Rb Global Inc. Q2 FY2023 Earnings Call

Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the RB Global Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Mr. Sameer Rathod, Vice President of Investor Relations and Market Intelligence to open the conference call. Mr. Rathod, you may begin your conference.

Hello, and good afternoon to everyone. Thank you for joining me and Jim Kessler, our Chief Executive Officer, on today’s call. The following discussion will include forward-looking statements, which can be identified by words such as expect, believe, estimate, anticipate, plan, intend, opportunities, and similar expressions. Comments that are not a statement of fact, including, but not limited to projections of future earnings, revenue, gross transaction value, debt and other items, business and market trends, and expectations regarding innovation of IAA, including the anticipated cost synergies are considered forward-looking and involve risks and uncertainties. The risks and uncertainties that could cause actual results to differ significantly from such forward-looking statements are detailed in our news release issued this afternoon, as well as our most recent quarterly reports and annual Form 10-K, which are available on our Investor Relations website. On this call, we will also discuss certain non-GAAP financial measures, including forward-looking non-GAAP financial measures. For the identification of non-GAAP financial measures, the most directly comparable GAAP financial measures, and the applicable reconciliation of the two, see our news release, Form 10-K, Form 10-Q, and Investor presentation posted to our website. We are unable to present a quantitative reconciliation of forward-looking non-GAAP financial measures as management cannot predict all necessary components of such measures. Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures. All figures discussed on today’s call are U.S. dollars unless otherwise indicated. At this time, I would like to turn the call over to Jim. Jim?

