Good day and welcome to this KAR Auction Services Incorporated Q2 2015 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jon Peisner, Treasurer and Vice President, Investor Relations. Please go ahead, sir.

Thanks, Shannon. Good morning and thank you for joining us today for the KAR Auction Services second quarter 2015 earnings conference call. Today we will discuss the financial performance of KAR Auction Services for the quarter ended June 30, 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 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? James P. Hallett - Chairman & Chief Executive Officer: Great. Thank you, Jon, and good morning, ladies and gentlemen. Welcome to our call. I'm very pleased to report on our second quarter results with all of our business units performing well. My agenda for today is to really speak to five topics. I'd like to cover the highlights of our financial performance, speak to a couple trends in the used car supply for online only and physical auctions, give you an update on our acquisition activity for the first six months of 2015, discuss capital allocation, and then end…

Yes, sir. And we move to our first question from Matthew Fassler with Goldman Sachs. Matthew Jeremy Fassler - Goldman Sachs & Co.: Thanks a lot. Good morning, Jim. James P. Hallett - Chairman & Chief Executive Officer: Good morning, Matt. Matthew Jeremy Fassler - Goldman Sachs & Co.: A couple questions – good morning. Couple questions, if I could. First of all, as we think about capital allocation, and I presume this one is for Eric. How are you thinking about your target leverage ratios, particularly, now as you've gotten a bit more aggressive on the buyback? Where do you want to see this on a sustained basis, if you can remind us so that we can model this out appropriately over time? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Sure, Matt. Our target still remains three times. So, three times or less, but closer to three times. Even with this though, given our current debt, and the available revolver that I can use on this, we won't get to three times as a result of this share repurchase program. But over time again as I look over the next year at the maturities of the term loan B1, and dealing with that, hopefully we'll put a structure in place that can keep us is in line with closer to that three times, again, over time. Matthew Jeremy Fassler - Goldman Sachs & Co.: Got it. So if the business remains solid and the leverage drifts lower, you would probably remedy that to get closer to those targets? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Again, that will remain our target. We'll see what actions we can take to stay close to it. Matthew Jeremy Fassler - Goldman Sachs & Co.:…

Next question comes from John Healy with Northcoast Research.

Good morning, guys. Thanks for taking my call. This is actually Chris Farnham on for John this morning. James P. Hallett - Chairman & Chief Executive Officer: Good morning, Chris. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Good morning.

Morning. I was wondering if you could talk a bit about the growth in the IAA business being above expectations and some of the drivers of that. Is that all, kind of, market activity due to miles driven or you think there are other factors at play here? James P. Hallett - Chairman & Chief Executive Officer: I think, there's a number of factors that play in, Chris, but I think overall I think we've just done a good job of continuing to win share in the marketplace. As you know, we take you back a long way and tell you that we believe that our model offering every vehicle in both the physical auction as well as offering a 100% of those vehicles online do drive increased proceeds. And over the course of time, we feel that we've continued to win RFPs and continued to win the larger portion of business with the customers that we do, do business with. And then finally I would just say, as noted before, that a lot of our business is with the majority of the fastest-growing insurance writers in the country.

Thanks. That's really helpful. James P. Hallett - Chairman & Chief Executive Officer: You are welcome.

Next question comes from Elizabeth Suzuki with Bank of America.

Good morning, guys. So, FX had almost a 2 percentage point negative impact on year-over-year revenue growth this quarter, which was worse than last quarter. And as we go through the back half of year do you expect that currency headwind to ease at all or do you expect some stabilization? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Liz, at this point, we're not expecting any easing or improvement, as I would say, or weakening of the U.S. dollar. It could happen, but at this point, we're preparing ourselves for the Canadian dollar to stay down below $0.80 per US dollar. So we'll see how it plays out. The good news is we operate our businesses within Canada. This is not a company where we're dependent upon repatriation to satisfy a lot of the operating costs here. We're generating revenue in Canada, but we're also having the cost in Canada. So again, on the margin percentage not hurting us, other than on the translation.

