IAA, Inc (IAA) Tops Q4 EPS by 2c, Revenues Beat

IAA, Inc (NYSE: IAA) reported Q4 EPS of $0.37, $0.02 better than the analyst estimate of $0.35. Revenue for the quarter came in at $355.9 million versus the consensus estimate of $348.11 million.

John Kett, Chief Executive Officer and President, stated, “On behalf of everyone at IAA, our thoughts are with all individuals impacted by the COVID-19 outbreak. Our first priority remains the health and safety of our employees. As we reflect on the past year, we are pleased to report that we finished 2019 in line to slightly ahead of the goals we set for ourselves at the time of the spin-off. Fiscal 2019 was an important year for IAA, as we became an independent, publicly-traded company and expanded our organization to support our new stand-alone structure. We also made great progress against our key strategic initiatives, including broadening our service offering, enhancing our international buyer network, and continuing to innovate and enhance our data analytics capabilities. I am grateful to our teams for the work they have done to drive these results.”

Mr. Kett continued, “We remain on track to be substantially complete with the rollout of our Buyer Digital Transformation by the end of the second quarter of fiscal 2020. I am excited to also announce our margin expansion plan, through which we expect to generate meaningfully improved margins over the next several years. Our team has worked hard to identify opportunities across the organization to improve efficiencies, reduce costs and optimize revenues, while continuing to provide excellent service levels to our buyers and sellers.”

Mr. Kett further noted, “While our volumes and revenue per unit quarter-to-date were in line with our original expectations during that time period, COVID-19 has created a fluid situation and we are in early stages of gathering data and monitoring customers as well as market dynamics to assess the potential impact. In light of the current COVID-19 situation, we are not providing a 2020 outlook or long-term outlook at this time, but we plan to do so and are hopeful that we can do this on our earnings call for the first quarter of 2020.”

Highlights for the Fourth Quarter Ended December 29, 2019:

• Consolidated revenues increased 6.2% to $355.9 million from $335.2 million in the fourth quarter of fiscal 2018. Fourth quarter revenue includes $2.4 million of revenue from DDI, which was acquired on July 31, 2019. Foreign currency movements had a negative impact of less than $0.1 million on revenue for the quarter. Excluding the impact of these items, organic revenue increased 5.5% to $353.5 million, consisting of increased volumes of approximately 0.3% and higher revenue per vehicle of approximately 5.2%. Total purchased vehicle revenue increased by $4.6 million, or 15.4%, to $34.4 million, compared to $29.8 million in the prior year period. U.S. segment revenues increased 6.1% to $313.2 million from $295.2 million in the prior year period, as higher revenue per unit offset a slight decline in volume. International segment revenues increased 6.8% to $42.7 million from $40.0 million in the prior year period. The increase in International segment revenues was primarily due to an increase in volume, as well as a higher mix of purchased vehicles.
• Gross profit, which is defined as total consolidated revenues minus cost of services, and exclusive of depreciation and amortization, increased by 8.7% to $135.1 million from $124.3 million in the fourth quarter of fiscal 2018. The increase in gross profit was primarily due to the increase in revenues, which was partially offset by an increase in our cost of services. Gross margin in the quarter increased by 90 basis points versus the prior year to 38.0%.
• SG&A expenses increased by 28.4% to $36.2 million from $28.2 million in the fourth quarter of fiscal 2018. Adjusted SG&A expenses in the fourth quarter of 2019, which exclude $0.2 million of expenses related to the Company’s spin-off from KAR Auction Services and $0.3 million related to other items, were $35.7 million, an increase of 27.0% compared to Adjusted SG&A expenses of $28.1 million in the prior year period. Adjusted SG&A expenses in the fourth quarter of fiscal 2018 exclude $0.1 million of expenses related to the Company’s separation from KAR Auction Services. SG&A expenses and Adjusted SG&A expenses increased primarily due to additional public company costs.
• Interest expense was $16.6 million compared to $9.8 million in the fourth quarter of fiscal 2018, with the increase primarily driven by a higher debt balance resulting from our new capital structure following the separation from KAR Auction Services.
• The effective tax rate was 23.9% versus 24.5% in the fourth quarter of fiscal 2018.
• Net income decreased by 2.1% to $45.6 million, or $0.34 per diluted share, compared to $46.6 million, or $0.35 per diluted share, in the fourth quarter of fiscal 2018. Adjusted net income decreased by 1.6% to $50.1 million, or $0.37 per diluted share, compared to $50.9 million, or $0.38 per diluted share, in the fourth quarter of fiscal 2018.
• Adjusted EBITDA increased by 3.9% to $99.4 million from $95.7 million in the fourth quarter of fiscal 2018, primarily due to the increase in revenues, partially offset by an increase in cost of services and higher SG&A expenses. Adjusted EBITDA includes unfavorable foreign currency movements of less than $0.1 million and a contribution from the DDI acquisition of $0.3 million. Excluding these items, organic Adjusted EBITDA was $99.1 million, an increase of 3.6% over the prior year.

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