Openlane Inc (KAR) 2015 Q1 法說會逐字稿

Welcome to the KAR Auction Services first-quarter 2015 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Jonathan Peisner, Treasurer and Vice President of Investor Relations.

Thanks, Jamie. Good morning, and thank you for joining us today for the KAR Auction Services first-quarter 2015 earnings conference call. Today we will discuss the financial performance of KAR Auction Services for the quarter ended March 31, 2015. After concluding our commentary we will take questions from participants.

Before Jim kicks off our discussion, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect KAR's business prospects and results of operations, and such risks are fully detailed in our SEC filings. In providing forward-looking statements the Company expressly disclaims any obligation to update these statements.

Lastly, let me mention that throughout this conference call we will be referencing both GAAP and non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the applicable GAAP financial measures can be found in the press releases we issued yesterday, which is also available in the Investor Relations section of our website.

Now I would like to turn this call over to KAR Auction Services' CEO Jim Hallett. Jim?

Great, thank you, John. And good morning, ladies and gentlemen, and welcome to our call. This morning I would like to provide you with a review of our first-quarter performance, an outlook of each of our business segments, and then speak to capital allocation.

Looking at our financial results for the first quarter, our consolidated revenue grew 8%, and this was made up with ADESA growing at 10%, AFC growing 9%, and IAA at 6%, resulting in an overall increase of adjusted EBITDA of plus 10%.

Before I speak to the business units let me just speak to our guidance. We don't expect any change in our guidance. We continue to expect adjusted EBITDA of $630 million to $660 million, which should result in free cash flow of $325 million to $350 million.

Turning to the business units and starting with ADESA, ADESA saw an increase of 8% in its volume. The physical volume was up 7%, the online-only volume increased 10%, and the revenue per vehicle at the physical auction was up $18 to $681, and the online-only revenue was down $7 per unit to $107.

This combination of revenue per unit resulted in an increase of $10 per unit sold, taking us to $564 per unit. The sequential decline that we see here in the revenue per unit was very much expected and is very consistent with the normal seasonal trends that we see from quarter to quarter.

In terms of looking forward for ADESA, the cyclical recovery continues to play out as expected. We did see an increase in off-lease volumes late in the first quarter, and that off-lease volumes have continued into the second quarter, and certainly there's been an increase of vehicles at our physical actions.

At ADESA we are very focused on controlling our SG&A while volumes increase. And I would expect that the adjusted EBITDA margin will increase in 2015 at ADESA.

Turning to Insurance Auto Auctions, volumes were up 8%, revenue grew 6%, and adjusted EBITDA was up 7%. There was a reduction in revenue per unit at Insurance Auto Auctions, and this was based on the strong supply of total loss vehicles, the lower scrap metal prices and the stronger US dollars.

We do expect this trend of lower auction proceeds to continue. With that I will say that I was pleased with how Insurance Auto Auctions handled the increased volume while controlling their SG&A.

In terms of looking forward, we ended the quarter with 20% more inventory than a year ago. This gets us off to a good start in the second quarter. And with the low fuel prices we expect to see an increase in miles driven, which should result in more accident, which is certainly a positive for our volumes. I don't expect lower auction proceeds will materially impact our performance, and our guidance does contemplate continued softness in auction proceeds at Insurance Auto Auctions.

Turning to AFC, AFC had an increase in revenue of 9%. Our floor plan lending revenue grew at about 8% and the remainder of the growth was due to preferred warranties. We continue to roll out preferred warranties to new markets in the US, and I would expect our service contract revenue to contribute to additional revenue growth going forward.

Looking ahead for AFC, I think AFC will benefit from the trends that we're seeing at ADESA. Certainly the increase in physical auction volumes is good for the independent dealers, and no question that lower auction prices will reduce average loan balances. However, with more high-value vehicles coming from the off-lease segments, that may be an offset to loan values. But I don't see any material changes in vehicle values expected, and this will be good for our loan loss experience.

As we think about capital allocation we continue putting our cash to work. You may have read that our Board declared a $0.27 per share dividend. As well, we have announced that we acquired a well-established independent auction in the Pittsburgh area. We feel that acquiring Selective Independent Auctions allows us to expand our buyer base, introduce the car suite of digital services, as well as provide us with a good mix of commercial and dealer consignment sellers.

