IAA, Inc. Common Stock

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.

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?

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.