EXHIBIT 99.1
For Immediate Release
Analyst Inquiries: Media Inquiries:
Mike Eliason Laurie Dippold
(317) 249-4559 (317) 468-3900
mike.eliason@openlane.com laurie.dippold@openlane.com
OPENLANE, Inc. Reports First Quarter 2024 Financial Results
Carmel, IN, May 1, 2024 — OPENLANE, Inc. (NYSE: KAR), today reported its first quarter financial results for the period ended March 31, 2024.
"I am very pleased with OPENLANE’s first quarter results and believe they represent a compelling preview of the performance OPENLANE is capable of delivering as the industry recovery continues" said Peter Kelly, CEO of OPENLANE. "The marketplace segment grew volumes by 13%, delivered 47% of total OPENLANE adjusted EBITDA and continued to take share from physical auctions. Our finance segment was also a strong contributor during the quarter. And as I look to the future, we are advancing a robust pipeline of innovation that will further differentiate our offerings and strengthen our ability to deliver continued growth and improved financial performance."
First Quarter 2024 Financial Highlights
•Marketplace volumes increased 13% YoY
•Gross Merchandise Value (GMV) increased 17% to $7 billion YoY
•Income from continuing operations of $19 million
•Adjusted EBITDA of $75 million, with Marketplace accelerating to 47% of total
•$100 million of cash flow from operating activities
2024 Guidance
The company’s previously stated annual guidance remains unchanged.
| | | | | |
| Annual Guidance |
Income from continuing operations (in millions) | $74 - $88 |
Adjusted EBITDA (in millions) | $285 - $305 |
| Income from continuing operations per share - diluted * | $0.20 - $0.30 |
| Operating adjusted net income from continuing operations per share - diluted | $0.77 - $0.87 |
* The company uses the two-class method of calculating income from continuing operations per diluted share. Under the two-class method, income from continuing operations is adjusted for dividends and undistributed earnings (losses) to the holders of the Series A Preferred Stock, and the weighted average diluted shares do not assume conversion of the preferred shares to common shares.
Earnings guidance does not contemplate future items such as business development activities, strategic developments (such as restructurings, spin-offs or dispositions of assets or investments), contingent purchase price adjustments, significant expenses related to litigation, tax adjustments and changes in applicable laws and regulations (including significant accounting and tax matters) and intangible impairments. The timing and amounts of these items are highly variable, difficult to predict, and of a potential size that could have a substantial impact on the company’s reported results for any given period. Prospective quantification of these items is generally not practicable. Operating adjusted net income from continuing operations per share excludes amortization expense associated with acquired intangible assets, as well as one-time charges, net of taxes. See reconciliations of the company's guidance included below.
Earnings Conference Call Information
OPENLANE will be hosting an earnings conference call and webcast on Wednesday, May 1, 2024 at 4:30 p.m. ET. The call will be hosted by OPENLANE Chief Executive Officer Peter Kelly and Chief Financial Officer Brad Lakhia. The conference call may be accessed by calling 1-833-634-2155 and asking to join the OPENLANE call. A live webcast will be available at the investor relations section of corporate.openlane.com. Supplemental financial information for OPENLANE’s first quarter 2024 results is available at the investor relations section of corporate.openlane.com.
The archive of the webcast will be available following the call at the investor relations section of corporate.openlane.com for a limited time.
About OPENLANE
OPENLANE, Inc. (NYSE: KAR), provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. The company's unique end-to-end platform supports whole car, financing, logistics and other ancillary and related services. Our integrated marketplaces reduce risk, improve transparency and streamline transactions for customers around the globe. Headquartered in Carmel, Indiana, the company has employees across the United States, Canada, Europe, Uruguay and the Philippines. For more information and the latest company news, visit corporate.openlane.com.
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 but are not limited to risks and uncertainties regarding the impact of adverse market, economic and geopolitical conditions and those other matters disclosed in the company’s Securities and Exchange Commission filings, including those discussed under the heading "Risk Factors" in the company's annual and quarterly periodic reports. The company does not undertake any obligation to update any forward-looking statements.
