CARMEL, Ind., May 7, 2020 /PRNewswire/ -- KAR Auction
Services, Inc. (NYSE: KAR), today reported its first quarter
financial results for the period ended March
31, 2020. For the first quarter of 2020, the company
reported revenue of $645.5 million as
compared with revenue of $689.6
million for the first quarter of 2019, a decrease of 6%. Net
income from continuing operations for the first quarter of 2020
decreased 82% to $2.8 million, or
$0.02 per diluted share, as compared
with net income from continuing operations of $15.3 million, or $0.11 per diluted share, in the first quarter of
2019. Adjusted EBITDA for the quarter ended March 31, 2020 decreased 28% to $88.6 million, as compared with Adjusted EBITDA
of $122.9 million for the quarter
ended March 31, 2019. Operating
adjusted net income from continuing operations per diluted share
decreased 55% to $0.09 for the
quarter ended March 31, 2020, as
compared with operating adjusted net income from continuing
operations per diluted share of $0.20
for the quarter ended March 31, 2019.
The company's operating results for the quarter ended March 31, 2020 were significantly impacted by the
COVID-19 pandemic, as further discussed below.
Impact of COVID-19 on Company Operations
On
March 16, 2020, in response to the
COVID-19 pandemic, the company announced that it was modifying its
North American auction processes and would be holding auctions
online only via Simulcast to protect the health and well-being of
its workforce and customers. On March 20,
2020, the company announced that it was suspending physical
sale operations across North
America at all ADESA auction locations, including
Simulcast-only sales, for at least two weeks. All non-essential
auction employees were sent home and were paid during the two week
closure. On April 6, 2020, the
company reopened Simulcast-only sales in select markets and has
continued to expand the Simulcast-only sales each week, where
possible and as permitted. The company has altered its processes to
comply with all local, state and provincial directives, including
social distancing guidelines, which have materially limited ADESA's
ability to provide its full scope of services until the guidelines
are eased or terminated. As a result, the company has taken certain
measures to help protect the business and its liquidity while its
operations are negatively impacted. Some of these measures include
the following:
- The company has reduced compensation expense:
-
- The company's CEO, CFO and President have voluntarily elected
to forgo 100% of their respective base salaries effective
April 5, 2020 through at least
June 27, 2020.
- The remainder of the company's executive officers have
voluntarily elected to reduce their base salaries by 50% during
this period.
- Base salaries across many levels of the organization have been
temporarily reduced.
- The company furloughed approximately 11,000 employees in
April 2020.
- The company's board of directors voluntarily elected to forgo
their cash compensation for the second quarter of 2020.
- Business travel for any reason has been prohibited.
- Non-essential services provided by third parties at the
company's locations have generally been suspended.
- All capital projects at the company's physical auction
locations have been delayed or canceled.
- The company has temporarily suspended its quarterly dividend in
light of the impact of the COVID-19 pandemic on its
operations.
- The company has negotiated the deferral of rent payments with
certain landlords.
- The ADESA Assurance program was temporarily suspended.
- AFC has reduced the unused portion of certain floorplan lines
with its customers.
In addition, the company intends to take advantage of the
Employee Retention Credit and the Federal Employer Social Security
Tax Deferment provided under the Coronavirus Aid, Relief, and
Economic Security Act ("CARES Act").
Recent restrictions on retail automobile sales and operations
have reduced floorings and payoffs at AFC. As a result, AFC
launched a Customer Relief Program in March
2020. Under the Customer Relief Program, eligible customers
may choose to defer curtailment payments (principal, fees and
interest) due through May 31, 2020,
on eligible units.
The extent to which the COVID-19 outbreak impacts the company's
business, results of operations and financial condition will depend
on future developments, which are highly uncertain and cannot be
predicted, including, but not limited to, the duration and spread
of the outbreak, its severity, the actions to contain the virus or
treat its impact, and how quickly and to what extent normal
economic and operating conditions can resume. Even after the
COVID-19 outbreak has subsided, the company may continue to
experience materially adverse impacts to its business as a result
of its global economic impact, including any economic downturn or
recession that has occurred or may occur in the future.
2020 Outlook Withdrawn
The company has withdrawn its
2020 outlook and financial guidance previously provided on
February 18, 2020 given the
uncertainty of the business climate as impacted by COVID-19 and the
unpredictable timeline of market recovery.
