our data to actually help them make better decisions upfront. So.
So.
It's so hard to say.
We really.
We're very hesitant to kind of predict the future. We don't really know what's going to happen, but I think youre thinking about the right elements.
As you think about what might happen near term and longer term with total loss frequency.
Got it and then maybe last one for me just squeeze one in on phonetic Susan you talked about the financial contribution that's helpful. Given the numbers I guess more strategically as we think about getting into parts dismantling.
It makes sense from a complementary kind of vertical integration, but is there now a channel conflict are you competing with other U K buyers in the marketplace that we're buying on your options that you are bidding against them for them. How do you keep that out of the business as we think about growing into this new vertical.
Yes, so I think something unique about the UK.
It's still predominantly a purchase agreement contract world with the insurance companies. So <unk>.
<unk> is buying the vehicles direct from the carrier. So there is no channel conflict and then their turnaround and then as I said potentially re auctioning or selling the parts directly so.
They are a little bit in the parts business. So to the extent theres other parts distributors that might've been buyers I suppose there could be some some conflict but really.
Because theyre not theyre not buying them into auction competing with buyers I don't really see the channel conflict and again I think.
If we can continue to grow that business that actually should make the parts business, even more robust because there'll be more if we can we can help drive the supply is actually going to make demand for used products, even more robust, which frankly should be good for our parks buyers in the UK.
Got it I'll leave it there and hop back in the queue. Thanks, a lot guys.
The next question is from Bret Jordan with Jefferies. Please go ahead.
Hey, good morning, guys.
Good morning Rod.
Could you talk about the.
Quarter end inventory, how much of that is associated with hurricane either product that has not been sold through yet.
I couldn't give you a specific dollar amount, but most of that most of the increase that you see on the balance sheet whether it's.
Whether it's an ASR or its Andy.
The inventory line or in the associated with Hurricane Ana.
Okay, and then on the cycle times of loan payoffs you talked about the prepared remarks.
Could you quantify maybe what youre seeing in EMEA year over year improvement in cycle times.
So it's really different by carrier for us so.
Better care carriers are already good at cycle time, the savings are not as significant.
Ones that arent as good it's more significant.
Meaningful days like double digit say.
Savings.
<unk> are experiencing when they are using the product.
And it really is.
Again, a testament to the to the demand for it but we are seeing across many many carriers.
So, yes, I think I've talked about in the past.
It's a meaningful reduction in cycle time.
Okay, great. Thank you.
Thanks Brooks.
The next question.
Got it.
<unk> with Barrington Research. Please go ahead.
Hey, good morning, everyone. Just just a couple of quick questions here.
You said volumes were up 9% organically did the auto exchange acquisition.
Tribute anything to volumes in a way that would move that number.
Higher by a couple of basis points.
It would've been really modest Gary I don't know that we have an exact number in the room here, but.
Yes.
No it would not have been a meaningful contributor to the to that volume growth.
Okay.
And then lastly.
Jonathan.
Years ago, I remember there was a lot of pushback in the UK on using recycled parts I think the penetration was rather de minimis.
How has that changed over the years and can you give us some idea of.
What percentage of.
Payers be a collision and mechanical are now being satisfied by recycled parts of U K.
Yes, Gary you are right and I think one of the things that has changed is just a focus on sustainability. So insurance companies are really looking at all of our operations I'm thinking about how they can be more sustainable and reusing parts.
Pretty.
Okay.
Evident way that they can do that so I think that has sort of initiated the change in their viewpoint.
I don't we don't have a specific percentages to offer with you but.
I would tell you it's growing and we really think it is an opportunity to two.
To leverage what <unk> already done there to.
To drive growth.
In that part of the business and again in the overall capabilities.
To me, it's no different than in the U S. Our broadening our service offerings are offering loan payoffs inspection services, we are providing a wider net of services to the carriers.
<unk> is doing the same thing with their with their what they call the green parts initiative.
Okay. Thank you.
Thanks Kurt.
This concludes our question and answer session I would like to turn the conference back over to Mr. Smith for any closing remarks.
John anything you'd like to say just again. Thank you all for your participation today and for your interest in IAA and we look forward to continuing to update you on our progress in the future.
Thank you and have a great day.
Sure.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Mhm.
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