0001395942-19-000095.txt : 20190806 0001395942-19-000095.hdr.sgml : 20190806 20190806161556 ACCESSION NUMBER: 0001395942-19-000095 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 32 CONFORMED PERIOD OF REPORT: 20190806 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20190806 DATE AS OF CHANGE: 20190806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAR Auction Services, Inc. CENTRAL INDEX KEY: 0001395942 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 208744739 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-34568 FILM NUMBER: 191002252 BUSINESS ADDRESS: STREET 1: 13085 HAMILTON CROSSING BOULEVARD CITY: CARMEL STATE: IN ZIP: 46032 BUSINESS PHONE: (800) 923-3725 MAIL ADDRESS: STREET 1: 13085 HAMILTON CROSSING BOULEVARD CITY: CARMEL STATE: IN ZIP: 46032 FORMER COMPANY: FORMER CONFORMED NAME: KAR Holdings, Inc. DATE OF NAME CHANGE: 20070409 8-K 1 form8-kxearningsreleasesup.htm 8-K - Q2 EARNINGS RELEASE, SUPPLEMENT & SLIDES Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 8-K

CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 6, 2019
kargreenlogonewoct2018.jpg
KAR Auction Services, Inc.
(Exact name of Registrant as specified in its charter)


Delaware
 
001-34568
 
20-8744739
(State or other jurisdiction
of incorporation)
 
(Commission File
Number)
 
(I.R.S. Employer
Identification No.)

    
11299 N. Illinois Street
Carmel, Indiana 46032
(Address of principal executive offices)
(Zip Code)

(800) 923-3725
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
KAR
 
New York Stock Exchange






Item 2.02    Results of Operations and Financial Condition.

On August 6, 2019, KAR Auction Services, Inc. issued a press release announcing its financial results for the three and six months ended June 30, 2019. KAR Auction Services, Inc. will host an earnings conference call and webcast, Wednesday, August 7, 2019 at 11:00 a.m., Eastern Daylight Time. The conference call may be accessed by calling 1-844-778-4145 and entering participant code 2399573 and the live webcast may be accessed at the investor relations section of www.karauctionservices.com. The call will be hosted by KAR Auction Services, Inc. Chief Executive Officer and Chairman of the Board, Jim Hallett, and Executive Vice President and Chief Financial Officer, Eric Loughmiller. The call will feature a review of operating highlights and financial results for the three and six months ended June 30, 2019. The press release dated August 6, 2019 is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference in its entirety.

On August 6, 2019, KAR Auction Services, Inc. also posted supplemental financial information for the three and six months ended June 30, 2019, and Earnings Slides for the three and six months ended June 30, 2019. The supplemental financial information and Earnings Slides can be located at the investor relations section of www.karauctionservices.com. The supplemental financial information and Earnings Slides posted on August 6, 2019 are attached to this Current Report on Form 8-K as Exhibits 99.2 and 99.3, respectively, and are incorporated herein by reference in their entirety.





Item 9.01    Financial Statements and Exhibits.

(d) Exhibits

EXHIBIT NO.            DESCRIPTION OF EXHIBIT
            
99.1

99.2

99.3


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.


Dated:    August 6, 2019                KAR Auction Services, Inc.


/s/ Eric M. Loughmiller
Eric M. Loughmiller
Executive Vice President and Chief Financial Officer





EX-99.1 2 exhibit991-q22019earningsr.htm EXHIBIT 99.1 - Q2 2019 EARNINGS RELEASE Exhibit


EXHIBIT 99.1
EARNINGS RELEASE
kargreenlogonewoct2018.jpg

For Immediate Release

Analyst Inquiries:                                                      Media Inquiries:
Mike Eliason                                                             Gene Rodriguez Miller
(317) 249-4559                                                           (317) 343-5243
mike.eliason@karauctionservices.com                     gene.rodriguez@karauctionservices.com    
        
KAR Auction Services, Inc. Reports Second Quarter 2019 Financial Results
KAR Announces Dividend of $0.19 per Common Share

Carmel, IN, August 6, 2019 KAR Auction Services, Inc. (NYSE: KAR), today reported its second quarter financial results for the period ended June 30, 2019. For the second quarter of 2019, the company reported revenue from continuing operations of $719.1 million as compared with revenue from continuing operations of $623.4 million for the second quarter of 2018, an increase of 15%. Net income from continuing operations for the second quarter of 2019 decreased 27% to $27.4 million, or $0.20 per diluted share, as compared with net income from continuing operations of $37.4 million, or $0.28 per diluted share, in the second quarter of 2018. Adjusted EBITDA from continuing operations for the quarter ended June 30, 2019 decreased 2% to $135.9 million, as compared with Adjusted EBITDA from continuing operations of $139.0 million for the quarter ended June 30, 2018. Operating adjusted net income from continuing operations per diluted share decreased 17% to $0.30 for the quarter ended June 30, 2019, as compared with operating adjusted net income from continuing operations per diluted share of $0.36 for the quarter ended June 30, 2018. KAR incurred operating losses of $16.0 million and $11.3 million for the three months ended June 30, 2019 and 2018, respectively, which were attributable to the rollout of Trade Rev.

For the six months ended June 30, 2019, the company reported revenue from continuing operations of $1,408.7 million as compared with revenue from continuing operations of $1,236.6 million for the six months ended June 30, 2018, an increase of 14%. Net income from continuing operations for the six months ended June 30, 2019 decreased 40% to $42.7 million, or $0.32 per diluted share, as compared with net income from continuing operations of $71.6 million, or $0.53 per diluted share, in the first six months of 2018. Adjusted EBITDA from continuing operations for the six months ended June 30, 2019 decreased 4% to $258.8 million, as compared with Adjusted EBITDA from continuing operations of $268.3 million for the six months ended June 30, 2018. Operating adjusted net income from continuing operations per diluted share decreased 32% to $0.50 for the six months ended June 30, 2019, as compared with operating adjusted net income from continuing operations per diluted share of $0.74 for the six months ended June 30, 2018. KAR incurred operating losses of $32.8 million and $22.4 million for the six months ended June 30, 2019 and 2018, respectively, which were attributed to the rollout of Trade Rev.

“We successfully completed the spin of IAA and are pleased with the early results of the transaction,” said Jim Hallett, chairman and CEO of KAR Auction Services, Inc. “We remain confident in our strategy and capital allocation plan, and are highly focused on leading the digital evolution of our industry, managing cost, and executing on the fundamentals of our business."







2019 Outlook

KAR Auction Services' previously stated outlook remains unchanged.
(in millions, except per share amounts)
Annual
Guidance
 
 
Net income from continuing operations
$123.0 - $137.0
Income tax expense
$50.0 - $56.0
Interest expense, net of interest income
$192
Depreciation and amortization
$190
EBITDA
$555.0 - $575.0
Adjusted EBITDA addbacks, net
($25.0)
Adjusted EBITDA
$530 - $550
Capital expenditures
$154
Cash taxes
$60
Cash interest on corporate debt
$110
Effective tax rate
29%
Net income from continuing operations per share - diluted
$0.92 - $1.02
Operating adjusted net income per share
$1.24 - $1.34
Weighted average diluted shares
134

Earnings guidance does not contemplate future items such as business development activities, strategic developments (such as restructurings, spin-offs or dispositions of assets or investments), gains/losses associated with step acquisitions, contingent purchase price adjustments, significant expenses related to litigation and changes in applicable laws and regulations (including significant accounting and tax matters). The timing and amounts of these items are highly variable, difficult to predict, and of a potential size that could have a substantial impact on the company’s reported results for any given period. Prospective quantification of these items is generally not practicable. Forward-looking non-GAAP guidance excludes amortization expense associated with acquired intangible assets, as well as one-time charges, net of taxes. See reconciliations of the company's guidance on pages 8 and 9.

Dividend Announcement
The company announced a cash dividend today of $0.19 per share on the company’s common stock. The dividend is payable on October 3, 2019, to stockholders of record as of the close of business on September 20, 2019.

Potential Refinancing of Credit Facilities
We intend to amend and extend our credit facilities in early September, subject to acceptable market conditions. We are expecting to increase our Term Loan borrowings with the proceeds being used for general corporate purposes including future acquisitions. We expect any proceeds received from the refinancing to increase our cash balances upon closing. We expect to complete the refinancing of our debt prior to September 30, 2019.

Earnings Conference Call Information
KAR Auction Services, Inc. will be hosting an earnings conference call and webcast on Wednesday, August 7, 2019 at 11:00 a.m. EDT (10:00 a.m. CDT). The call will be hosted by KAR Auction Services, Inc.’s Chief Executive Officer and Chairman of the Board, Jim Hallett, and Executive Vice President and Chief Financial Officer, Eric Loughmiller. The conference call may be accessed by calling 1-844-778-4145 and entering participant passcode 2399573, while the live web cast will be available at the investor relations section of www.karauctionservices.com. Supplemental financial information for KAR Auction Services’ second quarter 2019 results is available at the investor relations section of www.karauctionservices.com.

A replay of the call will be available for two weeks via telephone starting approximately 30 minutes after the completion of the call. The replay may be accessed by calling 1-855-859-2056 and entering passcode 2399573. The archive of the web cast will also be available following the call and will be available at the investor relations section of www.karauctionservices.com for a limited time.


2



About KAR Auction Services
KAR Auction Services (NYSE: KAR) provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. KAR’s unique end-to-end platform supports whole car, salvage, financing, logistics and other ancillary and related services, including the sale of nearly 3.5 million units valued at over $40 billion through our auctions. Our integrated physical, online and mobile marketplaces reduce risk, improve transparency and streamline transactions for customers in more than 70 countries. Headquartered in Carmel, Ind., KAR has approximately 15,000 employees across the United States, Canada, Mexico and Europe. For more information go to www.karauctionservices.com. For the latest KAR news follow us on Twitter @KARSpeaks.

Forward Looking Statements
Certain statements contained in this release include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made that are not historical facts may be forward-looking statements. Words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” and similar expressions identify forward-looking statements. Such statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include those matters disclosed in the Company’s Securities and Exchange Commission filings. The Company does not undertake any obligation to update any forward-looking statements.