Great. Thanks. That's really helpful. Just a quick one on IAA, and I think you answered this already, but I just want to confirm. The 0.5% decrease in gross margin attributed to HBC, is that margin impact expected to be ongoing because HBC is a lower margin business than the rest of IAA or are there some near-term integration costs that should normalize in the coming quarters? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: No. That is driven by the revenue model, a substantial number of the cars that they sell are purchased vehicles. That's the model in the UK. And we only had HBC for a month. I think, it'll be an even more significant impact in future quarters where we have a full quarter of volume and activity from HBC. The one thing I will let you know is I will be giving you adequate disclosures so you can understand the two businesses separate from each other because otherwise I don't want someone forming the wrong impressions about what's happening in North America.

Okay, great. Thanks. That's really helpful.

Next question comes from Ryan Brinkman with JPMorgan.

Hi, good morning, guys. David Karnovsky on for Ryan. James P. Hallett - Chairman & Chief Executive Officer: Good morning, Ryan. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Good morning.

Good morning. So, really great volume quarter at ADESA, especially for physical volumes, can you tell us how that 13% growth in physical volume compares to what your expeditions were at the start of the quarter. And then, to the extent that maybe you tracked higher, were there any inefficiencies in servicing volumes such as like premium freight, over time? That maybe prevented some of that strong volume growth from converting to EBITDA? James P. Hallett - Chairman & Chief Executive Officer: Well, in terms of our expeditions we expect it to grow. And we knew that volume was going to increase, but I think the pleasant surprise was all segments were really improving. When you think about – we often just focus on the fleet lease and repo, obviously this is heavily driven by the fleet lease and repo segments, but you know what, we've seen a large increase in factory cars, we've seen an increase in daily rental cars, and as I mentioned in my commentary, a real nice increase in dealer consignment being up 7% as well. So, overall, I think it was all the above contributed to the 13%.

Okay. And then just going back to the online pricing at ADESA in the quarter, any impact there from an increase in open online sales or should we just sort of think about that as the grounding dealer impact that you were talking about before? James P. Hallett - Chairman & Chief Executive Officer: I think, you should really just think about it as what Eric described to you with the grounding dealer. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: There was an increase in open sales, but it was more than overshadowed by the grounding dealer.

Okay. And then just shifting gears to HBC vehicle services, I know you guys can't give specifics on the transaction, but can you just talk maybe broadly about it, why was this the right time for you guys to enter the UK market, and then maybe what's the opportunity there for the long-term? James P. Hallett - Chairman & Chief Executive Officer: Yeah. Good question. And a couple points I would make is number one, we are a distant number two player in the UK with our competitor there having a very large market share. And we believe there's an opportunity to do further consolidation and to become a stronger number two, and based on the feedback that we've got throughout the course of our decision, we feel that the market would very much support a strong number two player. And secondly, this was really our first entrance into an international market. And we felt that there's much that we can learn from being in the market. And learning and understanding a different business model that they have in the UK, but maybe even more importantly learning and understanding the culture as we go about making other international acquisitions.

Okay. Thanks a lot, guys. James P. Hallett - Chairman & Chief Executive Officer: You're welcome. Thank you.

Next question comes from Shreyas Patil with Credit Suisse. Shreyas Patil - Credit Suisse Securities (USA) LLC (Broker): Hi, thanks for taking my questions guys. James P. Hallett - Chairman & Chief Executive Officer: Good morning, Shreyas. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Good morning. Shreyas Patil - Credit Suisse Securities (USA) LLC (Broker): Good morning. I was wondering if you can just give us a little bit more of some of the puts and takes around the guidance? I mean, so you mentioned that you are including the impact of the ASR and the $5 million to $10 million benefit from the acquisition, but it kind of looks like the EPS and adjusted EBITDA increases are fairly modest versus your old guidance. I mean, are there some other factors that you're considering as well? James P. Hallett - Chairman & Chief Executive Officer: Well, Shreyas, again, we consider all factors. Foreign currency would be a major factor affecting us. One thing I would admit is it's – probably the Canadian dollar has done worse than we expected through the year, and we factor that in. But generally speaking, we give annual guidance and this update is to reflect activities that's occurred, that was not contemplated at the beginning of the year. And our view is we'd rather be evaluated on our results than the movement of guidance. Shreyas Patil - Credit Suisse Securities (USA) LLC (Broker): Okay. Okay. And then also maybe just looking at the gross margin side, ADESA gross margins were about 44% in the quarter. That's about flat year-over-year, despite the fact that you guys had a really big increase in unit volume growth. I was wondering if you can give us a little more color there on what were some…

