Q1 2022 IAA Inc Earnings Call
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 and are made pursuant to and within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1095 and such.
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 January <unk> 2020 to file with the SEC on February 28 2022.
The 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 III Dot com.
I will now turn the call over to John John .
Thank you good morning.
Thank you all for joining us for our first quarter earnings call.
Today Im going to both provide some highlights from our first quarter performance and review our continued progress against our strategic initiatives and then turn the call over to Susan to discuss our financial performance and outlook in more detail.
We were pleased with the solid first quarter performance, reflecting both the progress that we've made against our strategic initiatives and continued industry tailwind.
Organic revenue in the quarter was up approximately 20% with a corresponding growth in adjusted EBITDA of seven 4%.
At a macro level used car pricing remains at elevated levels. Despite the recent slight decline.
This provides a favorable backdrop for continued revenue per unit strength.
We are also seeing claim frequency increase as a result of the higher levels of driving in miles driven and other factors and this acts as an offset to the decline that we've seen and the total industry total loss ratio.
I also want to stress the resiliency of our business and the strength of our operating model regardless of the economic environment.
Looking back to 2008 nine despite a very weak global economy, we continue to grow and performed extremely well.
In addition to our confidence in the overall industry dynamics, we have continued to see the benefits from and the growth and strategic initiatives and our leadership position and innovation.
Our digital marketplace powered by deep data analytics and unique vehicle merchandising capabilities provides enormous benefits to both our selling and buying customers and I'll expand on these items in just a few minutes.
But let me start by providing some more detailed updates on several key priorities beginning with our progress on M&A and international expansion.
As you will recall in the fourth quarter of 'twenty, one we announced the acquisition of synthetic.
We have since obtained full clearance from the UK competition and markets authority and we are moving forward with integrating the two businesses, which is proceeding well.
As we've noted in the past the goal of this transaction was to create a growth platform in the U K with IAA state of the art auction platform.
Combined with synthetics capability and parts and dismantling to expand our product offering and provide another option to maximize proceeds for customers.
We now over 25 locations across the country, enabling us to better serve our customers.
And though the integrations just beginning we're already seeing examples where the combined expanded footprint is allowing us to better manage transportation for our seller customers.
Synetic brings to IAA, a roster of strong customer relationships and a highly respected driven management team.
We now we now also have a unique business model focused on an integrated approach that looks to maximize financial value, while minimizing the environmental impact for our customers.
We believe Thats net ex first to market focus on sustainability and circular economy from vehicles is a true differentiator as insurance customers in the U K market are increasingly making sustainability a priority.
And this approach has proven to be effective in the marketplace. Since the third quarter of last year, we secured additional volume from both new and existing customers and have entered into several new customer parts contracts.
In addition, as genetic our predecessor U K business has also performed well over the last several quarters, including the renewal of a key customer contract.
The other part of our international segment as our market, leading Canadian business. The Canadian market has recovered more slowly from COVID-19, and then in the U S. But this quarter, we saw a nice pickup in activity.
While assignments in Canada are still below 2019 levels, they increased significantly compared to the prior year and we have secured new volume with several Canadian customers.
Also in February <unk>.
<unk> branded our Canadian business to the IAA global brands.
This move highlights our commitment to investment innovation and excellence in customer experience in the Canadian market and to our global buyer base.
So as a wrap up to our M&A discussion I will remind you of our acquisition of auto exchange in June of last year, which has been very successful outperforming our initial projections.
In the first nine months of ownership, we have grown both revenue and adjusted EBITDA significantly and.
And the business performed extremely well during hurricane Ida, providing us with a competitive advantage in new Jersey, where available real estate is scarce.
Real estate capacity is one of our most important important commitments in servicing our clients during the quarter. We added three new branches to our U S network, and Illinois, Iowa and California.
And in the UK, we secured ground for the construction of our new full service facility in Bristol to provide critical coverage in the southwest.
Back in the U S. In early April we acquired a location in the Washington D. C area, reflecting our continued focus on strategically investing in properties, where we see a long term benefit and attractive return on capital.
Our supply side customers also continue to appraise the data analytics work that we're doing via our bespoke seller portals, which help them better obtain and evaluate data to maximize their proceeds.