As well, we announced a plan to acquire DataScan. We expect this deal to close in the second quarter. We will combine the DataScan business with the AutoVIN business, and we expect this will increase our share of the end-of-lease inspection business.

We would look at this acquisition as a strategic acquisition as we think about the number of off-lease volumes increasing in the foreseeable future. Certainly the DataScan acquisition will enhance our current inspection technology. And we would expect that we will be able to integrate this technology with all of our private label sites.

We also announced a new greenfield site in Chicago. This is something that I wanted to do since I came to ADESA. Chicago represents the third largest vehicle market in the United States.

Our auction there is going to be strategically located in the northwest suburbs of Chicago relatively close to the airport. We expect that we will spend $30 million to $35 million of capital over the next two years on the Chicago facility.

Returning capital to our shareholders along with investing in strategic growth is a priority for KAR. In addition to our dividends and the acquisitions that we spoke about, we also have repurchased $10.7 million of KAR stock in the first quarter.

In conclusion I would say that I feel that we have had a good first quarter. I think it's a performance that we can build on throughout the balance of 2015.

The businesses are very well positioned in each of their segments. And, generally speaking, I think we are operating in a very positive environment with a little wind at our backs.

And with that, I'm going to turn it over to Eric for some additional commentary on our financial performance and then we will come back for some Q&A. Eric?

Thank you, Jim. I would like to add a little color on just a few topics this morning. Let me start by providing a few more details on our guidance.

In addition to the adjusted EBITDA and free cash flow guidance Jim reviewed, we are expecting net income per share of $1.40 to $1.55 and adjusted net income per share of $1.60 to $1.75, assuming an effective tax rate of approximately 38%. As you saw in our announcement last night, there are no changes to our expectations for cash taxes or cash interest on corporate debt.

Our guidance on capital expenditures remains at $115 million, but this excludes any capital for the development of the Chicago greenfield site. As Jim mentioned, the total cost for the ADESA Chicago location is expected to be $30 million to $35 million over the next two years. Currently, the construction plans are being developed and the timing of the expenditures is not yet finalized.

We will incur some of the cost in 2015, but have not included this in our guidance at this time. As these construction plans are finalized and all approvals received, I will update you on the timing for this capital project. We have excluded the capital required for the ADESA Chicago location from our capital expenditures, free cash flow, and free cash flow per share guidance included in our earnings announcement last night.

We also included a reconciliation of net income to operating adjusted net income in the KAR Auction Services, Inc. Q1 2015 earnings supplemental financial information dated May 5, 2015 that is posted on our website. I introduced this new financial measure in our last call and will now report this quarterly through the remainder of the year.

Operating adjusted net income per share for the first quarter was $0.47 compared to $0.40 in 2014. This represents a 17.5% increase. Operating adjusted net income per share represents our cash earnings.

We have excluded amortization of intangibles, primarily arising from acquisitions including the 2007 LBO transaction in both years. We also excluded the loss on extinguishment of debt recorded in the first quarter of 2014.

There is no adjustment for stock-based compensation expense in determining operating adjusted net income. We expect operating adjusted net income to become our primary financial measure of performance beginning in 2016.

Another item worth noting that impacts the comparability of our financial performance in 2015 is the treatment of stock-based compensation in computing adjusted net income and adjusted net income per share. We have consistently excluded stock-based compensation expense resulting from the 2007 merger in determining adjusted net income.

This add-back was $9.2 million or $0.06 per share, both net of tax, in the first quarter of 2014. There was no add-back of stock-based compensation expense in the first quarter of 2015. Stock-based compensation expense aggregated $1.6 million or $0.01 per share, again both net of tax in the first quarter of 2015.

Also affecting the comparability of our financial statements for Q1 was the strengthening of the US dollar in the first quarter of 2015 as compared to the prior year. On a consolidated basis the stronger US dollar negatively impacted net revenue by approximately $9 million, adjusted EBITDA by approximately $3 million, net income by approximately $1.3 million, and earnings per share and adjusted earnings per share by $0.01. We are expecting the strong US dollar to negatively impact our foreign earnings, primarily in Canada, for the remainder of 2015.

I believe our earnings release and earnings supplement released last night, combined with Jim's remarks on our performance have covered our first-quarter performance, so let's turn it back to the operator, Jamie, for your questions. Thank you.

(Operator Instructions)

We will take our first question from Matthew Fassler with Goldman Sachs.