We will move to our next questioner, Gary Prestopino with Barrington Research. James P. Hallett - Chairman & Chief Executive Officer: Hey, Gary. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Hi, good morning.

Hey, Eric, just a quick question, what was your interest expense guidance prior to what you said today? What was it, about $60 million per year? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: It was $60 million, and it's only gone up by about $1 million.

Okay. Just a quick thought, I mean, why would you take more leverage on? I mean, you've got some cash on your balance sheet. Is that – you had about $200 million, right? Is – I would assume some of that is not – is unencumbered. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Some of it is. And again, there's the timing of the daily cash flows. There is some cash currently residing in Canada that at the current exchange rate and the interaction with my foreign tax credits, it may not be efficient to bring it back, or it may. So, we'll use the revolver and – as well as any available cash that we can. So that's why there's not a significant increase in interest expense.

Okay. And then in terms of the – on the AFC side, is this increased competition coming from banks or nonbanks or both? James P. Hallett - Chairman & Chief Executive Officer: The answer, Gary, is both. We're seeing increased competition from a major competitor as well. We're seeing some new entrants in the marketplace by some of the smaller banks and credit unions.

Okay. All right. Thank you. James P. Hallett - Chairman & Chief Executive Officer: You're welcome.

Your next question comes from Ali Faghri with CRT Capital.

Good morning. Thanks for taking my question. Congrats on a nice quarter. Can you talk a little bit about the brick-and-mortar acquisition opportunities on the wholesale side in the second half. If I remember correctly, in the past you've talked about five to 10 quality independents that would make good acquisition candidates. James P. Hallett - Chairman & Chief Executive Officer: Yes. We did the completion of the Pittsburgh. We've announced the building of the greenfield in Chicago. We're still very much a believer in brick-and-mortar auctions. We believe that not only does it give you a physical site that allows you to also grow your ancillary services and your revenues, but it also gives you another customer base that grows the customer base, and contributes to the online customer buying base as well. So with that said, we feel that you'll see a continued focus on acquiring some of these independent auctions. We did identify there's probably five to 10 of them as you mentioned in the country. I didn't say we're going to get all five or 10 of them done anytime soon. But we are always in communication with the independents. We have good relationships with the independents, and I think you'll see us complete Chicago, and I think you can expect that we would be opportunistic. As more of these opportunities become available, you would see us act on specific ones if they, number one, contribute to the geography and the customer mix and the strategy that we're looking to build on overall. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: And, Jim, let me add, and be disciplined on how we value the businesses as well. That's part of what drags these things out, is we're very disciplined on how we value the physical auction businesses. James P. Hallett - Chairman & Chief Executive Officer: Very much so.

Okay. Great, that's very helpful. Thank you. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Welcome. James P. Hallett - Chairman & Chief Executive Officer: You're welcome.

We next move to Ben Bienvenu with Stephens Incorporated.

Yeah. Thanks. Good morning, guys. James P. Hallett - Chairman & Chief Executive Officer: Good morning.

So you continue to have really strong growth in IAA. I'd be curious to know that – the extent to which you're seeing insurers put additional pressure on the cost side on you guys as the accident frequency increases and higher volumes potentially impact their profitability. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Yeah, Ben, good question. Really the pressure comes from service-level agreements that are embedded in these insurance contracts. The pressure I would describe as we're expected to pick up the cars faster. It helps to reduce the cost of storage and things that the insurance company might be incurring prior to it getting to the salvage yard. Again, the model works very well for us and I'd say the pressure is really focused on the tow cost.

