Good day, ladies and gentlemen, and welcome to the KAR Auction Services, Inc. Q2 2019 Earnings Conference Call. At this time, all participants are a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow that time. [Operator Instructions] As a reminder, the call is being recorded. I would now like to turn the conference over to your host, Mr. Michael Eliason, Treasurer and Vice President, Investor Relations. Sir, you may begin.

Thank you, Valerie. Good morning and thank you for joining us today for the KAR Auction Services second quarter 2019 earnings conference call. Today we will discuss the financial performance of KAR Auction Services for the quarter ended June 30th, 2019. After concluding our commentary, we will take questions from participants. Before Jim kicks off our discussion, I'd 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 measure can be found in the press release that we issued last night, 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?

Thank you, Michael, and good morning, ladies and gentlemen, and welcome to our call, and I'll say welcome to our first call with the new KAR. I want to start by outlining my agenda for today what I plan to cover. I want to review the results of the spin-off of Insurance Auto Auctions, update our outlook for 2019, highlight the strategic focus of KAR as a smaller and more focused enterprise, review how we plan to deploy capital in the near term and our capital allocation priorities for the future, and I will spend a few minutes discussing my priorities for M&A targets as well. As you know, we successfully completed the spin-off of Insurance Auto Auctions on June 28th. Primary motivation for completing the spin was to unlock shareholder value that we felt was not being recognized within KAR, and after one month I believe it's clear that we have accomplished our objective of unlocking shareholder value. As we have previously discussed, the separation of KAR and Insurance Auto Auctions will allow each enterprise to focus its attention on its respective core business. In the case of KAR, we're focused on remarketing used vehicles. And I believe that we are world-class in the remarketing of vehicles and everything that we do in our business should contribute to remarketing vehicles. We expect our operating decisions, our allocation of capital, and our M&A targets to align with our focus on remarketing used cars. Eric and I have had very positive feedback on the execution of the spin. Investors have expressed support for a more focused and somewhat simpler business model for KAR. Now, I believe we need to demonstrate the strength of KAR to our shareholders as we look to grow earnings, consistently generate strong free cash flows, and provide…

Thank you, Jim. Let me start by highlighting some performance metrics. Consolidated revenue was up 19%. However, this Includes purchased vehicles where we recognized the sale price of the vehicle as revenue with the corresponding cost of services for the purchase price of the vehicle. If we eliminate the purchased vehicle transaction, our revenue increased 7%. In terms of volume, we had a 10% increase in total volume, an 8% increase in same-store volume. Physical auction volume was up 1% and online only volume was up 20%. We saw 15% growth on our OPENLANE platforms, 37% growth at TradeRev, and we more than doubled our volume in Europe with the addition of CarsOnTheWeb. We also had improved ARPU in each of our channels. Physical ARPU increased 5% to $882 per car sold and online only ARPU increased 27% to $150 per car sold in the second quarter. Within the online only ARPU, we had ARPU of $105 on the OPENLANE platform and $271 on the TradeRev platform. The mix of vehicles continue to be favorable for revenue growth. Commercial volumes increased 13%, a 11% on a same-store basis. The increased revenue reflects the strong growth in online only volumes and the ARPU growth at physical auction. Off-lease volumes have begun to plateau. We do not anticipate any significant declines in supply of off-lease vehicles though for the next three years. We also see declines in dealer consignment volumes, excluding TradeRev, moderating. Physical auction dealer consignment volume was down 5% in the second quarter, representing 41% of our physical auction volume in the quarter. Our gross profit at ADESA declined in Q2 as compared to the prior year. Excluding purchased vehicles, gross profit of 43.2% compared to 45.2% in 2018. The decline in gross profit is attributable to lower gross profit…

Thank you. [Operator Instructions] Our first question comes from John Murphy of Bank of America. Your line is open.

