KAR completed the sale of its ADESA U.S. physical auction business to Carvana and is using the proceeds to reduce debt
The company has over $800 million of available cash as of June 30, 2022
The company is concurrently announcing a tender offer to purchase up to $600 million principal amount of senior notes
Repurchased $82 million of common stock in the second quarter
The company’s performance was impacted by reductions in conversion rates across its marketplaces
CARMEL, Ind., Aug. 2, 2022 /PRNewswire/ — KAR Auction Services, Inc. (NYSE: KAR) today reported its second quarter financial results for the period ended June 30, 2022.
“During the second quarter, KAR increased revenue and total gross profit, grew gross profit per vehicle sold in our marketplace business, and delivered continued strong performance in our financing business,” said Peter Kelly, CEO of KAR Global. “Looking ahead, we remain highly focused on cost management, pricing and platform consolidation, which we expect to contribute to improved second half results and help position us for future growth. However, if the conversion pressures experienced in the second quarter do not improve, we would expect full year 2022 Adjusted EBITDA may be as low as $245 million as sellers and buyers look for price equilibrium across our marketplaces. Accordingly, we are updating our previous guidance for Adjusted EBITDA to a range of $245 to $265 million.”
Second Quarter 2022 Financial HighlightsThe company has classified the ADESA U.S. physical auction business as discontinued operations. As such, the results discussed herein refer to the continuing operations of KAR and do not include the results of the ADESA U.S. physical auction business.
Total revenue for the second quarter of 2022 was $384.2 million, an increase of 2% compared with $376.0 million for the second quarter of 2021.
Loss from continuing operations for the second quarter of 2022 of $5.4 million, or $(0.10) per diluted share, compared with $15.3 million, or $(0.16) per diluted share, for the second quarter of 2021.
Marketplaces had a conversion rate of 36% of vehicles offered for the second quarter of 2022, compared with 48% for the second quarter of 2021.
Adjusted EBITDA from continuing operations for the quarter ended June 30, 2022 was $56.1 million, compared with $62.1 million for the quarter ended June 30, 2021.
Operating adjusted net income (loss) from continuing operations per diluted share was $0.04 for the quarter ended June 30, 2022, compared with $(0.03) for the quarter ended June 30, 2021.
Year-over-year increase in digital dealer-to-dealer marketplaces of 5%, including acquired volume from CARWAVE.
Marketplace gross profit per vehicle sold increased 11% to $282 for the quarter ended June 30, 2022, compared with $254 for the quarter ended June 30, 2021.
AFC’s strong second quarter performance was driven by increased revenue per loan transaction of 19% and increased loan transactions of 13%.
Debt Tender OfferOn August 2, 2022, the company commenced an offer to purchase for cash up to $600,000,000 principal amount of its 5.125% Senior Notes due 2025, exclusive of any applicable premiums paid in connection with such tender offer and accrued and unpaid interest. The tender offer is being made only by and pursuant to the terms set forth in the offer to purchase, dated August 2, 2022, and is subject to a number of conditions set forth therein that may be waived or changed.
Earnings Conference Call InformationKAR will be hosting an earnings conference call and webcast on Wednesday, August 3, 2022 at 8:30 a.m. EDT. The call will be hosted by KAR’s Chief Executive Officer, Peter Kelly and Executive Vice President and Chief Financial Officer, Eric Loughmiller. The conference call may be accessed by calling 1-877-300-8521 and entering participant passcode 10169145, while the live web cast will be available at the investors section of www.karglobal.com. Supplemental financial information for KAR’s second quarter 2022 results is available at the investors section of www.karglobal.com.
The archive of the webcast will also be available following the call and will be available at the investors section of www.karglobal.com for a limited time.
