OPLN 8-K
OPENLANE, Inc. (OPLN)
8-K
2020-11-03
For: 2020-11-03
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): November 3, 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 November 3, 2020, KAR Auction Services, Inc. issued a press release announcing its financial results for the three and nine months ended September 30, 2020. KAR will host an earnings conference call and webcast, Wednesday, November 4, 2020 at 8:30 a.m., Eastern Standard Time. The conference call may be accessed by calling 1-844-778-4145 and entering participant code 8592422 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 and nine months ended September 30, 2020. The press release dated November 3, 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 November 3, 2020, KAR also posted supplemental financial information for the three and nine months ended September 30, 2020, and Earnings Slides for the three and nine months ended September 30, 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 November 3, 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 November 3, 2020 – “KAR Auction Services, Inc. Reports Third Quarter 2020 Financial Results”
99.2 KAR Auction Services, Inc. Third Quarter 2020 Supplemental Financial Information – November 3, 2020
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: November 3, 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 Stephanie Freeman
(317) 249-4559 (317) 343-5020
KAR Auction Services, Inc. Reports Third Quarter 2020 Financial Results
Carmel, IN, November 3, 2020 — KAR Auction Services, Inc. (NYSE: KAR), today reported its third quarter financial results for the period ended September 30, 2020. For the third quarter of 2020, the company reported revenue of $593.6 million as compared with revenue of $701.9 million for the third quarter of 2019, a decrease of 15%. For the third quarter of 2020, the company reported net income from continuing operations of $47.1 million, or $0.23 per diluted share, as compared with net income from continuing operations of $34.4 million, or $0.26 per diluted share, in the third quarter of 2019. Adjusted EBITDA for the quarter ended September 30, 2020 increased 8% to $139.2 million, as compared with Adjusted EBITDA of $129.2 million for the quarter ended September 30, 2019. Operating adjusted net income from continuing operations per diluted share increased 29% to $0.45 for the quarter ended September 30, 2020, as compared with operating adjusted net income from continuing operations per diluted share of $0.35 for the quarter ended September 30, 2019.
For the nine months ended September 30, 2020, the company reported revenue of $1,658.1 million as compared with revenue of $2,110.6 million for the nine months ended September 30, 2019, a decrease of 21%. For the nine months ended September 30, 2020, the company reported net income from continuing operations of $17.6 million, or $0.04 per diluted share, as compared with net income from continuing operations of $77.1 million, or $0.58 per diluted share, in the first nine months of 2019. Adjusted EBITDA for the nine months ended September 30, 2020 decreased 21% to $307.8 million, as compared with Adjusted EBITDA of $388.0 million for the nine months ended September 30, 2019. Operating adjusted net income from continuing operations per diluted share decreased 31% to $0.59 for the nine months ended September 30, 2020, as compared with operating adjusted net income from continuing operations per diluted share of $0.85 for the nine months ended September 30, 2019. The company's operating results for the nine months ended September 30, 2020 were significantly impacted by the COVID-19 pandemic. In addition, the company recorded a $29.8 million charge for the impairment of goodwill and other intangible assets in the second quarter of 2020.
Impact of COVID-19 on Company Operations
The company has been subject to numerous COVID-19-related orders and directives that have caused us to modify our business practices. All ADESA auction locations in the U.S. and Canada are offering vehicles for sale via ADESA Simulcast, DealerBlock and Simulcast+. Auction locations have resumed offering ancillary and related services, where possible and as permitted by government directives. Given the evolving health, economic, social and governmental environments, the potential impact that COVID-19 could have on our business remains uncertain. The extent to which the COVID-19 outbreak impacts our 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, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.
Earnings Conference Call Information
KAR will be hosting an earnings conference call and webcast on Wednesday, November 4, 2020 at 8:30 a.m. EST. 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 8592422, while the live web cast will be available at the investors section of www.karglobal.com. Supplemental financial information for KAR’s third 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 8592422. The archive of the webcast will also be available following the call and will be available at the investors section of www.karglobal.com for a limited time.
About KAR
KAR Auction Services, Inc. d/b/a KAR Global (NYSE: KAR), provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. KAR Global's unique end-to-end platform supports whole car, financing, logistics and other ancillary and related services, including the sale of nearly 3.8 million units valued at approximately $40 billion through our auctions in 2019. 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 employees across the United States, Canada, Mexico, U.K. and Europe. For more information and the latest KAR Global news, go to www.karglobal.com. and follow us on Twitter @KARSpeaks.
Forward-Looking Statements
Certain statements contained in this release include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made that are not historical facts may be forward-looking statements. Words such as “should,” “may,” “will,” “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.
2
KAR Auction Services, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||
| Auction fees and services revenue | $ | 440.5 | $ | 534.5 | $ | 1,244.6 | $ | 1,629.5 | |||||||||||||||
| Purchased vehicle sales | 86.2 | 79.1 | 211.3 | 216.2 | |||||||||||||||||||
| Finance-related revenue | 66.9 | 88.3 | 202.2 | 264.9 | |||||||||||||||||||
| Total operating revenues | 593.6 | 701.9 | 1,658.1 | 2,110.6 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Cost of services (exclusive of depreciation and amortization) | 329.7 | 410.9 | 959.4 | 1,222.2 | |||||||||||||||||||
| Selling, general and administrative | 131.0 | 158.9 | 405.7 | 497.3 | |||||||||||||||||||
| Depreciation and amortization | 46.5 | 46.4 | 140.7 | 138.6 | |||||||||||||||||||
| Goodwill and other intangibles impairment | — | — | 29.8 | — | |||||||||||||||||||
| Total operating expenses | 507.2 | 616.2 | 1,535.6 | 1,858.1 | |||||||||||||||||||
| Operating profit | 86.4 | 85.7 | 122.5 | 252.5 | |||||||||||||||||||
| Interest expense | 29.5 | 37.9 | 98.4 | 150.0 | |||||||||||||||||||
| Other income, net | (1.1) | (2.0) | (1.8) | (5.2) | |||||||||||||||||||
| Loss on extinguishment of debt | — | 2.2 | — | 2.2 | |||||||||||||||||||
| Income from continuing operations before income taxes | 58.0 | 47.6 | 25.9 | 105.5 | |||||||||||||||||||
| Income taxes | 10.9 | 13.2 | 8.3 | 28.4 | |||||||||||||||||||
| Income from continuing operations | 47.1 | 34.4 | 17.6 | 77.1 | |||||||||||||||||||
| Income from discontinued operations, net of income taxes | — | 0.9 | — | 91.6 | |||||||||||||||||||
| Net income | $ | 47.1 | $ | 35.3 | $ | 17.6 | $ | 168.7 | |||||||||||||||
| Net income per share - basic | |||||||||||||||||||||||
| Income from continuing operations | $ | 0.23 | $ | 0.26 | $ | 0.04 | $ | 0.58 | |||||||||||||||
| Income from discontinued operations | — | 0.01 | — | 0.69 | |||||||||||||||||||
| Net income per share - basic | $ | 0.23 | $ | 0.27 | $ | 0.04 | $ | 1.27 | |||||||||||||||
| Net income per share - diluted | |||||||||||||||||||||||
| Income from continuing operations | $ | 0.23 | $ | 0.26 | $ | 0.04 | $ | 0.58 | |||||||||||||||
| Income from discontinued operations | — | 0.01 | — | 0.68 | |||||||||||||||||||
| Net income per share - diluted | $ | 0.23 | $ | 0.27 | $ | 0.04 | $ | 1.26 | |||||||||||||||
| Dividends declared per common share | $ | — | $ | 0.19 | $ | 0.19 | $ | 0.89 | |||||||||||||||
3
KAR Auction Services, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
| September 30, 2020 | December 31, 2019 | ||||||||||
| Cash and cash equivalents | $ | 1,276.7 | $ | 507.6 | |||||||
| Restricted cash | 54.7 | 53.3 | |||||||||
| Trade receivables, net of allowances | 494.1 | 457.5 | |||||||||
| Finance receivables, net of allowances | 1,722.8 | 2,100.2 | |||||||||
