- 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 Highlights
The 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 Offer
On 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 Information
KAR 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 KAR
KAR 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 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," "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.
KAR Auction
Services, Inc.
|
Condensed
Consolidated Statements of Income
|
(In millions)
(Unaudited)
|
|
|
Three Months
Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
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
|
KAR Auction
Services, Inc.
|
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
June 30,
|
|
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
|
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.
|
Analyst
Inquiries:
|
Media
Inquiries:
|
Mike Eliason
|
Jill Trudeau
|
(317)
249-4559
|
(317)
796-0945
|
mike.eliason@karglobal.com
|
jill.trudeau@karglobal.com
|
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SOURCE KAR Auction Services