Just this quarter several of our customers adopted our automated predictive value tool, which has helped them to improve reserve pricing, which helps them optimize auction outcomes.
We will continue to further invest in expand and strengthen our digital marketplace through data and analytics with better data are selling customers are making more informed decisions regarding their assets, resulting in higher net recoveries.
Our buying customers benefit from an improved experience, allowing them to research and efficiently find the vehicles they need.
And to bid confidently.
We continue to have very positive and effective collaboration with both existing customers and prospects and are encouraged to see the additional opportunities ahead for product and service pilots as well as additional digital integrations.
So speaking of products and services, we continue to have success with and further enhance both the buyer and seller experience.
<unk> to grow our revenue.
We continue to expand loan payoff processing approximately $560 million of transaction value through our portal in the first quarter, a 75% increase over the first quarter of last year.
Adoption by both financial institutions and insurance companies continues to grow.
On the demand side, IAA transport, which we launched launched last year to assist buyers in sourcing and scheduling the transport of their vehicles.
It has been a great success with.
We've tripled our volume of transactions relative to the first quarter of last year, and we've increased our gross margin by nearly 360 basis points.
And one more important offering is our continued expansion of the number of floor plan financing companies that we work with to provide additional purchasing power and flexibility to our buyers.
So in addition to strengthening our buyers' experience through expanded or enhanced services. We're also continuing to expand our overall network of international buyers, which grew by nearly 10% year over year.
Our market Alliance network now includes.
<unk> 50 locations across 20 countries. This includes the addition of auction centers in both Ghana, and El Salvador and the first quarter.
Not only did these new centers address the needs of the growing by our basis in the strategic markets, but we also tend to sell higher value vehicles to international buyers.
Given the situation in the Ukraine I did want to note that while we do have buyers in Russia, Ukraine and other eastern European countries network disruption in one part of the World does not have a material impact given the diversity of our global buyer base.
To give you some sense of this in 2021, Russia, and Ukraine, together accounted for less than 1% of consolidated volume.
And even when you add in buyers from the other nearby eastern European countries, the number still below 2%.
And our units sold to international buyers as a percentage of the total remains above last year's levels.
We also continue to focus on improving overall customer experience.
Our demand side NPS score continues to improve.
And we have now leveraged that framework and implemented an improved CX discipline across our entire organization.
This will provide all customers both on the demand and the supply side with a consistent industry leading level of service.
The improvement in NPS was driven by seeking feedback across vehicle search payment digital experience and branch experience.
In one recent example of the results of this feedback was released in the first quarter of several new modifications to our buyer search capability.
This feedback also led to the release of an updated version of our buyer recommendation engine.
Using data analytics combined with buyer feedback we've significantly increase the accuracy of our buyer recommendations much to the praise of our demand side market, who appreciate there improve the ability to quickly find vehicles to bid on and Dubai.
We will continue to be extremely responsive and innovative in order to meet our customers' evolving needs.
So how does all of this progress in these initiatives show up in our results.
First the continued growth of our market Alliance network, a further expansion of our international buyer base leveraging data and the benefits from addressing the feedback that we receive from our buyers all contributed to a strong and competitive online marketplace.
And this results in better outcomes for our sellers and increase revenue per unit.
The second important impact of our progress and success around innovation data analytics buyer development real estate expansion and additional products and services can be seen in the growth of our market position among provider customers.
In the first quarter, we expanded our relationship with a top 25 insurer and secured new and renewed agreements with several regional carriers, including the largest customer from our auto exchange acquisition.
And in regard to the one customer that we've talked about extensively over the last several calls our share position remains stable and we continue to have productive dialogue with that customer.
So as evidence of the success our U S volume grew 12% in the first quarter of 2022 versus the first quarter of last year. This excludes the loss from that one top customer and the extra units that we received from hurricane item.
So switching now to talk about the cost side of our business like most companies. We do continue to experience inflationary cost pressures, primarily in towing and branch labor.
On the towing side, we've started to see tolling rates stabilized, although the higher price of fuel resulted in surcharges beginning in certain markets in late Q1.
We remained focused on route optimization and improving towards utilization to offset the higher rates.
We've also seen increases in across the branch labor, although rates have stabilized over the last few weeks.