Quarterly Dividend Temporarily Suspended
The company
has temporarily suspended its quarterly dividend in light of the
impact of the COVID-19 pandemic on its operations.
Earnings Conference Call Information
KAR will be
hosting an earnings conference call and webcast on Thursday, May 7, 2020 at 8:30 a.m. EDT (7:30 a.m.
CDT). The call will be hosted by KAR'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 4693498, while the live web cast will
be available at the investors section of www.karglobal.com.
Supplemental financial information for KAR's first quarter 2020
results is available at the investors section of
www.karglobal.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 4693498. The archive of
the web cast will also be available following the call and will be
available at the investors section of www.karglobal.com for a
limited time.
About KAR
KAR Auction Services Inc. (NYSE: KAR), known
as KAR Global, 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, including the sale of nearly 3.8 million units
valued at approximately $40 billion
through our auctions. Our integrated physical, online and mobile
marketplaces reduce risk, improve transparency and streamline
transactions for customers in more than 80 countries. Headquartered
in Carmel, Indiana, KAR Global has
approximately 15,000 employees across the
United States, Canada,
Mexico, U.K. and Europe. For more information go to
www.KARglobal.com. For the latest KAR Global 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 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 uncertainties regarding the impact of the
COVID-19 virus on our business and the economy generally, and 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.
KAR Auction
Services, Inc.
|
Condensed
Consolidated Statements of Income
|
(In millions)
(Unaudited)
|
|
|
Three Months
Ended
March 31,
|
|
2020
|
|
2019
|
Operating
revenues
|
|
|
|
Auction fees and
services revenue
|
$
|
491.5
|
|
|
$
|
541.9
|
|
Purchased vehicle
sales
|
75.5
|
|
|
57.8
|
|
Finance-related
revenue
|
78.5
|
|
|
89.9
|
|
Total operating
revenues
|
645.5
|
|
|
689.6
|
|
|
|
|
|
Operating
expenses
|
|
|
|
Cost of services
(exclusive of depreciation and amortization)
|
394.6
|
|
|
393.9
|
|
Selling, general and
administrative
|
162.4
|
|
|
175.2
|
|
Depreciation and
amortization
|
47.7
|
|
|
44.3
|
|
Total operating
expenses
|
604.7
|
|
|
613.4
|
|
|
|
|
|
Operating
profit
|
40.8
|
|
|
76.2
|
|
|
|
|
|
Interest
expense
|
38.0
|
|
|
56.5
|
|
Other income,
net
|
(2.0)
|
|
|
(2.1)
|
|
|
|
|
|
Income from
continuing operations before income taxes
|
4.8
|
|
|
21.8
|
|
|
|
|
|
Income
taxes
|
2.0
|
|
|
6.5
|
|
|
|
|
|
Income from
continuing operations
|
2.8
|
|
|
15.3
|
|
Income from
discontinued operations, net of income taxes
|
—
|
|
|
62.5
|
|
Net income
|
$
|
2.8
|
|
|
$
|
77.8
|
|
|
|
|
|
Net income per share
- basic
|
|
|
|
Income from
continuing operations
|
$
|
0.02
|
|
|
$
|
0.11
|
|
Income from
discontinued operations
|
—
|
|
|
0.47
|
|
Net income
|
$
|
0.02
|
|
|
$
|
0.58
|
|
|
|
|
|
Net income per share
- diluted
|
|
|
|
Income from
continuing operations
|
$
|
0.02
|
|
|
$
|
0.11
|
|
Income from
discontinued operations
|
—
|
|
|
0.47
|
|
Net income
|
$
|
0.02
|
|
|
$
|
0.58
|
|
|
|
|
|
Dividends declared
per common share
|
$
|
0.19
|
|
|
$
|
0.35
|
|
KAR Auction
Services, Inc.
