Transcription
Investor PresentationJune 2019
DisclaimerThis presentation is for informational purposes only. Neither the company nor any of its affiliates or representatives makes any representation or warranty, expressed or implied, as to theaccuracy or completeness of this presentation or any of the information contained herein. The company and its affiliates or representatives expressly disclaim to the fullest extent permitted bylaw any and all liability based, in whole or in part, on the presentation or any information contained herein. This presentation is not an offer to sell, or the solicitation of an offer to buy, anysecurities.ConfidentialityThis presentation (together with any other statements or information that the company may furnish to you) is confidential and may not be reproduced, forwarded to any person or published, inwhole or in part.Cautionary Note Regarding Forward-Looking StatementsThis presentation includes forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. In particular, statements made in this presentation that arenot historical facts (including, but not limited to, expectations, estimates, assumptions and projections regarding the industry, business, future operating results, potential acquisitions andanticipated cash requirements) may be forward-looking statements. Words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similarexpressions identify forward-looking statements. Such statements, including statements regarding our future growth; anticipated cost savings, revenue increases, credit losses and capitalexpenditures; dividend declarations and payments; common stock repurchases; strategic initiatives, greenfields and acquisitions; our competitive position and retention of customers; and ourcontinued investment in information technology, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from theresults projected, expressed or implied by these forward-looking statements.Such forward looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected, expressed or implied by suchforward-looking statements. Many of these risk factors are outside of the company’s control, and as such, they involve risks which are not currently known to the company that could causeactual results to differ materially from forecasted results. Factors that could cause or contribute to such differences include those matters disclosed in the company’s Securities and ExchangeCommission (“SEC”) filings. The forward-looking statements in this document are made as of the date hereof and the company does not undertake to update its forward-looking statements.Market & Industry DataProjections, estimates, industry data and information contained in this presentation, including the company's general expectations and market position and market opportunity, are based oninformation from third-party sources and management estimates. Although the company believes that its third party-sources are reliable, the company cannot guarantee the accuracy orcompleteness of its sources. The company's management estimates are derived from third-party sources, publicly available information, the company's knowledge of its industry andassumptions based on such information and knowledge. The company's management estimates have not been verified by any independent source. All of the projections, estimates, marketdata and industry information used in this presentation involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such information. In addition,projections, estimates and assumptions relating to the company's and its industry's future performance are necessarily subject to a high degree of uncertainty and risk due to a variety offactors, including, but not limited to, those described above, that could cause future performance to differ materially from the company's expressed projections, estimates and assumptions orthose provided by third parties.Non-GAAP Financial MeasuresWe believe that our financial statements and other financial data contained in this presentation have been prepared in a manner that complies, in all material respects, with the regulationspublished by the SEC and are consistent with current practice, except that the financial information presented (i) may not be consistent with what would be included in a registration statementfiled with the SEC and (ii) includes EBITDA and Adjusted EBITDA (each as described herein) which are non-GAAP financial measures. SEC rules regulate the use in filings with the SEC ofnon-GAAP financial measures such as these, which are derived on the basis of methodologies other than in accordance with generally accepted accounting principles in the United States(“GAAP”).1
