Q2 2023 RB Global Inc Earnings Call
Success.
During the second quarter, we achieved a significant milestone in our marketplace transformation journey by successfully piloted in our modern checkout micro service. The response from customers was overwhelmingly positive as they enjoyed the convenience of online payments and the ability to complete a transaction.
Digitally.
As a reminder, this is a key building block of the services attachment strategy.
As long term back office efficiencies, which will be executed in the next 12 months to 24 months.
This strategic approach aims to provide customers with a diverse range of marketplace services throughout the transaction process enhancing the overall experience.
In the automotive sector the growth in unit volumes was driven substantially by our existing customer portfolio.
This growth was partially offset by cycling over the volumes lost from the previously announced single large customer.
The industry continues to see the total loss ratio recover increasingly to approximately 18, 4% from 17, 1% in the same period last year recall that the total loss ratio is the number of vehicles deemed salvage as a percent of total accidents and it has historically.
Shortly been influenced by used car values.
Used automotive prices continued to trend lower why repair costs remain elevated making it more economical to deem a car a total loss after an accident.
The IAA acquisition has been closed now for a full quarter.
Our integration efforts to date reinforce our confidence in Iaa's long term business prospects.
We suspected doron diligence and now have confirm we have identified areas, where the customer experience can be enhanced.
We are committed to providing exceptional service to our insurance customers and we are deploying fresh more innovative thinking to assure we can deliver on this commitment.
One aspect of this effort is to identify key priorities and execute consistently on the process that we can we control.
Although we are still in the early stages, we are encouraged by the willingness of insurance industry stakeholders to collaborate.
We aim to significantly enhance the customer experience deliver better outcomes and raised the competitive benchmark globally, which we believe will result in substantial growth for IAA.
We are excited by the progress the team has made in our first four quarter as RV global to bring the Ritchie brothers in IAA business together.
The collective team as displaying remarkable collaboration embracing our shared vision and starting to combine their expertise to benefit our customers.
One example of this is that we're actively preparing a ritchie brothers team members to support the processing of salvage vehicles for insurance companies Dorian cat events.
Ritchie brothers has expertise in large event focused operations, which we have honed over the past 60 years in our normal course of business. We have a proven track record of mobilizing resources across North America to process significant episodic volumes quickly and efficiently.
We will soon be able to deploy flexible RV labor and yard capacity implied the same successful approach to managing cat events for IAA further strengthening our capabilities in serving our customer needs.
During the second quarter. We also successfully negotiated an early termination of the royalty and noncompete agreement in the whole car space that was inherited as part of the IAA acquisition by.
By removing this restriction, we can now fully leverage our capabilities and expertise to better serve our customers and strengthen our competitive position in the industry. Additionally, we continued to optimize our organizational structure by streamlining operation and combine enrolls.
For the quarter, we realized $7 million in actual cost synergies and have already action a total of $36 million in annual run rate cost synergies since the close of the transaction through June 30.
Based on our progress we continue to expect to deliver at least 100 million to $120 million of annual run rate synergies by the end of 2025.
Our strong performance and progress on our integration activities also reinforce our confidence in our ability to capture the revenue growth opportunities from our combined platform.
This promising start set the stage for future growth and positions us as a leader in the industry.
We are focused on continuing to advance the integration of IEA to unlock the full value of our combined platform for the benefit of our shareholders customers and employees with that I will now hand, the call to Samir to discuss our financial results for the second quarter and to provide some additional outlook and commentary.
Thank you Jim before we jump into the detail, let me first explain that certain Europe over year comparison.
As for <unk> in revenue referred to the comparison to the pro forma combined adult of Ritchie brothers at IAA for the prior period.
So let me start with GTD GTD increased 9% driven by strength in commercial construction and transportation as well as the rebound in the automotive sector. When you exclude the negative impact of foreign exchange GTD increased 10% on a constant currency basis.
CTV for construction and transportation increased 15% driven by an increase in unit volume, partially offset by lower prices and unfavorable mix.
Though asset mix continues to be a headwind sequentially, we are starting to see some steady improvement.
As it relates to the automotive duty GTD it increased 5% driven by a rebound in unit volume on a flat average price per lot.