Good morning, guys. This is Yarden on for John. So my first question is on the guidance, and I know you mentioned some inventory losses and delayed expenses as a negative factor, but even at the low end, your 2019 outlook still implies somewhat of an acceleration in the back half of the year. Is this driven by continued integration, and I guess, ramp of your acquired businesses and maybe some normalization of costs that you don't expect will repeat in the second half. I'm just curious to hear your thoughts about the different drivers there and whether there is anything unique you expect to happen in 3Q or 4Q?

Yes. So I think a couple things. Number one is, quite frankly, business is good. We're seeing revenues up, we're seeing volumes up, and business is much better than what we've seen in the first half of the year. I also believe that we're going to get the benefit of some of the costs that we took out in the first quarter of the year. We'll start to see some of those benefits realized here as we go into the second half of the year. Eric, would you add to that.

And then you are correct, some of these events in the ancillary services affected the first half. We've made changes and our gross profit will be stronger in the second half than it was in the first half. And then lastly, we will be receiving payment from IAA for a portion of the transition services, which is in our cost structure in the first half. So the net will be a reduced corporate overhead in the second half of the year as well from that.

Okay, that's very helpful. Thank you. And my next question is on TradeRev and I know it's early days, but is there a set of metrics or data points that you guys are looking at both in the near term and longer term to determine success. I'm just trying to understand how do you think about future investment and what level of spending makes sense going forward given the current performance that you're seeing.

Well, the primary metric we're looking at is cars sold and we do have parameters under which how much money we're willing to invest and losses in that business. Of course, that we laid out at the beginning of the year, but it's really pursuing market share. Jim, do you want to talk more about that and how you're pursuing market share.

Yes, I think one of the things that I mentioned in my commentary is I mentioned that we made a change on August 1st where we have aligned the sales team at TradeRev and the sales team at ADESA physical auctions. And if I can expand on that for just a moment and give you a little bit of background and how we plan to go forward here I think is really critical to how we see success in the back half of the year. Up until now I would tell you that ADESA and TradeRev have for the most part operated as independent offerings, almost independent companies, and you could say in fact they were actually competing with each other to some extent. In some cases, you had different sales people on two different days calling on the same dealer, offering a different value proposition, one on TradeRev and perhaps one on physical auctions. Effective August 1st we have aligned those two sales teams and the real goal here is to focus on dealer consignment. And we want to win dealer consignment regardless of what channel it comes in. We want to be able to offer the dealer a digital offering on TradeRev, but we also know that not every dealer is going to take that offering. We want to be able to offer that dealer the opportunity to sell the car in a physical auction, and allow the dealer to make the choice of use one channel, use the other channel, or perhaps use both channels and maybe one channel for certain cars and another channel for other cars. I'm sure you get that picture. But as we see that, one of the most critical things for dealers, especially in the urban areas, is to get these vehicles…

Thank you. Thank you for the color. It's really helpful. I guess my last question, the conversion rates at ADESA improved materially from last year. Can you maybe discuss some of the drivers there and whether you think it's sustainable?

The primary driver of that is the mix of vehicles. With a high commercial mix, the conversion rate will always be higher. That's the nature of our business. Those commercial vehicles are more likely to sell, because that's their avenue for monetizing those assets, whether they be captive finance companies, banks, fleet operators, etc. So it's really the mix and that conversion rate is consistent with what we've seen in previous years where we had very high commercial mix as well. And I believe it will be sustainable as long as the mix stays heavily commercial.

Thank you. Our next question comes from Stephanie Benjamin of SunTrust. Your line is open.