Today’s SpeakersJohn KettChief Executive Officer and President, IAA CEO and President of IAA since 2014Previously served as CFO and Senior Vice President of Planning and BusinessDevelopmentPrior to IAA, served in a variety of senior financial and operational roles for Central Steel andWire Co., Safelite Glass Corporation (formerly Vistar, Inc.), Newark Electronics and DeloitteVance JohnstonChief Financial Officer, IAA CFO of IAA since 2019Prior to IAA, served as Executive Vice President, CFO and Treasurer of SP Plus Corporationfrom 2014 to 2019Also served as CFO and Senior Vice President of Furniture Brands International, Inc. andheld various positions at Royal Caribbean International, OfficeMax and Burger King2
Spin-Off UpdateKey Milestones Private letter rulings received in the U.S. andProgressUpdateNotify NYSE of Record Date:June 4Canada Required agreements progressing or in placeDeclaration Date:June 5 Readiness plans in placeSell-Side Analyst Day:June 5 Board of Directors confirmedIAA Roadshow:Week of June 10 / June 17Team Executive Leadership in placeRecord Date:June 18 IAA capital structure consisting of 800mm TermCapitalStructureLoan B, 500mm Senior Notes and 225mmRevolving Credit Facility, with the majority of netproceeds from this offering expected to betransferred to KAR in connection with the spin-offWhen Issued Trading:June 17 – June 27Distribution Date:June 28 Total net leverage is expected to be 3.2x on apro forma basisEx-Distribution Date:June 283
Key Investment Highlights Leading omnichannel marketplace for total loss, damaged and low-value vehicles withindustry-leading technology and data analytics capabilities Profitable and growing salvage vehicle market with attractive tailwinds (increasing milesdriven, increasing age of vehicles, growing vehicle complexity, rising repair costs) Strong and consistent revenue growth, profitability and cash flow generation withsupportive market fundamentals Asset-light business model supported by IAA’s vehicle consignment model and highaccounts receivable turnover Consolidated industry with significant barriers to entry Resiliency through economic cycles Highly experienced executive leadership team and a deep bench with extensiveindustry expertise4
Company and Industry Overview
Highly Experienced Leadership TeamExecutive OfficersJohn KettVance JohnstonCEO and President34 years of experience17 years with IAACFO27 years of experienceJoined in 2019Tim O’DaySidney PeryarMaju AbrahamPresident of U.S. Operations30 years of experience5 years with IAACLO20 years of experience18 years with IAACIO20 years of experience15 years with IAAHighly experienced leadership team with extensive industry expertise5
Key Operations ManagementKey Operations ManagementEldon BoothTerry DanielsBill DavidsonU.S. OperationsInternational OperationsHuman ResourcesJohn KrupnikJustin MahlikSteve MuscarelloJeanene O’BrienTechnologyDigital Products and DataChief Commercial Officer, U.S.Global MarketingDeep bench of key operators6
Board of DirectorsBoard of DirectorsJohn P. LarsonBrian BalesBill BreslinSue GoveCEO, BestopChairman of the BoardChief Development Officer,Republic ServicesIndependent DirectorCEO, Wenonah ConsultingIndependent DirectorPresident, Excelsior AdvisorsIndependent DirectorLynn JolliffePeter KaminOlaf KastnerJohn KettCEO, Jolliffe SolutionsIndependent DirectorFounder and ManagingPartner, 3K LimitedPartnershipIndependent DirectorRetired (Previously President& CEO, BMW Group China)Independent DirectorCEO and President, IAAAccomplished Board of Directors with diverse backgrounds and areas of expertise7