3



KAR Auction Services, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Operating revenues
 
 
 
 
 
 
 
ADESA Auction Services
$
632.4

 
$
538.3

 
$
1,232.1

 
$
1,066.4

AFC
86.7

 
85.1

 
176.6

 
170.2

Total operating revenues
719.1

 
623.4

 
1,408.7

 
1,236.6

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization)
417.4

 
330.2

 
811.3

 
658.5

Selling, general and administrative
163.2

 
149.9

 
338.4

 
305.4

Depreciation and amortization
47.9

 
42.1

 
92.2

 
88.4

Total operating expenses
628.5

 
522.2

 
1,241.9

 
1,052.3

 
 
 
 
 
 
 
 
Operating profit
90.6

 
101.2

 
166.8

 
184.3

 
 
 
 
 
 
 
 
Interest expense
55.6

 
48.4

 
112.1

 
89.7

Other income, net
(1.1
)
 
(0.5
)
 
(3.2
)
 
(0.8
)
 
 
 
 
 
 
 
 
Income from continuing operations before income taxes
36.1

 
53.3

 
57.9

 
95.4

 
 
 
 
 
 
 
 
Income taxes
8.7

 
15.9

 
15.2

 
23.8

 
 
 
 
 
 
 
 
Income from continuing operations
27.4

 
37.4

 
42.7

 
71.6

Income from discontinued operations, net of income taxes
28.2

 
55.8

 
90.7

 
111.6

Net income
$
55.6

 
$
93.2

 
$
133.4

 
$
183.2

 
 
 
 
 
 
 
 
Net income per share - basic
 
 
 
 
 
 
 
Income from continuing operations
$
0.21

 
$
0.28

 
$
0.32

 
$
0.53

Income from discontinued operations
0.21

 
0.41

 
0.68

 
0.83

Net income
$
0.42

 
$
0.69

 
$
1.00

 
$
1.36

 
 
 
 
 
 
 
 
Net income per share - diluted
 
 
 
 
 
 
 
Income from continuing operations
$
0.20

 
$
0.28

 
$
0.32

 
$
0.53

Income from discontinued operations
0.21

 
0.41

 
0.68

 
0.82

Net income
$
0.41

 
$
0.69

 
$
1.00

 
$
1.35

 
 
 
 
 
 
 
 
Dividends declared per common share
$
0.35

 
$
0.35

 
$
0.70

 
$
0.70



4



KAR Auction Services, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)


 
June 30,
2019
 
December 31,
2018
Cash and cash equivalents
$
233.0

 
$
277.1

Restricted cash
23.7

 
27.6

Trade receivables, net of allowances
592.8

 
454.6

Finance receivables, net of allowances
2,055.6

 
2,000.8

Other current assets
143.8

 
100.6

Current assets, discontinued operations

 
453.5

Total current assets
3,048.9

 
3,314.2

 
 
 
 
Goodwill
1,817.6

 
1,676.9

Customer relationships, net of accumulated amortization
231.1

 
227.4

Operating lease right-of-use assets
370.5

 

Intangible and other assets
314.7

 
303.4

Non-current assets, discontinued operations

 
1,053.3

Property and equipment, net of accumulated depreciation
595.0

 
631.0

Total assets
$
6,377.8

 
$
7,206.2

 
 
 
 
Current liabilities, excluding obligations collateralized by
     finance receivables and current maturities of debt
$
1,152.6

 
$
952.0

Obligations collateralized by finance receivables
1,422.3

 
1,445.3

Current maturities of debt
93.5

 
13.1

Current liabilities, discontinued operations

 
214.4

Total current liabilities
2,668.4

 
2,624.8

 
 
 
 
Long-term debt
1,390.8

 
2,654.3

Operating lease liabilities
365.5

 

Other non-current liabilities
200.5

 
196.9

Non-current liabilities, discontinued operations

 
266.0

Stockholders’ equity
1,752.6

 
1,464.2

Total liabilities and stockholders’ equity
$
6,377.8

 
$
7,206.2




5



KAR Auction Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
Operating activities
 
 
 
Net income
$
133.4

 
$
183.2

Net income from discontinued operations
(90.7
)
 
(111.6
)
     Adjustments to reconcile net income to net cash provided by
       operating activities:
 
 
 
     Depreciation and amortization
92.2

 
88.4

     Provision for credit losses
18.2

 
16.4

     Deferred income taxes
3.6

 
1.5

     Amortization of debt issuance costs
7.1

 
5.3

     Stock-based compensation
10.3

 
9.6

     Loss on disposal of fixed assets
0.1

 

     Other non-cash, net
5.8

 
(4.0
)
     Changes in operating assets and liabilities, net of acquisitions:
 
 
 
     Trade receivables and other assets
(145.7
)
 
(161.0
)
     Accounts payable and accrued expenses
127.4

 
177.9

Net cash provided by operating activities - continuing operations
161.7

 
205.7

Net cash provided by operating activities - discontinued operations
155.8

 
166.7

Investing activities
 
 
 
     Net increase in finance receivables held for investment
(69.8
)
 
(63.0
)
     Acquisition of businesses (net of cash acquired)
(120.7
)
 
(23.3
)
     Purchases of property, equipment and computer software
(78.4
)
 
(51.4
)
Net cash used by investing activities - continuing operations
(268.9
)
 
(137.7
)
Net cash used by investing activities - discontinued operations
(37.4
)
 
(27.8
)
Financing activities
 
 
 
     Net increase in book overdrafts
44.1

 
13.2

     Net increase in borrowings from lines of credit
93.5

 

     Net (decrease) increase in obligations collateralized by finance receivables
(31.0
)
 
1.0

     Payments on long-term debt
(1,291.1
)
 
(3.6
)
     Payments on capital leases
(6.9
)
 
(7.6
)
     Payments of contingent consideration and deferred acquisition costs
(0.5
)
 
(7.4
)
     Issuance of common stock under stock plans
5.4

 
8.4

     Tax withholding payments for vested RSUs
(10.4
)
 
(10.0
)
     Repurchase and retirement of common stock

 
(50.0
)
     Dividends paid to stockholders
(139.8
)
 
(94.2
)
     Cash transferred to IAA
(50.9
)
 

Net cash used by financing activities - continuing operations
(1,387.6
)
 
(150.2
)
Net cash provided by (used by) financing activities - discontinued operations
1,317.6

 
(7.3
)
Effect of exchange rate changes on cash
10.8

 
(9.8
)
Net (decrease) increase in cash, cash equivalents and restricted cash
(48.0
)
 
39.6

Cash, cash equivalents and restricted cash at beginning of period
304.7

 
303.5

Cash, cash equivalents and restricted cash at end of period
$
256.7

 
$
343.1

Cash paid for interest, net of proceeds from interest rate caps
$
98.2

 
$
88.0

Cash paid for taxes, net of refunds - continuing operations
$
20.5

 
$
39.3

Cash paid for taxes, net of refunds - discontinued operations
$
40.1

 
$
32.4


6



KAR Auction Services, Inc.
Reconciliation of Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA, operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share as presented herein are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). They are not measurements of our financial performance under GAAP and should not be considered as substitutes for net income (loss) or any other performance measures derived in accordance with GAAP. Management believes that these measures provide investors additional meaningful methods to evaluate certain aspects of the company’s results period over period and for the other reasons set forth below.

EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in our senior secured credit agreement covenant calculations. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance.

Depreciation expense for property and equipment and amortization expense of capitalized internally developed software costs relate to ongoing capital expenditures; however, amortization expense associated with acquired intangible assets, such as customer relationships, software, tradenames and noncompete agreements are not representative of ongoing capital expenditures, but have a continuing effect on our reported results. Non-GAAP financial measures of operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share, in the opinion of the company, provide comparability of the company's performance to other companies that may not have incurred these types of non-cash expenses or that report a similar measure. In addition, operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share may include adjustments for certain other charges.

EBITDA, Adjusted EBITDA, operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.

The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in millions), (unaudited)
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income
$
55.6

 
$
93.2

 
$
133.4

 
$
183.2

Less: Income from discontinued operations
(28.2
)
 
(55.8
)
 
(90.7
)
 
(111.6
)
Net income from continuing operations
27.4

 
37.4

 
42.7

 
71.6

Add back:
 
 
 
 
 
 
 
Income taxes
8.7

 
15.9

 
15.2

 
23.8

Interest expense, net of interest income
55.0

 
47.4

 
110.9

 
88.4

Depreciation and amortization
47.9

 
42.1

 
92.2

 
88.4

EBITDA
139.0

 
142.8

 
261.0

 
272.2

Non-cash stock-based compensation
4.0

 
4.4

 
10.6

 
10.1

Acquisition related costs
3.7

 
1.5

 
7.6

 
3.7

Securitization interest
(13.8
)
 
(12.7
)
 
(28.6
)
 
(24.1
)
Severance
1.1

 
0.9

 
4.8

 
2.4

Foreign currency gains/losses

 

 
(0.6
)
 

IAA allocated costs
0.9

 
1.3

 
2.3

 
2.5

Other
1.0

 
0.8

 
1.7

 
1.5

  Total addbacks
(3.1
)
 
(3.8
)
 
(2.2
)
 
(3.9
)
Adjusted EBITDA
$
135.9

 
$
139.0

 
$
258.8

 
$
268.3


7




The following table reconciles operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share to net income and net income per share for the periods presented:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(in millions, except per share amounts), (unaudited)
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Net income
$
55.6

 
$
93.2

 
$
133.4

 
$
183.2

Less: income from discontinued operations
(28.2
)
 
(55.8
)
 
(90.7
)
 
(111.6
)
Net income from continuing operations
27.4

 
37.4

 
42.7

 
71.6

   Acquired amortization expense
14.8

 
15.4

 
29.4

 
35.7

IAA allocated costs
0.9

 
1.3

 
2.3

 
2.5

Acceleration of debt issuance costs
1.8

 

 
1.8

 

   Income taxes (1)
(4.2
)
 
(5.0
)
 
(8.8
)
 
(9.5
)
Operating adjusted net income from continuing operations
$
40.7

 
$
49.1

 
$
67.4

 
$
100.3

 
 
 
 
 
 
 
 
Net income from continuing operations per share - diluted
$
0.20

 
$
0.28

 
$
0.32

 
$
0.53

   Acquired amortization expense
0.11

 
0.11

 
0.22

 
0.26

IAA allocated costs
0.01

 
0.01

 
0.02

 
0.02

Acceleration of debt issuance costs
0.01

 

 
0.01

 

   Income taxes
(0.03
)
 
(0.04
)
 
(0.07
)
 
(0.07
)
Operating adjusted net income from continuing operations per share - diluted
$
0.30

 
$
0.36

 
$
0.50

 
$
0.74

 
 
 
 
 
 
 
 
Weighted average diluted shares
134.1

 
135.6

 
133.9

 
135.8


(1)
The effective tax rate at the end of each period presented was used to determine the amount of income tax on the adjustments to net income.

