Openlane Inc (KAR) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for your patience. Welcome to the KAR Holdings Inc. Q2 earnings conference call. Now keep in mind that today's call is being recorded.

Today's hosts will be Brian Clingen, Chairman and Chief Executive Officer of KAR Holdings Inc., and Mr. Eric Loughmiller, Executive Vice President and Chief Financial Officer of KAR Holdings Inc.. I would now like to turn the conference over to Mr. Loughmiller. Please go ahead.

Good morning and welcome to the second-quarter KAR Holdings earnings call. Today, we will discuss the results of operations of KAR Holdings Inc..

After conclusion of our commentary, we will take questions from participants. We will try to accommodate as many questions as possible. However, our call will end at 11.45 AM Eastern time.

Before we begin today's discussion, I would like to remind you that this conference call may contain forward-looking statements. Such statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected, expressed, or implied by such forward-looking statements.

Now I will turn it over to Brian Clingen for comments on our performance and other items of interest.

Thank you, Eric, and thank you for joining us. Again, some brief comments on the second quarter.

We continue to be quite pleased with the performance of all three of the business units. We have continued to see, similar to the trend in the first quarter and in the call that we had in the first quarter, improvements, really, in all three of the business units. And again, quite pleased with the performance.

Some brief details on each. At ADESA, our whole-car volumes and performance continues to be quite strong. We continue to see very strong conversion rates and used-vehicle prices firming, so performance at the ADESA whole-car auctions continued in the second quarter to be very strong.

A couple significant events that were really in process the last time we spoke to you -- the bankruptcies at General Motors and Chrysler now, obviously, complete, and those two companies operating in a post-bankruptcy environment. From our business standpoint, we really came through that situation with minimal exposure on our receivables pre-bankruptcy, and, in addition to that, minimal degradation of values in those vehicles from both of those manufacturers.

So, some concern about how the industry effect would be through the bankruptcy of both of those. I think that we feel that we got through that process in good shape, and we continue strong business relationships with both of those manufacturers and expect that to continue in the future.

In the salvage auction business, IAA again has continued to perform quite well. We have seen some slight reductions in volumes here, but a very good job done by the team in maintaining margins and strict cost controls there. So we, again, have been very pleased with performance at the IAA business.

We do have the significant event with the Cash for Clunkers that you all have been reading about in the press of late. And I think that our feeling internally is that, at the moment, it's still very early in that process, at least from the administrating of the program, but that we don't expect to have significant impact on our business, either positive or negative.

Again, it's early in the process there. We're monitoring it closely. But we are not looking for real material impact on our business from the Cash for Clunkers program.

And then, finally, our AFC business continued really on the same trend that we've seen in the first quarter. Significant recovery in our portfolio quality there, and we continue to be very pleased at the performance of our dealers and customers, and our overall receivables there.

We are seeing a return to some growth. Certainly nothing like what we'd seen several years ago, but definitely some firming in overall growth of the portfolio. And we think that that business continues to be on the right path and, again, very pleased with the performance of the new leadership there, as well as the performance of the business.

A couple just real summary general comments on our balance sheet. We have continued to see the cash -- strong cash generation from our business and we've been pleased with the build of our overall cash balances.

And then, secondly, we were able to, in the second quarter, replace a expiring interest-rate swap and cap agreement, which has given us some significant improvement in our overall interest expense, and we really feel positioned us, from a balance-sheet and debt perspective, very well for the next several years.

So those are just some general comments on the second-quarter performance, and I'll turn it back to Eric to walk you through some details.

Thank you, Brian. Yesterday, we reported our financial results for the second quarter of 2009. Net revenues for the second quarter of $439.1 million declined 6% from $468.5 million from the prior year. I will discuss this decrease by business segment momentarily.

Adjusted EBITDA, as defined in our credit agreement, totaled $114.9 million for the second quarter of 2009, compared to $122.6 million for the same period in 2008. The second quarter of 2008 was the strongest quarterly performance by KAR Holdings or its predecessor companies in its history.

I will now discuss our performance by business segment for the second quarter. ADESA auctions reported revenue of $279.5 million in the second quarter of 2009, a decrease of 4% from $291.2 million for the same period in 2008. The decrease in revenue reflects a 2% decrease in number of units sold and a 2% decrease in revenue per vehicle sold.

Although unit volumes decreased year over year for the second quarter, the number of units sold for the first six months of 2009 were flat in comparison to 2008.