OPENLANE, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| Operating revenues | | | |
| Auction fees | $ | 109.9 | | | $ | 99.9 | |
| Service revenue | 150.2 | | | 165.6 | |
| Purchased vehicle sales | 58.2 | | | 55.5 | |
| Finance-related revenue | 98.0 | | | 99.6 | |
| Total operating revenues | 416.3 | | | 420.6 | |
| | | |
| Operating expenses | | | |
| Cost of services (exclusive of depreciation and amortization) | 213.9 | | | 224.2 | |
| Selling, general and administrative | 108.7 | | | 108.0 | |
| Depreciation and amortization | 24.3 | | | 23.0 | |
| Total operating expenses | 346.9 | | | 355.2 | |
| | | |
| Operating profit | 69.4 | | | 65.4 | |
| | | |
| Interest expense | 39.7 | | | 38.3 | |
| Other (income) expense, net | 0.5 | | | 7.1 | |
| | | |
| Income from continuing operations before income taxes | 29.2 | | | 20.0 | |
| | | |
| Income taxes | 10.7 | | | 7.3 | |
| | | |
| Income from continuing operations | 18.5 | | | 12.7 | |
| Income from discontinued operations, net of income taxes | — | | | — | |
| Net income | $ | 18.5 | | | $ | 12.7 | |
| | | |
| Net income per share - basic | | | |
| Income from continuing operations | $ | 0.05 | | | $ | 0.01 | |
| Income from discontinued operations | — | | | — | |
| Net income per share - basic | $ | 0.05 | | | $ | 0.01 | |
| | | |
| Net income per share - diluted | | | |
| Income from continuing operations | $ | 0.05 | | | $ | 0.01 | |
| Income from discontinued operations | — | | | — | |
| Net income per share - diluted | $ | 0.05 | | | $ | 0.01 | |
OPENLANE, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
| | | | | | | | | | | |
| March 31,
2024 | | December 31,
2023 |
| Cash and cash equivalents | $ | 105.2 | | | $ | 93.5 | |
| Restricted cash | 45.7 | | | 65.4 | |
| Trade receivables, net of allowances | 391.0 | | | 291.8 | |
| Finance receivables, net of allowances | 2,292.7 | | | 2,282.0 | |
| Other current assets | 123.7 | | | 109.2 | |
| Total current assets | 2,958.3 | | | 2,841.9 | |
| | | |
| Goodwill | 1,266.0 | | | 1,271.2 | |
| Customer relationships, net of accumulated amortization | 131.2 | | | 136.1 | |
| Operating lease right-of-use assets | 73.0 | | | 75.9 | |
| Property and equipment, net of accumulated depreciation | 163.5 | | | 169.8 | |
| Intangible and other assets | 226.4 | | | 231.4 | |
| Total assets | $ | 4,818.4 | | | $ | 4,726.3 | |
| | | |
Current liabilities, excluding obligations collateralized by
finance receivables and current maturities of debt | $ | 856.1 | | | $ | 692.3 | |
| Obligations collateralized by finance receivables | 1,597.2 | | | 1,631.9 | |
| Current maturities of debt | 120.4 | | | 154.6 | |
| Total current liabilities | 2,573.7 | | | 2,478.8 | |
| | | |
| Long-term debt | 200.5 | | | 202.4 | |
| Operating lease liabilities | 67.4 | | | 70.4 | |
| Other non-current liabilities | 34.1 | | | 35.2 | |
| Temporary equity | 612.5 | | | 612.5 | |
| Stockholders’ equity | 1,330.2 | | | 1,327.0 | |
| Total liabilities, temporary equity and stockholders’ equity | $ | 4,818.4 | | | $ | 4,726.3 | |
OPENLANE, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2024 | | 2023 |
| Operating activities | | | |
| Net income | $ | 18.5 | | | $ | 12.7 | |
| Net income from discontinued operations | — | | | — | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and amortization | 24.3 | | | 23.0 | |
| Provision for credit losses | 15.8 | | | 14.3 | |
| Deferred income taxes | (1.5) | | | 0.2 | |
| Amortization of debt issuance costs | 2.2 | | | 2.2 | |
| Stock-based compensation | 6.6 | | | 3.6 | |
Net change in unrealized loss on investment securities | — | | | 0.1 | |
| Investment and note receivable impairment | — | | | 11.0 | |
| Other non-cash, net | 0.1 | | | 0.7 | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
| Trade receivables and other assets | (113.6) | | | (96.4) | |
| Accounts payable and accrued expenses | 147.8 | | | 124.7 | |
| Net cash provided by operating activities - continuing operations | 100.2 | | | 96.1 | |
| Net cash provided by operating activities - discontinued operations | — | | | — | |
| Investing activities | | | |
| Net increase in finance receivables held for investment | (26.4) | | | (1.7) | |
| Purchases of property, equipment and computer software | (12.9) | | | (12.0) | |
| Investments in securities | (0.4) | | | (0.2) | |
| Proceeds from sale of investments | — | | | 0.3 | |
| Net cash used by investing activities - continuing operations | (39.7) | | | (13.6) | |
| Net cash provided by investing activities - discontinued operations | — | | | 7.0 | |
| Financing activities | | | |
