September 2021
Investor Presentation
Disclaimer
This presentation is for informational purposes only. This presentation is not an offer to sell, or the solicitation of an offer to buy, any securities of IAA, Inc.
Forward-Looking Statements
Certain statements contained in this presentation include “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements made that are not historical facts may be forward-looking statements and can be identified by words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions. In this presentation, such forward-looking statements include statements regarding our 2021 outlook, industry performance expectations and plans regarding our growth strategies and margin expansion plan. Such statements are based on management’s current expectations, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. These risks and uncertainties include: uncertainties regarding ongoing surges of COVID-19 infections, including the more contagious and / or vaccine-resistant variants, and the impact on the duration and severity of the COVID-19 pandemic; the loss of one or more significant vehicle seller customers or a reduction in significant volume from such sellers;
our ability to meet or exceed customers’ demand and expectations; significant current competition and the introduction of new competitors or other disruptive entrants in our industry; the risk that our facilities lack the capacity to accept additional vehicles and our ability to obtain land or renew/enter into new leases at commercially reasonable rates; our ability to effectively maintain or update information and technology systems;
our ability to implement and maintain measures to protect against cyberattacks and comply with applicable privacy and data security requirements; our ability to successfully implement our business strategies or realize expected cost savings and revenue enhancements, including from our margin expansion plan; business development activities, including acquisitions and integration of acquired businesses; our expansion into markets outside the U.S. and the operational, competitive and regulatory risks facing our non-U.S. based operations; our reliance on subhaulers and trucking fleet operations; changes in used-vehicle prices and the volume of damaged and total loss vehicles we purchase; economic conditions, including fuel prices, commodity prices, foreign exchange rates and interest rate fluctuations; trends in new- and used-vehicle sales and incentives; and other risks and uncertainties identified in our filings with the Securities and Exchange Commission (the “SEC”), including under "Risk Factors" in our Form 10-K for the year ended December 27, 2020 filed with the SEC on February 22, 2021. Additional information regarding risks and uncertainties will also be contained in subsequent annual and quarterly reports we file with the SEC. The forward-looking statements included in this presentation are made as of the date hereof, and we undertake no obligation to publicly update or revise any forward-looking statement to reflect new information or events, except as required by law.
Market & Industry Data
Projections, estimates, industry data and information contained in this presentation, including the company's general expectations and market position and market opportunity, are based on information from third- party sources and management estimates. The company's management estimates are derived from third-party sources, publicly available information, the company's knowledge of its industry and assumptions based on such information and knowledge. The company's management estimates have not been verified by any independent source. All of the projections, estimates, market data 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 of factors, 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 or those provided by third parties.
Non-GAAP Financial Measures
This presentation contains certain financial measures that are not presented in accordance with generally accepted accounting principles in the United States (“GAAP”). The non-GAAP financial measures presented herein include EBITDA, Adjusted EBITDA and Adjusted EBITDA less CapEx. An explanation of these non-GAAP financial measures and a reconciliation to the comparable GAAP financial measure, net income, is included in the Appendices to this presentation. The non-GAAP financial measures presented herein do not represent financial performance under GAAP and should not be considered in isolation, as an alternative to net income or as an indicator of any other performance measure determined in accordance with GAAP. You should not rely on non-GAAP financial information as a substitute for GAAP financial information, and should recognize that the non-GAAP financial measures presented herein may not compare to similarly-termed non-GAAP financial measures of other companies (i.e. because other companies may not always calculate their non-GAAP financial measures using the same adjustments we do).