| Other current assets | 126.3 | 125.9 | |||||||||
| Total current assets | 3,674.6 | 3,244.5 | |||||||||
| Goodwill | 1,798.2 | 1,821.7 | |||||||||
| Customer relationships, net of accumulated amortization | 168.6 | 207.9 | |||||||||
| Operating lease right-of-use assets | 354.9 | 364.1 | |||||||||
| Property and equipment, net of accumulated depreciation | 585.2 | 609.0 | |||||||||
| Intangible and other assets | 328.4 | 334.0 | |||||||||
| Total assets | $ | 6,909.9 | $ | 6,581.2 | |||||||
| Current liabilities, excluding obligations collateralized by finance receivables and current maturities of debt | $ | 1,227.1 | $ | 1,027.7 | |||||||
| Obligations collateralized by finance receivables | 1,101.0 | 1,461.2 | |||||||||
| Current maturities of debt | 26.4 | 28.8 | |||||||||
| Total current liabilities | 2,354.5 | 2,517.7 | |||||||||
| Long-term debt | 1,854.8 | 1,861.3 | |||||||||
| Operating lease liabilities | 348.6 | 358.3 | |||||||||
| Other non-current liabilities | 205.0 | 193.7 | |||||||||
| Temporary equity | 540.0 | — | |||||||||
| Stockholders’ equity | 1,607.0 | 1,650.2 | |||||||||
| Total liabilities, temporary equity and stockholders’ equity | $ | 6,909.9 | $ | 6,581.2 | |||||||
4
KAR Auction Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
Nine Months Ended September 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Operating activities | |||||||||||
| Net income | $ | 17.6 | $ | 168.7 | |||||||
| Net income from discontinued operations | — | (91.6) | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 140.7 | 138.6 | |||||||||
| Provision for credit losses | 41.6 | 28.9 | |||||||||
| Deferred income taxes | (3.0) | 2.5 | |||||||||
| Amortization of debt issuance costs | 8.6 | 9.6 | |||||||||
| Stock-based compensation | 11.1 | 14.6 | |||||||||
| Goodwill and other intangibles impairment | 29.8 | — | |||||||||
| Loss on extinguishment of debt | — | 2.2 | |||||||||
| Other non-cash, net | 6.1 | 7.9 | |||||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Trade receivables and other assets | (49.4) | (41.3) | |||||||||
| Accounts payable and accrued expenses | 228.8 | 51.0 | |||||||||
| Net cash provided by operating activities - continuing operations | 431.9 | 291.1 | |||||||||
| Net cash provided by operating activities - discontinued operations | — | 156.7 | |||||||||
| Investing activities | |||||||||||
| Net decrease (increase) in finance receivables held for investment | 337.1 | (119.0) | |||||||||
| Acquisition of businesses (net of cash acquired) | — | (120.7) | |||||||||
| Purchases of property, equipment and computer software | (74.3) | (127.6) | |||||||||
| Proceeds from the sale of property and equipment | 0.8 | — | |||||||||
| Net cash provided by (used by) investing activities - continuing operations | 263.6 | (367.3) | |||||||||
| Net cash used by investing activities - discontinued operations | — | (37.4) | |||||||||
| Financing activities | |||||||||||
| Net increase in book overdrafts | 20.3 | 9.2 | |||||||||
| Net (decrease) increase in borrowings from lines of credit | (2.4) | 17.5 | |||||||||
| Net decrease in obligations collateralized by finance receivables | (345.1) | (25.0) | |||||||||
| Proceeds from issuance of Series A Preferred Stock | 550.1 | — | |||||||||
| Payments for issuance costs of Series A Preferred Stock | (21.9) | — | |||||||||
| Proceeds from long-term debt | — | 947.6 | |||||||||
| Payments for debt issuance costs/amendments | (18.2) | (13.7) | |||||||||
| Payments on long-term debt | (7.1) | (1,746.6) | |||||||||
| Payments on finance leases | (12.6) | (12.2) | |||||||||
| Payments of contingent consideration and deferred acquisition costs | (22.3) | (0.5) | |||||||||
| Issuance of common stock under stock plans | 1.0 | 4.1 | |||||||||
| Tax withholding payments for vested RSUs | (3.9) | (10.5) | |||||||||
| Repurchase and retirement of common stock | — | (119.7) | |||||||||
| Dividends paid to stockholders | (49.0) | (139.8) | |||||||||
| Cash transferred to IAA | — | (50.9) | |||||||||
| Net cash provided by (used by) financing activities - continuing operations | 88.9 | (1,140.5) | |||||||||
| Net cash provided by financing activities - discontinued operations | — | 1,317.6 | |||||||||
| Effect of exchange rate changes on cash | (13.9) | 7.0 | |||||||||
| Net increase in cash, cash equivalents and restricted cash | 770.5 | 227.2 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 560.9 | 304.7 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,331.4 | $ | 531.9 | |||||||
| Cash paid for interest, net of proceeds from interest rate derivatives | $ | 77.7 | $ | 120.0 | |||||||
| Cash paid for taxes, net of refunds - continuing operations | $ | 9.7 | $ | 27.8 | |||||||
| Cash paid for taxes, net of refunds - discontinued operations | $ | — | $ | 40.1 | |||||||
5
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in millions), (unaudited) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net income | $ | 47.1 | $ | 35.3 | $ | 17.6 | $ | 168.7 | |||||||||||||||
| Less: Income from discontinued operations | — | (0.9) | — | (91.6) | |||||||||||||||||||
| Net income from continuing operations | 47.1 | 34.4 | 17.6 | 77.1 | |||||||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 10.9 | 13.2 | 8.3 | 28.4 | |||||||||||||||||||
| Interest expense, net of interest income | 29.2 | 37.2 | 97.0 | 148.1 | |||||||||||||||||||
| Depreciation and amortization | 46.5 | 46.4 | 140.7 | 138.6 | |||||||||||||||||||
| EBITDA | 133.7 | 131.2 | 263.6 | 392.2 | |||||||||||||||||||
| Non-cash stock-based compensation | 3.9 | 4.5 | 12.1 | 15.1 | |||||||||||||||||||
| Loss on extinguishment of debt | — | 2.2 | — | 2.2 | |||||||||||||||||||
| Acquisition related costs | 2.4 | 2.7 | 4.7 | 10.3 | |||||||||||||||||||
| Securitization interest | (3.7) | (13.3) | (21.1) | (41.9) | |||||||||||||||||||
| Loss on asset sales | 0.1 | 0.8 | 1.1 | 1.7 | |||||||||||||||||||
| Severance | 2.3 | 0.9 | 10.6 | 5.7 | |||||||||||||||||||
| Foreign currency (gains)/losses | 0.1 | (0.4) | 3.2 | (1.0) | |||||||||||||||||||
| Goodwill and other intangibles impairment | — | — | 29.8 | — | |||||||||||||||||||
| IAA allocated costs | — | — | — | 2.3 | |||||||||||||||||||
| Other | 0.4 | 0.6 | 3.8 | 1.4 | |||||||||||||||||||
| Total addbacks | 5.5 | (2.0) | 44.2 | (4.2) | |||||||||||||||||||
| Adjusted EBITDA | $ | 139.2 | $ | 129.2 | $ | 307.8 | $ | 388.0 | |||||||||||||||
6
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
(in millions, except per share amounts), (unaudited) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net income | $ | 47.1 | $ | 35.3 | $ | 17.6 | $ | 168.7 | |||||||||||||||
| Less: income from discontinued operations | — | (0.9) | — | (91.6) | |||||||||||||||||||
Net income from continuing operations (1) | 47.1 | 34.4 | 17.6 | 77.1 | |||||||||||||||||||
| Acquired amortization expense | 14.0 | 14.5 | 42.4 | 43.9 | |||||||||||||||||||
| IAA allocated costs | — | — | — | 2.3 | |||||||||||||||||||
| Acceleration of debt issuance costs | — | — | — | 1.8 | |||||||||||||||||||
| Loss on extinguishment of debt | — | 2.2 | — | 2.2 | |||||||||||||||||||
| Goodwill and other intangibles impairment | — | — | 29.8 | — | |||||||||||||||||||
Income taxes (2) | (2.6) | (4.6) | (13.6) | (13.5) | |||||||||||||||||||
| Operating adjusted net income from continuing operations | $ | 58.5 | $ | 46.5 | $ | 76.2 | $ | 113.8 | |||||||||||||||
| Net income from continuing operations per share - diluted | $ | 0.36 | $ | 0.26 | $ | 0.14 | $ | 0.58 | |||||||||||||||
| Acquired amortization expense | 0.11 | 0.11 | 0.33 | 0.33 | |||||||||||||||||||
| IAA allocated costs | — | — | — | 0.02 | |||||||||||||||||||
| Acceleration of debt issuance costs | — | — | — | 0.01 | |||||||||||||||||||
| Loss on extinguishment of debt | — | 0.02 | — | 0.02 | |||||||||||||||||||
| Goodwill and other intangibles impairment | — | — | 0.23 | — | |||||||||||||||||||
| Income taxes | (0.02) | (0.04) | (0.11) | (0.11) | |||||||||||||||||||
| Operating adjusted net income from continuing operations per share - diluted | $ | 0.45 | $ | 0.35 | $ | 0.59 | $ | 0.85 | |||||||||||||||
Weighted average diluted shares (1) | 130.0 | 132.4 | 130.0 | 133.8 | |||||||||||||||||||
(1)The Series A Preferred Stock dividends have not been included in the calculation of operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per diluted share. Likewise, the weighted average diluted share counts do not include the effect of assumed conversion of the Series A Preferred Stock.
(2)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. There was no income tax benefit related to the goodwill and other intangibles impairment because these items were not deductible for income tax purposes.
7
EXHIBIT 99.2
KAR Auction Services, Inc.