Thank you, Sameer, and good afternoon to everyone. As you saw from the release issued today, there is strong momentum across the company. The increase in GTV and our expectations for continued GTV growth demonstrate our customers’ enthusiasm for RB Global solutions and service offerings. The IAA integration is progressing well. We are realizing our targeted cost savings and are seeing positive results from numerous operating and service initiatives, which pave the way towards the expected revenue growth from the combination. Sameer and I look forward to talking more about our results and progress. But first, I want to acknowledge the leadership changes we announced yesterday. When I joined Ritchie Bros. in 2020 as COO, the mandate for the management team was clear: redefine the operating model; build a differentiated digitally-enabled omnichannel marketplace; recruit best-in-class talent; and establish the culture that inspires excellence in how we operate and serve our customers. I’m extremely proud of our execution in all of these areas and the company’s transformation in such a short amount of time. Working with Ann Fandozzi at Ritchie Bros. during this period and at prior companies has been a meaningful part of my career. I have great respect for Ann, and I am honored to pick up the baton and succeed her as CEO. Since completing the IAA acquisition, I have been leading the integration and have been working closely with the organization to ensure customers know the compelling value proposition we provide and that they can depend on this team to deliver consistently. I have spoken directly with many of our insurance customers. They know we are committed to being a strong partner to them. Before joining RB Global, I was COO at ABRA Auto Body & Glass. We successfully merged two of the leading Collision repair providers to create the market leader in the $47 billion collision repair industry. We have an outstanding team and platform at RB Global, and I am enthusiastic about replicating that success through the integration we have underway. Our second quarter results made clear that we are on the right path forward. The strength and effectiveness of our long-term strategy and marketplace platforms continue to produce double-digit growth in GTV on a constant currency pro forma combined basis in the quarter. GTV growth was driven across our verticals and geographies. Strong execution enabled solid flow-through and supported double-digit adjusted EBITDA growth on a combined basis. We are observing an increase in supply availability within the construction and transportation sector. As supply chains gradually improve for our trusted OEM partners, as always, our focus remains on driving strong execution in every aspect of our business that is within our control with the goal of driving profitable growth irrespective of broader macroeconomic conditions. While delivering on the synergy commitments, we are also continuing to invest in our workforce and technology to ensure the reliable execution of our growth initiatives. This will allow for consistent performance in the presence of headwinds and robust growth in periods of tailwinds. The second quarter exemplified the resilience of our strategy as we continue to shift from growth driven by pricing to growth driven by unit volumes. This transition demonstrates our ability to adapt and capitalize on market dynamics, positioning us for continued success. During the second quarter, we achieved a significant milestone in our marketplace transformation journey by successfully piloting our modern checkout microservice. The response from customers was overwhelmingly positive as they enjoy the convenience of online payments and the ability to complete a transaction digitally. This is a key building block of the services attachment strategy as long-term back-office efficiencies, which will be executed in the next 12 to 24 months. This strategic approach aims to provide customers with a diverse range of marketplace services throughout the transaction process, enhancing their overall experience. In the automotive sector, the growth in unit volumes was driven substantially by our existing customer portfolio. This growth was partially offset by cycling over the volumes lost from the previously announced single large customer. The industry continues to see the total loss ratio recover, increasingly to approximately 18.4% from 17.1% in the same period last year. Recall that the total loss ratio is the number of vehicles deemed salvaged as a percent of total accidents, and it has historically been influenced by used car values. Used automotive prices continue to trend lower, while repair costs remain elevated, making it more economical to deem a car a total loss after an accident. The IAA acquisition has been closed now for a full quarter. Our integration efforts to date reinforce our confidence in IAA’s long-term business prospects. As we suspected during diligence and now have confirmed, we have identified areas where the customer experience can be enhanced. We are committed to providing exceptional service to our insurance customers, and we are deploying fresh, more innovative thinking to ensure we can deliver on this commitment. One aspect of this effort is to identify key priorities and execute consistently on processes that we control. Although we are still in the early stages, we are encouraged by the willingness of insurance industry stakeholders to collaborate. We aim to significantly enhance the customer experience, deliver better outcomes, and raise a competitive benchmark globally, which we believe will result in substantial growth for IAA. We are excited by the progress the team has made in our first quarter as RB Global, to bring the Ritchie Bros. and IAA business together. The collective team is displaying remarkable collaboration, embracing our shared vision, and starting to combine their expertise to benefit our customers. One example of this is that we are actively preparing our Ritchie Bros. team members to support the process of salvaged vehicles for insurance companies during CAT events. Ritchie Bros. has expertise in large event-focused operations, which we have honed over the past 60 years. In our normal course of business, we have a proven track record of mobilizing resources across North America to process significant episodic volumes quickly and efficiently. We will soon be able to deploy flexible RB labor and yard capacity and apply the same successful approach to managing CAT events for IAA, further strengthening our capabilities in serving our customer needs. During the second quarter, we also successfully negotiated an early termination of the royalty and non-compete agreement in the whole car space that was inherited as part of the IAA acquisition. By removing this restriction, we can now fully leverage our capabilities and expertise to better serve our customers and strengthen our competitive position in the industry. Additionally, we continue to optimize our organizational structure by streamlining operations and combining roles. For the quarter, we realized $7 million in actual cost synergies and have already auctioned a total of $36 million in annual run rate cost synergies since the close of the transaction through June 30. Based on our progress, we continue to expect to deliver at least $100 million to $120 million of annual run rate synergies by the end of 2025. Our strong performance and progress on our integration activities also reinforce our confidence in our ability to capture the revenue growth opportunities from our combined platform. This promising start sets the stage for future growth and positions us as a leader in the industry. We are focused on continuing to advance the integration of IAA to unlock the full value of our combined platform for the benefit of our shareholders, customers, and employees. With that, I will now hand the call to Sameer to discuss our financial results for the second quarter and to provide some additional outlook and commentary.

