Good morning and welcome to the IAA Inc's Fourth Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Arif Ahmed, Vice President, Treasury. Please go ahead.

Thanks, Chad. Good morning, everyone and thanks for joining us today for IAA's fourth quarter fiscal 2020 earnings conference call. Speaking today are John Kett, Chief Executive Officer and President, and Vance Johnston, our Chief Financial Officer. After John and Vance 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, goals, and 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 29, 2019, filed with the SEC on March 18, 2020, updated in our Form 10-Q filed with the SEC on May 6, 2020, and in the Form 10-K for the year ended December 27, 2020, which we expect to file on or near February 19, 2021. Forward-looking statements made today are as of the date of this call, and IAA does not undertake any obligation to update those 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.

Thanks, Arif. Good morning, and thank you all for joining us for our fourth quarter and fiscal year-end earnings call. Arif, Vance, and I are in two different locations today, so please bear with us particularly when we do the Q&A. But let me just start out to recap that saying 2020 was an unprecedented year would be an understatement. The challenges of the pandemic have tested us all personally and professionally. And I want to start by just saying how proud I am of the IAA team and how they rose to meet these challenges. Our top priority throughout continues to be the health and safety of our employees, customers, and suppliers. We were pleased to be in a position very early on in the pandemic to help our partners respond through products and solutions such as inspection services and title services that help providers remotely manage their workforce safely and efficiently without human contact. At the same time, we also executed against our priorities, delivering an improved experience for our buyers and sellers, primarily through the accelerated rollout of our digital auction and digital-only auction platform. We also made great strides launching new products, services, tools, and functionality. This improved experience, along with favorable industry dynamics, contributed to the strong revenue per unit trends that we saw for much of the year, helping to partially offset the pandemic-driven volume declines that we also experienced. As a reminder, at the height of the stay-at-home orders in March of last year, miles driven declined between 40% and 50%, leading to a 45% decline in assignments that was at its trough in mid-April. Since then, we have seen sequential quarterly trend improvement in assignments and units sold as miles driven has improved. The total loss frequency continues to be an industry tailwind, reaching 21.5% of claims in the fourth quarter of 2020, up 120 basis points over 2019. For the full year, the average total loss ratio was up 130 basis points, the highest year-over-year increase since 2015. Combined, this led to a year-over-year organic revenue decline of 3.7%. Inorganic adjusted EBITDA declined by just 2.2% for the full year. As we mentioned on our last call, early in Q4, we had seen assignments, unit sold, and revenue per unit all consistent with the levels that we had seen exiting Q3. As the quarter progressed, we continued to see solid volume trends and service revenue per unit remained near all-time highs. Importantly, for the fourth quarter, we returned to revenue growth, with an organic revenue increase of 7.5%. For profitability, organic adjusted EBITDA grew by 16.4%, driven by that continued strength in revenue per unit and the benefits of our buyer digital transformation, which more than offset the volume declines. Let me now discuss our strategic initiatives. Over the last year and a half since the spin-off, we have focused on six key initiatives. And I want to update you now on the progress that we've made and where we are going with each. First, we are broadening our service offering to deepen strategic relationships. In 2020, as I mentioned, we were very pleased to continue to assist our partners with key tools and products like inspection services and title services. That proved extremely beneficial given the rapid shift to a remote work environment and a focus on virtual claim handling. We also significantly enhanced our best-in-class loan payoff tool, having successfully integrated Dealertrack and DDI while also making significant progress in adding more than 500 new lenders to the platform, ending the year with over 1,500 financial institutions and insurance partners on the portal. We continue to believe that our loan payoff tool is the industry’s only end-to-end solution, allowing providers to quickly and efficiently arrange payment for both positive and negative equity loans in order to receive the clear title. Another example of enhancing our product suite was our announcement last month about DDI expanding its electronic title and registration product offering into Indiana, which will speed up processing of transactions in that state. Regarding our buyers, our focus and progress with the rollout of our buyer digital transformation and the introduction of our Interact platform with tools such as 360 