|
Condensed
Consolidated Balance Sheets
|
(In millions)
(Unaudited)
|
|
|
March
31,
2020
|
|
December
31,
2019
|
Cash and cash
equivalents
|
$
|
293.1
|
|
|
$
|
507.6
|
|
Restricted
cash
|
114.4
|
|
|
53.3
|
|
Trade receivables,
net of allowances
|
244.1
|
|
|
457.5
|
|
Finance receivables,
net of allowances
|
1,929.8
|
|
|
2,100.2
|
|
Other current
assets
|
131.5
|
|
|
125.9
|
|
Total current
assets
|
2,712.9
|
|
|
3,244.5
|
|
|
|
|
|
Goodwill
|
1,810.7
|
|
|
1,821.7
|
|
Customer
relationships, net of accumulated amortization
|
194.5
|
|
|
207.9
|
|
Operating lease
right-of-use assets
|
358.7
|
|
|
364.1
|
|
Intangible and other
assets
|
328.9
|
|
|
334.0
|
|
Property and
equipment, net of accumulated depreciation
|
594.0
|
|
|
609.0
|
|
Total
assets
|
$
|
5,999.7
|
|
|
$
|
6,581.2
|
|
|
|
|
|
Current liabilities,
excluding obligations collateralized by
finance receivables and
current maturities of debt
|
$
|
641.9
|
|
|
$
|
1,027.7
|
|
Obligations
collateralized by finance receivables
|
1,349.9
|
|
|
1,461.2
|
|
Current maturities of
debt
|
27.0
|
|
|
28.8
|
|
Total current
liabilities
|
2,018.8
|
|
|
2,517.7
|
|
|
|
|
|
Long-term
debt
|
1,860.1
|
|
|
1,861.3
|
|
Operating lease
liabilities
|
353.1
|
|
|
358.3
|
|
Other non-current
liabilities
|
195.9
|
|
|
193.7
|
|
Stockholders'
equity
|
1,571.8
|
|
|
1,650.2
|
|
Total liabilities and
stockholders' equity
|
$
|
5,999.7
|
|
|
$
|
6,581.2
|
|
KAR Auction
Services, Inc.
|
Condensed
Consolidated Statements of Cash Flows
|
(In millions)
(Unaudited)
|
|
|
Three Months
Ended March 31,
|
|
2020
|
|
2019
|
Operating
activities
|
|
|
|
Net income
|
$
|
2.8
|
|
|
$
|
77.8
|
|
Net income from
discontinued operations
|
—
|
|
|
(62.5)
|
|
Adjustments to reconcile
net income to net cash provided by operating
activities:
|
|
|
|
Depreciation and
amortization
|
47.7
|
|
|
44.3
|
|
Provision for credit
losses
|
18.7
|
|
|
9.6
|
|
Deferred income
taxes
|
(4.7)
|
|
|
3.5
|
|
Amortization of debt
issuance costs
|
2.7
|
|
|
2.6
|
|
Stock-based
compensation
|
5.0
|
|
|
6.4
|
|
Other non-cash,
net
|
1.4
|
|
|
3.5
|
|
Changes in operating
assets and liabilities, net of acquisitions:
|
|
|
|
Trade receivables and other
assets
|
210.7
|
|
|
(177.8)
|
|
Accounts payable and accrued
expenses
|
(333.5)
|
|
|
142.6
|
|
Net cash (used by)
provided by operating activities - continuing
operations
|
(49.2)
|
|
|
50.0
|
|
Net cash provided
by operating activities - discontinued operations
|
—
|
|
|
37.5
|
|
Investing
activities
|
|
|
|
Net decrease in finance
receivables held for investment
|
146.3
|
|
|
18.6
|
|
Acquisition of businesses
(net of cash acquired)
|
—
|
|
|
(120.7)
|
|
Purchases of property,
equipment and computer software
|
(29.6)
|
|
|
(32.3)
|
|
Net cash provided
by (used by) investing activities - continuing
operations
|
116.7
|
|
|
(134.4)
|
|
Net cash used by
investing activities - discontinued operations
|
—
|
|
|
(21.6)
|
|
Financing
activities
|
|
|
|
Net (decrease) increase in
book overdrafts
|
(35.1)
|
|
|
37.4
|
|
Net (decrease) increase in
borrowings from lines of credit
|
(1.8)
|
|
|
108.8
|
|
Net decrease in obligations
collateralized by finance receivables
|
(103.7)
|
|
|
(88.5)
|
|
Payments on long-term
debt
|
(2.4)
|
|
|
(10.7)
|
|
Payments on finance
leases
|
(4.4)
|
|
|
(4.7)
|
|
Payments of contingent
consideration and deferred acquisition costs