The following table reconciles EBITDA and Adjusted EBITDA to net income from continuing operations for the 2019 guidance presented:
 
2019 Outlook
(in millions), (unaudited)
Low
 
High
 
 
 
 
Net income from continuing operations
$
123.0

 
$
137.0

Add back:
 
 
 
Income tax expense
50.0

 
56.0

Interest expense, net of interest income
192.0

 
192.0

Depreciation and amortization
190.0

 
190.0

EBITDA
555.0

 
575.0

  Total addbacks, net
(25.0
)
 
(25.0
)
Adjusted EBITDA
$
530.0

 
$
550.0



8



The following table reconciles operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share to net income from continuing operations and net income from continuing operations per share for the 2019 guidance presented:
 
2019 Outlook
(in millions, except per share amounts), (unaudited)
Low
 
High
 
 
 
 
Net income from continuing operations
$
123.0

 
$
137.0

   Acquired amortization expense
60.0

 
60.0

   Income taxes
(17.4
)
 
(17.4
)
Operating adjusted net income from continuing operations
$
165.6

 
$
179.6

 
 
 
 
Net income from continuing operations per share – diluted
$
0.92

 
$
1.02

   Acquired amortization expense
0.45

 
0.45

   Income taxes
(0.13
)
 
(0.13
)
Operating adjusted net income from continuing operations per share – diluted
$
1.24

 
$
1.34

 
 
 
 
Weighted average diluted shares
134

 
134





9
EX-99.2 3 exhibit992-q22019ersupplem.htm EXHIBIT 99.2 - Q2 2019 EARNINGS RELEASE SUPPLEMENT Exhibit

EXHIBIT 99.2






KAR Auction Services, Inc.    
Q2 2019 Supplemental Financial Information
August 6, 2019




KAR Auction Services, Inc.
EBITDA and Adjusted EBITDA Measures
EBITDA and Adjusted EBITDA as presented herein are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). They are not measurements of our financial performance under GAAP and should not be considered as substitutes for net income (loss) or any other performance measures derived in accordance with GAAP.
EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in our senior secured credit agreement covenant calculations. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.

The following tables reconcile EBITDA and Adjusted EBITDA to net income (loss) from continuing operations for the periods presented:
 
Three Months Ended June 30, 2019
(Dollars in millions), (Unaudited)
ADESA
 
AFC
 
Corporate
 
Consolidated
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
50.5

 
$
27.4

 
$
(50.5
)
 
$
27.4

Add back:
 
 
 
 
 
 
 
Income taxes
21.8

 
11.3

 
(24.4
)
 
8.7

Interest expense, net of interest income
0.6

 
16.1

 
38.3

 
55.0

Depreciation and amortization
38.0

 
2.6

 
7.3

 
47.9

Intercompany interest
4.0

 
(1.6
)
 
(2.4
)
 

EBITDA
114.9

 
55.8

 
(31.7
)
 
139.0

Intercompany charges
3.6

 

 
(3.6
)
 

Non-cash stock-based compensation
1.6

 
0.4

 
2.0

 
4.0

Acquisition related costs
1.2

 

 
2.5

 
3.7

Securitization interest

 
(13.8
)
 

 
(13.8
)
Severance
0.9

 

 
0.2

 
1.1

IAA allocated costs

 

 
0.9

 
0.9

Foreign currency gains/losses
(0.5
)
 

 
0.5

 

Other
0.9

 
0.1

 

 
1.0

  Total addbacks
7.7

 
(13.3
)
 
2.5

 
(3.1
)
Adjusted EBITDA
$
122.6

 
$
42.5

 
$
(29.2
)
 
$
135.9



2



 
Three Months Ended June 30, 2018
(Dollars in millions), (Unaudited)
ADESA
 
AFC
 
Corporate
 
Consolidated
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
60.0

 
$
27.7

 
$
(50.3
)
 
$
37.4

Add back:
 
 
 
 
 
 
 
Income taxes
23.5

 
9.3

 
(16.9
)
 
15.9

Interest expense, net of interest income
0.4

 
14.7

 
32.3

 
47.4

Depreciation and amortization
31.3

 
3.5

 
7.3

 
42.1

Intercompany interest
4.3

 
(0.7
)
 
(3.6
)
 

EBITDA
119.5

 
54.5

 
(31.2
)
 
142.8

Intercompany charges
3.3

 

 
(3.3
)
 

Non-cash stock-based compensation
2.3

 
0.6

 
1.5

 
4.4

Acquisition related costs
1.0

 

 
0.5

 
1.5

Securitization interest

 
(12.7
)
 

 
(12.7
)
Severance
0.9

 

 

 
0.9

IAA allocated costs

 

 
1.3

 
1.3

Other
0.8

 

 

 
0.8

  Total addbacks
8.3

 
(12.1
)
 

 
(3.8
)
Adjusted EBITDA
$
127.8

 
$
42.4

 
$
(31.2
)
 
$
139.0



 
Six Months Ended June 30, 2019
(Dollars in millions), (Unaudited)
ADESA
 
AFC
 
Corporate
 
Consolidated
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
92.9

 
$
57.9

 
$
(108.1
)
 
$
42.7

Add back:
 
 
 
 
 
 
 
Income taxes
37.7

 
22.1

 
(44.6
)
 
15.2

Interest expense, net of interest income
1.0

 
33.0

 
76.9

 
110.9

Depreciation and amortization
73.0

 
5.0

 
14.2

 
92.2

Intercompany interest
11.1

 
(2.8
)
 
(8.3
)
 

EBITDA
215.7

 
115.2

 
(69.9
)
 
261.0

Intercompany charges
6.8

 

 
(6.8
)
 

Non-cash stock-based compensation
4.0

 
0.9

 
5.7

 
10.6

Acquisition related costs
2.8

 

 
4.8

 
7.6

Securitization interest

 
(28.6
)
 

 
(28.6
)
Severance
3.6

 

 
1.2

 
4.8

IAA allocated costs

 

 
2.3

 
2.3

Foreign currency gains/losses
(1.1
)
 

 
0.5

 
(0.6
)
Other
1.6

 
0.1

 

 
1.7

  Total addbacks
17.7

 
(27.6
)
 
7.7

 
(2.2
)
Adjusted EBITDA
$
233.4

 
$
87.6

 
$
(62.2
)
 
$
258.8



3



 
Six Months Ended June 30, 2018
(Dollars in millions), (Unaudited)
ADESA
 
AFC
 
Corporate
 
Consolidated
 
 
 
 
 
 
 
 
Net income (loss) from continuing operations
$
114.2

 
$
53.4

 
$
(96.0
)
 
$
71.6

Add back:
 
 
 
 
 
 
 
Income taxes
39.0

 
17.7

 
(32.9
)
 
23.8

Interest expense, net of interest income
0.8

 
28.1

 
59.5

 
88.4

Depreciation and amortization
62.5

 
11.3

 
14.6

 
88.4

Intercompany interest
12.0

 
(1.2
)
 
(10.8
)
 

EBITDA
228.5

 
109.3

 
(65.6
)
 
272.2

Intercompany charges
7.7

 

 
(7.7
)
 

Non-cash stock-based compensation
4.4

 
1.1

 
4.6

 
10.1

Acquisition related costs
2.4

 

 
1.3

 
3.7

Securitization interest

 
(24.1
)
 

 
(24.1
)
Severance
2.4

 

 

 
2.4

IAA allocated costs

 

 
2.5

 
2.5

Other
1.5

 

 

 
1.5

  Total addbacks
18.4

 
(23.0
)
 
0.7

 
(3.9
)
Adjusted EBITDA
$
246.9

 
$
86.3

 
$
(64.9
)
 
$
268.3




Certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters. The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented:
 


Three Months Ended
 
Twelve Months Ended
(Dollars in millions),
(Unaudited)
September 30,
2018
 
December 31,
2018
 
March 31,
2019
 
June 30,
2019
 
June 30,
2019
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
77.5

 
$
67.3

 
$
77.8

 
$
55.6

 
$
278.2

Less: Income from discontinued operations
46.6

 
52.2

 
62.5

 
28.2

 
189.5

Income from continuing operations
30.9

 
15.1

 
15.3

 
27.4

 
88.7

Add back:
 
 
 
 
 
 
 
 
 
Income taxes
8.7

 
1.8

 
6.5

 
8.7

 
25.7

Interest expense, net of
     interest income
47.7

 
51.2

 
55.9

 
55.0

 
209.8

Depreciation and amortization
41.4

 
42.6

 
44.3

 
47.9

 
176.2

EBITDA
128.7

 
110.7

 
122.0

 
139.0

 
500.4

Non-cash stock-based
     compensation
5.8

 
4.6

 
6.6

 
4.0

 
21.0

Acquisition related costs
1.5

 
2.1

 
3.9

 
3.7

 
11.2

Securitization interest
(12.9
)
 
(14.5
)
 
(14.8
)
 
(13.8
)
 
(56.0
)
(Gain)/Loss on asset sales
0.3

 
0.4

 
0.5

 
0.4

 
1.6

Severance
1.4

 
1.8

 
3.7

 
1.1

 
8.0

IAA allocated costs
1.4

 
1.3

 
1.4

 
0.9

 
5.0

Foreign currency gains/losses

 
3.7

 
(0.6
)
 

 
3.1

Other
0.2

 
0.5

 
0.2

 
0.6

 
1.5

  Total addbacks
(2.3
)
 
(0.1
)
 
0.9

 
(3.1
)
 
(4.6
)
Adjusted EBITDA
$
126.4

 
$
110.6

 
$
122.9

 
$
135.9

 
$
495.8


4



Results of Operations

KAR Results
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions except per share amounts)
2019
 
2018
 
2019
 
2018
Revenues
 
 
 
 
 
 
 
ADESA
$
632.4

 
$
538.3

 
$
1,232.1

 
$
1,066.4

AFC
86.7

 
85.1

 
176.6

 
170.2

Total revenues
719.1

 
623.4

 
1,408.7

 
1,236.6

Cost of services*
417.4

 
330.2

 
811.3

 
658.5

Gross profit*
301.7

 
293.2

 
597.4

 
578.1

Selling, general and administrative
163.2

 
149.9

 
338.4

 
305.4

Depreciation and amortization
47.9

 
42.1

 
92.2

 
88.4

Operating profit
90.6

 
101.2

 
166.8

 
184.3

Interest expense
55.6

 
48.4

 
112.1

 
89.7

Other income, net
(1.1
)
 