About KARKAR Auction Services, Inc. d/b/a KAR Global (NYSE: KAR), provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. KAR Global’s unique end-to-end platform supports whole car, financing, logistics and other ancillary and related services. Our integrated physical, online and mobile marketplaces reduce risk, improve transparency and streamline transactions for customers in about 75 countries. Headquartered in Carmel, Indiana, KAR Global has employees across the United States, Canada, Mexico, Uruguay, Europe and the Philippines. For more information and the latest KAR Global news, go to www.karglobal.com and follow us on Twitter @KARSpeaks.
Forward-Looking StatementsCertain 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,” “can,” “of the opinion,” “confident,” “is set,” “is on track,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “outlook,” “initiatives,” “goals,” “opportunities,” and similar expressions identify forward-looking statements. Such statements are based on management’s current expectations, 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 risks and uncertainties regarding (i) the impact of the COVID-19 pandemic on our business and the economy generally; (ii) the impact of macroeconomic conditions and geopolitical events, including the conflict between Russia and Ukraine; (iii) the company’s sale of the ADESA U.S. physical auction business to Carvana, including the ability of the company to execute on its strategy and achieve its goals and other expectations after the sale and the impact on the company’s business and relationships with its customers; and (iv) those other matters disclosed in the company’s Securities and Exchange Commission filings. The company does not undertake any obligation to update any forward-looking statements.
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KAR Auction Services, Inc. |
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Condensed Consolidated Statements of Income |
|||||||
|
(In millions) (Unaudited) |
|||||||
|
Three Months Ended |
Six Months Ended |
||||||
|
2022 |
2021 |
2022 |
2021 |
||||
|
Operating revenues |
|||||||
|
Auction fees |
$ 99.2 |
$ 106.3 |
$ 200.6 |
$ 208.8 |
|||
|
Service revenue |
147.3 |
141.0 |
284.8 |
287.3 |
|||
|
Purchased vehicle sales |
45.8 |
60.1 |
92.1 |
115.3 |
|||
|
Finance-related revenue |
91.9 |
68.6 |
176.1 |
134.4 |
|||
|
Total operating revenues |
384.2 |
376.0 |
753.6 |
745.8 |
|||
|
Operating expenses |
|||||||
|
Cost of services (exclusive of depreciation and amortization) |
211.9 |
208.8 |
422.7 |
412.6 |
|||
|
Selling, general and administrative |
124.1 |
106.4 |
243.0 |
213.7 |
|||
|
Depreciation and amortization |
25.9 |
27.4 |
51.9 |
54.3 |
|||
|
Total operating expenses |
361.9 |
342.6 |
717.6 |
680.6 |
|||
|
Operating profit |
22.3 |
33.4 |
36.0 |
65.2 |
|||
|
Interest expense |
25.9 |
31.0 |
51.5 |
61.8 |
|||
|
Other (income) expense, net |
4.0 |
15.3 |
5.2 |
(34.4) |
|||
|
Loss on extinguishment of debt |
7.7 |
— |
7.7 |
— |
|||
|
Income (loss) from continuing operations before income taxes |
(15.3) |
(12.9) |
(28.4) |
37.8 |
|||
|
Income taxes |
(9.9) |
2.4 |
(14.6) |
26.9 |
|||
|
Income (loss) from continuing operations |
(5.4) |
(15.3) |
(13.8) |
10.9 |
|||
|
Income from discontinued operations, net of income taxes |