Third Quarter 2020 Supplemental Financial Information
November 3, 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 September 30, 2020 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 70.2 | $ | 26.4 | $ | (49.5) | $ | 47.1 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 26.0 | 4.3 | (19.4) | 10.9 | |||||||||||||||||||
| Interest expense, net of interest income | 0.7 | 7.5 | 21.0 | 29.2 | |||||||||||||||||||
| Depreciation and amortization | 38.2 | 2.5 | 5.8 | 46.5 | |||||||||||||||||||
| Intercompany interest | (15.3) | — | 15.3 | — | |||||||||||||||||||
| EBITDA | 119.8 | 40.7 | (26.8) | 133.7 | |||||||||||||||||||
| Intercompany charges | 1.4 | — | (1.4) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 2.0 | 0.4 | 1.5 | 3.9 | |||||||||||||||||||
| Acquisition related costs | 2.4 | — | — | 2.4 | |||||||||||||||||||
| Securitization interest | — | (3.7) | — | (3.7) | |||||||||||||||||||
| Loss on asset sales | 0.1 | — | — | 0.1 | |||||||||||||||||||
| Severance | 2.4 | — | (0.1) | 2.3 | |||||||||||||||||||
| Foreign currency (gains)/losses | (0.8) | — | 0.9 | 0.1 | |||||||||||||||||||
| Other | 0.1 | (0.1) | 0.4 | 0.4 | |||||||||||||||||||
| Total addbacks | 7.6 | (3.4) | 1.3 | 5.5 | |||||||||||||||||||
| Adjusted EBITDA | $ | 127.4 | $ | 37.3 | $ | (25.5) | $ | 139.2 | |||||||||||||||
2
| Three Months Ended September 30, 2019 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 46.4 | $ | 30.7 | $ | (42.7) | $ | 34.4 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 16.3 | 10.1 | (13.2) | 13.2 | |||||||||||||||||||
| Interest expense, net of interest income | 0.8 | 15.6 | 20.8 | 37.2 | |||||||||||||||||||
| Depreciation and amortization | 37.2 | 2.6 | 6.6 | 46.4 | |||||||||||||||||||
| Intercompany interest | 2.4 | (1.3) | (1.1) | — | |||||||||||||||||||
| EBITDA | 103.1 | 57.7 | (29.6) | 131.2 | |||||||||||||||||||
| Intercompany charges | 3.6 | — | (3.6) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 1.6 | 0.3 | 2.6 | 4.5 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | 2.2 | 2.2 | |||||||||||||||||||
| Acquisition related costs | 2.0 | — | 0.7 | 2.7 | |||||||||||||||||||
| Securitization interest | — | (13.3) | — | (13.3) | |||||||||||||||||||
| Loss on asset sales | 0.8 | — | — | 0.8 | |||||||||||||||||||
| Severance | 0.6 | 0.1 | 0.2 | 0.9 | |||||||||||||||||||
| Foreign currency (gains)/losses | — | — | (0.4) | (0.4) | |||||||||||||||||||
| Other | 0.5 | (0.1) | 0.2 | 0.6 | |||||||||||||||||||
| Total addbacks | 9.1 | (13.0) | 1.9 | (2.0) | |||||||||||||||||||
| Adjusted EBITDA | $ | 112.2 | $ | 44.7 | $ | (27.7) | $ | 129.2 | |||||||||||||||
| Nine Months Ended September 30, 2020 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 89.9 | $ | 67.0 | $ | (139.3) | $ | 17.6 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 37.3 | 18.0 | (47.0) | 8.3 | |||||||||||||||||||
| Interest expense, net of interest income | 1.9 | 30.2 | 64.9 | 97.0 | |||||||||||||||||||
| Depreciation and amortization | 115.5 | 7.8 | 17.4 | 140.7 | |||||||||||||||||||
| Intercompany interest | (17.8) | (0.9) | 18.7 | — | |||||||||||||||||||
| EBITDA | 226.8 | 122.1 | (85.3) | 263.6 | |||||||||||||||||||
| Intercompany charges | 4.6 | — | (4.6) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 5.3 | 1.2 | 5.6 | 12.1 | |||||||||||||||||||
| Acquisition related costs | 4.5 | — | 0.2 | 4.7 | |||||||||||||||||||
| Securitization interest | — | (21.1) | — | (21.1) | |||||||||||||||||||
| Loss on asset sales | 1.1 | — | — | 1.1 | |||||||||||||||||||
| Severance | 9.3 | 0.4 | 0.9 | 10.6 | |||||||||||||||||||
| Foreign currency (gains)/losses | 0.9 | — | 2.3 | 3.2 | |||||||||||||||||||
| Goodwill and other intangibles impairment | 29.8 | — | — | 29.8 | |||||||||||||||||||
| Other | 2.6 | (0.1) | 1.3 | 3.8 | |||||||||||||||||||
| Total addbacks | 58.1 | (19.6) | 5.7 | 44.2 | |||||||||||||||||||
| Adjusted EBITDA | $ | 284.9 | $ | 102.5 | $ | (79.6) | $ | 307.8 | |||||||||||||||
3
| Nine Months Ended September 30, 2019 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 139.3 | $ | 88.6 | $ | (150.8) | $ | 77.1 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 54.0 | 32.2 | (57.8) | 28.4 | |||||||||||||||||||
| Interest expense, net of interest income | 1.8 | 48.6 | 97.7 | 148.1 | |||||||||||||||||||
| Depreciation and amortization | 110.2 | 7.6 | 20.8 | 138.6 | |||||||||||||||||||
| Intercompany interest | 13.5 | (4.1) | (9.4) | — | |||||||||||||||||||
| EBITDA | 318.8 | 172.9 | (99.5) | 392.2 | |||||||||||||||||||
| Intercompany charges | 10.4 | — | (10.4) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 5.6 | 1.2 | 8.3 | 15.1 | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | 2.2 | 2.2 | |||||||||||||||||||
| Acquisition related costs | 4.8 | — | 5.5 | 10.3 | |||||||||||||||||||
| Securitization interest | — | (41.9) | — | (41.9) | |||||||||||||||||||
| Loss on asset sales | 1.7 | — | — | 1.7 | |||||||||||||||||||
| Severance | 4.2 | 0.1 | 1.4 | 5.7 | |||||||||||||||||||
| Foreign currency (gains)/losses | (1.1) | — | 0.1 | (1.0) | |||||||||||||||||||
| IAA allocated costs | — | — | 2.3 | 2.3 | |||||||||||||||||||
| Other | 1.2 | — | 0.2 | 1.4 | |||||||||||||||||||
| Total addbacks | 26.8 | (40.6) | 9.6 | (4.2) | |||||||||||||||||||
| Adjusted EBITDA | $ | 345.6 | $ | 132.3 | $ | (89.9) | $ | 388.0 | |||||||||||||||
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) | December 31, 2019 | March 31, 2020 | June 30, 2020 | September 30, 2020 | September 30, 2020 | ||||||||||||||||||||||||
| Net income (loss) | $ | 19.8 | $ | 2.8 | $ | (32.3) | $ | 47.1 | $ | 37.4 | |||||||||||||||||||
| Less: Income from discontinued operations | 4.5 | — | — | — | 4.5 | ||||||||||||||||||||||||
| Income (loss) from continuing operations | 15.3 | 2.8 | (32.3) | 47.1 | 32.9 | ||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||
| Income taxes | 9.3 | 2.0 | (4.6) | 10.9 | 17.6 | ||||||||||||||||||||||||
| Interest expense, net of interest income | 38.3 | 37.2 | 30.6 | 29.2 | 135.3 | ||||||||||||||||||||||||
| Depreciation and amortization | 50.1 | 47.7 | 46.5 | 46.5 | 190.8 | ||||||||||||||||||||||||
| EBITDA | 113.0 | 89.7 | 40.2 | 133.7 | 376.6 | ||||||||||||||||||||||||
| Non-cash stock-based compensation | 5.2 | 5.3 | 2.9 | 3.9 | 17.3 | ||||||||||||||||||||||||
| Acquisition related costs | 1.9 | 1.4 | 0.9 | 2.4 | 6.6 | ||||||||||||||||||||||||
| Securitization interest | (13.0) | (11.4) | (6.0) | (3.7) | (34.1) | ||||||||||||||||||||||||
| Loss on asset sales | 0.4 | 0.5 | 0.5 | 0.1 | 1.5 | ||||||||||||||||||||||||
| Severance | 9.6 | 1.8 | 6.5 | 2.3 | 20.2 | ||||||||||||||||||||||||
| Foreign currency (gains)/losses | 0.3 | 0.4 | 2.7 | 0.1 | 3.5 | ||||||||||||||||||||||||
| Goodwill and other intangibles impairment | — | — | 29.8 | — | 29.8 | ||||||||||||||||||||||||
| Other | 4.6 | 0.9 | 2.5 | 0.4 | 8.4 | ||||||||||||||||||||||||
| Total addbacks | 9.0 | (1.1) | 39.8 | 5.5 | 53.2 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 122.0 | $ | 88.6 | $ | 80.0 | $ | 139.2 | $ | 429.8 | |||||||||||||||||||
4
Results of Operations
KAR Results
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Dollars in millions except per share amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Auction fees and services revenue | $ | 440.5 | $ | 534.5 | $ | 1,244.6 | $ | 1,629.5 | |||||||||||||||
| Purchased vehicle sales | 86.2 | 79.1 | 211.3 | 216.2 | |||||||||||||||||||
| Finance-related revenue | 66.9 | 88.3 | 202.2 | 264.9 | |||||||||||||||||||
| Total revenues | 593.6 | 701.9 | 1,658.1 | 2,110.6 | |||||||||||||||||||
| Cost of services* | 329.7 | 410.9 | 959.4 | 1,222.2 | |||||||||||||||||||
| Gross profit* | 263.9 | 291.0 | 698.7 | 888.4 | |||||||||||||||||||
| Selling, general and administrative | 131.0 | 158.9 | 405.7 | 497.3 | |||||||||||||||||||
| Depreciation and amortization | 46.5 | 46.4 | 140.7 | 138.6 | |||||||||||||||||||
| Goodwill and other intangibles impairment | — | — | 29.8 | — | |||||||||||||||||||
| Operating profit | 86.4 | 85.7 | 122.5 | 252.5 | |||||||||||||||||||
| Interest expense | 29.5 | 37.9 | 98.4 | 150.0 | |||||||||||||||||||
| Other income, net | (1.1) | (2.0) | (1.8) | (5.2) | |||||||||||||||||||
| Loss on extinguishment of debt | — | 2.2 | — | 2.2 | |||||||||||||||||||
| Income from continuing operations before income taxes | 58.0 | 47.6 | 25.9 | 105.5 | |||||||||||||||||||
| Income taxes | 10.9 | 13.2 | 8.3 | 28.4 | |||||||||||||||||||
| Net income from continuing operations | 47.1 | 34.4 | 17.6 | 77.1 | |||||||||||||||||||
| Net income from discontinued operations | — | 0.9 | — | 91.6 | |||||||||||||||||||
| Net income | $ | 47.1 | $ | 35.3 | $ | 17.6 | $ | 168.7 | |||||||||||||||
| Net income from continuing operations per share | |||||||||||||||||||||||
| Basic | $ | 0.23 | $ | 0.26 | $ | 0.04 | $ | 0.58 | |||||||||||||||
| Diluted | $ | 0.23 | $ | 0.26 | $ | 0.04 | $ | 0.58 | |||||||||||||||
* Exclusive of depreciation and amortization
Overview of KAR Results for the Three Months Ended September 30, 2020 and 2019
Overview
For the three months ended September 30, 2020, we had revenue of $593.6 million compared with revenue of $701.9 million for the three months ended September 30, 2019, a decrease of 15%. 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 $0.1 million, or 0%, to $46.5 million for the three months ended September 30, 2020, compared with $46.4 million for the three months ended September 30, 2019.