|
(22.3)
|
|
|
—
|
|
Issuance of common stock
under stock plans
|
0.4
|
|
|
0.7
|
|
Tax withholding payments for
vested RSUs
|
(3.4)
|
|
|
(10.2)
|
|
Dividends paid to
stockholders
|
(24.5)
|
|
|
(46.5)
|
|
Net cash used by
financing activities - continuing operations
|
(197.2)
|
|
|
(13.7)
|
|
Net cash used by
financing activities - discontinued operations
|
—
|
|
|
(4.6)
|
|
Effect of exchange
rate changes on cash
|
(23.7)
|
|
|
5.8
|
|
Net decrease in
cash, cash equivalents and restricted cash
|
(153.4)
|
|
|
(81.0)
|
|
Cash, cash
equivalents and restricted cash at beginning of period
|
560.9
|
|
|
304.7
|
|
Cash, cash
equivalents and restricted cash at end of period
|
$
|
407.5
|
|
|
$
|
223.7
|
|
Cash paid for
interest, net of proceeds from interest rate swaps and
caps
|
$
|
23.4
|
|
|
$
|
35.7
|
|
Cash paid for taxes,
net of refunds - continuing operations
|
$
|
5.6
|
|
|
$
|
14.0
|
|
Cash paid for taxes,
net of refunds - discontinued operations
|
$
|
—
|
|
|
$
|
15.3
|
|
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
March
31,
|
(in
millions), (unaudited)
|
2020
|
|
2019
|
|
|
|
|
Net
income
|
$
|
2.8
|
|
|
$
|
77.8
|
|
Less: Income from
discontinued operations
|
—
|
|
|
(62.5)
|
|
Net income from
continuing operations
|
2.8
|
|
|
15.3
|
|
Add back:
|
|
|
|
Income
taxes
|
2.0
|
|
|
6.5
|
|
Interest expense, net
of interest income
|
37.2
|
|
|
55.9
|
|
Depreciation and
amortization
|
47.7
|
|
|
44.3
|
|
EBITDA
|
89.7
|
|
|
122.0
|
|
Non-cash stock-based
compensation
|
5.3
|
|
|
6.6
|
|
Acquisition related
costs
|
1.4
|
|
|
3.9
|
|
Securitization
interest
|
(11.4)
|
|
|
(14.8)
|
|
Loss on asset
sales
|
0.5
|
|
|
0.5
|
|
Severance
|
1.8
|
|
|
3.7
|
|
Foreign currency
(gains)/losses
|
0.4
|
|
|
(0.6)
|
|
IAA allocated
costs
|
—
|
|
|
1.4
|
|
Other
|
0.9
|
|
|
0.2
|
|
Total
addbacks
|
(1.1)
|
|
|
0.9
|
|
Adjusted
EBITDA
|
$
|
88.6
|
|
|
$
|
122.9
|
|
The following table reconciles operating adjusted net income
from continuing operations and operating adjusted net income from
continuing operations per diluted share to net income and net
income from continuing operations per diluted share for the periods
presented:
|
Three Months
Ended
March
31,
|
(in millions,
except per share amounts), (unaudited)
|
2020
|
|
2019
|
|
|
|
|
Net income
|
$
|
2.8
|
|
|
$
|
77.8
|
|
Less: income from
discontinued operations
|
—
|
|
|
(62.5)
|
|
Net income from
continuing operations
|
2.8
|
|
|
15.3
|
|
Acquired
amortization expense
|
14.3
|
|
|
14.6
|
|
IAA allocated
costs
|
—
|
|
|
1.4
|
|
Income
taxes (1)
|
(6.0)
|
|
|
(4.8)
|
|
Operating adjusted
net income from continuing operations
|
$
|
11.1
|
|
|
$
|
26.5
|
|
|
|
|
|
Net income from
continuing operations per share - diluted
|
$
|
0.02
|
|
|
$
|
0.11
|
|
Acquired
amortization expense
|
0.11
|
|
|
0.11
|
|
IAA allocated
costs
|
—
|
|
|
0.01
|
|
Income
taxes
|
(0.04)
|
|
|
(0.03)
|
|
Operating adjusted
net income from continuing operations per share -
diluted
|
$
|
0.09
|
|
|
$
|
0.20
|
|
|
|
|
|
Weighted average
diluted shares
|
130.0
|
|
|
133.8
|
|
|
|
(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.
|
Analyst
Inquiries:
|
Media
Inquiries:
|
Mike
Eliason
|
Tobin
Richer
|
(317)
249-4559
|
(317)
665-0366
|
mike.eliason@karglobal.com
|
tobin.richer@karglobal.com
|
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SOURCE KAR Auction Services, Inc.