view, virtual engine start, and Feature Tour has continued to drive strong traction among new and existing buyers. Continuing with the buyer discussion, the next initiative is the continued enhancement of our international buyer network. While the pandemic certainly had an impact on our international buyer growth early in 2020, we are pleased that for the full year, primarily through focused digital marketing and search engine optimization initiatives, we grew our total buyer base by approximately 28% and grew our international buyer base by approximately 40%. We also added new market alliance partners in 2020 and between these alliance partners and our broker buyers, we now have grown our in-country coverage in our top 25 international markets. We leverage our Voice of Customer program and receive regular feedback from our buyers about what we are doing well and what we can do better. From this feedback, we've assembled internal teams to address specific items noted for improvement, and we’ve received great praise from our buyers for our responsiveness. The combination of these initiatives positions us well to accomplish our next goal: enhancing existing relationships and expanding market share. The foundation that we laid with BDT and the improvements we've made in our loan payoff and ancillary product suite helped us make significant strides in improving our competitive positioning, which we believe will drive results going forward. Now, let me speak to expanding margins. We break this down into four areas of targeted improvement: buyer digital transformation, tooling optimization, branch process improvement, and pricing optimization. The first phase of our buyer digital transformation was completed with the accelerated rollout of our digital-only auction platform in the U.S. during the second quarter of 2020. We are extremely pleased with the smooth transition to an entirely digital platform, and it is clear that both revenues and profitability have been positively impacted from this initiative. Our buyer digital transformation resulted in meaningful benefits to 2020 EBITDA, even given the impact of COVID-19. Furthermore, we received positive feedback from both buyers and sellers. Regarding the three remaining pillars—tool optimization, branch process improvement, and pricing—we are still in the early stages of these initiatives, but we are on track in each. As an example, we’ve continued to optimize our routing in a few more markets, and we continue to see a benefit in reduced tolling costs without any degradation of service. We will continue to update you on our progress. Looking ahead, we anticipate executing against all these initiatives and generating the net adjusted EBITDA benefits run rate that we originally projected, notwithstanding any prolonged macro impact. Our continued work to innovate and enhance our data analytics capabilities has been crucial. Much of our success in building the foundation I've discussed has come through our own innovation capabilities producing tools like 360 view and incorporating data science to focus on buyer acquisition and retention while using digital marketing and search engine optimization to customize our engagement with these buyers. Lastly, let me now cover our initiative focused on expanding internationally. This focus has been, and will continue to be, on the international markets where we already operate, specifically our Canadian and U.K. operations. We've made good progress replicating much of the work that we successfully executed in the U.S. with some necessary customization to take into account local practices and policies. We have implemented an all-digital model in Canada and rolled out tools like 360 view in both Canada and the U.K. In the U.K., we have rebranded operations to IAA, launched the new auction platform, and transformed our technology platform. We have made good strides in understanding the international landscape and recently completed our assessment of traditional markets to determine the areas that we believe have the best long-term opportunities for IAA. In addition to our strategic initiatives, we also completed 34 land projects to increase land capacity in 2020, including a combination of greenfield locations, expansions of existing facilities, and relocations. Additionally, we continue to benefit from our exclusive agreement with NASCAR, which provides us with significant flexibility regarding acreage. We feel very good about our real estate's ability to support meaningful growth and serve our customers effectively going forward. In summary, given the unique circumstances we faced in 2020, I couldn't be more proud of our team and the achievements we made throughout the year. Given the uncertainty surrounding the ongoing pandemic, we are not providing guidance at this time. However, looking ahead, we will continue to progress against all our initiatives to improve the experience for buyers and sellers and strengthen our platform and foundation for growth. We will also continue to make the necessary investments to support growth and adhere to the disciplined approach to capital allocation that we've always taken and talked about. I will now turn the call over to Vance to review our financial results.

