LKQ Corp (LKQ) 2005 Q1 法說會逐字稿

Thank you for holding and welcome to your conference call with the chairperson, Mr. Spears. I would like to remind everyone that today's conference is being recorded. Mr. Spears, I'll turn the call over to you.

Thank you. Before we get started, I need to talk about forward-looking statements. The statements in this press release and webcast include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our expectations, beliefs, hopes, intentions or strategies.

Forward-looking statements involve risks and uncertainties, some of which are not currently known to us. Actual events or results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors. These factors include the risk factors and other risks that are described in our Form 10-K filed March 8th, 2005, and in other reports filed by us from time to time with the Securities and Exchange Commission. We assume no obligation to publicly update any forward-looking statement to reflect events or circumstances arising after the date on which it was made except as required by law.

Okay. Good morning and thanks for joining LKQ Corporation's first quarter 2005 earnings call. On the call today are two members of management, Mark Spears and myself. My name is Joe Holsten and I'm the CEO of LKQ and Mark is our chief financial officer. I will begin by providing some high level overview of our performance, as well as some qualitative views on the business and industry during the quarter, and then Mark will provide a more detailed assessment of the quarter's financial results.

I assume you probably read our press release, but we reported a record $133.8 million in revenue for the quarter, which represents a 34% growth over the first quarter of last year. We were quite pleased with our organic (inaudible - audio break) 11% with the remaining 23% revenue growth derived from business acquisitions.

Our gross margin was 46.8% for the quarter, which is fairly consistent with the gross margin in Q1 of last year of 47%. Our net income increased by 49% to $8.4 million for the quarter and our diluted earnings per share increased 48% to $0.37. We also reported strong operating cash flows in the quarter, which increased by $5.4 million over Q1 of last year to $11.3 million.

While we were extremely pleased with virtually all aspects of the quarter as we exceeded our internal goals for revenue, operating margins and EBITDA dollars, we were particularly pleased with the performance of our aftermarket product line. We generated consolidated aftermarket parts revenue for the quarter of $20.3 million with a gross margin of 46.3%.

Reflecting the confidence that we have in our business model of combining recycled and aftermarket part offerings to our customers, we decided to geographically expand our footprint of market service with aftermarket parts. We acquired Bodymaster, an aftermarket part business, on February the 1st of 2005 for $15.5 million net of acquired cash. This business serves the Philadelphia, Washington, D.C., New Jersey and Maryland markets out of its two locations, one outside of Philadelphia and the other outside of Washington, D.C. The company recorded $19.5 million of revenue in 2004. We believe that the Bodymaster transaction provides a significant and important extension to the markets that we serve with aftermarket parts.

During the quarter we continued to integrate ActionCrash aftermarket operations into LKQ facilities and currently have combined operations physically in nine markets. The combination of these facilities has resulted in some level of route consolidations and, in many cases, headcount reductions. We're also beginning to see the benefits of being able to deliver aftermarket product on our LKQ route trucks, providing for leverage of our significant investment and distribution systems over the past several years. We're also selectively adding aftermarket parts into the warehouses at our LKQ plant and by example, during the quarter we stocked our Atlanta recycled parts business warehouse with a broad range of aftermarket parts to serve as a distribution point for feeding product into surrounding markets, including Florida.

In terms of other expansion activities and our aftermarket operations, our warehouse in Oakland, California is only about half stocked at this point as we incurred delays related to specialized needs concerning fire and earthquake protection. However, it should be fully stocked by early June. We're also planning formally to open an aftermarket warehouse facility in the Greater Chicago market, probably in early Q3. We are currently working on a site location and plan to use the new facility for distribution of both recycled and aftermarket parts.

Our aftermarket business now operates out of seven regionally located warehouses totaling 400,000 square feet. These warehouses are located in Charlotte, North Carolina, Columbus, Ohio, Dallas, Texas, Oakland, California, Pennsauken, New Jersey or Philadelphia, Landover, Maryland or Washington, D.C. and just south of Atlanta. Our aftermarket business now operates 24 transfer runs and 257 local delivery routes on its own and a recycled parts business operated 54 transfer runs and 353 local delivery routes during the first quarter. In various areas, these recycled part routes also delivered aftermarket parts and in total LKQ has a delivery system of over 600 local delivery routes.