We expect GDP growth in the third quarter to be low to mid single digit year over year on a combined basis. The reason being seasonality the timing of certain auction the impact of several large disposal of high value assets in the third quarter of the prior year.
Moving to service revenue.
<unk> revenues increased 15% with our service revenue take rate expanding 100 basis points to 19, 5%.
Service revenue increased due to higher GTD.
Higher average service revenue take rate the increase in the average take rate with driven by growth in buyer fees and an increase in our marketplace service revenue. This was partially offset by lower average commission rate, which was due to a higher mix of construction and transportation assets sourced from strategic account.
We expect the trend of lower average commission take rate to continue in coming quarters due to the expected continued growth of GTD sourced from strategic accounts.
For marketplace services, we saw a rebound in revenue from ancillary services as well as robust growth from smart equipped in Dallas.
Ritchie Brothers financial services, However continues to experience headwinds because of tighter credit standards higher interest rates and lower average pricing.
Moving to inventory.
Inventory revenue declined 1% as declines in the automotive sector were partially offset by increases in the commercial construction transportation sector.
Inventory rate for the quarter contracted 710 basis points year over year to approximately 3%.
The decrease in inventory rate can be primarily attributed to the performance of a few strategically competitive large deals in our construction and transportation sector, where pricing declined at a faster pace than originally anticipated.
It is important to note that inventory purchases represent only a portion of our overall at risk business and a small percent of our total GTD with the impact of guaranteed contracts embedded within our commission revenue.
Also we generate significant revenue from buyer fees on those transactions.
You add the straight commission on guaranteed deals the inventory return on inventory purchases and the buyer fees on both the combined fee in return in the quarter was 13% of total at best GTT.
As we have noted previously we expect increased competition for Atlas deals in our commercial construction and transportation sector.
Turning to earnings.
Adjusted EBITDA increased 13% when compared to the combined adjusted EBITDA of IAA and Ritchie brothers for the year ago period, as we saw strong flow through <unk>.
Overall, IAA is performing better than our initial expectations and although tolling fuel costs are higher year over year. These costs are now trending slightly lower sequentially.
As discussed last quarter, we continue to refine the preliminary purchase accounting related to the IAA acquisition during the second quarter as part of our purchase accounting valuation analysis. We further revised IAA for long lived assets and leases to fair value.
As a result additional fair value adjustments were recorded.
The net impact of these adjustments together with the harmonization of depreciation policies resulted in an incremental $7 million in depreciation expense and $1 million in lease expense.
With the latter of which being included in cost of services.
Consistent with our treatment of the prepaid vehicle charges, we discussed last quarter. We are adjusting these noncash purchase accounting impacts as part of our non-GAAP measures.
As we continue to work on finalizing purchase accounting, we may identify other fair value adjustments, which may have an impact on our financial statements in the future.
SG&A, excluding share based payments and other adjusting items in the quarter was $181 million and looking ahead to the third quarter. We currently expect SG&A to be between $185 and $200 million exclusive of share based payments and other adjusting items.
Next slide.
During the second quarter, we better optimize the treasury and cash management function of our combined company and this allows us to better deploy casual prioritize debt reduction.
As a result of these efforts we are delighted to announce that we successfully paid down approximately $103 million of debt during the quarter.
As of June 30, our adjusted net debt was approximately $2 7 billion.
Adjusted net debt.
Ported trailing 12 month adjusted EBITDA was approximately four one times.
More relevant to many of you are adjusted net debt to trailing 12 months combined adjusted EBITDA was two six times.
And we remain focused on deleveraging to approximately two times by the end of the first quarter of 2025.
Regarding cash flow from operations cash used in operating activities is lower in the first half of 2023 compared to the comparable period last year, primarily two reasons first the timing and size of auctions drove higher networking capital balances compared to the prior year second we paid higher cash taxes, mainly.
<unk> from the sale of the Bolton property move.
Moving to Capex as we have previously highlighted we anticipate that our capital expenditures will be higher in 2023, and 2024 when compared to 2022 on a combined basis.
This is a result of a deliberate decision to increase investment in capitalized software aimed to accelerate our marketplace technology development. Additionally.
Additionally, there is an increase in capex related to realignment of the real estate portfolio recall that we previously sold the Bolton facility for $169 million pre tax gain in the first quarter of 2020 with plans of investing the proceeds into additional yards.
