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spk05: Good morning and welcome to the IAA third quarter 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw a question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Arif Ahmed, Vice President, Treasury. Please go ahead, sir. Arif Ahmed, Vice President, Treasury.
spk06: Thanks, Judith. Good morning, everyone, and thanks for joining us today for IEA's third quarter fiscal 2021 earnings conference call. Speaking today are John Kett, Chief Executive Officer and President, and Susan Healy, our Chief Financial Officer. After John and Susan 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 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 maturely from such statements. Those important factors are referred to in IEA'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. The 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 IAA's press release issued today. A copy of today's press release may be obtained by visiting the investor relations page of the website at www.iaai.com. I'll now turn the call over to John. John?
spk00: Thanks, Arif. Good morning, everyone, and thank you all for joining us for our third quarter earnings call. Today I'm just going to make my comments around a few key items. First, I want to recognize the tremendous efforts of the IEA team supporting Hurricane Ida and its remnants in the Northeast U.S. The results delivered by our dedicated CAAT response team are directly connected to our efforts to strengthen our market position. Second, I'll highlight our strong performance for the quarter. And then finally, I'll discuss our continued progress on our strategic initiatives including our acquisition of Synetic, which will greatly increase our presence in the UK. So starting with the CAT, I want to thank the amazing IEA team for their efforts in response to Hurricane Ida. This storm initially hit Louisiana, but then really hammered the Northeast US, causing significant flooding in New York and New Jersey and Pennsylvania. To put it in some perspective, Ida has been the largest AutoCAD event since Hurricane Harvey. So if you think about our normal operation, every day we pick up, clean, title, market, and sell vehicles to our marketplace. So to illustrate how an event like IDA affects our operation, imagine taking our daily average volume and multiplying it by 10 in one of the country's most densely populated areas. While that would place a tremendous strain on any operation, IA's catastrophe response strategy, which is based on continuous preparation, allowed us to be exceptionally responsive and nimble when our customers needed us most. Let me share just a few highlights of our specific efforts in the Northeast. We mobilized our people quickly and had teams ready and on the ground, and we had hundreds of additional employees triaged and ready to enter as we needed them. Within 24 hours of the storm hitting, we had either exercise options on or secured an additional 100 acres of capacity in the affected markets of New York and New Jersey, which was more than ample to service our customer needs. Within 48 hours, we had implemented a hub-and-spoke towing model to ensure that we were efficiently and effectively leveraging our transport resources across these affected areas. Within just a few days of the storm, we were picking up more than 90% of the released vehicles on a daily basis. And finally, within 11 days of the storm, we were already selling flood vehicles to our marketplace. You know, while serving the customer is something we strive to do exceptionally well every day, during this event, IA's performance was better than ever. and this has really been validated by our insurance customers. Many of them have actually reached out to us to thank us for our efforts and let us know that they were hearing overwhelmingly positive feedback from both their adjusters and their policyholders on our efforts. Knowing that we're helping our insurance customers best serve their own policyholders when it's needed most is a great achievement, and it's a validation of our revamped CAT response strategy. Our readiness, response, and overall execution was the strongest that I've seen in my 20 years of the company, and I could not be prouder of our team's performance. And our ability to deliver for our customers during these difficult times is paramount to us strengthening our insurance relationships longer term. Our performance during this CAD has reinforced an already strong measure of trust and confidence from several of our largest providers. And given the longer sales cycle, we believe that the work and investments that we make today for our clients will pay off in the future and strengthen our position in the market. We do incur additional costs related to servicing these events, and the full financial impact of this event will not be evident until next quarter. But in aggregate, we believe it's expected to be minor. So now let me discuss our strong third quarter performance. For the period, we delivered growth in sales of approximately 25% and growth in adjusted EBITDA of nearly 17% compared to the third quarter of last year. Our results were driven by continued higher revenue per unit, as well as the continued strengthening of the economy, which impacted miles driven and volume. Our average selling price and revenue per unit both achieved record levels as demand has remained strong during the period, in part due to the impact of supply chain disruptions that's affecting new car production. Also, as we noted in our last call, we had expected the previously