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spk04: Hello, and welcome to the Insurance Auto Auctions and Q2 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist for pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To throw your question, please press star, then two. Please note, today's event is being recorded. I now turn the conference over to Arif Ahmed, Vice President of Treasury. Mr. Ahmed, please go ahead.
spk00: Thanks, Keith. Good morning, everyone. Thanks for joining us today for IAA's second quarter fiscal 2021 earnings conference call. Speaking today are John Kett, Chief Executive Officer and President, and Vance Johnson, our Chief Financial Officer. After John and Vance have made their formal remarks, we will open the call to questions. Before we begin, I would like to remind you that certain comments made during this call regarding our plans, strategies, and goals are 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 1995. 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 IAEA's press release issued today and in the risk factors section included in our annual report on Form 10-K for the year ended December 27, 2020, filed with the SEC on February 22, 2021. Forward-looking statements made today are as of the date of this call, and IEA 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 IEA's press release issued today. Copies of today's press release may be obtained by visiting the investor relations page of the website at www.iaai.com. Well, now I'll turn the call over to John. John?
spk01: Thanks, Arif. Good morning, and thank you all for joining us for our second quarter earnings call. I want to start with how proud and appreciative I am of the dedication and hard work from our nearly 4,000 team members across the U.S., Canada, and the U.K., In these continuing uncertain times, they continue to support one another, our clients, our partners, and our industry. The IEA team continues to deliver for our customers while remaining focused on health and safety. We were very pleased with second quarter performance, including organic sales growth of 48% and organic adjusted EBITDA growth of 92% compared to a pandemic-impacted Q2 of 2020. Comparing Q2 to Q1, we generated sales growth of 5% and adjusted EBITDA improvement of 15%. Underlying these results is the continued strength in revenue per unit, as well as stronger volume sold. As we indicated in our Q1 call, we expected negative and positive volume shifts to occur over the second and third quarter of this year. These shifts are proceeding as we expected. Our Q2 results include some of the impact, and we expect to be at a full run rate reflective of these shifts in Q4 this year, and our full year outlook includes this projected impact. Looking ahead, we have increased our 2021 outlook to reflect our year-to-date performance, as well as our current expectation for the remainder of the year. Let me now provide an update on our progress against our strategic initiatives. First and most importantly, I'd like to discuss our primary focus of enhancing our relationships and expanding market share. As we discussed last quarter, while we did have a top three customer move additional share away from us, we are encouraged by other share gains this year, including additional share from a top customer that has a strong reputation for leveraging data analytics in decision-making. While the share gains don't completely offset the share losses, the initiatives that we are undertaking continue to be positively perceived by both our sellers and our buyers. We are focused on the right things to grow market share. We're continuing to drive attractive returns for our sellers through our merchandising enhancements that we are making as part of our Interact platform. By reducing cycle times for sellers through loan payoff, inspection services, and other operating initiatives, and acting as a true partner with a focus on providing best-in-class data analytics, integration, and support for our sellers. Through our buyer digital transformation and our continued focus on innovation, we continue to lead the industry in developing tools and capabilities to help enhance the buyer experience, which will result in driving attractive returns for sellers on our platform. In June, as part of this focus on broadening our relationships with sellers, we acquired the assets of Auto Exchange, a salvage auction provider with a strong presence in New Jersey and long-term seller relationships in that region. This acquisition will also expand our coverage footprint. Part of the acquisition, the business generated approximately $5 million in revenue and is off to a good start post-transaction. We are actively integrating this business into our marketplace platform and welcoming the Auto Exchange members into the IAEA family. Turning now to our strategy of broadening our service offering, we've continued to expand our loan payoff network, ending the period with over 1,700 financial institutions on the portal. We've also enhanced our strategic agreement with DealerTrack to provide electronic registration and titling services in Ohio by facilitating the digital transfer of total loss titles. As we also announced last month, we have enhanced our loan payoff product to include the ability for insurers to pay off leases from participating owners, making us the only industry participant to offer this capability. Leases account for approximately 30% of new vehicle purchases, so this increased functionality should further differentiate loan payoff in