Thanks a lot and good morning. So, we have almost an embarrassment of riches in the physical auction world, particularly from institutional where the volumes have surged and institutional mix has moved in the right direction. I am interested in the dealer consignment business, which, on a unit basis, looks like it essentially flattened out after a couple of years of pretty consistent growth. Any sense as to what's happening in the dealer channel from a physical perspective and what the pipeline looks like for that area of the business?

Yes, Matt. This is Jim. First of all, in absolute numbers our dealer consignment business grew at about 1% year over year. But you're right, in terms of a percentage, it is down a little bit. But this was very much expected.

As you think about the influx of all these commercial vehicles coming to market, and we tend to have a higher percentage of commercial vehicles than we do the independent vehicles, we thought that this number would actually drop a little bit before it has. Quite frankly, I'm pleased that it's remained as high as it is.

Is the strength in the institutional business and in the dealer business mutually exclusive? In other words, you have this flow of off-lease vehicles. Does that by definition preclude the dealers from having excess supply that they would want to ultimately sell through you? Or would you just typically see these not work at the same time in the cycle? How are you thinking about whether it's possible for both of those sides of the business to hit it at once?

I think it makes it more competitive for the dealer consignment business when the lanes are full of commercial vehicles. Commercial vehicles are usually very high percentage sellers.

As these cars come to market, with the high percentage sellers going up against the dealer, I think it just makes it a little bit more difficult from a competitive standpoint for the dealers to get their vehicles sold. And overall, as I said earlier, we did expect the dealer consignment business to drop somewhat.

And, Matt, before you go on, I would like to add, look at the conversion rate. One of the things that we pay attention to is the conversion rate year over year has declined. That may mean that the dealers have brought cars to the auction they just aren't getting the pricing because of the commercial cars Jim's talking about receiving the premium bids. So, we are seeing conversion rate drop, which may mean they brought the cars in, they just weren't satisfied with the pricing as well.

Understood. And then a very quick follow-up -- at a high level, if you think about the revenue per unit that you are getting at the physical auction, still a very strong number, what's your thought process on the ability to continue to grow that number from here? I know you had some growth here in the first quarter. Can that number continue to tick higher even as some of the measures of used car values perhaps start to soften up a bit?

Matt, I think it can continue to grow, especially as you think about the influx of commercial vehicles that are coming into the market. These are the heavy users of the ancillary services. As we said earlier, we grew it in the first quarter, and as we get into the second quarter we think that number will continue to grow.

Great. Thank you so much, guys.

We will take our next question from Ryan Brinkman with JPMorgan.

Hi. Thanks for taking my call. I'm curious how the quarter tracked relative to your own expectations and how you feel you are currently positioned with regard to achieving your full-year guidance relative to how you were positioned of the 4Q call a few months back when you first established that guidance?

Ryan, I think the quarter played out as we expected. I think that double-digit increase year over year was what we had in mind, what we were thinking. I think as we look at first quarter and we look going forward, things are playing out as we would expect.

Okay. Thanks. And then relative to the $30 million to $35 million of CapEx for the Chicago greenfield, should we expect this to be entirely capitalized, almost entirely capitalized, partly expensed? How should we think of that impacting EBITDA, if at all?

The number we're talking about, all of that is a capital project. It will all be capital expenditures.

Great. That's what I thought. And then just the last question on IAA pricing, down 2% year over year in 1Q. Probably a bit more benign than investors were thinking with the decline in scrap metal prices. You've talked before about this bottom 20% of salvaged vehicles that are bought for metal, the middle 60% for parts, and the top 20% more like whole cars.

Presumably the demand for and pricing of the bottom 20% has softened a lot, I would just guess. But this is being cushioned somehow by demand for and pricing of the other 80% of salvaged cars. Can you talk about how these factors balanced out in the first quarter and then how they are likely to balance out going forward and what that might mean for IAA pricing and margin?

Again, with lower scrap metal prices it's clear that even for the dismantlers that are parting out the car, they're going to scrap a portion of the vehicle when they're done dismantling. I think it's having an impact.

And foreign currency is the other. It's hard for us to separate because it's all bidding activity. But there is clearly, really, a reduction in average auction prices reflecting lower bids. And I would tell you there's a great supply right now from the total loss vehicles. Demand is in good shape. But I think you're seeing really us coming off of a multi-year cycle of really strong performance at IAA.