announced share shifts to be completed in the third quarter. However, in a couple of markets, we continue to receive volume for longer than anticipated, and we now expect that portion, which represents less than 10% of the overall share shift from that customer, to begin transitioning in Q4. We've also had some net share wins from other insurance customers that are expected to benefit us in the fourth quarter. And if you put it all together in the aggregate, the strong trends in our business more than offset an impact of the share shifts, as well as the cost pressures, particularly related to towing. Now let me turn to our strategic initiatives. With respect to strengthening our service offerings, we've continued to grow our loan payoff tool. We now have nearly 1,800 lenders on the platform, and year-to-date our volume is over 3.5 times more than last year. We also hit a significant milestone for this product. Year to date, we have processed over $1 billion in transactions on the portal. This is further evidence that loan payoff is the most comprehensive solution in the industry. Our progress here continues to demonstrate how we can create meaningful cycle time reductions, build deeper customer relationships, expand wallet share, and create additional value for our sellers. Another development during the quarter was the launch of IEA Transport, a tool that enables buyers to digitally order transportation for vehicles they've purchased. Buyers can now schedule door-to-door vehicle delivery completely online and receive real-time status updates. Additionally, the IEA Transport product makes the process seamless for international buyers by procuring all the required export and import documentation. Inventory capacity is another area which is critical to our growth strategy. During the quarter, we broke ground on new branches across five states, and we also have in process at existing locations several capacity expansion projects that we expect to complete by the end of the year. So in addition to service offerings and growth and capacity, we've also continued to expand our international buyer network, growing it by 41% in the third quarter year over year. Our continued focus on digital marketing efforts, process efficiency, improved transparency, and best-in-class service are all driving this continued buyer-based growth and increased engagement. Next, let me talk about our data and analytics practice. This is foundational to all of our service offerings. Our data gives us and our customers the insight to make better decisions and allows us to operate in a more efficient and effective manner. Our practice and our data ecosystem are focused on three things. Number one is about accelerating process automation and digitization. Secondly, delivering insightful and transparent reporting to our clients. And third, improving vehicle condition transparency for our buyers. We also continue to make progress on our margin expansion plan. As you may recall, there's three areas of focus, pricing optimization, branch process and efficiency improvements, and in towing. I tell you that we're tracking well on pricing optimization and making progress on the branch process and efficiencies But in regards to towing, we are experiencing cost pressures, given the broader issues in the labor market, as well as the impact of the CAT. As a result, we have paused or delayed some of our activities in this area, but we will continue to execute on our plan where we can this quarter and into 2022. My final item of strategic initiatives is in regard to our international expansion. Just last week, we closed on the acquisition of Synetic. This is an important strategic transaction for IEA and the United Kingdom. The Synetic business has strong customer relationships, 14 locations throughout the country, and a high-quality, energetic management team. In terms of Synetic's revenue mix, approximately 80% is from auction-related sales, with the remainder from the sale of reasonable parts and scrap. We believe this ability to also sell reusable parts is a true differentiator as insurance customers in the UK market are increasingly requesting this capability. The company also has a strong focus on sustainability and on maximizing the value of electric vehicles. For the 12 months ended September 30th, Synetic generated revenue of 154 million pounds and adjusted EBITDA of 17 million pounds. And as we noted in our press release, Synetic will operate independently from IEA-UK until the completion of a regulatory review process. At this point, we don't know the exact timing of the review, but we are truly excited about this combination and the long-term opportunity for growth and innovation. So to close out, let me talk about our 2021 outlook. As we enter the final months of the year, we are again increasing our 2021 guidance. We now expect organic revenue growth of 25% to 27% and organic adjusted EBITDA growth in the range of 35% to 37%. I'll tell you that the fourth quarter is off to a good start, and our level of responsiveness and service around Hurricane Ida continues to be excellent. So I now have the pleasure of introducing our new CFO, Susan Healy, who joined our team just a couple months ago. Susan brings an impressive track record of experience across a variety of industries and has some really specific experience in M&A, high growth retail, and innovative technology companies. And we are incredibly pleased to have her on board as part of the IEA team. So with that, I'll turn it over to Susan to review our financial results and guidance in more detail. Susan, good morning.