| Net increase (decrease) in book overdrafts | 17.0 | | | (0.5) | |
Net repayments of lines of credit | (33.2) | | | (62.9) | |
| Net decrease in obligations collateralized by finance receivables | (32.8) | | | (41.0) | |
| Payments for debt issuance costs/amendments | (1.9) | | | (0.5) | |
| Payments on finance leases | (0.3) | | | (0.5) | |
| Issuance of common stock under stock plans | 0.4 | | | 1.3 | |
| Tax withholding payments for vested RSUs | (1.7) | | | (1.3) | |
| Dividends paid on Series A Preferred Stock | (11.1) | | | (11.1) | |
| Net cash used by financing activities - continuing operations | (63.6) | | | (116.5) | |
| Net cash provided by financing activities - discontinued operations | — | | | — | |
| Net change in cash balances of discontinued operations | — | | | — | |
| Effect of exchange rate changes on cash | (4.9) | | | 1.1 | |
| Net decrease in cash, cash equivalents and restricted cash | (8.0) | | | (25.9) | |
| Cash, cash equivalents and restricted cash at beginning of period | 158.9 | | | 277.7 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 150.9 | | | $ | 251.8 | |
| Cash paid for interest | $ | 36.2 | | | $ | 31.1 | |
| Cash paid for taxes, net of refunds - continuing operations | $ | 15.4 | | | $ | 12.0 | |
| Cash paid for taxes, net of refunds - discontinued operations | $ | 0.2 | | | $ | — | |
OPENLANE, 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 following tables reconcile EBITDA and Adjusted EBITDA to income (loss) from continuing operations for the periods presented:
| | | | | | | | | | | |
| Three Months Ended
March 31, |
(in millions), (unaudited) | 2024 | | 2023 |
| Income from continuing operations | $ | 18.5 | | | $ | 12.7 | |
| Add back: | | | |
| Income taxes | 10.7 | | | 7.3 | |
| Interest expense, net of interest income | 39.3 | | | 37.4 | |
| Depreciation and amortization | 24.3 | | | 23.0 | |
| EBITDA | 92.8 | | | 80.4 | |
| Non-cash stock-based compensation | 7.0 | | | 3.8 | |
| Acquisition related costs | 0.3 | | | 0.3 | |
| Securitization interest | (29.9) | | | (27.8) | |
| Severance | 1.7 | | | 0.5 | |
| Foreign currency (gains)/losses | 2.0 | | | 0.1 | |
| Net change in unrealized (gains) losses on investment securities | — | | | 0.1 | |
| Professional fees related to business improvement efforts | 0.8 | | | 0.7 | |
| Other | 0.1 | | | 0.8 | |
| Total addbacks/(deductions) | (18.0) | | | (21.5) | |
| Adjusted EBITDA | $ | 74.8 | | | $ | 58.9 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (12.9) | | | $ | 31.4 | | | $ | 18.5 | |
| Add back: | | | | | |
| Income taxes | 0.2 | | | 10.5 | | | 10.7 | |
| Interest expense, net of interest income | 6.7 | | | 32.6 | | | 39.3 | |
| Depreciation and amortization | 21.6 | | | 2.7 | | | 24.3 | |
| Intercompany interest | 9.9 | | | (9.9) | | | — | |
| EBITDA | 25.5 | | | 67.3 | | | 92.8 | |
| Non-cash stock-based compensation | 5.2 | | | 1.8 | | | 7.0 | |
| Acquisition related costs | 0.3 | | | — | | | 0.3 | |
| Securitization interest | — | | | (29.9) | | | (29.9) | |
| Severance | 1.4 | | | 0.3 | | | 1.7 | |
| Foreign currency (gains)/losses | 2.0 | | | — | | | 2.0 | |
| Professional fees related to business improvement efforts | 0.6 | | | 0.2 | | | 0.8 | |
Other | 0.1 | | | — | | | 0.1 | |
| Total addbacks/(deductions) | 9.6 | | | (27.6) | | | (18.0) | |
| Adjusted EBITDA | $ | 35.1 | | | $ | 39.7 | | | $ | 74.8 | |
The following table reconciles operating adjusted net income and operating adjusted net income per diluted share to net income for the periods presented:
| | | | | | | | | | | |
| Three Months Ended
March 31, |
(in millions, except per share amounts), (unaudited) | 2024 | | 2023 |
Net income from continuing operations (1) | $ | 18.5 | | | $ | 12.7 | |
| Acquired amortization expense | 9.3 | | | 7.4 | |
Income taxes (2) | (0.4) | | | (2.7) | |
| Operating adjusted net income from continuing operations | $ | 27.4 | | | $ | 17.4 | |
| | | |
| Operating adjusted net income from discontinued operations | $ | — | | | $ | — | |
| | | |
| Operating adjusted net income | $ | 27.4 | | | $ | 17.4 | |
| | | |
Operating adjusted net income from continuing operations per share - diluted | $ | 0.19 | | | $ | 0.12 | |
| Operating adjusted net income from discontinued operations per share - diluted | — | | | — | |
| Operating adjusted net income per share - diluted | $ | 0.19 | | | $ | 0.12 | |
| | | |
Weighted average diluted shares - including assumed conversion of preferred shares | 144.9 | | | 145.6 | |
(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 and operating adjusted net income per diluted share.
