Q2 2022 IAA Inc Earnings Call
Good morning, everyone and welcome to <unk> second quarter earnings call.
The plan today is to first provide some highlights from our performance in the quarter.
And then review our continued progress against our strategic initiatives.
I will then turn the call over to Susan to discuss our financial results and outlook in greater detail.
Let me begin by telling you how pleased I am with our team's focus on serving our customers at the highest level.
Even in a period of economic uncertainty as.
As we reported this morning organic revenue grew by approximately 9% in the quarter and as expected adjusted EBITDA declined.
Despite some top line headwinds, which I'll discuss in more detail our U S volume grew nearly 5% in the second quarter versus the second quarter of last year.
Excluding the loss from the top customer that we've talked about in the past.
We are encouraged that our overall market share not only remained stable throughout the period, but our efforts to increase share also continued to build positive momentum.
That said, we were impacted by several industry headwinds in Q2 <unk>.
Including a decline in the percentage of vehicles declared a total loss driven primarily by high retail used car prices.
As well as lower non cat weather related volumes compared to what we normally experience in the second quarter of the year.
Outside of insurance are dealer commercial and consumer facing volume was also soft during the period driven primarily by the continued low inventory in the wholesale markets.
Switching to the cost side of our business like most companies in today's market. We continue to experience inflationary cost pressures, primarily in towing and branch labor.
While these costs. These higher costs were anticipated we are actively working to offset them by further driving operational efficiency and improved service levels throughout the organization.
And as we've previously mentioned we have established an operations committee of our board. The committee is active meeting on a regular basis and providing guidance to us on these initiatives.
We continue to invest in automation of manual tasks throughout the vehicle lifecycle from vehicle release through towing entitling streamlining the process to achieve efficiency gains and enhanced service levels.
And one example, we recently implemented title automation and our West Coast title Center and have seen greater levels of accuracy and speed at a reduced cost.
And while total costs are still elevated we are encouraged to see rates stabilize.
We remained focused on leveraging data analytics to optimize routing and improved truck utilization to offset higher tolling rates.
Identifying and driving operational efficiencies as a way of life at IAA and we will continue to be a focus regardless of the economic environment.
Moving now to talk about the macro pricing environment, both retail and wholesale used car prices have remained high.
Despite some sequential moderation over the last few months.
This provides a favorable backdrop for continued strength in our <unk>.
And as noted total loss frequency was lower during the quarter than in Q1.
The industry also continues to feel the impact of the higher cost of fuel tolling and labor.
Despite these macro challenges and the potential for a broader economic downturn I remain bullish on the near and long term outlook for both IAA and the industry as a whole.
While ongoing OEM supply shortages have reduced new vehicle sales used car values remained near record highs, creating significant demand for the vehicles, we sell and the corresponding parts.
We continue to see secular long term growth and repair costs as both parts and labor are impacted by increasing technology complexity.
This should bode well for future long term growth and total loss rates and in turn industry volumes, especially if used car prices continue to moderate.
In addition to the positive industry dynamics. It is important to emphasize that throughout our history IAA has performed well throughout a variety a wide variety of economic cycles.
While currently we are managing through higher labor and tolling costs are primarily consignment based revenue model helps mitigate their impact.
Our business is resilient.
And our team has the experience and the knowledge to continue to navigate the dynamic macro environment.
The continued execution of our strategic initiatives, particularly in the areas of technology and innovation further differentiate us.
Every day, our team is focused on improving our digital marketplace through data analytics and enhanced vehicle merchandising.
With that in mind, let me update you now on the strategic new strategic initiatives on the supply side, starting with the data analytics work that deliver such significant value to our customers.
With better data are selling customers are making improved decisions and optimizing the channels where their assets are sold.
Resulting in higher net returns for them, while translating into additional benefit as well.
Unique to the industry, we provide buyers with four ways to bid proxy timed live bidding and by now this gives our buyers greater flexibility, while helping us and our sellers understand buyer behavior, resulting in maximizing the value of the assets that we sell in our marketplace.
The IAA adviser portal.
Our industry, leading seller analytics platform uses of the data that we gather to highlight key opportunities for sellers to increase proceeds and reduced cycle time.
In another example, we collaborated with one of our largest providers. After we jointly identified an opportunity to improve results.
Modifying their reserve setting and auction channel strategy, we unlocked significant improvements in their returns.