The decline in revenue per vehicle sold is primarily attributable to a reduction in the value of the Canadian dollar as compared to the U.S. dollar in 2009, as compared to the same period in 2008.

In addition, we experienced a modest decline in ancillary services revenue per vehicle sold, which was offset by an increase in auction fees per car sold in the second quarter.

Gross profit for the ADESA auction segment of 45.3% for the second quarter of 2009 was an improvement from 43.5% for the same period in 2008. Improvement in gross profit reflects the strong conversion rate for cars sold at ADESA auctions in 2009.

In addition, the implementation of Project Pride initiatives at our largest auctions, and over three-fourths of all of our auctions, has resulted in reduced labor costs and improved profitability.

Selling, general, and administrative expenses for the ADESA auctions segment aggregated $52.3 million in the second quarter of 2009, compared to $59.5 million for the prior year. ADESA auctions focused on controlling costs and was able to reduce marketing costs, bad debts, professional fees, and auction supplies' expense.

Implementation of Project Pride throughout our auction locations has been a major contributor to controlling and reducing SG&A costs.

As all of you are aware, Chrysler and General Motors filed for bankruptcy protection in the second quarter of 2009. Both companies remain important customers of ADESA auctions. At the time of their respective bankruptcy filings, our aggregate Accounts Receivable from the two companies was less than $400,000. We have fully reserved for the full amount of pre-petition Accounts Receivable from Chrysler and General Motors.

Insurance Auto Auctions revenues of $139 million for the second quarter of 2009 represents a 6% decline from $148.5 million for the prior year. IAAI experienced a slight reduction in the number of units sold. Substantially all of the decrease in revenues relates to revenue per vehicle sold decreases due to lower values paid for vehicles in the second quarter of 2009, as compared to the same period in the prior year.

Despite lower revenue per vehicle sold, IAAI was able to generate gross profit of 37.9% of revenue for the second quarter of 2009. This gross profit percent was consistent with the prior year. IAAI was able to reduce cost of services for outside labor, supplies, travel, and auction costs.

Selling, general, and administrative expenses for IAAI of $15.7 million for the three months ended June 30, 2009, decreased 5.4% from $16.6 million in 2008. Reductions in integration-related expenses, travel, and office and print supplies account for the reduction in SG&A.

AFC net revenue of $20.6 million for the three months ended June 30, 2009, was 28.5% lower than net revenue of $28.8 million for the prior year. The decrease in net revenue reflects the significant reduction in the number of loan transactions in the second quarter of 2009, as compared to the prior year.

AFC did experience an increase in the average revenue per loan transaction to $111 in 2009, from $95 in 2008. This increase reflects increased origination fees per transaction and a modest reduction in net bad-debt expense for the quarter.

Cost of services for the second quarter of 2009 of $7.3 million declined 20% from $9.1 million. This reduction reflects reduced wages for field personnel and reductions in other office-related expenses.

AFC's selling, general, and administrative expenses of $2.8 million for the second quarter of 2009 declined 20% from the prior year. This reduction is primarily attributable to reduced compensation and related costs, due to headcount reductions implemented in the third quarter of 2008.

At June 30, 2009, AFC had total receivables of $477.4 million, compared to $809.8 million at June 30, 2008. AFC had $269 million outstanding on the securitization facility at June 30, 2009. AFC is in compliance with all covenants of its securitization facility.

KAR Holdings generated a substantial increase in cash from operations and management of working capital in the second quarter of 2009. Our available cash balance at June 30, 2009, was $191.9 million, an increase of $78.8 million from March 31, 2009.

We had no borrowings on our line of credit at June 30, 2009.

Capital expenditures of $15.7 million in the second quarter of 2009 were in line with our expectations for the quarter. We expect our capital expenditures for 2009 to be $70 million to $75 million, which will be at or below our previous guidance.

During the second quarter, we entered into an interest-rate swap and interest-rate cap arrangement effective June 30, 2009. Our original interest-rate swap, that resulted in a fixed-LIBOR rate of 5.345% on $800 million of floating-rate debt, expired on June 30, 2009.

We entered into a swap agreement that fixed LIBOR on $650 million of floating-rate debt at 2.19% for three years, beginning June 30, 2009. In addition, we entered into an agreement that capped LIBOR at 2.5% on $250 million of floating-rate debt. The cost of this arrangement was $1.3 million, with a duration of two years beginning June 30, 2009.