spk04: Thank you, John. I'm really glad to be part of the IAA team. This is an extraordinary company with a strong business model, and I look forward to helping to navigate the next phase of growth. During my first two months here, I've been impressed by the capability and incredible dedication of our employees. This is particularly evident during a visit to New York and New Jersey, where I met many employees who had packed up and relocated to the East Coast for more than a month to assist our customers impacted by Hurricane Ida. It's great to see so many IAA employees willing to go above and beyond for our customers. I've also been greatly impressed by the level of innovation. The team's focus on developing new products and quickly bringing them to market is a true differentiator and a key to our continued success. 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. For the third quarter, consolidated revenues increased 24.5% compared to the prior year to $420.7 million. Organic consolidated revenue, which excludes the impact of foreign currency in the revenue from auto exchange, increased 23.1% to $416.2 million. The drivers of this organic growth were an increase in volume of 9%, primarily due to higher vehicle miles traveled against the pandemic impact of Q3 last year that more than offset the net impact of market share movements we have discussed in the past, as well as higher revenue per unit of 13%. Service revenues increased 19.1% compared to the third quarter of fiscal 2020 to $359 million, and vehicle sales increased 69% to $61.7 million. The increases in both service revenues and vehicle sales were primarily due to higher revenue per unit and higher volumes, and 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. It's worth noting that all buyer fees, including those for purchase vehicles, are included in service revenues. The total loss ratio for the quarter was 18.9% compared to 21% in the third quarter of fiscal 2020. Looking at our geographic performance, revenue increases in both our U.S. and international segments were driven by higher revenue per unit and a higher mix of vehicle sales. Volume increased in the U.S., but was slightly lower in our international segment, driven primarily by lower volume in Canada, where miles driven and traffic congestion have not recovered to the same extent as in the U.S. Turning now to gross profit, gross profit increased to $167.8 million from $138.3 million in the third quarter of 2020. This was primarily due to higher revenue per unit, higher volume, and the benefits from our margin expansion plan. Overall, gross margin declined 100 basis points to 39.9% from 40.9% in the prior year, which is really driven by the mix of vehicle sales as a proportion of total revenues. Vehicle sales accounted for 14.7% of total revenue this quarter compared to 10.8% in the prior year. However, gross margin as measured on a net revenue basis, netting out purchase vehicle costs from vehicle sales, was 110 basis points higher than the prior year, driven by leverage in indirect costs such as occupancy and yard overhead. Partially offsetting these benefits, towing costs increased due to higher demand for towers across all regions. SG&A expenses for the quarter were $49.8 million compared to $34.9 million in the prior year. Adjusted SG&A was $46.8 million, an increase of 35.7% compared to the prior year. In 2020, last year, given the uncertainty around COVID-19, we managed our discretionary SG&A in terms of headcount additions, salaries, IT and travel, and incentive compensation was lower due to the impact of COVID-19 on volumes. As a result of all of that, last year's adjusted SG&A was actually 6.8% lower than the third quarter of 2019. 2021 represents a more normalized level of SG&A spend as we have resumed normal levels of staffing and spending in IT that had been deferred and have begun to travel to service our customers. In addition, higher incentive compensation costs this year are a function of our strong performance versus plan. While this was the first quarter where we didn't have any TSA costs, the costs were minimal in last year's third quarter as well and didn't have an impact on year-over-year results. Adjusted EBITDA in the quarter increased by 16.7% to $121.1 million from $103.8 million in the third quarter of 2020. Excluding the impact of foreign currency as well as the acquisition of auto exchange, organic adjusted EBITDA increased by 15.3% to $119.7 million for the third quarter of 2021. Interest expense was $11.1 million compared to $13.3 million in the third quarter of 2020. The decrease in interest expense was primarily due to a