Interest Expense
Interest expense decreased $8.4 million, or 22%, to $29.5 million for the three months ended September 30, 2020, compared with $37.9 million for the three months ended September 30, 2019. The decrease was primarily attributable to a decrease in the weighted average interest rate of approximately 1.3% offset by an increase of $326.9 million in the average outstanding balance of corporate debt for the three months ended September 30, 2020 compared with the three months ended September 30, 2019, resulting from a net increase in term loan debt of approximately $0.5 billion in connection with the debt refinancing on September 19, 2019. In addition, there was a decrease in interest expense at AFC of $8.2 million, which resulted from a decrease in the average finance
5
receivables balance and interest rates for the three months ended September 30, 2020, as compared with the three months ended September 30, 2019.
Loss on Extinguishment of Debt
In September 2019, we amended our Credit Agreement and recorded a $2.2 million pretax charge primarily resulting from the write-off of unamortized debt issue costs associated with Term Loan B-4 and Term Loan B-5.
Income Taxes
We had an effective tax rate of 18.8% for the three months ended September 30, 2020, compared with an effective tax rate of 27.7% for the three months ended September 30, 2019. The 2020 rate was favorably impacted by the tax benefit from law changes, deductions related to stock-based compensation expenses and other discrete benefits.
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 September 30, 2020 and 2019, the Company's financial statements included income from discontinued operations of $0.0 million and $0.9 million, respectively.
Impact of Foreign Currency
For the three months ended September 30, 2020, fluctuations in the Canadian exchange rate decreased revenue by $0.7 million, operating profit by $0.3 million, net income by $0.2 million and had no impact on net income per diluted share. For the three months ended September 30, 2020, fluctuations in the European exchange rate increased revenue by $2.8 million, operating profit by $0.1 million, net income by $0.1 million and had no impact on net income per diluted share.
Impact of COVID-19 on Our Operations
The Company has been subject to numerous orders and directives that have impacted our ability to operate our business throughout North America and in Europe. As a result of restrictions on our operations, we have adjusted our business processes to meet the needs of our customers while complying with the various laws, regulations, mandates and directives in each individual market we operate. In many cases, we have had to limit the number of employees and customers within our physical locations at any given time and modify the delivery of services to our customers. However, we were able to make adjustments in our operations that have permitted us to improve performance.
New and used car retail activity was reduced to unprecedented levels in early April. Auto retail operations were required to temporarily close and supply and demand for used cars was disrupted. By mid-April, we were experiencing improved retail automobile sales and demand for used vehicle supply was beginning to improve. The Company was prepared to meet the needs of the wholesale used car marketplace with its technology-based auction platforms throughout North America and in Europe. The Company believes that certain changes made in its business processes that were necessitated by the COVID-19 outbreak are sustainable going forward. The Company has reduced the labor required to process wholesale auction transactions and reduced its selling, general and administrative expenses.
In March 2020, the Company had over 15,000 active employees. In early April, the Company furloughed approximately 11,000 employees. Since early April, we have called back approximately 6,000 employees throughout the Company. We notified approximately 5,000 furloughed employees that changes in our business processes in the past few months have resulted in the elimination of their positions.
Overview of KAR Results for the Nine Months Ended September 30, 2020 and 2019
Overview
For the nine months ended September 30, 2020, we had revenue of $1,658.1 million compared with revenue of $2,110.6 million for the nine months ended September 30, 2019, a decrease of 21%. Businesses acquired in 2019 accounted for an increase in revenue of $18.3 million or 1% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
6
Depreciation and Amortization
Depreciation and amortization increased $2.1 million, or 2%, to $140.7 million for the nine months ended September 30, 2020, compared with $138.6 million for the nine months ended September 30, 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.
Goodwill and Other Intangibles Impairment
In light of the impact that the COVID-19 pandemic has had on the economy, forecasts for all reporting units were revised. These circumstances contributed to lower sales, operating profits and cash flows at ADESA Remarketing Limited through the first part of 2020 as compared to 2019, and the outlook for the business was significantly reduced. This analysis resulted in the impairment of the goodwill balance totaling $25.5 million in our ADESA Remarketing Limited reporting unit and a non-cash goodwill impairment charge was recorded for this amount in the second quarter of 2020.
In addition, in the second quarter of 2020, a non-cash customer relationship impairment charge of approximately $4.3 million was also recorded in the ADESA Remarketing Limited reporting unit, representing the impairment in the value of this reporting unit’s customer relationships.
Interest Expense
Interest expense decreased $51.6 million, or 34%, to $98.4 million for the nine months ended September 30, 2020, compared with $150.0 million for the nine months ended September 30, 2019. The decrease was primarily attributable to a decrease in the weighted average interest rate of approximately 1.0% and a decrease of $478.0 million in the average outstanding balance of corporate debt for the nine months ended September 30, 2020 compared with the nine months ended September 30, 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 with the debt refinancing on September 19, 2019. In addition, there was a decrease in interest expense at AFC of $18.7 million, which resulted from a decrease in the average finance receivables balance and interest rates for the nine months ended September 30, 2020, as compared with the nine months ended September 30, 2019.
Loss on Extinguishment of Debt
In September 2019, we amended our Credit Agreement and recorded a $2.2 million pretax charge primarily resulting from the write-off of unamortized debt issue costs associated with Term Loan B-4 and Term Loan B-5.
Income Taxes
We had an effective tax rate of 32.0% for the nine months ended September 30, 2020, compared with an effective tax rate of 26.9% for the nine months ended September 30, 2019. The 2020 rate was unfavorably impacted by the goodwill and other intangibles impairment charge for which no tax benefit has been recorded, as well as a greater proportion of higher taxed earnings. These were partially offset by the tax benefit from law changes, deductions related to stock-based compensation expenses and other discrete benefits.
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 nine months ended September 30, 2020 and 2019, the Company's financial statements included income from discontinued operations of $0.0 million and $91.6 million, respectively.
Impact of Foreign Currency
For the nine months ended September 30, 2020, fluctuations in the Canadian exchange rate decreased revenue by $2.1 million, operating profit by $0.6 million, net income by $0.3 million and net income per diluted share by less than $0.01. For the nine months ended September 30, 2020, fluctuations in the European exchange rate increased revenue by $1.2 million and had no impact on operating profit, net income and net income per diluted share. In addition, for the nine months ended September 30, 2020, as a result of the goodwill and other intangibles impairment in the U.K., fluctuations in the British pound exchange rate decreased net income by $0.1 million.
7
ADESA Results
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Dollars in millions, except per vehicle amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Auction fees and services revenue | $ | 440.5 | $ | 534.5 | $ | 1,244.6 | $ | 1,629.5 | |||||||||||||||
| Purchased vehicle sales | 86.2 | 79.1 | 211.3 | 216.2 | |||||||||||||||||||
| Total ADESA revenue | 526.7 | 613.6 | 1,455.9 | 1,845.7 | |||||||||||||||||||
| Cost of services* | 309.4 | 386.2 | 897.3 | 1,149.8 | |||||||||||||||||||
| Gross profit* | 217.3 | 227.4 | 558.6 | 695.9 | |||||||||||||||||||
| Selling, general and administrative | 97.7 | 121.7 | 300.0 | 370.2 | |||||||||||||||||||
| Depreciation and amortization | 38.2 | 37.2 | 115.5 | 110.2 | |||||||||||||||||||
| Goodwill and other intangibles impairment | — | — | 29.8 | — | |||||||||||||||||||
| Operating profit | $ | 81.4 | $ | 68.5 | $ | 113.3 | $ | 215.5 | |||||||||||||||
| Vehicles sold | 871,000 | 957,000 | 2,381,000 | 2,897,000 | |||||||||||||||||||
| Institutional vehicles sold in North America | 624,000 | 648,000 | 1,748,000 | 2,030,000 | |||||||||||||||||||
| Dealer consignment vehicles sold in North America | 217,000 | 274,000 | 560,000 | 784,000 | |||||||||||||||||||
| Vehicles sold in Europe | 30,000 | 35,000 | 73,000 | 83,000 | |||||||||||||||||||
| Percentage of vehicles sold online | 100 | % | 59 | % | 84 | % | 58 | % | |||||||||||||||
| Conversion rate at North American physical auctions | 69.7 | % | 62.8 | % | 65.4 | % | 64.2 | % | |||||||||||||||
| Physical auction revenue per vehicle sold, excluding purchased vehicles | $ | 905 | $ | 893 | $ | 891 | $ | 883 | |||||||||||||||
| Online only revenue per vehicle sold, excluding purchased vehicles | $ | 161 | $ | 151 | $ | 159 | $ | 149 | |||||||||||||||
| Gross profit, excluding purchased vehicles | 49.3 | % | 42.5 | % | 44.9 | % | 42.6 | % | |||||||||||||||
* Exclusive of depreciation and amortization
Overview of ADESA Results for the Three Months Ended September 30, 2020 and 2019
Revenue
Revenue from ADESA decreased $86.9 million, or 14%, to $526.7 million for the three months ended September 30, 2020, compared with $613.6 million for the three months ended September 30, 2019. The decrease in revenue was the result of a decrease in the number of vehicles sold and a decrease in average revenue per vehicle sold due to the mix of vehicles sold. The decrease in revenue included the impact of a decrease in revenue of $0.7 million due to fluctuations in the Canadian exchange rate and an increase of $2.8 million due to fluctuations in the European exchange rate.