This example serves to reinforce our continued efforts to collaborate with both existing customers and prospects on additional opportunities and potential pilots.
We also continue to successfully drive revenue through enhancements to the seller experience.
We further expanded IAA loan.
One payoff processing nearly $1 $2 billion of transaction value through the portal year to date.
Up 70% versus the second quarter of last year.
This growth was driven by greater adoption by insurance companies and increased penetration of financial institutions.
Our lender coverage is now essentially 100%.
With 80% of all liens written nationally covered by lenders with digital direct integrations to loan payoff.
Top carriers are using the platform nationally and are realizing 12% to 15 days of savings. In addition to the efficiencies of ACTH transfer.
In fact with carriers, who are directly integrated we're seeing some assignments submitted to the portal and funded in less than 24 hours.
We believe our broader solution set including unique innovations such as loan payoff.
Tina to resonate with sellers and provide the winning formula for IAA to deliver long term customer value.
On the demand side of our market Aida buyers continue to benefit from an improved experience on our interact merchandising platform through enhanced digital trust created by our custom features including vehicle score engine start and feature tour.
All which promote an in person experience while researching vehicles digitally.
Further driving an improved experience IAA transport, which we launched last year to assist buyers in sourcing and scheduling the transport of their vehicles has been a remarkable success.
Year to date volume of IAA transport has more than doubled from last year and Q2 volume was up nearly 80%.
In May we launched the IAA transport mobile App.
Empowering buyers to shop for quotes arrange transport and track deliveries from anywhere all within the App.
In addition to enhancing our buyers experienced or expanded or improve services. We're also continuing to expand our overall network of international buyers, which grew by 5% year over year.
This growth is driven in part from our focus on improving the overall experience for our customers.
Our demand side NPS score continues to improve and we are on target to exceed our goals for 2022.
We've now leveraged that framework and implanted and 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.
Our next initiatives strategically building real estate capacity throughout our global footprint remains one of our most important commitment to servicing our clients and meeting growing demand.
During the quarter, we expanded our capacity in central California, Ah Kee rapidly growing market for IAA.
And acquired our location in the Washington.
Washington D C area.
In the United Kingdom, we opened a new facility in Bristol to provide additional coverage in the southwest of the country.
These additions reflect our continued focus on strategically investing in properties, where we see a long term benefit and an attractive return on capital.
In addition to satisfying our ongoing customer demand, we've committed to prepare for cat season by expanding our footprint and our resources in those areas at the greatest risk for extreme weather.
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We've completed thorough reviews with all of our clients for 2022.
In southern Louisiana, We recently expanded two locations permanently converting these facilities to support <unk> long term flexible land and capacity strategy in this hurricane prone region.
While we cannot predict the timing or severity.
Catastrophic events servicing and supporting our customers in their time of need is a high priority.
We will continue to expand our presence and capabilities across cat prone regions in preparation for any significant weather event.
Lastly, turning to our international business Q2 marked the first full quarter since we obtained full clearance from the U K competition and markets authority for our acquisition of <unk> the.
The integration process is progressing as planned including cross pollination of historic Synetic buyers onto Ias platform, greater utilization of real estate and savings and tolling and technology costs.
As we've said from the beginning the goal of this transaction was to create a long term sustainable growth platform in the UK.
<unk> state of the art auction platform and genetics capability and used parts and dismantling expands the product offering and provides the broadest options to maximize proceeds per customers.
While synergies between our legacy UK business and <unk> are creating efficiencies are forecast for synetic is trailing our prior expectations.
Sequent to our acquisition Synetic secured an exclusive agreement for one of the top five U K insurance providers.
Cost of Onboarding. This additional volume, which comes ahead of revenues will reduce the net 2022 EBITDA.
The transition to the new volume is also taking longer than expected, but our view of the long term benefits remain unchanged. In addition, certain market dynamics in the U K, which Susan will discuss have also impacted synetic.
We do remain confident in the long term growth opportunity in this business. In addition, we believe the next market leading focus on sustainability and circular economy for vehicles is a true differentiator in our model for the future given that insurance companies insurance companies in the U K market are further embrace.
Sustainability.
Demonstrating this importance to the business and May Synetic achieved its new ISO accreditation, which requires an ongoing sustained improvement in energy efficiency and reduction in greenhouse gas emissions.
This is a good example of Ias overall progress on our ESG goals, which culminated in the publication of our first comprehensive sustainability report this last April .