lower level of debt and lower interest rates as a result of the refinancing completed in the second quarter of 2021. The effective tax rate in the quarter was 23.2% versus 25.5% last year. We benefited from the impact of our tax optimization initiatives this quarter. Net income increased by 24.4% to $65.7 million from $52.8 million in the prior year, and adjusted net income increased by 25.3% to $69.8 million, or $0.52 per diluted share, compared to $55.7 million, or $0.41 per diluted share in the third quarter of fiscal 2020. Now turning to our balance sheet and cash flows, net cash provided by operating activities for the quarter was $32.7 million, which was down 31.7% from the prior year. During a CAT event, our cash requirements are elevated as our level of vehicle assignments and therefore advanced charge payments are increasing. Also, advanced charges tend to be higher in New York and New Jersey, so this also impacted our cash flow during the month of September, as almost all of the CAT vehicles assigned in September were not yet sold by quarter end. Capital expenditures for the quarter were $22.2 million compared to $19.8 million in the prior year, primarily due to higher spending on IT. We did not purchase any land during the quarter. We ended the quarter with net debt of $890.4 million and a leverage ratio of 1.7 times. Total liquidity was $805.5 million. When you look at leverage pro forma for the acquisition of Synetic, net debt would have been approximately $1.2 billion, and our net leverage ratio would have been 2.2 times. We used $100 million of our revolving credit facility to finance the acquisition with the remainder from cash on our balance sheet. For the first nine months of 2021, we generated free cash flow of $203.4 million compared to $223.3 million in the prior year, with the lower cash flow primarily due to the incremental cash deployed in the CAT responses quarter, as well as higher capital spending, including for land purchases and for IT. So now, turning to our outlook for fiscal 2021, we are again raising our outlook, primarily reflecting continued strength in revenue per unit relative to what we had forecasted last quarter. As you know, the Mannheim Used Car Index increased by over 5% in September versus August, and approximately 27% on a year-over-year basis to a new record high, and then increased again in the first half of October compared to September. On the cost side, like most companies, we are experiencing some higher costs, and we do expect these to continue this quarter, particularly towing and labor. We also expect Hurricane Ida to be a tailwind to volume and revenue, but a headwind to gross margin and adjusted EBITDA for the quarter. Just a couple of points before I walk through the guidance. As a reminder, fiscal 2021 is a 53-week year, with the extra week coming in the fourth quarter. This 53rd week is included in our organic growth and dollar range guidance. For the 53rd week, the revenue is expected to be in the range of $20 to $24 million, and adjusted EBITDA is expected to be in the range of $10 to $12 million. We're providing in our guidance both organic growth percentages and dollar ranges. When it comes to the impact of currency and the auto exchange and synthetic acquisitions, they are included in the dollar guidance but excluded from the organic growth percentages. So now for the guidance for the year, we now expect organic revenue growth of 25% to 27% and total revenues of $1.78 billion to $1.81 billion. We're expecting organic adjusted EBITDA growth of 35% to 37% and total adjusted EBITDA of $545 to $553 million. $10.3 million write-off of deferred financing fees that we incurred in the second quarter. The effective tax rate is expected to be in the range of 24.5% to 25%. Amortization is expected to be $83 to $85 million, and that's before any impact from purchase accounting. We are still in the early stages of assessing the potential impact of purchase accounting from Synetic on our depreciation and amortization, but we do expect this analysis to be done prior to the issuance of our fourth quarter results. In summary, we delivered a strong quarter with continued outperformance in revenue per unit, partially offset by higher costs. We stepped up and delivered for our provider customers before, during, and in the aftermath of Hurricane Ida, and we're very excited about the opportunities we have to grow in the U.K. with our acquisition of Synetic. With that, I'll turn it back to the operator for questions. Operator?
spk05: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Stephanie Moore with Troist. Please go ahead. Hi, good morning.