One aftermarket part (inaudible) that we carry is automotive aftermarket headlamp lighting which is approximately 15% of our aftermarket parts revenue, or about 2% of LKQ's total consolidated sales. As we have discussed on these calls before, several insurance companies have stopped writing headlamp aftermarket lighting because CAPA indicated four model types of aftermarket headlamp lighting may not meet required specifications, in particular, Allstate, State Farm, Geico, USAA and AAA. To the best of our knowledge, they're not currently writing aftermarket headlamp lighting. Despite this, we continue to see no revenue declines in aftermarket headlamp lighting and, in fact, ours has been increasing. We understand one of the major lighting manufacturers is working with CAPA to begin certifying lighting part types which should bring some of the carriers back into writing this product type again.

To date, the aftermarket manufacturers did not raise prices in spite of the rising steel prices in the past. It's our belief that they have waited until OE manufacturers have raised prices before doing so.

Turning to our main product line, our recycled parts operation, we have also expanded its market presence through an acquisition. Our second 2005 acquisition was A&R Auto Parts that closed on April the 1st, 2005. This is an automotive recycling business based in South Carolina between Spartanburg and Greenville that delivers parts throughout basically all of South Carolina. This business acquisition positions LKQ into new markets and will integrate very effectively into our mid Atlantic region's distribution systems to share inventory between LKQ markets. The trailing annual revenue of this business is about $11 million.

Additionally, on April 22nd -- excuse me, April 26th we acquired a small self-service retail operation in Memphis, Tennessee. This acquisition brings the total number of retail self-service operations in LKQ to nine, but given the small revenue base of the company as it's currently operated, it is not expected to have any material impact on our 2005 earnings.

In terms of other potential geographical expansions, we continue to work with a healthy backlog of acquisition candidates and would expect to close on additional transactions in 2005.

I'd like to comment on the status of some of our development projects. In 2004 we opened three automotive recycling facility greenfield operations in Central Texas, southern Pennsylvania and southern Louisiana. I'm happy to report that these are progressing nicely despite having a slight adverse effect on our current operating margins and our facility and warehouse expenses in particular.

Our EBITDA totaled $16.5 million for the quarter, or 12.3% of revenue, compared to 11.5 million, or 11.4% of revenue, last year. This quarter was not only a record dollar amount of EBITDA for our company, but was also the highest EBITDA percentage that we have achieved in a quarter.

We acquired approximately 24,900 vehicles in our wholesale business during the quarter, which was about 9% more than we acquired during Q1 of 2004. The percentage of vehicles that we acquired from salvage auctions in 2005 accounted for about 92% of our total incoming product flow.

Our strong relationship with insurance carriers continues to pay dividends. We indicated on our last call that Nationwide awarded a direct salvage program in Q1 that would generate 150 to 200 cars per month. In addition, we just received a commitment from another major carrier to increase their direct salvage program up to 125 cars per month from the 75 cars they were previously providing. We also began to receive direct assignments from Universal Underwriters and expect to receive approximately 1,500 cars per year from the Universal program.

As I discussed on last quarter's earnings call, we continue to increase our sales staff levels for our recycle business and we have done so by an average of 59 more sales reps in Q1 2005 compared to Q1 2004. This is an 18% headcount growth with approximately 40 of the new hires coming from acquisitions and 19 from internal hiring.

Just to sum up the first part of our presentation, we believe the fundamentals of the business and our company remain very strong and that LKQ is operating a very compelling business model. We provide an attractive value proposition to a wide array of customers and have an industry-unique position to leverage request activity as well as our customer base in order to sell both recycled parts and aftermarket products. Furthermore, we are beginning to better leverage the distribution systems and sales organizations of LKQ in order to provide for faster and more profitable growth of our aftermarket product line.