The report highlights the critical role we play in the circular economy and our sustainability.
Sustainability initiatives push us to be more efficient and develop innovative solutions for our customers.
Furthering this goal we are leveraging carbon literacy education and training from the UK and starting to roll it out globally.
Through our ESG efforts, we also remain focused on building a stronger more diverse and engaging workplace for all our employees.
Lastly, while our market leading Canadian business has recovered more slowly from COVID-19 than in the U S. We continue to see positive momentum during the second quarter.
Although it will take some time for assignments in Canada to come back to 2019 levels. We're excited with the progress that we've seen year to date.
So before I hand, it over to Susan I want to thank all our employees for their continued dedication to further strengthening our operational execution and providing industry leading customer service.
We've overcome many of the headwinds emanating from today's unique macro environment and our people are a big reason why I am confident in our ability to adapt to any market conditions going forward.
In close collaboration with our board, we remain focused on running a world class operation that delivers the most innovative and effective offering in our industry for all of our stakeholders.
We have built a differentiated digital marketplace with unique capabilities and we will continue to create additional products and services that deliver value to our buyers and sellers.
And with that I'll turn the call over to Susan to review, our second quarter financial performance and our 2022 guidance Susan.
Thank you John I will focus my discussion today on our adjusted non-GAAP results touch on some key highlights. Please see today's press release for more details on our financial performance and our methodology for calculating non-GAAP results.
Overall during the first half of 2022, we continue to benefit from industry tailwind related to elevated used car prices.
Along with our strategic initiatives.
Organic revenue growth of 14, 4% for the period.
Organic adjusted EBITDA declined three 6% for the first half of this year, including an expected decline in Q2, driven by the margin headwinds. We previously outlined partially offset by continued strength in our pit.
For Q2, specifically consolidated revenues increased 16, 9% year over year.
$523 million, including $38 $2 million from the acquisition of kinetic.
Organic consolidated revenue, which excludes the impact of foreign currency and revenue from the auto exchange and synthetic acquisition increased eight 9% to $484 9 million.
Coming from an increase in <unk> of 12, 6% and a volume decrease of three 2%.
Service revenue increased by eight 9%, while vehicle and parts sales increased by 65, 7%.
The growth in <unk> was driven by an increased mix of purchased vehicles.
The impact of internal initiatives, which includes our ability to pass on higher costs through an increase in service fees.
And a continuing strong backdrop for used car prices.
As a reminder, despite sequential month over month softening. This year. The Manheim index is up approximately 10% at the end of June versus the prior year.
With respect to volume we had expected it to decline sequentially in Q2 due to volume loss for one customer and as John reviewed period was also negatively impacted by certain macro headwinds, including a decline in the insurance industry total loss ratio.
Lower non cat weather related volume and softness in the dealer commercial and consumer related markets.
Regarding the total loss ratio, which declined to 16, 8% from 18, 2% last quarter and 19, 7% in the prior year.
We believe this has been impacted by higher used car prices, which affect the insurers equation, whether it's declared vehicle a total lie.
On the flip side, we see the benefits of strong used car prices and ARPA.
Despite the volume challenges our U S volume grew 5% year over year, excluding the impact of the loss of the one customer we've mentioned.
Gross profit was $182 million.
Compared to $195 9 million.
In Q2 last year.
Gross margin was 35% compared to 36, 1% last quarter and 44% in Q2 2021.
Year over year 200 basis points of the decline came from an increase in the mix of purchase vehicles and parts sales, which increased to 20% of total revenue in the quarter compared to 14% in the prior year period.
As a reminder, purchased vehicle revenue and expenses are accounted for on a gross basis as opposed to consignment, which is accounted for on a net basis.
The remaining impact came from the factors we have mentioned on our last few calls, namely higher costs until in labor and occupancy and by market dynamics in the UK that adversely impacted purchase vehicles spreads.
In the UK purchased vehicle contracts are set based on the vehicles pre accident value, which does not only move in tandem month to month with used vehicles selling prices.
Well over the long term, we expect <unk> to normalize with used car values. We are expecting this to impact our combined UK business profitability for the rest of the year.
Partly offsetting these margin headwinds were the efficiency improvements Jon described and continued improvement in our <unk>.
SG&A expenses increased by eight 7% to $47 $5 million.