History and Key EventsCorporateAcquired byannouncesspin-off ofExpands into UKwith acquisition ofFounded andenters thevehicle salvagebusiness1982 –1991OperationalCombinesoperations withspins offand expands intoCanada2005 –20072009 –20102011 –2014Launches IAABuyer, the industry’sfirst buyer app2015 –20162017LaunchesIAA TotalLoss SolutionsIntroducestimed auctionsContinues toimprove online andmobile capabilities2018IAA LoanPayoff goes liveLaunches industry-firstmobile app to acceleratecatastrophe response82019BeginsIAA 360View roll-out
Large North American Addressable Market 300mmVehicles inOperation5mm UnitsSalvage Auctions 22bn 19mm UnitsNew VehicleSales 13mm Units 42mmRemoved fromOperationUsed Retail Sales 8mm UnitsRemaining Vehicles Vehicles out of service Vehicles not processed byinsurance Uninsured vehicles9
Insurance Auto Auctions (“IAA”) OverviewLeading omnichannel marketplace for totalloss, damaged and low-value vehiclesOmnichannel AuctionsOptimizes Buyer Convenience, Enhances BuyerParticipation, Reduces Friction in the Process 1.3bnLTM (1Q19) Revenue 40%Share of NorthAmerican MarketComprehensive, End-to-End SolutionsCreates Deeply EmbeddedCustomer Relationships 396mmLTM (1Q19)Adjusted EBITDA(1)193Advanced Technology andData Analytics CapabilitiesLocationsEnhances Customer Retention and Adoption 349mmLTM (1Q19) AdjustedEBITDA less Capex(1)(2) 3,600Consignment ModelEmployeesReduces Working Capital RequirementsVia an Asset-Light Business Model2.5mm100%Vehicles SoldVehicles Offered OnlineExtensive Seller Base andGlobal Buyer BaseSupports “Many-to-Many” Network Effects1.Please reference page 32 for a notice regarding Non-GAAP financial measures.2.Excludes 25.5mm for the purchase of IAA property in Florida for use during catastrophic events.10
Overview of the Auction ProcessSellerTransportationVia IAAAssignmentto Storage 2-3 daysBuyerVehicleArrives atIAA LocationTransportationVia Buyer 40 days(varies by state)InsuranceOmnichannelBiddingTitle Procurement InspectionImaging StorageEntire process takes 45-90 days11Sold
Diversified Customer Base With Longstanding RelationshipsSellersBuyersSignificant large insurance seller base with adiverse set of non-insurance sellers, includingcharitable organizations, dealer groups andrental car companiesLarge and diverse global buyer base of over150,000 active buyers across more than120 countriesLong-term business partnerships with 80 of thetop 100 major U.S. insurersTotal active buyer growth of nearly 40% andactive foreign buyer growth of over 50% from2014 to 2018Over 14,000 active sellers in 2018Largest buyer accounts for 3% of totalrevenue, while no other buyer accounts formore than 1.5% of total revenue12
IAA’s Omnichannel MarketplaceSellersBuyers Establishes and maintains Large, diverse and globaldeep relationships with over80 of the top 100 majornational insurersbuyer network with limitedbuyer concentrationOmnichannel Marketplace Enhances auctions through the us ers Vehicle Inspectionand AppraisalLoan Payoff andTitle Procurement Services Strengthened position ofleadership and trustTitleManagementInventoryManagementDigital Negotiation /Approval andElectronic PaymentCSA Today andMarket Value Revenue growthopportunity Deeper strategic dialoguewith customers18Sale andSettlementGreater customerstickiness throughincreasing workflowintegration
3Enhance International Buyer NetworkInternational Buyer Network Expansion Approach 30%of our 2018 U.S. volumeis tdigitalplatformBuyer PortalCall Center 50%Available inSupports612LanguagesLanguagesgrowth in the number ofinternational buyers in ourU.S. marketplace(2014 to 2018)Expanding the base of international buyers brings more bidders to our platformand yields better outcomes for sellers in our marketplaces19
4Reduce Costs to Expand MarginsBranchCostsStrategicSourcingBack OfficeG&A Auction and related costs Vehicle storage configuration and costs Process improvement Discipline on discretionary spend Source key categories Reduce costs and obtain volume discounts Improve terms Optimize stand-alone public company costs Organizational alignment Discipline on discretionary spend20
4Drive Operating Efficiencies to Expand MarginsProcesses and TechnologyMargin ExpansionReducedDepreciationof VehicleValueVehicle Check-inTitle and InventoryReducedCycle Time Higher BuyerFeesIncreasedCustomerSatisfactionImproved RealEstateUtilizationVehicle Sale21
