OPLN 8-K
OPENLANE, Inc. (OPLN)
8-K
2020-05-07
For: 2020-05-07
View Original
Added on
April 11, 2026
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): May 7, 2020
(Exact name of Registrant as specified in its charter)
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||
(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:
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 | ||||||||||||
Item 2.02 Results of Operations and Financial Condition.
On May 7, 2020, KAR Auction Services, Inc. issued a press release announcing its financial results for the three months ended March 31, 2020. KAR will host an earnings conference call and webcast, Thursday, May 7, 2020 at 8:30 a.m., Eastern Daylight Time. The conference call may be accessed by calling 1-844-778-4145 and entering participant code 4693498 and the live webcast may be accessed at the investors section of www.karglobal.com. 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 call will feature a review of operating highlights and financial results for the three months ended March 31, 2020. The press release dated May 7, 2020 is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference in its entirety.
On May 7, 2020, KAR also posted supplemental financial information for the three months ended March 31, 2020, and Earnings Slides for the three months ended March 31, 2020. The supplemental financial information and Earnings Slides can be located at the investors section of www.karglobal.com. The supplemental financial information and Earnings Slides posted on May 7, 2020 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 Press release dated May 7, 2020 – “KAR Auction Services, Inc. Reports First Quarter 2020 Financial Results”
104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
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: May 7, 2020 KAR Auction Services, Inc.
/s/ Eric M. Loughmiller
Eric M. Loughmiller
Executive Vice President and Chief Financial Officer
EXHIBIT 99.1
| EARNINGS RELEASE | ||
For Immediate Release
Analyst Inquiries: Media Inquiries:
Mike Eliason Tobin Richer
(317) 249-4559 (317) 665-0366
KAR Auction Services, Inc. Reports First Quarter 2020 Financial Results
Carmel, IN, May 7, 2020 — 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.
2
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.
3
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 | |||||||
4
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 | |||||||
5
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 | |||||||
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 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 | |||||||
7
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.
8
EXHIBIT 99.2
KAR Auction Services, Inc.
First Quarter 2020 Supplemental Financial Information
May 7, 2020
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 March 31, 2020 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 24.1 | $ | 24.6 | $ | (45.9) | $ | 2.8 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 8.8 | 8.1 | (14.9) | 2.0 | |||||||||||||||||||
| Interest expense, net of interest income | 0.6 | 13.5 | 23.1 | 37.2 | |||||||||||||||||||
| Depreciation and amortization | 39.1 | 2.7 | 5.9 | 47.7 | |||||||||||||||||||
| Intercompany interest | (1.0) | (0.8) | 1.8 | — | |||||||||||||||||||
| EBITDA | 71.6 | 48.1 | (30.0) | 89.7 | |||||||||||||||||||
| Intercompany charges | 1.7 | — | (1.7) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 2.1 | 0.4 | 2.8 | 5.3 | |||||||||||||||||||
| Acquisition related costs | 1.2 | — | 0.2 | 1.4 | |||||||||||||||||||
| Securitization interest | — | (11.4) | — | (11.4) | |||||||||||||||||||
| Loss on asset sales | 0.5 | — | — | 0.5 | |||||||||||||||||||
| Severance | 1.3 | — | 0.5 | 1.8 | |||||||||||||||||||
| Foreign currency (gains)/losses | 1.8 | — | (1.4) | 0.4 | |||||||||||||||||||
| Other | 0.2 | — | 0.7 | 0.9 | |||||||||||||||||||
| Total addbacks | 8.8 | (11.0) | 1.1 | (1.1) | |||||||||||||||||||
| Adjusted EBITDA | $ | 80.4 | $ | 37.1 | $ | (28.9) | $ | 88.6 | |||||||||||||||
2
| Three Months Ended March 31, 2019 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 42.4 | $ | 30.5 | $ | (57.6) | $ | 15.3 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 15.9 | 10.8 | (20.2) | 6.5 | |||||||||||||||||||
| Interest expense, net of interest income | 0.4 | 16.9 | 38.6 | 55.9 | |||||||||||||||||||
| Depreciation and amortization | 35.0 | 2.4 | 6.9 | 44.3 | |||||||||||||||||||
| Intercompany interest | 7.1 | (1.2) | (5.9) | — | |||||||||||||||||||
| EBITDA | 100.8 | 59.4 | (38.2) | 122.0 | |||||||||||||||||||
| Intercompany charges | 3.2 | — | (3.2) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 2.4 | 0.5 | 3.7 | 6.6 | |||||||||||||||||||
| Acquisition related costs | 1.6 | — | 2.3 | 3.9 | |||||||||||||||||||