At this time, our available cash and cash generated from our operations are more than sufficient to meet the liquidity needs of KAR Holdings Inc. for the foreseeable future.

That concludes our formal remarks. I will now return the call to our operator for the Q&A portion of today's call.

(Operator Instructions) Kathryn O'Connor, Deutsche Bank.

I just wanted to maybe ask a question here about the AFC business. It looked like, sequentially, we kind of -- we finally troughed out there, I guess, in the first quarter of 2009, and we are seeing some improvement in this quarter.

And I just want to take a look at the revenue per transaction at $111, and then, just the number of transactions in total, the 185,000 transactions, and kind of ask if that's where we should think about this business going forward.

Because I did notice in some of the comments in the Q that you had said that, at this point, the business had stabilized and you are beginning to focus on disciplined growth opportunities.

So I just want to get an idea of how to think about that business, given that, I think, we still have some runthrough in terms of performance if we're going to stay at this level that we had this quarter, and then kind of ask you, what does growth opportunity -- what is the growth opportunity that you were talking about in the Q?

I think -- to answer really both parts of the question, we don't think that this is stabilized level going forward.

We do think that -- and we are seeing already a build in the portfolio. So I think that trough, as you mentioned, was sort of late first quarter, early second quarter, and there has been a period of what I would say a stabilized portfolio size.

But now, what we are seeing, and really what the focus of the business has been, on disciplined growth opportunities. We are somewhat encouraged there, and I say that because, as you know, several of the, what I would call, non-industry participants have really exited from the field.

There has been definitely a -- what I would say is almost a crisis period for even some of the franchised dealers, and so we are seeing business that, in the past, we probably wouldn't have a look at.

So, when we mention disciplined growth right now, we have tried to be very careful in sticking to credit standards and new underwriting standards that we have. But the environment out there is such that we do think that we have opportunities and we are seeing opportunities that we haven't seen in the past.

So we expect that you're going to see both the transaction volume and the revenue per transaction strengthening as we move forward here.

Okay, so I guess, qualitatively, is it safe to say that the transactions each month of the quarter were building, the number of transactions we are building through the quarter?

Yes, that is correct.

And then, even in July, we've now seen an increase from June?

We think that the third quarter is going to continue that trend, yes.

Okay, and then, you are also saying that you guys are having opportunities to look at business with franchised players. That's obviously different, right?

Yes, it is, and I should qualify that, that some of these may, and in many instances are, ex-franchises or franchised players that may, in the future, be losing the franchise, but are becoming independent used-car dealers, and specifically, that might pertain more.

Obviously, the Chrysler franchises were lost, so those conversions were done. But many of the GM franchisees that may be losing a franchise won't see that happen until sometime in 2000 -- and actually, it will be later in 2010. But in many instances, they have already had their previous floor-planning arrangements terminated. So those are the opportunities that we also have been seeing.

Okay, great. So that helps on the volume side, but maybe from the revenue per transaction. Similar trend? Improving revenue per transaction through the quarter and improving into July, as well?

Yes, we are seeing improvement, Kathryn. Again, going back in history, you can look at -- we've historically seen revenue per transaction that was in the $120s, and we are in the -- $111 right now, and I think we'll see that gradually grow.

With the portfolio strength that we have right now, to be honest, our average days is much lower than it even was 2.5 years ago. And one of the aspects of that, though, is you don't have as many curtailments and you're not paying late fees and things like that, because they are paying off so timely.

So we will see it grow gradually, but I'm not going to predict where we'll end up compared to the past, but I think we'll improve from today's position. It will be steady.

Thank you. That was helpful. And then, just one other question. You said that Cash for Clunkers, you think, isn't going to affect you positively or negatively, really, on the margin. Could you just give some -- give us some idea of what your thought process is behind that?

Again, I think it is early in that process, but it really affects our businesses in a couple of different ways.

The one that we continue to be concerned about is what will happen in proceeds and, specifically, as scrap-steel prices with this volume of vehicles hitting that market. Again, we haven't seen a significant impact yet, but we are somewhat concerned that, with an acceleration of this volume hitting the market, that that could have a negative impact on proceeds.

Offsetting that is we will be a significant administrator of the program, and by that I mean, many of these cars we have and continue to make arrangements with dealers to bring them specifically to our salvage auction.

So, those two forces probably somewhat offsetting each other. But from an overall revenue standpoint, we don't see it as a particularly significant event. What it's going to do in the whole-car market, again, we are watching, and Tom [Contos] in our analytics area, watching just what it's doing with used vehicle prices and supply.