Company and
Industry Overview
IAA Overview
Comprehensive, End-to-End Solutions
Including IAA Loan PayoffTMand IAA Inspection ServicesTM Creates Deeply Embedded Customer Relationships
and Reduces Cycle Times
360 View Provides More and Better Data to Buyers
Consignment Model
Reduces Working Capital Requirements Via an Asset-Light Business Model
Digital Auctions
Enhanced with IAA InteractTMplatform including IAA 360 ViewTM, IAA Feature TourTMand IAA Engine StartsTM Optimizes Buyer Convenience, Enhances Buyer Participation, Reduces Friction in the Process
Extensive Seller Base and Global Buyer Base
Supports “Many-to-Many” Network Effects
Advanced Technology and Data Analytics Capabilities
Enhances Customer Retention and Adoption
Leading global marketplace for total loss, damaged and low-value vehicles
History and Key Events
1982- 1991
2005- 2007
2009- 2010
2011- 2014
2015- 2016
2017-
2018 2019 2020
Founded and enters the vehicle salvage business
Acquired by
Launches IAA Buyer, the industry’s first buyer app
Continues to improve online and mobile capabilities
Expands into UK with acquisition of
Launches IAA Total Loss SolutionsTM
Introduces
IAA Timed Auctions™
Launches industry-first mobile app to accelerate catastrophe response IAA Loan PayoffTM
goes live
Announces spin-off of
Begins roll-out of IAA 360 ViewTM
Spins-off
Buyer Digital Transformation Completed
OperationalCorporate
Combines operations with and expands into Canada
Large North American Addressable Market
~42mm
Used Retail Sales
~300mm
Vehicles in Operation
~19mm Units
New Vehicle Sales
~13mm Units
Removed from Operation
• Vehicles out of service
• Vehicles not processed by insurance
• Uninsured vehicles
~8mm Units
Remaining Vehicles
5mm+ Units
Salvage Auctions
Overview of the Auction Process
Seller Buyer
Sold
Transportation via IAA
Vehicle Arrives at IAA
Location
Insurance Title Procurement Inspection Imaging
Storage
Digital Bidding
Transportation via Buyer
~40 days (varies by state)
Assignment to Storage
~2-3 days
IAA’s Digital Marketplace
Assignment
1
Sellers
• Establishes and maintains deep relationships with over 80 of the top 100 major national insurers.
Insurance Companies Charitable Organizations Dealerships
Rental Car Companies
Fleet Lease Companies
Services
Transportation
2
Check-In
3
Vehicle Protection
4
Title Procurement
5
Web-Based Management System
6
Registration
1
Buyers
• Large, diverse and global buyer network with limited buyer concentration.
Dismantlers
Rebuilders
Scrap Dealers
Services
Vehicle Preview / IAA Interact™
2
Digital Bidding
3
Mobile Buying App
4
Financing Partners
5
IAA Buy Now™
6 Digital Marketplace
• Enhances auctions through the use of technology and a democratized marketplace network model.
Digital Flow Process
Seller Fee
Buyer Fee IAA Timed AuctionsTM
Online / Proxy Bidding
IAA Buy NowTM
Historical Organic Growth Driven by Supporting Fundamentals
Increasing Industry Total Loss
U.S. Light Vehicle Car Parc (2) U.S. LTM Miles Driven (Trillions)(3)
249
281.4
2013 2020
+13.0%
+4.4%
U.S. Average Vehicle Age (Years)(4) Total Loss % of Total Claims
Historical Growing U.S. Car Parc and Miles Driven
Long-term Key Drivers
(1)• Supportive macroeconomic trends and as a catalyst for vehicle use
• Ride share and parcel delivery increasing
Long-term Key Drivers
(1)• Vehicle values decline as the car parc ages
• Increasing driver distractions
• Collision repair cost increasing due to vehicle complexity as well as increasing labor and parts costs
• Substantial increase in total loss rates over the past 10+ years
• Increasing adoption of ADAS results in higher dollar amount of damage to vehicles
___________________________
1. Excludes potential future impact of COVID-19 2. Source: BTS, Experian as of 12/31/2020 3. Source: U.S. Department of Transportation 4. Source: BTS, IHS Markit as of July 2020
3.0
3.2
2.8 3.0
2013 2019 2020 LTM as of 6/30/21
11.4
11.9
2013 2020
14.1%14.1%
15.6%
16.9%
18.0%
18.6%19.2%
20.5%
19.4%
2013 2014 2015 2016 2017 2018 2019 2020 Q2 2021
Q2 2021 Financial
Results and 2021
Outlook
Q2 2021 Financial Performance Highlights
●
Revenue of $445.1 million up 50.0% from prior year, driven by significant increases in both volume and revenue per unit
●
Gross margin of 44.0%, up 640bps from prior year
●
Adjusted EBITDA of $152.6 million
(1)up 93.4% from prior year
●
Net income up 149.7% from prior year
●
Year-to-date net cash provided by operating activities of $250.7 million
●
Post-quarter end, announced $400 million, 5-year share repurchase authorization
1. See reconciliation on slide 26
$1,219 $1,327 $1,437 $1,385
$1,590
2017 2018 2019 2020 LTM (2Q21)
Financial Performance through Q2 2021
• Strong cash flow generation sustained through low working capital requirements and modest maintenance capital expenditures
• 2020 performance impacted by lower volume primarily due to COVID-19, with partial offset from record-level revenue per unit and cost reductions
• YTD 2021 performance saw continued strong momentum in revenue per unit leading to record revenue and Adjusted EBITDA for the period
Revenue
2017-2020 CAGR: 4%
($ in millions)
Adjusted EBITDA less Capex(1)
($ in millions)
Adjusted EBITDA(1)
Adjusted EBITDA Margin(1):
27% 29% 29% 29% 32%
($ in millions)