(0.5
)
 
(3.2
)
 
(0.8
)
Income from continuing operations before income taxes
36.1

 
53.3

 
57.9

 
95.4

Income taxes
8.7

 
15.9

 
15.2

 
23.8

Net income from continuing operations
27.4

 
37.4

 
42.7

 
$
71.6

Income from discontinued operations
28.2

 
55.8

 
90.7

 
111.6

Net income
$
55.6

 
$
93.2

 
$
133.4

 
$
183.2

Net income from continuing operations per share
 
 
 
 
 
 
 
Basic
$
0.21

 
$
0.28

 
$
0.32

 
$
0.53

Diluted
$
0.20

 
$
0.28

 
$
0.32

 
$
0.53


* Exclusive of depreciation and amortization
Overview of KAR Results for the Three Months Ended June 30, 2019 and 2018
Overview
For the three months ended June 30, 2019, we had revenue of $719.1 million compared with revenue of $623.4 million for the three months ended June 30, 2018, an increase of 15%. Businesses acquired accounted for an increase in revenue of $51.2 million or 7% of revenue. Excluding revenue from purchased vehicles of $78.3 million and $27.2 million for the three months ended June 30, 2019 and 2018, respectively, revenue would have been $640.8 million and $596.2 million, respectively, an increase of 7%. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization increased $5.8 million, or 14%, to $47.9 million for the three months ended June 30, 2019, compared with $42.1 million for the three months ended June 30, 2018. The increase in depreciation and amortization was primarily the result of certain assets placed in service over the last twelve months and depreciation and amortization for the assets of businesses acquired in 2018 and 2019.
Interest Expense
Interest expense increased $7.2 million, or 15%, to $55.6 million for the three months ended June 30, 2019, compared with $48.4 million for the three months ended June 30, 2018. The increase was primarily attributable to interest expense associated with borrowings on the revolving credit facility and European lines of credit in 2019, as well as additional interest expense of approximately $1.8 million related to the acceleration of amortization on debt issuance costs. There was an increase of approximately $14.4 million in the average outstanding balance of corporate debt for the three months ended June 30, 2019 compared with the three months ended June 30, 2018,

5



as well as an increase in the weighted average interest rate for the same period of approximately 0.23%. In addition, there was an increase in interest expense at AFC of $1.4 million, which resulted from an increase in interest rates under the U.S. securitization agreement for the three months ended June 30, 2019, as compared with the three months ended June 30, 2018. The increases in interest expense were partially offset by $1.2 million received from the counterparties to the interest rate cap agreements.
Income Taxes
We had an effective tax rate of 24.1% for the three months ended June 30, 2019, compared with an effective tax rate of 29.8% for the three months ended June 30, 2018. The decrease in the effective tax rate was the result of the deferred tax impact of a state tax law change during the three months ended June 30, 2019.
Income from Discontinued Operations
On June 28, 2019, the Company completed the separation of its salvage auction business, IAA, through a spin-off, creating a new independent publicly traded salvage auction company. As such, the financial results of IAA have been accounted for as discontinued operations for all periods presented. For the three months ended June 30, 2019 and 2018, IAA had revenue of $366.4 million and $333.2 million, respectively, and income from discontinued operations of $28.2 million and $55.8 million, respectively. The operating results included one-time transaction costs of approximately $30.5 million for the three months ended June 30, 2019 in connection with the separation of the two companies. These costs consisted of consulting and professional fees associated with preparing for and executing the spin-off. For a further discussion, reference Note 3.
Impact of Foreign Currency
The strengthening of the U.S dollar has impacted the reporting of our Canadian operations in U.S. dollars. For the three months ended June 30, 2019, fluctuations in the Canadian exchange rate decreased revenue by $3.0 million, operating profit by $0.9 million, net income by $0.5 million and net income per diluted share by less than $0.01.
Overview of KAR Results for the Six Months Ended June 30, 2019 and 2018
Overview
For the six months ended June 30, 2019, we had revenue of $1,408.7 million compared with revenue of $1,236.6 million for the six months ended June 30, 2018, an increase of 14%. Businesses acquired accounted for an increase in revenue of $83.1 million or 6% of revenue. Excluding revenue from purchased vehicles of $135.5 million and $52.6 million for the six months ended June 30, 2019 and 2018, respectively, revenue would have been $1,273.2 million and $1,184.0 million, respectively, an increase of 8%. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization increased $3.8 million, or 4%, to $92.2 million for the six months ended June 30, 2019, compared with $88.4 million for the six months ended June 30, 2018. The increase in depreciation and amortization was primarily the result of certain assets placed in service over the last twelve months and depreciation and amortization for the assets of businesses acquired in 2018 and 2019.
Interest Expense
Interest expense increased $22.4 million, or 25%, to $112.1 million for the six months ended June 30, 2019, compared with $89.7 million for the six months ended June 30, 2018. The increase was primarily attributable to interest expense associated with borrowings on the revolving credit facility and European lines of credit in 2019, as well as additional interest expense of approximately $1.8 million related to the acceleration of amortization on debt issuance costs. There was an increase of approximately $67.7 million in the average outstanding balance of corporate debt for the six months ended June 30, 2019 compared with the six months ended June 30, 2018, as well as an increase in the weighted average interest rate for the same period of approximately 0.47%. In addition, there was an increase in interest expense at AFC of $5.1 million, which resulted from an increase in interest rates under the U.S. securitization agreement for the six months ended June 30, 2019, as compared with the six months ended June 30, 2018. The increases in interest expense were partially offset by $3.6 million received from the counterparties to the interest rate cap agreements.

6



Income Taxes
We had an effective tax rate of 26.3% for the six months ended June 30, 2019, compared with an effective tax rate of 24.9% for the six months ended June 30, 2018.
Income from Discontinued Operations
On June 28, 2019, the Company completed the separation of its salvage auction business, IAA, through a spin-off, creating a new independent publicly traded salvage auction company. As such, the financial results of IAA have been accounted for as discontinued operations for all periods presented. For the six months ended June 30, 2019 and 2018, IAA had revenue of $723.6 million and $670.5 million, respectively, and income from discontinued operations of $90.7 million and $111.6 million, respectively. The operating results included one-time transaction costs of approximately $31.3 million for the six months ended June 30, 2019 in connection with the separation of the two companies. These costs consisted of consulting and professional fees associated with preparing for and executing the spin-off. For a further discussion, reference Note 3.
Impact of Foreign Currency
The strengthening of the U.S dollar has impacted the reporting of our Canadian operations in U.S. dollars. For the six months ended June 30, 2019, fluctuations in the Canadian exchange rate decreased revenue by $6.8 million, operating profit by $1.6 million, net income by $0.8 million and net income per diluted share by less than $0.01.
ADESA Results
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(Dollars in millions, except per vehicle amounts)
2019
 
2018
 
2019
 
2018
ADESA revenue
$
632.4

 
$
538.3

 
$
1,232.1

 
$
1,066.4

Cost of services*
392.9

 
307.2

 
763.6

 
613.2

Gross profit*
239.5

 
231.1

 
468.5

 
453.2

Selling, general and administrative
121.9

 
108.3

 
248.5

 
217.1

Depreciation and amortization
38.0

 
31.3

 
73.0

 
62.5

Operating profit
$
79.6

 
$
91.5

 
$
147.0

 
$
173.6

 
 
 
 
 
 
 
 
Vehicles sold
994,000

 
907,000

 
1,940,000

 
1,785,000

   Physical auction vehicles sold in North America
553,000

 
550,000

 
1,109,000

 
1,107,000

   Online only vehicles sold in North America
416,000

 
346,000

 
783,000

 
655,000

   Vehicles sold in Europe
25,000

 
11,000

 
48,000

 
23,000

   Dealer consignment mix at physical auctions
41
%
 
43
%
 
39
%
 
42
%
   Conversion rate at North American physical auctions
66.1
%
 
62.4
%
 
64.9
%
 
62.5
%
Physical auction revenue per vehicle sold, excluding purchased vehicles
$
882

 
$
839

 
$
879

 
$
829

Online only revenue per vehicle sold, excluding purchased vehicles
$
150

 
$
118

 
$
148

 
$
117


* Exclusive of depreciation and amortization
Overview of ADESA Results for the Three Months Ended June 30, 2019 and 2018
Revenue
Revenue from ADESA increased $94.1 million, or 17%, to $632.4 million for the three months ended June 30, 2019, compared with $538.3 million for the three months ended June 30, 2018. The increase in revenue was a result of a 10% increase in the number of vehicles sold (8% increase excluding acquisitions) and an increase in average revenue per vehicle sold of 7%. Businesses acquired in the last 12 months accounted for an increase in revenue of $51.2 million.
The increase in vehicles sold was primarily attributable to a 13% increase in institutional volume, including vehicles sold on our online only platform, as well as a 3% increase in dealer consignment units sold for the three months