Adjusted SG&A expenses were $45 4 million.
An increase of four 8% compared to the prior year due mainly to the incremental SG&A of synthetic higher head count and higher spending on information technology, partially offset by lower incentive compensation expense.
SG&A personnel for the quarter was approximately $1 9 million.
Adjusted EBITDA was $136 2 million for the second quarter of 2022 compared to $152 6 million in the prior year.
Excluding the impact of foreign currency and acquisition organic adjusted EBITDA decreased by 12, 9% driven by the factors, we discussed earlier, namely the volume and margin headwinds offset by higher auto.
Interest expense declined to $11 5 million compared to $21 $9 million in the second quarter last year. The decline was primarily driven by the $10 $3 million loss on early extinguishment of debt that was recognized in the second quarter of 2021.
The effective tax rate was 10, 9% versus 24, 7% in the second quarter last year.
The tax rate benefited from favorable adjustments of $13 $3 million, resulting from a change in the estimate for foreign derived intangible income.
These adjustments were recorded as an $8 6 million discrete item related to prior periods and a $4 $7 million benefit related to income in the first half of 2022.
Net income was relatively flat at $82 7 million.
Compared to $82 9 million in the prior year.
Adjusted net income decreased by 11, 4% to $82 7 million or 62 cents per diluted share.
Turning now to our cash flow and balance sheet capital expenditures were $44 $2 million for the quarter compared to $27 5 million in the prior year.
The year over year increase in capital expenditures was primarily driven by the acquisition of our Washington DC location.
During the second quarter, we spent $18 $8 million to repurchase approximately 521000 shares at a weighted average price of $36 19.
We continue to balance of existing and potential opportunities to invest capital in the business with the ability to selectively employ repurchases as a method of returning capital to shareholders.
Our balance sheet remains very strong and we ended the quarter with total liquidity of approximately $657 1 million.
We ended the period with a leverage ratio of one nine times compared to one eight times at the end of the second quarter of 2021.
Net cash provided by operating activities during the first half of 2022 with $233 million.
Down eight 1% from the prior year, primarily due to the timing of lease and incentive compensation payments, partially offset by increased collections of accounts receivable.
Free cash flow was $193 9 million relatively in line with the prior year period at $193 3 million.
Turning now to our outlook for 2022.
As a reminder, with the exception of the organic growth percentages all figures in this outlook include the impact of currency and acquisitions.
For 2022, we have narrowed our expectations for revenue and now expect total revenues of $2 two to $2 <unk> 7 billion.
<unk> seven 5 billion.
This range includes a $14 million to $16 million headwind from currency and kinetic revenues of $160 million to $170 million we.
<unk> organic revenue growth of three 5% to 6%.
We have also narrowed our range for adjusted EBITDA. We now expect total adjusted EBITDA of $540 million to $560 million, including $15 million to $18 million for synthetic and a negative impact from currency of $2 million to $3 million.
Our adjusted EBITDA range takes into account our results to date and the impact of continuing inflationary pressures as well as the market dynamics, we are experiencing in the U K.
The outlook for Synetic reflects the cost of Onboarding. The additional volume from the new client market dynamics in the U K and the impact of currency.
We expect organic adjusted EBITDA to be flat to down 5% compared to the prior year. As a reminder, fiscal 2021 was a 53 week year, whereas fiscal 2022 is a 52 week year.
We expect adjusted SG&A expense of $195 million to $205 million, including approximately $8 million to $9 million of.
Adjusted SG&A associated with genetic.
We expect interest expense of $50 million to $52 million.
Reflective of the recent increase in borrowing rates.
And effective tax rate of 22% to 23%, excluding the beneficial impact from discrete items.
Finally, depreciation and amortization are expected to be $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 reiterate some of the comments I made last quarter.
We continue to view Q1 is our highest quarter for both revenue and adjusted EBITDA for the year.
Given our previously discussed volume <unk> expectations, we still expect revenue and EBITDA to decline sequentially in Q3 before increasing in Q4, although not up to the level of Q1.
So we still expect overall revenue and adjusted EBITDA to be lower in the back half of the year and this is incorporated in our full year guidance range.
We still expect that adjusted EBITDA margin deleverage year over year with the most significant in the second quarter with an improving trend expected in the back half of the year.
With that we'll open up the call to questions.
Great.
Absolutely.
If you would like to ask a quick question.