| Securitization interest | — | (14.8) | — | (14.8) | |||||||||||||||||||
| Loss on asset sales | 0.5 | — | — | 0.5 | |||||||||||||||||||
| Severance | 2.7 | — | 1.0 | 3.7 | |||||||||||||||||||
| Foreign currency gains | (0.6) | — | — | (0.6) | |||||||||||||||||||
| IAA allocated costs | — | — | 1.4 | 1.4 | |||||||||||||||||||
| Other | 0.2 | — | — | 0.2 | |||||||||||||||||||
| Total addbacks | 10.0 | (14.3) | 5.2 | 0.9 | |||||||||||||||||||
| Adjusted EBITDA | $ | 110.8 | $ | 45.1 | $ | (33.0) | $ | 122.9 | |||||||||||||||
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) | June 30, 2019 | September 30, 2019 | December 31, 2019 | March 31, 2020 | March 31, 2020 | ||||||||||||||||||||||||
| Net income (loss) | $ | 55.6 | $ | 35.3 | $ | 19.8 | $ | 2.8 | $ | 113.5 | |||||||||||||||||||
| Less: Income from discontinued operations | 28.2 | 0.9 | 4.5 | — | 33.6 | ||||||||||||||||||||||||
| Income from continuing operations | 27.4 | 34.4 | 15.3 | 2.8 | 79.9 | ||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||
| Income taxes | 8.7 | 13.2 | 9.3 | 2.0 | 33.2 | ||||||||||||||||||||||||
| Interest expense, net of interest income | 55.0 | 37.2 | 38.3 | 37.2 | 167.7 | ||||||||||||||||||||||||
| Depreciation and amortization | 47.9 | 46.4 | 50.1 | 47.7 | 192.1 | ||||||||||||||||||||||||
| EBITDA | 139.0 | 131.2 | 113.0 | 89.7 | 472.9 | ||||||||||||||||||||||||
| Non-cash stock-based compensation | 4.0 | 4.5 | 5.2 | 5.3 | 19.0 | ||||||||||||||||||||||||
| Loss on extinguishment of debt | — | 2.2 | — | — | 2.2 | ||||||||||||||||||||||||
| Acquisition related costs | 3.7 | 2.7 | 1.9 | 1.4 | 9.7 | ||||||||||||||||||||||||
| Securitization interest | (13.8) | (13.3) | (13.0) | (11.4) | (51.5) | ||||||||||||||||||||||||
| Loss on asset sales | 0.4 | 0.8 | 0.4 | 0.5 | 2.1 | ||||||||||||||||||||||||
| Severance | 1.1 | 0.9 | 9.6 | 1.8 | 13.4 | ||||||||||||||||||||||||
| Foreign currency (gains)/losses | — | (0.4) | 0.3 | 0.4 | 0.3 | ||||||||||||||||||||||||
| IAA allocated costs | 0.9 | — | — | — | 0.9 | ||||||||||||||||||||||||
| Other | 0.6 | 0.6 | 4.6 | 0.9 | 6.7 | ||||||||||||||||||||||||
| Total addbacks | (3.1) | (2.0) | 9.0 | (1.1) | 2.8 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 135.9 | $ | 129.2 | $ | 122.0 | $ | 88.6 | $ | 475.7 | |||||||||||||||||||
3
Results of Operations
KAR Results
| Three Months Ended March 31, | |||||||||||
| (Dollars in millions except per share amounts) | 2020 | 2019 | |||||||||
| 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 revenues | 645.5 | 689.6 | |||||||||
| Cost of services* | 394.6 | 393.9 | |||||||||
| Gross profit* | 250.9 | 295.7 | |||||||||
| Selling, general and administrative | 162.4 | 175.2 | |||||||||
| Depreciation and amortization | 47.7 | 44.3 | |||||||||
| 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 | |||||||||
| Net income from continuing operations | 2.8 | 15.3 | |||||||||
| Net income from discontinued operations | — | 62.5 | |||||||||
| Net income | $ | 2.8 | $ | 77.8 | |||||||
| Net income from continuing operations per share | |||||||||||
| Basic | $ | 0.02 | $ | 0.11 | |||||||
| Diluted | $ | 0.02 | $ | 0.11 | |||||||
* Exclusive of depreciation and amortization
Overview of KAR Results for the Three Months Ended March 31, 2020 and 2019
Overview
For the three months ended March 31, 2020, we had revenue of $645.5 million compared with revenue of $689.6 million for the three months ended March 31, 2019, a decrease of 6%. Businesses acquired accounted for an increase in revenue of $18.3 million or 3% of revenue. 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 $3.4 million, or 8%, to $47.7 million for the three months ended March 31, 2020, compared with $44.3 million for the three months ended March 31, 2019. 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 2019.
Interest Expense
Interest expense decreased $18.5 million, or 33%, to $38.0 million for the three months ended March 31, 2020, compared with $56.5 million for the three months ended March 31, 2019. The decrease was primarily attributable to a decrease in the weighted average interest rate of approximately 0.7% and a decrease of $939.0 million in the average outstanding balance of corporate debt for the three months ended March 31, 2020 compared with the three months ended March 31, 2019, resulting from the pay down of debt of approximately $1.3 billion in connection with the spin-off of IAA on June 28, 2019 and a net increase in term loan debt of approximately $0.5 billion in connection
4
with the debt refinancing on September 19, 2019. In addition, there was a decrease in interest expense at AFC of $3.5 million, which resulted from a decrease in incremental interest rates for the three months ended March 31, 2020, as compared with the three months ended March 31, 2019.