Thanks, John, and good morning, everyone. I just want to spend a few minutes providing some more detail and color on our results for the year and fourth quarter. I will focus my discussion today on our adjusted non-GAAP results and just touch on some key highlights. Please see today's press release for more details on our financial performance and our methodology for calculating non-GAAP results. Performance improved sequentially as we moved past the peak impact of the pandemic earlier in the year, capped by a strong fourth quarter that saw a return to revenue growth. We continued to benefit from strong revenue per unit trends, as well as improved trends in assignments and units sold. For the year, we saw a decline of 3.7% in consolidated organic revenue and only a 2.2% decline in organic adjusted EBITDA, which we feel good about considering where we were at in late March and the unknown impact of COVID-19 on our business. As John mentioned, and we have previously discussed, we benefited from higher revenue per unit, which we believe is largely driven by our efforts to accelerate buyer digital transformation and expand our global buyer network, among other things. We did a really good job managing costs during the pandemic. We generated free cash flow for the year of $240.2 million, which increased 18.5% versus the prior year despite the revenue decline, and we benefited from improved working capital. We ended 2020 with liquidity more than double the level at the end of the prior year. Before I review the key financial highlights of our Q4 performance, a brief housekeeping note: beginning in the fourth quarter, we will now be breaking out revenue and cost of sales by vehicle sales, as well as service revenue, given that vehicle sales now represent greater than 10% of our consolidated revenues. For the fourth quarter, consolidated revenues increased 7.8% to $383.5 million compared to the prior year period. Organic consolidated revenue, which excludes the impact of foreign currency, increased 7.5% to $382.7 million, driven by an 18.4% increase in revenue per vehicle that was partially offset by a 9.2% decline in volume. Service revenues increased 3.5% to $332.8 million compared to the fourth quarter of fiscal 2019, while vehicle sales increased 47.4% to $50.7 million compared to the prior year period. Both assignments and units sold increased sequentially versus the third quarter. While service revenue per unit was down slightly from the third quarter, it was still very strong and in line with our expectations. Looking at our geographic performance, revenues increased in both our U.S. and international segments, driven by higher revenue per unit offset by lower volume. International revenue also benefited from a higher mix of vehicle sales, as one of our providers switched from a consignment model to a purchase vehicle model during the fourth quarter. Gross profit increased to $152.4 million from $135.1 million in the fourth quarter of fiscal 2019. Gross margin increased by 170 basis points in the quarter as service revenue gross margin expansion more than offset a decline in vehicle sales gross margin. We continue to see benefits in the incremental revenue and cost reductions from the buyer digital transformation. SG&A expenses were $37.7 million compared to $36.2 million in the prior year. Adjusted SG&A expenses were $36.6 million, an increase of 2.2% compared to $35.8 million in the prior year period, due mainly to incremental public company costs. Adjusted EBITDA increased by 16.5% to $115.8 million from $99.4 million in the fourth quarter of fiscal 2019. Excluding the impact of foreign currency, organic adjusted EBITDA increased by 16.4% to $115.7 million for the fourth quarter of fiscal 2020. Interest expense declined by $3.7 million to $12.9 million compared to $16.6 million in the fourth quarter of fiscal 2019. The decline was primarily driven by lower interest rates on our floating rate debt. The interest rate on our term loan was 2.44%. The effective tax rate was 22.2% versus 23.9% in the fourth quarter of fiscal 2019. Net income increased to $64.1 million from $45.6 million in the prior year. Adjusted net income increased by 30.3% to $65.3 million or $0.48 per diluted share, compared to $50.1 million or $0.37 per diluted share in the fourth quarter of fiscal 2019. Turning to our cash flow and balance sheet, capital expenditures for the quarter were $27.9 million compared to $12.1 million in the prior year. Capital expenditures in the quarter were higher than earlier in the year in part due to land purchases, as well as continuing to catch up on deferred spending. For the full year, capital expenditures were relatively flat at $69.8 million, including land purchases, versus $68.5 million in 2019. Our balance sheet remains very strong, and we exited the year with total liquidity of $595.5 million, which is over $330 million higher than at the end of last year, providing us with significant financial flexibility. We ended the period with a leverage ratio of 2.7 times adjusted EBITDA, which is down a full half turn from 3.2 times leverage at the time of the spin-off. During fiscal 2020, we generated free cash flow of $240.2 million, an increase of 18.5% over fiscal 2019 as we've benefited from improved working capital management. Finally, as noted in our earnings release, given the continued uncertainty regarding COVID-19, we are not providing guidance today. However, let me share some color that may be helpful. First, fiscal 2021 will be a 53-week year, with the extra week falling at the end of Q4. As it relates to the first quarter, transfer assignments, volume sold, and revenue per unit remain consistent with fourth-quarter models. I do want to note that our international markets, Canada and the U.K., have had more stringent restrictions put in place than the U.S., and this may have more of an impact on vehicle miles traveled in those locations. We will continue to monitor these restrictions and the potential impact. With that, we'll open up the call to questions.