4Grow Ancillary Services to Expand MarginsSeller Services / SolutionsBuyer Services / SolutionsIAA LoanPayoff IAA 360 View TitleProcurementIAA TransportIAA InspectionServices Data ServicesOpportunity to monetize data in the future22
5Continue to Innovate and Enhance Data Analytics CapabilitiesAdvanced DataHCV PictureAnalyticsSellersBuyersReserve Price OptimizationMarket Value TrendsTotal Loss Decision MakingInventory OptimizationPerformance MetricsBuy Recommendations Improve Decision Making Increase Transparency Reduce FrictionOur culture of innovation and leading data analytics capabilities continuesto enhance economic benefits for both sellers and buyers23
6Expand Internationally in Attractive MarketsIdentify opportunities to expand throughout the worldFocus on geographies with a mature used car marketplace,relatively stable economy and business friendly regulationsLeverage extensive international buyer base to facilitate global expansionAdapt business models for different markets24
Financial Overview
Organic Growth Driven by Supporting FundamentalsKey Drivers Supportive macroeconomictrends and low fuel prices as acatalyst for vehicle useGrowing U.S. Car Parc and Miles Driven Resulting in More AccidentsU.S. Light Vehicle Car Parc(Vehicles in Operation in millions)U.S. LTM Miles Driven(Miles in trillions)276 Ride share and parcel deliveryincreasing3.222.992492013Key Drivers Vehicle values decline as thecar parc ages201320182018Increasing Total LossU.S. Average Vehicle AgeTotal Loss % of Total Claims(Years)19.2% Increasing driver distractions18.6% Multi-year increase in accidentrates Collision repair cost increasingdue to vehicle complexity aswell as increasing labor andparts costs18.0%11.716.9%11.415.6%14.1% Substantial increase in totalloss rates over the past 10 years14.1%20132018Source: CCC Information Services, Hedges and Company, U.S. Department of Transportation, Autocare Association.25201320142015201620172018 1Q19
Strong and Consistent Execution HistoryCommentary RevenueIAA has consistently increased Adjusted EBITDA margin –now at 29%( in millions)Strong cash flow generation sustained through lowmaintenance capital expenditures and working capitalrequirements 1,327 1,3472018LTM (1Q19) 1,219 1,098Expected fiscal year 2019 capital expenditures to beonly 12% of Adjusted EBITDA2016Adjusted EBITDA(1)Adjusted EBITDA less Capex(1)( in millions)( in millions) 388 (2) 396 (2) 333 347 (2)(3) 349 (2)(3) 321 (2) 324 (2) 278 241 283201620172017Adjusted EBITDA Margin:26%27%201829%2016LTM (1Q19)29%1.Please reference page 32 for a notice regarding Non-GAAP financial measures.2.Unaffected for estimated public company costs of 8- 10mm.3.Excludes 25.5mm for the purchase of IAA property in Florida for use during catastrophic events.2620172018LTM (1Q19)
Limited Exposure to Economic CyclesHistorical Sales( in millions) 1,327 1,219 1,098 994 896 830 700 71620112012 610 550 5532008200920102013Source: Company management.2720142015201620172018
Objectives Going ForwardShort-TermLong-Term Stand up new public company Optimize transition services and new public company costs Execute strategy and continue to deliver results for sellers and buyers Conduct margin improvement assessment De-lever Accelerate strategy and growth Implement margin expansion plan Pursue selective M&A opportunities Disciplined approach Return value to shareholders through disciplined capital allocationExpect to provide further details on margin expansion plan andimpact on long-term targets at investor day in early 202028
Long-Term Financial Outlook – Next 5 YearsRevenue Growth 5%-7% OrganicUpside from M&A and Ancillary ServicesAdjusted EBITDAGrowth 6%-8% OrganicUpside from Margin Expansion Plan and M&ACurrent expectations for 2019 in alignment with long-termfinancial outlook for revenue growth and adjusted EBITDA growth29
Capital Allocation PrioritiesAInitial use of excess cash generated by the business for debt reduction,with target net leverage of 2.0x-3.0xBPatient and disciplined investment in strategic growthCEvaluate initiatives to return capital to shareholders30