So I wanted to touch back a little bit on ADESA gross margin for the quarter. So it's kind of a two-part question, but the first part of the question is looking at what you reported for ADESA and then adjusting it for the purchased vehicles, it does look like that just from a sequential basis, that impact, purchased vehicles, did accelerate a bit. I think it was, call it, 400 basis points or 500 basis points. So is that what we should expect kind of going forward in the back half just looking at the impact of purchased vehicles versus last year? And then the second part of that is taking, okay, the adjusted --adjusting out for the purchased vehicles taking that aside and then even adjusting for the inventory loss you called out, it looks like margins were still down, call it, 100 bps year-over-year. So maybe if you could speak to the reason for that very adjusted still margin decline and kind of expectations of what of that was really only specific to the quarter and what we can expect going forward? I know there's a lot in there.

Thanks, Stephanie. I think I have this, Stephanie. This is Eric. So I'll respond. First, you are right. With the launch of the ADESA Assurance Program across all of our marketplaces, we have more purchased vehicle as a result of that program offered to our buyers. And we expect it to continue in the Q that we will file most likely tonight and in the supplement we're giving you the actual revenue related to purchase vehicles, so you can begin to parse out these pieces in our financial statements. And it was that 500 bps difference in margins. It was only 300 bps a year ago. If I net out vehicles, the difference this year compared to last year was 200 basis points at ADESA, 45.2% last year to 43.2%. Well, while about half of that was the inventory loss, there was more than the inventory loss and reduced gross margin performance in the ADESA business from ancillary and related services and those are additional costs and other items at High Tech Locksmiths that had significantly reduced profitability and margin and also the AutoVIN situation that we mentioned that reduced margins. Those two items, which I believe were temporary and will not be repeated, if they had not occurred, if we had had our normal margin profile, actually margins would have been flat year-over-year, excluding the impact of purchased vehicles, and I did that calculation, not making it approximately flat. We took out the specific items that we know of, and we would have been flat on percent margin. That gives us confidence that we can perform at a higher level in the second half than what you saw in the first half.

Okay. Got it. So just really as you look through this year, the kind of the transition as we start to model this ADESA Assurance means that margins will be down year-over-year based on what you reported last year. But if you net out over the past two years of these purchased vehicles, it's more of those temporary items. So is that kind of the right way to think about it?

Right, Stephanie. We are netting it out of both years, though, and we're giving you both years' data in each quarter, so that you can calculate. we look at the business on a net not a gross basis relative to purchase vehicles. You have it. They should not have an impact and I will be giving that information going forward.

Yes. And then Stephanie, I would just weigh in here. The purpose here is the ADESA Assurance Program is a very good program. It's a profitable -- it's a profitable program, and I believe it's helping us grow our business.

Got it. And then lastly, this is also just -- I wanted to speak a little bit in terms of you mentioned with TradeRev, and just kind of adjusting the fee structure to make it more attractive or kind of similar between physical and TradeRev. When did that begin or can you kind of talk about what you're seeing, just early results there? And then that's it for me. Thanks so much.

Well, and Stephanie as many people know, our buy fee structure can be market by market in the United States and Canada, in particular, and what we're doing is in markets trying to eliminate major differences in sell fees and buy fees relative to selling a dealer consignment car in any given market. So where we're seeing differences, we are aligning them, and it will depend which one's adjusted. We have opportunities perhaps for more fees on the TradeRev side and it may put some reductions on the ADESA side in certain markets, but we don't think it will be material either way.

Thank you. Our next question comes from Chris Bottiglieri of Wolfe Research. Your line is open.

Hey, guys. Thanks for taking the question. I was doing some math just to make sure, the AutoVIN it sounded like was roughly equal to the headwind from the inventory, the $5.4 million. Is that a good calculation I just did?

That's the -- It would not have been that big. There is more High Tech than just inventory, Chris. You're probably right on the headwind, relative to margins. it just wasn't all AutoVIN. It was both additional cost issues at High Tech Locksmiths and a portion of all of AutoVIN.

Got you, guys. So let's just say we give you credit for all that, this goes away kind of back to normal Q3, start of Q3. I probably have you up at 4% then on kind of like let's just call clean EBITDA versus back half implied 10% growth at the low end. Pretty attractive used car environment in Q2. I don't know whether it gets better. Anything else you could point to that's discrete that would kind of give it more credibility for the back half guide? Anything you could point to would be helpful there.