the market. During the quarter, we also made good progress on expanding our international buyer network with year-over-year growth of 52% and sequential quarterly improvement of nearly 6%. We also expanded our strategic market alliance network with partnerships in Nigeria and the United Arab Emirates. We now currently have 13 market alliance partners in our global network. Our margin expansion plan remains on track. We continue to see great results from buyer digital transformation, and we are making good progress on our pricing, tolling, and branch process improvement initiatives. Product strategy and development also remains a key focus. You know, for more than a decade, we've demonstrated industry leadership in developing and implementing innovative new products and services. To further accelerate this development, Peg Burr has joined us as our new Senior Vice President of Product Management with a focus on driving competitive differentiation and growth through technology and innovation. She brings extensive product strategy and management expertise to this role, and I could not be more pleased to have her on our team. Switching now to guidance. We're pleased to provide updated guidance for the full year 2021. Based on our strong performance in Q2 and our current assessment of the remainder of the year, we are increasing our guidance for organic revenue growth to a range of 20% to 24% and our adjusted EBITDA guidance in the range of 29% to 33%. These higher ranges reflect both better revenue per unit and volumes compared to our previous guidance. In summary, we were pleased with our results to date. As we look ahead, we will continue to focus on delivering against our objectives, including disciplined capital allocation and driving shareholder return. To that end, as noted in our press release today, we are pleased to announce that our board has authorized a $400 million five-year share repurchase program. Finally, I again want to thank all of our IEA team members for their continued hard work. I'm also very proud that IEA has again been elected a great place to work now for the third year in a row. And we know our business success is a result of our great people who remain dedicated each and every day to executing against our initiatives and goals. And now I can turn the call over to Vance to discuss our financial results. Vance.
spk08: Thanks, John, and good morning, everyone. Before I discuss our second quarter and outlook for fiscal 2021 in more detail, as a reminder, my discussion today will focus on our adjusted non-GAAP results. Please see today's press release for more details on our financial performance and our methodology when calculating non-GAAP results. As John mentioned, we are pleased with our second quarter performance with strong year-over-year revenue and profitability growth compared to the second quarter of fiscal 2020, which was heavily impacted by COVID-19. Our financial performance also increased sequentially from Q1 as a result to continue to reflect record revenue per unit driven by the enhancements we have made to our buyer platform, including tools like 360 View, growth in our global buyer network, improved analytics, as well as favored macro conditions, including elevated car prices. For the second quarter, consolidated revenues increased 50% to $445.1 million compared to the prior year period. Organic consolidated revenue, which excludes the impact of foreign currency, increased 48% to $439.2 million, consisting of an increase in volume of 22.9%, primarily due to higher vehicle miles traveled against a pandemic-impacted Q2 last year, as well as higher revenue per unit of 20.4%. Service revenues increased 44.4% to $382.5 million compared to the second quarter of fiscal 2020, and vehicle sales increased 95.6% to $62.6 million. The increases in both service revenues and vehicle sales were primarily due to higher revenue per unit and higher volumes. The vehicle sales were also positively impacted by an international provider switching from a consignment model to a purchase vehicle model in the fourth quarter of 2020. The total loss ratio was 19.4% compared to 19.5% in the second quarter of fiscal 2020. Sequentially, revenue increased by 5.1% compared to the first quarter of 2021. Looking at our geographic performance, revenues increased in both our U.S. and international segments were driven primarily by higher revenue per unit. Both segments also saw a higher mix of vehicle sales, but to a lesser extent in the U.S. compared to international. While the U.S. economy opened up substantially in the past quarter, Canada and the U.K. were still under more severe restrictions for much of the quarter. Gross profit increased to $195.9 million from $111.7 million in the second quarter of fiscal 2020, primarily due to higher revenue per unit, higher volume, and the benefits from our margin expansion plan. Gross margin increased 640 basis points versus the prior year of 44% from 37.6% in the prior year. Sequentially, gross profit increased by 13.4%, and gross margin increased by 320 basis points. At the end of the quarter, we did start to see some inflationary impact on our towing costs, and we do expect towing costs to be higher in the second half of the year, which is reflected in our updated guidance. SG&A expenses were $43.7 million compared to $34.3 million in the prior year. Adjusted SG&A expenses were $43.3 million, an increase of 31.6% compared to adjusted SG&A of $32.9 million in the prior year period. The increase is due mainly to higher incentive-based