Income Taxes
We had an effective tax rate of 41.7% for the three months ended March 31, 2020, compared with an effective tax rate of 29.8% for the three months ended March 31, 2019. The increase in the effective tax rate was primarily attributable to lower pre-tax earnings for the three months ended March 31, 2020. Our effective tax rate for the three months ended March 31, 2020 was calculated using the discrete-period computation method by applying the actual effective tax rate as of March 31, 2020 to our pre-tax income.
Net 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 in the comparable 2019 results presented. For the three months ended March 31, 2020 and 2019, the Company's financial statements included income from discontinued operations of $0.0 million and $62.5 million, respectively. For a further discussion, reference Note 2 of the condensed notes to the consolidated financial statements.
Impact of Foreign Currency
For the three months ended March 31, 2020, fluctuations in the euro exchange rate decreased revenue by $1.4 million and had no impact on operating profit, net income and net income per diluted share. For the three months ended March 31, 2020, fluctuations in the Canadian exchange rate decreased revenue by $0.4 million and had no impact on operating profit, net income and net income per diluted share.
ADESA Results
| Three Months Ended March 31, | |||||||||||
| (Dollars in millions, except per vehicle amounts) | 2020 | 2019 | |||||||||
| Auction fees and services revenue | $ | 491.5 | $ | 541.9 | |||||||
| Purchased vehicle sales | 75.5 | 57.8 | |||||||||
| Total ADESA revenue | 567.0 | 599.7 | |||||||||
| Cost of services* | 370.7 | 370.7 | |||||||||
| Gross profit* | 196.3 | 229.0 | |||||||||
| Selling, general and administrative | 122.8 | 126.6 | |||||||||
| Depreciation and amortization | 39.1 | 35.0 | |||||||||
| Operating profit | $ | 34.4 | $ | 67.4 | |||||||
| Vehicles sold | 862,000 | 945,000 | |||||||||
| Institutional vehicles sold in North America | 622,000 | 681,000 | |||||||||
| Dealer consignment vehicles sold in North America | 212,000 | 241,000 | |||||||||
| Vehicles sold in Europe | 28,000 | 23,000 | |||||||||
| Percentage of vehicles sold online | 63 | % | 57 | % | |||||||
| Conversion rate at North American physical auctions | 63.3 | % | 63.8 | % | |||||||
| Physical auction revenue per vehicle sold, excluding purchased vehicles | $ | 914 | $ | 875 | |||||||
| Online only revenue per vehicle sold, excluding purchased vehicles | $ | 163 | $ | 144 | |||||||
* Exclusive of depreciation and amortization
5
Overview of ADESA Results for the Three Months Ended March 31, 2020 and 2019
Revenue
Revenue from ADESA decreased $32.7 million, or 5%, to $567.0 million for the three months ended March 31, 2020, compared with $599.7 million for the three months ended March 31, 2019. The decrease in revenue was the result of a decrease in the number of vehicles sold, partially offset by an increase in average revenue per vehicle sold, excluding purchased vehicle sales and increased proceeds from purchased vehicle sales. Businesses acquired in the last 12 months accounted for an increase in revenue of $18.3 million, of which approximately $12.7 million was included in "Purchased vehicle sales." The decrease in revenue included the impact of decreases in revenue of $1.4 million due to fluctuations in the euro exchange rate and $0.3 million due to fluctuations in the Canadian exchange rate.
The decrease in vehicles sold was primarily attributable to a 9% decrease in institutional volume, including vehicles sold on our online only platform, as well as a 9% decrease in dealer consignment units sold for the three months ended March 31, 2020 compared with the three months ended March 31, 2019. Online sales volume for ADESA represented approximately 63% of the total vehicles sold in the first quarter of 2020, compared with approximately 57% in the first quarter of 2019. "Online sales" includes the following: (i) selling vehicles directly from a dealership or other interim storage location; (ii) online solutions that offer vehicles for sale while in transit to auction locations; (iii) vehicles sold on the TradeRev platform; (iv) vehicle sales in Europe, including units sold by COTW; (v) simultaneously broadcasting video and audio during the physical auctions to online bidders (ADESA Simulcast); and (vi) bulletin-board or real-time online auctions (DealerBlock®). Online only sales, which do not include vehicles sold on ADESA Simulcast or DealerBlock, accounted for approximately 72% of ADESA's North American online sales volume. ADESA sold approximately 367,000 (including approximately 33,000 from TradeRev) and 367,000 (including approximately 31,000 from TradeRev) vehicles through its North American online only offerings in the first quarter of 2020 and 2019, respectively. For the three months ended March 31, 2020 and 2019, dealer consignment vehicles represented approximately 38% of used vehicles sold at ADESA physical auction locations. The volume of vehicles sold at physical auction locations in the first quarter of 2020 decreased approximately 16% compared with the first quarter of 2019. 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, decreased to 63.3% for the three months ended March 31, 2020, compared with 63.8% for the three months ended March 31, 2019.