We still anticipate capex to be between $275 million and $290 million on a reported basis in 2023 that said, we continue to evaluate our approach to capital transaction, particularly as the economics associated with field sales.
Sales leaseback transaction transaction.
As interest rates have increased and are reviewing transactions to evaluate the benefit of purchasing certain properties versus the previous approach of long term sales leasebacks taken by IAA now back to Jim.
Yes.
I want to thank our incredible team for their relentless focus on execution and dedication to our company.
With IAA, we have an even brighter future ahead, and as CEO I am committed to ensuring that we unlock further value for our shareholders and customers. Operator, you can now open the call for questions.
Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by one on your Touchtone phone.
We'll hear three tone prompt acknowledging your request and your questions will be pulled in the order they are received.
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Your first question comes from Steve Hansen, Raymond James Steve. Please go ahead.
Yes. Good morning, Thank you for your time.
Jimmy Good remarks to begin the call. Your earlier I just wanted to follow up and just to sort of gauge your commitment your conviction and the synergy opportunities, particularly on the revenue side.
Under the sort of the change of leadership that's been pulled in the past couple days one of the pushback of course is that.
And carried these relationships quite closely.
It is really front and center on the market share.
Recapture strategy just wanted your perspective on how you feel youll be able to navigate those challenges.
I'm very excited about the revenue synergies that we presented.
Early on and I am fully committed to deliver in the range that and originally proposed and as <unk> been going through the last 90 days and you go through due diligence and 90 days of actually being in the company. It has even further excited me about that range and that we can achieve especially the cost and the revenue.
Synergies.
Great. That's helpful. Thanks, and then maybe just one quick follow up is around the negotiated agreement that the termination of the agreement.
On the whole wholesale cars can you maybe just give us some broader perspective on what you think that means.
With that information in hand, now what it'll be for your business going forward.
One of the main areas when we think about the revenue synergies I break it down into three components the market share gain on a salvage side the whole car space and international growth and our number two whole car. This just allows us to start to scale and progress of our business and it was always part of our plan to do this just helps us go a little bit.
And be a little bit more efficient about it.
Okay.
Okay. Thanks for the time I'll jump back in the queue.
Thank you.
Ladies and gentlemen, as a reminder, we ask that you limit yourself to one question and one follow up before rejoining the queue. Your next question comes from Michael do many Scotiabank Michael. Please go ahead.
Hey, good afternoon, guys, Jim Firstly, congrats on the new role.
You have several years experience in the auto collision repair business to truly understand what insurance lines.
So when you think about the ability to enhance.
Competitiveness.
Whether thats measured by the number of buyers net return speed to payment how do you think.
You can take that business to the next level and how are you progressing with those goals.
Yes, great question and thank you Michael so over the last 90 days I've met with all of the top insurance carrier partners along with.
A lot of the regional players in this.
The consistent thing and this was very similar in the equation world that I keep hearing is what's in our contract the commitment and the ability to deliver consistently every day in every branch.
And those escalators and that commitment, which ultimately give you everything that you talked about right.
And there is really big three components that I'm laser focused on delivering to our insurance partners. When we get assigning the car picking it up as quickly as possible. So it helps the stock advanced charges. When we have that car in our possession how to process. It get inspected how to get the title and get it ready for sale as quickly as possible.
And then getting the best gross return in that to your point, the best buyer marketplace, which I am very confident between RMB and IAA that we can build and ultimately doing those three things are going to give us the best net return for our partners, but what I've heard from men is control what's in your control and do it consistently every.
Day at every branch across all of your partners and Thats, what the team right now from integration and how we're building IEA. We're building there from that approach.
That's really interesting things for that and maybe an unrelated question a follow up I wonder.
First actually nice to see the operating leverage back in the business I Wonder if you can comment on what I think I heard as the expected sequential increase in SG&A in Q3 versus Q2 despite.
The higher cost synergies and presumably the lower seasonality in the quarter, just trying to get a sense for that please.
Yeah, Hey, Michael It's <unk> here, yes, we are expecting higher SG&A.
In the third quarter compared to the second quarter.
This is just continued investment in both people and technology to so we're able to consistently drive GTD on the topline.
<unk>.
Okay alright. Thanks.
Thank you thank.
