Good day, and welcome to today's KAR Auction Services, Inc. Q3 2013 Earnings Conference Call. Today's conference is being recorded. At this time, it's my pleasure to turn the conference over to your host for today's call, Jon Peisner. Please go ahead.

Thanks, Jason. Good morning, and thank you for joining us today for the KAR Auction Services Third Quarter 2013 Earnings Conference Call. Today, we will discuss the financial performance of KAR Auction Services for the quarter ended September 30, 2013. 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 release that we issued yesterday, which is also available in the Investor Relations section of our website. Now I'd like to turn this call over to KAR Auction Services CEO, Jim Hallett. Jim?

Great. Thank you, Jon, and good morning, ladies and gentlemen, and welcome to our call. At the outset, I'm very pleased with our third quarter results. It's great to see all of our businesses doing well. Over the past couple of years, we've told you what to expect. We've told you to expect the cyclical recovery for the used car market to begin in 2013, and it did. We told you that commercial volumes were expected to increase in the second quarter of 2013, and they have. We've told you that the real recovery would begin in the second half of 2013, and it has. We also told you that the growth would be driven by commercial vehicles, and it has. We told you that dealer consignment efforts would have stickiness going forward, and it have -- they -- and they have. We said that Insurance Auto Auctions volume would continue to grow, and they have. We said that AFC would continue to grow their loan transactions during the cyclical recovery, and they have. We said that we would continue to delever, and we did. Leverage is now below 3.2x. And we also committed to providing a return to our shareholders, and we are. So with that said, you might ask what can we expect for the remainder of 2013. We would expect that these trends will continue throughout the balance of the year that will result in adjusted EBITDA of $535 million to $540 million, which will provide free cash flow of over $290 million. As we look at our consolidated results for the third quarter, revenue grew 12%. ADESA was up 7%. Insurance Auto Auctions was up 19%, and AFC was up 18%. Adjusted EBITDA for the quarter was $130.6 million, which was an increase of 11%. That…

Thank you, Jim. And I would like to start by commenting on how pleased I am with the results for the third quarter. Not only are we seeing the performance in each of our business segments meet our expectations, but we are also seeing some trends that look good for the business for several upcoming quarters. I would like to start by going through the details of our guidance. As Jim mentioned, we expect adjusted EBITDA of $535 million to $540 million for 2013. We expect this to translate into net income per share of $0.77 to $0.82. This is GAAP net income per share and reflects a reduction from our previous guidance for the profit interest expense recorded in the third quarter related to proceeds received by members of KAR and Insurance Auto Auctions management. I will get into more detail on this in a few moments. We expect adjusted net income per share for 2013 of $1.15 to $1.20. This has not changed from our previous guidance. Both net income per share and adjusted net income per share assume an effective income tax rate of 42%. There is no change in our expectations for capital expenditures of approximately $97 million -- I'm sorry, $95 million, cash interest of $78 million and cash income taxes of approximately $70 million. We define free cash flow as adjusted EBITDA less capital expenditures, cash interest and cash taxes. So this results in expected free cash flow for 2013 of $292 million to $297 million or $2.08 to $2.12 per share. Now let me speak to a few more details on our financial performance. Let me start by commenting on the increase in SG&A in the third quarter. Our SG&A increased about $18 million over the prior year, and 3 specific items account…

[Operator Instructions] And we'll take our first question from Simeon Gutman. Simeon Gutman - Crédit Suisse AG, Research Division: Can you talk about -- this is a follow-up on the SG&A piece. You mentioned a couple of them will continue. Is there any way we can think about them, how they should flex, how they should grow year-over-year because I think that will be helpful understanding that they'll still keep going up over time until a certain point?