compensation-related costs. Adjusted EBITDA increased by 93.4% to $152.6 million from $78.9 million in the second quarter of fiscal 2020, excluding the impact of foreign currency Organic adjusted EBITDA increased by 92.1% to $151.6 million for the second quarter of fiscal 2021. Interest expense increased by $8.1 million to $21.9 million compared to $13.8 million in the second quarter of fiscal 2020. The increase was primarily driven by the $10.3 million loss on early extinguishment of debt in conjunction with the company's refinancing in the quarter. offset by lower interest rates on floating rate debt. Nearly all of this $10.3 million expense was non-cash. As a reminder, on April 30th, we executed a new senior secured credit facility consisting of a $650 million term loan and a $525 million revolving credit facility, both maturing on April 30th, 2026. As expected, this facility reduced the interest rate on our floating rate debt in Q2 by 50 basis points, and we continue to expect full-year cash interest savings of approximately $4.5 million as a result of this new facility. The effective tax rate was 24.7% versus 24.4% in the second quarter of fiscal 2020. Net income increased by 149.7% to $82.9 million from 33.2 million in the prior year. Adjusted net income increased by 154.9% to 93.3 million or 69 cents per diluted share compared to 36.6 million or 27 cents per diluted share in the second quarter of fiscal 2020. Turning to our balance sheet and cash flows, net cash provided by operated activities for the quarter was 129.4 million. Capital expenditures for the quarter were $27.5 million compared to $11.5 million in the prior year. The increase was driven by a land purchase during the quarter and higher technology spending. We ended the quarter with net debt of $894.4 million and a net leverage ratio of 1.8 times. We have reduced net debt by approximately $375 million since the time of the spend. Total liquidity was $801.5 million, which is nearly triple the level of liquidity we had at the time of the spend. The first six months of fiscal 2021, we generated free cash flow of $192.9 million compared to $195.2 million in the prior year period. This slightly lower free cash flow in 2021 is driven by higher capital expenditures. Turning now to our outlook for fiscal 2021. First, a reminder that fiscal 2021 is a 53-week year with an extra week in the fourth quarter. Second, I do want to reiterate that our guidance assumes that there isn't a spike in COVID-19 cases in the countries we operate in that would have a significant negative impact on our results. As John mentioned, we are raising our outlook for fiscal 2021, incorporating our better-than-expected Q2 performance as well as our view of the remainder of the year. While we continue to expect to see revenue per unit moderate in the back half, the degree of moderation is somewhat less than what our original guidance assumed. Our volume expectations for the second half are only slightly higher than they were a quarter ago, as miles-driven trends have recovered slightly more quickly than we expected. For the year, we now expect organic revenue to increase 20% to 24% from fiscal 2020 revenues of $1,384,000,000 as compared to our prior expectation of 15% to 20% organic revenue growth. Organic adjusted EBITDA is now expected to increase 29% to 33% with fiscal 2020 adjusted EBITDA of $398.5 million versus our prior expectation of an increase of 23% to 28%. The full year, we continue to expect interest expense of approximately $57 to $59 million, which includes the Q2 write-off of deferred financing fees of $10.3 million. We also continue to expect our effective tax rate to be in the range of 25 to 25.5%, and we now expect depreciation and amortization to be in the range of $82 to $86 million. As noted in our press release, our Board of Directors approved a $400 million share repurchase authorization. A disciplined capital allocation plan is the foundation of how we run the company, and returning capital to shareholders in the form of opportunistic share repurchases will be one aspect of this plan. Our philosophy on share repurchases is consistent with our overall philosophy on capital allocation. We will repurchase shares when we believe they are trading at a discount to intrinsic value with some cushion and when the return on investment from repurchasing shares is favorable to other potential capital deployment opportunities. We will not be targeting a certain amount of shares to be repurchased in any quarter, trying to offset dilution or manage an EPS or to a targeted net leverage ratio. In closing, we are very pleased with our first half performance overall for fiscal 2021, and our entire team is focused on delivering on our operational and financial goals for the full year. With that, we'll open up the call to questions. Operator?
spk04: Yes, thank you. At this time, we will begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To try your question, please press star then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Chris Berlieri from ExxonBit B&P Paribas.
spk02: Chris Berlieri Hey, guys. Thanks for taking the question. I wanted to ask about the towing cost you referenced on the call. Can you kind of maybe speak to that? Is that more fuel surcharges or just capacity or labor markets and then, you know, Do these higher costs change the way you're thinking about your towing optimization, you know, self-help initiative? Does this increase the urgency? Does it make it more difficult? Just kind of thoughts that would be helpful.