Volumes sold for the three months ended March 31, 2020 were materially impacted by the restrictions placed on businesses throughout the world. Beginning the week of March 16, we experienced a significant decline in volumes, as customers began to cease operations in response to local, state and provincial directives. Year-to-date through February 29, 2020, North American volumes, excluding TradeRev, were up approximately 7% in comparison to 2019. For the first week of March 2020, North American volumes, excluding TradeRev, were up approximately 1% in comparison to 2019. In the second, third and fourth weeks of March 2020, North American volumes, excluding TradeRev, were down approximately 12%, 45% and 87%, respectively, in comparison to 2019.
Physical auction revenue per vehicle sold increased $39, or 4%, to $914 for the three months ended March 31, 2020, compared with $875 for the three months ended March 31, 2019. 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 services revenue and auction fees related to higher average transaction prices, as well as a decrease in the number of vehicles sold at physical auctions.
Online only auction revenue per vehicle sold increased $53 to $259 for the three months ended March 31, 2020, compared with $206 for the three months ended March 31, 2019. The increase in online only auction revenue per vehicle sold was attributable to an increase in purchased vehicle sales associated with the ADESA Assurance Program, the increase in TradeRev revenue and the inclusion of ADESA Europe sales. The entire selling price of the purchased vehicles sold at auction is recorded as revenue ("Purchased vehicle sales"). Excluding purchased vehicle sales, online only revenue per vehicle would have been $163 and $144 for the three months ended March 31, 2020 and 2019, respectively. The $19 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 ADESA Europe.
6
Gross Profit
For the three months ended March 31, 2020, gross profit for ADESA decreased $32.7 million, or 14%, to $196.3 million, compared with $229.0 million for the three months ended March 31, 2019. Gross profit for ADESA was 34.6% of revenue for the three months ended March 31, 2020, compared with 38.2% of revenue for the three months ended March 31, 2019. Gross profit as a percentage of revenue decreased for the three months ended March 31, 2020 as compared with the three months ended March 31, 2019 as a result of an increase in purchased vehicle sales primarily related to the acquisition of COTW and increased activity under ADESA Assurance. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicle sold. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 39.9% and 42.2% for the three months ended March 31, 2020 and 2019, respectively. The remaining decrease in gross profit as a percentage of revenue relates to growth in lower margin ancillary services and the shut down of the physical auctions on March 20, 2020 in response to the COVID-19 pandemic. While revenue decreased for the three months ended March 31, 2020, cost of services remained consistent, as all non-essential auction employees were paid during the 2 week closure. Businesses acquired in the last 12 months accounted for an increase in cost of services of $15.6 million for the three months ended March 31, 2020.
Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment decreased $3.8 million, or 3%, to $122.8 million for the three months ended March 31, 2020, compared with $126.6 million for the three months ended March 31, 2019, primarily due to decreases in incentive-based compensation of $5.4 million, marketing costs of $2.3 million, severance of $1.5 million and travel expenses of $0.9 million (as a result of travel restrictions put in place on February 28), partially offset by increases in costs associated with acquisitions of $1.9 million, information technology costs of $1.6 million, compensation expense of $0.9 million, professional fees of $0.8 million and other miscellaneous expenses aggregating $1.1 million.
AFC Results
| Three Months Ended March 31, | |||||||||||
| (Dollars in millions except volumes and per loan amounts) | 2020 | 2019 | |||||||||
| AFC revenue | $ | 78.5 | $ | 89.9 | |||||||
| Cost of services* | 23.9 | 23.2 | |||||||||
| Gross profit* | 54.6 | 66.7 | |||||||||
| Selling, general and administrative | 6.5 | 7.2 | |||||||||
| Depreciation and amortization | 2.7 | 2.4 | |||||||||
| Operating profit | $ | 45.4 | $ | 57.1 | |||||||
| Loan transactions | 448,000 | 461,000 | |||||||||
| Revenue per loan transaction, excluding “Warranty contract revenue” | $ | 155 | $ | 177 | |||||||
* Exclusive of depreciation and amortization
Overview of AFC Results for the Three Months Ended March 31, 2020 and 2019
Revenue
For the three months ended March 31, 2020, AFC revenue decreased $11.4 million, or 13%, to $78.5 million, compared with $89.9 million for the three months ended March 31, 2019. The decrease in revenue was primarily the result of a 3% decrease in loan transactions and a 12% decrease in revenue per loan transaction.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $22, or 12%, primarily as a result of an increase in provision for credit losses for the three months ended March 31, 2020. Revenue per loan transaction excludes "Warranty contract revenue."