7



ended June 30, 2019 compared with the three months ended June 30, 2018. Online sales volume for ADESA represented approximately 59% of the total vehicles sold in the second quarter of 2019, compared with approximately 54% in the second quarter of 2018. "Online sales" includes the following: (i) selling vehicles directly from a dealership or other interim storage location (upstream selling); (ii) online solutions that offer vehicles for sale while in transit to auction locations (midstream selling); (iii) vehicles sold on the TradeRev platform; (iv) vehicle sales in Europe, including units sold by COTW; (v) simultaneously broadcasting video and audio of the physical auctions to online bidders (ADESA Simulcast); and (vi) bulletin-board or real-time online auctions (DealerBlock®). Upstream selling, midstream selling and TradeRev sales, which represent online only sales, accounted for approximately 75% of ADESA's North American online sales volume. ADESA sold approximately 416,000 (including approximately 41,000 from TradeRev) and 346,000 (including approximately 30,000 from TradeRev) vehicles through its North American online only offerings in the second quarter of 2019 and 2018, respectively. For the three months ended June 30, 2019, dealer consignment vehicles represented approximately 41% of used vehicles sold at ADESA physical auction locations, compared with approximately 43% for the three months ended June 30, 2018. The volume of vehicles sold at physical auction locations in the second quarter of 2019 was consistent with the second quarter of 2018. The used vehicle conversion percentage at North American physical auction locations, calculated as the number of vehicles sold as a percentage of the number of vehicles entered for sale at our ADESA auctions, increased to 66.1% for the three months ended June 30, 2019, compared with 62.4% for the three months ended June 30, 2018.
Physical auction revenue per vehicle sold increased $43, or 5%, to $882 for the three months ended June 30, 2019, compared with $839 for the three months ended June 30, 2018. Physical auction revenue per vehicle sold includes revenue from seller and buyer auction fees and ancillary and other related services, which includes non-auction services and excludes the sale of purchased vehicles. The increase in physical auction revenue per vehicle sold was primarily attributable to an increase in lower margin ancillary and other related services revenue and auction fees related to higher average transaction prices, partially offset by a decrease in physical auction revenue per vehicle sold of $4 due to fluctuations in the Canadian exchange rate.
Online only auction revenue per vehicle sold increased $97 to $232 for the three months ended June 30, 2019, compared with $135 for the three months ended June 30, 2018. The increase in online only auction revenue per vehicle sold was attributable to an increase in purchased vehicles associated with the ADESA Assurance Program and the inclusion of TradeRev and CarsOnTheWeb sales. Excluding vehicles purchased as part of the ADESA Assurance Program and vehicles purchased by CarsOnTheWeb, online only revenue per vehicle would have been $150 and $118 for the three months ended June 30, 2019 and 2018, respectively. The $32 increase in online only revenue per vehicle was attributable to increased revenue per vehicle for units sold on the TradeRev platform and the addition of CarsOnTheWeb.
Gross Profit
For the three months ended June 30, 2019, gross profit for ADESA increased $8.4 million, or 4%, to $239.5 million, compared with $231.1 million for the three months ended June 30, 2018. Gross profit for ADESA was 37.9% of revenue for the three months ended June 30, 2019, compared with 42.9% of revenue for the three months ended June 30, 2018. Gross profit as a percentage of revenue decreased for the three months ended June 30, 2019 as compared with the three months ended June 30, 2018 as a result of an increase in purchase vehicles primarily related to the acquisition of COTW and increased activity under ADESA Assurance, as well as an increase in lower margin related services. Excluding purchased vehicles, gross profit as a percentage of revenue was 43.2% and 45.2% for the three months ended June 30, 2019 and 2018, respectively. Businesses acquired in the last 12 months accounted for an increase in cost of services of $43.9 million for the three months ended June 30, 2019.
For the three months ended June 30, 2019, High Tech Locksmiths, a subsidiary of ADESA, incurred an inventory loss of approximately $5.4 million. The inventory loss represented a 0.9% decline in gross profit for the three months ended June 30, 2019. The Company is pursuing all avenues to recover the loss. Despite these efforts, we may not be successful in recovering all or a portion of this loss.
Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment increased $13.6 million, or 13%, to $121.9 million for the three months ended June 30, 2019, compared with $108.3 million for the three months ended June 30, 2018, primarily due to increases in costs associated with TradeRev aggregating $7.1 million, acquisitions of $6.1 million, information technology costs of $1.8 million, professional fees of $1.8 million and benefit related expense of $0.9 million, partially offset by decreases in compensation expense of $1.2 million, stock-based

8



compensation of $0.7 million, fluctuations in the Canadian exchange rate of $0.7 million and other miscellaneous expenses aggregating $1.5 million.
Overview of ADESA Results for the Six Months Ended June 30, 2019 and 2018
Revenue
Revenue from ADESA increased $165.7 million, or 16%, to $1,232.1 million for the six months ended June 30, 2019, compared with $1,066.4 million for the six months ended June 30, 2018. The increase in revenue was a result of a 9% increase in the number of vehicles sold (7% increase excluding acquisitions) and an increase in average revenue per vehicle sold of 6%. Businesses acquired in the last 12 months accounted for an increase in revenue of $83.1 million.
The increase in vehicles sold was primarily attributable to a 12% increase in institutional volume, including vehicles sold on our online only platform, for the six months ended June 30, 2019 compared with the six months ended June 30, 2018. Online sales volume for ADESA represented approximately 58% of the total vehicles sold in the first six months of 2019, compared with approximately 53% in the first six months of 2018. "Online sales" includes the following: (i) selling vehicles directly from a dealership or other interim storage location (upstream selling); (ii) online solutions that offer vehicles for sale while in transit to auction locations (midstream selling); (iii) vehicles sold on the TradeRev platform; (iv) vehicle sales in Europe, including units sold by COTW; (v) simultaneously broadcasting video and audio of the physical auctions to online bidders (ADESA Simulcast); and (vi) bulletin-board or real-time online auctions (DealerBlock®). Upstream selling, midstream selling and TradeRev sales, which represent online only sales, accounted for approximately 73% of ADESA's North American online sales volume. ADESA sold approximately 783,000 (including approximately 72,000 from TradeRev) and 655,000 (including approximately 52,000 from TradeRev) vehicles through its North American online only offerings in the first six months of 2019 and 2018, respectively. For the six months ended June 30, 2019, dealer consignment vehicles represented approximately 39% of used vehicles sold at ADESA physical auction locations, compared with approximately 42% for the six months ended June 30, 2018. The volume of vehicles sold at physical auction locations in the first six months of 2019 was consistent with the first six months of 2018. The used vehicle conversion percentage at North American physical auction locations, calculated as the number of vehicles sold as a percentage of the number of vehicles entered for sale at our ADESA auctions, increased to 64.9% for the six months ended June 30, 2019, compared with 62.5% for the six months ended June 30, 2018.
Physical auction revenue per vehicle sold increased $50, or 6%, to $879 for the six months ended June 30, 2019, compared with $829 for the six months ended June 30, 2018. Physical auction revenue per vehicle sold includes revenue from seller and buyer auction fees and ancillary and other related services, which includes non-auction services and excludes the sale of purchased vehicles. The increase in physical auction revenue per vehicle sold was primarily attributable to an increase in lower margin ancillary and other related services revenue and auction fees related to higher average transaction prices, partially offset by a decrease in physical auction revenue per vehicle sold of $5 due to fluctuations in the Canadian exchange rate.
Online only auction revenue per vehicle sold increased $87 to $220 for the six months ended June 30, 2019, compared with $133 for the six months ended June 30, 2018. The increase in online only auction revenue per vehicle sold was attributable to an increase in purchased vehicles associated with the ADESA Assurance Program and the inclusion of TradeRev and CarsOnTheWeb sales. Excluding vehicles purchased as part of the ADESA Assurance Program and vehicles purchased by CarsOnTheWeb, online only revenue per vehicle would have been $148 and $117 for the six months ended June 30, 2019 and 2018, respectively. The $31 increase in online only revenue per vehicle was attributable to increased revenue per vehicle for units sold on the TradeRev platform and the addition of CarsOnTheWeb.
Gross Profit
For the six months ended June 30, 2019, gross profit for ADESA increased $15.3 million, or 3%, to $468.5 million, compared with $453.2 million for the six months ended June 30, 2018. Gross profit for ADESA was 38.0% of revenue for the six months ended June 30, 2019, compared with 42.5% of revenue for the six months ended June 30, 2018. Gross profit as a percentage of revenue decreased for the six months ended June 30, 2019 as compared with the six months ended June 30, 2018 as a result of an increase in purchase vehicles primarily related to the acquisition of COTW and increased activity under ADESA Assurance, as well as an increase in lower margin related services. Excluding purchased vehicles, gross profit as a percentage of revenue was 42.7% and 44.7% for

9



the six months ended June 30, 2019 and 2018, respectively. Businesses acquired in the last 12 months accounted for an increase in cost of services of $70.8 million for the six months ended June 30, 2019.
For the six months ended June 30, 2019, High Tech Locksmiths, a subsidiary of ADESA, incurred an inventory loss of approximately $5.4 million. The inventory loss represented a 0.4% decline in gross profit for the six months ended June 30, 2019. The Company is pursuing all avenues to recover the loss. Despite these efforts, we may not be successful in recovering all or a portion of this loss.
Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment increased $31.4 million, or 14%, to $248.5 million for the six months ended June 30, 2019, compared with $217.1 million for the six months ended June 30, 2018, primarily due to increases in costs associated with TradeRev aggregating $15.1 million, acquisitions of $10.7 million, information technology costs of $3.3 million, professional fees of $1.9 million, compensation expense of $1.5 million, incentive-based compensation $2.0 million, benefit related expense of $1.5 million and telecom costs of $0.8 million, partially offset by fluctuations in the Canadian exchange rate of $1.8 million and decreases in travel expenses of $1.0 million, supplies expense of $0.8 million and other miscellaneous expenses aggregating $1.8 million.
AFC Results
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
(Dollars in millions except volumes and per loan amounts)
2019
 
2018
 
2019
 
2018
AFC revenue
$
86.7

 
$
85.1

 
$
176.6

 
$
170.2

Cost of services*
24.5

 
23.0

 
47.7

 
45.3

Gross profit*
62.2

 
62.1

 
128.9

 
124.9

Selling, general and administrative
6.4

 
7.5

 
13.6

 
15.5

Depreciation and amortization
2.6

 
3.5

 
5.0

 
11.3

Operating profit
$
53.2

 
$
51.1

 
$
110.3

 
$
98.1

 
 
 
 
 
 
 
 
Loan transactions
437,000

 
435,000

 
898,000

 
899,000

Revenue per loan transaction, excluding “Warranty contract revenue”
$
178

 
$
177

 
$
177

 
$
171

* Exclusive of depreciation and amortization
Overview of AFC Results for the Three Months Ended June 30, 2019 and 2018
Revenue
For the three months ended June 30, 2019, AFC revenue increased $1.6 million, or 2%, to $86.7 million, compared with $85.1 million for the three months ended June 30, 2018. The increase in revenue was primarily the result of a 1% increase in revenue per loan transaction.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $1, or 1%, primarily as a result of an increase in interest yield and fee revenue as a result of prime rate increases and an increase in average loan values, partially offset by an increase in provision for credit losses and a decrease in floorplan fee income per unit for the three months ended June 30, 2019. Revenue per loan transaction excludes "Warranty contract revenue."
The provision for credit losses increased to 1.7% of the average managed receivables for the three months ended June 30, 2019 from 1.5% for the three months ended June 30, 2018. The provision for credit losses is expected to be under 2%, annually, of the average managed receivables balance. However, the actual losses in any particular quarter could deviate from this range.