The decrease in vehicles sold was primarily attributable to a 4% decrease in institutional volume, including vehicles sold on our online only platform, as well as a 21% decrease in dealer consignment units sold for the three months ended September 30, 2020 compared with the three months ended September 30, 2019. Online sales volume for ADESA represented 100% of the total vehicles sold in the third quarter of 2020, compared with approximately 59% in the third 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 Simulcast+); and (vi) bulletin-board or real-time online auctions (DealerBlock®). Online only sales, which do not include vehicles sold on ADESA Simulcast, Simulcast+ or DealerBlock, accounted for approximately 55% of ADESA's North American online sales volume. ADESA sold approximately 437,000 (including approximately 57,000 from TradeRev) and 396,000 (including approximately 47,000 from TradeRev) vehicles through its North American online only offerings in the third quarter of 2020 and 2019, respectively. For the three months ended September 30, 2020, dealer consignment vehicles represented approximately 26% of used vehicles sold and institutional vehicles represented approximately 74% of used vehicles sold. For the three months ended September 30, 2019, dealer
8
consignment vehicles represented approximately 30% of used vehicles sold and institutional vehicles represented approximately 70% of used vehicles sold. The volume of vehicles sold at physical auction locations in the third quarter of 2020 decreased approximately 23% compared with the third 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, increased to 69.7% for the three months ended September 30, 2020, compared with 62.8% for the three months ended September 30, 2019.
For the three months ended September 30, 2020 we held all sales through digital marketplaces to protect the health and well-being of our workforce and customers. All vehicles were offered online, cars did not run across the block and we limited access to our physical locations to promote social distancing measures and help prevent the spread of COVID-19.
Physical auction revenue per vehicle sold increased $12, or 1%, to $905 for the three months ended September 30, 2020, compared with $893 for the three months ended September 30, 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.
Online only auction revenue per vehicle sold increased $8 to $252 for the three months ended September 30, 2020, compared with $244 for the three months ended September 30, 2019. The increase in online only auction revenue per vehicle sold was attributable to increased revenue per vehicle for units sold on the TradeRev platform. In addition, 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 $161 and $151 for the three months ended September 30, 2020 and 2019, respectively.
Gross Profit
For the three months ended September 30, 2020, gross profit for ADESA decreased $10.1 million, or 4%, to $217.3 million, compared with $227.4 million for the three months ended September 30, 2019. Gross profit for ADESA was 41.3% of revenue for the three months ended September 30, 2020, compared with 37.1% of revenue for the three months ended September 30, 2019. Gross profit as a percentage of revenue increased for the three months ended September 30, 2020 as compared with the three months ended September 30, 2019 as we have taken measures to reduce expenses to help protect our business while our operations have been impacted by COVID-19, and vehicles sold online require less direct labor. In addition, our gross profit as a percentage of revenue is impacted by purchased vehicle sales. 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 49.3% and 42.5% for the three months ended September 30, 2020 and 2019, respectively.
Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment decreased $24.0 million, or 20%, to $97.7 million for the three months ended September 30, 2020, compared with $121.7 million for the three months ended September 30, 2019, primarily due to decreases in compensation expense of $10.3 million, marketing costs of $3.9 million, travel expenses of $3.8 million, supplies expense of $2.0 million, telecom costs of $1.9 million, bad debt expense of $1.9 million, other employee related expenses of $1.4 million and the recording of the Canada Emergency Wage Subsidy and the Employee Retention Credit provided under the CARES Act of $2.3 million, partially offset by an increase in incentive-based compensation of $3.5 million.
Overview of ADESA Results for the Nine Months Ended September 30, 2020 and 2019
Revenue
Revenue from ADESA decreased $389.8 million, or 21%, to $1,455.9 million for the nine months ended September 30, 2020, compared with $1,845.7 million for the nine months ended September 30, 2019. The decrease in revenue was the result of a decrease in the number of vehicles sold and a decrease in average revenue per vehicle sold due to the mix of vehicles sold. Businesses acquired in 2019 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 an increase in revenue of $1.2 million due to fluctuations in the European exchange rate and a decrease of $2.0 million due to fluctuations in the Canadian exchange rate.
The decrease in vehicles sold was primarily attributable to a 14% decrease in institutional volume, including vehicles sold on our online only platform, as well as a 27% decrease in dealer consignment units sold for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019. Online sales
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volume for ADESA represented approximately 84% of the total vehicles in the first nine months of 2020, compared with approximately 58% in the first nine months 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 Simulcast+); and (vi) bulletin-board or real-time online auctions (DealerBlock®). Online only sales, which do not include vehicles sold on ADESA Simulcast, Simulcast+ or DealerBlock, accounted for approximately 59% of ADESA's North American online sales volume. ADESA sold approximately 1,125,000 (including approximately 125,000 from TradeRev) and 1,179,000 (including approximately 119,000 from TradeRev) vehicles through its North American online only offerings in the first nine months of 2020 and 2019, respectively. For the nine months ended September 30, 2020, dealer consignment vehicles represented approximately 25% of used vehicles sold and institutional vehicles represented approximately 75% of used vehicles sold. For the nine months ended September 30, 2019, dealer consignment vehicles represented approximately 28% of used vehicles sold and institutional vehicles represented approximately 72% of used vehicles sold. The volume of vehicles sold at physical auction locations in the first nine months of 2020 decreased approximately 28% compared with the first nine months 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, increased to 65.4% for the nine months ended September 30, 2020, compared with 64.2% for the nine months ended September 30, 2019.
Volumes sold for the nine months ended September 30, 2020 were materially impacted by the COVID-19 related 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. Throughout the second and third quarter, we held all sales through digital marketplaces to protect the health and well-being of our workforce and customers. All vehicles were offered online, cars did not run across the block and we limited access to our physical locations to promote social distancing measures and help prevent the spread of COVID-19.
Physical auction revenue per vehicle sold increased $8, or 1%, to $891 for the nine months ended September 30, 2020, compared with $883 for the nine months ended September 30, 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.
Online only auction revenue per vehicle sold increased $15 to $243 for the nine months ended September 30, 2020, compared with $228 for the nine months ended September 30, 2019. The increase in online only auction revenue per vehicle sold was attributable increased revenue per vehicle for units sold on the TradeRev platform. In addition, 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 $159 and $149 for the nine months ended September 30, 2020 and 2019, respectively.
Gross Profit
For the nine months ended September 30, 2020, gross profit for ADESA decreased $137.3 million, or 20%, to $558.6 million, compared with $695.9 million for the nine months ended September 30, 2019. Gross profit for ADESA was 38.4% of revenue for the nine months ended September 30, 2020, compared with 37.7% of revenue for the nine months ended September 30, 2019. Gross profit as a percentage of revenue increased for the nine months ended September 30, 2020 as compared with the nine months ended September 30, 2019 as we have taken measures to reduce expenses to help protect our business while our operations have been impacted by COVID-19, and vehicles sold online require less labor. In addition, our gross profit as a percentage of revenue is impacted by purchased vehicles. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 44.9% and 42.6% for the nine months ended September 30, 2020 and 2019, respectively. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicles sold. Businesses acquired in 2019 accounted for an increase in cost of services of $15.6 million for the nine months ended September 30, 2020.
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Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment decreased $70.2 million, or 19%, to $300.0 million for the nine months ended September 30, 2020, compared with $370.2 million for the nine months ended September 30, 2019, primarily due to decreases in compensation expense of $25.9 million, marketing costs of $12.3 million, travel expenses of $8.5 million, incentive-based compensation of $8.3 million, supplies expense of $4.4 million, telecom expenses of $2.9 million, professional fees of $2.8 million, other employee related expenses of $2.8 million and the recording of the Employee Retention Credit provided under the CARES Act and the Canada Emergency Wage Subsidy of $9.2 million, partially offset by increases in bad debt expense of $2.2 million, information technology costs of $2.0 million, costs associated with acquisitions of $1.9 million and other miscellaneous expenses aggregating $0.8 million.
Goodwill and Other Intangibles Impairment
In light of the impact that the COVID-19 pandemic has had on the economy, forecasts for all reporting units were revised. These circumstances contributed to lower sales, operating profits and cash flows at ADESA Remarketing Limited through the first part of 2020 as compared to 2019, and the outlook for the business was significantly reduced. This analysis resulted in the impairment of the goodwill balance totaling $25.5 million in our ADESA Remarketing Limited reporting unit and a non-cash goodwill impairment charge was recorded for this amount in the second quarter of 2020.
In addition, in the second quarter of 2020, a non-cash customer relationship impairment charge of approximately $4.3 million was also recorded in the ADESA Remarketing Limited reporting unit, representing the impairment in the value of this reporting unit’s customer relationships.