We're not in any way below what I would consider normal levels for total loss vehicles and what the prices they're getting. They're just off of the relatively high levels we've had the last several years.

I see. That's helpful. Okay. Thanks so much.

We will take our next question from Bret Jordan with BB&T Capital Markets.

Good morning, gentlemen. This is actually David Kelley on for Bret this morning. And I apologize -- I jumped on to the call a little late -- if my question's been answered already. But just wondering if I could get some more color on the 20% inventory increase at IAA, maybe some expectations on how that flows through auction over the next months or quarters or so, that would be great.

Yes. I think that, as you know, we announced last year that we did have one major insurance company that was going through a change of process and it was slowing down getting their vehicles to market. That has continued a little bit into the first quarter. But I would say that we see things on the relatively normal cycle now.

And the average days to sell for a salvage vehicle is somewhere in that 75-day range. And I would think that would be are more of the trend. I don't expect that we would see 20% increases quarter over quarter going forward. Something less than that perhaps.

And, David, this is Eric. I would add to that. We were up 20% year over year at the end of the year. We're up 20% year over year at the end of the first quarter. You ought to read into that that the cars that were entered into the auction that are being processed were equal to the cars we sold. That's a pretty good situation for us in terms of volume entered, as we call it. So, that sets us up well.

We do believe at some point that number will decline as we get past this high selling season and the volume end starts to decline, as it typically does in the summer months. With nicer weather, there are fewer accidents. Although, with the miles driven going up, that could offset that.

All right. Great. Thank you.

Our next question comes from Shreyas Patel with Credit Suisse.

It looks like online-only volumes were up 10% and physical up 7%. So, just wondering how we should think about the growth rate of online-only versus physical through this year and then for the next few years?

Let me start. The online-only has had high growth rate because it was coming off of a bottom, Shreyas. And I think most of our investors realize it was going to level. It may still grow, but at a much lower rate than when it was in the mid 20%s and even 30% growth year over year as we were coming off of the bottom in 2012.

And the physical, it's really the cyclical recovery. I'm very proud of our performance in both segments relative to industry volumes. But I think, again, that our representation in the commercial market, as Jim mentioned earlier, is stronger than it is in the dealer consignment market relative to the industry.

So, as these commercial cars come back, which we know they're doing, over the next three years, I expect us to perform very well in that marketplace. And that will result in more cars at physical auction, in our opinion.

Right. And I think in conclusion, what I would have said is, at some point in time with these commercial vehicles, I do expect them to level off and more of those cars to make their way to physical, with the additional selection.

Okay. And I wanted to get a better understanding of your ancillary service business. You mentioned that it was strong in the quarter and should be a driver. But I'm just trying to understand what are some of the main contributors there in aggregate. Is most of that business transportation or is it conditioning? Just trying to get a sense of what's in that basket.

I would just say, keep in mind that, as we've told you in the past, that usually the ancillary services have a lower margin than the auction services. However, we didn't necessarily see that in the first quarter because it remained at 43% margin at ADESA as compared to previous year.

But with that, number one is transportation. But then, as you think about that, you have reconditioning, you certainly have paint and body work. You have the mechanical work. We have the dent popping business. We have the key business. There's a number of additional services, and they all have various margins, which, again, contribute very nicely to the overall revenue.

And, Shreyas, one of the areas that we're consistently working on, we've talked in the past quarters, this quarter, not quite as big of a growth, but repossession services. We're also talking now about the DataScan business, bringing in inspections prior to end of lease. That would all be for us an ancillary and related service. We see opportunities to grow that through the investments we're making in the business.

Okay. That's really helpful. And then just last one for me, Eric, I noticed the cash flow from ops was down a little bit versus 1Q 2014. I was wondering what were some of the factors there.

You are looking at the cash flow statement, correct?

Yes.

Yes, we do have some timing issues relative to the end of the quarter. It's predominantly trade receivables. And that will fix itself. It has to do with the day of the week the quarter ends in. That was the biggest change, as you can see.

It was a $25 million greater use of cash in the quarter at March 31 this year. And that really relates to on what day did the quarter end relative to the auction activity. It's not a deterioration. It's not an increase in what we measure as DSO. It really has to do with the timing of when the quarter ends at the end of the week.

Okay. That makes sense. Thanks, guys.

We'll take our next question from Craig Kennison with Baird.