Well, again, without getting specific into the future on that, the incentive compensation is just, as we hit these targets, it's up over the prior year where, in some of our business segments, they were not earning their incentive pay at target. So I would not expect going forward that the total pool of incentive pay would grow. So we're at target. I would expect that this year's growth, it would be abnormal if we consistently hit our targets. They would flatten out. Profit interest expense, I mentioned, goes away. And then with respect to the operating costs, yes, I think we're experiencing some adds like Preferred Warranty. You put that in. It will not grow at that pace because it'll be in our numbers going forward. The Insurance Auto Auctions' IT costs, those move around a little bit based upon projects they're working on and how we spend the money. I don't think you're seeing a long-term trend of consistent high-level growth there. This was an unusual quarter where we haven't had to point that out in past quarters. And our other operating costs, well generally, I don't see them increasing at the same pace as our revenue growth, and even probably more like inflation, generally, would be how we see those categories growing. There is one area we're a little concerned like all businesses, and that would be our medical costs. They are growing, and as we look forward to 2014 and beyond, we are a little concerned that we could have some growth there. But again, we'll report on that after it happens. Does that help you, Simeon? Simeon Gutman - Crédit Suisse AG, Research Division: Okay and as a -- yes, it does. Following up on the incentive piece, so if we see volumes continue to increase 13%, should you get leveraged on the incentive comp at a 13% volume?

Well, no. The -- we have caps on the incentive pay so that they won't continue to grow. And we reset the targets every year, so -- and in those targets, there is an expectation for growth as well. So I don't see that as causing it to continue to grow at a faster pace. Simeon Gutman - Crédit Suisse AG, Research Division: Okay. And my last question is just thinking about the cycle will play out, what we saw this quarter were volumes were good. Some -- more of it was done online. Why -- could that be a scenario that continues to play out going forward? Why does it -- why should it reverse just when more volumes come especially if prices seem pretty stable at this point?

Yes. Well, Simeon, I talked a little bit in my commentary -- this is Jim. I talked a little bit in my commentary about how the cars kind of flow through the funnel, and as you know, all these vehicles start in an upstream closed sale. And these are primarily being sold to franchise dealers. And after the franchise dealers, as more and more volumes come, we just don't feel that the franchise dealer can continue to absorb all this volume that's going to come. And they'll become more selective in terms of what they buy in the closed online sale, and more of these vehicles are going to make their way through the funnel to the physical auctions. Simeon Gutman - Crédit Suisse AG, Research Division: Are you seeing the age of cars already come down? Or is it still some of older inventory?

It's not so much about the age of vehicles. I think we're still looking at the average age of a vehicle on the road is somewhere in the neighborhood of 10 or 11 years, so that hasn't really changed. But as you know, these lease cars are -- that are coming through these private label sites are 3- and 4-year-old vehicles.

We'll take our next question from Matthew Fassler.

So I have one question on ADESA and one question on the salvage business. The ADESA question is kind of a quick two-parter. The first is can you talk about the gross profit for KAR profile of the institutional cars getting sold online versus those that you sold in physical auction. And then secondly, related to that, understanding that we're still kind of early days and the mix of cars getting sucked up online is a little bit higher than it will be. At what point in time would you expect to see that mix even out a little bit more?

Matt, your phone has a lot of static, so I'm going to repeat what I believe was your question. We couldn't pick all of it up. The first is you've asked, and I think Jim will answer this, the difference in the revenue in gross profit and the mix of vehicles online and as they get through physical, more clarity on that. Is that correct?

That is correct.

Matt, you've got a lot of static. And then the second question was about the mix of vehicles and I -- we didn't catch that one.

When the mix would revert towards what you would expect kind of mid-cycle?

Okay, great. When the mix will revert as we progress into the cycle and have more cars end up at physical auction is I believe is the inference. So I'll let Jim get back to kind of the revenue model and how that works.