Yes, you will have the offset of corporate expenses with the reimbursement from IAA that will be direct in the second half. Keep in mind that discontinued operations has very specific rules and what you see in the IAA financial statements is not how I record them in the first half of the year. My costs are my costs and I don't get to allocate out the same way that they have to pick up allocations to show their business as it exists. So they're more call it on a pro forma basis and I am on an actual. So, Chris, that is going to be a component that's very specific where we will have a recovery of cost in the second half that was not present in the first half.

Yes. And I think the other thing I would add, Chris, and I mentioned it earlier, but we did take out cost in the first quarter of the year, and I believe that we will get the benefit of those costs in the latter half of the year.

Got you. Okay. And then TradeRev, switching gears to TradeRev, a couple comments that I kind of want to dig a little bit deeper on. So one, I think you talked about aligning the fee structure at ADESA versus TradeRev. Does this implicitly mean that you raised fees at TradeRev or cut fees at kind of at the ADESA branch level? Just wanted to get a sense for what you mean by aligning the fee structure there.

Before I let Jim talk about generalities, we were $271 in the current quarter versus about $250 prior year. So there you see the impact of that, Chris, I think. And we think there is room for that to get even higher. So the fee structure is really to make -- again, there is a value proposition to remarketing a vehicle and there is no difference if it's on TradeRev or ADESA physical. It's worth a certain value.

Got you. Okay. That's really helpful. And then big picture. I think you made some comments about EBITDA being indifferent between TradeRev and physical. I know it's somewhat illustrative. It's a brand new concept. I don't know that you've any markets that have scaled yet. But to the best of your ability, if you were to look at like a market level contribution analysis, is there a way to frame for us with the TradeRev profit contribution is per unit relative to legacy physical, so that we can think about as some of this dealer migrates to TradeRev, how that impacts the P&L of your model going forward, It'll be helpful.

Well, this is very difficult to do on a market -- I would not extrapolate individual markets. We are mature in the Toronto market, for example, in Canada where the Company was founded, and the profitability there is very comparable to what we would get in the individual dealer consignment vehicle at ADESA Toronto. So again the unfortunate part is in both of those analysis, you're not fully loading it with corporate expenses. That gets tough, but relative to contribution, it's very comparable in a mature market, which I think that's something that we can point out. We are the number one player in physical auctions in Canada. We are the number one player in digital auctions in Canada. And we're finding it to be a market that they can coexist without diminishing our profits in those markets.

Got you. Okay. And then one this really quick one. How many days a week is TradeRev open? When you set these thousand per day figures, just trying to get a sense for how many days you actually operate in a given week?

Yes. So TradeRev is open seven days a week. The fact of the matter is, is we receive a car and we image the car and launch the car as they -- as the car comes to us. So basically, that's one of the big benefits of TradeRev is you don't have to wait for the sale day to come up. You can sell the car immediately. And as you may know, that's all said and done in 45 minutes.

Got you. So is there any reason I can't take your thousand per day and multiply it times 90 then?

Yes. There is a pattern to retail activity. Monday would be the biggest day of the week, every week, and you probably see less activity toward the end of the week and the weekend when they're focused on the retail transaction and they don't wholesale as many cars. So you'd see a lot of activity post Saturday as they're loading cars and getting ready, and Monday is the biggest day of the week for digital, not unlike super Monday in the holidays when people get back and that's when you get online and start selling your goods and services.

Our next question comes from Bret Jordan of Jefferies. Your line is open.

Hey. Good morning, guys.

Hey, Bret.

Hi Bret.

Do you guys have any feeling for I guess market share trends with TradeRev versus Manheim Express or ACV. I guess, when you think about the dealers that you're pitching TradeRev to, are they in many cases already using another app?