Good morning. Thanks for taking my question. Could you give us an update on TradeRev and the roll out there?

Yes, Craig, the rollout continues to do very well in Canada. It's a little bit behind where we'd like to be in the US. But I can tell you, as we speak, we have stepped up our resources and our focus and we would expect things to improve here in the next quarter as we move forward.

And then regarding DataScan, can you give us a little more color on actually what that service is doing? And then maybe more broadly, how many different types of services are there out there that you could consolidate, just to make a better overall platform for your customers?

Let me start with DataScan. First of all, every off-lease car requires an inspection at the end of term. So, at the end of term we do an inspection of the vehicle. We are able to take images of the vehicle, assess the damage and collect for damage on the vehicle before these vehicles then get posted to a private label website.

If you think about it, these companies, these commercial sellers, are going to require this inspection on these lease cars. And we can either provide that inspection for them through our business or they could look to do it with a competitor. We feel that if we can provide that inspection and provide the images, and then get it to the private label websites, which we have a leading industry position on, we feel it makes it a more seamless transaction for our customer and produces a better service for our customer.

When you think about it, we were doing inspections with AutoVIN. One of the major competitors in that business was DataScan. We have now combined both of these competitors. As a result we'll get more of this inspection business -- we basically doubled down, if you will -- more of this business, and provide a better customer service, again resulting in getting them on to our private label programs.

And, Craig, in terms of the number of businesses out there that are providing services that our customer base is interested, it's a large number. They tend to be very fragmented. I wouldn't describe it as we're looking to aggregate or roll up large groups of these things, but we're looking for those that have built enough mass where it's efficient for us not to spend all our time on integration and actually reap the benefits when we do an acquisition; like a DataScan that has substance, like a High Tech Locksmith when we bought it that had a very substantial key-cutting business serving a national market. We're probably beyond the ability to roll up individual local businesses one at a time to add to our ancillary services.

Got it. Thank you.

Our next question comes from John Healy with Northcoast Research.

Good morning. Jim, I wanted to ask just a little bit more about the M&A side of things. The acquisition of the brick-and-mortar location in Pittsburgh is quite exciting. I was curious to know -- there are a good number of quality independents still out there. Is it likely we see a couple more of those years before year end? And what does the pipeline look like on the brick-and-mortar side of the business?

First of all, I would say to you that the pipeline, we feel there's a number of opportunities, a number of good opportunities. There is some very good independents out there. I have always sized it that there is probably 5 to 10 really good, strong independents that we would be very interested in acquiring if the opportunity presented itself. We know that we can buy these auctions at attractive multiples.

I can't promise you that we'll have a number of them done before the end of the year, but I can promise you that we are working on a number of them. At some point in time we would expect we'll get some of these over the goal line.

Got you. Great. And then a question on the Insurance Auto Auction business. Coming out of the LKQ call last week there was a lot of discussion about them not being as active at buying cars at salvage auctions in the recent quarter. With them pulling back, what happens in the market? When the big buyers pull back, do the cars still sell and we see the fall off in prices? Or do you have an inventory build, just not as many buyers active? I was curious how it actually plays out on that side of the business.

For the most part there's a buyer standing there at the end of the bidding line. So, the car is normally going to get sold. But with that said, I think LKQ announced that they were seeing about a 4% reduction in sales price. I think that would be consistent with what we're seeing.

Proceeds are down somewhere in that neighborhood of 3% or 4%. But there still as many active buyers and there is still somebody bidding that's going to buy the vehicle.

In some cases the conversion rate might be down a little bit where, let's say, you've seen sellers that perhaps in the past have been 100% seller across the board. Maybe they are holding back a few more cars based on what the bidding is and based on what the dealers' inventory capacity is. They could be holding a car maybe until next week or the next sale to see if they can achieve a little bit more. We've seen a little bit of a dip in conversion rates.

Okay. Great. Thank you.

Our next question comes from Bob Labick with CJS Securities.

Good morning. I wanted to shift back to online-only. The ARPUs ticked up sequentially the last few quarters. I know it's not huge but it's the most in the last 12 months now. You've talked about in the past the desire to drive that going forward. Have you been able to implement plans yet or is this more of a mix? And what is the plan to get that ARPU to continue to keep increasing?