At this point, I'd like to ask Mark to provide a more detailed discussion on the financial reports for the quarter.

Thank you, Joe, and good morning, everyone. Let's take a look at the tables in our press release. Note we have also included a table that reconciles net income to earnings before interest, taxes, depreciation and amortization, otherwise known as EBITDA. We also added a supplementary data schedule this quarter related to our income statement to (inaudible) and other percentages.

Looking at our income statement and related tables, our Q1 '05 revenue was up 33.7% to 133.8 million, which included 11.1% organic growth. Our facility and warehouse expenses for Q1 grew $3.7 million, or 34.7%, over Q1 2004. The majority of this growth was our 2004 and 2005 business acquisition, which accounted for $2.7 million growth, or 25.5% expense growth. The balance of the growth included a $240,000 increase in facility and warehouse expenses related to our three recycling greenfields and our two aftermarket organic expansions in Oakland and Dallas.

Our distribution expenses for Q1 grew 3.4 million, or 31.8%, over Q1 '04, of which 2.2 million, or 21% expense growth, was due to our '04 and '05 business acquisitions. The balance of distribution expense growth represents 10.8% growth over Q1 '04, which was slightly under our organic revenue growth level.

We operated an average of 10% more daily recycle transfer truck runs in '05 and contracted recycling transfer services increased 21.1%. Our larger distribution network enabled us to grow the revenue that runs over our transfer runs by about 26% over the Q1 2004 volume. In addition, we operated 5.4% more local delivery trucks. Fuel expense for the quarter increased by 28.8% over Q1 2004, which was primarily related to fuel price increases. For Q1 2005, fuel expense is approximately 12% of our total distribution expenses.

Selling, general and administrative expenses grew $3.5 million, or 24.8%, over Q1 2004, of which $2.4 million, or 16.9% expense growth, was due to our '04 and '05 business acquisitions. Our selling expenses tend to be fairly variable in nature due to our commissioned inside sales force.

Our G&A costs are usually less variable in relation to revenue growth. As Joe mentioned earlier, our EBITDA was 12.3% of revenue compared to 11.4% in Q1 '04. This margin expansion is primarily related to improved distribution expenses and general and administrative expenses as a percentage of revenue.

Our operating income for Q1 '05 grew 46% over Q1 '04. Operating income as a percentage of revenue was 10.8% in Q1 '05 versus 9.9% in Q1 '04. Interest expense for the quarter is 6.5% higher in Q1 '05 compared to Q1 '04. We had higher debt levels in 2005 than in the first quarter of '04 and that was due primarily to debt incurred in acquiring our 2004 and 2005 acquisitions. This increase would have been larger had it not been for the $346,000 of debt issuance costs that were written off back in Q1 2004 when we refinanced.

Our Q1 '05 pretax income grew 48.5% over Q1 '04 to $14 million. As a percentage of revenue, our pretax was 10.5% for Q1 '05 compared to 9.4% in Q1 '04. Our effective income tax rate was approximately 40% for both 2005 and 2004.

Net income for the quarter increased 49.1% to 8.4 million from 5.6 million in Q1 '04. Our diluted earnings per share increased 48% to $0.37 in the quarter from $0.25 in Q1 '04. Our diluted weighted average common shares outstanding were -- for Q1 '05 they were 22.7 million shares, for Q1 '04 they were at 22.2 million.

Let's take a look at our cash flow table. We generated 11.3 million in cash from operations during the quarter compared to 5.9 million in Q1 '04. CapEx, excluding business acquisitions for '05, was $3 million net of sale proceeds. Cash paid for our business acquisitions during the first quarter of '05 was 15.8 million. We issued no stock related to business acquisitions in 2005.

In looking at our Q1 '05 balance sheet, you will note we had 59.1 million in debt, which included 56 million in debt under our unsecured credit facility with our bank group. As of today, our credit facility debt is at $64 million.

We expect that full year 2005 revenue will be within a range of 536 million to $541 million and that organic revenue growth will be in the low double-digits with the balance of the growth being the full year impact of our 2004 business acquisitions and our 2005 business acquisitions made to date.