Yes. Matt, as you think about the vehicles coming off lease, and these are primarily off-lease cars that we're talking about here. As these vehicles come off lease and they start, as I say, at the top of the funnel in a closed online sale, that is our least economic outcome, which represents about $100 per car revenue. If the car then goes from a closed online sale to an open online sale, then the revenue goes up to about $300 per car. And then if it makes its way to a physical auction and gets sold in the physical lane, we'd now pick up the ancillary services, and that gets us to about $350 per car. And then the best economic outcome for us is that the car gets to a physical lane, we pick up the ancillary services and we get an additional fee for selling it online in the lane, then we get to about $450 per car. So that gives you the economics as to the way the cars flow. And then I think if I understand your comment about when do we see this changing, this mix changing, I think it's just going to evolve as we go into 2014. I can't tell you there's a specific date in mind. I think as the franchises get more and more of these vehicles, as I said earlier, they'll make their way through the funnel. They'll be more selective in terms of what they buy, and eventually, over the course of 2014, I just expect that these cars will get to the physical auction. And the point I made will -- we will then pick up ancillary services, and that will drive the revenue per unit as we go forward. And as you know, we do get a higher margin on the vehicles that are sold online. It's about a 70% margin on those vehicles sold online, and then the car gets to the physical sale, that margin drops somewhere closer to the 60% range.

And let me just clarify. Jim's numbers talk about auction revenue and exclude any ancillary services that go with the cars. And so if you'll look in our Q, you'll see that our average revenue per vehicle in total this quarter was about $535 per car. That was just the auction revenue. So Matt, that's question one. And I think you got into question two. Do you want to ask anything further on that?

Again, on the better line when -- so you can hear me for my follow-up.

And we'll take our next question from Brian (sic) [Ryan] Brinkman. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: I'm sorry, is it my turn? Ryan Brinkman with JPMorgan?

Yes. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: I'm sorry, I -- yes, I didn't catch the operator there. Okay. So the first question is just regarding all of the puts and takes on ADESA average revenue per unit. I understand that there are quite a few cross trends there, but do you think that you received a benefit year-over-year from the trend in used car and scrap metal prices, such that the pressure on average revenue per unit from the move toward online-only auctions might have been even greater than minus 5% year-over-year?

Ryan, as we've said many times, it's -- the auction price is really not that big of an influence on our auction revenue per vehicle. It's something that we read a lot about. It's really a function of supply, wouldn't you say, Jim? The more supply, these prices are going to tend to soften or moderate. We haven't -- but we haven't seen big moves, plus or minus. And there's strong demand for used cars and, we're seeing that in the number of vehicles we're selling. But I don't think it's driven by used -- the pure used car value or scrap metal or any of those comparisons that we often make relative to our revenue per unit. It really is down to the mix that Jim talked about. Online, it's -- in fact, our auction revenue per vehicle is up year-over-year. It's just that we have fewer vehicles using the ancillary services. And as these cars have come back, while it's only 35%, it was 35% last quarter, they're just getting more cars sold in that first part of the funnel, which is the online-only venue. And that just has a lower revenue per unit as Jim gave in his example in the previous question. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay. And then, I guess, the answer to this question is somewhat related and maybe complicated as well. But do you think that you could grow gross profit per vehicle in 2014 and 2015 at ADESA even if average revenue per unit were, say, flat or down?

That's speculation that I prefer not to get into, specifically to a year or to the specifics of it. But we're constantly looking at ways to reduce direct costs and generate higher margins on the existing business. Our confidence is, yes, we can grow our profitability in both the gross profit line and the EBITDA margin line, as we've said, over time, and that comes from scale. More volume through, even with the mix we have today, gives us scale and efficiencies that will drive higher profitability on the gross profit line and ultimately, because we can control the SG&A, higher EBITDA margin as a percent of that revenue and in total dollars, Ryan. So yes, I mean, and I think you're seeing it in the current quarter with the 44.8% gross profit at ADESA, up from about 42.7%, I think, was the prior year. When you see that, a lot of that comes from just more cars going through the various channels that we have. It's not just mix. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: That's great to hear. And then I think with all these questions on ADESA and average revenue per unit, I mean, have there even been this many questions on IAA and their volumes? They were up like 16% year-over-year. That's the highest they've ever been up. Can you just kind of talk about that and why the revenue at quarter end was up 15%, very, very strong? Is this related to new contract wins? Is one of your competitors maybe doing something differently pulling back?

