IAA, Inc. Common Stock

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.

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?

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.