We did implement a service fee increase for our buyers in February which has also helped to offset the cost increases we're experiencing and Susan of course, we'll provide some more detail on costs in her remarks.
So I'd like to now provide an update on the letter we received from a shareholder requesting that we take certain actions.
As a public company, we have regular dialogue with our shareholders and we're always interested in the constructive feedback that they offer.
Through a very open and productive set of discussions with this particular shareholder we arrived at a mutually beneficial outcome.
As noted in our press release, we're excited that Mike Sieger will be joining our board of directors. Mike is a recently retired executive who has spent over 30 years on the claims side of the insurance industry and we're thrilled to have someone with his deep industry knowledge to join our board.
In addition, our board is forming an operations committee focused on enhancing our overall performance.
So I'll briefly touch on our guidance now and then Susan will provide more details based on year to date results and our assumptions for the remainder of the year.
We now expect revenue of 2.0 to $2 1 billion and adjusted EBITDA in the range of $535 million to $575 million.
I want to sincerely, thank our employees for their hard work dedication and customer focus I am very proud to announce that we have again been selected as a great place to work now for the fourth year in a row.
Our success as a company as a result of our people and their execution.
So before I hand, it over to Susan I would like to underscore the strong nature of the IAA business.
At the same macro factors that have driven industry growth.
Increased vehicle complexity higher repair costs and higher proceeds from our global buyer base should continue over the long term.
We have built a differentiated marketplace with unique digital capabilities.
<unk> continued to create additional products and services that deliver value to our buyers and sellers. We are focused on driving our global business and growing our long term profitability in this ever evolving market environment.
And with that I'll turn the call over to Susan to review, our financial performance and expand on our 2022 guidance Susan Thanks John .
I will focus my discussion today on our adjusted non-GAAP results and touch on some key highlights. Please see today's press release for more details on our financial performance and our methodology when calculating non-GAAP results.
Turning to our first quarter results.
Consolidated revenues increased 31, 7% year over year.
<unk> $57 $6 million.
Including $47 7 million.
From the acquisition of kinetic.
Organic consolidated revenue, which excludes the impact of foreign currency and revenue from the auto exchange and genetic acquisition increased 22%.
$508 9 million.
Two an increase in our <unk>.
15, 1% and a volume increase of four 4%.
Service revenue increased by 27%, while vehicle and parts sales increased by 94, 3%.
Vehicle and parts sales accounted for 22% of total revenue in the quarter compared to 15% in the prior year period, primarily due to the acquisition of pathetic.
This strong <unk> growth came from the increased mix of purchased vehicles.
Strong backdrop for used car prices and the impact of internal initiatives, including an increase in our buyer services fee.
Regarding used car prices. The Manheim index was up approximately 25% at the end of March 2022 versus last March and.
In April of 2022, this index declined by 1% sequentially compared to March, but it's still up 14% versus April 2021.
Volume growth occurred due to a continued recovery in miles driven in both the U S and Canada, which drives the frequency of claims.
The addition of genetic and the market share gain John mentioned, partially offset by the loss of volume from the one customer we have discussed.
The U S industry total loss ratio declined from $18.
218% from 26% in the prior year first quarter.
As we have noted elevated used car pricing benefits us through higher proceeds at auction and therefore higher.
But it also factored into the decision to repair a vehicle versus designating at a total loss, which impacts volume.
Over the long term, we believe that industry factors, such as increased vehicle complexity higher repair costs and the enhanced returns from our global marketplace supported an increase in the volume of total loss vehicles.
With respect to the correlation between <unk> and average selling price. It is important to understand that this relationship is not linear.
Some components of our fee structure, such as the seller and buyer services fee are largely fixed and other components vary with price on a step function basis.
Therefore, as average selling prices move ARPA moves to a lesser degree both up and down.
We have seen this effect and average selling prices have increased and we would expect to see a similar impact with average selling prices soften.
We also look to our internal initiatives such as these from value added services building, a global buyer base and enhanced data analytics to continue to support higher average selling prices and revenue per unit.
Switching now to gross profit gross profit increased 16, 5% to $201 2 million.
Gross margin was 36, 1% compared to 48% in the prior year.