215.6 |
26.8 |
223.7 |
51.5 |
|||
|
Net income |
$ 210.2 |
$ 11.5 |
$ 209.9 |
$ 62.4 |
|||
|
Net income (loss) per share – basic |
|||||||
|
Income (loss) from continuing operations |
$ (0.10) |
$ (0.16) |
$ (0.23) |
$ (0.06) |
|||
|
Income from discontinued operations |
1.38 |
0.17 |
1.44 |
0.33 |
|||
|
Net income per share – basic |
$ 1.28 |
$ 0.01 |
$ 1.21 |
$ 0.27 |
|||
|
Net income (loss) per share – diluted |
|||||||
|
Income (loss) from continuing operations |
$ (0.10) |
$ (0.16) |
$ (0.23) |
$ (0.06) |
|||
|
Income from discontinued operations |
1.38 |
0.17 |
1.44 |
0.33 |
|||
|
Net income per share – diluted |
$ 1.28 |
$ 0.01 |
$ 1.21 |
$ 0.27 |
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|
KAR Auction Services, Inc. |
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|
Condensed Consolidated Balance Sheets |
|||
|
(In millions) (Unaudited) |
|||
|
June 30, 2022 |
December 31, 2021 |
||
|
Cash and cash equivalents |
$ 804.4 |
$ 177.6 |
|
|
Restricted cash |
28.1 |
25.8 |
|
|
Trade receivables, net of allowances |
425.7 |
381.3 |
|
|
Finance receivables, net of allowances |
2,660.1 |
2,506.0 |
|
|
Other current assets |
78.2 |
87.9 |
|
|
Current assets of discontinued operations |
— |
213.2 |
|
|
Total current assets |
3,996.5 |
3,391.8 |
|
|
Goodwill |
1,466.7 |
1,598.0 |
|
|
Customer relationships, net of accumulated amortization |
147.3 |
159.1 |
|
|
Operating lease right-of-use assets |
90.3 |
94.7 |
|
|
Property and equipment, net of accumulated depreciation |
138.5 |
143.5 |
|
|
Intangible and other assets |
286.7 |
297.0 |
|
|
Non-current assets of discontinued operations |
— |
1,766.6 |
|
|
Total assets |
$ 6,126.0 |
$ 7,450.7 |
|
|
Current liabilities, excluding obligations collateralized by finance receivables, current maturities of debt and current liabilities of discontinued operations |
$ 1,005.7 |
$ 939.0 |
|
|
Obligations collateralized by finance receivables |
1,781.3 |
1,692.3 |
|
|
Current maturities of debt |
760.9 |
16.3 |
|
|
Current liabilities of discontinued operations |
— |
361.7 |
|
|
Total current liabilities |
3,547.9 |
3,009.3 |
|
|
Long-term debt |
190.7 |
1,849.7 |
|
|
Operating lease liabilities |
84.5 |
88.1 |
|
|
Other non-current liabilities |
61.5 |
85.9 |
|
|
Non-current liabilities of discontinued operations |
— |
313.8 |
|
|
Temporary equity |
612.5 |
590.9 |
|
|
Stockholders’ equity |
1,628.9 |
1,513.0 |
|
|
Total liabilities, temporary equity and stockholders’ equity |
$ 6,126.0 |
$ 7,450.7 |
|
|
KAR Auction Services, Inc. |
|||
|
Condensed Consolidated Statements of Cash Flows |
|||
|
(In millions) (Unaudited) |
|||
|
Six Months Ended |
|||
|
2022 |
2021 |
||
|
Operating activities |
|||
|
Net income |
$ 209.9 |
$ 62.4 |
|
|
Net income from discontinued operations |
(223.7) |
(51.5) |
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|||
|
Depreciation and amortization |
51.9 |
54.3 |
|
|
Provision for credit losses |
5.5 |
6.0 |
|
|
Deferred income taxes |
(2.7) |
5.1 |
|
|
Amortization of debt issuance costs |
6.0 |
6.0 |
|
|
Stock-based compensation |
19.3 |
8.7 |
|
|
Contingent consideration adjustment |
— |
15.7 |
|
|
Net change in unrealized (gain) loss on investment securities |
6.2 |
(31.6) |
|
|
Loss on extinguishment of debt |
7.7 |
— |
|
|
Other non-cash, net |
0.2 |
1.1 |
|
|
