Insurance Auto Auctions Announces First Quarter Results
SCHAUMBURG, Ill., May 3 -- Insurance Auto Auctions, Inc., a leading provider of automotive salvage and claims processing services in the United States, today reported higher net earnings for the quarter ended March 31, 2002. The Company recorded net earnings of $1.5 million, or $0.12 per diluted share, versus a net loss of $1.6 million, or $0.14 per diluted share, for the same quarter a year ago. Net earnings for the first quarter of 2002, excluding business transformation costs, were $2.6 million, or $0.21 per diluted share.
Revenues for the quarter decreased 11.1 percent to $69.2 million compared with $77.8 million in the first quarter of 2001. The decline in revenues was primarily due to the Company's continued shift away from vehicles sold under the purchase agreement method. The purchase agreement method accounted for 12.7 percent of the total vehicles sold this quarter versus 20.6 percent for the same quarter last year and 15.9 percent for the fourth quarter of 2001. Under the purchase agreement method, the entire purchase price of the vehicle is recorded as revenue, compared to the lower-risk, consignment fee based arrangements, where only the fees collected on the sale of a car are recorded as revenue. This change in contract mix along with increased volumes contributed to the significant growth in fee income for the quarter. Fee income in the first quarter rose 10.2 percent to $41.5 million versus $37.6 million in the first quarter of last year.
Gross profit for the quarter increased 4.4 percent to $12.0 million from $11.5 million for the same quarter a year ago. Earnings from operations for the quarter totaled $2.8 million compared to a loss from operations of $2.7 million for last year's first quarter.
Tom O'Brien, Chief Executive Officer, said, "We are pleased with our first quarter results from both an earnings and a cash flow perspective. More importantly, we had a double digit unit volume increase compared with the first quarter of 2001, reversing the trend from the back half of last year. This momentum has continued and, as a result, we expect to have a positive second quarter as well. Most importantly, we have remained focused on executing our strategic initiatives, which we expect will make IAA a stronger and more efficient organization throughout."
The Company also announced that it adopted the provisions of Financial Accounting Standards Board (FASB) No. 142 regarding goodwill amortization. As such, the Company no longer amortizes goodwill arising from business acquisitions. The effect on the current quarter was a reduction of amortization expense by approximately $1.0 million.
Continued Focus on Strategic Initiatives
"During the quarter we continued to execute on the major strategic initiatives that we have put in place," said O'Brien. "We've remained committed to exiting the purchase agreement method of sale, which fell to 12.7 percent of all vehicles sold during the quarter. As reported earlier, new assignments of vehicles under the purchase agreement method are running at less than 7.0 percent of total assignments in. As a result, we have begun to see a positive impact on our financial results and a more predictable revenue stream."
O'Brien continued, "The new operating procedure model, which was developed with the help of Synergetics, was rolled out in approximately half of the branch offices during the first quarter, and the remaining branches should be implemented by the end of the second quarter. Our employees' reaction to the new processes has been extremely positive, and we are starting to see the financial benefits from adopting these new 'best practices'. We expect to see additional cost savings as the year progresses."
The enterprise-wide systems redesign project through SEI is on schedule, and the new system should be installed in the first branch in June of this year. The Company expects to roll out the new system to the remaining branches during the second half of the year.
In terms of strategic expansion, the Company announced the opening of a new branch operation in Oklahoma City, Oklahoma in March 2002. The 20-acre facility will serve the entire state of Oklahoma and will leverage existing operations. This location builds on IAA's strong presence in Texas and will serve to broaden the Company's reach to new and existing customers in the area.
O'Brien concluded, "This quarter was solid on all fronts -- from the ability of our business to generate solid margins and cash flows, to the continued execution of our strategic initiatives that we expect will make IAA a more efficient organization from top to bottom. We look forward to updating both our customers and investors on our progress throughout the upcoming quarters."