The next question comes from Daniel Imbro. Please go ahead.

Yes, thanks. Good morning, guys. Congrats on the quarter, and thanks for taking your questions.

Good morning, Dan.

I want to start on a bit of a higher level, you guys have been online all day for roughly nine months now. How has execution gone? But more specifically, how has the international penetration gone? Have you seen success growing an international buyer base relative to your original expectations? And then I don't know if you've spoken this out before. But could you share what percentage of your U.S. vehicles are sold overseas today?

It’s Vance. So let me start with the execution and the implementation. It went extremely, extremely well. We had really no sort of hiccups of any significance. A couple of things here and there that we needed to correct, and we corrected them really quickly. But I think our technology team, as well as our implementation team, did a really good job of implementing it and again, on an accelerated basis implementing it. So I think really no issue there. And I think we're seeing it, and we're seeing the results of it operationally. We talked about the savings, but we're also seeing it in terms of our buyer engagement. And what buyers are doing? They like the new platform. They like to interact with our new marketing platform. So I think it has really been a success. In terms of international buyers, as I've talked about in my prepared remarks, early on, there was disruption during the pandemic as it first came about. But we're really happy with growing our international buyer base by 40%. That is really successful given what happened in 2020. And we knew that we had a good plan, not just with the platform, but with our digital marketing efforts. So I'm not surprised that we grew, but I’m really pleased with the results in terms of growing our international buyer base. As for the percentage of vehicles that leave the country, I don't think we've disclosed that publicly.

And again, Vance, there is some hazard in this because many of our domestic buyers turn around and export it. We don't necessarily know what they're doing with the vehicle. So putting a hard number on it would be difficult. Regardless, we're really pleased with what's happened with the international buyer.

Yes. That makes a lot of sense. And I guess as a follow-up to that, 40% growth is the big headline number. John, how much more room do you think there is in front of you to continue growing that? Are we anywhere near maturity? Or is there still a long runway of either existing countries or a new country that you could sell into to continue growing that base and driving revenue per unit higher?

Yes, great. Yes. We do see continued white space in terms of the international buyer. We still think there are areas to penetrate further within the countries we're already in, and there are still additional markets that we think we can discover buyers. And again, with what we've put in place, we're confident about finding them in a pretty efficient way.

Great. And then, last one from a bit of housekeeping. We've heard a lot of commentary on freight costs, both ground freight and maritime overseas shipping, becoming really inflationary here. Are you guys experiencing that today? Was that in the fourth quarter at all? And then how should we think about those factors from a cost perspective as we head into 2021?

Vance, do you want to take a crack at that one?

Yes, sure. So Dan, we haven't seen anything today of inflationary spending. I mean, as you're aware, buyers purchase our cars, they typically arrange for the transportation of those vehicles to their location. We are working on some things that we feel really good about in those areas. Regardless, the buyer will be taking on that cost. We haven't really heard or seen anything from our buyers that suggests that that's an issue for them. In fact, if you look at our proceeds per vehicle and what type of revenue per unit and the increase we talked about earlier, international buyers would suggest that they're doing quite well and they continue to bid on a number of vehicles and bid higher and buy more vehicles. Does that help?

Awesome. Thanks so much for the color, guys, and best of luck.

Thanks, Dan.

Thank you, Dan.

The next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Good morning, all.

Good morning, Gary.

A couple of things here. John, you mentioned in your comments that I guess the total loss ratio was up 120 basis points to 21.5% in Q4. And then 130 basis points. I didn't quite get what that percentage—raw percentage number was it? Was it 20% or higher or lower?

That was for the full year, Gary. And Arif, do you— I don't have that number in front of me for what it was for the full year, but we certainly have it, Gary. We can get it for you.

Yes. That's fine. That's something you can get to me. Is there any chance now that you're breaking out your revenues that you can give us an idea of the unit declines and increases on fee-based vehicles versus purchased vehicles?

So Vance, do you want to continue?

Yes. Gary, that's not something that we're necessarily disclosing at this point in time.

Right.