Of the 470 basis point year over year decrease in gross margin 190 basis points came from an increase in the purchased vehicle mix for which revenues and expenses are accounted for on a gross basis compared to a net basis for our consignment business.
The impact from selling vehicles, we obtained during hurricane Ida accounted for an additional 40 basis points of the decline.
The remaining impact came from higher costs in tele labor and occupancy partially offset by the improvement in October .
Excluding the cost of purchased vehicle sales, calling is the largest component of our cost of goods sold.
Higher tow costs are a function of constrained supply in certain markets as well as the impact of overall inflation.
Towards the end of the quarter, we began to incur higher costs from the higher price of diesel fuel, which is pass through as a surcharge under many of <unk> contracts.
We are also experiencing the impact of constrained market supply and higher wage rates and labor costs.
Partially offsetting these inflationary cost pressures was the impact of higher revenue per unit, including the buyer services. The increase we implemented in the quarter.
SG&A expenses increased by 25, 1% to $54 $3 million.
Adjusted SG&A expenses were $51 5 million, an increase of 37% compared to the prior year due mainly to higher head count higher.
<unk> spend and the inclusion of auto exchange and genetic.
Adjusted SG&A for Synetic for the quarter was approximately $1 7 million.
Adjusted EBITDA increased by 12, 5% to $149 8 million.
Excluding the impact of foreign currency as well as the acquisitions of auto exchange and synthetic organic adjusted EBITDA increased by seven 4%.
Interest expense declined to $11 2 million.
Compared to $13 million in the first quarter last year.
The decline was primarily driven by a lower applicable interest rate versus last year.
The interest rate on our term loan and revolver is currently 226%.
The effective tax rate was 24, 5% versus 25, 2% in the first quarter last year.
The lower rate is primarily due to a greater amount of pre tax income from the UK, which has a lower effective tax rate in the U S and Canada.
Net income increased to $81 5 million from $72 5 million in the prior year.
Adjusted net income increased by 14, 6% to $89 3 million.
Or <unk> 66 per diluted share.
Turning now to our cash flow and balance sheet capital expenditures was $30 9 million for the quarter compared to $33 million in the prior year.
In addition, we have received approximately $37 million of proceeds in the quarter from the sale leaseback transaction, we had mentioned on our Q4 call.
As John noted after quarter end, we acquired a location in the Washington, DC area for approximately $18 million.
During the first quarter, we spent $8 4 million to repurchase approximately 230000 shares at a weighted average price of 36.
<unk> <unk> 41 per share.
Through yesterday in the current quarter, we have spent an additional $13 5 million.
To repurchase approximately 371000 shares.
371000 shares at a weighted average price of $36 34 per share.
We will continue to employ share repurchases on a selective basis as a method of returning capital to shareholders.
Our balance sheet remains very strong and we ended the quarter with total liquidity of approximately $535 million.
We ended the period with a leverage ratio of two one time compared to two three times at the end of the first quarter of 2021.
Pro forma when including the full latest 12 months of kinetic our leverage ratio would be approximately two <unk>.
Net cash provided by operating activities for the quarter was $98 million down 20% from the prior year, primarily due to a decrease in accrued expenses and payables.
The decrease in payables is primarily due to the quarter ending on the third of April versus the 28 of March last year, meaning certain months and payments were made this year prior to quarter end.
Free cash flow was $104 million.
Up 14% from the prior year period benefiting from the proceeds of the sale leaseback transaction.
Sure.
I'm, turning now to our outlook for fiscal 2022.
As a reminder, with the rigs with the exception of the organic growth percentages. All figures in this outlook include the impact of currency and the auto exchange and genetic acquisition.
We have updated our outlook for the year to a flat or.
Our first quarter performance and our updated view of the range of outcomes for the year, which has resulted in a slight increase to the low end of the expected ranges for organic revenue growth and adjusted EBITDA.
It also reflects an updated view of the accounting for certain revenue and expense line items of Synetic. These updates have no impact on our expectations for synthetics or our consolidated adjusted EBIT.
These also include an updated view of currency given that the U S. Dollar has strengthened by approximately 9% versus the British pound since our Q4 earnings call.
For fiscal 2022, we now expect.
Total revenues of 2.1 to $2 1 billion, which.