Sorry, followed by one on your telephone keypad.
Any reason you would like to remove a question. Please press star followed by team.
Again to ask a question Chris time point.
Reminder, if youre using a speakerphone please remember Topeka.
Asking your question please.
Also briefly ask questions already.
The first question.
Line of Daniel <unk> with Stephens you May proceed.
Yeah, Hey, good morning, guys. Thanks for taking my questions.
Good morning, guys I wanted to ask a little higher level I think in your prepared remarks, you talked more about some of your initiatives, whether it's data analytics lender coverage.
Transport I guess I'd love to hear.
Why the increased detail I'll.
I would love to hear what are the early customer feedback how long would you expect expect for these kind of initiatives to manifest into share wins.
Kind of thoughts around customer feedback and potential share impacts from all the initiatives you've discussed.
Yes.
Yes, thanks Neil.
I, probably talked more than usual because I am excited about what we're doing in these areas and I think it's resonating well with our clients both as I said, both our existing and as we look to expand our market position.
Whether it's the data analytics, where we really are I gave that example, but we really are unlocking ways and helping sellers find better ways to market their vehicles and really we've got tools now that we're using in a way that we've never used before and we're also again with the data that we have on our buyer.
Really understand the.
The kind of the cohorts of different types of buyers that we have and how they behave so that we can target to them and make sure. We're getting the right value. I mean, those are just kind of both sides of the demand and the supply.
And then certainly loan pay off.
As we continue to add lenders and now we've got this solution, where we basically could could handle a 100% of the liens.
It really is resonating well and I think carriers are recognizing now that we've got the critical mass that we need to really helped.
Help them solve that that persistent issue they have in trying to obtain the right paperwork. So that we can sell a vehicle. So yes, I am excited about all of those the timing of when stuff comes I wish I had that crystal ball, but I do think we are moving in the right direction and the feedback that I'm getting.
Seeing.
It gives me confidence.
That's helpful color, John and then a follow up can you do a little more to the total loss rate dynamic first of all could you say it was 16 eight in the quarter did we hear you right and then if so curious why do you think it stepped down sequentially I guess used vehicle prices were relatively stable sequentially the year over year increases were smaller.
I'm, just curious what would drive that down further that lower accident severity.
Replacement vehicles, just making insurance companies repair more accidents is it something else could you just talk about why the step down if that was there a number.
Yes.
You are correct Edward recording industry data on our total loss ratio just to make that clear.
But John let me give some more color, yes, Daniel so I mean, one of the other phenomenon that we saw was while use while wholesale pricing kind of flattened retail pricing really hasn't fallen off a lot of at least that happened through the second quarter and the HCV, which is what the carriers use the actual cash value.
That's really based on retail pricing, so as retail pricing has sort of held.
That ratio of repair cost to retail price has continued to.
Reduce that percentage. So it is an important distinction to think about retail prices relative to wholesale prices when you're when we're talking about this.
And I think related to that is kind of a lag effect right definitely because.
Insurers trying to decide based on based again on the retail prices, whether something that total loss and then that's what's going to create the additional volume for us we're not surprised to see a lag effect there on the prices sort of moderating and when the volume kick you kind of see it.
On the front side of it right. So we saw an increase in used car prices and total loss ratio remains high so.
<unk>.
It seems like a disconnect, but if you look at it on a lag basis, it probably makes a lot more sense.
So your expectation would be what you've seen this summer with the slight moderation would be all else equal to the back half of the year that the tailwind to volume growth.
The second quarter.
Well I like John said, we can't predict exact timing on that.
So we would expect over the long term that the total loss ratio getting back towards that.
2008, 2020, plus that we saw and as John mentioned all of the factors that are there that increased the total loss ratio like vehicle complexity are not abating that's right.
Okay. Thanks, so much for the color guys.
Thanks Neil.
Yes.
Thank you.
The next question comes from the line.
From the back with CJS Securities.
You May you May proceed.
Good morning, Thanks for taking my questions.
Hum.
Now, let's talk about the cost to process, a car and you obviously discussed labor and telling us.
The headwinds there and they've been persistent I guess, maybe if we could dig in.
Little more on those how much.
The increased costs are.
Permanent.
But when might they start to go back down or is it in labor or is it just higher wages or is there may be higher turnover in your branches that could.
Dissipate as the labor market improves and until I guess like just fuel and labor or had the towing distances change for whatever reason im just trying to get a sense of when.