One of the things -- and I'll let Eric speak to this as well -- but one of the things that we're very focused on, is we're very focused on being able to sell more of those vehicles in the online open environment. As those vehicles come out of the closed sale and then they go to the open sale, we're trying to sell more of those cars right there before they go off to physical auction because, as you know, we get the first two opportunities to sell the car, closed and open, and then when it goes physical then we get about one in three cars.

As you think about it, we've been focused on providing our customers with good analytics, showing them perhaps if these cars were priced a little bit differently in the open sale and priced more towards the market and more towards market prices, then we could get a higher conversion rate at the open. So that's been a focus. Eric, do you want to add to that?

Yes. I will just speak to the specific ARPU, Bob. What we're seeing is a mix issue in terms of less grounding dealer purchases processed through our system. It's not yet substantial increases in the open environment, but we're focused on that.

What Jim said is our initiative, we do need more off-lease cars to get into the system for that to work because the franchise dealers are going to buy all the inventory they need, and you need cars that they don't need on their lot -- right, Jim?

Right.

But right now I would tell you the big driver in this quarter of the $107 being up, we had two quarters in 2014 where we were below $100. That was driven by the grounding dealers making up a larger portion of the sale. We've seen that dissipate down to where it's now a more traditional mix of closed versus open without the grounding dealer.

Great. Thank you very much.

Our next question comes from Robert Higginbotham with SunTrust.

Good morning, everyone. First question, to revisit the salvage revenue per unit trend, could you give us a sense of how that progressed through the quarter? It looks like scrap metal pricing was weakening substantially towards the end of the quarter. I am just wondering how you started and how you finished on that front?

I would say you've got it right. It did weaken as the quarter went on. So there was a downward slope there.

In the proceeds that you saw?

In the bidding, yes.

Got it. Okay. That's helpful. And any color you can give us on what repo versus off-lease volume trends looked like in 1Q versus 4Q. Did they track pretty similar to last quarter? Did one outpace the other as far as you could tell?

Robert, it's hard for us to measure. As I have mentioned to a lot of the analysts, we measure by the consignor, which means captive finance is a source of both off lease and repo, and you don't always know which it is. And that category was quite strong on the growth for us in the first quarter.

I would tell you, though, based upon, again, what we look at in the field, I would tell you off-lease is outpacing repo still. But repo is growing and there is a lot of positive trends in terms of the sub-prime lending and default and it will ultimately get to the repo activity.

I would just add that there is no shortage of financing available. And as that financing is available and car sales are strong, both new and used, we would expect that the repo business will continue to grow.

Is it fair to think that there is an upward bias to that more likely than a downward bias?

Yes, I believe that there is.

And then last question on the new Chicago greenfield, what kind of volume should we expect out of that facility in year one versus your current average? And what's the general maturity curve for a greenfield unit like that?

Well, I'm a pretty optimistic guy. First of all, let's talk about greenfields in general. In general, we would tell you that starting at greenfield site usually takes 12 to 24 months to become cash flow positive. Our recent experience in Las Vegas, which was the last greenfield we've done, was basically cash flow positive in a year.

I have some very high expectations for Chicago, being the size of the markets it is. And not only the size of the market, but being the location that we are in, in that Chicago market. As a matter of fact, that location, our major competitor is quite a significant difference in terms of miles to the south. So, we think we've really got a prime location there.

Without spitting out any specific numbers, it's the third largest market. We're well positioned there with a great location. We know there is a huge buyer network out of that market. I would expect that we would see very strong results in the first 12 months comparatively speaking to a greenfield.

Great. Thank you.

Our next question comes from Elizabeth Suzuki with Bank of America Merrill Lynch.

Good morning. Are there any regional trends that are emerging so far in 2015? We've heard a lot of concern from investors regarding anything exposed to oil states. Are you seeing any slowdown in volume in Texas or other oil-dependent markets?

Not that I'm aware of. I think for the most part our performance has been pretty consistent across all markets. I can't say I've spent a great deal of time studying it but I'm not aware of any trend that would be materially different.

Great. Thanks. And you mentioned that you thought foreign exchange would continue to be a headwind. What are your internal forecasts for how much the unfavorable Canadian foreign exchange would impact the rest of the year? And would most of that be felt in the second quarter, fading off in the back half, or what do you think the cadence could be of that impact?

No question it will. I think Eric spoke to it a little bit in his comments. Eric, I defer to you.