Thank you. Your next question comes from <unk> Khan RBC capital markets.
Please go ahead.
Great. Thanks, just I guess, a bigger picture question I guess for you Jim.
During the operational C kind of running the operations now you've got the CEO title.
Maybe just kind of walk us through how youre thinking about still being involved.
And the integration, while taking on some of the new sort of the CEO responsibilities, just kind of how youre going to split your time or is that something you might get.
Somebody else to be a bit more involved with just walk us through sort of how you guys for your time and your priorities going forward.
Yes, you got it great question. So just then I think the first thing I need to do is just clarify.
My role.
<unk> going into the CEO role, so as president and COO I had the revenue team the operational team the services team that procurement team the real estate team pretty much 80% to 85% of the company reported up through me. So the revenue patient team was completely.
Under under my direction as we're going through this so it just wasn't the operational team.
And then next just to answer your question around integration I think it's probably important and if I explain how we're set up for integration and this is something thats very similar that I used when Aberdeen caliber collision, which was about a $4 billion integration from a revenue standpoint coming together the way the integration team.
<unk> is set up is there is a steering committee, which is made up of myself Carmen TD, who is our head of integration and then a couple of senior leaders from IAA and Ritchie Brothers makeup the steering Committee and then along with that we have our project management third party that we use to help project manage all of this and then below them.
Based on whatever activity it is and it could be financed procurement whatever it might be their subcommittees that manage all the tasks that need to be get done. So for my time I still plan to be part of that steering Committee, which no matter. If it was president COO or CEO and being part of it but really that committee is the one.
Drive and all the results that I discussed during.
During the call and that committee no matter, what the organization is going through and Theyre executing every day against the plans that we've already put together, but at a high level. That's how the integration team is set up.
Okay, Great and then just housekeeping question I think last quarter, you guys called out $15 million of synergies.
At the end of commentary on slide deck had realized that Ben and then action 36 in total annualized if you can maybe just.
Bridges to what that 36 represents on top of that 'twenty two.
And then or does it 36, maybe include some of the whole car royalty just wanted to get an understanding of where we are and what they like what the 36 represents.
Yes.
Sameer.
So I think the two key numbers you need to understand is the realized cost synergies in the quarter that the actual impact it had in the quarter and then total action. So we've actually certain things, but you wouldn't necessarily see that impact in the quarter. So the comparable number is I think.
I don't have it at my fingertips, but we've actually 36 million in annualized run rate cost synergies.
As of June 30.
And then the synergies we have actions in.
11 days post close I think we said of 15, we realized $7 million a dose in the second quarter, but we can discuss this offline if you had additional questions.
That makes sense, okay. So I just wanted to understand what the run rate number was so is that 36. So I just didn't know what the seven one for that makes sense.
Yes, you got it.
Thank you. Your next question comes from John Healy Northcoast Research John Please go ahead.
Hi, Thanks for taking my question.
Jim I wanted to ask just about kind of items learn.
Thank you had been in the seat.
Yes.
Since the deal closed.
But most of the insurance companies, both large and regional is there an item or two that they're telling you hey. This is what you can do if you want really want to win market share back.
Like what's the vibe and what's the feedback been about I'm.
Im sure Youre asking.
How can we do more business with you what are the insurers telling you and have you seen any sort of change in the competitive dynamics.
Over the last 90 days or so.
At the business on the salvage side.
Yes, so great question and I'm, probably just going to go back to a comment I made a couple of questions ago. The one thing the insurance group has been amazing and Luckily having relationships with them from before and collision as im going through asking questions and learning the business.
They've been unbelievable at doing whiteboard sessions and.
Really provided me with a lot of information to make sure what we're executing against is what they really need it.
And one of the largest insurance carriers their comment to me as we need you to control what's in your control and execute against that every single day and be consistent across all the branches. So as an example, as we kind of think about all the processes and I laid out three album of cars assigned get it.
Our yard as quickly as possible stop those storage charges rental car fees all of that kind of stuff. When we have the car process. Your titles efficiently as you can inspect to get the pictures up had the most robust buyer base. So we can get the highest gross return, which all that will translate into a net realized value that theyre going to be happier.
But control what's in your control when I need you to operationally execute consistently across the board and then of course, when a cat happens our response time and how we take care of their customer.