And there, again, I would say our early indications are we are not sure it's going to have a huge material impact.

Okay, so, generally speaking, you think it's more neutral on the whole-car side, and on the salvage side, you think you have a positive and -- you have some positives and negatives, but you think, overall, it could be slightly positive.

I would probably, if I had to guess right now, take the opposite tack and tell you that our concern over what might happen with proceeds probably is more significant than any revenue we could make from administering the program.

But net net, I just don't think that it's going to have a real material impact on our business.

Gary Prestopino, Barrington Research Associates Inc..

Brian, I kind of missed some of your commentary at the beginning. I got cut off. But the questions really pertain to the salvage industry. Sales were down 6% on a AAI. What were the same stores? Do you make that public anymore?

I made a comment -- Gary, this is Eric. It was down slightly, but I would say essentially flat.

Okay, so (multiple speakers) really the majority of this decline in sale dealt with lower prices?

I think the proceeds were the significant impact on that revenue decline, and volumes, not so much.

Okay, and then, since prices of cars, at least wholesale, have started to come up, what are you seeing, or can you comment on what you're seeing in the July/August time period, relative to what you saw in Q2 in terms of pricing and possibly volumes?

I think we would say right now, Gary, that late in the second quarter and coming into the third quarter, we have seen some firming in proceeds. So we are cautiously optimistic that that trend can continue.

But yes, there was some firming late in the second quarter and we've seen that continue into the third quarter.

What about volumes? Any comment there at all?

Again, the volumes, I think -- I think, as I've indicated before, we see this as flat to very slightly down in the industry for the year, and we are consistent with that.

It's -- Gary, as you know from following the business, it's a function of floods and natural phenomena that determines whether we are flat or maybe down low, very low single digits.

Then just one quick comment -- question on the Clunkers program. Are the majority of these cars going directly to salvage auctioneers like yourself, or do you feel like there is possibly -- or are they going to go directly to recyclers? Because these would be very low value cars, would they not?

Yes, I think that is correct. And again, it's still early in the program. We are seeing some volume. I think there is going to be definitely some of it that will go directly to recyclers.

But again, in total, we certainly, at the 250,000-vehicle level, thought that this was going to be a real non-event. We have definitely been more focused on it, once the government decided to increase the size to where they have right now.

But I think we will see some of that volume. They'll be very low-dollar vehicles, and it will be spread about with the other redistribution channels as well.

But those -- and then, just one more comment. But those vehicles that you are getting, clunkers, you should be able to turn those a hell of a lot quicker than a car coming from the insurance company, right? Because you don't -- there isn't the length of time to clear title, correct?

That is correct. They do have a much quicker turn, so that is a plus from the standpoint of processing.

[Adam Silver], [Madsen Capital Management].

All of my questions have been asked. Thanks.

Tom Shandell, Fridson Investment Advisors.

There were a couple of references to foreign exchange in the 10-Q. One, I guess, was a decline in revenue per vehicle, having to do it with the Canadian dollar. And the other was in other income, having to do with transaction gain. Can you elaborate on those?

Yes, if you look at -- what are we? We are in the low 90s. Compared to a year ago, we are seeing things change. So it's just really the conversion rate. On this.

Is the effect on EBITDA less than the effect on revenue because you have some expenses in Canadian dollars?

It's probably flowing through -- my expenses are going to be comparable, so it's -- and it's predominantly going to be in the used-car business. Salvages probably has less impact, although it does have some. But it's equal to cost and revenue.

So that would be -- the reference, though, was really to revenue per vehicle, right, in the Q. And that's because of, again, in the used-car marketplace, as I recall, we were at par, roughly par last summer, Canadian dollar to U.S. dollar. And while it's rebounding, it's down. While it was in the low CAD0.80s early in this year, it's now in the -- we're up around CAD0.90 to the dollar.

All right. The reference in other income made it sound like it was a transaction effect. Was that (multiple speakers)

No, the other income is merely the recalibration of the balance sheet. That's all that is.

Fair enough.

It's not transactions as you are thinking of it. It's the translation gains and losses when we revalue the balance sheet quarter to quarter, month to month.

Great, I appreciate that. Accounts Receivable, you mentioned in your formal remarks that you had good cash from working capital. And AR was down significantly year over year and quarter to quarter. Is that sustainable? What is driving that?