Elizabeth, we were probably surprised by the weakness in the Canadian dollar in Q1 but we've anticipated it to stay at these levels for the rest of the year. To the extent that the US dollar would strengthen even further it would be a further negative. And to the extent that the US dollar would weaken, for example, if interest rates were starting to increase, they expect that dollar could weaken. That would be a positive compared to what we're expecting for the rest of the year because we're holding it at this roughly CAD0.80 to the US dollar as our expectation for the remainder of the year.

Great. Thank you.

(Operator Instructions)

We will take our next question from Gary Prestopino with Barrington Research.

Obviously, most of the questions have been answered since I got on late. Jim, when you talk about you're seeing an uptick in these off-lease volumes, which you expected, do most of those start coming in at the beginning of the year, throughout the year, at the end of the year? Can you give us some idea of the cadence of what usually happens in this case?

Yes, Gary. I think we would say to you it's pretty much spread throughout the course of the year, depending on -- I'm looking at a chart here -- depending on when these leases were written.

Gary, we've got a chart of lease originations by month. And I would tell you in the first quarter they come in the second half of March and they stay strong really into the early summer. You probably then have a little, I would say, break in the retail sales that get to August, and then Labor Day and on it's quite strong.

But when we look back to 2012, the leases that are coming now, it was part of the real recovery. It stayed pretty steady most of the year after February. So, Jim's point is correct. But there's trends that could vary from year to year. But this year it's looking pretty good throughout the year after you got past February.

Okay. Thank you on that. And then on the Insurance Auto side, was there any impact -- I know the volumes were very strong, but as far as your sales, was there any impact from weather there, especially in the Northeast? Because I looked at it. You said your inventory was up 15% at the end of Q4. You are up 20% now, yet you only sold 8% increase in volume. Was there any additional impact on there beyond pricing that impacted sell through?

Gary, as we've said in the past, we are always dealing with weather at some point in the year. If it's not the winter weather, it's other hurricanes and tornados and storms that take place over the course of the year. I have always said that I really think weather becomes a wash over 12 months and I don't attribute anything to weather unless it's something significant, like what happened with Superstorm Sandy.

Okay. All right. Thank you.

We will take our next question from Bill Armstrong with CL King & Associates.

Good morning, Jim and Eric. I want to get back on the foreign exchange impact on the salvage side. We are hearing, and I think you addressed this a little bit earlier, you've got some buyers who obviously are going to be exporting these vehicles to other countries, and the stronger dollar makes that a more difficult transaction economically. How does that play out? Are there fewer buyers? Are they the same number of buyers but maybe bidding on fewer numbers of vehicles or are they just making lower bids? How do you see that playing out?

Again, specifically maybe there are buyers that drop out, but we see the same level of activity. The difference is they stop bidding at a certain point because, again, the economics start to get upside down for them on the export.

I think it's just consistent with a modest low single-digit reduction in average auction proceeds at the auction. And that's the impact. And whether that be from scrap metal or foreign currency, both have that impact. There is a point at which they just can't make the economics work if they keep bidding higher, more so than they don't show up at the auction.

That makes sense. And could you remind us what countries are the biggest export markets for salvaged vehicles for you guys?

Our biggest buyers come from Mexico. And then beyond that it's Africa and --.

It's South America. There is a couple South American -- I am not naming the countries because I don't have them memorized. But Middle East can be in there and Eastern Europe, and they vary. Mexico is by far the largest compared to all the others in aggregate. So, you really focus on Mexico. Then after that it's currently Africa and South America has a couple of countries that are active.

Would you say Mexico alone is more than half?

I don't have that in front of me. But, yes, I would say it would be the magnitude of approximately equal to the rest, if not greater. I just don't know if it's exactly half, a little bit more, little bit less. It would be in that ballpark, in my view.

That's okay. I was trying to get a ballpark estimate there. That's all I have. Thanks.

It appears there are no further questions at this time so I will turn the call back over to Jim Hallett for any additional or closing remarks.

Okay, great. Thank you very much for being on. We truly appreciate your interest in our Company.

Again I would just say what I said with my closing remarks. I am very pleased with the quarter. I think our businesses are very well positioned. It's a very positive environment. And I think we have an opportunity to really build on that first quarter and deliver the results that we've spoken to here for 2015.

So, with that, we continue to look forward to a good quarter to come and look forward to talking to you next time around. Thank you.

Thank you for your participation. This does conclude today's call.