(2)For the three months ended March 31, 2024, acquired amortization expense was booked to the applicable statutory rate. The deferred tax benefits of $52.5 million and $6.5 million associated with the goodwill and tradename impairments in the second quarter of 2023, respectively, resulted in the U.S. being in a net deferred tax asset position. Due to the three-year cumulative loss related to U.S. operations, we currently have a $38.3 million valuation allowance against the U.S. net deferred tax asset. For the three months ended March 31, 2023, the effective tax rate was used to determine the amount of income tax on the adjustments to net income.
The following table reconciles EBITDA and Adjusted EBITDA to income from continuing operations for the 2024 guidance presented:
| | | | | | | | | | | |
| 2024 Guidance |
(in millions), (unaudited) | Low | | High |
| Income from continuing operations | $ | 74 | | | $ | 88 | |
| Add back: | | | |
| Income taxes | 49 | | | 59 | |
| Interest expense, net of interest income | 156 | | | 154 | |
| Depreciation and amortization | 106 | | | 104 | |
| EBITDA | 385 | | | 405 | |
| Total addbacks/(deductions), net | (100) | | | (100) | |
| Adjusted EBITDA | $ | 285 | | | $ | 305 | |
The following table reconciles operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per diluted share to income from continuing operations for the 2024 guidance presented:
| | | | | | | | | | | |
| 2024 Guidance |
(in millions, except per share amounts), (unaudited) | Low | | High |
| Income from continuing operations | $ | 74 | | | $ | 88 | |
| Acquired amortization expense | 38 | | | 38 | |
| Operating adjusted net income from continuing operations | $ | 112 | | | $ | 126 | |
| | | |
| Operating adjusted net income from continuing operations per share – diluted | $ | 0.77 | | | $ | 0.87 | |
| | | |
| Weighted average diluted shares - including assumed conversion of preferred shares | 145 | | | 145 | |
EXHIBIT 99.2
OPENLANE, Inc.
First Quarter 2024 Supplemental Financial Information
May 1, 2024
OPENLANE, 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 income (loss) from continuing operations for the periods presented:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2024 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (12.9) | | | $ | 31.4 | | | $ | 18.5 | |
| Add back: | | | | | |
| Income taxes | 0.2 | | | 10.5 | | | 10.7 | |
| Interest expense, net of interest income | 6.7 | | | 32.6 | | | 39.3 | |
| Depreciation and amortization | 21.6 | | | 2.7 | | | 24.3 | |
| Intercompany interest | 9.9 | | | (9.9) | | | — | |
| EBITDA | 25.5 | | | 67.3 | | | 92.8 | |
| Non-cash stock-based compensation | 5.2 | | | 1.8 | | | 7.0 | |
| Acquisition related costs | 0.3 | | | — | | | 0.3 | |
| Securitization interest | — | | | (29.9) | | | (29.9) | |
| Severance | 1.4 | | | 0.3 | | | 1.7 | |
| Foreign currency (gains)/losses | 2.0 | | | — | | | 2.0 | |
| Professional fees related to business improvement efforts | 0.6 | | | 0.2 | | | 0.8 | |
Other | 0.1 | | | — | | | 0.1 | |
| Total addbacks/(deductions) | 9.6 | | | (27.6) | | | (18.0) | |
| Adjusted EBITDA | $ | 35.1 | | | $ | 39.7 | | | $ | 74.8 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (21.1) | | | $ | 33.8 | | | $ | 12.7 | |
| Add back: | | | | | |
| Income taxes | (3.9) | | | 11.2 | | | 7.3 | |
| Interest expense, net of interest income | 7.1 | | | 30.3 | | | 37.4 | |
| Depreciation and amortization | 21.2 | | | 1.8 | | | 23.0 | |
| Intercompany interest | 6.4 | | | (6.4) | | | — | |
| EBITDA | 9.7 | | | 70.7 | | | 80.4 | |
| Non-cash stock-based compensation | 2.7 | | | 1.1 | | | 3.8 | |
| Acquisition related costs | 0.3 | | | — | | | 0.3 | |
| Securitization interest | — | | | (27.8) | | | (27.8) | |
| Severance | 0.5 | | | — | | | 0.5 | |
| Foreign currency (gains)/losses | (0.1) | | | 0.2 | | | 0.1 | |
| Net change in unrealized (gains) losses on investment securities | — | | | 0.1 | | | 0.1 | |
| Professional fees related to business improvement efforts | 0.6 | | | 0.1 | | | 0.7 | |
| Other | 0.6 | | | 0.2 | | | 0.8 | |
| Total addbacks/(deductions) | 4.6 | | | (26.1) | | | (21.5) | |
