Good morning, and welcome to the IAA Third Quarter 2021 Earnings Call. [Operator Instructions] 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..

Thanks, Judith. Good morning, everyone, and thanks for joining us today for IAA'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 materially from such statements.

Those important factors are referred to in IAA'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 IAA 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 will now turn the call over to John.

John?.

pricing optimization, branch process and efficiency improvements and in towing. I'd 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 SYNETIQ.

This is an important strategic transaction for IAA in the United Kingdom. The SYNETIQ business has strong customer relationships, 14 locations throughout the country and a high-quality energetic management team.

In terms of SYNETIQ'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 U.K. 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 30, SYNETIQ generated revenue of GBP 154 million and adjusted EBITDA of GBP 17 million. And as we noted in our press release, SYNETIQ will operate independently from IAA U.K.

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 of months ago.

Susan brings an impressive track record of experience across a variety of industries and have 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 IAA team.

So with that, I'll turn it over to Susan to review our financial results and guidance in more detail. Susan, good morning..

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 you navigate the next phase of growth. During my first 2 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 have 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 and 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 in 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 purchased vehicle model in the fourth quarter of 2020.

It's worth noting that all buyer fees, including those for purchased 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 in 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 18 -- sorry, compared to 10.8% in the prior year.

However, gross margin as measured on a net revenue basis, netting out purchased 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 at an 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 as signed 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 1.7x. Total liquidity was $805.5 million. When you look at leverage pro forma for the acquisition of SYNETIQ, net debt would have been approximately $1.2 billion, and our net leverage ratio would have been 2.2x.

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 9 months of 2021, we generated free cash flow of $203.4 million compared to $223.3 million in the prior year, with a 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 Manheim 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 million to $24 million, and adjusted EBITDA is expected to be in the range of $10 million to $12 million. We're providing in our guidance both organic percentage growth percentages and dollar ranges.

When it comes to the impact of currency and the auto exchange and SYNETIQ 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 million to $553 million. Interest expense will be between $57.5 million and $58 million, and this includes the $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%. Depreciation and amortization is expected to be $83 million 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 SYNETIQ 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 SYNETIQ.

With that, I'll turn it back to the operator for questions.

Operator?.

[Operator Instructions] The first question is from Stephanie Moore with Truist..

Susan, congrats on your first call here.

I would love to hear what your initial thoughts are on capital allocation moving forward if this is maybe taking a different approach or how you would view just the opportunities as we look ahead?.

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 SYNETIQ 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 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..

And then on the margin initiative program, I believe you called out that some of the branch optimization and initiatives are on schedule but seeing some pressure, as you would all expect, on the towing side. When this mission is sort of 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. I think we all understand that.

But as we look today and there is 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?.

No, we’re still -- 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 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’s just going to take a little longer because of some of the near-term effects of what’s happening in the market..

The next question is from Craig Kennison with Baird..

I wanted to start with ARPU trends, again, remained positive here. You mentioned positive trends in the Manheim Index as well.

But I'm wondering if you could just deconstruct ARPU going forward? And to what extent you think these levels are sustainable? And to what extent they're purely tied to used car prices, which may peak at some point?.

Right. Yes, 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 relevant to proceeds. And so -- and then obviously, that's a driver of ARPU.

There's also the things that we're doing what we've done around our digital transformation, what we're continuing to do with growing out our product suite. I talked about the transport tool, which we believe is going to be really favorable for us. So there's a lot of things that go into ARPU besides used car.

Used car is a good indicator just to understand at a very high level, what's going on, but there's so many other factors that drive that drive our ARPU. And again, we're on this journey with using our data and with -- 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..

And with respect to SYNETIQ 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 be all on consignment? And if there's a mix, maybe you could share that with us?.

They're predominantly purchased vehicles. So SYNETIQ is buying -- they have contracts with insurance companies. They're buying the inventory and then they're effectively making 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 parts. And then in some -- a very small portion of it is going to scrap. So it is primarily purchased vehicles from insurance companies..

So 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 European catch up on the use of recycled parts?.

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 suite in the U.S. might call recycle parts or used parts.

But 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, again, innovating with them in the U.K. to really see if we can drive even higher levels of performance.

What happens beyond that remains to be seen if that model can be deployed in other markets..

The next question is from Chris Bottiglieri with Exane BNP Paribas..

So the first one's on hurricanes. I know it's difficult, but can you help parse out the impact of the hurricane in Q3 and Q4? It sounds like you incurred a lot of cost to ensure the customer service sounds like you executed there. But obviously, stuff is complicated, you incur costs upfront when you sell the units.

So just any sense of how much volumes helped in Q3 versus Q4, then cost would be really helpful?.

Yes. 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 could capitalize and then we recognize them when we sell the vehicle later on.

So the costs that really were incurred in the third quarter were 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. .

And just to provide a little bit of quantification, as John said, kind of a fairly small impact in the third quarter, just over $1 million 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..

Got it. That's really helpful. And then just a follow-up on the selling environment.

So excluding the hurricane, does it sound like the pressures you're seeing there? And I know it's also systemic, it's market-driven, but on a per unit basis, would you say that those are -- have that been worse in Q3 than they were in Q2 or fairly similar? And then when you think about like the longer-term opportunity, is it just -- is the reason you're pausing it right now is just because the market has gotten so tight from supply? It's like you just need as many sources as they can get and it doesn't make sense to use fewer providers or some other reason for pausing it, would be helpful..