Yes. Ryan, the interesting thing is in -- again, repeating, but that was all same-store growth as well. And I would just say that the folks at Insurance Auto Auctions are doing a phenomenal job of competing in the marketplace. Again, we've told you we don't talk about our wins and losses, but obviously, 16% up in the quarter, we continue to experience some wins obviously. And I think that the folks at Insurance Auto Auctions would tell you that the work that they've done related to Superstorm Sandy has paid off well in terms of the goodwill they extended and the way that they managed through the storm in getting those cars picked up and processed has won us additional business through RFPs that we've mentioned previously. So I think the folks are just doing a good job, and our customers are responding to the service that we've provided. Ryan J. Brinkman - JP Morgan Chase & Co, Research Division: Okay. And just last question on the dividend. It's our job, the investor's job to, I guess, read the tea leaves. Is there anything that investors can read into either the magnitude or the timing of this high, it's up by 1/3 [ph] , sooner than most investors were thinking? And does it demonstrate increased confidence in the multi-year earnings ramp? Were you waiting for something in particular to do this, like the institutional volume reflected at ADESA, which you did? Or is it too much of a stretch to read into that? You already shot down like -- this doesn't mean that you see less acquisition opportunity, I think you said in prepared remarks. Anything else we can read into this?

No, I think Ryan, the only thing to say is we're very comfortable with the improved cash flow generation of the current year. It's actually, as we gave today in the call the guidance, it's higher than when we started the year, and I think our board is responding to the fact that we have confidence that we're on a runway where we could continue paying dividends at this higher level. And the other thing I'll remind you is and that is we paid for dividends at the lower level, and it got reviewed a year later. I mean, that's probably coincidental, but it's probably worth pointing out that it was the fourth quarter of last year when we evaluated our dividend and decided to pay one, and it's the fourth quarter of this year when it was increased.

And we'll take our next question from Gary Prestopino.

A couple of questions. Were there any Sandy cars left in Q3 that insurance auto sold off?

No, Gary. The Sandy cars have been completely cleared previously.

Okay. And then in terms of the volumes there, the growth was pretty phenomenal. Was there anything there that, besides insurance cars, was there really strong growth outside of that market where you're going after non-salvage vehicles that helped to give you such great inventory growth?

Yes, Gary. The -- primarily, it's just been consistent growth and nothing outside, no more on the purchase side and consistent growth within the insurance companies.

Yes. Gary, we were 8% purchased cars this quarter -- third quarter this year, and it was 8% a year ago. So it's really across all sectors.

And I think the numbers still run about 80% insurance and about 20% noninsurance vehicles.

Okay. And then, Jim, where is leasing as a percentage of sales going to end up this year? Where are you guys -- what are you guys hearing in terms of new cars?

We're starting to hear numbers that are approaching 30%, and that represents probably an all-time high as many of the articles that we've probably been reading point to. I think, most recently I heard it was up to 27%, 28% and expected to get to as much as 30% before the year is out.

And from what you're hearing, do think that can increase even more in 2014 or it just kind of stays around there?

Well, Gary, and I've spoken to this previously. There are a number of folks that think that leasing will continue to grow. And if I go back over a year ago, I commented on a conference call that there was an article out that said that some expect leasing to grow to 50% of all new car sales by 2017, which would obviously be a very good thing for our industry. And there's no question that we're seeing it get to the 30% level, and yes, I think that it's possible that you could see it continue to grow beyond that level.

And we'll take our next question from Craig Kennison. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: This is Craig. Jim, you covered the way off-lease cars flow through the funnel, which was very helpful. You mentioned that the economics get better as the car flows through the funnel. But isn't it also true that your share of off-lease volume is better at the top end of the funnel and drops as you get into the physical auction? And how does that all play out in your economics?

There's no question that our share at the top of the funnel because -- is stronger because if you think about it, our open lane platform is the dominant platform in the industry. There's only a couple of private label platforms that we don't have for these OEMs. So if you think about it, every off-lease car starts on a private label site on a closed online platform. So there's no question, we're getting probably in the magnitude of 90% of all lease cars that are coming off-lease are starting on one of these private label sites that is powered by the OPENLANE technology. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: But would you rather get a car at the bottom of the OPENLANE funnel, if you will, or take your chances of getting whatever share you're getting to get at the top of the physical auction channel?