Again, one thing, Tom, I'd urge you to be careful of is the timing of a quarter-end can determine that number because a significant amount of our receivables are amounts we collect on behalf of the consignors of vehicles.

But generally speaking, yes, we think we're -- it's a sustainable position, relative to the fact that we have tight controls on the receipt of payment in relation to the release of cars to the buyer, and that will continue.

Okay. And last question, the nonrecurring charges that you always highlight, what was the nature in this quarter's nonrecurring?

Pardon me. Again, Tom?

You always nicely break out the nonrecurring charges in your EBITDA reconciliation, and I was just wondering -- it was a smallish number this quarter, but I was just wondering what was behind the nonrecurring charges that you highlighted for this quarter?

The foreign currency was the biggest component for the quarter. And then, other than that, we have some noncash rent. I mean, the other things were very small.

Appreciate it. Thanks.

Hold it, Tom. That was noncash that you asked about, right?

No, I was asking nonrecurring.

I apologize. I had caught that. The nonrecurring -- we continue to have some costs for Project Pride and those activities, although they are starting to decline, and that was the biggest component of those.

We also had retention -- no retention, I'm sorry, severance payments, as we responded to economic conditions as volumes have moved around at different auctions. There's about $1 million in severance payments and about $3 million in payments related to our Project Pride and other cost-savings initiatives.

Those were the cash -- the nonrecurring cash charges.

And the other ones, I guess, were --

The others were the noncash.

Non-cash, right. Great. Thanks, Eric.

[Derek Larson], [Meritage].

Just -- a couple of questions have already been asked. But just quickly, on salvage again, I know you said so volumes were flat to slightly down. Is that a true organic number, and I apologize. I can probably go back and figure out when you closed some of the acquisitions last year, but I just was curious.

Well, it is a true organic number because the acquisitions were completed in the first quarter, so by second quarter, there's no new acquisitions. (multiple speakers) And Verastar was the big one last year. So it impacted the numbers through February.

And then, the other question is, as you look at the environment, I know you guys have always been talking to other small independent auctions across the country. What does the acquisition landscape look like now? Is the economy -- are people sensing that they can hold onto some of these deals longer? Just kind of curious as to who you guys are talking to and what you are seeing.

Our position, really, vis-a-vis acquisitions, hasn't changed from the standpoint that it's really not a focus and hasn't been a focus this year.

So we have not spent a lot of time taking a look at -- and you know, specifically in the salvage industry, there's not a whole lot of potential acquisitions out there. And certainly, we have not been focused on the few smaller ones.

At the whole-car level, again, there is a group of independent auctions that potentially could be acquisitions in the future. But certainly, as it pertains to this year, it's not a focus.

And we really have continued to have all of our management teams really concentrating on the current businesses that they have in place and working on revenue maximization and margin improvements at those businesses. So I would say that acquisitions in general continue to be not much of a focus for us.

And then, just lastly on AFC, it sounds like the revenue-per-transaction growth is sort of limited. It sounds like you had about $9 there. You know, from $111 to $120.

But when you talk about growth there, or think about it, what about the sort of volume? Do you think there is a lot of volume that you are still missing -- or not missing, but selectively avoiding? Or do you really think it's on the sort of revenue per transaction?

And then, if you could just make a comment, too, on how that improvement -- is that driven by higher fees you are charging or is that just sort of the reversal of some of the credit losses that you guys have experienced in the last couple of quarters?

I think the last point is very significant, in that that revenue per transaction is impacted very significantly by the credit losses to the extent that we did see a lot of those in 2008.

So improvements in that revenue per transaction, I think, will be most materially impacted by significant improvements from where we were in periods of 2008.

From just an overall volume standpoint and a pricing standpoint, again, we think there is some opportunities for some disciplined growth there. And on the pricing front, we are pleased with where we have our pricing and we think that the adjustments that we made over the course of late 2008 and early 2009 really reflected the changing business.

So I don't think that we are looking for significant changes in our pricing. But we do think that opportunities from both the enhanced credit quality, as well as just overall volume growth, is there for that business.

Robyn Browdy, Highline Capital.

I am new to this story, so I might not be understanding everything correctly. But I thought I heard you say that IAA comps were flat, but then when I do the math on the revenue, I get down 6%. Can you help me just bridge the two, please?

Yes, Robyn. The volumes were flat. I mean, again, I've indicated slightly down, but rounding to zero.