We expect net income to be within a range of 26.7 million to $27.7 million and diluted earnings per share to be between $1.16 and $1.20. For the second quarter of 2005 we expect revenues to be between 133.5 million and $135 million, net income to be between 6.7 million and $7.1 million, and diluted earnings per share to be between $0.29 and $0.31. Our 2005 guidance does not include the effect of any future business acquisitions.

The indicated guidance does not include the impact of SFAS 123 (R) accounting for share-based payment. That's the new accounting pronouncement on stock options. The SEC has recently postponed the implementation of this pronouncement by six months. Accordingly, it would be effective for us on January 1, 2006.

We anticipate that net cash provided by operating activities for 2005 will be in excess of 20 million, somewhere in the range of 23 to $26 million. We estimate our full year 2005 capital expenditures, excluding any future business acquisitions we may do, to be approximately $19 million.

We estimate the weighted average diluted shares outstanding for the full year 2005 to be approximately 23.1 million shares and for the second quarter to be approximately 23 million shares. These share numbers are estimates and as such will be affected by factors such as any future stock issuances, the number of options and warrants exercised in subsequent periods and changes in our stock price.

I would like to turn back to Joe for any further comments.

Thanks, Mark. Just to recap, we're very encouraged by the company's performance in the first quarter. We continue to believe that the outlook for our company remains very strong as we service an enormous $125 billion automotive parts market which has a high demand for both our recycled and aftermarket parts, which we believe provide good quality and a very strong value proposition for our customers.

Our company enjoys a unique position of being the only national well-capitalized company servicing the demand for recycled product and we are well on our way to achieve nearly 25% top line growth in 2005. We also believe that our Q1 results demonstrate the leverage that our company can produce from its distribution systems and its G&A costs as we grow both our recycled and aftermarket product lines.

Let's see if we can get Luwanna (ph) on to open the (inaudible - audio break) for questions.

Mr. Spears?

Yes?

Are you ready to begin the Q&A?

Yes, we're ready for questions.

(OPERATOR INSTRUCTIONS)

The first question is from Scott Stember, Sidoti & Co.

Can you guys talk about maybe some of the trends on the supply side and the demand, what you see heading into the second quarter?

Thanks, Scott. On the supply side, the market -- auction market has been pretty robust really since the beginning of the year and I certainly haven't noticed any changes in that into April. Most weeks we're probably seeing 46 to 48,000 vehicles at the auctions that we attend. That's pretty consistent, the first 110 days of the year.

On the demand side, for product, the - if we look at our average daily sales in April so far, they're not quite at the high point that we saw in the first quarter, but, on average, they're staying pretty consistent with what we saw in the first quarter. Maybe a very, very slight decline. It's got to be fairly normal for us. April tends to tail off just a little bit from the high levels of February and March and generally, May and June will come back up slightly.

So, it's a fair assumption that, if we were to look at comps in April, that they're probably in the high single digit, low double digit range.

I think that's a fair conclusion, Scott.

Okay. And can you maybe talk about the percentage of vehicles that you bid on that you actually won?

Yes. On the, kind of our normal stats, it will be - we'll bid somewhere in the range of 25-29% of the vehicles at auctions. And our win rate on what we bid, for the last quarter, probably in the mid-12% range. I'd say mid-12 with the highest 14. It's varies week to week.

And have you guys noticed that going up in any respect, given the way that the co-part system works with the virtual bidding at all or not?

Actually, we've probably been able to increase our bid rate a little bit. Some of that's virtual bidding. But I think, probably, the balance - we really - some new technology ourselves to affect how we bid product that's allowing our scouts to write up and evaluate more cars. But I'd say we're probably writing up slightly more product that we would have about a year ago. Our run rate has been very flat, quarter after quarter. Very consistent.

Okay. Last question. Could you just maybe give an example or two about how you guys, in the past, you talked about - you would lose certain sales because you didn't have the ability to put some aftermarket options in there. Could you talk about how that's helped in the last couple of quarters - give some anecdotal evidence?