Kind of cost to process, a car may come down as well.
Yeah, Great. So let me start with labor.
It has been primarily around.
Right, so paying having to pay more just given what's happening in the overall labor market.
Turnover has abated, we certainly saw.
And the what was called the great resignation last year in particular, we did see higher levels of turnover than we had experienced ever but but if we have certainly seen that begin to calm down so we do but.
That's the.
The near term again is what I talked about is we are consistently looking at ways to take labor cross out to find ways to automate and simplify processes. So we need fewer people to do some of those SaaS from the people. We have can focus on the higher value on so that's our approach.
The phenomenon over the last year and then what we're doing about it going forward in terms of towing. It was a similar situation is that a.
A year ago or 18 months ago.
The tow companies that we use couldnt find drivers they have trucks and no drivers because they are either.
Werent interested in driving a tow truck that is again beginning to stabilize as I talked about.
In the core rates really distances haven't changed to your specific question again, given our footprint.
Our vast network of facilities we have.
We have to.
To a certain extent control for how far we have to go to get cars.
Fuel is a phenomenon right now obviously with diesel prices, while they are coming down they are still very very high. So we are incurring fuel surcharges that we would.
Expect to abate as fuel prices come back to some normalized level. So there is a portion of it that we certainly see in the near term.
<unk>.
A fuel price perspective, and then again, our tolling rates have stabilized.
<unk> companies we use.
<unk> been able to start to fill their trucks and again, we are deploying technology and some of our analytics to help mitigate those costs to find ways to more effectively route to not have to go through our release center to get our vehicle released the dispatch a truck right away because our data tells us that it's likely going to be easy to pick up those guys.
It's a thing so.
Those are short term phenomenon, but we certainly are focused on finding ways to reduce those per unit costs going forward.
Okay, great. Thank you that's certainly helpful color.
I guess just one other quick one unrelated to that but in terms of the dollar strength, obviously you called it out.
<unk> and <unk>.
What's going on there how has it impacted if at all.
International bidders, who are buying on.
The U S salvage cars at auction has that impacted the and obviously we are still very high so.
It.
It hasnt been too negative there, but what are you seeing in terms of international bidding activity in building, our international buyer base and because the dollar impact of that right now.
Yes.
I guess I would at a high level of expected some of what you described but really we haven't seen it again, we continue to grow our buyer base.
We're finding new markets and new ways to bring those buyers to our marketplace and again, the robustness of our marketplace, even if there.
Bringing in a currency that is not a strong theyre going to have to bid in dollars to buy the vehicles, so theyre going to need to compete with.
Domestic based buyers to get that vehicle. So we really have not seen a negative impact on the bidding side from from the strength of the dollar.
Got it okay Super Thank you very much.
Thanks, a lot.
Thank you.
The next question comes from the line of Bret Jordan with Jefferies. You May proceed.
Hey, good morning, guys.
Good morning, Brett.
On the comment continue to grow the buyer base the international bidder for North American cars is there any way to quantify that I mean.
You've done some push into north Africa in developing sort of marketing offices over there, but is there whether we can sort of look at that maybe how much volume is going over there or what the changes.
Yes, we've always been hesitant to try and put a percentage on just because of the nature of the.
The U S based export buyers that we have that are shipping vehicles out of the country. So.
But so we are measuring in the growth we're talking about is our foreign based buyer. So.
It continues to be strong and in West Africa, the Middle East Central and South America Eastern Europe , you've seen where we have opened some of these.
Our established these market partners.
It continues to be strong and I think as I've said before there is still a lot of room to grow.
There's a lot of places in the world, but we still think we can target or more deeply target to continue to grow that portion of our buyer base.
Okay, and then you commented earlier that market share is stable I think.
And then increasing the bottom end of the revenue growth rate guide does that imply that the large insurer who were shifting volume has stabilized.
Or is the market share gains with others offsetting that loss.
I would say it's.
It's some of both Brian .
I think we are stabilized with that carrier and we continued to do well.
Kind of up and down.
The.
Tier one tier two and tier three carriers.
Okay, and then I guess one final question on the synthetic.
Acquisition trailing expectation and then you've also mentioned that the UK purchased vehicles spreads were going against you is is genetic impacted by that purchase vehicles spread or is it just the cost of bringing in the new customer in the UK that's impacting synetic.