AFC Results
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Dollars in millions except volumes and per loan amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| AFC revenue | $ | 66.9 | $ | 88.3 | $ | 202.2 | $ | 264.9 | |||||||||||||||
| Cost of services* | 20.3 | 24.7 | 62.1 | 72.4 | |||||||||||||||||||
| Gross profit* | 46.6 | 63.6 | 140.1 | 192.5 | |||||||||||||||||||
| Selling, general and administrative | 5.9 | 5.9 | 18.0 | 19.5 | |||||||||||||||||||
| Depreciation and amortization | 2.5 | 2.6 | 7.8 | 7.6 | |||||||||||||||||||
| Operating profit | $ | 38.2 | $ | 55.1 | $ | 114.3 | $ | 165.4 | |||||||||||||||
| Loan transactions | 324,000 | 442,000 | 1,192,000 | 1,340,000 | |||||||||||||||||||
| Revenue per loan transaction, excluding “Warranty contract revenue” | $ | 179 | $ | 180 | $ | 147 | $ | 178 | |||||||||||||||
* Exclusive of depreciation and amortization
Overview of AFC Results for the Three Months Ended September 30, 2020 and 2019
Revenue
For the three months ended September 30, 2020, AFC revenue decreased $21.4 million, or 24%, to $66.9 million, compared with $88.3 million for the three months ended September 30, 2019. The decrease in revenue was primarily the result of a 1% decrease in revenue per loan transaction and a 27% decrease in loan transactions.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased 1%, primarily as a result of decreases in interest yield, partially offset by an increase in average portfolio duration and loan values and a decrease in provision for credit losses for the three months ended September 30, 2020. Revenue per loan transaction excludes "Warranty contract revenue."
The provision for credit losses decreased to 0.0% of the average managed receivables for the three months ended September 30, 2020 from 1.7% for the three months ended September 30, 2019.
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Gross Profit
For the three months ended September 30, 2020, gross profit for the AFC segment decreased $17.0 million to $46.6 million, or 69.7% of revenue, compared with $63.6 million, or 72.0% of revenue, for the three months ended September 30, 2019. The decrease in gross profit as a percent of revenue was primarily the result of a 24% decrease in revenue and an 18% decrease in cost of services. The decrease in cost of services was primarily the result of decreases in compensation expense of $2.6 million, PWI expenses of $1.0 million, lot audits of $0.7 million and other miscellaneous expenses aggregating $0.1 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC was $5.9 million for the three months ended September 30, 2020 and 2019.
Overview of AFC Results for the Nine Months Ended September 30, 2020 and 2019
Revenue
For the nine months ended September 30, 2020, AFC revenue decreased $62.7 million, or 24%, to $202.2 million, compared with $264.9 million for the nine months ended September 30, 2019. The decrease in revenue was primarily the result of a 17% decrease in revenue per loan transaction and an 11% decrease in loan transactions.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $31, or 17%, primarily as a result of an increase in provision for credit losses for the nine months ended September 30, 2020, as well as decreases in interest yield. Revenue per loan transaction excludes "Warranty contract revenue."
The provision for credit losses increased to 2.6% of the average managed receivables for the nine months ended September 30, 2020 from 1.7% for the nine months ended September 30, 2019.
Gross Profit
For the nine months ended September 30, 2020, gross profit for the AFC segment decreased $52.4 million to $140.1 million, or 69.3% of revenue, compared with $192.5 million, or 72.7% of revenue, for the nine months ended September 30, 2019. The decrease in gross profit as a percent of revenue was primarily the result of a 24% decrease in revenue and a 14% decrease in cost of services. The decrease in cost of services was primarily the result of decreases in compensation expense of $5.1 million, PWI expenses of $2.6 million, lot audits of $1.0 million, travel expenses of $0.8 million, incentive-based compensation of $0.5 million and other miscellaneous expenses aggregating $0.3 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC decreased $1.5 million, or 8%, to $18.0 million for the nine months ended September 30, 2020, compared with $19.5 million for the nine months ended September 30, 2019, primarily as a result of decreases in incentive-based compensation of $0.5 million, travel expenses of $0.5 million and other miscellaneous expenses aggregating $0.5 million.
Holding Company Results
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Dollars in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Selling, general and administrative | $ | 27.4 | $ | 31.3 | $ | 87.7 | $ | 107.6 | |||||||||||||||
| Depreciation and amortization | 5.8 | 6.6 | 17.4 | 20.8 | |||||||||||||||||||
| Operating loss | $ | (33.2) | $ | (37.9) | $ | (105.1) | $ | (128.4) | |||||||||||||||
Overview of Holding Company Results for the Three Months Ended September 30, 2020 and 2019
Selling, General and Administrative
For the three months ended September 30, 2020, selling, general and administrative expenses at the holding company decreased $3.9 million, or 12%, to $27.4 million, compared with $31.3 million for the three months ended September 30, 2019, primarily as a result of decreases in compensation expense of $3.5 million, professional fees of $1.2 million, stock-based compensation expense of $1.1 million, telecom costs of $0.8 million and travel
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expenses of $0.5 million, partially offset by increases in incentive-based compensation of $2.6 million and information technology costs of $0.6 million.
Overview of Holding Company Results for the Nine Months Ended September 30, 2020 and 2019
Selling, General and Administrative
For the nine months ended September 30, 2020, selling, general and administrative expenses at the holding company decreased $19.9 million, or 18%, to $87.7 million, compared with $107.6 million for the nine months ended September 30, 2019, primarily as a result of decreases in compensation expense of $8.3 million, professional fees of $6.5 million, stock-based compensation expense of $2.8 million, incentive-based compensation of $1.5 million, travel expenses of $1.5 million and other miscellaneous expenses of $2.3 million, partially offset by increases in information technology costs of $3.0 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.
| September 30, 2020 | December 31, 2019 | September 30, 2019 | |||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| Cash and cash equivalents* | $ | 1,276.7 | $ | 507.6 | $ | 508.6 | |||||||||||
| Restricted cash | 54.7 | 53.3 | 23.3 | ||||||||||||||
| Working capital | 1,320.1 | 726.8 | 741.5 | ||||||||||||||
| Amounts available under the Revolving Credit Facility** | 325.0 | 325.0 | 325.0 | ||||||||||||||
| Cash flow from operations for the nine months ended | 431.9 | 291.1 | |||||||||||||||
* Cash and cash equivalents at September 30, 2020 included approximately $528.2 million in net proceeds from the June 2020 issuance of perpetual convertible preferred stock of the Company.
** There were related outstanding letters of credit totaling approximately $25.4 million, $27.4 million and $27.7 million at September 30, 2020, December 31, 2019 and September 30, 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 included reducing our compensation expense (including a reduction of base salaries across many levels of the organization, including the elimination of base salaries for our CEO, CFO and President and 50% reduction of base salaries for our other executive officers during the second quarter, furloughs and a reduction in force, among others), prohibiting non-essential business travel, suspending non-essential services provided by certain third parties at our locations, delaying or canceling capital projects at our physical auction locations and suspending the Company's quarterly dividend.
In addition, in June 2020 we issued and sold an aggregate of 550,000 shares of newly issued perpetual convertible preferred stock of the Company for net proceeds of approximately $528.2 million.
We have also taken advantage of legislation introduced to assist companies during this time. In the second and third quarters of 2020, we recorded a total of approximately $8.3 million of employee retention credits taken under the CARES Act and approximately $14.3 million under the Canada Emergency Wage Subsidy. These credits partially offset salaries and medical costs recorded in the U.S. and Canada. We will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on our business and financial results. 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 disruption could materially affect our liquidity.
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Summary of Cash Flows
| Nine Months Ended September 30, | |||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Net cash provided by (used by): | |||||||||||
| Operating activities - continuing operations | $ | 431.9 | $ | 291.1 | |||||||
| Operating activities - discontinued operations | — | 156.7 | |||||||||
| Investing activities - continuing operations | 263.6 | (367.3) | |||||||||
| Investing activities - discontinued operations | — | (37.4) | |||||||||
| Financing activities - continuing operations | 88.9 | (1,140.5) | |||||||||
| Financing activities - discontinued operations | — | 1,317.6 | |||||||||
| Effect of exchange rate on cash | (13.9) | 7.0 | |||||||||
| Net increase in cash, cash equivalents and restricted cash | $ | 770.5 | $ | 227.2 | |||||||
Cash flow provided by operating activities (continuing operations) was $431.9 million for the nine months ended September 30, 2020, compared with $291.1 million for the nine months ended September 30, 2019. 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 auctions held near period-ends, as well as a net increase in non-cash item adjustments, partially offset by decreased profitability attributable to reduced operations beginning March 20, 2020, resulting from COVID-19 restrictions on our business.
Net cash provided by investing activities (continuing operations) was $263.6 million for the nine months ended September 30, 2020, compared with net cash used by investing activities of $367.3 million for the nine months ended September 30, 2019. The increase in net cash from investing activities was primarily attributable to:
•a net decrease in finance receivables held for investment of approximately $456.1 million;
•a decrease in cash used for acquisitions of approximately $120.7 million; and
•a reduction in capital expenditures of approximately $53.3 million.
Net cash provided by financing activities (continuing operations) was $88.9 million for the nine months ended September 30, 2020, compared with net cash used by financing activities (continuing operations) of $1,140.5 million for the nine months ended September 30, 2019. The increase in net cash from financing activities was primarily attributable to:
•a decrease in net payments on long-term debt of $791.9 million. In the second quarter of 2019, the Company used net cash provided by financing activities from discontinued operations (cash received from IAA in the separation) to prepay its term loan debt. In addition, in the third quarter of 2019, the Company refinanced the outstanding Term Loan B-4 and Term Loan B-5 and repaid the remaining amount on the 2017 Revolving Credit Facility with the new Term Loan B-6.
