EXHIBIT 99.1
For Immediate Release
Analyst Inquiries: Media Inquiries:
Mike Eliason Jill Trudeau
(317) 249-4559 (317) 796-0945
KAR Auction Services, Inc. Reports Second Quarter 2022 Financial Results
•KAR completed the sale of its ADESA U.S. physical auction business to Carvana and is using the proceeds to reduce debt
•The company has over $800 million of available cash as of June 30, 2022
◦The company is concurrently announcing a tender offer to purchase up to $600 million principal amount of senior notes
◦Repurchased $82 million of common stock in the second quarter
•The company's performance was impacted by reductions in conversion rates across its marketplaces
Carmel, IN, August 2, 2022 — KAR Auction Services, Inc. (NYSE: KAR) today reported its second quarter financial results for the period ended June 30, 2022.
"During the second quarter, KAR increased revenue and total gross profit, grew gross profit per vehicle sold in our marketplace business, and delivered continued strong performance in our financing business," said Peter Kelly, CEO of KAR Global. "Looking ahead, we remain highly focused on cost management, pricing and platform consolidation, which we expect to contribute to improved second half results and help position us for future growth. However, if the conversion pressures experienced in the second quarter do not improve, we would expect full year 2022 Adjusted EBITDA may be as low as $245 million as sellers and buyers look for price equilibrium across our marketplaces. Accordingly, we are updating our previous guidance for Adjusted EBITDA to a range of $245 to $265 million."
Second Quarter 2022 Financial Highlights
The company has classified the ADESA U.S. physical auction business as discontinued operations. As such, the results discussed herein refer to the continuing operations of KAR and do not include the results of the ADESA U.S. physical auction business.
•Total revenue for the second quarter of 2022 was $384.2 million, an increase of 2% compared with $376.0 million for the second quarter of 2021.
•Loss from continuing operations for the second quarter of 2022 of $5.4 million, or $(0.10) per diluted share, compared with $15.3 million, or $(0.16) per diluted share, for the second quarter of 2021.
•Marketplaces had a conversion rate of 36% of vehicles offered for the second quarter of 2022, compared with 48% for the second quarter of 2021.
•Adjusted EBITDA from continuing operations for the quarter ended June 30, 2022 was $56.1 million, compared with $62.1 million for the quarter ended June 30, 2021.
•Operating adjusted net income (loss) from continuing operations per diluted share was $0.04 for the quarter ended June 30, 2022, compared with $(0.03) for the quarter ended June 30, 2021.
•Year-over-year increase in digital dealer-to-dealer marketplaces of 5%, including acquired volume from CARWAVE.
•Marketplace gross profit per vehicle sold increased 11% to $282 for the quarter ended June 30, 2022, compared with $254 for the quarter ended June 30, 2021.
•AFC's strong second quarter performance was driven by increased revenue per loan transaction of 19% and increased loan transactions of 13%.
Debt Tender Offer
On August 2, 2022, the company commenced an offer to purchase for cash up to $600,000,000 principal amount of its 5.125% Senior Notes due 2025, exclusive of any applicable premiums paid in connection with such tender offer and accrued and unpaid interest. The tender offer is being made only by and pursuant to the terms set forth in the offer to purchase, dated August 2, 2022, and is subject to a number of conditions set forth therein that may be waived or changed.
Earnings Conference Call Information
KAR will be hosting an earnings conference call and webcast on Wednesday, August 3, 2022 at 8:30 a.m. EDT. The call will be hosted by KAR's Chief Executive Officer, Peter Kelly and Executive Vice President and Chief Financial Officer, Eric Loughmiller. The conference call may be accessed by calling 1-877-300-8521 and entering participant passcode 10169145, while the live web cast will be available at the investors section of www.karglobal.com. Supplemental financial information for KAR’s second quarter 2022 results is available at the investors section of www.karglobal.com.
The archive of the webcast will also be available following the call and will be available at the investors section of www.karglobal.com for a limited time.
About KAR
KAR Auction Services, Inc. d/b/a KAR Global (NYSE: KAR), provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. KAR Global's unique end-to-end platform supports whole car, financing, logistics and other ancillary and related services. Our integrated physical, online and mobile marketplaces reduce risk, improve transparency and streamline transactions for customers in about 75 countries. Headquartered in Carmel, Indiana, KAR Global has employees across the United States, Canada, Mexico, Uruguay, Europe and the Philippines. For more information and the latest KAR Global news, go to www.karglobal.com and follow us on Twitter @KARSpeaks.
Forward-Looking Statements
Certain statements contained in this release include "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made that are not historical facts may be forward-looking statements. Words such as "should," "may," "will," "can," "of the opinion," "confident," "is set," "is on track," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "continues," "outlook," "initiatives," "goals," "opportunities," and similar expressions identify forward-looking statements. Such statements are based on management's current expectations, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include those risks and uncertainties regarding (i) the impact of the COVID-19 pandemic on our business and the economy generally; (ii) the impact of macroeconomic conditions and geopolitical events, including the conflict between Russia and Ukraine; (iii) the company’s sale of the ADESA U.S. physical auction business to Carvana, including the ability of the company to execute on its strategy and achieve its goals and other expectations after the sale and the impact on the company's business and relationships with its customers; and (iv) those other matters disclosed in the company’s Securities and Exchange Commission filings. The company does not undertake any obligation to update any forward-looking statements.