spk04: Morning, Stephanie. Morning. You know, Susan, congrats on your first call here. I would love to hear, you know, what your initial thoughts are on capital allocation moving forward, you know, if this is maybe taking a different approach or how you would view just the opportunities as we look ahead. Thank you. Sure. Thanks, Stephanie. On capital allocation, I think the first and foremost priority is investing in the business, whether it's organic investments, such as we've done in IT and land and other areas, or acquisitions opportunistically, like Cinetic, that are going to be very complementary to our business. So we are going to take any and all of those internal growth opportunities and And then I think we've got the right strategy in terms of share repurchase. It's a great way for us to return capital to shareholders and still leave opportunity for those organic investments I mentioned. Great, thank you. And then on the margin initiative program, I believe you called out that, you know, some of the branch optimization and initiatives are, you know, on schedule, but seeing some pressure, as you would all expect, on the towing side. When the initiatives were first rolled out last year, I believe that there were some actual EBITDA contribution dollars that were provided. Of course, this was all pre-COVID, and the world was very different at that time, if you understand. Understand that. But, you know, as we look today and there's the recovery going on, are those dollar contributions still a rough ballpark that we can look at? Or should we kind of view this as some changes to those amounts? Thanks.
spk00: Thanks, Stephanie. You know, we still believe in the numbers that we put out. Again, as you said, COVID was a little bit of a sidetrack. And this towing, we're going to get through this towing, we believe. And, you know, again, as I mentioned, certainly in pricing and in the branch operations, we still are feeling pretty good about the estimates and what we're doing to help improve margins there. Towing is just going to take a little longer because of some of the near-term effects of what's happening in the market.
spk05: Sure, absolutely. Well, that's it for me. Thank you.
spk07: Thanks, Tiffany.
spk05: The next question is from Craig Kennison with Baird. Please go ahead.
spk11: Hey, good morning. Thanks for taking my questions. I wanted to start with ARPU trends, again, remain positive here. You mentioned positive trends in the Mannheim Index as well, but I'm wondering if you could just deconstruct our poo going forward and to what extent you think these levels are sustainable and to what extent they're purely tied to use car prices, which may peak at some point.
spk01: Right.
spk00: Thanks, Greg. Yeah, you know, as we've talked about, there's so many drivers of ARPU. Used car prices is a big one. The scrap market at the low end, what's happening with part prices, what's happening with the dollar. I mean, all those things have some relevance to proceeds. And then, you know, obviously that's driver ARPU. There's also the things that we're doing. you know, what we've done around our digital transfer, you know, really favorable for us. So there's a lot of things that go into ARPU besides used cars. Used cars is a good indicator just to understand, you know, at a very high level what's going on. But there's so many other factors that drive our ARPU. And, again, we're – We're on this journey with using our data and digitizing our business. We still see opportunities to continue to grow and influence what we generate in ARPU, irrespective of what happens in the used car market.
spk11: Thanks. And with respect to Cinetic and that transaction, I'm wondering if you can – you had mentioned, I believe, 80% of sales come from auction results. Is that purchased vehicles, or would those – Would those be all on consignment? And if there's a mix, maybe you could share that with us.
spk00: They're predominantly purchased vehicles. So Synetic is buying... they have contracts with insurance companies, they're buying the inventory, and then they're effectively making a decision about the best venue to liquidate that. So in some instances, they're auctioning the vehicles. In other instances, they're taking parts off and they're distributing the parts, and then a very small portion of it is going to scrap. So it is primarily purchased vehicles from insurance companies.
spk11: So the... the vertical integration, if you will, in Europe, having parts plus the auction, it's different than what you do in the U.S. Do you see this as the model in Europe, as maybe Europeans catch up on the use of recycled parts?
spk00: Well, right now, the focus, obviously, is on the U.K., and that is what we're seeing happening in the U.K., is that there is increasing demand for what they call green parts we in the u.s might call recycled parts or used parts but we we certainly are seeing the increase in demand there and that's really that's really solving that problem and how to focus on delivering that so we're interested in in again innovating with them in the uk to really see if we can drive even higher levels of performance what happens beyond that you know is it remains to be seen if that model can be deployed in other markets
spk11: Got it. Hey, thank you. Thanks a lot, Craig.
spk05: The next question is from Chris Bottiglieri with Exane BMP Paribas.