The provision for credit losses increased to 3.3% of the average managed receivables for the three months ended March 31, 2020 from 1.6% for the three months ended March 31, 2019.
7
Gross Profit
For the three months ended March 31, 2020, gross profit for the AFC segment decreased $12.1 million to $54.6 million, or 69.6% of revenue, compared with $66.7 million, or 74.2% of revenue, for the three months ended March 31, 2019. The decrease in gross profit as a percent of revenue was primarily the result of a 13% decrease in revenue and a 3% increase in cost of services. The increase in cost of services was primarily the result of increases in compensation expense of $0.5 million and other miscellaneous expenses aggregating $0.2 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC decreased $0.7 million, or 10%, to $6.5 million for the three months ended March 31, 2020, compared with $7.2 million for the three months ended March 31, 2019, primarily as a result of decreases in incentive-based compensation of $0.4 million and stock-based compensation of $0.3 million.
Holding Company Results
| Three Months Ended March 31, | |||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Selling, general and administrative | $ | 33.1 | $ | 41.4 | |||||||
| Depreciation and amortization | 5.9 | 6.9 | |||||||||
| Operating loss | $ | (39.0) | $ | (48.3) | |||||||
Overview of Holding Company Results for the Three Months Ended March 31, 2020 and 2019
Selling, General and Administrative
For the three months ended March 31, 2020, selling, general and administrative expenses at the holding company decreased $8.3 million, or 20%, to $33.1 million, compared with $41.4 million for the three months ended March 31, 2019, primarily as a result of decreases in incentive-based compensation of $3.6 million, professional fees of $2.5 million, compensation expense of $1.6 million, stock-based compensation of $0.9 million and other miscellaneous expenses of $0.8 million, partially offset by increases in information technology costs of $1.1 million.
LIQUIDITY AND CAPITAL RESOURCES
We believe that the significant indicators of liquidity for our business are cash on hand, cash flow from operations, working capital and amounts available under our Credit Facility. Our principal sources of liquidity consist of cash generated by operations and borrowings under our revolving credit facility.
| March 31, 2020 | December 31, 2019 | March 31, 2019 | |||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| Cash and cash equivalents | $ | 293.1 | $ | 507.6 | $ | 199.4 | |||||||||||
| Restricted cash | 114.4 | 53.3 | 24.3 | ||||||||||||||
| Working capital | 694.1 | 726.8 | 277.5 | ||||||||||||||
| Amounts available under the revolving credit facility* | 325.0 | 325.0 | 256.5 | ||||||||||||||
| Cash flow from operations for the three months ended | (49.2) | 50.0 | |||||||||||||||
*There were related outstanding letters of credit totaling approximately $29.7 million, $27.4 million and $32.9 million at March 31, 2020, December 31, 2019 and March 31, 2019, 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. The COVID-19 pandemic is having a significant impact on our business. As a result, we have implemented several measures that we believe will enhance liquidity for the foreseeable future. Some of these measures include the following:
8
•We have reduced compensation expense:
▪KAR’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 KAR’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.
▪We furloughed approximately 11,000 employees in April 2020.
▪KAR’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 our locations have generally been suspended.
•All capital projects at our 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.
•We have 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, we intend to take advantage of the Employee Retention Credit and the Federal Employer Social Security Tax Deferment provided under the CARES Act. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued worldwide disruption could materially affect our liquidity.
Summary of Cash Flows
| Three Months Ended March 31, | |||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Net cash provided by (used by): | |||||||||||
| Operating activities - continuing operations | $ | (49.2) | $ | 50.0 | |||||||
| Operating activities - discontinued operations | — | 37.5 | |||||||||
| Investing activities - continuing operations | 116.7 | (134.4) | |||||||||
| Investing activities - discontinued operations | — | (21.6) | |||||||||
| Financing activities - continuing operations | (197.2) | (13.7) | |||||||||
| Financing activities - discontinued operations | — | (4.6) | |||||||||
| Effect of exchange rate on cash | (23.7) | 5.8 | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (153.4) | $ | (81.0) | |||||||
Cash flow used by operating activities (continuing operations) was $49.2 million for the three months ended March 31, 2020, compared with cash flow provided by operating activities of $50.0 million for the three months ended March 31, 2019. 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 attributable to reduced operations beginning March 20, 2020, resulting from COVID-19 restrictions on our business, partially offset by a net increase in non-cash item adjustments.
Net cash provided by investing activities (continuing operations) was $116.7 million for the three months ended March 31, 2020, compared with net cash used by investing activities of $134.4 million for the three months ended March 31, 2019. The increase in net cash from investing activities was primarily attributable to:
•a net decrease in finance receivables held for investment of approximately $127.7 million; and
•a decrease in cash used for acquisitions of approximately $120.7 million.