Okay. Great. Shifting gears back to ADESA at the physical auction, still making progress there on ARPU, despite the FX headwinds, how much more runway do you feel like we have on revenue per vehicle? Is it purely a product of mix shift playing out or are there some things that you guys can do internally as well to drive that higher? James P. Hallett - Chairman & Chief Executive Officer: Well, there's no question that as you think about the mix and you think about more of these commercial vehicles coming to the physical auction. Those are the heavy users of ancillary services. So rather than try and put a number on where ARPU can go, I can tell you that I think the mix will drive that ARPU, and I would expect that that still has room to go north.

Okay, great. Thanks. Best of luck. James P. Hallett - Chairman & Chief Executive Officer: You're welcome,

Next question comes from Bob Labick with CJS Securities.

Good morning. James P. Hallett - Chairman & Chief Executive Officer: Good morning, Bob. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Good morning, Bob.

Just jumping back to IAA, the 3% price decline was, I think, probably a lot less than people may have feared given the 45%, 50% declines in scrap and some of the things you already talked about. Can you talk about if there are any offsets you have there, is it the higher purchased vehicles, I guess, going up from 6 to 7, or any other pricing or offsets that you've been able to institute and where you expect that price headwind for the back half? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Bob, good question. Yes. One of the offsets is the number of purchased vehicles increasing. Gives you an – on those cars you do have an average – higher average ARPU because it's the gross auction price versus the fees. But again, we think we can manage that, not a big change. In the second half of the year, it's again, let's talk North America, because in the UK it will be totally different. In North America, I – we're kind of expecting it to continue at the current levels. James P. Hallett - Chairman & Chief Executive Officer: And may be one thing that I would add to that, as you said, what are some of the things that we may be able to do to affect that is, in one of the initiatives that we're taking is we're working on building our buyer base at Insurance Auto Auctions. We've now taken a look at our buyer base at ADESA, we've taken a look at our buyer base at Insurance Auto Auctions and how those buyer bases overlap. And the types of vehicles now some of the non-insurance vehicles that are coming to IAA that we're able to bring some of those whole car buyers from ADESA, IAA, it's kind of about the best venue as to where we sell these cars. And then as we're thinking about these, probably the best opportunity for us to take additional fees is usually where you see prices falling in that declining market.

Okay. Great. That's very helpful. And then just jumping over on the whole car side, the – I think, industry volumes were up about maybe 8% or so in the quarter versus your 14%. And I know you have obviously significant strength on the institutional side, but can you talk about some of the drivers there and what's enabling you to outpace the industry right now? James P. Hallett - Chairman & Chief Executive Officer: Well, first of all, I'd say that we look at those numbers with a little bit of caution. We were at 14% and the industry did report 9%. But we really don't put a lot of credence in those numbers until we get a yearend result, and we get a full report. But with that said, our commercial business is very strong. And all segments, as I reported earlier are doing well. And that's right in our kitchen. And then you take – on top of that, you take the job on dealer consignment being up 7% is really a phenomenal job. Many of you go back in history with me to where in 2009 our dealer consignment business was at 25% of our total business. And we knew with the headwinds that we were going to face on the commercial side that we had to get a lot better with dealer consignment. And this is probably one of the initiatives that I'm most proud of is the fact that we've been able to take that dealer consignment up to 50% of our business and not just take it up, but to hold it there. In fact, dealer consignment was down 1% as an overall percentage of our business. I think it was down to 49% in the quarter. But holding that dealer consignment business along with getting all that commercial business in all segments, has really contributed to what you're seeing in that 14% increase.

Great. Thank you very much. James P. Hallett - Chairman & Chief Executive Officer: You're welcome.