No. First of all, I think that ACV is probably closer to what TradeRev -- to the TradeRev offering in terms of the transaction and how the transaction takes place. I think Manheim Express is different from TradeRev and ACV. But I believe that -- I lost track of your question there for a minute.

So, Bret, the market share of all of those products is really small relative to the dealer consignment market. I think trying to compare TradeRev to ACV as if that market is stand-alone is a mistake. They both last year sold around 100,000 vehicles in total. That's it. Out of an industry -- our industry sold over 5 million dealer consignment vehicles. So it's a new product launch relative to each other, though. Again, there is not a meaningful difference until they start talking about each other as if they're separate from our industry. Right now they're a small part of the industry that we think can grow very fast. Jim?

When you think about it, if you take all of these different competitors, we're looking at about 0.5 million cars a year and have a total addressable market of somewhere in the order of 9 million to 10 million. So we're still in the very, very early stages of this.

We will acknowledge that we believe in the United States that ACV has more volume than TradeRev, but in Canada TradeRev is the clear leader against all products.

Okay. I guess to sort of try to gage an inflection point. I think Jim mentioned when at scale, the EBITDA contribution from TradeRev would be I guess comparable to the business -- to the legacy business. What kind of scale are we talking about? How many units would we need to really sort of get to a tipping point?

Our model is looking at the last digital network that we saw grow rapidly and that was the OPENLANE environment. And to be honest, it looks similar. It's in that 350,000 to 400,000 unit. It looks like that's sufficient scale to absorb all of the infrastructure around. And again, we aren't there yet. So what will happen -- but that looks like the inflection point to me, Bret. And we talked about that on our roadshow as well.

Thank you. Our next question comes from Ryan Brinkman of JP Morgan. Your line is open.

Hi, thanks for taking my question. Clearly, you were correct in your observation that you have unlocked shareholder value by the spin of IAA. I wonder, though, did the value that the market assigned to IAA relative to KAR, and we're seeing another step down in the KAR shares today, of course, did that track differently than you might have supposed and does that enter at all into how you view the opportunity for dividend versus repurchase?

So I'll answer the first part of that and maybe Eric can pick up some of that as well, Ryan. There is no question that the -- to your point, we actually overachieved our expectation on Insurance Auto Auctions. So on a large picture, I think IAA overachieved, but there's no question that we do -- we do feel that ADESA is undervalued and dropped to a level lower than what we expected.

And relative to share buybacks, yes, we are expecting to utilize the remaining authorization and take advantage of the fact that we think our stock is undervalued versus what the long-term value should be.

Okay, thanks. And then finally for me, but still on capital allocation. Recently Cars.com completed a review that some speculated could have ended in a sale. Can you talk about what you look for an acquisition candidate? I think investors have so far had an expectation that acquisitions would mostly be sort of asset light, software system type purchases in Europe, like CarsOnTheWeb, with the US physical business pretty much in place. Is that still the right thinking on Europe, etc, or are there yard opportunities still in the US, or would you even maybe consider acquisitions that are a little bit more outside of the box?

Yes. So, Ryan, I think first and foremost, we believe in digital and we

We believe in digital and we believe the world is going digital, and we will continue to invest in this asset-light manner wherever we can and with the platforms that we have, whether it be the OPENLANE platform, the TradeRev platform, the CarsOnTheWeb platform, the GRS platform we have in the UK. So any time that we can invest in technology that will enhance our opportunity to service our dealers that's always top of mind. But that's not to say that we wouldn't look at other opportunities. People ask me from time to time would you ever consider buying a physical auction. And although we would say it's going digital, we know that transformation is not going to happen overnight, and there's going to be some time. And if there was an opportunity to buy a physical auction or buy physical auctions in a market that we're underserved, where there's a buyer base that we don't currently have, or there's a customer mix that we didn't have, we kind of take a look at that sort of thing. And there might be some physical auctions that we'd still feel we could buy and have enough runway that we get our investment back many times over before this transformation is fully completed. We said in the commentary what do we really do well. And we believe that world-class we remarket cars, at the very, very core that's what we do best. So anything that we should be doing, that we should be investing in should be helping us remarket cars. And if you look at our strategy, look at the investments we make, that's where we should be investing. So I hope that gives you a little bit more flavor for how we think about the markets.