Yes, the real power of that right now is in our North Central region and our Mid-Atlantic region, the Wisconsin-Ohio-Michigan belt and, increasingly, into Atlanta as we've put more product into that warehouse. Where we have the overnight deliver, you are seeing - the sales reps in these markets start to convert. Parts requests for aftermarket part types that we just can't keep in stock and are making the conversions. So, we're seeing the contributions in the LKQ sales reps grow quite significantly in those marks.

Okay. That's all I have. Thank you.

Okay. Thank you, Scott.

The next question is from John Lawrence (ph) of Morgan Kendall (ph).

Good morning, John. How are you?

Just fine. Joe, would you comment just a little bit. What's happening with the insurance carriers as far as the direct salvage program? Talk about that a little bit and, just, the trends in that business and why it makes sense for them to do this and walk us through those steps, please.

Right. We've been pretty consistent the last few years of getting about 8% of our product outside of the salvage pool auctions. And as we've been growing the business and growing the number of vehicles that we acquire, obviously, it means we're growing those programs as well because we're keeping the percentage, basically, at the same level.

The - I think the reason the insurance carriers are interested in these relationships - first of all, I think it does provide a very tiny or minor competitive alternative to the salvage pool. I think that the insurance carriers do like to explore those. We believe that we're putting a very good value proposition on the table for the insurance carriers. Otherwise, they wouldn't - would not pursue these relationships. Obviously, the insurance companies are paying fees to salvage auction pools and we're paying fees to the salvage auction pool, so there is some amount of savings to be divvied up between the two parties.

As I've probably said on calls before, the - probably, the main appeal to us isn't so much attaining (ph) the salvage in that manner, but I think - there is a better partnering with the insurance company and we'll receive indirect support from the insurance company in terms of providing some preference for LKQ Corporation's salvage in their direct repair programs.

Great. Thank you.

Okay. Thanks, John.

The next question is from Craig Kennison, Robert Baird.

Good morning, Craig. How are you today?

Oh, thanks. Nice to talk to you. The first question has to do with your margin and it sounds like it's from the scale efficiencies that you talked about. So, how sustainable is that and should that be, maybe, to go forward, margin run rate?

Yes, in terms of the increase in the margin, I think, the leverage we saw in the business in the first quarter largely came out of our G&A costs, and secondarily, some benefits in the distribution area. And those, in particular, a - we feel pretty good about those continuing. As you've probably recalled from prior quarters - prior years - in our first, quarter - we don't do a lot of kind of new development, if you will, in the first quarter. We don't spend our routes. The business gets fairly scruffed, if you will, as the first quarter tends to be one of our busier seasons.

So, generally, when we move into the second and third quarters is when we'll start to reposition the company for the next leg up on our same stores sales growth. I think that's why, in prior years, and most likely, this year as well, you'll see some EBITDA margin erosion from Q1 as we moved open additional warehouses for the aftermarket parts, complete the warehousing for the Oakland operation, as well as extend some of our LKQ operations into new markets and to new redistribution points.

Thank you. And then, the second question. Given that cars appear to be plentiful at the auctions, do you - are you employing the strategy you employed last year, which is to buy some cars ahead in order to get a better price?

Well, we hope we're employing a little smarter than we did last year. We've certainly pulled the reigns in a little bit. The backlog that we carry at the end of the first quarter is heavier than what we'll be carrying the quarter end for second, third and fourth quarters. But we've not built the backlog to the same level that we had in 2004.

And as you build your network out, have you shown any ability to sell deeper into a car or, in other words, to sell more parts from a car because you have more selling opportunities for that car?

Well, I think, in a large part, Craig, that's what helps us sustain our gross margins, even though we probably have seen some increase in salvage costs over the last few years. And if you look at our average salvage costs, they have trended up. And I think a part of the fact that we have defended that 46-47% gross margin level is the fact that, through our network and the fact that we have dozens of sales people in every inventory zone able to sell the parts off those vehicles, it is allowing us to generate more revenue from a vehicle than we would be able to achieve if we just have the reps from that single local market attempting to sell parts.