Commentary
___________________________
1. See reconciliation on slide 25.
$328
$383 $412 $399
$505
2017 2018 2019 2020 LTM (2Q21)
$274
$316 $343 $329
$400
2017 2018 2019 2020 LTM (2Q21)
2017-2020 CAGR: 6%
2017-2020 CAGR: 7%
2021 Financial Outlook*
●
Organic revenue growth of 20% - 24%
●
Organic Adjusted EBITDA growth of 29% - 33%
●
Interest expense of $57.0 million - $59.0 million
●
Effective tax rate of 25.0% - 25.5%
●
Depreciation & amortization of $82.0 million - $86.0 million
* Represents the company’s financial outlook for fiscal 2021 as provided on the company’s Q2 2021 earnings call on August 3, 2021 and speaks as of that date. The company undertakes no obligation to update its financial outlook to reflect new information or events, except as required by law. See “Non-GAAP Financial Measures” in the Appendices.
IAA Growth Strategy
IAA Long-term Growth Strategy
Enhance Existing Relationships and Expand Market Share
Grow share of wallet with large insurance carriers and increase penetration of smaller insurance carriers and non-insurance sellers
Broaden Service Offering to Deepen Strategic Relationships
Add new innovative services and capabilities to our leading end-to-end solutions
Continue to Enhance International Buyer Network
Expand buyer base on the platform through digital marketing and search engine optimization to yield better outcomes for sellers
Expand Margins Through Four Identified Pillars
Deploy innovative processes and technology to reduce costs to improve operating margins
Continue to Innovate and Enhance Data Analytics Capabilities
Invest in developing new innovative solutions and capitalizing on data analytics expertise
Expand Internationally in Attractive Markets
Continue to expand existing international presence and enter new strategically attractive geographic markets
Employ Disciplined Capital Allocation Strategy
Drive long-term growth and deliver sustainable shareholder value
1
2
3
4
5
6
Enhance Existing Relationships and Expand Market Share
Grow volume across different non-insurance segments
Align with the largest, fastest-growing insurance companies
Increase penetration of small carriers
“Many-to-Many”
Network Effects
Digital Auctions
Global Buyer Network Expansion
Comprehensive, End-to-End Solutions
Advanced Technology and Data Analytics Capabilities
Cycle Time Reduction
1
Broaden Service Offering to Deepen Strategic Relationships
IAA Loan Payoff™ and IAA Title Services™
IAA Inspection Services™, Appraisal Optimization via Data Analytics and Vehicle Inspection Centers
Revenue growth opportunity Deeper strategic dialogue with customers Strengthened position of
leadership and trust
Greater customer stickiness through increasing workflow
integration IAA CSAToday® and
IAA Market ValueTM
Digital Negotiation / Approval and Electronic Payment
✓ ✓ ✓ ✓
First Notice of Loss Loss
Determination
Vehicle Inspection and Appraisal
Title Management
Inventory Management
Sale and Settlement
2
Continue to Enhance International Buyer Network
International Buyer Network Expansion Approach
Buyer Portal Call Center
Supports 12 Languages Available in
6 Languages
Expanding the base of international buyers brings more bidders to our platform and yields better outcomes for sellers in our marketplaces
On-site, in-person recruiting
State-of-the-art digital platform, utilizing digital
marketing and search engine optimization 3
Expand Margins*
* The margin expansion plan does not incorporate potential longer-term impact from the COVID-19 situation, which we are unable to reasonably estimate at this time
Four Pillars Drive Margin Expansion
Buyer Digital Transformation
(“BDT”)