But obviously, with what you saw with the increase in vehicle sales, if you consider that—if you think about it, obviously, revenue per unit has gotten higher as we've talked about. So if you're thinking about quarter-over-quarter comparison with the fourth quarter of 2020 versus the fourth quarter of 2019, that clearly would have been a factor. But also, you would have good performance on volume. As we talked about, service revenues, obviously, the primary factor we've alluded to in our prepared remarks is really strong revenue per unit has been the primary factor and that offset volume declines.

Okay. Are you going to give us some kind of historical data on this breakdown between service fees and vehicle sales when you file your Q for modeling purposes on a quarterly basis?

I think what we'll be providing is similar to what’s been provided in the earnings release, which is going to be just the fourth quarter and the full year. So that's what as we file our Q, and then obviously, going forward we would expect to continue to break those out. And then you'll see that on a quarterly basis, Gary.

Okay. And then on what—I don't have this in front of me. I wrote it in a report way back. But of the three elements of the margin expansion plan that still need to be completed, which one will if any will be scheduled to be completed this year, John?

Well, Gary, I think we provided over a multi-year period, and we're going to be making progress on all of them. So in terms of completion, I don't know that we are going to complete any one of them. But I think we're going to continue to attack them over the next couple of years. Vance, is that fair?

Yes. That's fair. I mean, if you—Gary, if you go back and look at the plan that we rolled out in March of 2019, I think we did give some sense of timing as it relates. We did get some sense of timing as it related to each of those, and some of those go on for a little bit longer than others, right? So towing optimization, for example. What we're saying right now is that we're making really good progress and we feel good about things, and we're on track with the timing and benefits.

That's fine. I mean, I was really trying to get at as you did the digital transformation not much quicker than I was thinking, and maybe there will be some things have been going better than expected, and you may be able to wrap up some of these things as we go forward. Alright. And then lastly, in terms of the impact of these elements of your transformation, is that going to be more of an impact on the gross margin side or the operating margin side as we go forward?

John, do you want to take this one?

Yes. Go ahead, Vance.

Yes. So Gary, the vast majority, almost all of it is going to be on the gross margin line. Because if you think about buyer digital transformation, that is a revenue driver, and as cost—the costs are going away from previously running live auctions, and then pricing is clearly a gross margin line item. And then towing—the cost of towing hit cost of services. So that is a gross margin item as well. And branch process improvement efficiency, once again, those field costs are primarily, almost all of those will be hitting the gross profit line as well.

Okay. Thank you very much, guys.

Hey, Gary, the total loss is 20.5 for the full year, okay?

Okay. Thanks, Arif.

The next question comes from Bret Jordan with Jefferies. Please go ahead.

Hey, good morning, guys.

Hi, Bret.

When you think about vehicle sales being up 47% year-over-year, is there a strategic shift where you're really sort of focusing on using that strategy to gain share? And you talked about one international provider switching to the purchase model. How much of that single customer was the 47%?

So I'll let Vance answer the second part of it. But that's not a strategy to—purchase contracts are much more prevalent in the U.K. and a little bit in Canada. But it's not something that we're using in the insurance market in the U.S. to try and change. We like the consignment model for a lot of reasons, and our customers do too. So we do see opportunities to buy vehicles in some particularly non-insurance markets, and we are going to continue to focus on that, but it's a relatively small part of our mix.

Right. And the 47%?

Yes. Bret, that's obviously a significant factor, which is why we alluded to it, but we're not going to break them out in terms of the percentage or the dollars related to that. But we'd only mention it if it was a significant factor.

Okay. And then one question, I guess, sort of housekeeping. On land acquisition, you commented that CapEx had a more significant piece there. Could you sort of carve that out for us and maybe talk about your strategy going forward in land purchase?

So I'll start, and Vance can certainly weigh in. But yes, as we've defined our own capital allocation, we're going to be looking at the best economic returns. If buying land is a better deal, and we think there's a strategic need for land in a particular geography that we think has really long-term value, we'll look at buying. But if the returns are favorable, we'll continue to lease. So it's really just having the option to use both levers to procure properly.

Okay, great. Thank you.

Thanks, Bret.

Thanks, Bret.

The next question will be from Stephanie Benjamin with Truist. Please go ahead.

Hey, good morning, everybody.

Hi, Stephanie.

Good morning, Stephanie.