spk08: Yeah, Chris, this is Vance. I can go ahead and provide some perspective on that. So it's really not really about fuel. What we're seeing in the marketplace, like in a lot of other industries, is, you know, labor is very tight. So, you know, getting kind of the amount of towing that we need for, you know, the demand and assignments that we're seeing in the volume has become a little bit more challenging. And because of that, in certain markets, we're having to pay higher rates for for towers um so it's really not about fuel but it's really about the labor and the towing that's impacting towing costs as it relates to our margin expansion plan um it really um it really doesn't impact the margin expansion plan the way to think about it really is is that you know we're going to have some marginal impact in terms of our cost that's going to make the base a little bit higher. The actual initiatives that we're executing in our margin expansion plan are still very much on track, and we still expect to see the savings. It'll just come off a slightly higher pace than we may have anticipated given some of the higher killing costs.
spk02: Gotcha. That's really helpful. Thank you very much.
spk04: Thanks, Chris. Thank you. And the next question comes from Stephanie Moore with Truist Securities.
spk06: Great. This is Joe happening on for Stephanie Moore. Good morning and congrats on the results. I guess I just wanted to maybe ask about what you're seeing from an assignment level. Maybe as you're kind of comparing maybe assignment volumes versus pre-COVID and how you're thinking of pricing today versus pre-COVID.
spk01: So I think as we said in our remarks, you know, volumes have come back, you know, relative to our original projection for 2021 a little bit faster. So we are seeing miles driven recover, which is resulting in assignment volumes. As we reported, the total loss frequency was basically flat year over year. I think it was down a tick, but we're still seeing robustness in the level of total loss frequency. So, you know, those factors, as we said, are still, you know, they're a little bit ahead of where we originally thought. And in terms of pricing in the market, Yeah, I mean, again, as we said, you know, we've taken into account what used car pricing is at. We do believe it's going to moderate in the back half. It's, you know, it's a hard thing to predict. There's a lot of different reports out there of what might happen to the pricing. But, you know, we've taken in that information, looked at our own data, and made our best projection for the balance of the year.
spk08: And just to be – and just one thing to clarify as it relates to pricing, you know, when we think about, you know, data sources and information we're getting from the market, it's really around the elevated level of used car prices. So in addition to that, there's also a number of things internally that we've done that are positively impacting, you know, our revenue per unit that I talked about before. So, you know, things like going to an all-digital model and then also some of the enhancements like 360 view that we've made to our model.
spk06: Great. Thanks. I'll probably just squeeze in one more. Um, if you could talk to sort of the non-insurance volume, sort of what you're seeing there, the opportunity to see non-insurance and the value proposition that you sort of bring to that market.
spk01: Yeah, we're, we're still, um, bullish about that. I think we've done really good job of, of expanding that market. Um, we, we do believe that we're a great venue for, uh, a certain element of, you know, sort of the lower end of the, of the, uh, clear title market and, you know, we've done, we've done well there and we continue to deliver there. We, we enhance some of our offerings that are much more specific to that marketplace. And, um, yeah, it's, it's, um, you know, it's, it's also similar to some, to the, what we're seeing in the used car world. There is a, um, short supply, right. Even in that market. So, um, So I think sellers are really valuing what we're bringing to them to help them, you know, optimize their recoveries.
spk06: Great. Thanks so much. That's everything from me. Thanks, Joe.
spk04: Thank you. And the next question comes from Craig Kennison with Baird.
spk03: Hey, good morning. Thanks for taking my question. John, you had mentioned that total loss rate trends, fell just a little bit, but that's running counter to the trend we've seen for some time now. I imagine there's some pandemic noise in that metric, but as you unpack that, what do you think is driving that flattening in that curve?
spk01: Yeah, Craig, it's hard to discern at this point. I mean, we're actually talking to our customers now around what they're seeing because it's I think you're right that there's probably some pandemic noise in it. But, you know, from what we're hearing from them, you know, they haven't changed their view around COVID. total loss decisions. It's not like they're starting to repair – that they're actively repairing more cars. It's really just a function of how that math worked out for the quarter. So it's – we obviously keep an eye on it. We'll see what happens next quarter. But nothing that we've heard or seen in the market is changing our view of that longer-term trend that we've been seeing.