Thank you, Jim. Before we jump into detail, let me first explain that certain year-over-year comparisons such as for GTV and revenue referred to the comparison to the pro forma combined results of Ritchie Bros. and IAA for the prior period. So let me start with GTV. GTV increased 9% driven by strength in commercial construction and transportation as well as the rebound in the automotive sector. When you exclude the negative impact of foreign exchange, GTV increased 10% on a constant currency basis. GTV for construction and transportation increased 15% driven by an increase in unit volumes, partially offset by lower prices and an unfavorable mix. Although asset mix continues to be a headwind, sequentially we are starting to see some steady improvements. As it relates to automotive GTV, it increased 5% driven by rebounding unit volumes on a flat average price per lot. We expect GTV growth in the third quarter to be low to mid-single digits year-over-year on a combined basis. The reason being seasonality, the timing of certain auctions, and the impact of several large disposals of high-value assets in the third quarter of the prior year. Moving to service revenue. Service revenue increased 15% with our service revenue take rate expanding 100 basis points to 19.5%. Service revenue increased due to higher GTV and higher average service revenue take rate. The increase in the average take rate was driven by growth in buyer fees and an increase in our marketplace service revenue. This was partially offset by lower average commission rates, which were due to a higher mix of construction and transportation assets sourced from strategic accounts. We expect the trend of lower average commission take rates to continue in coming quarters due to the expected continued growth of GTV sourced from strategic accounts. For marketplace services, we saw a rebound in revenue from ancillary services as well as robust growth from SmartEquip and Rouse. Ritchie Bros. financial services, however, continues to experience headwinds because of tighter credit standards, higher interest rates, and lower average pricing. Moving to inventory. Inventory revenue declined 1% as declines in the automotive sector were partially offset by increases in the commercial construction transportation sector. The inventory rate for the quarter contracted 710 basis points year-over-year to approximately 3%. The decrease in inventory rate can be primarily attributed to the performance of a few strategically competitive large deals in our construction and transportation sector, where pricing declined at a faster pace than originally anticipated. It is important to note that inventory purchases represent only a portion of our overall at-risk business and a small percent of our total GTV, with the impact of guaranteed contracts embedded within our commission revenue. Also, we generate significant revenue from buyer fees on at-risk transactions. If you add the straight commission on guaranteed deals, the inventory return on inventory purchases and the buyer fees on both, the combined fee and return in the quarter was 13% of total at-risk GTV. As we have noted previously, we expect increased competition for at-risk deals in our commercial construction and transportation sector. Turning to earnings. Adjusted EBITDA increased 13% when compared to the combined adjusted EBITDA of IAA and Ritchie Bros. for the year-ago period as we saw strong flow-through. Overall, IAA is performing better than our initial expectations and although tow and fuel costs are higher year-over-year, these costs are now trending slightly lower sequentially. As discussed last quarter, we continue to refine the preliminary purchase accounting related to the IAA acquisition. During the second quarter, as part of our purchase accounting valuation analysis, we further revised IAA’s long-lived assets and leases to fair value. As a result, additional fair value adjustments were recorded. The net impact of these adjustments together with the harmonization of depreciation policies resulted in an incremental $7 million in depreciation expense and $1 million in lease expense, the latter of which is included in the cost of services. Consistent with our treatment of the prepaid vehicle charges we discussed last quarter, we are adjusting these non-cash purchase accounting impacts as part of our non-GAAP measures. As we continue to work on finalizing purchase accounting, we may identify other fair value adjustments, which may have an impact on our financial statements in the future. SG&A excluding share-based payments and other adjusting items in the quarter was $181 million, and looking ahead to the third quarter, we currently expect SG&A to be between $185 million and $200 million exclusive of share-based payments and other adjusting items. During the second quarter, we better optimized the treasury and cash management function of our combined company. This allows us to better deploy cash and prioritize debt reduction. As a result of these efforts, we are delighted to announce that we successfully paid down approximately $103 million of debt during the quarter. As of June 30, our adjusted net debt was approximately $2.7 billion. Adjusted net debt to reported trailing 12-month adjusted EBITDA was approximately 4.1 times. More relevant to many of you, our adjusted net debt to trailing 12 months combined adjusted EBITDA was 2.6 times. We remain focused on de-leveraging to approximately 2 times by the end of the first quarter of 2025. Regarding cash flow from operations, cash used in operating activities is lower in the first half of 2023 compared to the comparable period last year for primarily two reasons. First, the timing and size of auctions show higher networking capital balances compared to the prior year. Second, we paid higher cash taxes, mainly arising from the sale of the Bolton property. Moving to CapEx. As we have previously highlighted, we anticipate that our capital expenditures will be higher in 2023 and 2024 when compared to 2022 on a combined basis. This is a result of a deliberate decision to increase investment in capitalized software to accelerate our marketplace technology development. Additionally, there is an increase in CapEx related to the realignment of the real estate portfolio. Recall that we previously sold the Bolton facility for $169 million pre-tax gain in the first quarter of 2020 with plans for investing the proceeds into additional yards. We still anticipate CapEx to be between $275 million and $290 million on a reported basis in 2023. That said, we continue to evaluate our approach to capital transactions, particularly as the economics associated with sales leaseback transactions. As interest rates have increased, we are reviewing transactions to evaluate the benefit of purchasing certain properties versus the previous approach of long-term sales leasebacks taken by IAA.