10



Gross Profit
For the three months ended June 30, 2019, gross profit for the AFC segment increased $0.1 million to $62.2 million, or 71.7% of revenue, compared with $62.1 million, or 73.0% of revenue, for the three months ended June 30, 2018. The decrease in gross profit as a percent of revenue was primarily the result of a 7% increase in cost of services. The increase in cost of services was primarily the result of increases in PWI expenses of $0.9 million, compensation expense of $0.8 million and other miscellaneous expenses aggregating $0.8 million, partially offset by a decrease in lot checks of $0.7 million and incentive-based compensation of $0.3 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC decreased $1.1 million, or 15%, to $6.4 million for the three months ended June 30, 2019, compared with $7.5 million for the three months ended June 30, 2018, primarily as a result of decreases in travel expenses of $0.5 million, incentive-based compensation of $0.4 million and other miscellaneous expenses aggregating $0.2 million.
Overview of AFC Results for the Six Months Ended June 30, 2019 and 2018
Revenue
For the six months ended June 30, 2019, AFC revenue increased $6.4 million, or 4%, to $176.6 million, compared with $170.2 million for the six months ended June 30, 2018. The increase in revenue was primarily the result of a 4% increase in revenue per loan transaction.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $6, or 4%, primarily as a result of an increase in interest yield and fee revenue as a result of prime rate increases and an increase in average loan values, partially offset by an increase in provision for credit losses and a decrease in floorplan fee income per unit for the six months ended June 30, 2019. Revenue per loan transaction excludes "Warranty contract revenue."
The provision for credit losses increased to 1.6% of the average managed receivables for the six months ended June 30, 2019 from 1.5% for the six months ended June 30, 2018. The provision for credit losses is expected to be under 2%, annually, of the average managed receivables balance. However, the actual losses in any particular quarter could deviate from this range.
Gross Profit
For the six months ended June 30, 2019, gross profit for the AFC segment increased $4.0 million, or 3%, to $128.9 million, or 73.0% of revenue, compared with $124.9 million, or 73.4% of revenue, for the six months ended June 30, 2018. The decrease in gross profit as a percent of revenue was primarily the result of a 5% increase in cost of services. The increase in cost of services was the result of increases in PWI expenses of $1.5 million, compensation expense of $1.0 million, travel expenses of $0.8 million and other miscellaneous expenses aggregating $0.5 million, partially offset by decreases in lot checks of $1.0 million and incentive-based compensation of $0.4 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC decreased $1.9 million, or 12%, to $13.6 million for the six months ended June 30, 2019, compared with $15.5 million for the six months ended June 30, 2018, primarily as a result of decreases in incentive-based compensation of $0.7 million, travel expenses of $0.7 million and compensation expense of $0.5 million.

11



Holding Company Results
 
Three Months Ended June 30,
 
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
 
2019
 
2018
Selling, general and administrative
$
34.9

 
$
34.1

 
$
76.3

 
$
72.8

Depreciation and amortization
7.3

 
7.3

 
14.2

 
14.6

Operating loss
$
(42.2
)
 
$
(41.4
)
 
$
(90.5
)
 
$
(87.4
)
Overview of Holding Company Results for the Three Months Ended June 30, 2019 and 2018
Selling, General and Administrative
For the three months ended June 30, 2019, selling, general and administrative expenses at the holding company increased $0.8 million, or 2%, to $34.9 million, compared with $34.1 million for the three months ended June 30, 2018, primarily as a result of increases in medical expenses of $1.8 million, information technology costs of $1.5 million, professional fees of $0.7 million, telecom costs of $0.7 million and stock-based compensation expense of $0.5 million, partially offset by decreases in incentive-based compensation of $2.0 million, compensation expense of $1.7 million and other miscellaneous expenses aggregating $0.7 million.
Overview of Holding Company Results for the Six Months Ended June 30, 2019 and 2018
Selling, General and Administrative
For the six months ended June 30, 2019, selling, general and administrative expenses at the holding company increased $3.5 million, or 5%, to $76.3 million, compared with $72.8 million for the six months ended June 30, 2018, primarily as a result of increases in information technology costs of $2.5 million, medical expenses of $1.3 million, professional fees of $1.3 million, stock-based compensation expense of $1.2 million and telecom costs of $1.0 million, partially offset by decreases in incentive-based compensation of $1.4 million, compensation expense of $0.5 million and other miscellaneous expenses aggregating $1.9 million.
LIQUIDITY AND CAPITAL RESOURCES
The company believes that the significant indicators of liquidity for its business are cash on hand, cash flow from operations, working capital and amounts available under its Credit Facility. The company's principal sources of liquidity consist of cash generated by operations and borrowings under its revolving credit facility.
(Dollars in millions)
June 30,
2019
 
December 31,
2018
 
June 30,
2018
Cash and cash equivalents
$
233.0

 
$
277.1

 
$
322.4

Restricted cash
23.7

 
27.6

 
20.7

Working capital
380.5

 
450.3

 
562.4

Amounts available under Credit Facility*
278.0

 
350.0

 
350.0

Cash flow from operations for the six months ended
161.7

 
 
 
205.7

* KAR Auction Services, Inc. has a $350 million revolving line of credit as part of the company's Credit Agreement. There were related outstanding letters of credit totaling approximately $32.5 million, $32.9 million and $32.4 million at June 30, 2019, December 31, 2018 and June 30, 2018, respectively, which reduced the amount available for borrowings under the revolving credit facility.
We regularly evaluate alternatives for our capital structure and liquidity given our expected cash flows, growth and
operating capital requirements as well as capital market conditions.


12



Summary of Cash Flows
 
Six Months Ended June 30,
(Dollars in millions)
2019
 
2018
Net cash provided by (used by):
 
 
 
Operating activities - continuing operations
$
161.7

 
$
205.7

Operating activities - discontinued operations
155.8

 
166.7

Investing activities - continuing operations
(268.9
)
 
(137.7
)
Investing activities - discontinued operations
(37.4
)
 
(27.8
)
Financing activities - continuing operations
(1,387.6
)
 
(150.2
)
Financing activities - discontinued operations
1,317.6

 
(7.3
)
Effect of exchange rate on cash
10.8

 
(9.8
)
Net (decrease) increase in cash, cash equivalents and restricted cash
$
(48.0
)
 
$
39.6

Cash flow from operating activities (continuing operations) was $161.7 million for the six months ended June 30, 2019, compared with $205.7 million for the six months ended June 30, 2018. The decrease in operating cash flow was primarily attributable to changes in operating assets and liabilities as a result of the timing of collections and the disbursement of funds to consignors for auctions held near period-ends, as well as decreased profitability, partially offset by a net increase in non-cash item adjustments.
Net cash used by investing activities (continuing operations) was $268.9 million for the six months ended June 30, 2019, compared with $137.7 million for the six months ended June 30, 2018. The increase in net cash used by investing activities was primarily attributable to:
an increase in cash used for acquisitions of approximately $97.4 million; and
an increase in cash used for capital expenditures of approximately $27.0 million; and
a net increase in finance receivables held for investment of approximately $6.8 million.
Net cash used by financing activities (continuing operations) was $1,387.6 million for the six months ended June 30, 2019, compared with $150.2 million for the six months ended June 30, 2018. The increase in net cash used by financing activities was primarily attributable to:
an increase in payments on debt. The Company used net cash provided by financing activities from discontinued operations (cash received from IAA in the separation) to prepay approximately $1.3 billion of its term loan debt;
an increase in dividend payments of approximately $45.6 million; and
a net decrease in the obligations collateralized by finance receivables of approximately $32.0 million;
partially offset by:
a $93.5 million increase in borrowings from lines of credit;
no common stock repurchases in 2019 compared with common stock repurchases of approximately $50.0 million in the first six months of 2018; and
a larger net increase in book overdrafts in 2019 compared with 2018, resulting in an increase of approximately $30.9 million.

13



Potential Share Repurchases

The company expects to repurchase some of its shares in the third quarter of 2019, under its current share repurchase program. Repurchases may be made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations. The timing and amount of any repurchases is subject to market and other conditions.

Non-GAAP Financial Measures

The company provides the following non-GAAP measures on a forward-looking basis: Adjusted EBITDA and operating adjusted net income from continuing operations per share. Management believes that these measures provide investors additional meaningful methods to evaluate certain aspects of the company’s results period over period and for the other reasons set forth previously.

Earnings guidance also does not contemplate future items such as business development activities, strategic developments (such as restructurings, spin-offs or dispositions of assets or investments), gains/losses associated with step acquisitions, contingent purchase price adjustments, significant expenses related to litigation and changes in applicable laws and regulations (including significant accounting and tax matters). The timing and amounts of these items are highly variable, difficult to predict, and of a potential size that could have a substantial impact on the company’s reported results for any given period. Prospective quantification of these items is generally not practicable. Forward-looking non-GAAP guidance excludes amortization expenses associated with acquired intangible assets, as well as one-time charges, net of taxes.

14
EX-99.3 4 earningsslidedeckq22019f.htm EXHIBIT 99.3 - Q2 2019 EARNINGS SLIDES earningsslidedeckq22019f
Second Quarter 2019 Earnings Slides August 6, 2019


 
Forward-Looking Statements This presentation includes forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected, expressed or implied by such forward-looking statements. Many of these risk factors are outside of the company’s control, and as such, they involve risks which are not currently known to the company that could cause actual results to differ materially from forecasted results. Factors that could cause or contribute to such differences include those matters disclosed in the company’s Securities and Exchange Commission filings. The forward-looking statements in this document are made as of the date hereof and the company does not undertake to update its forward-looking statements. 2


 
Q2 2019 Highlights Revenues Highlights Fundamentals $623.4 $719.1 86.7 • Revenue growth +15% (7% excluding 85.1 purchased vehicles) 632.4 • Operating Adjusted EPS -17% KAR 538.3 • Adjusted EBITDA -2% 2018 2019 • Revenue +17% • Off-lease supply driving volume growth • Total volume growth +10% • Revenue per unit growth largely due to ancillary services growth AFC • Physical auction RPU +$43 12% • Adjusted EBITDA decline due to ADESA • Adjusted EBITDA -4% continued TradeRev rollout. TradeRev volumes increased ~37% Q2 2019 ADESA (41,000) vs Q2 2018 (30,000) 88% AFC • Revenue +2% • Conservative portfolio management 12% • Revenue per LTU remained constant +$1 • Increasing gross revenue per loan transaction due to higher average loan • Provision for credit losses as a percent of balances AFC managed receivables 1.7% ADESA • Adjusted EBITDA remained constant 88% 3