They want that done.
One dedicated capacity and they want that done quickly to safely and efficiently.
And there are the things that I'm focused on when I think about IAA, and where do we need to improve and how do we do that.
And my whole goal and the sustained when I was in collision I got the same speech from the same insurance carrier partners of how do you executed so when they refer and you get that volume they have confidence that we are going to deliver.
So for the IAA team that things are going to execute against that I know it sounds really basic and simple, but I truly believe when you are the most consistent and you drive the best results. When it's time for those RF queues in time to think about Windows Your business scale and Thats, how youre going to win and we're always going to be an innovative partner for them. So we're constantly going to be.
At technology, how do we get better and how we get more efficient.
Great and just.
To follow up on competition, if you've seen anything changed there and then just lastly, you guys mentioned strategic accounts, maybe pressure on take rate debate.
With manufacturers or is that what the rental channel.
I'll do the first question and I'll pass the second one over to Sameer, So from a competition and specifically from the <unk> side.
No major changes that we have seen in the market of course like every when you have a competitor you keep track of what's going on especially from the fee side and anything operationally someone's doing.
But I think from the IAA side, the innovation and the way, we're thinking about the business and is slightly different than a traditional salvage business. So my main focus on one is how do we improve daily be consistent and then innovation coming behind that of how to re imagine the way the industry is working and I'll pass the second question over to Samir.
<unk>.
Hey, John I think your specific question was on.
We're seeing pressure on our inventory right or.
Could you just elaborate a little bit yes.
And I know you'd mentioned strategic accounts were starting to pick up and I thought you had mentioned that it was going at <unk>.
The take rate the bad so I was just wondering.
No I got it.
Yes, so the larger strategic accounts.
The average commission.
Take rate is lower compared to the region's business. So it's a.
Mix issue in terms of if we're sourcing more GTD.
From strategic accounts, you would naturally see.
A slight headwind in terms of the commission take rate, but clearly we look at the take rate, but also commission dollars. This is very accretive to commission dollars.
<unk>.
Yes.
Thanks, Ed.
Thank you. Your next question comes from Michael Feniger Bank of America. Michael. Please go ahead.
Hey, guys. Thanks for taking my questions. Just first question, Mike given the management departures just looking to understand okay.
All around the core Ritchie business and and the integration and in the air.
<unk> four I think the base case was still RBA EBITDA in the $4 4400 $50 million range by the end of the year IAA EBITDA, I think $575 million, whereas RBA EBITDA in the first half, whereas IAA EBITDA in the first half relative to those expectations. I believe you said Ias coming in ahead of expectations.
So just trying to get a sense of where we're coming in for RBA EBITDA and EBITDA by the end of the year.
Hey, Michael.
Sameer I think.
That store was obviously.
Written last year or what have you I think the general comment we made with IAA is performing better than we had expected.
I would note that IAA was accretive already in the first quarter.
A little bit, but it's already accretive which is ahead of what we thought.
Okay, and accretive accretive to adjusted earnings per share.
Understood.
Last quarter, there was some concern around.
The floating for core Richie I think EBITDA was up 3% on a double digit service revenue growth in Q2, it looks like Richie the GTD.
And its markets was up 15% what was the core Richie EBITDA up.
Now that we know the Ias coming in it seems like better than expected.
Yes, I mean, we don't look at the business like that I mean, as you know as you execute cost synergies and combined teams.
Becomes a big attribution issue I think the way we've laid it out in the presentation makes it very clear that the combined entity grew 13.
13% compared to.
The individual EBITDA that we had laid out and you can see the reconciliation in the slide deck.
Thank you and maybe just lastly, a follow up.
Forgive me if I if I'm missing this is just.
Flow through getting better is.
EBIT was up 13% service revenue growth I think was up 15% of our pro forma basis, just why what am I missing why wouldnt EBITDA would be growing at a faster pace than what youre seeing on the service service growth side.
Great question, Michael I think.
You heard in the prepared remarks that we continue to invest in both technology and people to drive consistent growth.
Yes.
And so if you look at our SG&A, we came in at $181 million.
But that explains some of the Delta I'm happy to discuss it in more detail offline.
Thank you everyone.
Thank you. Your next question comes from Gary <unk> Barrington Research Gary. Please go ahead.