Pricing Optimization
Towing Optimization
Branch Process Improvement and
Efficiency 4
$42 - $48 MM
Completed ahead of plan in April 2020; Full run-rate of
savings in 2021
$4 - $5 MM
$14 - $18 MM Largely complete by early 2022;
Full run-rate in 2023 $1 - $2 MM
$24 - $28 MM Largely complete by end of 2022;
Full run-rate in 2024 $7 - $8 MM
$24 - $28 MM Largely complete by early 2022;
Full run-rate in 2023 $1 - $2 MM
$104 - $122 MM* $13 - $17 MM*
Expand Margins – Estimated Benefits*
Buyer Digital Transformation
Pricing Optimization
Towing Optimization Branch Process Improvement and
Efficiency
Estimated Annual Net Adjusted EBITDA Run-Rate
Benefit Range (2024) Timing
Cumulative Capital Investment Required Through 2024
See “Non-GAAP Financial Measures” in the Appendices
* The margin expansion plan does not incorporate potential longer-term impact from the COVID-19 situation, which we are unable to reasonably estimate at this time
4
Continue to Innovate and Enhance Data Analytics Capabilities
HCV Picture
Advanced Data Analytics
✓ Improve Decision Making
✓ Increase Transparency
✓ Reduce Friction
Sellers Buyers
Reserve Price Optimization Total Loss Decision Making
Performance Metrics
Market Value Trends Inventory Optimization Buy Recommendations
Our culture of innovation and leading data analytics capabilities continues to enhance economic benefits for both sellers and buyers
Selling Behavior Buying Behavior
5
Expand Internationally in Attractive Markets
Identify opportunities to expand throughout the world
Focus on geographies with a mature used car marketplace, relatively stable economy and business friendly regulations
Leverage extensive international buyer base to facilitate global expansion
Adapt business models for different markets
✓
✓
✓
✓ 6
Appendices
• Adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA") is a non-GAAP financial measure calculated as net income before income taxes, interest expense, and depreciation and amortization (“EBITDA”) and further adjusted for items that management believes are not representative of ongoing operations including, but not limited to, (a) non-income, tax-related accruals, (b) one-time transaction and other costs related to the spin-off from KAR Auction Services in the second quarter of 2019, (c) severance, restructuring and other retention expenses, (d) for periods prior to the first quarter of 2021, incremental costs and expenses associated with COVID-19, including cleaning services, cleaning supplies and personal protective equipment, (e) the net loss or gains on the sale of assets or expenses associated with certain M&A, financing and other
transactions, (f) acquisition costs, (g) certain professional fees, and (h) other expenses that we do not believe are indicative of our ongoing operations, as well as (i) gains and losses related to foreign currency exchange rates. Adjusted EBITDA less CapEx is a non-GAAP financial measure calculated as Adjusted EBITDA minus capital expenditures. We believe that these measures
provide useful information regarding our operational performance because they enhance an investor’s overall understanding of our core financial performance and helps investors compare our performance to prior and future periods. We have made changes to our calculation of Adjusted EBITDA compared to what was previously reported for IAA by KAR Auction Services, including in the Form 10. For Adjusted EBITDA, we no longer adjust for stock compensation expense and deferred rent, but continue to adjust for the other items defined above and noted in our reconciliation. We have conformed all prior period amounts to this new
presentation.