| Adjusted EBITDA | $ | 14.3 | | | $ | 44.6 | | | $ | 58.9 | |
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 (loss) for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Twelve Months Ended |
(Dollars in millions), (Unaudited) | June 30,
2023 | | September 30,
2023 | | December 31,
2023 | | March 31,
2024 | | March 31,
2024 |
| Net income (loss) | $ | (193.8) | | | $ | 12.7 | | | $ | 14.3 | | | $ | 18.5 | | | $ | (148.3) | |
| Less: Income from discontinued operations | — | | | — | | | 0.7 | | | — | | | 0.7 | |
| Income (loss) from continuing operations | (193.8) | | | 12.7 | | | 13.6 | | | 18.5 | | | (149.0) | |
| Add back: | | | | | | | | | |
| Income taxes | (19.3) | | | 12.7 | | | 7.6 | | | 10.7 | | | 11.7 | |
| Interest expense, net of interest income | 37.5 | | | 38.5 | | | 38.9 | | | 39.3 | | | 154.2 | |
| Depreciation and amortization | 26.8 | | | 26.4 | | | 25.3 | | | 24.3 | | | 102.8 | |
| EBITDA | (148.8) | | | 90.3 | | | 85.4 | | | 92.8 | | | 119.7 | |
| Non-cash stock-based compensation | 5.5 | | | 4.5 | | | 3.6 | | | 7.0 | | | 20.6 | |
| Loss on extinguishment of debt | 1.1 | | | — | | | — | | | — | | | 1.1 | |
| Acquisition related costs | 0.3 | | | 0.5 | | | 2.0 | | | 0.3 | | | 3.1 | |
| Securitization interest | (29.6) | | | (31.6) | | | (31.4) | | | (29.9) | | | (122.5) | |
| Severance | 1.0 | | | 1.9 | | | 2.1 | | | 1.7 | | | 6.7 | |
| Foreign currency (gains)/losses | 0.3 | | | (1.2) | | | (2.1) | | | 2.0 | | | (1.0) | |
| Goodwill and other intangibles impairment | 250.8 | | | — | | | — | | | — | | | 250.8 | |
| Contingent consideration adjustment | 1.3 | | | — | | | — | | | — | | | 1.3 | |
| Net change in unrealized (gains) losses on investment securities | (0.2) | | | 0.5 | | | (0.4) | | | — | | | (0.1) | |
| Professional fees related to business improvement efforts | 2.1 | | | 1.7 | | | 2.1 | | | 0.8 | | | 6.7 | |
| Other | — | | | 0.9 | | | 0.5 | | | 0.1 | | | 1.5 | |
| Total addbacks/(deductions) | 232.6 | | | (22.8) | | | (23.6) | | | (18.0) | | | 168.2 | |
| Adjusted EBITDA from continuing operations | $ | 83.8 | | | $ | 67.5 | | | $ | 61.8 | | | $ | 74.8 | | | $ | 287.9 | |
Results of Operations
OPENLANE Results | | | | | | | | | | | |
| | Three Months Ended March 31, |
| (Dollars in millions except per share amounts) | 2024 | | 2023 |
| Revenues from continuing operations | | | |
| Auction fees | $ | 109.9 | | | $ | 99.9 | |
| Service revenue | 150.2 | | | 165.6 | |
| Purchased vehicle sales | 58.2 | | | 55.5 | |
| Finance-related revenue | 98.0 | | | 99.6 | |
| Total revenues from continuing operations | 416.3 | | | 420.6 | |
| Cost of services* | 213.9 | | | 224.2 | |
| Gross profit* | 202.4 | | | 196.4 | |
| Selling, general and administrative | 108.7 | | | 108.0 | |
| Depreciation and amortization | 24.3 | | | 23.0 | |
| Operating profit | 69.4 | | | 65.4 | |
| Interest expense | 39.7 | | | 38.3 | |
| Other (income) expense, net | 0.5 | | | 7.1 | |
| Income from continuing operations before income taxes | 29.2 | | | 20.0 | |
| Income taxes | 10.7 | | | 7.3 | |
| Income from continuing operations | 18.5 | | | 12.7 | |
| Income from discontinued operations, net of income taxes | — | | | — | |
| Net income | $ | 18.5 | | | $ | 12.7 | |
| Income from continuing operations per share | | | |
| Basic | $ | 0.05 | | | $ | 0.01 | |
| Diluted | $ | 0.05 | | | $ | 0.01 | |
* Exclusive of depreciation and amortization
Overview of OPENLANE Results for the Three Months Ended March 31, 2024 and 2023
Overview
For the three months ended March 31, 2024, we had revenue of $416.3 million compared with revenue of $420.6 million for the three months ended March 31, 2023, a decrease of 1%. 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 $1.3 million, or 6%, to $24.3 million for the three months ended March 31, 2024, compared with $23.0 million for the three months ended March 31, 2023. The increase in depreciation and amortization was primarily the result of the amortization of the ADESA tradename, which was previously an indefinite-lived asset, partially offset by assets that have become fully depreciated.