Changes in operating assets and liabilities, net of acquisitions: |
|||
|
Trade receivables and other assets |
(32.1) |
(115.4) |
|
|
Accounts payable and accrued expenses |
80.3 |
227.9 |
|
|
Net cash provided by operating activities – continuing operations |
128.5 |
188.7 |
|
|
Net cash (used by) provided by operating activities – discontinued operations |
(429.3) |
96.9 |
|
|
Investing activities |
|||
|
Net increase in finance receivables held for investment |
(156.4) |
(200.0) |
|
|
Acquisition of businesses (net of cash acquired) |
— |
(79.8) |
|
|
Purchases of property, equipment and computer software |
(31.5) |
(32.6) |
|
|
Investments in securities |
(5.6) |
(20.6) |
|
|
Proceeds from sale of investments |
0.3 |
21.4 |
|
|
Proceeds from the sale of business |
— |
2.1 |
|
|
Net cash used by investing activities – continuing operations |
(193.2) |
(309.5) |
|
|
Net cash provided by (used by) investing activities – discontinued operations |
2,066.4 |
(16.2) |
|
|
Financing activities |
|||
|
Net increase in book overdrafts |
3.7 |
2.1 |
|
|
Net increase (decrease) in borrowings from lines of credit |
4.1 |
(1.6) |
|
|
Net increase in obligations collateralized by finance receivables |
88.5 |
57.0 |
|
|
Payments on long-term debt |
(928.6) |
(4.7) |
|
|
Payments on finance leases |
(2.4) |
(3.0) |
|
|
Payments of contingent consideration and deferred acquisition costs |
(29.6) |
(21.3) |
|
|
Issuance of common stock under stock plans |
0.9 |
1.0 |
|
|
Tax withholding payments for vested RSUs |
(2.5) |
(2.2) |
|
|
Repurchase and retirement of common stock |
(82.1) |
(180.9) |
|
|
Net cash used by financing activities – continuing operations |
(948.0) |
(153.6) |
|
|
Net cash provided by financing activities – discontinued operations |
10.8 |
40.3 |
|
|
Effect of exchange rate changes on cash |
(6.1) |
6.4 |
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
629.1 |
(147.0) |
|
|
Cash, cash equivalents and restricted cash at beginning of period |
203.4 |
784.3 |
|
|
Cash, cash equivalents and restricted cash at end of period |
$ 832.5 |
$ 637.3 |
|
|
Cash paid for interest, net of proceeds from interest rate derivatives |
$ 45.0 |
$ 55.4 |
|
|
Cash paid for taxes, net of refunds |
$ 243.2 |
$ 16.6 |
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KAR Auction Services, Inc.Reconciliation of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, operating adjusted net income (loss) and operating adjusted net income (loss) 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 (loss) and operating adjusted net income (loss) 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 (loss) and operating adjusted net income (loss) per share may include adjustments for certain other charges.
EBITDA, Adjusted EBITDA, operating adjusted net income (loss) and operating adjusted net income (loss) 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 2022 expectation for Adjusted EBITDA is a forward-looking non-GAAP financial measure. We have not reconciled this non-GAAP financial measure to its most directly comparable GAAP measure of net income (loss) due to the inherent difficulty and impracticability of predicting certain amounts required by GAAP with a reasonable degree of accuracy. Accordingly, a reconciliation is not available without unreasonable effort.