Thank you. Our next question comes from Gary Prestopino of Barrington Research. Your line is open.

Hi, good morning. Hey, Eric, could you -- you mentioned you had some issues at AutoVIN and I didn't quite capture that. Could you just very briefly say what was going on there that caused some of the issues on the gross margin?

Yes. So, Gary, this is Jim. I'll take that. At AutoVIN we were installing a new technology that was being put in place to enhance the efficiency of our inspectors' daily routes that they take in terms of how they -- how they get assigned. And quite frankly, what happened is the technology was being installed. We actually ended up doing less inspector -- less inspections per inspector per day. And we caught the glitch, we adjusted the technology, and we're back to normal operating at this point in time. So it was just kind of a -- it was kind of a 30-day blip where we've seen this take place and it's since been corrected.

So, Gary, the net effect is revenue went down and costs was flat for what it'd have been, because we were having less inspections completed.

Yes, that's great. Okay. And then just a couple other ones because most of the questions have been answered. Can you --I know TradeRev is in an early stage, but is it working out where it's like an 80-20 rule where there's 20% of the dealers that are hooked on to it are using 80% or doing 80% of the transactions? I'm just trying to get an idea of what the actual uptake among a dealer would be in terms of usage and doing transactions?

Yes, Gary, I don't know, if I could put percentage numbers on it. I can say to you that it's very spread out, it is very different market by market, and obviously it's very different in Canada than the United States. And you just can't take what we did in Canada and bring it to the United States. The market has nuances and it has differences. It's market by markets, dealer by dealer, and it's really boots on the ground, and it's going out and presenting the value proposition, and really now presenting the choice. And you can't go out and tell a dealer that he is a dinosaur and he's got to come to this new technology overnight. I think you have to go out and demonstrate to the dealer what the benefits are of each product, what the economics are of each product, and then let the dealer basically decide. It's the same way we let the commercial customers decide whether they want to sell in their physical environment, or on online platform. So I hope that makes sense to you.

Yes, it does. And then lastly, just in terms of CarsOnTheWeb with the tech platform that you have there, what would be your annual capacity of vehicles that you could use -- you could sell through that tech platform now, or is it just unlimited because it's a tech platform?

Gary, as you said, it's an unlimited opportunity. If you think of CarsOnTheWeb today, CarsOnTheWeb is a smaller company. We're going to sell somewhere in the order of 70,000 cars this year. When you think of the car park in Europe, it's compared to the car park here in North America. So there's a huge opportunity there. We think we have the best platform and we think we're positioning ourselves with our relationships around the world to really be the winner in that space. So, again, it's going to take some time, but the opportunity is huge.

Thank you. Our next question comes from Daniel Imbro of Stephens. Your line is open.

Yes. Hey, good morning, guys. Thanks for taking our questions.

Good morning.

First one to start just a broader question on the wholesale channel, as it relates to used vehicle prices. If I recall a few years ago, used vehicle prices were falling, so more off-lease units kind of went down the funnel toward physical auction. As we've seen used vehicle prices increasing, are you starting to see any signs that dealers are grounding more units, or is the return rate of units making it to auction changing at all?

So are we speaking of dealer vehicles here? Are we speaking of the off-lease vehicles? I want to make sure I understand your question.

Of the off-lease units, are the grounding dealers taking down more of those as we've seen used vehicle prices improve year-over-year?