Interest Expense
Interest expense increased $1.4 million, or 4%, to $39.7 million for the three months ended March 31, 2024, compared with $38.3 million for the three months ended March 31, 2023. Interest expense increased $2.3 million at AFC (to $32.6 million from $30.3 million) and the increase was attributable to an increase in the average interest rate on the AFC securitization obligations to approximately 7.6% for the three months ended March 31, 2024, as compared with approximately 6.8% for the three months ended March 31, 2023. These items were partially offset by a decrease in interest expense resulting from the repayment of senior note debt in 2023.
Other (Income) Expense, Net
For the three months ended March 31, 2024, we had other expense of $0.5 million compared with $7.1 million for the three months ended March 31, 2023. The decrease in other expense was primarily attributable to the first quarter 2023 impairment of an equity security and note receivable with the same investee aggregating $11.0 million, partially offset by an increase in foreign currency losses of $1.9 million and a decrease in other miscellaneous income aggregating $2.5 million.
Income Taxes
We had an effective tax rate of 36.6% for the three months ended March 31, 2024, compared with an effective tax rate of 36.5% for the three months ended March 31, 2023. The effective tax rate for the three months ended March 31, 2024 was unfavorably impacted by an increase in the valuation allowance related to current year movement of the adjusted U.S. net deferred tax asset.
Impact of Foreign Currency
For the three months ended March 31, 2024 compared with the three months ended March 31, 2023, the change in the euro exchange rate increased revenue by $0.8 million, operating profit by $0.1 million and had no impact on net income. For the three months ended March 31, 2024 compared with the three months ended March 31, 2023, the change in the Canadian dollar exchange rate increased revenue by $0.3 million, operating profit by $0.1 million and had no impact on net income.
Marketplace Results | | | | | | | | | | | |
| Three Months Ended March 31, |
(Dollars in millions, except volumes) | 2024 | | 2023 |
| Auction fees | $ | 109.9 | | | $ | 99.9 | |
| Service revenue | 150.2 | | | 165.6 | |
| Purchased vehicle sales | 58.2 | | | 55.5 | |
| Total Marketplace revenue from continuing operations | 318.3 | | | 321.0 | |
| Cost of services* | 197.1 | | | 207.8 | |
| Gross profit* | 121.2 | | | 113.2 | |
| Selling, general and administrative | 94.8 | | | 95.6 | |
| Depreciation and amortization | 21.6 | | | 21.2 | |
| Operating profit (loss) | $ | 4.8 | | | $ | (3.6) | |
| | | |
| Commercial vehicles sold | 222,000 | | | 167,000 | |
| Dealer consignment vehicles sold | 150,000 | | 163,000 | |
| Total vehicles sold | 372,000 | | 330,000 |
| Gross profit percentage, excluding purchased vehicles* | 46.6% | | 42.6% |
* Exclusive of depreciation and amortization
Overview of Marketplace Results for the Three Months Ended March 31, 2024 and 2023
Total Marketplace Revenue
Revenue from the Marketplace segment decreased $2.7 million, or 1%, to $318.3 million for the three months ended March 31, 2024, compared with $321.0 million for the three months ended March 31, 2023. The change in revenue included the impact of an increase in revenue of $0.8 million due to fluctuations in the euro exchange rate and $0.3 million due to fluctuations in the Canadian dollar exchange rate. The decrease in revenue was primarily attributable to the decrease in service revenue (discussed below).
The 13% increase in the number of vehicles sold was comprised of a 33% increase in commercial volumes and an 8% decrease in dealer consignment volumes. The gross merchandise value ("GMV") of vehicles sold for the three months ended March 31, 2024 and 2023 was approximately $7.0 billion and $6.0 billion, respectively.
Auction Fees
Auction fees increased $10.0 million, or 10%, to $109.9 million for the three months ended March 31, 2024, compared with $99.9 million for the three months ended March 31, 2023. The number of vehicles sold increased 13%. Auction fees per vehicle sold for the three months ended March 31, 2024 decreased $8, or 3%, to $295, compared with $303 for the three months ended March 31, 2023. The decrease in auction fees per vehicle sold reflects a larger mix of lower-fee commercial vehicles sold in the first quarter of 2024.