spk08: Just to add to what John was saying, we do believe that there was some pandemic impact. So if you think about the second quarter of 2020, the 19.5% there, we do believe that at that point that was kind of the height of the pandemic and insurance companies were likely not sending out its adjusters as much. given the pandemic and so because of that we believe that you know they were probably totally more cars you know um in that point in time um so we believe that there's probably some impact from that um the other thing just to note as well is that the 19.4 percent in the second quarter of 2021 sequentially the second quarter is usually a little bit lower um from uh you know from a quarter to quarter perspective as well that helps thank you and then
spk03: With respect to ARPU growth, I think in the past you've said that you believe some of your internal initiatives represent a larger percentage or proportion of your growth than, let's say, the Mannheim Index or used car prices. Does that still hold today?
spk08: yeah we we do we believe it also holds today and and you know so when we look at the the data and information we have obviously we have information and we're able to to look at what our growth and proceeds are and what our growth and revenue per unit are and what the growth is in the manhattan pricing you know used car price index as well and so You know, based on our assessment, we're continuing to see that that holds, which is that, you know, we believe going to an all-digital model, obviously with that, the pricing changes that we got from now, you know, 100% of transactions, collecting Internet fee before it was only 70%. In addition to the other enhancements we've made to the model, you know, feature tour, 360 view, growth in our global buyer network has had a big impact as well. that all of those things combined, at this point, we continue to believe having a bigger impact than elevated used car pricing, although we believe that elevated used car pricing is having an impact. As we said in our prepared remarks, we would expect that that would moderate in the second half of the year and going from there on.
spk03: Got it. Hey, thank you.
spk04: Thanks, Craig. Thank you. And the next question comes from Daniel Inbrow with Stevens.
spk05: Hey, good morning, guys. Thanks for your question. Hi, Daniel. I want to follow up on that last comment. You know, something you guys have been talking a lot about is growing the international buyer base. Can you maybe talk about where we are in terms of that initiative? How early innings are we? And is the competition or customer acquisition cost increasing as you and your largest peer both maybe accelerate the pace of international marketing kind of at the same time?
spk01: I still think there's room to grow. I think we've done a really good job as our data supports over the last couple of years in growing that, but there is still enormous white space in the international market for us to find and penetrate buyers through our multiple approaches, whether it's the market alliance partners that we talked about through our digital marketing, and then to a lesser extent because of the pandemic, but our in-person work that we do. All those, I think we're still seeing strong growth, and I don't see that moderating anytime soon. You know, acquisition costs, I think we've done a really good job through our digital channels to really make that pretty efficient. So I'm not seeing that as a – I'm not seeing any change in what our acquisition costs are to continue to grow. I really do think there's really, as I said, continued white space to grow our international buyer base.
spk05: That's helpful.
spk01: And – Further, as we continue to add feature and function to help them do their job better, we think that we're going to help accelerate that through whether it's how we're helping them transport, how we're helping them pay for things. We continue to think about those international buyers and what we can do to make their life a little easier, and we think that's going to continue to help us grow that important site.
spk05: That's really helpful. Thanks, Sean. Please switch gears. In the past few quarters, you guys mentioned that ancillary services are driving down cycle times. As assignments have increased, have you been able to keep cycle times down and lower than pre-COVID levels? And is there further room to drive down cycle times more and improve yard efficiency?
spk01: I don't advance or reach if you have this. I'm not even talking about the specifics. But what I would tell you, Dana, is that there is still room to improve that. Again, through our products and services, whether it's inspection services or loan payout products, the wider adoption of that and penetration of that is taking meaningful timeline out of the cycle. We have experienced Over the last year and a half, DMV issues, where they've slowed down, which, again, negatively affects our cycle time. It's a bit out of our control. But I think we continue to work at that. We do believe we have the ability and are going to work hard at trying to reduce cycle times as we go.
spk08: yeah i would just add what john said that yeah to john's point i think at the beginning of the pandemic which now we're talking second third quarter of 2020 we did see more of an impact on cycle times because we had dmv closures and you know and kind of things of that nature or in certain markets but just kind of you know the ability to kind of process titles and all that was a little bit more lengthy we've seen that moderate you know since that point in time you know, to get back to a more, you know, maybe not completely, but almost completely normal level. And then, you know, certainly we believe, you know, whether it's related to things like loan payoff or other things that we're doing, there continues to be, you know, a good opportunity there to reduce cycle times.