Which reflects a $60 million reduction related to an accounting change for certain of genetics revenue contracts from purchase vehicle to consignment accounting, while this results in lower revenue. It will have no impact on adjusted EBITDA. This.
This range also includes a $13 to $15 million headwind from currency.
Organic revenue growth of two 5% to 7%.
Total adjusted EBITDA of $535 million to $575 million.
Including a negative impact from currency of one five to $2 5 million.
Organic adjusted EBITDA growth of negative seven 1% to positive one 5%.
Adjusted SG&A expense of $196 million.
Q2 hundred $6 million.
Including approximately $9 million to $10 million of.
Adjusted SG&A associated with kinetic.
We have adjusted Synetic expense categories to align with IAA, which decreases SG&A and increase in cost of services, but had no net impact on adjusted EBITDA.
Interest expense of $51 million to $53 million, which reflects the increase in interest rates since our Q4 earnings call.
And effective tax rate of 24%, 25% and depreciation and amortization of $105 million to $110 million.
As it relates to the expected quarterly cadence of our revenue and adjusted EBITDA. This year.
I'd like to note the following.
We expect that Q1 is our highest quarter for both revenue and adjusted EBITDA for the year.
Given our previously discussed volume in <unk> expectation.
Revenue and EBITDA are both expected to decline sequentially in Q2, and Q3 before increasing in Q4, although not to the level of Q1.
Overall revenue and adjusted EBITDA are both expected to be higher in the first half of the year than the back half.
Adjusted EBITDA margin is expected to show the greatest deleverage versus 2021 in the second quarter with an improving trend in Q3 and Q4.
With that we'll open the call to questions operator.
Thank you Susan we will now begin the Q&A session, if you'd like to ask a question. Please press star one on your telephone keypad and if for any reason you'd like to meet that question. Please press star two.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Our first question comes from the line of Daniel <unk> Stephens Daniel.
Yeah, Hey, good morning, guys. Thanks for taking our questions and Susan. Thank you for all the detailed guidance that was really helpful. Dan there.
John I wanted to start on.
A bit of a higher level question.
Investors are focused on kind of a pullback in how the business responds and I think you mentioned back in <unk>. Nine you guys continue to grow can you just talk about the changes your business did see back then did you see insurance companies.
Except fee increases did the business get more challenged in different ways and then your business has become a little bit more used cars like youre selling more cars overseas that are drivable. So is it fair that demand would be more cyclical than it was during the last downturn or how do you how would you compare your business today versus how you were an OE to nine.
Yes, Greg Daniel Thank you.
What I would say about what happened in <unk> is that while recessions tend to maybe on the margin effect miles driven it doesn't drop precipitously and so people are still driving still getting in accidents and then you have if there is downward pressure on used car pricing.
The total loss ratio then tends to work in our favor.
The vehicle values are lower which results in more vehicles being totaled so.
<unk>.
That phenomenon and we saw that and we still believe that as part of the algorithm of how vehicles get totaled so I think thats one aspect of it.
The nationalization of our business I think as is.
That's helpful.
In a downturn is that we do have buyers all over the world like I talked about with what's happened in the.
Ukraine and eastern Europe , we do have buyers in other markets that can help absorb it so depending on the level of downturn in one market versus another demand and one can help offset weakness in another so I think thats actually a.
That's a benefit to us today relative to even what we saw back in <unk>.
Got it that's helpful and I wanted to ask one on the non insurance piece with car global no longer owning it does does it change your noncompete agreement at all and specifically thinking things like repos cars that need 21% to 30 days for a notice period, they have to be on someone's land could.
That would be a growth Avenue for you guys to go after.
They've sold that business.
Yes, so since the spin I think we've been consistent about our messaging around.
The vehicles that that qualify under that non computer that royalty agreement, we continue to sell hard of that we believe that.
Here, we are we're three years into the five years, we continue to service that market in the period of time remaining obviously falls everyday so.
We do see growth opportunity in that market, we do sell vehicles repossessed vehicles today that is that as part of our non insurance mix. So we do see that as a continued opportunity and we continue to penetrate it.
And our understanding the noncompete is still in place.
Doesn't really change the conditions are at with this transaction that they've completed today, but again, we're going to continue to.