Service Revenue
Service revenue decreased $15.4 million, or 9%, to $150.2 million for the three months ended March 31, 2024, compared with $165.6 million for the three months ended March 31, 2023, primarily as a result of a decrease in transportation revenue of $23.3 million, of which $21.5 million related to a change in a key customer contract that resulted in the customer's first quarter of 2024 revenue being recorded on a net commission basis instead of a gross basis, as it was recorded in the first quarter of 2023. This decrease was partially offset by increases in repossession and remarketing fees of $2.5 million, inspection service revenue of $2.3 million, key service revenue of $1.4 million and a net increase in other miscellaneous service revenues aggregating approximately $1.7 million.
Purchased Vehicle Sales
The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicles sold. Purchased vehicle sales increased $2.7 million, or 5%, to $58.2 million for the three months ended March 31, 2024, compared with $55.5 million for the three months ended March 31, 2023, primarily as a result of an increase in purchased vehicles sold in Europe.
Gross Profit
For the three months ended March 31, 2024, gross profit from the Marketplace segment increased $8.0 million, or 7%, to $121.2 million, compared with $113.2 million for the three months ended March 31, 2023. Gross profit improvements were driven by a $7.5 million increase in auction and service volumes and $2.3 million from pricing. These improvements were partially offset by a $1.8 million decrease in gross profit resulting from a higher mix of commercial volumes.
Gross profit from the Marketplace segment was 38.1% of revenue for the three months ended March 31, 2024, compared with 35.3% of revenue for the three months ended March 31, 2023. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 46.6% and 42.6% for the three months ended March 31, 2024 and 2023, respectively. Gross profit as a percentage of revenue increased for the three months ended March 31, 2024 as compared with the three months ended March 31, 2023, primarily due to a change in a key customer contract (see discussion in "Service revenue" above), increased volumes and cost savings initiatives.
Selling, General and Administrative
Selling, general and administrative expenses from the Marketplace segment decreased $0.8 million, or 1%, to $94.8 million for the three months ended March 31, 2024, compared with $95.6 million for the three months ended March 31, 2023, primarily as a result of decreases in incentive-based compensation of $2.4 million, compensation expense of $1.8 million and professional fees of $1.2 million, partially offset by increases in stock-based compensation of $2.4 million, information technology costs of $1.0 million and other miscellaneous expenses aggregating $1.2 million.
Finance Results | | | | | | | | | | | |
| Three Months Ended March 31, |
(Dollars in millions, except volumes and per loan amounts) | 2024 | | 2023 |
| Finance-related revenue | | | |
| Interest income | $ | 61.0 | | | $ | 60.6 | |
| Fee income | 48.5 | | | 47.6 | |
| Other revenue | 2.1 | | | 3.4 | |
| Provision for credit losses | (13.6) | | | (12.0) | |
| Total Finance revenue | 98.0 | | | 99.6 | |
| Cost of services* | 16.8 | | | 16.4 | |
| Gross profit* | 81.2 | | | 83.2 | |
| Selling, general and administrative | 13.9 | | | 12.4 | |
| Depreciation and amortization | 2.7 | | | 1.8 | |
| Operating profit | $ | 64.6 | | | $ | 69.0 | |
| | | |
| Loan transactions | 422,000 | | 420,000 | |
| Revenue per loan transaction | $ | 232 | | | $ | 237 | |
* Exclusive of depreciation and amortization
Overview of Finance Results for the Three Months Ended March 31, 2024 and 2023
Revenue
For the three months ended March 31, 2024, the Finance segment revenue decreased $1.6 million, or 2%, to $98.0 million, compared with $99.6 million for the three months ended March 31, 2023. The decrease in revenue was primarily the result of a 2% decrease in revenue per loan transactions.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $5, or 2%, primarily as a result of a decrease in loan values, an increase in net credit losses and a decrease in average portfolio duration, partially offset by an increase in interest yields.
The provision for credit losses increased to 2.3% of the average managed receivables for the three months ended March 31, 2024 from 2.0% for the three months ended March 31, 2023. The provision for credit losses is expected to be approximately 2% or under, on a long-term basis, of the average managed receivables balance. However, the actual losses in any particular quarter or year could deviate from this range.
Gross Profit
For the three months ended March 31, 2024, gross profit for the Finance segment decreased $2.0 million, or 2%, to $81.2 million, or 82.9% of revenue, compared with $83.2 million, or 83.5% of revenue, for the three months ended March 31, 2023. The decrease in gross profit as a percent of revenue was primarily the result of a 2% increase in cost of services and the 2% decrease in revenue. The increase in cost of services of $0.4 million was primarily the result of increases in compensation expense of $0.3 million, professional fees of $0.3 million and other miscellaneous expenses aggregating $0.1 million, partially offset by a decrease in lot check expenses of $0.3 million.