I want to thank our incredible team for the relentless focus on execution and dedication to our company. With IAA, we have an even brighter future ahead, and as CEO, I’m committed to ensuring that we unlock further value for our shareholders and customers. Operator, you can now open the call for questions.

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Steve Hansen, Raymond James. Steve, please go ahead.

Yes, good morning and thanks for the time. Jim, you had good remarks to begin the call here earlier. I just wanted to follow up and just sort of gauge your commitment or conviction in the synergy opportunities, particularly on the revenue side under sort of the change in leadership that has unfolded in the past couple of days. One of the pushbacks, of course, is that Ann carried these relationships quite closely and was really front and center on the market share recapture strategy. I just want to get your perspective on how you feel you’ll be able to navigate those challenges.

No, I’m very excited about the revenue synergies that we presented early on, and I am fully committed to delivering the range that Ann originally proposed. As I’ve been going through the last 90 days and experiencing what I have in the company, it has further excited me about that range and that we can achieve it, especially the cost and revenue synergies.

Great, that’s helpful, thanks. And then maybe just one quick follow-up is around the negotiated agreement that you’ve – the termination of the agreement on the wholesale cars. Can you maybe just give us some broader perspective on what you think that means with that termination in hand now, what it’ll mean for your business going forward.

One of the main areas when we think about the revenue synergies, I break it down into three components: the market share gain on the salvage side, the whole car space, and international growth. Our number two whole car, this just allows us to start to scale and progress our business. It was always part of our plan to do this. This just helps us to go a little bit quicker and be a bit more efficient about it.

Okay, thank you for the time. I’ll jump back in the queue.

Thank you.

Thank you. Your next question comes from Michael Doumet, Scotiabank. Michael, please go ahead.

Hey, good afternoon, guys. Jim, firstly, congrats on the new role. You have several years of experience in the auto collision repair business. So just really understand what insurance wants. So when you think about the ability to enhance IAA’s competitiveness, whether that’s measured by the number of buyers, net return, speed to payment, how do you think you can take that business to the next level, and how are you progressing to those goals?

Yes. Great question and thank you, Michael. Over the last 90 days, I’ve met with all the top insurance carrier partners along with a lot of the regional players. The consistent theme from them has been a desire for us to control what’s in our contract, commit, and deliver consistently every day across all branches, which ultimately gives you everything that you mentioned. There are three components that I’m laser-focused on to deliver to our insurance partners: getting the car signed and collected as quickly as possible, processing it efficiently, and ensuring we get the best gross return possible. That includes having the best buyer marketplace, which I’m very confident we can build together between RB and IAA. Ultimately, doing these things will yield the best net return for our partners. These priorities will guide our team as we integrate IAA.

That’s really interesting. Thanks for that. And maybe on an unrelated question or follow-up, I wonder – so first actually nice to see the operating leverage back in the business. I wonder if you can comment on what I think I heard is the expected sequential increase in SG&A in Q3 versus Q2, despite the higher cost synergies and presumably the lower seasonality in the quarter. Just trying to get a sense for that, please.