To sell into that market, because we do believe that for a lot of vehicles that are sold in the wholesale markets. Today, we're a much better venue for that vehicle to the benefit of our sellers. So.
Yes, that's how we think about that.
Great and then a quick clarifier, if I could squeeze it in John you touched on IAA transport apologies if I missed this but this is just you connecting buyers with transportation partners correct, you're not actually doing the first great transportation or are you in some markets.
No.
We're not using our own equipment. We are we are brokering it but it's really the key to IAA transport is the simplicity that we built into our buyer facing portal that buyers can they can pre select before they even begin buying just check a box and then we automatically arrange delivery of it without them having to take any other action.
Or they can they can buy it on demand, but really those the simplicity of that and building it into our platform really makes it easy for buyers to use it and again, we've seen take rates far above our expectations and we do think it is with.
With the amount of vehicles that remove as an opportunity to continue to grow.
Great really helpful. Thanks for the color and best of luck guys.
Thank you Dan Thank you.
Thank you Daniel the next question is from Bob <unk> of CJS Securities.
Good morning, Congratulations on a good start to 'twenty two.
Thank you. Thank you thanks, Bob.
You gave us tons of detail I'm still trying to process all of it but thank you for all that.
Maybe I'll start with one question on you touched on inflation, obviously, it's not unique to this market and diesel fuel surcharges et cetera.
Talk about the branch process improvement program that you have going and the progress on your thoughts on.
Pulling costs out to service cars.
I'll take over the balance of the year in the back half of the year to get.
Processing and service costs.
Under control or lower back to prior levels.
Yes.
<unk>.
And we've talked about we didn't talk about it ended up this call, but we are some of those inflationary cost pressures are sort of muddying. The savings that we're seeing from our branch process improvements, but we continue to focus on.
And the labor or in the labor area, focusing on automation and efficiency and really finding ways to do things.
With fewer labor hours, and we continue to work on that and have success.
If you think about titling still being a somewhat paper intensive process. We've built some automation tools that are helping really drive that the time required.
To process those Thats just one example, where we've seen some success that we're going to continue to.
Rollout and then on the towing front this optimization that we've been and continue to work on utilizing our technology and our and our tower app to more efficiently route. So that tours are spending less fuel to help get a vehicle to us, which again is going to help us control costs.
Just a couple of examples of.
How we continue to focus on both those and we expect to continue to see benefits as we go again some of the cost pressures, we've talked about might you might not see it.
It might not be as apparent in the near term, but we think longer term the things that we're doing are really going to make us a much more efficient organization.
Over the long haul.
Okay, Great and then just I think you mentioned.
Quickly the impact of kind of leftover Ida expenses could you just.
Expand on that a repeat that a little bit I didn't I didn't quite catch the entire thing are there any more kind of hold over cars from either that will be material at all in Q2 or how should we think about that.
Sure Dave.
So what I had mentioned in the gross margin bridges that it was about 40 basis points of year over year impact in Q1 and that really comes from the fact that there is a lot higher expenses, particularly telling that are associated with hurricane item, we called that.
Really for the past two quarters.
Even though the.
Catastrophes are excellent for us in terms of servicing our customers and keeping that business on the <unk>.
A long term it is more expensive for us to service, we recognize those expenses when we sell the cars and so we sold that.
Bulk of the idle cars really got sold in Q4 some of them like I said to the tune of 40 basis points were sold in Q1, we have a few but a very small impact for the rest of the year.
Got it okay Super Thank you very much.
Thanks, Bob.
Thank you Bob.
The next question is from the line of Ali <unk> of Guggenheim Ali.
Hi, Good morning, Thanks for taking my questions can I ask about the operations Committee on the board that was recently Forbes.
Specifically from an operations perspective is the committee looking to improve maybe you can talk about the areas of operational underperformance that were identified by the board and management that led to the formation of the committee.
Yes Ali thanks.
The committee is still being formed it was we just announced that.
In that press release so.
But.
Really if you look at the.
The public letter that we received at some of those areas that we're going to be focused on and really as the as the community really begins to meet.
Talking depth will have more to say on it but it is still it's very premature at this point.
Great. Thanks, I guess, if I can squeeze one more in then.