Yes. Craig, as I've said before, the most important thing is that we get the car and that we get the car early. And I think the earlier in the process we get the car, we're going to have to let the market decide how the car gets sold. Our job is to provide the best venue we can on the online platform, provide the best physical footprint we can, let the cars work through the funnel and let the economics take care of themselves. And at the end of the day, we know that we're going to come out with an average revenue per car of somewhere in the magnitude of what we've been showing you here over the -- for the last little while. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: That's great. And shifting to the salvage side a little bit, we've seen more activity globally in this space. Okay, Q1 of your buyers is sourcing cars directly in Australia, and one of your leading competitors has acquired businesses in Brazil, Germany and other markets. Just interested in your current thoughts, as your balance sheet gets stronger, where you see the world-wide opportunities today.

Craig, we've always said that we have an interest in international expansion. We've certainly been around the globe, as I will say, visiting many of these markets, establishing many relationships. I think the people in these markets, they are well aware of who we are. They're certainly aware of our interests in all of our businesses. And we continue to look at opportunities and ways that we might expand internationally. And we think that we have a number of technology plays that we could deploy and as well as looking at the possibilities of acquiring physical assets as well. So with that said, I would say there's nothing that we can announce or nothing that we can talk about, but I can say that we stayed very close to it and continue to observe and evaluate these opportunities.

And we'll take our next question from Bob Lévesque [ph] .

Most of my questions have been answered, but I just want to go back for a second and focus on the IAA gross margins. Obviously, as was mentioned before, your volumes were fantastic. I was wondering was there any price concessions to win some volumes on that or have prices been holding firm on that end?

No. I mean, we don't want to get into the specifics of this, but you can see that our revenue per vehicle sold at IAA has increased as a result of our revenue increase being greater than the volume increase. And as Jim mentioned in his comments, buy fees is where we have the ability to increase those fees. So we're very comfortable that in the current market conditions that we have the ability to continue growing our revenue. So Bob, I think that's the best way to answer it, but it's a competitive world out there, and we're competing in many ways on -- I would say probably more on service than we are on price. And then that's how I would look at the market today.

Okay, great. And just on that point, could you elaborate -- you spoke a little bit about the towing and the change there. Could you elaborate on other service changes and -- as I said, results are great. I'm just trying to think -- I would have expected with such volume, a little bit better leverage on the margin line. So I'm just trying to kind of put it together and wonder if this is the kind of new normal for the gross margin percentage on a go-forward basis or how to really think about it and model it on a go-forward basis.

Yes. We pointed out the transportation because we felt that was a change. We see rates going up with most of the insurance companies, most the insurance carriers just demanding higher service levels. And I didn't mention it, but I will say we expect that change to continue. Transportation costs will remain higher as we go into 2014.

And Bob, I'll also point out, there's a seasonal aspect. The third quarter is a summer month. So it's probably historically where the Insurance Auto Auctions would have its lowest gross profit percent of the year in terms of a quarterly performance. And that's seasonal. That's not a change in the business. So while we've talked about the pressure on the margin by purchased vehicles and transportation, there's a seasonal impact, and we don't see that as anything other than what we normally have experienced in the past.

And we'll take our next question from Bill Armstrong. William R. Armstrong - CL King & Associates, Inc., Research Division: So obviously, you've got a lot of trends going in your favor. Your earnings guidance, if we back into Q4, would be adjusted earnings of $0.21 to $0.26, which actually is down year-over-year, which is a little surprising. Why would you have down earnings considering all the good things that are going on? What are the drivers?