The following table reconciles EBITDA and Adjusted EBITDA to income (loss) from continuing operations for the periods presented:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||
|
(in millions), (unaudited) |
2022 |
2021 |
2022 |
2021 |
|||
|
Income (loss) from continuing operations |
$ (5.4) |
$ (15.3) |
$ (13.8) |
$ 10.9 |
|||
|
Add back: |
|||||||
|
Income taxes |
(9.9) |
2.4 |
(14.6) |
26.9 |
|||
|
Interest expense, net of interest income |
25.2 |
30.8 |
50.7 |
61.4 |
|||
|
Depreciation and amortization |
25.9 |
27.4 |
51.9 |
54.3 |
|||
|
EBITDA |
35.8 |
45.3 |
74.2 |
153.5 |
|||
|
Non-cash stock-based compensation |
14.5 |
4.3 |
19.7 |
9.4 |
|||
|
Loss on extinguishment of debt |
7.7 |
— |
7.7 |
— |
|||
|
Acquisition related costs |
0.3 |
1.6 |
0.6 |
2.9 |
|||
|
Securitization interest |
(14.3) |
(6.8) |
(24.7) |
(13.6) |
|||
|
(Gain)/Loss on asset sales |
— |
— |
(0.1) |
(0.8) |
|||
|
Severance |
3.3 |
0.6 |
6.7 |
1.0 |
|||
|
Foreign currency (gains)/losses |
3.3 |
0.4 |
4.5 |
2.6 |
|||
|
Contingent consideration adjustment |
— |
4.5 |
— |
15.7 |
|||
|
Net change in unrealized (gains) losses on investment securities |
3.2 |
11.9 |
6.2 |
(31.6) |
|||
|
Professional fees related to business improvement efforts |
0.8 |
— |
8.9 |
— |
|||
|
Other |
1.5 |
0.3 |
1.5 |
0.2 |
|||
|
Total addbacks/(deductions) |
20.3 |
16.8 |
31.0 |
(14.2) |
|||
|
Adjusted EBITDA |
$ 56.1 |
$ 62.1 |
$ 105.2 |
$ 139.3 |
|||
The following table reconciles operating adjusted net income (loss) and operating adjusted net income (loss) per diluted share to net income (loss) for the periods presented:
|
Three Months Ended June 30, |
Six Months Ended June 30, |
||||||
|
(in millions, except per share amounts), (unaudited) |
2022 |
2021 |
2022 |
2021 |
|||
|
Net income (loss) from continuing operations (1) |
$ (5.4) |
$ (15.3) |
$ (13.8) |
$ 10.9 |
|||
|
Acquired amortization expense |
8.2 |
8.3 |
16.8 |
16.8 |
|||
|
Loss on extinguishment of debt |
7.7 |
— |
7.7 |
— |
|||
|
Contingent consideration adjustment |
— |
4.5 |
— |
15.7 |
|||
|
Income taxes (2) |
(3.9) |
(2.0) |
(6.0) |
(4.1) |
|||
|
Operating adjusted net income (loss) from continuing operations |
$ 6.6 |
$ (4.5) |
$ 4.7 |
$ 39.3 |
|||
|
Net income from discontinued operations |
$ 215.6 |
$ 26.8 |
$ 223.7 |
$ 51.5 |
|||
|
Acquired amortization expense |
4.4 |
5.3 |
8.8 |
12.4 |
|||
|
Income taxes (2) |
(1.1) |
(1.3) |
(2.2) |
(3.0) |
|||
|
Operating adjusted net income from discontinued operations |
$ 218.9 |
$ 30.8 |
$ 230.3 |
$ 60.9 |
|||
|
Operating adjusted net income |
$ 225.5 |
$ 26.3 |
$ 235.0 |
$ 100.2 |
|||
|
Operating adjusted net income (loss) from continuing operations per share – diluted |
$ 0.04 |
$ (0.03) |
$ 0.03 |
$ 0.25 |
|||
|
Operating adjusted net income from discontinued operations per share – diluted |
1.41 |
0.20 |
1.48 |
0.38 |
|||
|
Operating adjusted net income per share – diluted |
$ 1.45 |
$ 0.17 |
$ 1.51 |
$ 0.63 |
|||
|
Weighted average diluted shares |
155.2 |
156.0 |
155.9 |
158.9 |
|||
|
(1) |
The Series A Preferred Stock dividends and undistributed earnings allocated to participating securities have not been included in the calculation of operating adjusted net income (loss) and operating adjusted net income (loss) per diluted share. |
|
(2) |
An effective tax rate of 24.5% was used to determine the amount of income tax benefit on the acquired amortization expense and the loss on extinguishment of debt. There was no income tax benefit related to the contingent consideration adjustment because this item is not deductible for income tax purposes. |
SOURCE KAR Auction Services