Seems like you've increased your buyer fees multiple times over the last six months back in September and then again in February should we view these changes as more one off to offset the recent inflation headwinds we've seen or is that a signal that you planned to take place on a more frequent basis I guess just bigger picture question. How do you think about your pricing power and the elasticity.
Demand longer term.
Yes, so I think a couple of things one.
Hinder that.
We can increase our food through rate or through what's happening in the auction I think Susan talk little bit about that in her comments, but as we as we can grow demand and bring more buyers and actually grow the proceeds adoption, we're going to get a natural <unk> that being said, we do have a really for.
<unk> buyer base.
There was not a concentration of our buyer base, which does give us more flexibility when it comes to buyer pricing and it's something we're always looking at.
We have to understand.
Sure.
The the competitive marketplace.
What we can charge, obviously, we want to charge for and also.
As we expand our products and services some of our growth is going to come from things like fire transport and.
Some of the services that we're offering that is another way for us to grow our revenue and then the final comment I'd make on it is just our data analytics and how we're looking at and understanding buyers buyers.
Buyers are not ubiquitous there's different types of buyers they have different needs and wants and so our ability to understand.
How much.
The elasticity there is within buyer groups.
Something that we're looking at as well.
Thanks, Sean.
Thank you Robyn.
Thank you Ali next question is from the line of Bret Jordan of Jefferies Bret.
Hey, good morning, guys.
Good morning, Brian as you have built out the foreign buyer base and I guess now 20 countries.
Could you talk about the mix of cars that you're exporting maybe what percent are run and drive are these people buying transportation or are they buying scrap metal as you have seen this in a geographic expansion.
Yes.
On average it tends to be a higher value car so that means.
Drivable rebuild the bowl.
<unk> to be a little bit newer just because that's the that's the type of vehicle is looking for so again speaking generally it is about transportation, it's not so much around scrap metal parts. It really is trying to find <unk> vehicles that they can arbitrage labor cost in particular.
And the less costly market to repair a vehicle that would be deemed total here because of the way. The estimates are written so.
That is I would think about it again commodity prices do matter at a certain level because there is.
There is always going to be some scrap at the end of a salvage vehicle, but it really is more thinking about.
The run and drive and rebuild of both vehicles.
International.
Okay, and then a follow up question on the <unk> labor and occupancy impact I think Susan called out 240 basis points.
First quarter could you talk about the cadence of inflation in those categories is it is it beginning to moderate I think it was a bigger impact in the first quarter to gross margin compare year over year than in the fourth quarter, but maybe if you could just sort of talk about where you are seeing.
Those those buckets of costs trending now.
Got it yes, I assume you're talking about the fourth quarter of 2021, So yes correct.
And then when we think about towing in particular, which is the largest component of our cost of services.
And impact that we felt in Q4.
Had a lot to do with hurricane Ida and the supply constraints.
The markets, particularly the impacted markets from Hurricane Ida and then some knock on impacts in other markets, where supply was sort of banks not the way to service the item market. We saw that constraint in Q1 as well and then towards the end of Q1 and something that we factor.
And so our guidance is the impact of the higher fuel prices, that's correct to say that.
There's a higher impact on <unk> in Q1 than there was in Q4 and again this new element of fuel cost, whereas where we're addressing and seeing an abatement in more of an ability for us to manage.
The supply constraint telling cost appeal prices is another element that we're now managing in part as John said our ability to.
Service fees, where it makes sense, which we did in Q1.
The labor front.
It kind of bounces around and you probably follow more closely than idea of the impact of the great resignation and that the scarcity of labor. So we definitely saw that and when labor scarce not only is it is there an impact and higher wages, but that new.
Often have to either pay more overtime or incur higher costs for temp labor and Thats, what John mentioned some of the branch process and efficiency improvements that we are doing but you may not see hit the bottom line, we have improved our ability to forecast that to manage that to scale back on.
The temp labor and so even though there are inflationary pressures and wages as John mentioned, we've sort of seen a bit of a slowing on that.
In the last couple of weeks again, we don't want to predict a reversal of trend or anything crazy like that but I think it's a combination of the market conditions and the fact that we're able to manage the challenges manage through the challenges better.
Great. Thank you.