Next question comes from Bill Armstrong with C.L. King & Associates. William R. Armstrong - C.L. King & Associates, Inc.: Good morning, Jim and Eric. Just a clarification on the guidance. So the adjusted EBITDA guidance is up $5 million, and we're also looking at I guess a lower share count. So was there some offset? Where is it from the acquired companies maybe higher depreciation expense that's also factored into the EPS guidance? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Yes. Well, we don't get into that level of detail. It's higher depreciation and amortization created from the purchase accounting of acquired enterprises that affects the net income per share. William R. Armstrong - C.L. King & Associates, Inc.: What diluted share count then are you using for the full year in coming up with the EPS guidance? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Well, again, I'm not going to give my assumptions. As we disclosed in our release last night, we'll execute this in the next few days and we expect delivery of approximately 4.5 million shares at inception of the program. So you should factor that into your share count for the remainder of the year. William R. Armstrong - C.L. King & Associates, Inc.: Okay. And then the remainder of the shares would be because it also indicates a six-month total program period, is that how we should, kind of, think about that? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Yes. I've assumed any settlement of additional shares would occur after year-end. William R. Armstrong - C.L. King & Associates, Inc.: I see. Okay. And then just shifting gears quickly, the new ADESA Chicago facility maybe just a quick update, have you broken ground on that? And could you remind us what the timeline is for getting that facility up and running? James P. Hallett - Chairman & Chief Executive Officer: Yes. Ground has broken and the timeline isn't soon enough. But with that said, we would expect to be operational before the end of 2016. William R. Armstrong - C.L. King & Associates, Inc.: End of 2016? Okay. Thank you. James P. Hallett - Chairman & Chief Executive Officer: So, yes, probably a little bit over a year from now. William R. Armstrong - C.L. King & Associates, Inc.: Got it. Okay. James P. Hallett - Chairman & Chief Executive Officer: Thank you.

And we will take our next question from Bret Jordan with Jefferies.

Hey. Good morning, guys. James P. Hallett - Chairman & Chief Executive Officer: Good morning, Bret. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Hi, Bret.

A quick question on the IAA inventory, is there any change in the inventory quality, I mean any higher value Texas flood vehicles that would be in that mix that would impact ARPU into the second half or is it pretty much running on average? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: Well, of course, some flooding in Texas is well known, and there would be some inventory from that. But it's really across the board. It's not concentrated in any area. And I would expect it to be representative kind of the broader market that inventory level right now. James P. Hallett - Chairman & Chief Executive Officer: Yeah, you know, Bret, the other thing I would just – the other thing, I would just add to that, and we've commented on in the past is, we know these events are going to take place on an annual basis. It's just we don't know when and we don't know where. But it's kind of the normal course of business throughout the year. And I think most recent floods in Houston are indicative of that.

Okay. And then one question on the EBITDA expectations from the acquisition at $20 million to $25 million is that assuming some sales growth or is that just synergy available to you at the current run rate? Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: That's on a current run rate where we think the businesses perform once integrated and the cost would level up on a full-year basis.

Okay, great. Thank you. James P. Hallett - Chairman & Chief Executive Officer: You're welcome. Eric M. Loughmiller - Chief Financial Officer & Executive Vice President: You're welcome.

And ladies and gentlemen, with no further questions in queue at this time, I'd like to turn the conference back over to Mr. Hallett for closing remarks. James P. Hallett - Chairman & Chief Executive Officer: Okay. Great. Thank you, Shannon and thank you ladies and gentlemen for being on. We appreciate you being on. We appreciate your continued interest in our company. We're very pleased with our results and with how the company is all functioning well together. As I've said in the past, the company is now functioning in my opinion, as well as the company has ever functioned since we've put these companies together in 2007. It's kind of was our expectation and now watching it come to fruition is very, very gratifying for us all here in management. So, we look forward to continuing to do some good work, and reporting some good news here as we continue to move forward. So with that, thank you for being on today and I appreciate it.

And ladies and gentlemen, that does conclude today's conference. We do thank you for your participation. You may now disconnect. Have a great rest of your day.