•net proceeds of approximately $528.2 million received from the issuance of the Series A Preferred Stock in the second quarter of 2020;
•a decrease in the repurchase of common stock of $119.7 million;
•a decrease in dividends paid to stockholders of approximately $90.8 million;
•a decrease in cash transferred to IAA of $50.9 million; and
•a net increase in book overdrafts of approximately $11.1 million;
partially offset by:
•a net decrease in the obligations collateralized by finance receivables of approximately $320.1 million;
•an increase in cash used for payments of contingent consideration of approximately $21.8 million; and
•a net decrease in borrowings on lines of credit of approximately $19.9 million.
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Third Quarter 2020 Earnings Slides November 3, 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
Third Quarter Summary ❑ Financial Performance o Consolidated revenue declined 15%, vehicles sold declined 9% o Adjusted EBITDA increased 8% o Operating adjusted EPS increased 29% ❑ Operations o 100% of transactions online o Ancillary and related services limited due to social distancing o Improved gross profit margin % o Reduced operating expenses as a result of reduced headcount ❑ Liquidity o Strong cash flow generation o Over $1.2B in cash and cash equivalents at September 30 o $325M undrawn revolver 3
September 30, 2020 Leverage (US$ in millions) Balance Maturity Term Loan B-6 (Adjusted LIBOR + 2.25%) $941 2026 Revolving Credit Facility (Adjusted LIBOR + 1.75%) - 2024 Senior Notes (Fixed 5.125%) 950 2025 Finance Leases & Other 34 Total 1,925 Less: Available Cash* (1,226) Net Debt $699 Senior Secured Net Leverage Ratio (0.6) Total Net Debt Ratio 1.6 Corporate Credit Ratings: S&P B, Moodys B2 * As defined in the Credit Agreement 4
Third Quarter Results 5
KAR Q3 2020 Highlights ($ in millions, except per share amounts) Q3 Q3 KAR Highlights* 2020 2019 Total operating revenues $593.6 $701.9 Gross profit** $263.9 $291.0 % of revenue 44.5% 41.5% 52% in Q3 2020, excluding purchased vehicle sales SG&A $131.0 $158.9 EBITDA $133.7 $131.2 Adjusted EBITDA $139.2 $129.2 Net income from continuing operations $47.1 $34.4 Net income from continuing operations per $0.23 $0.26 share – diluted Operating adjusted net income from continuing $0.45 $0.35 operations per share – diluted Weighted average diluted shares $130.0 132.4 Dividends declared per common share $ -- $0.19 Effective tax rate 18.8% 27.7% * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three months ended September 30, 2020. ** Exclusive of depreciation and amortization 6
ADESA Q3 2020 Highlights ($ in millions, except RPU) ADESA Q3 2020 Q3 2019 Highlights* Auction fees and services revenue $440.5 $534.5 Purchased vehicle sales $86.2 $79.1 Total ADESA Revenue $526.7 $613.6 Decrease in vehicles sold and average revenue per vehicle sold Gross profit** $217.3 $227.4 % of revenue 41.3% 37.1% 20% decrease in cost of services as vehicles sold online require less % of revenue, excluding purchased vehicles 49.3% 42.5% labor SG&A $97.7 $121.7 EBITDA $119.8 $103.1 Adjusted EBITDA $127.4 $112.2 % of revenue 24.2% 18.3% Vehicles sold 871,000 957,000 Institutional vehicles sold in North America 624,000 648,000 Dealer consignment vehicles sold in North America 217,000 274,000 Includes TradeRev volume of 57,000 in Q3 2020 and 47,000 in Q3 2019 Vehicles sold in Europe 30,000 35,000 Percentage of vehicles sold online 100% 59% Conversion rate at North American physical auctions 69.7% 62.8% Physical RPU $905 $893 Excludes purchased vehicles Online only RPU $161 $151 Excludes purchased vehicles; Includes Openlane, TradeRev & Europe * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three months ended September 30, 2020. ** Exclusive of depreciation and amortization 7
AFC Q3 2020 Highlights ($ in millions, except for revenue per loan transaction) Q3 Q3 Highlights* AFC 2020 2019 Interest and fee income $55.8 $85.5 Other revenue $2.1 $2.7 Provision for credit losses -- ($8.9) Warranty contract revenue $9.0 $9.0 PWI revenue Total AFC revenue $66.9 $88.3 -1% revenue per LTU, -27% loan transactions Gross profit** $46.6 $63.6 % of revenue 69.7% 72.0% SG&A $5.9 $5.9 EBITDA $40.7 $57.7 Adjusted EBITDA $37.3 $44.7 Loan transactions 324,000 442,000 27% decrease Decreased interest rates, partially offset by increase in Revenue per loan transaction*** $179 $180 average portfolio duration & loan values and decreased credit losses Provision for credit losses % of finance receivables 0.0% 1.7% Managed receivables $1,744.8 $2,110.4 $1,101.0 $1,428.4 Obligations collateralized by finance receivables * For a more complete explanation of these changes, see the MD&A in the company’s supplemental financial information and Form 10-Q, both for the three months ended September 30, 2020. ** Exclusive of depreciation and amortization 8 *** Excludes “Warranty contract revenue"
Y e a r - to- Date Results 9
KAR Nine Months Ended September 30, 2020 Highlights ($ in millions, except per share amounts) KAR YTD 2020 YTD 2019 Highlights* Total operating revenues $1,658.1 $2,110.6 Gross profit** $698.7 $888.4 % of revenue 42.1% 42.1% 48.3% YTD 2020, excluding purchased vehicle sales SG&A $405.7 $497.3 YTD 2020 includes goodwill/intangibles impairment of EBITDA $263.6 $392.2 $29.8M Adjusted EBITDA $307.8 $388.0 YTD 2020 includes goodwill/intangibles impairment Net income from continuing operations $17.6 $77.1 charge of $29.8M Net income from continuing operations per share YTD 2020 includes goodwill/intangibles impairment $0.04 $0.58 – diluted charge of $29.8M Operating adjusted net income from continuing $0.59 $0.85 operations per share – diluted Weighted average diluted shares 130.0 133.8 Dividends declared per common share $0.19 $0.89 Effective tax rate 32.0% 26.9% * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the nine months ended September 30, 2020. ** Exclusive of depreciation and amortization 10
ADESA Nine Months Ended September 30, 2020 Highlights ($ in millions, except RPU) ADESA YTD 2020 YTD 2019 Highlights* Auction fees and services revenue $1,244.6 $1,629.5 Purchased vehicle sales $211.3 $216.2 Includes $12.7M from acquisitions Total ADESA Revenue $1,455.9 $1,845.7 Decrease in vehicles sold and average revenue per vehicle sold Gross profit** $558.6 $695.9 Measures taken to reduce expenses and vehicles sold online require % of revenue 38.4% 37.7% less labor % of revenue, excluding purchased vehicles 44.9% 42.6% SG&A $300.0 $370.2 EBITDA $226.8 $318.8 YTD 2020 includes goodwill/intangibles impairment of $29.8M Adjusted EBITDA $284.9 $345.6 % of revenue 19.6% 18.7% Vehicles sold 2,381,000 2.897,000 Institutional vehicles sold in North America 1,748,000 2,030,000 Includes TradeRev volume of 125,000 YTD 2020 and 119,000 YTD Dealer consignment vehicles sold in North America 560,000 784,000 2019 Vehicles sold in Europe 73,000 83,000 Percentage of vehicles sold online 84% 58% Conversion rate at North American physical auctions 65.4% 64.2% Physical RPU $891 $883 Excludes purchased vehicles Online only RPU $159 $149 Excludes purchased vehicles; Includes Openlane, TradeRev & Europe * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the nine months ended September 30, 2020. ** Exclusive of depreciation and amortization 11
AFC Nine Months Ended September 30, 2020 Highlights ($ in millions, except for revenue per loan transaction) YTD YTD Highlights* AFC 2020 2019 Interest and fee income $204.7 $256.1 Other revenue $6.8 $8.1 Provision for credit losses ($35.9) ($25.5) Warranty contract revenue $26.6 $26.2 PWI revenue Total AFC revenue $202.2 $264.9 -17% revenue per LTU, -11% loan transactions Gross profit** $140.1 $192.5 % of revenue 69.3% 72.7% SG&A $18.0 $19.5 EBITDA $122.1 $172.9 Adjusted EBITDA $102.5 $132.3 Loan transactions 1,192,000 1,340,000 11% decrease Revenue per loan transaction*** $147 $178 Increased credit losses and decreases in interest rates Provision for credit losses % of finance receivables 2.6% 1.7% Managed receivables $1,744.8 $2,110.4 $1,101.0 $1,428.4 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 nine months ended September 30, 2020. ** Exclusive of depreciation and amortization *** Excludes “Warranty contract revenue" 12