Yes. Hey, Michael, it’s Sameer here. Yes, we are expecting higher SG&A in the third quarter compared to the second quarter. Part of this is just continued investment in both people and technology so we’re able to consistently drive GTV on the top line.

Perfect. All right, thanks.

Thank you.

Thank you. Your next question comes from Sabahat Khan, RBC Capital Markets. Sabahat, please go ahead.

Great, thanks. Just I guess a bigger picture question, I guess for you, Jim, you are in the operational seat kind of running the operations and now you’ve got the CEO title. Maybe just kind of walk us through how you’re thinking about still being involved in the integration while taking on some of the new responsibilities as CEO. Just kind of how you’re going to split your time, is that something you might get somebody else to be a bit more involved with? Just walk us through sort of how you’re going to split your time and your priorities going forward.

Yes, you’ve got a great question. Just to clarify my role before becoming CEO, as President and COO, I had the revenue team, operational team, services team, procurement team, and the real estate team, which accounted for about 80% to 85% of the company reporting to me. The integration team is set up with a steering committee comprised of myself, Carmen Thiede, our Head of Integration, and a couple of senior leaders from IAA and Ritchie Bros. I plan to remain part of that steering committee to ensure we continue driving results. This integration team is currently executing against the plans we have already put together.

Okay, great. And then just a housekeeping question. I think last quarter, you guys called out $15 million of synergies. I think in your commentary in the slide deck, it said realized $7 million and then auctioned $36 million in total annualized. If you can maybe just kind of bridge us to what that $36 million represents on top of that $22 million? Or does the $36 million maybe include some of this whole-car royalty? Just want to get an understanding of where we are on what this $36 million represents.

Yes, Sabahat. Hey, it is Sameer. The two key numbers to understand are the realized cost synergies in the quarter, which had an actual impact, and then total auctioned. We’ve auctioned certain synergies, but you wouldn’t necessarily see that impact in the quarter. We’ve auctioned $36 million in annualized run rate cost synergies as of June 30, and the synergies we had auctioned in the 11 days post-close was $15 million, of which we realized $7 million in the second quarter. We can discuss this more offline if you have additional questions.

No, that makes sense. I just wanted to understand what the run-rate number was. So I just didn’t know what the $7 million was, so that makes sense.

Thank you. Your next question comes from John Healy, Northcoast Research. John, please go ahead.

Thanks for taking my question. Jim, I wanted to ask just about kind of items learned since you’ve been in the seat post – since the deal’s closed. So you’ve met with most of the insurance companies, both large and regional. Is there an item or two that they’re telling you, hey, this is what you can do if you really want to win market share back? Like, what’s the vibe and what’s the feedback been about, I’m sure you’re asking how can we do more business with you? What are the insurers telling you, and have you seen any sort of change in the competitive dynamics over the last 90 days or so? And then they facet to the business on the salvage side?

Yes. Great question. The insurance group has been very helpful in providing insights that I’m using to ensure our execution aligns with their needs. One major theme is to control what’s in our control and deliver consistently at every branch. The three key components I'm focused on are rapidly assigning and retrieving vehicles, processing inspections as quickly as possible, and ensuring we have a robust buyer marketplace to achieve the best gross return. That’s how we’ll win market share. Additionally, when catastrophic events occur, our response time and dedicated capacity are paramount to their satisfaction.

Great. And just to follow up on competition, if you’ve seen anything change there. And then just lastly, you guys mentioned strategic accounts, maybe pressure and take rates a bit. Is that with manufacturers or is that with the rental channel? Thanks.

From a competitive standpoint, no major changes have been observed. Of course, we keep track of all competitors, especially regarding fees and operational moves. However, the innovation and strategies we're implementing at IAA are distinct from traditional salvage businesses, so our focus remains on improving daily performance. I’ll pass the second question to Sameer.

Hey, John. To clarify your question regarding strategic accounts, the average commission take rate is lower compared to the region's business. So if we’re increasing GTV sourced from strategic accounts, you may see slight headwinds in the commission take rate. However, we regard the overall commission dollars as accretive.