Good afternoon, everyone.
Best of luck to Jim in your new endeavors.
Okay.
Couple of questions here first of all.
Have you initiated a program here to start buying the leased facilities.
Insurance auto and if you have how many have you done so far and what would be your goal over a 24 month period.
Yes, Gary So I don't think we're going to comment on.
This strategy, but as you can imagine just from an integration schedule and I talked about the subcommittees that we had and this is definitely one of the items on our subcommittee to make sure. We had the most optimal the way we are going to allocate our capital.
Okay.
And then could you maybe talk a little bit about this modern checkout service that Youre you are employing now.
I mean, how does it differ from what you were doing in the past.
And to the benefit of the client.
Yes.
And this is going to probably sound pretty simple.
As I describe it but this is on the RV side and we used at the pilot was in our Sacramento auction. When we did it but everything was completely digital so and if youre everyone's probably used to it in the checkout right. So when when you won the auction and you were able to pay for it through a credit card and <unk>.
<unk> was all digital you put your account numbers and the transaction happens immediately and they were also able to get their invoice immediately right. So the minute. They wanted it pretty much within minutes their invoice got created and they saw and they were able to paper, which means they're able to pick up.
Whenever they want at auction and pretty much that day and then in turn what happens is digitally the seller is able to get their settlement and they can see what's going to happen pretty much seamlessly and they know exactly what date that money is going to be transferred into their account and digitally we have one account that money is going to be transferred into.
So it's all done systematically everything happens immediately everyone knows what's going on in the transaction now in the past we might be incentive checks to some vendors that could be wires. It could.
And then a paper statement, but the modern.
Checkout is stuff that is around and a lot of industries and it's something that was new for us to get modernized.
Okay, and then just lastly on the whole car side since this noncompete has been.
Right away.
What what would you say would be your target on the whole car side are you going to be looking at a whole.
Yes.
Vehicles to sell letter drivable or are you going to be focusing on maybe the 10 to 15 year old.
Vehicles that.
We used to be the domain of the wholesaler.
No great question look the one thing that I'll, just bring you back to without giving too. Many specifics is we believe the whole car is a large opportunity and one that we're really excited about to go after we're in this space today with <unk>.
Companies that donate cars and do all that kind of stuff. So and we just see a huge opportunity. This is one of the big pillars. As we think about revenue synergies that we're going after I'm really excited about it and I'm just happy that the team now has any change that we're connected to this are lifted and they're able to now how do we scale this business and how do we.
Grow it efficiently and profitably.
Thank you.
Thank you. Your next question comes from Maxim <unk> National Bank Financial Maxim. Please go ahead.
Hi, good afternoon gentlemen.
Jim Congrats on the appointment.
On that game.
First question I had so what are we kind of dealt into.
On the whole salvage space one of the feedback we're getting is it's actually a fairly manual sort of processing dynamic between when a car gets total too.
Some of it is getting to an auction.
Do you just see sort of the lowest hanging fruit from your perspective in terms of crossover improvement that you can envision maybe over the next nine to 12 months. Thanks.
This I'm actually going to give you one thats, probably a lot sooner than that and one of the ones and this gets back to talking to insurance carriers and one of our large partners.
Making sure we focus on what we control and how can we improve the process and that is in our control. So one of the areas that we're constantly being asked for.
When that car gets in an accident how much information do we need to be able to provide a value back to the insurance carrier. So they can make a decision and what's going to happen to that car. So they want to know.
If I can give you the least amount of information or if I gave you one pitch or four pitchers how accurate can you predict what that value is going to be at auction and can you get me that accurate data and how does that process work.
And we've been using AI.
At IAA to be able to to figure this out and so we're meeting with a lot of insurance carrier shifts around the accuracy of that value look then at the end of the day, there's going to be a lot of conversations around when that car gets in an accident and a lot of pilots around of how to get that car to the bright spot is that a repairable car is of the total car get it to the right.
Gerard because the minute you get it into the storage network, it's just going to add cost, but the one thing I've been asked specifically from the insurance carriers help them make sure. They have the right value of what they can get at auction for this car and that's what we're going to be laser focused on to help them get that from us.
Is there some.
Like legacy capability and routes that maybe can be sort of leverage in terms of kind of like as well.