Quarterly Conference Call
The Company previously announced that it will hold its first quarter 2002 results conference call on Friday, May 3 at 11:00 a.m. Eastern Time. To participate by phone, please dial 877-307-4802 and ask to be connected to the Insurance Auto Auctions earnings conference call. Investors may also access the call over the Internet at www.streetevents.com or by visiting IAA's Web site at www.iaai.com. A replay will be available until midnight EST on May 10, 2002. To listen to the replay, please dial 800-642-1687 and enter conference reservation code 3757822 when prompted.
About Insurance Auto Auctions, Inc.
Insurance Auto Auctions, Inc., founded in 1982, a leader in automotive total loss and specialty salvage services in the United States, provides insurance companies with cost-effective, turnkey solutions to process and sell total-loss and recovered-theft vehicles. The Company currently has 63 sites across the United States.
Safe Harbor Statement
This press release contains forward-looking information that is 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 information. In some cases, you can identify forward looking statements by our use of words such as "may, will, should, anticipates, believes, expects, plans, future, intends, could, estimate, predict, projects, targeting, potential or contingent," the negative of these terms or other similar expressions. The Company's actual results could differ materially from those discussed or implied herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Company's annual report on Form 10-K for the fiscal year ended December 30, 2001 or subsequent quarterly reports. Among these risks are: accelerated departure from conducting business pursuant to the purchase agreement method of sale, which departure could adversely affect the Company's client base; fluctuations in the actual cash value of salvage vehicles; the quality and quantity of inventory available from suppliers; the ability to pass through increased towing costs; that vehicle processing time will improve; legislative or regulatory acts; competition; the availability of suitable acquisition candidates and greenfield opportunities; the ability to bring new facilities to expected earnings targets; the dependence on key insurance company contracts; the ability of the Company and its outside consultants to successfully implement standardized key processes throughout the Company's operations as well as the ability to successfully complete the re-design of the Company's information systems, both in a timely manner and according to costs and operational specifications; and the level of energy and labor costs.
Additional information about Insurance Auto Auctions, Inc. is available on
the World Wide Web at www.iaai.com .
INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (dollars in thousands except per share amounts) Three Month Periods Ended March 31, April 1, 2002 2001 (Unaudited) Revenues: Vehicle sales $27,751 $40,217 Fee income 41,469 37,627 69,220 77,844 Cost of sales: Vehicle cost 26,057 37,192 Branch cost 31,192 29,144 57,249 66,336 Gross profit 11,971 11,508 Operating Expense: Selling, general and administration 7,112 7,156 Amortization of intangible assets 67 1,006 Business transformation costs 1,949 - Special charges - 6,047 Earnings (loss) from operations 2,843 (2,701) Other (income) expense: Interest expense 248 456 Interest income (57) (368) Earnings (loss) before income taxes 2,652 (2,789) Provision (benefit) for income taxes 1,140 (1,144) Net earnings (loss) $1,512 $(1,645) Net earnings (loss) per share: Basic $.12 $ (.14) Diluted $.12 $ (.14) Weighted average shares outstanding: Basic 12,198 11,730 Effect of dilutive securities -stock options 245 - Diluted 12,443 11,730 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (dollars in thousands except per share amounts) March 31, December 31, 2002 2001 (Unaudited) ASSETS Current assets: Cash and cash equivalents $15,211 $24,467 Accounts receivable, net 50,351 54,674 Inventories 11,671 13,505 Short-term investments - 2,131 Other current assets 1,824 4,165 Total