 
2019 Outlook ANNUAL GUIDANCE (in millions, except per share amounts) 2019 Low 2019 High Net income from continuing operations $123.0 $137.0 Add back: Income tax expense $50.0 $56.0 Interest expense, net of interest income $192.0 $192.0 Depreciation and amortization $190.0 $190.0 EBITDA $555.0 $575.0 Total Adjusted EBITDA addbacks, net ($25.0) ($25.0) Adjusted EBITDA $530.0 $550.0 Effective tax rate 29% 29% Net income from continuing operations per share – diluted $0.92 $1.02 Capital expenditures $154.0 $154.0 Cash taxes $60.0 $60.0 Cash interest on corporate debt $110.0 $110.0 Operating adjusted net income from continuing $1.24 $1.34 operations per share - diluted Weighted average diluted shares 134 134 4


 
June 30, 2019 Leverage (US$ in millions) Balance Maturity Term Loan B-4 (Adjusted LIBOR + 2.25%) $185 2021 Term Loan B-5 (Adjusted LIBOR + 2.50%) 271 2023 Revolving Credit Facility (Adjusted LIBOR + 2.00%) & Lines of Credit 93 2021 Senior Notes (Fixed 5.125%) 950 2025 Capital Leases 25 Total 1,524 Less: Available Cash (113) Net Debt $1,411 Net Debt / Adjusted EBITDA (Target 3x) 2.8 Corporate Credit Ratings: S&P BB-, Moodys B1 LIBOR Interest Rate Caps $800M notional amt Expire 9/30/19 2.00% LIBOR cap 5


 
Second Quarter Results 6


 
KAR Q2 2019 Highlights ($ in millions, except per share amounts) Q2 Q2 KAR Highlights* 2019 2018 Total operating revenues $719.1 $623.4 $51.2M acquisitions Gross profit** $301.7 $293.2 % of revenue 42.0% 47.0% SG&A $163.2 $149.9 TradeRev +$7.1M, $6.1M acquired SG&A EBITDA $139.0 $142.8 Adjusted EBITDA $135.9 $138.8 Net income from continuing operations $27.4 $37.4 Interest expense increased $7.2M Net income from continuing operations per $0.20 $0.28 share – diluted Operating adjusted net income from continuing $0.30 $0.36 operations per share – diluted Weighted average diluted shares 134.1 135.6 Dividends declared per common share $0.35 $0.35 Effective tax rate 24.1% 29.8% * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three months ended June 30, 2019. ** Exclusive of depreciation and amortization 7


 
ADESA Q2 2019 Highlights ($ in millions, except RPU) Q2 Q2 ADESA Highlights* 2019 2018 $51.2M acquisitions; includes an increase of $51.1M Revenue $632.4 $538.3 from purchased vehicles Gross profit** $239.5 $231.1 Increased purchased vehicles from COTW and ADESA % of revenue 37.9% 42.9% Assurance reduced margins ~3% SG&A $121.9 $108.3 TradeRev +$7.1M, $6.1M of acquired SG&A EBITDA $114.9 $119.5 Adjusted EBITDA $122.6 $127.8 % of revenue 19.4% 23.7% Vehicles sold 994,000 907,000 13% increase in institutional volume Physical vehicles sold in North America 553,000 550,000 20% growth (Includes TradeRev volume of 41,000 in Q2 Online only volume in North America 416,000 346,000 2019 and 30,000 in Q2 2018) Vehicles sold in Europe 25,000 11,000 Continued off-lease increase displaced dealer Dealer consignment mix % (physical only) 41% 43% consignment Total online volume % 59% 54% Includes physical auction sales to online buyers Physical RPU $882 $839 Excludes purchased vehicles Online only RPU $150 $118 Excludes purchased vehicles * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three months ended June 30, 2019. 8 ** Exclusive of depreciation and amortization


 
AFC Q2 2019 Highlights ($ in millions, except for revenue per loan transaction) Q2 Q2 Highlights* AFC 2019 2018 Interest and fee income $83.7 $80.5 Other revenue $2.6 $3.3 Provision for credit losses ($8.4) ($7.1) Warranty contract revenue $8.8 $8.4 PWI revenue Total AFC revenue $86.7 $85.1 +1% revenue per LTU Gross profit** $62.2 $62.1 % of revenue 71.7% 73.0% Decrease in travel expenses and incentive-based SG&A $6.4 $7.5 compensation EBITDA $55.8 $54.5 Adjusted EBITDA $42.5 $42.4 Loan transactions 437,000 435,000 Revenue per loan transaction*** $178 $177 Provision for credit losses % of finance receivables 1.7% 1.5% Managed receivables $2,070.1 $1,958.6 Increasing vehicle values $1,422.3 $1,358.0 Obligations collateralized by finance receivables * For a more complete explanation of these changes, see the MD&A in the company’s supplemental financial information and Form 10-Q, both for the three months ended June 30, 2019. ** Exclusive of depreciation and amortization 9 *** Excludes “Warranty contract revenue"


 
Y e a r - to- Date Results 10


 
KAR Six Months Ended June 30, 2019 Highlights ($ in millions, except per share amounts) YTD YTD KAR Highlights* 2019 2018 Total operating revenues $1,408.7 $1,236.6 $83.1M acquisitions Gross profit** $597.4 $578.1 % of revenue 42.4% 46.7% SG&A $338.4 $305.4 TradeRev +$15.1M, $10.7M acquired SG&A EBITDA $261.0 $272.2 Adjusted EBITDA $258.8 $268.3 Net income from continuing operations $42.7 $71.6 Interest expense increased $22.4M Net income from continuing operations per $0.32 $0.53 share – diluted Operating adjusted net income from continuing $0.50 $0.74 operations per share – diluted Weighted average diluted shares 133.9 135.8 Dividends declared per common share $0.70 $0.70 Effective tax rate 26.3% 24.9% Capital expenditures $78.4 $51.4 * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the six months ended June 30, 2019. ** Exclusive of depreciation and amortization 11


 
ADESA Six Months Ended June 30, 2019 Highlights ($ in millions, except RPU) ADESA YTD 2019 YTD 2018 Highlights* $83.1M acquisitions; includes an increase of $82.9M Revenue $1,232.1 $1,066.4 from purchased vehicles Gross profit** $468.5 $453.2 Increased purchased vehicles from COTW and % of revenue 38.0% 42.5% ADESA Assurance reduced margins ~3% SG&A $248.5 $217.1 TradeRev +$15.1M, $10.7M of acquired SG&A EBITDA $215.7 $228.5 Adjusted EBITDA $233.4 $246.9 % of revenue 18.9% 23.2% Vehicles sold 1,940,000 1,785,000 12% increase in institutional volume Physical vehicles sold in North America 1,109,000 1,107,000 20% growth (Includes TradeRev volume of 72,000 in Online only volume in North America 783,000 655,000 YTD 2019 and 52,000 in YTD 2018) Vehicles sold in Europe 48,000 23,000 Continued off-lease increase displaced dealer Dealer consignment mix % (physical only) 39% 42% consignment Total online volume % 58% 53% Includes physical auction sales to online buyers Physical RPU $879 $829 Excludes purchased vehicles Online only RPU $148 $117 Excludes purchased vehicles * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the six months ended June 30, 2019. 12 ** Exclusive of depreciation and amortization


 
AFC Six Months Ended June 30, 2019 Highlights ($ in millions, except for revenue per loan transaction) YTD YTD Highlights* AFC 2019 2018 Interest and fee income $170.6 $162.4 Other revenue $5.4 $6.2 Provision for credit losses ($16.6) ($14.8) Warranty contract revenue $17.2 $16.4 PWI revenue Total AFC revenue $176.6 $170.2 +4% revenue per LTU Gross profit** $128.9 $124.9 % of revenue 73.0% 73.4% Decreases in incentive-based compensation, travel SG&A $13.6 $15.5 expenses and compensation expense EBITDA $115.2 $109.3 Adjusted EBITDA $87.6 $86.3 2% increase Loan transactions 898,000 899,000 Revenue per loan transaction*** $177 $171 Provision for credit losses % of finance receivables 1.6% 1.5% Managed receivables $2,070.1 $1,958.6 Increasing vehicle values $1,422.3 $1,358.0 Obligations collateralized by finance receivables * For a more complete explanation of these changes, see the MD&A in the company’s supplemental financial information and Form 10-Q, both for the six months ended June 30, 2019. ** Exclusive of depreciation and amortization 13 *** Excludes “Warranty contract revenue"


 
HISTORICAL DATA 14


 
ADESA Metrics - Annual 2018 2017 2016 2015 2014 Revenue2 $2,101.9 $1,937.5 $1,765.3 $1,427.8 $1,271.0 Total Volume 3,472 3,180 2,885 2,465 2,198 Online Only Volume 1,304 938 743 592 495 Total Online Volume %3 54% 46% 42% 40% 38% Physical Conversion % (N.A.) 61.6% 60.4% 58.0% 58.3% 58.2% Dealer Consignment Mix % (Physical) 42% 45% 48% 50% 51% Physical RPU1 $844 $775 $753 $701 $685 Online Only RPU1 $121 $113 $110 $102 $104 Gross Margin2 41.4% 42.0% 41.3% 41.4% 41.3% 1 Excluding acquired vehicles 2 Includes purchased vehicles 3 Includes ADESA Simulcast and DealerBlock volume 15


 
ADESA Metrics - Quarter 2Q19 1Q19 4Q18 3Q18 2Q18 1Q18 4Q17 3Q17 2Q17 Revenue2 632.4 $599.7 $508.5 $527.0 $538.3 $528.1 $473.2 $477.1 $489.2 Total Volume 994 945 811 876 907 878 744 788 830 Online Only Volume 416 367 306 343 346 309 237 241 245 Total Online Volume %3 59% 57% 54% 54% 54% 52% 49% 46% 46% Physical Conversion % 66.1% 63.8% 58.5% 62.9% 62.4% 62.6% 57.3% 61.3% 61.1% (N.A.) Dealer Consignment Mix 41% 38% 40% 44% 43% 41% 44% 47% 46% % (Physical) Physical RPU1 $882 $875 $868 $850 $839 $820 $822 $781 $748 Online Only RPU1 $150 $144 $122 $126 $118 $117 $122 $112 $105 Gross Margin2 37.9% 38.2% 39.1% 41.6% 42.9% 42.1% 40.5% 42.9% 43.0% 1 Excluding acquired vehicles 2 Includes purchased vehicles 3 Includes ADESA Simulcast and DealerBlock volume 16