While we don't comment on quarterly earnings, I will point out that the tax rate in the fourth quarter of last year was extremely low, very low. So I think if you correct for taxes on a consistent basis, you would not see a decline in the analysis you've just presented. Again, I'm not giving guidance on the quarter, but I happen to know that our assumed tax rate that I gave you of 42% is much higher than what we had in the fourth quarter of last year. William R. Armstrong - CL King & Associates, Inc., Research Division: Got it. Okay, I see that. On AFC, your gross margin was down. I'm going to guess that PWI was the primary cause of that. What are gross margins if we strip out PWI?

Again, take out the revenue. It didn't contribute any meaningful amount, and you can calculate the numbers. And they're very comparable to what we had a year ago, very comparable. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay, great. And then finally on Insurance Auto Auction, the big unit increase, it's sounding like they're gaining more market share. Was there anything in the industry that may be driving unit increases? In other words, are there -- is it there an overall increase in unit volume industry wide and you're just getting a piece of it? Or do you think you're taking share? Or is there some combination there?

Yes. I would probably think it's some combination of that. There's no question that we feel that we're doing well in the marketplace in terms of winning business. But I think, also, if you take a look at the overall volume and the conditions that we've dealt with over the past year in terms of weather and whatnot, I'm sure that all contributes. So I think it's a combination of maybe, pardon the expression, but maybe the perfect storm in terms of the way things have come together for us.

[Operator Instructions] We'll go next to John Lawrence.

Could you dig in to this a little bit and just talk a little bit about just understanding the comment about the funnel and make sure I understand. The thing that changes, we've had 2 good quarters now, better visibility and throughput at -- on the unit volumes at ADESA, but what is it that flips the switch when you say that, that franchise dealer becomes sort of, I guess, full, if you will, and makes the funnel -- I mean, makes the car go to the next funnel? Can you explain that just piece at the franchise dealer level a little bit?

Yes, I can. I think if you think about it, if we look back to 2012, there's very tight supply. And there weren't a lot of vehicles coming off lease, and basically, every vehicle that was coming off lease, these franchise dealers were grabbing right at the top of the funnel because they needed inventory. And they were taking inventory that they might not necessarily take in a perfect world. They're taking inventory that might require reconditioning, that might require some things being done to them, but they needed the inventory, so they were able to buy it. Now as more and more inventory makes its way there, these dealers, these franchise dealers are going to become more selective. They're not necessarily going to take cars that perhaps will require reconditioning. There's going to be more volume. The example might be if there's -- last year, if there was 1 or 2 vehicles coming off, this year, there could be 5 or 6 of those vehicles coming off all at the same time. So where they might need the 1 or 2 vehicles, they're not going to need the 5 or 6. And I also think that when you combine that with the new car sales and the number of trades that they're generating that they can possibly keep for retail, that, again, is causing them to pass on some of these cars at the top of the funnel. And all these things contribute to them working their way through and getting on to the physical sale. Does that help explain it?

Exactly. And then the second part of that is just from an economic standpoint, your facilities like Indianapolis, where you've got the body shop and all of those services, how does this volume -- obviously, I assume there's a step function on the capital returns for those facilities as these volumes get to the bottom of the funnel.

Well, John, it's interesting. That's one of the powers of this business model as that money is spent and capitalized. And we've converted over the last 6 years a lot of the cost to be variable, especially in the shops that you're mentioning. So as the volume comes back, we bring the hours back in the workforce, and we've already put the capital in place. I mean, these aren't -- while they're complex services, they're not complex structures that need a lot of innovation around them. And we can do the work and we -- that was one of the comments I made earlier with one of the earlier questions. More cars coming to our marketplace provide a scale that allows us to leverage the facilities into a higher gross profit and a higher EBITDA margin without a doubt.

And we'll now take a follow-up from Matt Fassler.

I want to go back to kind of recap on a couple of answers you've already given. First, a little bit of clarification on my initial question. If you bottom line the gross profit per car, understanding that there's puts and takes on revenue per car and rate, and if you bottom line the gross profit per car for some of the cars that are being sold online from the top of the funnel today compared to the cars that are sold downstream, how different is that number?