KAR Auction Services, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Operating revenues | | | | | | | |
| Auction fees | $ | 99.2 | | | $ | 106.3 | | | $ | 200.6 | | | $ | 208.8 | |
| Service revenue | 147.3 | | | 141.0 | | | 284.8 | | | 287.3 | |
| Purchased vehicle sales | 45.8 | | | 60.1 | | | 92.1 | | | 115.3 | |
| Finance-related revenue | 91.9 | | | 68.6 | | | 176.1 | | | 134.4 | |
| Total operating revenues | 384.2 | | | 376.0 | | | 753.6 | | | 745.8 | |
| | | | | | | |
| Operating expenses | | | | | | | |
| Cost of services (exclusive of depreciation and amortization) | 211.9 | | | 208.8 | | | 422.7 | | | 412.6 | |
| Selling, general and administrative | 124.1 | | | 106.4 | | | 243.0 | | | 213.7 | |
| Depreciation and amortization | 25.9 | | | 27.4 | | | 51.9 | | | 54.3 | |
| Total operating expenses | 361.9 | | | 342.6 | | | 717.6 | | | 680.6 | |
| | | | | | | |
| Operating profit | 22.3 | | | 33.4 | | | 36.0 | | | 65.2 | |
| | | | | | | |
| Interest expense | 25.9 | | | 31.0 | | | 51.5 | | | 61.8 | |
| Other (income) expense, net | 4.0 | | | 15.3 | | | 5.2 | | | (34.4) | |
| Loss on extinguishment of debt | 7.7 | | | — | | | 7.7 | | | — | |
| | | | | | | |
| Income (loss) from continuing operations before income taxes | (15.3) | | | (12.9) | | | (28.4) | | | 37.8 | |
| | | | | | | |
| Income taxes | (9.9) | | | 2.4 | | | (14.6) | | | 26.9 | |
| | | | | | | |
| Income (loss) from continuing operations | (5.4) | | | (15.3) | | | (13.8) | | | 10.9 | |
| Income from discontinued operations, net of income taxes | 215.6 | | | 26.8 | | | 223.7 | | | 51.5 | |
| Net income | $ | 210.2 | | | $ | 11.5 | | | $ | 209.9 | | | $ | 62.4 | |
| | | | | | | |
| Net income (loss) per share - basic | | | | | | | |
| Income (loss) from continuing operations | $ | (0.10) | | | $ | (0.16) | | | $ | (0.23) | | | $ | (0.06) | |
| Income from discontinued operations | 1.38 | | | 0.17 | | | 1.44 | | | 0.33 | |
| Net income per share - basic | $ | 1.28 | | | $ | 0.01 | | | $ | 1.21 | | | $ | 0.27 | |
| | | | | | | |
| Net income (loss) per share - diluted | | | | | | | |
| Income (loss) from continuing operations | $ | (0.10) | | | $ | (0.16) | | | $ | (0.23) | | | $ | (0.06) | |
| Income from discontinued operations | 1.38 | | 0.17 | | | 1.44 | | 0.33 | |
| Net income per share - diluted | $ | 1.28 | | | $ | 0.01 | | | $ | 1.21 | | | $ | 0.27 | |
KAR Auction Services, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
| | | | | | | | | | | |
| June 30,
2022 | | December 31,
2021 |
| Cash and cash equivalents | $ | 804.4 | | | $ | 177.6 | |
| Restricted cash | 28.1 | | | 25.8 | |
| Trade receivables, net of allowances | 425.7 | | | 381.3 | |
| Finance receivables, net of allowances | 2,660.1 | | | 2,506.0 | |
| Other current assets | 78.2 | | | 87.9 | |
| Current assets of discontinued operations | — | | | 213.2 | |
| Total current assets | 3,996.5 | | | 3,391.8 | |
| | | |
| Goodwill | 1,466.7 | | | 1,598.0 | |
| Customer relationships, net of accumulated amortization | 147.3 | | | 159.1 | |
| Operating lease right-of-use assets | 90.3 | | | 94.7 | |
| Property and equipment, net of accumulated depreciation | 138.5 | | | 143.5 | |
| Intangible and other assets | 286.7 | | | 297.0 | |
| Non-current assets of discontinued operations | — | | | 1,766.6 | |
| Total assets | $ | 6,126.0 | | | $ | 7,450.7 | |
| | | |
Current liabilities, excluding obligations collateralized by finance
receivables, current maturities of debt and current liabilities
of discontinued operations | $ | 1,005.7 | | | $ | 939.0 | |
| Obligations collateralized by finance receivables | 1,781.3 | | | 1,692.3 | |
| Current maturities of debt | 760.9 | | | 16.3 | |
| Current liabilities of discontinued operations | — | | | 361.7 | |
| Total current liabilities | 3,547.9 | | | 3,009.3 | |
| | | |
| Long-term debt | 190.7 | | | 1,849.7 | |
| Operating lease liabilities | 84.5 | | | 88.1 | |
| Other non-current liabilities | 61.5 | | | 85.9 | |
| Non-current liabilities of discontinued operations | — | | | 313.8 | |
| Temporary equity | 612.5 | | | 590.9 | |
| Stockholders’ equity | 1,628.9 | | | 1,513.0 | |
| Total liabilities, temporary equity and stockholders’ equity | $ | 6,126.0 | | | $ | 7,450.7 | |
KAR Auction Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 |
| Operating activities | | | |
| Net income | $ | 209.9 | | | $ | 62.4 | |
| Net income from discontinued operations | (223.7) | | | (51.5) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Depreciation and amortization | 51.9 | | | 54.3 | |
| Provision for credit losses | 5.5 | | | 6.0 | |
| Deferred income taxes | (2.7) | | | 5.1 | |
| Amortization of debt issuance costs | 6.0 | | | 6.0 | |
| Stock-based compensation | 19.3 | | | 8.7 | |