I was hoping you could talk a little bit about how assignments trended throughout the quarter. Just I think there's a lot going on in the fourth quarter just given increased COVID restrictions, the holidays, and you talked a little bit about how the start of January held up. But any additional color you could give would be helpful? Thank you.

Vance, you want to pick that?

Yes. I'm happy to take that. Good morning, Stephanie. So what we saw in terms of assignments—first, think about vehicle miles traveled and assignments, and then unit sold. Those trends had come up a lot from the second quarter and continued to improve sequentially in the third quarter and into the fourth quarter. But obviously started to stabilize a bit in the fourth quarter, in terms of what we saw. And there wasn't anything that was abnormal related to the holiday period, per se, other than the usual seasonal fluctuations that we would typically see. So that's the way I would describe it. Now obviously, there was more vehicle miles traveled as it related to traveling to see relatives and things of that nature versus flying that normally would be. But in terms of our results, we didn't necessarily see anything that was abnormally more than what we would typically see in terms of seasonality.

Got it. That's helpful. And this is a follow-up. Can you talk a little bit about what you're seeing right now in terms of your inventory levels? I believe that was a little ended the year down? And maybe how you would characterize it? Thank you.

Yes. So yes, if you think about what happened in 2020, we had obviously the decline in assignments and volume that John spoke about that hit a trough in mid-April and then climbed back from there. As more assignments came in, inventory increased as we sold through things. We ended the year slightly down from 2019, which I think all things considered is a pretty good place to be as we enter into 2021. We're seeing at the end of the first quarter and somewhat in the second quarter, more of an impact on conversion rates, and we’re starting to see that stabilize as well. So I think we feel good about where inventory stands now.

Great. Thank you so much.

The next question will be from Bob Labick with CJS Securities. Please go ahead.

Good morning and congratulations on excellent execution.

Thank you, Bob.

Hi. So I wanted to just follow-up a little on the total loss frequency that you discussed. Obviously, it's been rising. But with the significant increase in auction returns, which was driving your ARPU that we can see, do you think there's more room for total loss frequency to increase? Do you think it's kind of in concert with the auction returns? Or do you think that they've gone out of whack a little bit, I guess, is the question?

So I think we've obviously seen this trend over a seven- to eight-year period where total loss frequency continues to climb for a lot of reasons. We've talked about many of those factors. The complexity of vehicles, repair costs, average age of the fleet—the car park continues to age. So I think all those things have contributed to total loss frequency. I think auction returns are somewhat separate, although there obviously is some relationship. But I think auction returns are more driven by the demand side for parts, as well as what we've done to broaden the buyer base to bring more eyeballs and clicks to our platform. I think that's driving up the value of the assets. Now whether our insurance company adjusts their behavior based on what they're seeing in returns is a possibility. The longer-term trends we've seen in total loss frequency are somewhat independent of what we've seen with auction returns.

Okay. Got it. Great. And then just real quick, I guess my follow-up question. Could you discuss your priorities for your free cash flow? Obviously, very strong free cash in 2020, and I would expect very strong free cash flow in the coming year. Just give us a sense of how you're prioritizing the reinvestment of the cash?

I'll start, and Vance, please jump in. Again, we've laid out a disciplined capital allocation around using our free cash flow to invest in the highest return projects, whether that is buying land or investing in SG&A, or returning money to shareholders. Those are all obviously different avenues for us. Paying down debt, obviously, would be another use of that. We're going to continue to be very disciplined about it and look at all of those potential avenues for deploying our free cash.

Yes. I would just add that, obviously, we've been in the pandemic. Like many others, we've been prudent with cash. We've been fortunate that we've been able to generate a lot of free cash flow, certainly in 2020. We invested that back in the business on strategic key growth initiatives, technology, and things of that nature, including some land purchases, because we believed that we needed to continue to do that. Throughout this, I think we've done that well. As we move forward, as John alluded to, our overall philosophy hasn't changed: we are looking to allocate capital to the highest return opportunities we see. We're going to be very disciplined in continuing to do that. Initially, once we get more clarity and what line of sight we have as we come out of the pandemic, we'll be opening things up even more. But we'll continue to invest back into the business, which will be the primary area for funding growth initiatives because we do believe there are a lot of high return opportunities for deploying capital back into the business.

Got it. Super. Okay. Thank you very much.

Yes. Thank you.