Thank you Brad.
Question is from Gary <unk> Barrington Gary.
Yes.
Yes, good morning, everyone, Hey, Susan I didn't I didn't get some of those.
The metrics you gave on the expense side, what was the SG&A range for this year.
Are you talking about the SG&A range for the full year 2022, adjusted SG&A will be 190.
$36 million.
Yes.
Okay. Thank you.
And then.
John could you tell me. The addition of this new director.
I would assume that this was contemplated before the in core.
Later in the meeting with the core of people.
It was put in place or was it a function of that letter.
So Gary.
Not speaking for the entire board, but what I would tell you is that we as a board we're always looking at.
Refreshing looking at the right talent, making sure we've got the right people on our board of directors and the timing was right.
<unk>.
To reach out and to add Mike.
Okay.
As some of these.
Might not be something you can share with us what it means when you spun out and you came out with this plan.
Increase EBITDA over a couple of years I think it was $140 million of incremental EBITDA.
With what the core of people looking at what are they what are they citing in terms of operationally some of the things that they would like to see done.
Yes.
Gary I think the again I'd point, you back to their public letter, where they they made their their comments there and that that was the basis for our discussions with them and how we got to the to the mutually beneficial outcome.
Okay. Thank you.
Thanks, Gary.
Thank you Gary.
Next question is from Chris, particularly area of BNP Paribas Chris.
Chris.
Hey, guys. Thanks for taking the question.
So first of all I was trying to understand as well.
So were still understanding what's the net impact of the buyer fee increase and the higher expected tooling costs does that like when you look at Q2 versus Q1 is it neutral or is the towing costs.
The fee increase.
Yes.
We don't we don't talk specifically about the cost in terms of what it means but the fee increase we did is it was part of our contemplation around what we're seeing in higher costs.
Across labor and tolling.
It was a way to help mitigate that.
It points to our that is part of our ability to manage costs.
Across from a variety of sources, but yes.
Yes.
That's what I would tell you about.
The fee increase.
Got it Okay, and then can you give us maybe a walk through of the.
Annual EBITDA bridge from Q1 to the year, but if I just kind of take your Q1, most license for its 600 ish of EBITDA six monthly EBITDA versus.
50.
For the year guide so can you maybe just.
Maybe rank order walk through some of the bridge items from Q1 cause earnings to decline in Q2 Q3 before we covering his go wherever you mentioned part of it part of the changes like the timing is going to account share loss, you previously announced and maybe just doing stuff that maybe just rank order in size or give us some sense for why the EBITDA is going to fall off the Q1 levels would be helpful.
Yes, I think you really hit on the two biggest impacts there so the towing costs year over year, if you think about <unk>.
Q1, if you think about 2021, because youre thinking about deleveraging at the kind of think of the cadence of 2021, we didn't really start seeing the higher selling cost a little bit in Q3, and then more in Q4, so the year over year impact in Q2, and Kelly is not only the cost we experienced in Q1, but the additional Ella.
<unk>.
Fuel surcharges, so you've got that little extra kicker in Sterling and then.
And the next biggest one is the volume impacted comp to that so and we've talked a lot about are the one customer and what we've experienced in terms of volume there we mentioned.
Our Q4 call about what we were expecting in Q1. So Q1, we largely had the volume from that share loss, we mentioned and then that will be following.
Starting in Q2, so I would call those really the two biggest differences between the impact in Q2 versus Q1.
Got it that's really helpful. Thank you.
Mhm.
Thank you Chris that concludes our Q&A session for today. So at this time I would like to turn the call back over to John and the management team for closing remarks John .
Thank you so just to wrap it up in conclusion I do want to again reiterate the resilient nature of our business.
Throughout our history, we have proven adept at both maximizing opportunities in strong markets as well as navigating challenging economic conditions.
Regardless of the economic environment, we remain fully committed to enhancing the long term value for our shareholders.
We have strong customer relationships and are focused on driving growth and profitability. Both in the U S and in key international markets and expanding our long term profitability irrespective of market conditions.
Thank you for joining us today, and we look forward to speaking to you next quarter.
That concludes the IAA incorporated Q1 2022 earnings call. Thank you all again for your participation you may now disconnect your lines.