It's a bit of both Bret.
Okay alright, thank you.
Thanks, Bob.
Thank you.
The next question comes from the line of Ken Gary Huff Casino with Barrington Research you May proceed.
Yes, good morning, Hey, Susan John could you, maybe just explain some of those market dynamics in the U K again, just so I'm clear on that what's going on.
Sure Gary so.
So.
It's primarily a purchased vehicle market. So we're we're buying vehicles based on the <unk>.
They call it in the UK.
But you got to think about.
If a vehicle is damage today and the insurance company establishes the value and they pay. It then we don't sell that vehicle for 60 or 90 days.
It's a different market from when it was purchased so as used car prices are moderating there, we're sort of we're buying and as the prices are falling so we're having to sell it.
The spread that we've established isn't it isn't as wide as we would've expected. So we believe it balances out over time, but we're currently in a situation where is sort of in transition as as values are starting to come down.
Okay.
Great and then why is it taking longer or Theres more.
Vince increase incurred from boarding this new client in the UK.
Yes, so one of the volume started coming later than we expected, but then in addition, again for some of these vehicles because we're buying them.
We're then putting them into inventory, but we're still having to incur labor and other costs that we don't capitalize at this point and then we're not selling the dismantled parts or whatever we're going to sell that doesn't come until later, so we've incurred the front end of the cost, but we haven't been able to realize the revenue yet.
Okay. So as over time this should.
Yes.
Exactly yes, Thats why again as I said.
It doesn't.
My view is unchanged.
Our potential with this business and with that particular account I think it's really good for us going forward.
Okay. Thank you.
Thanks, Gary.
Thank you.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one.
The next question comes from the line of Chris portfolio.
BNP Paribas you May proceed.
Hi, Thanks for taking the question.
The first one to ask the first one I wanted to ask about volume. So if I heard you right. It sounds like volumes are up 5% of the U S ex kind of top customer loss.
Total loss rates are down materially I think miles driven are down slightly year on year at this point. So I guess, what would you attribute the 5% volume growth like what's driving that like what are the factors that are.
That's been a push at the Orleans.
This positive ex top customer.
Yes.
As I've talked about over the last couple of quarters, we have been gaining share.
When you take that one customer we have been gaining share.
And I think that's certainly been helpful. We're also.
We're also continuing.
Even though it's a constrained market our dealer commercial consumer facing is another area, where we continue to do well.
To add to volume I mean, Susan anything else any other factors to think about in the second quarter.
Would have driven growth those are really the two factors that are driving it when you strip away that one customer.
Okay. Okay. That's helpful. And then the next question last question would be just on SG&A like pretty big decline.
In Q2 have a process my model yet to see what the guide implies for back half, but just wanted to get a sense of what's happening. There are you actively cutting cost at this point any costs that kind of slipped into the back half just some context.
Probably the biggest decline SG&A, we've seen in a while because that'd be helpful. Thank you.
Yes, a couple of things.
Yes, we are actively managing our costs and being super selective and super rigorous about what we're going to invest in.
Theres also a couple a couple of factors going on here one is incentive compensation expense. So last year, we outperformed our budget, we book compensation expense, we accrue it based on where we expect to end the year this year.
That's not the case, obviously, we reset our Bahrain.
Make it at a point, where we're going to have to work really hard to achieve it. So that's one thing and then.
I think it depends on whether you are looking at adjusted EBITDA, sorry, adjusted SG&A. When you look at adjusted SG&A is that increased year over year pretty much roughly in line with with the synthetic additions. So that we had some onetime costs last year that aren't in the number this year that aren't in adjusted <unk>.
SG&A.
Got you Okay, Yeah, I was looking quarter on quarter, just the SG&A alright. Thank you.
Yes.
Thanks, Chris.
Thank you there are no questions waiting at this time I would like to pass the conference back over to John for something remarks.
Thank you just to reiterate the resilient nature of our business and the industry overall I really am confident in our ability to deliver positive results regardless of market conditions.
As we further enhance our digital offering and expand our global buyer base, we will continue to execute on our strategic initiatives, including this focus on operational excellence and sustainability, we remain well positioned to generate value for our shareholders in the quarters and years to come.
Thank you for joining us and we look forward to updating you again during our third quarter call in November .
That concludes.
<unk> second quarter 2022 earnings conference call. Thank you for your participation you may now disconnect your line.
Okay.