Well, let's use the illustrative numbers Jim gave you. You're looking, at the top of the funnel, something around -- these are -- again, these aren't specific numbers. These are just for example. The $100 would generate roughly $70 of gross profit as compared to further down the funnel to physical lane, if you sold to an online buyer, you're going to get roughly $400 to $450. Let's use $450, and you're going to be able to generate $260 to $270 of gross profit dollars. So Matt, it's that big of a difference. Ironically, that car at the bottom of the funnel, the physical lane, will probably have the ancillary services, which will generate even more gross profit dollars but at a lower margin. So the percentages start to change a little bit, but the absolute dollars grow as you move through the funnel.

And just to clarify what needs to happen to get that mix to move in the right direction, does the revenue growth have to accelerate even beyond or the unit growth have to accelerate even beyond the levels that we see today? Or is it more about saving some of that initial demand in the marketplace?

No. It's more about the vehicles getting to a spot where we're able to gain higher economics. It's the -- normally, if the car didn't sell online, there's normally a reason for that in many cases. Aside from maybe just sheer volume, I spoke that it could need reconditioning. It could need something to happen to the car. So when it gets to the physical auction is then where the consignor really does a condition report in the car and really assesses what does this car need to put it in the best resale position, and that's when we pick up those ancillary services. And that is what will drive the revenue per car.

And Matt, let's not forget what Jim mentioned earlier. When they started buying these cars this year, there's been a huge lack of supply of the 1- to 4-year-old used cars in the entire marketplace. The franchise dealers were hungry for that type of vehicle because it had been missing. They haven't had the trades, and they didn't have the off-lease cars at the same level that they've had before.

So it's that demand because I'm just trying to ascertain whether this is just the way the world is or what has to change in the marketplace for the mix to normalize. And it sounds like what you're saying is that 1- to 4-year-old car needs to be in somewhat more plentiful supply at which point they get snatched up a little bit later in the process.

I think you said it. That's right. I think you got it.

Okay. Second follow-up, on the towing costs, et cetera, one of the questions that's been coming inbound to me during the call, why would the insurance companies have more leverage on you and on your competitors today to take their pricing up. Is it that their costs are rising? Or is this an element of competition for some of those fat contracts in some of these chunky players?

I think, Matt, it just comes down to service levels. You know they want that vehicle to be picked up and to be evaluated and assessed as they will as quickly as possible and more demand on us, I think, to provide that level of service. And as we provide that level of service, we recognize that may be an increased cost, but we also recognize the intangible of getting rewarded with more volume as well.

And the reason they need to pick up faster is the claims cost can be controlled on our site more so than on a lot of the impound yards or the collision repair shops. If they aren't doing the work, they charge a daily storage fee. And that's what they're doing. There saying let's reduce our costs by getting it into the marketplace where our fees are all encompassing for what we do.

And can you pass some more of that through? You said...

And we don't charge a daily fee.

Sorry, can you pass some more of that through? You said you took some price or some rate at IAAI. But to the extent your costs are moving, do you have the ability to defray that a bit more?

Well, Matt, let's just say that we will definitely look for ways to offset the increase. And...

Got it. One final question. Oh, sorry.

No, you got it. Go ahead, please.

One final question, a point that you haven't discussed yet today. You discussed a couple of emerging growth opportunities, and one of them was in the C2C world and providing some infrastructure for transactions. Any update on that exploratory effort?

What I can tell you, Matt, is that we continue to look at the C2C opportunity. We have refined the business model. In fact, we have now even built an experience center where potentially people can walk through the C2C transaction and see how that all falls in place, the various steps and components of it. And with that, we would expect that we're at the point where we will do a pilot here in the near term with no specific date.

And at this time, we have no further questions from the phone lines. I'd like to turn the call back over to Jim Hallett for any additional or closing remarks.

Okay, Jason. Thank you, ladies and gentlemen. Thank you for being on the call, and thank you for your continued interest in our company. Again, in short, I will just say I'm very excited to see all 3 of our businesses doing so well in this environment, and we look forward to continuing to bring you good news. So with that, thanks for the call, and we look forward to talking to you soon.

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