No, actually, we kind of give -- have been giving that number. The grounding dealer number is leveling off. It's not growing. Initially, we saw it growing and now it's flattened out, and we're seeing the most significant growth being in the private label channel and in the physical auction channel. Again, we're at 2 million units being sold at physical auction that are across the industry that are off-lease. That's a very significant increase and it continues to grow.

Got it. And then just a question on AFC. Revenue growth did moderate there. You said it was in line with your expectations, but can you talk about how that segment is exposed to interest rates? I think I remember over the last few years a rising rate environment supported growth at AFC. Can you talk about how the exposure of that segment would be in a falling rate environment?

It's actually a fee-based business with an interest rates spread on top of it. We reprice daily on new loans. So it's not as interest rate sensitive -- and the average term is about 65 days. So it's not as interest rate sensitive as most loan portfolios. I would tell you, its activity is probably more in line with what's happening on the consumer loan side, which we don't participate in, but there's retail activity and they're flat in a market where we told you the physical auction volumes were up 1%. That is their primary customer. While they pick up some TradeRev, the OPENLANE customer is not likely to be using AFC, because that's a franchise dealer buying, and we don't finance the franchise dealer through AFC. That they use the captive finance. So that's why it's in line. It is flat. It was relatively close to the total change in physical auction volume for us, and that's kind of how I measure it, Dan. And I would say, interest rates aren't a big impact, and declining interest rates will probably be good for retail use -- retail car sales, which would be good for their portfolio. It has nothing to do with cost of funds.

Got it. And then just one last quick clarifier, if I could. Jim, apologies if I missed this, but could you guys update at all your full-year TradeRev either unit or operating loss targets, or did you reiterate the 200,000 and $60 million in losses?

I did not. But based on what you -- what you say here, I will. We had set out the first of the year that we stated our goal was to hit 200,000 cars at TradeRev, and we have not taken our eye off that goal. We've got the accelerator to the floor. And I think with the with the -- with the changes that we made here August 1st, I'm looking for acceleration. And I continue to push to that 200,000. We've also announced that we were going to have $60 million in operating losses. And that number has not changed.

Thank you. Next question comes from Bob Labick of CJS Securities. Your line is open.

Good afternoon. Thanks. Just

Hey, Bob.

Just to help us quantify. It was helpful to note the change in the IAA corporate expense. Can you quantify the difference, or I guess what they'll pay you in the second half, so that corporate will be down X in the second half based on the recruitment from IAA?

Well, it'll be based upon the services they utilize, Bob. So at this point, I'd rather not -- it's a meaningful number, but it wouldn't be material to the overall financials. It's millions of dollars, but not tens of millions of dollars. That that'll size it.

Got it. Great. That's helpful. And then I guess bigger picture question. In terms of the -- I guess you're calling it purchased cars. The ADESA Assurance, it seems like revenues there are up close to 200% and close to $80 million this quarter. Can you talk about the drivers behind that? Is that from OPENLANE? Is that now from TradeRev? Or what's causing the material increase in the ADESA Assurance year over year?

Well, first of all, I think it's a -- it's a product that has created a lot of confidence with dealers buying cars. Anytime that you can create more confidence for the dealer to buy that vehicle and to have some kind of assurance around price on that vehicle, then he's more likely -- he's more likely to buy more vehicles, whether it be an online vehicle, or whether it be at the physical auction, or whether it be on TradeRev, any of those venues. And so what we're doing is we're offering a product where they buy ADESA Assurance upfront, and if they haven't sold that car in a specified period of time and under certain conditions, they can return that car, and we will repurchase that car and then we will go on and resell it in the marketplace. We've put an increased focus on the product, and the product is doing exceptionally well. It's creating the behavior that we anticipated. It's driving sales. I mentioned earlier, it's profitable. And we're seeing we're seeing real success.

Okay. But to be clear, that's also part of -- TradeRev is on that -- on ADESA Assurance as well in addition to OPENLANE and then obviously the regular auctions?