The next question comes from Craig Kennison with Baird. Please go ahead.

Hey, good morning. Thanks for taking my question. It's been a helpful call. Vance, I wanted to ask about interest expense; it was lower due to floating rate debt. Would you consider fixing that rate with the risk that we could see rates move higher here?

We're looking at different options. That is pretty low; I'm sorry, that rate is pretty low that we have. But we are evaluating some different options that we see out there. So that could be one of them, but nothing more to say at this point in time.

Thanks. And I appreciate the reluctance to give guidance. We're trying to build the model, and there are so many inputs that could go in different directions. It's hard. But if we just isolate ARPU trends, which have been exploding on the upside, how big a drag would it be if ARPU backs off just because of price? Clearly, you have some drivers that are beyond just supply and demand dynamics. But if we see that supply/demand dynamic even out a little bit and ARPU drops or normalizes, how big a drag is that? How sensitive is your model to that dynamic?

Let me kind of start with the last piece of it. At the end of the day, there are really kind of two primary drivers on the model, primarily because you have such a substantial portion of a cost or variable in the tow cost tied directly to the per unit basis. So the two primary factors are assignments and volume sold, and then revenue per unit driven by proceeding among others. I think in that regard it is impactful. As we've seen, as it moved from the upside, it's been very impactful. If it were to decline, it would also be impactful. In terms of what we're seeing, it's interesting because I think there are macro-level impact factors which are things like supply, demand and balance, and also used car prices. When we went into the pandemic and saw everything, we saw revenue per unit balance rise to really high levels in the second quarter before assignments and volumes had recovered. Some portion of that is likely supply/demand driven. But we think the largest drivers have largely been the things we've done internally, going to an all-digital auction format, buyer digital transformation, growing out the Interact platform with tools such as the 360 view feature tour, and all the tools we provide to buyers. We think it's harder to detail in specific degrees, but we believe much of this is sustainable over time.

Thank you. And thanks for sharing that growth and international buyers; that helps explain things. Thank you.

Thanks, Craig.

Thanks, Craig.

And the next question will come from Chris Bottiglieri with Exane. Please go ahead.

Hey, guys. Thanks for taking a question. One of the follow-up first on the international buyer growth; it's a pretty impressive number. Can you give us some context for what that metric looks like say over 2019, 2018 in terms of growth rate, obviously, in addition to the current, but interesting to hear kind of how that accelerated to historical trends?

Yes. Chris, it's kind of something we've talked about specifically, but we had a robust international buyer base in 2018 and 2019. We've just moved really again through the efforts that we discussed this morning and have talked about around the new platform as far as our digital marketing and SCO work. We've really accelerated. So yes, it is strong growth, but it was a pretty solid base from which to grow.

Okay. And then I'm really impressed with SG&A control this quarter. If I remember correctly, you said that the transition service agreement with car shared service was expiring in a couple quarters. I think it was two years. Is that correct? Can you remind us what that means for expenses? And then, in totality, how should we think about SG&A growth next year? It would be helpful.

Yes, Chris, you are correct. There is a transition services agreement with car that was put in place at the time of the spin-off. That rolls off and is no longer effective as of the end of the second quarter of 2021. So, we'll have a half-year where we’ll continue to pay some amount for transition services fees. As we've also talked about in previous calls, we really did a nice job of getting almost everything on our platform and building up all the functions we needed, so that effectively, at the end of 2019, we were no longer needing car as a support function. However, there was a continuation of fees. We were able to work with them and reduce some of those fees, although we have not disclosed those publicly. As to SG&A going forward, I would say that on the positive side, we'll have only a half-year of the transition service fees impacting us. As we go back to a more normalized environment, we expect to have some more discretionary spending—travel, things of that nature—provided we revert to a more typical global environment. Though, we will have things that we've learned during the pandemic that we will no longer do. We expect SG&A to grow again, primarily due to public company costs. We incurred specific costs that are a full year impacting us in 2021.

That's really helpful. Thank you for the clarity.

Thanks, Chris.

Ladies and gentlemen, this concludes your question and answer session. I would like to turn the conference back over to John Kett for any closing remarks.

Thanks, Chad. Again, thank you everyone for your attention and for your support of IAA. We look forward to continuing to update you on our progress in future quarters. Have a great day.

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