current assets 79,057 98,942 Property and equipment, net 40,158 39,655 Deferred income taxes 7,877 7,827 Investments in marketable securities - 512 Intangible assets, principally goodwill, net 131,204 131,268 $258,296 $278,204 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $39,509 $41,451 Accrued liabilities 9,751 10,920 Accrued special charges 1,029 1,245 Income tax 925 - Current installments of long-term debt 41 20,040 Total current liabilities 51,255 73,656 Deferred income taxes 12,542 12,172 Other liabilities 3,192 3,279 Long-term debt, excluding current installments 92 103 Total liabilities 67,081 89,210 Shareholders' equity: Preferred stock, par value of $.001 per share Authorized 5,000,000 shares; none issued - - Common stock, par value of $.001 per share Authorized 20,000,000 shares; issued and outstanding 12,215,728 and 12,162,290 shares as of March 31, 2002 and December 30, 2001, respectively 12 12 Additional paid-in capital 143,284 142,575 Retained earnings 47,919 46,407 Total shareholders' equity 191,215 188,994 $258,296 $278,204 INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (dollars in thousands) Three Months Ended March 31, April 1, 2002 2001 (Unaudited) Cash flows from operating activities: Net earnings (loss) $1,512 $(1,645) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 2,014 2,335 Gain on disposal of fixed assets - (407) Special charges - 6,047 Changes in assets and liabilities (net of effects of acquired companies): (Increase) decrease in: Accounts receivable, net 4,323 (1,397) Inventories 1,834 (3,686) Other current assets 2,341 (2,394) Other assets 432 36 Increase (decrease) in: Accounts payable (1,942) 9,228 Accrued liabilities (1,472) (540) Deferred income taxes, net 1,245 291 Total adjustments 8,775 9,513 Net cash provided by operating activities 10,287 7,868 Cash flows from investing activities: Capital expenditures (2,885) (4,928) Investments, net 2,643 (6,826) Proceeds from disposal of fixed assets - 1,340 Payments made in connection with acquired companies, net of cash acquired - (105) Net cash used in investing activities (242) (10,519) Cash flows from financing activities: Proceeds from issuance of common stock 709 107 Principal payments on long-term debt (20,010) (10) Net cash (used) provided by financing activities (19,301) 97 Net decrease in cash and cash equivalents (9,256) (2,554) Cash and cash equivalents at beginning of period 24,467 30,938 Cash and cash equivalents at end of period $15,211 $28,384 Supplemental disclosures of cash flow information: Cash paid or refund during the period for: Interest $863 $870 Income taxes paid $24 $- Income taxes refunded $2,250 $- INSURANCE AUTO AUCTIONS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations Supplemental Information (dollars in thousands except per share amounts) Q1 2001 Q2 2001 Q3 2001 Q4 2001 Total Revenues: Vehicle sales $40,217 $36,942 $32,618 $28,650 $138,427 Fee income 37,627 38,572 38,348 40,016 154,563 77,844 75,514 70,966 68,666 292,990 Cost of sales: Vehicle cost 37,192 34,727 31,651 28,113 131,683 Branch cost 29,144 28,896 30,986 33,841 122,867 66,336 63,623 62,637 61,954 254,550 Gross profit 11,508 11,891 8,329 6,712 38,440 Operating Expense: Selling, general and administration 7,156 6,965 6,623 7,383 28,127 Business transformation cost - 84 668 2,699 3,451 Amortization of intangible assets 1,006 1,005 1,013 1,031 4,055 Special charges 6,047 - - 1,969 8,016 Earnings (loss) from operations (2,701) 3,837 25 (6,370) (5,209) Other (income) expense: Interest expense 456 456 441 435 1,788 Interest income (368) (315) (205) (137) (1,025) Earnings (loss) before income taxes (2,789) 3,696 (211) (6,668) (5,972) Provision (benefit) for income taxes (1,144) 1,525 (5) (1,988) (1,612) Net earnings (loss) $(1,645) $2,171 $(206) $(4,680) $(4,360) Net earnings (loss) per share: Basic $(0.14) $0.18 $(0.02) $(0.39) $(0.37) Diluted $(0.14) $0.18 $(0.02) $(0.39) $(0.37) Weighted average shares outstanding: Basic 11,730 11,761 11,868 12,077 11,940 Effect of dilutive securities - stock options - 208 - - - Diluted 11,730 11,969 11,868 12,077 11,940