Yes. I mean the second part of your question, yes, 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, there -- because of the shortage, we’re slowing down in cost and some of that.

And then really the CAT we had to draw on 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 2 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 the redistricting, the moving from anchor tower, we still think those have long-term favorable outlook on our tow cost. So we’re going to continue to execute against them. As we go, and we believe that the market will normalize..

The next question is from Bob Labick with CJS Securities..

Welcome and congratulations to Susan. 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 and Ida.

I don't know if you can -- you may have just quantified it with that $1 million negative EBITDA to CAT, 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 gross margins and cost per -- COGS per unit, which looked to us to be up about 7% sequentially or $25 a car.

I'm trying to see how much of that might have been Ida-related versus towing-related and therefore, how long those impacts should last?.

Yes, Bob, I can answer that. So when I mentioned a little bit over $1 million 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 there is a -- it's -- the towing is not all Ida..

Right, right, right. The towing -- yes, generally across the nation as well. So the Ida -- okay, perfect. That's helpful. And then you mentioned the $46 million or so of adjusted SG&A in the quarter is the normalized level.

I wanted to just confirm that and then ask roughly how much SG&A should be added from SYNETIQ going forward, just so when we're modeling SG&A?.

Yes. I would say the $46.8 million, most of that -- most of the Delta versus LY is the normalized go forward. A part of that is incentive comp that we don't expect it. So we expect -- so we've got kind of puts and takes. In 2020, incentive comp was way below a normalized level given where we were versus planned. 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..

Okay. Great. And then one last one for me. Obviously, with the continued rise in used car prices, there may be an impact on total loss frequency.

I want to know if you have any like update on the most recent total loss frequency information? And if you're seeing that as a headwind to industry volumes yet?.

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 repair costs, age of the fleet, complexity of vehicles, those things, in our view, aren’t changing. So that number bounces around a little bit.

So it’s -- we’re not alarmed by a quarter change. We still think, again, the fundamentals are there from what our carrier customers tell us, they don’t expect that number to materially diverge from what it’s been doing..

The next question is from Daniel Imbro with Stephens..

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 the shares companies? Just trying to weigh those multiple factors as you think about share into the next couple of years..

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 in the fourth quarter. So it wasn't a new decision or a new change. It really was just the timing of the of the previously announced one. So just so I'm super clear on that.

And despite that, we have been doing reasonably well in the market. We are -- whether it's demonstrating what we're doing around buyer, how we're using our analytics to help -- as I said, help carriers make the 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 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 the 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 I believe that, that is going to be good for us longer term. In addition to all the other things we're going.

It's not just the cap, it's really the CAT plus all the other things that we're providing to them. I really like how we're attacking the market. And again, I'm bullish long term on our capabilities..

Got it. That's helpful. And I want to follow up on Bob's question on sort of loss rate. So obviously, higher used values, all else equal, are probably bad. 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.

Is that -- are those factors that were driving up total loss rate in the near term? Do you think that could support another step function change higher from there? Just 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?.

Yes, that's certainly one line of thinking is that actually the higher recoveries as they're making that total loss decision, again, all of the things being equal, 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 upfront. So it's so hard to say. We really -- we're very hesitant to kind of 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..

Got it. And then maybe last one for me to squeeze one in. On SYNETIQ, 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 U.K.

buyers in the marketplace that we're buying on your auctions and how 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?.

Yes. 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 SYNETIQ 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.

So 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 an 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 U.K..

The next question is from Bret Jordan with Jefferies..

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?.

Yes. I could give you a specific dollar amount, but most of that – most of the increase that you see on the balance sheet, whether it’s an AR or it’s in -- it’s the inventory line are associated with Hurricane Ida..

Okay. And then on cycle times, the loan payoff, you talked about in the prepared remarks.

Could you quantify maybe what you’re seeing in a year-over-year improvement in cycle times?.

So it’s really different by carrier, right? So better -- carriers that were already good at cycle time. The savings are not as significant. Ones that aren’t as good, it’s more significant. But it’s meaningful days, like double-digit day savings that carriers are experiencing when they’re using the product.

And it really is, again, a testament to the demand for it that we are seeing across many, many carriers. So yes, it’s -- I think I’ve talked about in the past, it’s a meaningful reduction in cycle time..

The next question is from Gary Prestopino with Barrington Research..

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?.

It would have been really modest, Gary. I don't know that we have an exact number in the room here, but it's -- no, it would not have been a meaningful contributor to that volume growth..

Okay. And then lastly, John, from years ago, I remember there was a lot of pushback in the U.K. 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 be a collision or mechanical are now being satisfied by recycled parts in the U.K.?.

Yes. 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. I'm 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 viewpoints. I don't -- we don't have a specific percentages to offer with you, but I'd tell you it's growing, and we really think it is an opportunity to leverage what SYNETIQ's already done there to drive growth both in that part of the business and again, in the overall capabilities.

It's -- 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. SYNETIQ's doing the same thing with their -- again, what they call their green parts initiative..

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..

John, anything you’d like to say?.

Yes. Just again, thank you all for your participation today and for your interest in IAA, and we look forward to continuing to update you on our progress in the future. Thank you, and have a great day..

The conference has now concluded. Thank you for attending today's presentation, you may now disconnect..