Key Investment Highlights Leading omnichannel marketplace for total loss, damaged and low-value vehicles withindustry-leading technology and data analytics capabilities Profitable and growing salvage vehicle market with attractive tailwinds (increasing milesdriven, increasing age of vehicles, growing vehicle complexity, rising repair costs) Strong and consistent revenue growth, profitability and cash flow generation withsupportive market fundamentals Asset-light business model supported by IAA’s vehicle consignment model and highaccounts receivable turnover Consolidated industry with significant barriers to entry Resiliency through economic cycles Highly experienced executive leadership team and a deep bench with extensiveindustry expertise31
Appendices
Non-GAAP Financial Measures EBITDA is defined as net income (loss), plus interest expense net of interest income, incometax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjustedfor the items of income and expense and expected incremental revenue and cost savingsincluding non-cash stock-based compensation, loss on extinguishment of debt, acquisitionrelated costs, securitization interest, minority interest and (gain)/loss on asset sales.Management believes that the inclusion of supplementary adjustments to EBITDA applied inpresenting Adjusted EBITDA is appropriate to provide additional information to investorsabout one of the principal measures of performance used by IAA’s creditors. In addition,management uses EBITDA and Adjusted EBITDA to evaluate IAA’s performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not beconsidered in isolation, or as a substitute for analysis of the results as reported under GAAP.These measures may not be comparable to similarly titled measures reported by othercompanies.32
Adjusted EBITDA Reconciliation – AnnualFiscal years endedDec 29, 2013(unaudited)Dec 28, 2014(unaudited)Dec 27, 2015Jan 1, 2017Dec 31, 2017Dec 30, 2018LTMMar 31, 2019 55.4 78.2 89.9 94.9 161.4 183.7 80.9Depreciation and ny interest37.837.837.837.837.837.937.9 200.4 240.5 261.8 279.8 328.7 382.3 389.4Intercompany charges0.60.80.70.3----0.6Non-cash ty interest----(1.4)--------Separation 0.3Total addbacks17.45.21.42.84.65.76.5Adjusted EBITDA 217.8 245.7 263.2 282.6 333.3 388.0 395.9Revenue 830.0 895.9 994.3 1,098.0 1,219.2 1,326.8 1,346.7Adjusted EBITDA Margin %26.2%27.4%26.5%25.7%27.3%29.2%29.4%( in millions)Statement of income dataNet incomeAdd back:Income taxesInterest expense, net of interestincomeOther financial dataEBITDA33
Adjusted EBITDA Reconciliation – QuarterFiscal quarters( in millions)1Q172Q173Q174Q171Q182Q183Q184Q181Q19 30.5 35.6 26.2 69.1 48.3 49.8 39.0 46.6 321.89.49.49.59.59.49.59.49.69.4 81.3 88.7 74.9 83.8 98.0 101.6 86.9 95.8 105.1Intercompany charges----------------0.6Non-cash (1.0)1.1Total addbacks1.00.31.32.02.01.52.10.12.8 82.3 89.0 76.2 85.8 100.0 103.1 89.0 95.9 107.9Revenue 297.4 298.7 287.7 335.4 337.3 333.2 321.1 335.2 357.2Adjusted EBITDA Margin ement of income dataNet incomeAdd back:Income taxesInterest expense, net ofinterest incomeDepreciation andamortizationIntercompany interestOther financial dataEBITDASeparation costsAdjusted EBITDA34
Summary Unaudited Pro Forma Balance Sheet( in millions, as of March 31, 2019)AssetsLiabilities & EquityCurrent AssetsCurrent LiabilitiesCash and cash equivalents 25Short-term debtTrade receivables, net338Accounts payable123Prepaid consigned vehicle charges51Accrued expenses70Other current assets39Income taxes payableShort-term right of use operating lease liabilityNon-Current Assets198Long-term debtIntangible assets686Deferred income tax liabilitiesOperating lease right-of-use assets626Long-term right-of-use operating lease liabilityTotal Assets163Non-Current LiabilitiesProperty and equipment, netOther assets 812 1,97564607Other liabilities13Parent Equity(241)Total Liabilities & Equity351,267 1,975
Lynn Jolliffe CEO, Jolliffe Solutions Independent Director Olaf Kastner Retired (Previously President & CEO, BMW Group China) Independent Director Peter Kamin Founder and Managing Partner, 3K Limited Partnership Independent Director Sue Gove President, Excelsior Advisors Independent Director John P. Larson CEO, Bestop Chairman of the Board .