9
Net cash used by financing activities (continuing operations) was $197.2 million for the three months ended March 31, 2020, compared with $13.7 million for the three months ended March 31, 2019. The increase in net cash used by financing activities was primarily attributable to:
•a net decrease in borrowings on lines of credit of approximately $110.6 million;
•a net decrease in book overdrafts of approximately $72.5 million;
•an increase in cash used for payments of contingent consideration of approximately $22.3 million; and
•a net decrease in the obligations collateralized by finance receivables of approximately $15.2 million;
partially offset by:
•a decrease in dividends paid to stockholders of approximately $22.0 million.
10
First Quarter 2020 Earnings Slides May 7, 2020
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 based on management’s current expectations, are not guarantees of future performance and 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 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 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
Impact of COVID-19 on Company Operations March 16, 2020 - 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. 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. 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. We have taken certain measures to help protect the business and our liquidity while our operations are negatively impacted. Some of these measures include the following: • We have temporarily reduced the pay of management and employees with a base salary over $80K. • We furloughed approximately 11,000 employees in April 2020. • KAR’s board of directors voluntarily elected to forgo their cash compensation for the second quarter of 2020. • Business travel for any reason has been prohibited. • Non-essential services provided by third parties at our locations have generally been suspended. • All capital projects at our physical auction locations have been delayed or canceled. • The Company has temporarily suspended its quarterly dividend in light of the impact of the COVID-19 pandemic on its operations. • We have negotiated the deferral of rent payments with certain landlords. • The ADESA Assurance program was temporarily suspended. • AFC has reduced the unused portion of certain floorplan lines with its customers. In addition, we intend to take advantage of the Employee Retention Credit and the Federal Employer Social Security Tax Deferment provided under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). 3
March 31, 2020 Leverage (US$ in millions) Balance Maturity Term Loan B-6 (Adjusted LIBOR + 2.25%) $945 2026 Revolving Credit Facility (Adjusted LIBOR + 1.75%) & Lines of Credit 18 2024 Senior Notes (Fixed 5.125%) 950 2025 Finance Leases 24 Total 1,937 Less: Available Cash (249) Net Debt $1,688 Senior Secured Net Leverage Ratio* 1.8 Total Net Debt Ratio* 3.8 * Based upon the Credit Agreement Definition that limits available cash to $125 million for purposes of this calculation. Corporate Credit Ratings: S&P B, Moodys B2 4
KAR Q1 2020 Highlights ($ in millions, except per share amounts) Q1 Q1 KAR Highlights* 2020 2019 Operations shut down the last 2 weeks of March and we Total operating revenues $645.5 $689.6 estimate reduced revenue of over $75 million Labor incurred during last 2 weeks of March when Gross profit** $250.9 $295.7 operations were shutdown % of revenue 38.9% 42.9% 44.0% in Q1 2020, excluding purchased vehicle sales SG&A $162.4 $175.2 EBITDA $89.7 $122.0 Adjusted EBITDA $88.6 $122.9 Net income from continuing operations $2.8 $15.3 Net income from continuing operations per $0.02 $0.11 share – diluted Operating adjusted net income from continuing $0.09 $0.20 operations per share – diluted Weighted average diluted shares 130.0 133.8 Dividends declared per common share $0.19 $0.35 Effective tax rate 41.7% 29.8% Q1 2020 increase attributable to lower pretax earnings * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three months ended March 31, 2020. ** Exclusive of depreciation and amortization 5