spk05: Got it. And then last one, if I could squeeze in on the guidance, Vance. Yeah, the back half EBITDA margin does seem to imply a little bit of contraction, just to get the revenue guide down to the EBITDA guide you've given us. I think you mentioned towing cost inflation, but can you walk through what other factors are changing as we go to the back half that may be weighing on that EBITDA margin relative to the last few quarters?
spk08: Yeah, I mean, the primary thing, I think you hit on the primary one, which is that, you know, we have incorporated, you know, some additional costs to what we think will, you know, happen in our forecast with the pack-up of the year in terms of what we think will happen between, just based on what we started to see at the end of the second quarter. In addition to that, Because of our performance, as we allude to SG&A, you know, certainly if you look at it through the second quarter, it was up quite a bit. And the reason for that is incentive compensation costs. So that's having an impact, too, given kind of how well the performance for the total year, certainly through two quarters of the year, is turning out to be in what we project going forward.
spk05: Okay. Got it. Thanks so much, guys.
spk08: Thanks, Daniel.
spk04: Thanks, Daniel. Thank you. And the next question comes from Brett Jordan with Jefferies.
spk07: Hey, good morning, guys. Hi, Brett. You, I guess, in the past have sort of quantified what you see the loan payoff tool doing to improve cycle times. And I guess now that you've added leases to that product, do you have a feeling, you know, I guess maybe more specifically how you see the cycle time picking up with that?
spk01: Yeah. It is – we're still really bullish, as I said. I think it is still an important element. You know, different lenders and providers actually have different opportunity based on how good they were before. So I think we're seeing, you know, again, if you think about a cycle time that, you know, is – I think we've talked about 45 to 90 days in total – taking 8, 10, 12, 15 days off of that is still really meaningful. We still believe that there is that opportunity. As we add more lenders, as we build in things like the lease tool, we're getting greater adoption. So we still, yeah, we still do believe that it's a significant cycle time improvement tool.
spk08: And I don't think we have enough information on leases at this point in time, given that we're just rolling that out as to kind of you know, but certainly, you know, as, as, uh, providers use the tool and they now use it for leases, um, that we would expect that they would get a cycle time reduction there as well. Okay, great.
spk07: And then a quick question, I guess on a clear title market, you know, obviously a big incremental market. Could you talk about the economics there? I guess you still for a bit have to pay out a upstream royalty to car to maybe be in that space. But could you sort of talk about where you see the profits there versus your legacy transactions?
spk01: Yeah, I mean, it's an opportunity. I think we view it, you know, pretty equally in terms of the opportunity. Again, putting the royalty payments to the side because that is, you know, that's temporary. But as we look at the... the pricing and the quality of the vehicles and the cost that it takes to service them, we think it's, yeah, I mean, you know, there's, again, different components within their title market, whether you're talking about really low value or you're talking about, you know, rental cars, which, again, are going to be at a different price point. But all in, we view it, you know, very favorably from a profitability standpoint relative to our legacy business. Okay, great. Thank you.
spk04: Thank you. And once again, please press star, then 1 if you would like to ask your question. And the next question comes from Bob Blaywick with CJS Securities. Yes. Hi, good morning. It's actually lead you go to for Bob this morning.
spk08: So just to start appreciating that some of the volumes have recovered faster than your original expectations. Can you talk through your expectations for timing of when industry volumes may return to pre COVID levels? Yeah, good morning, and thanks for joining us. So, yeah, no, we, you know, as we've talked about before, if you look at, you know, vehicle miles traveled, that's actually, you know, fairly close to pre-pandemic levels right now. And so, you know, obviously, if you think about assignments, they're a function of miles traveled, frequency of accidents, and then total loss ratio. Frequency and total loss, frequency continues to be fairly stable. Total loss ratio, we continue to see the same drivers of that that we expect will continue to drive that up. And then vehicle miles traveled, although different elements is nearly back or very, very close to pre-pandemic levels. You know, you're seeing things like, you know, trucks and things of that nature that obviously are benchmarking higher than they were even pre-pandemic. Obviously, they're getting into wrecks and getting into wrecks with cars, unfortunately. And then there's, you know, kind of cars which are kind of like slightly below the last reading pre-pandemic. So it's pretty much close, if not back to the level.