 
AFC Metrics - Annual 2018 2017 2016 2015 2014 Revenue $340.9 $301.3 $286.8 $268.4 $250.1 Loan Transaction Units (LTU) 1,760 1,688 1,718 1,607 1,445 Revenue per Loan Transaction, Excluding “Warranty Contract $175 $159 $148 $150 $155 Revenue” Ending Managed Finance Receivables $2,014.8 $1,912.6 $1,792.2 $1,641.0 $1,371.1 Ending Obligations Collateralized by $1,445.3 $1,358.1 $1,280.3 $1,189.0 $859.3 Finance Receivables % Vehicles Purchased at Auction 83% 85% 83% 84% 84% Active Dealers 12,300 12,400 12,200 11,300 10,100 Vehicles per active dealer 15 15 15 16 16 Average Credit Line $270,000 $250,000 $260,000 $230,000 $219,000 Avg Value Outstanding per Vehicle $10,200 $9,900 $9,500 $9,100 $8,630 17


 
AFC Metrics - Quarter 2Q19 1Q19 4Q18 3Q18 2Q18 1Q18 4Q17 3Q17 2Q17 Revenue $86.7 $89.9 $85.3 $85.4 $85.1 $85.1 $81.8 $78.2 $70.1 Loan Transaction Units 437 461 428 433 435 464 414 402 416 (LTU) Revenue per Loan Transaction, Excluding $178 $177 $180 $177 $177 $166 $178 $174 $148 “Warranty Contract Revenue” Ending Managed Finance $2,070.1 $1,989.1 $2,014.8 $1,979.7 $1,958.6 $1,933.2 $1,912.6 $1,809.2 $1,736.5 Receivables Ending Obligations Collateralized by Finance $1,422.3 $1,360.6 $1,445.3 $1,366.3 $1,358.0 $1,354.2 $1,358.1 $1,259.3 $1,224.9 Receivables 18


 
AFC Provision for Credit Losses - Annual 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Ending Managed $2,014.8 $1,912.6 $1,792.2 $1,641.0 $1,371.1 $1,107.6 $1,004.2 $883.2 $771.6 $613.0 $506.6 $847.9 Receivables Average Managed $1,959.8 $1,802.2 $1,732.5 $1,474.9 $1,208.4 $1,051.4 $925.8 $798.8 $688.6 $516.4 $744.4 $835.3 Receivables Provision for Credit $32.9 $33.9 $30.7 $16.0 $12.3 $9.6 $7.2 $6.1 $11.2 $17.1 $44.7 $25.0 Losses % of Managed 1.7% 1.9% 1.8% 1.1% 1.0% 0.9% 0.8% 0.8% 1.6% 3.3% 6.0% 3.0% Receivables 19


 
AFC Provision for Credit Losses - Quarterly 2Q19 1Q19 4Q18 3Q18 2Q18 1Q18 4Q17 3Q17 2Q17 Ending Managed $2,070.1 $1,989.1 $2,014.8 $1,979.7 $1,958.6 $1,933.2 $1,912.6 $1,809.2 $1,736.5 Receivables Average Managed $2,029.6 $2,002.0 $1,997.3 $1,969.2 $1,945.9 $1,922.9 $1,860.9 $1,772.9 $1,748.6 Receivables Provision for $8.4 $8.2 $10.8 $7.3 $7.1 $7.7 $6.4 $5.0 $11.4 Credit Losses % of Managed 1.7% 1.6% 2.2% 1.5% 1.5% 1.6% 1.4% 1.1% 2.6% Receivables 20


 
APPENDIX 21


 
Non-GAAP Financial Measures EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in the company's senior secured credit agreement covenant calculations. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by the company’s creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate the company’s performance. Depreciation expense for property and equipment and amortization expense of capitalized internally developed software costs relate to ongoing capital expenditures; however, amortization expense associated with acquired intangible assets, such as customer relationships, software, tradenames and non-compete agreements are not representative of ongoing capital expenditures, but have a continuing effect on our reported results. Non-GAAP financial measures of operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share, in the opinion of the company, provide comparability to other companies that may not have incurred these types of non-cash expenses or that report a similar measure. In addition, net income and net income per share have been adjusted for certain other charges, as seen in the following reconciliation. EBITDA, Adjusted EBITDA, operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies. 22


 
Q2 2019 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended June 30, 2019 ADESA AFC Corporate Consolidated Net income (loss) from continuing $50.5 $27.4 ($50.5) $27.4 operations Add back: Income taxes 21.8 11.3 (24.4) 8.7 Interest expense, net of interest income 0.6 16.1 38.3 55.0 Depreciation and amortization 38.0 2.6 7.3 47.9 Intercompany interest 4.0 (1.6) (2.4) - EBITDA $114.9 $55.8 ($31.7) $139.0 Intercompany charges 3.6 - (3.6) - Non-cash stock-based compensation 1.6 0.4 2.0 4.0 Acquisition related costs 1.2 - 2.5 3.7 Securitization interest - (13.8) - (13.8) Severance 0.9 - 0.2 1.1 IAA allocated costs - - 0.9 0.9 Foreign currency gains/losses (0.5) - 0.5 - Other 0.9 0.1 - 1.0 Total Addbacks 7.7 (13.3) 2.5 (3.1) Adjusted EBITDA $122.6 $42.5 ($29.2) $135.9 Revenue $632.4 $86.7 – $719.1 Adjusted EBITDA % margin 19.4% 49.0% 18.9% 23


 
Q2 2018 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended June 30, 2018 ADESA AFC Corporate Consolidated Net income (loss) from continuing $60.0 $27.7 ($50.3) $37.4 operations Add back: Income taxes 23.5 9.3 (16.9) 15.9 Interest expense, net of interest income 0.4 14.7 32.3 47.4 Depreciation and amortization 31.3 3.5 7.3 42.1 Intercompany interest 4.3 (0.7) (3.6) - EBITDA $119.5 $54.5 ($31.2) $142.8 Intercompany charges 3.3 - (3.3) - Non-cash stock-based compensation 2.3 0.6 1.5 4.4 Acquisition related costs 1.0 - 0.5 1.5 Securitization interest - (12.7) - (12.7) Severance 0.9 - - 0.9 IAA allocated costs - - 1.3 1.3 Other 0.8 - - 0.8 Total Addbacks 8.3 (12.1) - (3.8) Adjusted EBITDA $127.8 $42.4 ($31.2) $139.0 Revenue $538.3 $85.1 – $623.4 Adjusted EBITDA % margin 23.7% 49.8% 22.3% 24


 
YTD 2019 Adjusted EBITDA Reconciliation ($ in millions) Six Months ended June 30, 2019 ADESA AFC Corporate Consolidated Net income (loss) from continuing $92.9 $57.9 ($108.1) $42.7 operations Add back: Income taxes 37.7 22.1 (44.6) 15.2 Interest expense, net of interest income 1.0 33.0 76.9 110.9 Depreciation and amortization 73.0 5.0 14.2 92.2 Intercompany interest 11.1 (2.8) (8.3) - EBITDA $215.7 $115.2 ($69.9) $261.0 Intercompany charges 6.8 - (6.8) - Non-cash stock-based compensation 4.0 0.9 5.7 10.6 Acquisition related costs 2.8 - 4.8 7.6 Securitization interest - (28.6) - (28.6) Severance 3.6 - 1.2 4.8 Foreign currency gains/losses (1.1) - 0.5 (0.6) IAA allocated costs - - 2.3 2.3 Other 1.6 0.1 - 1.7 Total Addbacks 17.7 (27.6) 7.7 (2.2) Adjusted EBITDA $233.4 $87.6 ($62.2) $258.8 Revenue $1,232.1 $176.6 – $1,408.7 Adjusted EBITDA % margin 18.9% 49.6% 18.4% 25


 
YTD 2018 Adjusted EBITDA Reconciliation ($ in millions) Six Months ended June 30, 2018 ADESA AFC Corporate Consolidated Net income (loss) from continuing $114.2 $53.4 ($96.0) $71.6 operations Add back: Income taxes 39.0 17.7 (32.9) 23.8 Interest expense, net of interest income 0.8 28.1 59.5 88.4 Depreciation and amortization 62.5 11.3 14.6 88.4 Intercompany interest 12.0 (1.2) (10.8) - EBITDA $228.5 $109.3 ($65.6) $272.2 Intercompany charges 7.7 - (7.7) - Non-cash stock-based compensation 4.4 1.1 4.6 10.1 Acquisition related costs 2.4 - 1.3 3.7 Securitization interest - (24.1) - (24.1) Severance 2.4 - - 2.4 IAA allocation costs - - 2.5 2.5 Other 1.5 - - 1.5 Total Addbacks 18.4 (23.0) 0.7 (3.9) Adjusted EBITDA $246.9 $86.3 ($64.9) $268.3 Revenue $1,066.4 $170.2 – $1,236.6 Adjusted EBITDA % margin 23.2% 50.7% 21.7% 26


 
Operating Adjusted Net Income from Continuing Operations per Share Reconciliation ($ in millions, except per share amounts), (unaudited) Three Months ended Six Months ended June 30, June 30, 2019 2018 2019 2018 Net income $55.6 $93.2 $133.4 $183.2 Less: Income from discontinued operations (28.2) (55.8) (90.7) (111.6) Net income from continuing operations $27.4 $37.4 $42.7 $71.6 Acquired amortization expense 14.8 15.4 29.4 35.7 IAA allocated costs 0.9 1.3 2.3 2.5 Acceleration of debt issuance costs 1.8 - 1.8 - Income taxes (1) (4.2) (5.0) (8.8) (9.5) Operating adjusted net income from continuing operations $40.7 $49.1 $67.4 $100.3 Net income from continuing operations per share − diluted $0.20 $0.28 $0.32 $0.53 Acquired amortization expense 0.11 0.11 0.22 0.26 IAA allocated costs 0.01 0.01 0.02 0.02 Acceleration of debt issuance costs 0.01 - 0.01 - Income taxes (0.03) (0.04) (0.07) (0.07) Operating adjusted net income from continuing operations $0.30 $0.36 $0.50 $0.74 per share − diluted Weighted average diluted shares 134.1 135.6 133.9 135.8 (1) The effective tax rate at the end of each period presented was used to determine the amount of income tax on the adjustments to net income. 27


 
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