ADESA Q1 2020 Highlights ($ in millions, except RPU) ADESA Q1 2020 Q1 2019 Highlights* Auction fees and services revenue $491.5 $541.9 Operations shut down the last 2 weeks of March Purchased vehicle sales $75.5 $57.8 Includes $12.7M from acquisitions Total ADESA Revenue $567.0 $599.7 $18.3M acquisitions, including $12.7M of purchased vehicle sales Labor incurred during last 2 weeks of March when operations were Gross profit** $196.3 $229.0 shutdown Increased purchase vehicles & lower margin ancillary services; non- % of revenue 34.6% 38.2% essential auction employees paid for 2 weeks when auctions were shutdown Incentive-based compensation -$5.4M, marketing costs -$2.3M, SG&A $122.8 $126.6 severance -$1.5M and travel expenses -$0.9M EBITDA $71.6 $100.8 Adjusted EBITDA $80.4 $110.8 % of revenue 14.2% 18.5% N.A. volumes, excluding TradeRev, were up approximately 7% YTD Vehicles sold 862,000 945,000 through Feb. 29. The same monthly March volumes were down 38%. Institutional vehicles sold in North America 622,000 681,000 Dealer consignment vehicles sold in North America 212,000 241,000 Includes TradeRev volume of 33,000 in Q1 2020 and 31,000 in Q1 2019 Vehicles sold in Europe 28,000 23,000 Percentage of vehicles sold online 63% 57% Conversion rate at North American physical auctions 63.3% 63.8% Includes physical auction sales to online buyers Physical RPU $914 $875 Excludes purchased vehicles; Includes off-premise ancillary services Online only RPU $163 $144 Excludes purchased vehicles; Includes Openlane, TradeRev & Europe * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three months ended March 31, 2020. ** Exclusive of depreciation and amortization 6
AFC Q1 2020 Highlights ($ in millions, except for revenue per loan transaction),1 Q1 Q1 Highlights* AFC 2020 2019 Interest and fee income $83.8 $86.9 Other revenue $2.7 $2.8 Provision for credit losses ($16.9) ($8.2) Warranty contract revenue $8.9 $8.4 PWI revenue Total AFC revenue $78.5 $89.9 -12% revenue per LTU, -3% loan transactions Gross profit** $54.6 $66.7 % of revenue 69.6% 74.2% Decreases in incentive-based compensation and stock- SG&A $6.5 $7.2 based compensation EBITDA $48.1 $59.4 Adjusted EBITDA $37.1 $45.1 Loan transactions 448,000 461,000 3% decrease Increase in provision for credit losses decreased revenue Revenue per loan transaction*** $155 $177 per loan transaction Provision for credit losses % of finance receivables 3.3% 1.6% Managed receivables $1,954.8 $1,989.1 $1,349.9 $1,360.6 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 March 31, 2020. ** Exclusive of depreciation and amortization 7 *** Excludes “Warranty contract revenue"
HISTORICAL DATA 8
ADESA Revenue 2Q18 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 Auction Fees & $511.1 $496.0 $475.3 $1,985.1 $541.9 $553.1 $534.5 $504.0 $2,133.5 $491.5 Services Revenue Purchased Vehicle $27.2 $31.0 $33.2 $116.8 $57.8 $79.3 $79.1 $79.3 $295.5 $75.5 Sales Total ADESA $538.3 $527.0 $508.5 $2,101.9 $599.7 $632.4 $613.6 $583.3 $2,429.0 $567.0 Revenue Gross $231.1 $219.2 $198.7 $871.1 $229.0 $239.5 $227.4 $212.4 $908.3 $196.3 Profit Gross 42.9% 41.6% 39.1% 41.4% 38.2% 37.9% 37.1% 36.4% 37.4% 34.6% Profit % Gross Profit %, Net of 45.2% 44.2% 41.8% 43.9% 42.2% 43.2% 42.5% 42.1% 42.6% 39.9% Purchased Vehicle Sales 9
ADESA Metrics - Annual 2019 2018 2017 2016 2015 Revenue2 $2,429.0 $2,101.9 $1,937.5 $1,765.3 $1,427.8 Total Volume 3,784 3,472 3,180 2,885 2,465 Online Only Volume (N.A.) 1,533 1,304 938 743 592 Total Online Volume %3 58% 54% 46% 42% 40% Physical Conversion % (N.A.) 62.8% 61.6% 60.4% 58.0% 58.3% Dealer Consignment Mix % (Physical) 40% 42% 45% 48% 50% Physical RPU1 $884 $844 $775 $753 $701 Online Only RPU1 $149 $121 $113 $110 $102 Gross Margin2 37.4% 41.4% 42.0% 41.3% 41.4% 1 Excluding purchased vehicle sales 2 Includes purchased vehicle sales 3 Includes ADESA Simulcast and DealerBlock volume 10
ADESA Metrics - Quarter 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 2Q18 1Q18 Revenue2 $567.0 $583.3 $613.6 $632.4 $599.7 $508.5 $527.0 $538.3 $528.1 Total Volume 862 887 957 994 945 811 876 907 878 Online Only Volume 367 355 396 416 367 306 343 346 309 (N.A.) Total Online Volume %3 63% 59% 59% 59% 57% 54% 54% 54% 52% Physical Conversion % 63.3% 58.4% 62.8% 66.1% 63.8% 58.5% 62.9% 62.4% 62.6% (N.A.) Dealer Consignment Mix 38% 39% 43% 41% 38% 40% 44% 43% 41% % (Physical) Physical RPU1 $914 $886 $893 $882 $875 $868 $850 $839 $820 Online Only RPU1 $163 $155 $151 $150 $144 $122 $126 $118 $117 Gross Margin2 34.6% 36.4% 37.1% 37.9% 38.2% 39.1% 41.6% 42.9% 42.1% 1 Excluding purchased vehicle sales 2 Includes purchased vehicle sales 3 Includes ADESA Simulcast and DealerBlock volume 11