spk05: Got it.
spk08: So again, once cars kind of get to that vehicle miles traveled pre-pandemic level, and I look at like the buckets of your growth being total loss frequency, improvement, favorable market share shifts, or growth in non-insurance, how do we look at those buckets in terms of your growth going forward, again, once vehicle miles driven on the car side kind of stabilizes? Yeah, and once again, I mean, I would probably think about vehicle miles traveled just total overall as being, you know, which again, it's, you know, kind of nearly close to or at pre-pandemic levels right now. And then I think the other factors are, you know, kind of, you know, once again, accident frequency is fairly stable. And then total loss rate, you know, not considering the, you know, what happened is comparison the second quarter of 2021 versus 2020 for the reasons we outlined continues to rise. I think, and then the other element, you know, that goes into that, the two other elements, one element is, you know, share shifts. We've talked a lot about that, you know, kind of the, you know, impact on 2021 and then our focus on that and what we expect going forward. And then the, you know, as John just mentioned, we believe that there is a, you know, we continue to make good progress on non-insurance and we believe longer term there's an outside growth you know, an outsized growth potential opportunity there to grow that business. It comes in many different segments, rental cars, you know, repossession, fleet, all these type of things. But certainly as we look at kind of the dealer side and the lower end of that dealer side, we do believe there's opportunity there. Great. Very helpful. Thanks.
spk04: Thank you. Thank you. And once again, as a reminder, please press star then one if you would like to ask a question. And the next question comes from Gary Preslapino with Barrington Research.
spk03: Hey, good morning, everyone.
spk08: Can you give us some idea of what your non-insurance vehicles process were in the quarter? What percentage change? Were they up double digit? Double digit? Yeah, so we didn't provide and aren't necessarily going to provide the percentage growth of those. But one way to think about it, Gary, is that when we are seeing continued strong growth in the non-insurance side, and if you look back, You know, to kind of at the time of the spend, you know, non-insurance was approximately, you know, 20%. Insurance was 80%. You know, the non-insurance piece of that has grown and would index higher than the 20% now, if that's helpful. But, you know, we are continuing to see strong growth in non-insurance. Okay. That's pretty helpful. And then is it possible to, if you look at the 20.4% increase in revenue per unit, is it possible that could you maybe parse that out? Like if we had flat year-over-year used car pricing, what would that increase have been? I guess what I'm trying to get at is what are you doing internally? How is that impacting your revenue per unit when you factor out used car pricing? Yeah, Gary, it's very difficult to bifurcate between all the things that we're doing internally and then the precise impact of kind of used car that used car prices or elevated used car prices rather are having. But as we mentioned earlier, what we do feel comfortable saying is that collectively all the things that we've done to our model, going all digital, now that we're collecting internet fees on 100% of transactions versus 70%, other pricing changes that we've implemented, certainly the growth in our global buyer network, enhancements we've made to our model, that if you take all those things together, kind of self-help things that we've done on our own, that that is more of a significant contribution, we believe, from the data we are seeing relative to the impact that we think elevated used car prices are having. That's about the level of detail we can provide. Okay. And, John, as you look forward with used car prices, I mean, and you talk to people within the industry and whatever, is the thought that Maybe, you know, we're plateauing here, but we're not going to see, you know, a dramatic snap back down. And, you know, we've hit a new high level for a time being. Or are we going to see continued attrition from here over the next two to three years in prices?
spk01: Yeah, I mean, it's so hard to say here. I mean, I think, you know, as new car production begins to catch up, the chip shortage, all that stuff, you know, you are going to see some softening in the used car market because there's going to be more availability of new cars, and, you know, they're not going to be as precious as they have been right now. But what the two- to three-year trend, I'm not going to hazard a guess at that.
spk04: Okay. Thank you.
spk01: Thanks, Gary.
spk04: Thank you. And as that does conclude the question and answer session, I would like to return the floor to John Kett for any closing comments.
spk01: Thank you all for joining us again. Thank you for your support and interest in IEA, and we look forward to updating you next quarter. Have a great day.
spk04: Thank you. The conference has now concluded. Thank you for attending today's presentation.
spk01: May not have snuck your line.
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