Ill.
Look I love the way Youre thinking, it's all around data and AI and the great thing and I don't know if its so much of Brouse technology, but it's the data scientists that we have in the organization and they exist in both IAA in Ritchie brothers that we're going to leverage to be able to do this silicon when I think about AI and pictures and everything.
Alastair our partners out there that I've dealt with before and collision companies that do AI. So we're going to be looking at look I don't want to recreate the wheel for something and recreate something for IAA I want to be great at what we're here for and I want to partner with people that already have the technology, but we are going to use our data science and test to make sure.
We have the best data going back to our partners.
Okay excellent and then just quickly if I may how should we think about noncash working capital in the back half of the year.
Okay.
Yeah.
Thanks. Thanks for the question I don't think we're providing any specific guidance on the working cap changes in the back half as you can imagine some of this depends on exactly when auctions hit when they hit late in the quarter last day inventory purchases, but I can kind of help you think about that more offline.
Okay fair enough. Thank you so much.
Thank you. Your next question comes from Kevin Condon Baird. Kevin. Please go ahead.
Alright, Thanks for taking my question I wanted to ask you about the service revenue take rate of 19, 5% in the quarter I believe the pro forma number for Q1 was 20%.
So the 50 basis point Delta there I know you talked about strategic accounts coming in at Lower Commission, but you also mentioned biases moving higher.
Just wondering if those are the two major factors impacting net service revenue take rate and if it's fair for us for the takeaway.
To be that that lower commission is more than offsetting any higher fee.
Okay.
Yes, hi, thanks for the question in terms of the take rate.
I think we provided to you all the numbers on a pro forma combined basis. So you can kind of see the individual take rate on a pro forma combined basis Q1 to Q2.
I can help you through that offline I think.
Longer term, we continue to expect our take rate to increase here in the near term of course, we have noted that our commission take rate.
We'll see.
Some headwinds just given that we're sourcing more G television from large strategic accounts.
Okay, and then I think just on that cost of service related related to that service revenue I think it came in at about 35%, 36% of your service revenue in the quarter is that a right kind of range as we go forward here with <unk> in the fold or any.
Any anything unique in the quarter.
Understand that might fluctuate with volumes and auction timing, but just anything else to be aware of on that line.
Yes, I think when modeling cost of services as a percentage of service revenue.
There is some seasonality you have to consider in the back half. Some of this will be driven by processing higher unit volumes and things like that but.
But.
We can we can kind of drill into it offline if you'd like.
That's good thank you.
Thank you. Your next question comes from Larry de Maria William Blair. Larry. Please go ahead.
Hey, Thanks, good afternoon everybody.
Look everybody is obviously curious on this but it hasn't really come up yet.
Take us through the timing process occurred with respect to leadership change. Obviously, there is a board member with a short tenure on the comp Committee resigned recently applied this was not a problem.
This should make Jim permanent CEO and on the board immediately.
Obviously implied the board did make a rash decision. So can you just tell us how long that's been going on.
The relationship with the board deteriorate over time, so any incremental color because certainly everybody in the call I'm curious.
No completely understand and I'm sure you can understand a lot of conversations I'm not privy to so I can't really speculate on and.
How it happened and look I can just tell you at the end of the day at a high level. There was definitely a divergent view on what an believes she needed to be CEO .
And the board what they believed was in the best interest of the company and shareholders at the end of the day, but I really don't have true insight into all the time in all.
All of those conversations that were happening to be able to comment about it.
Okay. Thank you.
For that.
Also I believe there was a dis synergy on whole course, Hawker specifically built in to the IAA pitch can you confirm what that was and maybe the timing I know you talked a little bit about it earlier the timing of capturing that business. If there was a specific dis synergy built into the outlook.
Yes, I don't think we specifically quantified or disclosed what the dis synergy.
Was when we originally talked about the transaction.
But it was fully baked into.
The ranges that we have provided so I wouldn't say there is anything different here.
Okay. Thank you taken offline.
Thank you there are no further questions at this time. Please proceed.
All right everyone. Thank you so much for taking the time and I just want to reiterate how excited I am about the future of the combined company.
And I can't wait for our next quarter call. Thank you so much.
Thank you ladies and gentlemen. This concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.