Thank you. Your next question comes from Michael Feniger, Bank of America. Michael, please go ahead.

Hey, guys, thanks for taking my questions. Just first question, like, given the management departures, just looking to understand, get comfortable around the core Richie business and the integration. In the S4, I think the base case was still RBA EBITDA in the $440 million to $450 million range by the end of the year. IAA EBITDA, I think $575 million. Where is RBA EBITDA in the first half? Where’s IAA EBITDA in the first half relative to those expectations? I believe you said IAA is coming in ahead of expectations, so just trying to get a sense of where we’re coming in for RBA EBITDA and IAA EBITDA by the end of the year.

Hey, Michael, it’s Sameer. The S4 was written last year, but I would note that IAA is performing better than we expected. IAA was accretive already in the first quarter, which is ahead of what we thought.

Okay.

IAA is accretive to adjusted earnings per share.

Understood. In last quarter, there was some concern around the flow through for core Ritchie. I think EBITDA was up 3% on double-digit service revenue growth. In Q2, it looks like Ritchie, the GTV, and its markets was up 15%. What was the core Ritchie EBITDA up? Now that we know the IAA is coming in better than expected.

Yes. We don’t look at the business that way. If you execute cost synergies and combined teams, it becomes a big attribution issue. I think the way we laid it out in the presentation makes it clear that the combined entity grew 13% compared to the individual EBITDA that we had laid out. You can see the reconciliation in the slide deck.

Thank you. And maybe just last follow-up. Forgive me if I’m missing this, it’s just the flow-through getting better if EBITDA was up 13%. Service revenue growth, I think was up 15% on a pro forma basis. Just why – what am I missing? Why wouldn’t EBITDA be growing at a faster pace than what you’re seeing on the service growth side?

Great question, Michael. We are investing in technology and people to drive consistent growth, so the SG&A, which came in at $181 million, explains some of the delta. I’m happy to discuss it in more detail offline.

Perfect. Thank you, Rathod.

Thank you.

Your next question comes from Gary Prestopino, Barrington Research. Gary, please go ahead.

Good afternoon, everyone, and best of luck to you, Jim, in your new endeavors. A couple of questions here. First of all, have you initiated a program here to start buying the lease facilities from Insurance Auto? And if you have, how many have you done so far? And what would be your goal over a 24-month period?

Yes, Gary. I don’t think we’re going to comment on the strategy. As you can imagine, the integration schedule is extensive, and this is definitely one of the items for our subcommittee about the optimal allocation of our capital.

Okay. And then could you maybe talk a little bit about this modern checkout service that you’re employing now? I mean, how does it differ from what you were doing in the past and the benefit to the client?

Yes. The modern checkout service was piloted in our Sacramento auction. It is entirely digital; when a bidder wins the auction, they can pay via credit card or ACH, and the transaction occurs immediately. They receive their invoice promptly and can pick up their purchases the same day. This efficiency allows sellers to see their settlement dates immediately. Previously, we relied on checks or paper statements. The modern checkout dramatically enhances our operations.

Okay. And then just lastly on the whole-car side, since this non-compete has been negotiated away, what would you say would be your target on the whole-car side? Are you going to be looking at a whole plethora of vehicles to sell that are drivable? Are you going to be focusing on maybe the 10 to 15-year-old vehicles that used to be the domain of the wholesaler?

The whole-car segment is a large opportunity we’re excited to pursue. We’re currently in this market, and there is potential to grow significantly. This is a key pillar in our focus on revenue synergies, and now that the non-compete barriers have lifted, we’re eager to scale this business efficiently and profitably.

Thank you. Your next question comes from Maxim Sytchev, National Bank Financial. Maxim, please go ahead.

Hi, good afternoon, gentlemen. And Jim, congrats on the appointment.

Thank you.

The first question I had, so why don’t we delve into the whole salvage space? One of the feedbacks we’re getting is, it’s actually a fairly manual sort of processing dynamics between when a car gets totaled to sort of getting to an auction. Where do you see the lowest hanging fruit for process improvement over the next 9 to 12 months, if possible?