spk02: Please go ahead. The first one's on Hurricane. I know it's difficult, but can you help parse out the impacts of the hurricane on Q3 and Q4? It sounds like you incurred a lot of cost to ensure good customer service. It sounds like you executed there. But, you know, obviously stuff's complicated. You incur cost up front and you sell the units. So just any sense of how much volumes help in Q3 versus Q4, then cost would be really helpful.
spk00: Yeah, so I'll start, Chris, and then Susan certainly jump in. We sold very few cars in the third quarter related to the CAT. And a lot of the expenses or a lot of the costs that we incur are really around towing. So those costs get capitalized, and then we recognize them when we sell the vehicle later on. So the costs that really were incurred in the third quarter were substantial. Some of the travel, a little bit of the rent, some of the true fixed expenses that we incurred to get this event started up. So Susan, go ahead.
spk04: And just to provide a little bit of quantification, as John said, kind of fairly small impact in the third quarter. You had just over a million dollars of a negative impact on EBITDA from the CAT. And as you said, it's pretty tough to estimate what the impact is going to be in the fourth quarter. That's when we'll be selling most of the cars, and the impact depends on proceeds. So we're not calling that out separately, but it is embedded in our guidance.
spk02: Gosh, okay. That's really helpful. And then just to follow up on the towing environment, so excluding the hurricane, does it sound like the pressures you're seeing there, and this is all systemic, it's market-driven, but on a per-unit basis, would you say that those have gotten worse in Q3 than they were in Q2 or fairly similar? And then when you think about, like, the longer-term opportunity, is the reason you're pausing it right now is just because it's the market's gotten so tight from supply, it's like you just need as many sources as you can get, and it doesn't make sense to use fewer providers, or something, some other reason for pausing it would be helpful.
spk00: Yeah, I mean, to the second part of your question, yeah, I mean, there is constrained supply in the tow market, so some of the changes that we talked about doing, making shifts from the sources and the types of towers. Because of the shortage, we're slowing down and pausing some of that. And then really the cap, we had to draw upon tow resources from all over the country to help support that event, which again then compounded the pressures that we're already feeling in the local market. So the combination of those two is really why we're having to slow down some of the initiatives around towing. But we still believe in the plans that we put in place. You know, the redistricting, the moving from anchor tower, you know, we still think those have, you know, long-term favorable outlook on our tow costs. So we're going to continue to execute against them as we go. And, you know, we believe that the market will normalize.
spk02: Okay. Thank you. Appreciate it.
spk00: Thanks, Chris.
spk05: The next question is from Bob Labic with CJS Securities. Please go ahead.
spk08: Good morning. Thanks for taking my questions, and welcome and congratulations to Susan.
spk05: Thank you.
spk08: So I'm still trying to just kind of get through the gross margin impact. You're giving us plenty of information here. I just want to make sure I understand it. In terms of the biggest moving parts in the quarter, it was – towing in IDA. I don't know if you can, you may have just quantified it with that million dollars negative EBITDA to cap, but if you can give us a sense of the kind of impact on, was that in the gross margin line from IDA in Q3? I'm trying to get a sense of, you know, gross margins and cost per unit, COGS per unit, which looked to us to be about 7% sequentially or $25 a car. I'm trying to, you know, see how much of that might have been you know, IDA-related versus towing-related, and therefore how long those impacts should last.
spk04: Yeah, Bob, I can answer that. So when I mentioned a little bit over a million dollars impact, that was all in gross margin. So when you do the math on that, that would be part of the impact in gross margin, offsetting, of course, the leverage we got from the indirect costs. So the towing is not all IDA.
spk08: Right, right, right. The towing is generally across the nation as well. Okay, perfect. That's helpful. Yeah.
spk01: And then you mentioned, you know, the 46 million or so of adjusted SG&A in a quarter is the normalized level.
spk08: I wanted to just confirm that and then ask roughly how much SG&A should be added from Synetic going forward just so when we're modeling SG&A?
spk04: Yeah, I would say the $46.8 million most of that you know most of the delta versus ly is is the normalized go forward a part of that is incentive comp that we don't expect it to so we expect so we've got sort of kind of puts and takes in 2020 incentive comp was you know way below um a normalized level given you know where we were versus plan this year it's above a normalized level So some of that increase is due to incentive comp, which won't be a go-forward. I know it would be more helpful if we could break it out dollar for dollar, which we can't do, but that should at least give you some guidance directionally.