Selling, General and Administrative
Selling, general and administrative expenses for the Finance segment increased $1.5 million, or 12%, to $13.9 million for the three months ended March 31, 2024, compared with $12.4 million for the three months ended March 31, 2023 primarily as a result of increases in stock-based compensation of $0.6 million, title handling costs of $0.6 million and severance costs of $0.3 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 Revolving Credit Facilities (U.S. and Canadian revolvers). Our principal sources of liquidity consist of cash generated by operations and borrowings under our Revolving Credit Facilities.
| | | | | | | | | | | | | | | | | |
| March 31, | | December 31, | | March 31, |
| (Dollars in millions) | 2024 | | 2023 | | 2023 |
| Cash and cash equivalents | $ | 105.2 | | | $ | 93.5 | | | $ | 219.6 | |
| Restricted cash | 45.7 | | 65.4 | | 32.2 |
| Working capital | 384.6 | | 363.1 | | 408.6 |
Amounts available under the Revolving Credit Facilities | 307.6 | | 133.3 | | 241.0 |
Cash provided by operating activities for the three months ended | 100.2 | | | | 96.1 | |
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.
Summary of Cash Flows
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| (Dollars in millions) | 2024 | | 2023 |
| Net cash provided by (used by): | | | |
| Operating activities - continuing operations | $ | 100.2 | | | $ | 96.1 | |
| Operating activities - discontinued operations | — | | | — | |
| Investing activities - continuing operations | (39.7) | | | (13.6) | |
| Investing activities - discontinued operations | — | | | 7.0 | |
| Financing activities - continuing operations | (63.6) | | | (116.5) | |
| Financing activities - discontinued operations | — | | | — | |
| Net change in cash balances of discontinued operations | — | | | — | |
| Effect of exchange rate on cash | (4.9) | | | 1.1 | |
| Net decrease in cash, cash equivalents and restricted cash | $ | (8.0) | | | $ | (25.9) | |
Cash flow from operating activities (continuing operations) Net cash provided by operating activities (continuing operations) was $100.2 million for the three months ended March 31, 2024, compared with $96.1 million for the three months ended March 31, 2023. Cash provided by continuing operations for the three months ended March 31, 2024 consisted primarily of cash earnings and an increase in accounts payable and accrued expenses, partially offset by an increase in trade receivables and other assets. Cash provided by continuing operations for the three months ended March 31, 2023 consisted primarily of cash earnings and an increase in accounts payable and accrued expenses, partially offset by an increase in trade receivables and other assets. The increase 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 marketplace sales held near period-ends, and changes in AFC's accounts payable balances.
Changes in AFC’s accounts payable balance are presented in cash flows from operating activities while changes in AFC’s finance receivables are presented in cash flows from investing activities. Changes in these balances can cause variations in operating and investing cash flows.
Cash flow from investing activities (continuing operations) Net cash used by investing activities (continuing operations) was $39.7 million for the three months ended March 31, 2024, compared with $13.6 million for the three months ended March 31, 2023. The cash used by investing activities for the three months ended March 31, 2024 was primarily from an increase in finance receivables held for investment and purchases of property and equipment. The cash used by investing activities for the three months ended March 31, 2023 was primarily from purchases of property and equipment and an increase in finance receivables held for investment.
Cash flow from financing activities (continuing operations) Net cash used by financing activities (continuing operations) was $63.6 million for the three months ended March 31, 2024, compared with $116.5 million for the three months ended March 31, 2023. The cash used by financing activities for the three months ended March 31, 2024 was primarily due to repayments on lines of credit, a decrease in obligations collateralized by finance receivables and dividends paid on the Series A Preferred Stock, partially offset by a net increase in book overdrafts. The cash used by financing activities for the three months ended March 31, 2023 was primarily due to repayments on lines of credit, a decrease in obligations collateralized by finance receivables and dividends paid on the Series A Preferred Stock.
Cash flow from operating activities (discontinued operations) There were no operating activities (discontinued operations) for the three months ended March 31, 2024 and 2023.
Cash flow from investing activities (discontinued operations) There were no investing activities (discontinued operations) for the three months ended March 31, 2024, compared with net cash provided by investing activities of $7.0 million for the three months ended March 31, 2023. The cash provided by investing activities for the three months ended March 31, 2023 was attributable to the final proceeds from the sale of the ADESA U.S. physical auction business.
Cash flow from financing activities (discontinued operations) There were no financing activities (discontinued operations) for the three months ended March 31, 2024 and 2023.