• We have not provided a reconciliation of organic revenue or organic Adjusted EBITDA outlook for fiscal 2021 to GAAP revenues or net income, respectively, the most directly comparable GAAP financial measures because, without unreasonable efforts, we are unable to predict with reasonable certainty the amount or timing of non-GAAP adjustments that are used to calculate organic revenue or organic Adjusted EBITDA , including, but not limited to: in the case of organic revenue, (a) sales from acquired
businesses recorded prior to the first anniversary of the acquisition and (b) the impact of foreign currency movements; and in the case of organic Adjusted EBITDA: (a) non-income, tax-related accruals, (b) severance, restructuring and other retention expenses, (c) the net loss or gains on the sale of assets or expenses associated with certain M&A, financing and other transactions, (d) acquisition costs, (e) certain professional fees, (f) other expenses that we do not believe are indicative of our ongoing operations, (g) gains and losses related to foreign currency exchange rates, (h) EBITDA from acquired businesses recorded prior to the first anniversary of the acquisition, and (i) the impact of foreign currency movements. We have also not provided a reconciliation of Adjusted EBITDA run-rate benefit range from net income because, without unreasonable efforts, we are unable to predict with reasonable certainty the amount or timing of cost savings and revenue enhancements to be achieved as a result of our margin expansion plan. The foregoing adjustments are uncertain, depend on various factors that are beyond our control and could have a material impact on net income for fiscal 2021 or thereafter.
Non-GAAP Financial Measures
25
Adjusted EBITDA Reconciliation
_________________________________________________
Note: Amounts will not always recalculate due to rounding
FISCAL YEAR ENDED SIX MONTHS ENDED LTM ENDED
Jan 1, 2017 Dec 31, 2017 Dec 30, 2018 Dec 29, 2019 Dec 27, 2020 Jun 28, 2020 Jun 27, 2021 Jun 27, 2021
$ in millions
Statement of income data
Net income $94.9 $161.4 $183.7 $193.2 $194.8 $77.9 $155.4 $272.3
Add back:
Income taxes 58.4 35.6 62.5 69.0 62.2 25.8 51.6 88.0
Interest expense, net 38.6 38.6 38.7 55.7 56.0 29.8 34.9 61.1
Depreciation & amortization 87.9 93.1 97.4 88.4 81.1 42.1 40.3 79.3
Other financial data
EBITDA $279.8 $328.7 $382.3 $406.3 $394.1 $175.6 $282.2 $500.7
Non-income, tax related accrual 0.0 0.0 0.0 0.0 0.0 0.0 2.7 2.7
Spinoff costs 0.0 0.0 2.0 3.5 0.0 0.0 0.0 0.0
Retention / severance / restructuring 0.1 0.3 0.1 1.7 3.0 2.9 0.6 0.7
Loss (gain) on sale of assets 0.1 (0.5) (0.7) (0.1) (0.7) (0.1) (0.2) (0.8)
Acquisition costs 0.2 0.0 0.0 0.2 0.0 0.0 0.1 0.1
Flood insurance reimbursement 0.0 0.0 (0.7) 0.0 0.0 0.0 0.0 0.0
Covid-19 related costs 0.0 0.0 0.0 0.0 1.0 0.5 0.0 0.5
Non-operating foreign exchange loss (gain) 0.0 0.0 0.1 0.1 (0.3) (0.5) (0.6) (0.4)
Professional Fees 0.0 0.0 0.0 0.0 1.4 0.5 1.0 1.9
Adjusted EBITDA $280.1 $328.4 $383.0 $411.7 $398.5 $178.9 $285.8 $505.4
Revenue $1,098.0 $1,219.2 $1,326.8 $1,436.8 $1,384.9 $663.4 $868.6 $1,590.1
Adjusted EBITDA Margin 25.5% 26.9% 28.9% 28.7% 28.8% 27.0% 32.9% 31.8%
Capital Expenditures 42.0 54.9 66.7 68.5 69.8 22.1 57.8 105.5
Adjusted EBITDA less Capex $238.1 $273.5 $316.3 $343.2 $328.7 $156.8 $228.0 $399.9
Adjusted EBITDA Reconciliation – Q2 2021
Quarter Ended
Jun 28, 2020 Jun 27, 2021
$ in millions
Statement of income data
Net income $33.2 $82.9
Add back:
Income taxes 10.7 27.2
Interest expense, net 13.8 21.9
Depreciation & amortization 19.6 20.5
Other financial data
EBITDA $77.3 $152.5
Retention / severance / restructuring 0.6 0.0
Loss (gain) on sale of assets 0.0 0.0
Acquisition costs 0.0 0.1
Covid-19 related costs 0.3 0.0
Non-operating foreign exchange loss (gain) 0.2 (0.3)
Professional Fees 0.5 0.3
Adjusted EBITDA $78.9 $152.6