One area I’m focusing on immediately is how to provide accurate data to insurance carriers regarding vehicle values at auction. For instance, understanding what information is required at the onset of an accident to determine a car's value accurately. We’ve been utilizing AI at IAA to facilitate this process and are collaborating with many insurance carriers to improve efficiency. Ultimately, we aim to help our clients make timely decisions regarding a vehicle's fate.

Is there some legacy capability in Rouse that can be leveraged for this?

We're focusing on data and AI, and it's our data scientists in both IAA and Ritchie Bros. who will leverage this area moving forward. We are committed to ensuring we have the best data for our partners, using existing technologies rather than reinventing the wheel.

Okay. Excellent. And then just a quick one for Sameer, if I may. How should we think about non-cash working capital in the back half of the year?

Thanks, Max, for the question. I don’t think we’re providing any specific guidance on working capital changes in the back half. Some of this depends on exactly when auctions hit, auction sizes, and inventory purchases. But I can help clarify more offline.

Okay. Fair enough. Thank you so much.

Thank you.

Your next question comes from Kevin Condon, Baird. Kevin, please go ahead.

Hi, thanks for taking my question. I wanted to ask about the service revenue take rate of 19.5% in the quarter. I believe the pro forma number for Q1 was 20%. So the 50 basis point delta there. I know you talked about strategic accounts coming in at lower commissions, but you also mentioned buyer fees moving higher. I was just wondering if those were the two major factors impacting that service revenue take rate and if it’s fair to understand that lower commission is more than offsetting the higher fee?

In terms of the take rate, we’ve provided all the numbers on a pro forma combined basis, so you can see the individual take rate from Q1 to Q2. Longer-term, we expect our take rate to increase. Here in the near-term, we noted that commission take rates will face some headwinds as we source more GTV from large strategic accounts.

Okay. And then I think just on that cost of service, related to that service revenue. I think it came in at about 35%, 36% of your service revenue in the quarter. Is that a right kind of range to consider going forward with IAA in the fold, or anything unique in the quarter? I understand that might fluctuate with volumes and auction timing, just anything else to be aware of on that line?

When modeling cost of service as a percent of service revenue, there is seasonality to consider in the back half. Some of this will be driven by processing higher unit volumes and things like that. But we can drill into it more offline if you like.

Sounds good. Thank you.

Thank you. Your next question comes from Larry De Maria, William Blair. Larry, please go ahead.

Hey, thanks. Good afternoon, everybody. Look, everybody is obviously curious on this, but it hasn’t really come up yet. Can you take us through the timing of the process that occurred with respect to leadership change? Obviously, there’s a Board member with a short tenure on the compensation committee resigned recently, which implies this was not abrupt. The decision to make Jim permanent CEO and on the Board immediately implies the Board did not make a rash decision, so can you just tell us how long it’s been going on and have the relationship with the Board deteriorated over time? Any incremental color because certainly, everybody in the call is curious?

I completely understand. However, I can’t comment on conversations that I am not privy to. At a high level, there was a divergent view on what Ann believed she needed as CEO versus what the Board believed was in the best interest of the company and shareholders. I don’t have insight into all timing or conversations.

Okay, thank you for that. Also, Sameer, I believe there was a dis-synergy on whole-car specifically built into the IAA pitch. Can you confirm what that was and maybe the timing? I know you talked a little bit about it earlier, the timing of capturing that business if there was a specific dis-synergy built into the outlook?

Yes. I don’t think we specifically quantified or disclosed what the dis-synergy was when we originally talked about the transaction, but it was fully baked into the range that we had provided. I wouldn’t say there was anything different here.

Okay. Thank you. Take it offline.

Thank you. There are no further questions at this time. Please proceed.

All right. Everyone, thank you so much for taking the time. I just want to reiterate how excited I am about the future of the combined company. I can't wait for our next quarter call. Thank you so much.

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.