No, TradeRev is not on the ADESA Assurance. TradeRev has different arbitration policies. So there are purchased vehicles at TradeRev. We do not count them in our car count. If the car is returned and basically you reverse the transaction, we do not include those as a second sale, and it's a very small number.

Okay. So it's not in the 41,000, but it is in the ADESA Assurance revenue.

No, no, they are not buying ADESA. In the 41,000, there are no resales of vehicles, and they are not using the ADESA Assurance Program independently at TradeRev.

Okay, got it. So this is just ...

Physical auction.

It's just physical auction and OPENLANE?

It's basically our private label platforms and ADESA Auctions.

Okay. And then -- so what's the material change year over year? It's such a big number.

We've made it available on more transactions. It used to be very limited, and we're saying, no, this is a good program. And it's profitable for us. When you net out the sale price and purchase price of the vehicle and the fees we collect, it's a profitable offering. We also have cars -- we also have purchased about 20% -- now this is unique, about 20% of the transactions at CarsOnTheWeb are reflected as purchased vehicles. Also, as a result of the nature of title transfer in different European countries that is probably also a meaningful contributor to the increase.

Got it, okay.

And that is not ADESA Assurance. Those are just called purchased vehicles. We don't really purchase it, but we're at risk. So it's recorded in the same way.

Okay, understood. I'll figure that part out to model it. Great. I think that's all I have now. Thanks.

Thanks, Bob. Valerie, we'll take one last question and then we're out of time.

Thank you. We have a question from Alice Wycklendt of Baird. Your line is open.

Yes, guys. Thanks for taking my question. Helpful commentary on the changes in your sales team approach with TradeRev. But apologies if I missed it. I'm wondering about your customer-facing incentives this quarter -- how many those have changed and then what impact have you seen?

Yes, so as we think about it, we continue to monitor transportation. Transportation is probably the number one incentives that we use for our buyers. And at one point in time, we were transporting cars different distances, and we're providing different incentives. We continue to tweak that, and we tweak that on a market-by-market basis. And I think that's probably the biggest motivator for buyers to want to buy more cars on TradeRev.

And Alice, for magnitude, we expect those types of incentives to represent roughly one-third of the operating loss for the year.

Thank you. That's helpful. And then just one quick follow-up, a clarification on the share repurchase, if you don't mind. Is contemplated in your current guidance?

Well, we have not. As you saw in the guidance, we give you the 134 million shares, which is roughly what's out there. We have not adjusted that for what potentially could be the share repurchases completed this quarter. We did not intend this.

Okay. Thanks, gentlemen.

Thanks, Alice.

You're welcome.

Thank you. As we have no further questions at this time, I'd like to turn the conference back over to CEO, Jim Hallett, for any closing remarks.

Thank you. Valerie. And thank you to everybody that's been on today. I really appreciate your interest and your continued support here. I'll tell you, frankly, I'm feeling very, very optimistic about what's going to take place in the second half of the year here. We got off to a little bit of a struggle in January and February, the first half for the year. We've done a number of things that I won't repeat, but we've done a number of things, we've taken a number of steps, a number of actions. We're committed to our guidance of $530 million to $550 million. I believe that we can execute on the things that we've said we're going to execute on. I believe we will deliver on that guidance and I'm committed to hitting those numbers. I'm excited about the changes that we've made in TradeRev. I really believe that there can be quick acceleration here. And I believe that we can drive those volumes with the new go-to-market strategy that we have. I think as we continue to right-size this company and to do the things that we're talking about here, make the right acquisitions and the right allocation of capital, I believe this is a great business. And I believe that we have great opportunities in front of us, and now it's time for us to demonstrate that we can get out there and execute on the things that we've told you about with the spin being behind us; no distractions, let's get to work. So I appreciate you being on. Thank you and we'll look forward to talking to you next quarter.

Ladies and gentlemen, this does conclude today's conference. Thank you for your participation. Have a wonderful day. You may all disconnect.