Could you - is there any way to quantify the average salvage cost of a vehicle and how that's trended, percentage-wise?

Yes, I don't have that in front of me here this morning, Craig.

Oh, that's fine. And then, just relative to Auto Zone, they made an announcement several months ago that they're getting into retailing some cycled parts. I know you're not participating in that program, but could you comment on it?

We did some secret shopping of our own. It wasn't a - we didn't employ a consultant or anything, but we did look into the program. And we weren't, initially, we weren't too impressed with what we thought. We are in discussions with other major retailers to make proposals for our own pilot that would mirror that type of program, but with the service from LKQ stores.

So, I think it should be a good outlet. The retail houses - I don't know if you've done an Auto Zone or one of their competitors stores, but a lot of their product line is not a replica of what LKQ sells. So, it would allow us to provide some parts offerings that are not available in those stores. But it's certainly an interesting opportunity and we are looking into it right now.

That's helpful. Actually, I've been fixing my car more than I prefer to, but my final question has to do just with GDP reaching a soft number on the overall economy and wondered what your sensitivity is to overall economic growth or what - maybe you think you're less sensitive than other companies.

Well, we don't believe we're a cyclical business. While we, kind of, in our tenure in the industry, we've not really been through what I'd consider much of an economic downturn, it's certainly the view of the long-term players in this industry that, when times get tough, business gets slightly better as people continue to pursue the lower cost or value alternatives in repairing their vehicles.

That's helpful. Thanks and congratulations.

Thank you, Craig. Appreciate it.

Okay. The next question is from Dale Gibson (ph) from Nollenberger Capital. You have the floor.

Hello.

Hi, Dale.

Hi. My question is more related to the aftermarkets business and you bought Bodymaster and I understand the appeal of integrating the rap (ph) structures. But what's the tradeoff you make, internally, between a - say, a make versus buy? I mean, why couldn't you just roll this all out internally, much like your Oakland warehouse or something like that, as opposed to buying an operation?

Well, the - at the moment, we feel that the multiples that we can buy the businesses at justify going the acquisition route. It's clearly our plan to use both avenues to attack markets. For example, we obviously greenfielded the open market and we plan to greenfield start the Chicago market. Volume (ph) after, we thought it was a great opportunity in terms of very, very important markets that they serviced. They have great customer relationships. We really had not, from LKQ standpoint, we have not really very effectively penetrated any of the Bodymaster markets with our LKQ capabilities. And we felt that to be in an acquisition for Bodymaster would actually provide us the opportunity to leverage their account relationships for developing the LKQ business.

In Oakland, for example, our Northern California business, we think has done a great job of penetrating the Bay Area market. And we feel pretty comfortable in that situation that we will be able to leverage the LKQ business account relationships to grow the aftermarket business. So, it's a little - we'll be using both approaches to move into new markets and probably follow the same logic that I just mentioned. If we've got good LKQ market penetration, we would be more apt to Greenfield aftermarkets.

Okay. No, that makes sense. And just one last thing. It's sort of a curiosity. You talked about the aftermarket headlamp business not being off despite - I mean, you went through kind of the who's who list of big insurance - auto insurance companies not buying. And I was just curious as to why your business is holding up, despite that.

Well, the short answer is we've slightly surprised ourselves. But I want to function as if the shops may be installing aftermarket lights anyway.

Good. Thanks, Joe.

Okay. Thank you, Bill.

Okay. The next question is from Gary Prestopino from Barrington Research. You have the floor.

Hi, Gary.

Good morning.

Good morning, Gary.

A whole series of questions here. As I look at where you are on the aftermarket side, Joe, you're coming into Chicago. Any plans to go into New England and then spread west thereafter, from Chicago, to - are there plans there?