And the decline in revenue is really revenue per vehicle sold, and that is because while we have a -- what we called fixed-tier pricing, meaning it's not a commission, there is tiers based upon the value of the vehicles, we've seen a significant decline in the values paid for vehicles in 2009 as compared to 2008.

A large portion of that, Robyn, was in 2008. Prior to the Olympics in China, scrap metal prices in the commodities market were very high. And that --

I'm sorry. So that led to higher prices last year?

Yes. The values paid at auction, because after you dismantle a vehicle, what's left is a lot of metal that you can scrap.

We think that was a primary contributor. Also though, you have fewer miles driven, fewer cars on the road, fewer accidents. Over the course of the past year, we've talked about all of these factors have been putting pressure on the values paid at salvage auctions and it's -- year over year, that's really the issue.

So as we look into the second half of 2010, if prices were to stay where they were -- where they are today, would you start to see positive ASPs or pricing revenue per vehicle?

Yes. I mean, the decline really began in September of last year.

Can you help me understand how you and others in the industry can participate in Cash for Clunkers? It was my understanding in the bill that it had to go to a salvage yard. Or to an authorized --

Yes, the way it works is that we have to be careful and we have to qualify our buyers, and they have to be licensed to participate in a program and actually receive the vehicles.

We, as a salvage auction, can take the cars and we have the authorization to take the cars directly from the dealers. So our relationship at IAA is with the dealers, and we bring the vehicles to our salvage auctions, and the buyers we have to certify are qualified to participate in the program and take the vehicles.

Kyle Chung, AIG Global Investment Group.

For the past couple of quarters, I think you've focused on cash generation or cash build, and now you're up to almost $200 million. Do you expect to continue to build cash going forward?

Kyle, this is clearly a good business that generates cash every quarter. And so, we continue to focus on the generation of cash. So yes, we think we can continue to build cash.

I'm not sure we can continue at the accelerated level we saw in the second quarter of this year. But yes, we do think we can maintain strong cash generation in the business long term.

And I thought I heard you say that acquisitions are not a focus right now. So what do you intend to do with that cash that's --

Ultimately, we believe that we need to continue to delever the balance sheet, and so, I would say at the moment the focus is more on overall debt reduction in the longer term.

At some point in time, opportunistic acquisitions may come back on the table. But certainly, as we headed into 2009 and continuing as we move forward right now, we are looking at deleveraging the balance sheet.

[John Chi], [ELS Partners].

Actually, all of my questions have been asked already. Thank you.

We'll take our final question as a follow-up from Derek Larson.

I just had a quick question. Yesterday, in the -- or yesterday, maybe two days ago, the release that Tom put out, he -- the mention of supply and inventory is down to 33 days. I think it was up to kind of mid-70s probably the end of last year.

Could you just make some comments [around] how you see supply maybe trending for the second half of the year? Are you concerned about the current level of supply?

Yes, and Tom has been monitoring this and he has had some comments on it, but clearly, we are in a tight supply environment for used cars, and so, we continue to always be concerned about that in trying to maintain adequate supply at our auctions.

The flipside of that tight-supply environment have been the very high conversion rates, and so, we are beneficiaries of that from the standpoint of firming and pricing at the vehicles, as well as that helps our margins when we have those high conversions. But certainly, we continue to be very focused, and the team at ADESA working very hard at maintaining the best supply that they can.

But you are correct, and Tom has made comments on that. We are in a real tight supply environment in the used-car market right now.

And Derek, the other aspect is you are comparing what is historically a low period in inventory in the industry to historically what is the high period, which is year end.

Typically, our consignors do build inventory through the late fall and early winter, preparing for what's known as the primary selling season, which begins middle of January to end of January.

Right, I understand. I just was -- it has been pretty evident, though, the supply is kind of tight.

I'm curious, have you seen supply from fleet -- is that -- now they start to defleet after the summer? How is that kind of -- are you starting to see that in a major way, or do you think that's going to be sort of later in the year?

Well, again, it's hard to predict the timing by individual fleet, but yes, you start to see the defleeting historically with the rental car companies in post-Labor Day, and then the corporate fleets usually in the fall, as well.

So I think you are right to expect that to be part of the build of inventory towards year end.

That concludes today's question-and-answer session, gentlemen. I'll turn the call back over to you for additional or closing remarks.

Thank you, everyone, for participating, and that's all we have today.

Again, thank you for joining today's conference call. Thank you for your participation.