spk08: Okay, great. And then, you know, one last one for me, obviously with the continued rise in used car prices is, you know, there may be an impact on total loss frequency. I wanted to know if you have any, like, you know, update on the most recent total loss frequency information, and if you're seeing that as a headwind to industry volumes yet.
spk00: We're not, Bob. I mean, we still, when we look at the fundamentals of what's been driving total loss frequency over the long term, we don't see those drivers changing. Air costs are Age of the fleet, complexity of vehicles, those things, in our view, aren't changing. So, you know, that number, you know, bounces around a little bit. So we're not alarmed by, you know, a quarter change. We still think, again, the fundamentals are there. And from what our carrier customers tell us, you know, they don't expect that number to materially diverge from what it's been doing. Okay, great.
spk08: Thank you very much.
spk00: Thanks, Bob.
spk05: The next question is from Daniel Imbrow with Stevens. Please go ahead.
spk09: Yep. Hey, thanks, guys. Thanks for taking our questions. I want to start on the comment you made on share shifts, John. Obviously, continuing here into the fourth quarter, maybe longer than you guys thought it would. I guess when you're having those conversations with insurance customers, what are the reasons in some markets they're telling you you're losing share? Conversely, when you're winning share unexpectedly or continuing to, why are you winning share? And do you think your performance in this storm, Hurricane Ida, It feels like it was much better than Hurricane Harvey was a few years ago. Is that going to help you from a competitive standpoint? Is that helping your conversations with insurance companies, just trying to weigh those multiple factors as you think about sharing for the next couple of years?
spk00: Great, Daniel. So to be clear, what we talked about, that actually it was the decision that was made earlier in the year. We expected it to be done in the third quarter, and it's spilling over into the fourth quarter. So it wasn't a new decision or a new change. It really was just the timing of the previously announced one. So just so I'm super clear on that. And, you know, despite that, we have been doing reasonably well in the market. We are, you know, whether it's demonstrating what we're doing around buyer, how we're using our analytics to help, as I said, help carriers make better decisions, that is resonating, and they are recognizing what we're bringing to the market. And then certainly loan payoff, again, we believe is a differentiator. So all those things, you know, are resonating with carriers, and we do believe longer term it's going to strengthen our position. The CAT is a... that is a very evident way to demonstrate your capabilities with a customer. And really, between events, it's hard to demonstrate what you've planned and what you've put together because until you actually put it in place, it's just words. So I think this year we really were able to demonstrate lessons we've learned from all the events that we've been a part of, and I really think that – In this particular event in New York and New Jersey, we really demonstrated that. And as I said in my comments, we certainly heard it from virtually all of our customers that we really delivered for them and they recognized it. So, you know, I believe that that is going to be good for us longer term. in addition to all the other things we're doing. It's not just the cap, but it's really the cap plus all the other things that we're providing to them.
spk01: I want to follow up on Bob's question on total loss rate. So obviously higher used values, although it's equal, are probably bad.
spk09: But at the same time right now, it does feel like we're seeing parts inflation higher than a while, labor inflation in the repair market, and there's just no rental cars. Are those factors maybe driving up total loss rate in the near term? Do you think that could support another step function change higher from there? It's kind of curious how your insurance companies or insurance customers are viewing all those factors. Is it making it more economical, especially when coupled with higher auction returns, it seems like it would, making it more economical to send more vehicles to auction?
spk00: Yeah, that's certainly one line of thinking is that actually the higher recoveries, as they're making that total loss decision, again, all the things being equal, they might they might total more because they begin to recognize the level of recovery. And sort of back to the earlier comment around us using our data analytics, that's actually a really important element of what we're now helping our customers do is using our data to actually help them make better decisions up front. So, yeah. It's so hard to say. We're very hesitant to predict the future. We don't really know what's going to happen. But I think you're thinking about the right elements as you think about what might happen near-term and longer-term with total loss frequency.