HISTORICAL DATA 13
ADESA Revenue & Gross Profit 3Q20 2Q20 1Q20 2019 4Q19 3Q19 2Q19 1Q19 2018 4Q18 Auction Fees & $440.5 $312.6 $491.5 $2,133.5 $504.0 $534.5 $553.1 $541.9 $1,985.1 $475.3 Services Revenue Purchased Vehicle $86.2 $49.6 $75.5 $295.5 $79.3 $79.1 $79.3 $57.8 $116.8 $33.2 Sales Total ADESA $526.7 $362.2 $567.0 $2,429.0 $583.3 $613.6 $632.4 $599.7 $2,101.9 $508.5 Revenue Gross $217.3 $145.0 $196.3 $908.3 $212.4 $227.4 $239.5 $229.0 $871.1 $198.7 Profit Gross 41.3% 40.0% 34.6% 37.4% 36.4% 37.1% 37.9% 38.2% 41.4% 39.1% Profit % Gross Profit %, Net of 49.3% 46.4% 39.9% 42.6% 42.1% 42.5% 43.2% 42.2% 43.9% 41.8% Purchased Vehicle Sales 14
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 15
ADESA Metrics - Quarter 3Q20 2Q20 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 Revenue2 $526.7 $362.2 $567.0 $583.3 $613.6 $632.4 $599.7 $508.5 $527.0 Total Volume 871 648 862 887 957 994 945 811 876 Online Only Volume (N.A.) 437 321 367 355 396 416 367 306 343 Total Online Volume %3 100% 100% 63% 59% 59% 59% 57% 54% 54% Physical Conversion % 69.7% 63.5% 63.3% 58.4% 62.8% 66.1% 63.8% 58.5% 62.9% (N.A.) Dealer Consignment Mix % 39% 30% 38% 39% 43% 41% 38% 40% 44% (Physical) Physical RPU1 $905 $839 $914 $886 $893 $882 $875 $868 $850 Online Only RPU1 $161 $152 $163 $155 $151 $150 $144 $122 $126 Gross Margin2 41.3% 40.0% 34.6% 36.4% 37.1% 37.9% 38.2% 39.1% 41.6% 1 Excluding purchased vehicle sales 2 Includes purchased vehicle sales 3 Includes ADESA Simulcast and DealerBlock volume 16
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 17
AFC Metrics - Quarter 3Q20 2Q20 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 Revenue $66.9 $56.8 $78.5 $88.0 $88.3 $86.7 $89.9 $85.3 $85.4 Loan Transaction Units 324 420 448 443 442 437 461 428 433 (LTU) Revenue per Loan Transaction, Excluding $179 $115 $155 $178 $180 $178 $177 $180 $177 “Warranty Contract Revenue” Ending Managed Finance $1,744.8 $1,548.3 $1,954.8 $2,115.2 $2,110.4 $2,070.1 $1,989.1 $2,014.8 $1,979.7 Receivables Ending Obligations Collateralized by Finance $1,101.0 $735.9 $1,349.9 $1,461.2 $1,428.4 $1,422.3 $1,360.6 $1,445.3 $1,366.3 Receivables 18
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 19
AFC Provision for Credit Losses - Quarterly 3Q20 2Q20 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 Ending Managed $1,744.8 $1,548.3 $1,954.8 $2,115.2 $2,110.4 $2,070.1 $1,989.1 $2,014.8 $1,979.7 Receivables Average Managed $1,646.6 $1,751.6 $2,035.0 $2,112.8 $2,090.3 $2,029.6 $2,002.0 $1,997.3 $1,969.2 Receivables Provision for $-- $19.0 $16.9 $9.8 $8.9 $8.4 $8.2 $10.8 $7.3 Credit Losses % of Managed 0.0% 4.3% 3.3% 1.9% 1.7% 1.7% 1.6% 2.2% 1.5% Receivables 20
APPENDIX 21
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. 22
Q3 2020 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended September 30, 2020 ADESA AFC Corporate Consolidated Net income (loss) from continuing $70.2 $26.4 ($49.5) $47.1 operations Add back: Income taxes 26.0 4.3 (19.4) 10.9 Interest expense, net of interest income 0.7 7.5 21.0 29.2 Depreciation and amortization 38.2 2.5 5.8 46.5 Intercompany interest (15.3) - 15.3 - EBITDA $119.8 $40.7 ($26.8) $133.7 Intercompany charges 1.4 - (1.4) - Non-cash stock-based compensation 2.0 0.4 1.5 3.9 Acquisition related costs 2.4 - - 2.4 Securitization interest - (3.7) - (3.7) Loss on asset sales 0.1 - - 0.1 Severance 2.4 - (0.1) 2.3 Foreign currency (gains)/losses (0.8) - 0.9 0.1 Other 0.1 (0.1) 0.4 0.4 Total Addbacks 7.6 (3.4) 1.3 5.5 Adjusted EBITDA $127.4 $37.3 ($25.5) $139.2 Revenue $526.7 $66.9 – $593.6 Adjusted EBITDA % margin 24.2% 55.8% 23.5% 23
Q3 2019 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended September 30, 2019 ADESA AFC Corporate Consolidated Net income (loss) from continuing $46.4 $30.7 ($42.7) $34.4 operations Add back: Income taxes 16.3 10.1 (13.2) 13.2 Interest expense, net of interest income 0.8 15.6 20.8 37.2 Depreciation and amortization 37.2 2.6 6.6 46.4 Intercompany interest 2.4 (1.3) (1.1) - EBITDA $103.1 $57.7 ($29.6) $131.2 Intercompany charges 3.6 - (3.6) - Non-cash stock-based compensation 1.6 0.3 2.6 4.5 Loss on extinguishment of debt - - 2.2 2.2 Acquisition related costs 2.0 - 0.7 2.7 Securitization interest - (13.3) - (13.3) Loss on asset sales 0.8 - - 0.8 Severance 0.6 0.1 0.2 0.9 Foreign currency (gains)/losses - - (0.4) (0.4) Other 0.5 (0.1) 0.2 0.6 Total Addbacks 9.1 (13.0) 1.9 (2.0) Adjusted EBITDA $112.2 $44.7 ($27.7) $129.2 Revenue $613.6 $88.3 – $701.9 Adjusted EBITDA % margin 18.3% 50.6% 18.4% 24
YTD 2020 Adjusted EBITDA Reconciliation ($ in millions) Nine Months ended September 30, 2020 ADESA AFC Corporate Consolidated Net income (loss) from continuing $89.9 $67.0 ($139.3) $17.6 operations Add back: Income taxes 37.3 18.0 (47.0) 8.3 Interest expense, net of interest income 1.9 30.2 64.9 97.0 Depreciation and amortization 115.5 7.8 17.4 140.7 Intercompany interest (17.8) (0.9) 18.7 - EBITDA $226.8 $122.1 ($85.3) $263.6 Intercompany charges 4.6 - (4.6) - Non-cash stock-based compensation 5.3 1.2 5.6 12.1 Acquisition related costs 4.5 - 0.2 4.7 Securitization interest - (21.1) - (21.1) Loss on asset sales 1.1 - - 1.1 Severance 9.3 0.4 0.9 10.6 Foreign currency (gains)/losses 0.9 - 2.3 3.2 Goodwill and other intangibles impairment 29.8 - - 29.8 Other 2.6 (0.1) 1.3 3.8 Total Addbacks 58.1 (19.6) 5.7 44.2 Adjusted EBITDA $284.9 $102.5 ($79.6) $307.8 Revenue $1,455.9 $202.2 – $1,658.1 Adjusted EBITDA % margin 19.6% 50.7% 18.6% 25
YTD 2019 Adjusted EBITDA Reconciliation ($ in millions) Nine Months ended September 30, 2019 ADESA AFC Corporate Consolidated Net income (loss) from continuing $139.3 $88.6 ($150.8) $77.1 operations Add back: Income taxes 54.0 32.2 (57.8) 28.4 Interest expense, net of interest income 1.8 48.6 97.7 148.1 Depreciation and amortization 110.2 7.6 20.8 138.6 Intercompany interest 13.5 (4.1) (9.4) - EBITDA $318.8 $172.9 ($99.5) $392.2 Intercompany charges 10.4 - (10.4) - Non-cash stock-based compensation 5.6 1.2 8.3 15.1 Loss on extinguishment of debt - - 2.2 2.2 Acquisition related costs 4.8 - 5.5 10.3 Securitization interest - (41.9) - (41.9) Loss on asset sales 1.7 - - 1.7 Severance 4.2 0.1 1.4 5.7 Foreign currency (gains)/losses (1.1) - 0.1 (1.0) IAA allocated costs - - 2.3 2.3 Other 1.2 - 0.2 1.4 Total Addbacks 26.8 (40.6) 9.6 (4.2) Adjusted EBITDA $345.6 $132.3 ($89.9) $388.0 Revenue $1,845.7 $264.9 – $2,110.6 Adjusted EBITDA % margin 18.7% 49.9% 18.4% 26
Operating Adjusted Net Income from Continuing Operations per Share Reconciliation ($ in millions, except per share amounts), (unaudited) Three Months ended Nine Months ended September 30, September 30, 2020 2019 2020 2019 Net income $47.1 $35.3 $17.6 $168.7 Less: Income from discontinued operations - (0.9) - (91.6) Net income from continuing operations (1) $47.1 $34.4 $17.6 $77.1 Acquired amortization expense 14.0 14.5 42.4 43.9 IAA allocated costs - - - 2.3 Acceleration of debt issuance costs - - - 1.8 Loss on extinguishment of debt - 2.2 - 2.2 Goodwill and other intangibles impairment - - 29.8 - Income taxes (2) (2.6) (4.6) (13.6) (13.5) Operating adjusted net income from continuing operations $58.5 $46.5 $76.2 $113.8 Net income from continuing operations per share − diluted $0.36 $0.26 $0.14 $0.58 Acquired amortization expense 0.11 0.11 0.33 0.33 IAA allocated costs - - - 0.02 Acceleration of debt issuance costs - - - 0.01 Loss on extinguishment of debt - 0.02 - 0.02 Goodwill and other intangibles impairment - - 0.23 - Income taxes (0.02) (0.04) (0.11) (0.11) Operating adjusted net income from continuing operations $0.45 $0.35 $0.59 $0.85 per share − diluted Weighted average diluted shares (1) 130.0 132.4 130.0 133.8 (1) The Series A Preferred Stock dividends have not been included in the calculation of operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per diluted share. Likewise, the weighted average diluted share counts do not include the effect of assumed conversion of the Series A Preferred Stock. (2) 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. There was no income tax benefit related to the goodwill and other intangibles impairment because these items were not deductible for income tax purposes. 27