AFC Metrics - Annual 2019 2018 2017 2016 2015 Revenue $352.9 $340.9 $301.3 $286.8 $268.4 Loan Transaction Units (LTU) 1,783 1,760 1,688 1,718 1,607 Revenue per Loan Transaction, $178 $175 $159 $148 $150 Excluding “Warranty Contract Revenue” Ending Managed Finance Receivables $2,115.2 $2,014.8 $1,912.6 $1,792.2 $1,641.0 Ending Obligations Collateralized by $1,461.2 $1,445.3 $1,358.1 $1,280.3 $1,189.0 Finance Receivables % Vehicles Purchased at Any Auction 84% 83% 85% 83% 84% Active Dealers 12,900 12,300 12,400 12,200 11,300 Vehicles per active dealer 16 15 15 15 16 Average Credit Line $270,000 $270,000 $250,000 $260,000 $230,000 Avg Value Outstanding per Vehicle $10,000 $10,200 $9,900 $9,500 $9,100 12
AFC Metrics - Quarter 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 2Q18 1Q18 Revenue $78.5 $88.0 $88.3 $86.7 $89.9 $85.3 $85.4 $85.1 $85.1 Loan Transaction Units 448 443 442 437 461 428 433 435 464 (LTU) Revenue per Loan Transaction, Excluding $155 $178 $180 $178 $177 $180 $177 $177 $166 “Warranty Contract Revenue” Ending Managed Finance $1,954.8 $2,115.2 $2,110.4 $2,070.1 $1,989.1 $2,014.8 $1,979.7 $1,958.6 $1,933.2 Receivables Ending Obligations Collateralized by Finance $1,349.9 $1,461.2 $1,428.4 $1,422.3 $1,360.6 $1,445.3 $1,366.3 $1,358.0 $1,354.2 Receivables 13
AFC Provision for Credit Losses - Annual 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Ending Managed $2,115.2 $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 $2,059.9 $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 $35.3 $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% 1.7% 1.9% 1.8% 1.1% 1.0% 0.9% 0.8% 0.8% 1.6% 3.3% 6.0% 3.0% Receivables 14
AFC Provision for Credit Losses - Quarterly 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 2Q18 1Q18 Ending Managed $1,954.8 $2,115.2 $2,110.4 $2,070.1 $1,989.1 $2,014.8 $1,979.7 $1,958.6 $1,933.2 Receivables Average Managed $2,035.0 $2,112.8 $2,090.3 $2,029.6 $2,002.0 $1,997.3 $1,969.2 $1,945.9 $1,922.9 Receivables Provision for $16.9 $9.8 $8.9 $8.4 $8.2 $10.8 $7.3 $7.1 $7.7 Credit Losses % of Managed 3.3% 1.9% 1.7% 1.7% 1.6% 2.2% 1.5% 1.5% 1.6% Receivables 15
APPENDIX 16
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. 17
Q1 2020 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended March 31, 2020 ADESA AFC Corporate Consolidated Net income (loss) from continuing $24.1 $24.6 ($45.9) $2.8 operations Add back: Income taxes 8.8 8.1 (14.9) 2.0 Interest expense, net of interest income 0.6 13.5 23.1 37.2 Depreciation and amortization 39.1 2.7 5.9 47.7 Intercompany interest (1.0) (0.8) (1.8) - EBITDA $71.6 $48.1 ($30.0) $89.7 Intercompany charges 1.7 - (1.7) - Non-cash stock-based compensation 2.1 0.4 2.8 5.3 Acquisition related costs 1.2 - 0.2 1.4 Securitization interest - (11.4) - (11.4) Loss on asset sales 0.5 - - 0.5 Severance 1.3 - 0.5 1.8 Foreign currency (gains)/losses 1.8 - (1.4) 0.4 Other 0.2 - 0.7 0.9 Total Addbacks 8.8 (11.0) 1.1 (1.1) Adjusted EBITDA $80.4 $37.1 ($28.9) $88.6 Revenue $567.0 $78.5 – $645.5 Adjusted EBITDA % margin 14.2% 47.3% 13.7% 18
Q1 2019 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended March 31, 2019 ADESA AFC Corporate Consolidated Net income (loss) from continuing $42.4 $30.5 ($57.6) $15.3 operations Add back: Income taxes 15.9 10.8 (20.2) 6.5 Interest expense, net of interest income 0.4 16.9 38.6 55.9 Depreciation and amortization 35.0 2.4 6.9 44.3 Intercompany interest 7.1 (1.2) (5.9) - EBITDA $100.8 $59.4 ($38.2) $122.0 Intercompany charges 3.2 - (3.2) - Non-cash stock-based compensation 2.4 0.5 3.7 6.6 Acquisition related costs 1.6 - 2.3 3.9 Securitization interest - (14.8) - (14.8) Loss on asset sales 0.5 - - 0.5 Severance 2.7 - 1.0 3.7 Foreign currency gains (0.6) - - (0.6) IAA allocated costs - - 1.4 1.4 Other 0.2 - - 0.2 Total Addbacks 10.0 (14.3) 5.2 0.9 Adjusted EBITDA $110.8 $45.1 ($33.0) $122.9 Revenue $599.7 $89.9 – $689.6 Adjusted EBITDA % margin 18.5% 50.2% 17.8% 19
Operating Adjusted Net Income from Continuing Operations per Share Reconciliation ($ in millions, except per share amounts), (unaudited) Three Months ended March 31, 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. 20