spk09: Got it. And then the last one for me, just squeezing one in. On Finetic, Susan, you talked about the financial contribution. That's helpful, getting the numbers. I guess more strategically, as we think about getting into parts dismantling, it makes sense from a complementary kind of vertical integration, but is there now a channel conflict? Are you competing with other UK buyers in the marketplace that were buying on your auctions and now you're bidding against them for them? How do you keep that out of the business as we think about growing into this new vertical?
spk00: Yeah, so I think something unique about the U.K. is that it's still predominantly a purchase agreement contract world with the insurance companies. So Synetic is buying the vehicles direct from the carrier, so there's no channel conflict. And then they're turning around and then, as I said, potentially reauctioning or selling the parts directly. They are a little bit in the parts business, so to the extent there's other parts distributors that might have been buyers, I suppose there could be some conflict. But really, because they're not buying them into auction competing with buyers, I don't really see the channel conflict. And, again, I think if we can continue to grow that business, it actually should make – the parts business even more robust because there'll be more. If we can help drive the supply, it's actually going to make demand for used parts even more robust, which, frankly, should be good for our parts buyers in the UK.
spk09: Got it. Well, I'll leave it there and hop back in with you. Thanks so much, guys.
spk05: The next question is from Brad Jordan with Jefferies. Please go ahead.
spk07: Hey, good morning, guys. Good morning. Could you talk about the quarter end inventory? How much of that is associated with Hurricane Ida product that has not been sold through yet?
spk04: Yeah, I couldn't give you a specific dollar amount, but most of the increase that you see on the balance sheet, whether it's in AR or it's in the inventory line, is associated with Hurricane Ida.
spk07: Okay. And then cycle times alone pay off. You talked about prepared remarks. Could you quantify maybe what you're seeing in a year over year improvement in cycle times?
spk00: So it's really different by carrier. So, you know, better carriers that were already good at cycle time, the savings are not as significant. You know, ones that aren't as good, it's more significant. But it's meaningful days, you know, like double-digit day savings that carriers are experiencing when they're using the product. And it really is. you know, again, a testament to the demand for it that we are seeing across many, many carriers. So, yeah, I think I've talked about it in the past. It's a meaningful reduction in cycle time. Great.
spk07: Thank you.
spk00: Thanks, Brett.
spk05: The next question is from, again, Presto Pino with Barrington Research. Please go ahead.
spk10: Hey, good morning, everyone. Just a couple of quick questions here. You said volumes were up 9% organically. Did the auto exchange acquisition contribute anything to volumes in a way that it would move that number higher by a couple of basis points?
spk00: It would have been really modest, Gary. I don't know that we have an exact number in the room here, but it would not have been a meaningful contributor to that volume growth.
spk10: Okay. And then lastly, John, you know, from years ago, I remember there was a lot of pushback in the UK on using recycled parts, I think the penetration was rather de minimis. How has that changed over the years? And can you give us some idea of what percentage of repairs via collision or mechanical are now being satisfied by recycled parts in the UK?
spk00: Yeah, so Gary, you're right, and I think one of the things that's changed is just a focus on sustainability. So insurance companies are really looking at all their operations and thinking about how they can be more sustainable, and reusing parts is a pretty evident way that they can do that. So I think that has sort of initiated the change in their viewpoint. We don't have specific percentages to offer with you, but I tell you, it's growing, and we really think it is an opportunity to leverage what Synetics has already done there to drive growth, both in that part of the business and, again, in the overall capabilities. To me, it's no different than in the U.S., how we're broadening our service offering. We're offering loan payoff, inspection services. We're providing a wider net of services to the carriers. Synetics doing the same thing with their, again, what they call their green parts initiative.
spk08: Okay, thank you.
spk00: Thanks, Gary.
spk05: So this concludes our question and answer session. I would like to turn the conference back over to Mr. Arif Ahmed for any closing remarks.
spk06: John, anything you'd like to say?
spk00: Yeah, just, again, thank you all for your participation today and for your interest in IEA, and we look forward to continuing to update you on our progress in the future. Thank you, and have a great day.
spk05: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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