Yes, I think, Gary, that it's probably about a three-year process. It could be slightly under that. But I think it's a three-year process for us to have aftermarket capabilities pretty much lined up in 100% of our LKQ markets. I really don't see any reason that we shouldn't be offering, selling, distributing both product lines in every single market. But we're trying to do it in a measured approach.

We'd like to protect our margin growth and the earnings growth of the business. And we want to make sure that we manage out of the rollouts effectively and we don't need to be in positions where we stumble or we fail to provide good quality service. We think we've worked hard to achieve that reputation in our recycled parts business. And we want to do our aftermarket part development and rollout in a similar manner.

Would you be more apt to make acquisitions to get into these markets?

I think it's going to be case by case, like I said. I think where we have really a good strong LKQ market penetration, we'll probably be more likely to go the greenfield route, where LKQ has not developed a lot of strength and will probably be more inclined to go the acquisition route.

Okay. Good. Just some other questions. Regarding the DRP program, do you guys have any statistics as to what amount of claims are currently going through that DRP program right now and where you think it's going to in a couple of years?

Yes. What we kind of see it and we hear and talk to our insurance relationship contacts is that it seems to be growing 3-4% or so a year, the amount of claims that are going into that network. It's kind of hard to get a handle how much is going through right now in some of the carriers. While they call them DRPs, they don't manage them as strongly. I've heard anywhere from 35, 40 or so percent, close to it now. But it kind of depends how you define a DRP.

Okay. All right. So, we're still getting some growth there. A couple of other issues. Order review program, where you guys got direct tie-ins to the insurance company on the estimates. Can you talk a little bit about that - how many insurance companies do you have now versus where you were a year ago or so and it that contributing - what kind of percentages of revenues is it contributing for you?

Yes, I don't think I - we could say that we have any new insurance companies in the program. But certainly, on a market-by-market basis, the program has continued to expand. It's a well received program by the shops as well as the insurance companies. And I think it's highly likely that those types of programs have been instrumental in just the organic growth levels that we've been achieving, basically low double digits just about every quarter.

Okay. Good. And then, I may have missed this, but you'd said that - the prices you're paying at salvage are going up. Is that correct? Or am I wrong.

Over a several year trend line, that is correct. Actually, our first quarter of 2005, it appears as though our average salvage cost is actually a little lower than it was in the first quarter of 2004.

Okay. What is it going up, a couple of percent every year?

Yes, we'll double check and call you back, but I think that's probably a pretty safe number.

Okay. And then, lastly, is are you able to get - are you seeing any pricing power for your products as you sell them to the collision repair? Because if your fuel costs are going up and you're paying more for the car, are you able to offset that with pricing for the parts?

Yes, I see us with pricing power in a couple ways. The first is that I think we just put a lot more sweat equity into the product that acquire. Even with online auctions, we refuse to buy a product that we haven't seen. And accordingly, it's out belief that we're generally acquiring the lowest mileage product and the best insurance quality product that allows us to drive higher prices than what our competitors are able to achieve. On the aftermarket side, our focus there has really been to trim back discount structures that were being offered by the businesses that we've acquired. And we've had success at doing that.

But have you been able to push through any actual price increases, Joe?

The pricing on our aftermarket parts, basically, just work off of a weed (ph) lift. And then there's a discount to that.

Okay. And then, just a last quick question. I mean, are you buying anything, topic-side, on a virtual bid basis or are you still - are you not participating on that end of the market.

Sorry, I missed - Mark, do you want to take this one?

You're asking do we actually buy online, like with co-parts VB2 ...

Yes.

... as opposed to going there? We always go there because we want to write up the car and see it. It's because our guys are going there anyway and we're buying quite a bit of car is we tend not to use that. There only could be an exception if there's only like two cars we want to bid on in an auction, we may submit an Internet bid. But 99% of the time, we're at the auction submitting that bid to their kiosk, keying it in.

Thanks, guys.

Okay, Gary. Thank you.

Sir, that was the last question from the phone lines.

Okay. Good. Thanks, everybody, for joining us. We appreciate your interest in our company and we look forward to another call in 90 days to report on our progress through the second quarter. Thanks.