| Contingent consideration adjustment | — | | | 15.7 | |
| Net change in unrealized (gain) loss on investment securities | 6.2 | | | (31.6) | |
| Loss on extinguishment of debt | 7.7 | | | — | |
| Other non-cash, net | 0.2 | | | 1.1 | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
| Trade receivables and other assets | (32.1) | | | (115.4) | |
| Accounts payable and accrued expenses | 80.3 | | | 227.9 | |
| Net cash provided by operating activities - continuing operations | 128.5 | | | 188.7 | |
| Net cash (used by) provided by operating activities - discontinued operations | (429.3) | | | 96.9 | |
| Investing activities | | | |
| Net increase in finance receivables held for investment | (156.4) | | | (200.0) | |
| Acquisition of businesses (net of cash acquired) | — | | | (79.8) | |
| Purchases of property, equipment and computer software | (31.5) | | | (32.6) | |
| Investments in securities | (5.6) | | | (20.6) | |
| Proceeds from sale of investments | 0.3 | | | 21.4 | |
| Proceeds from the sale of business | — | | | 2.1 | |
| Net cash used by investing activities - continuing operations | (193.2) | | | (309.5) | |
| Net cash provided by (used by) investing activities - discontinued operations | 2,066.4 | | | (16.2) | |
| Financing activities | | | |
| Net increase in book overdrafts | 3.7 | | | 2.1 | |
| Net increase (decrease) in borrowings from lines of credit | 4.1 | | | (1.6) | |
| Net increase in obligations collateralized by finance receivables | 88.5 | | | 57.0 | |
| Payments on long-term debt | (928.6) | | | (4.7) | |
| Payments on finance leases | (2.4) | | | (3.0) | |
| Payments of contingent consideration and deferred acquisition costs | (29.6) | | | (21.3) | |
| Issuance of common stock under stock plans | 0.9 | | | 1.0 | |
| Tax withholding payments for vested RSUs | (2.5) | | | (2.2) | |
| Repurchase and retirement of common stock | (82.1) | | | (180.9) | |
| Net cash used by financing activities - continuing operations | (948.0) | | | (153.6) | |
| Net cash provided by financing activities - discontinued operations | 10.8 | | | 40.3 | |
| Effect of exchange rate changes on cash | (6.1) | | | 6.4 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 629.1 | | | (147.0) | |
| Cash, cash equivalents and restricted cash at beginning of period | 203.4 | | | 784.3 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 832.5 | | | $ | 637.3 | |
| Cash paid for interest, net of proceeds from interest rate derivatives | $ | 45.0 | | | $ | 55.4 | |
| Cash paid for taxes, net of refunds | $ | 243.2 | | | $ | 16.6 | |
KAR Auction Services, Inc.
Reconciliation of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, operating adjusted net income (loss) and operating adjusted net income (loss) per share as presented herein are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). They are not measurements of our financial performance under GAAP and should not be considered as substitutes for net income (loss) or any other performance measures derived in accordance with GAAP. Management believes that these measures provide investors additional meaningful methods to evaluate certain aspects of the company’s results period over period and for the other reasons set forth below.
EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in our senior secured credit agreement covenant calculations. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance.
Depreciation expense for property and equipment and amortization expense of capitalized internally developed software costs relate to ongoing capital expenditures; however, amortization expense associated with acquired intangible assets, such as customer relationships, software, tradenames and noncompete agreements are not representative of ongoing capital expenditures, but have a continuing effect on our reported results. Non-GAAP financial measures of operating adjusted net income (loss) and operating adjusted net income (loss) per share, in the opinion of the company, provide comparability of the company's performance to other companies that may not have incurred these types of non-cash expenses or that report a similar measure. In addition, operating adjusted net income (loss) and operating adjusted net income (loss) per share may include adjustments for certain other charges.
EBITDA, Adjusted EBITDA, operating adjusted net income (loss) and operating adjusted net income (loss) per share have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.
The 2022 expectation for Adjusted EBITDA is a forward-looking non-GAAP financial measure. We have not reconciled this non-GAAP financial measure to its most directly comparable GAAP measure of net income (loss) due to the inherent difficulty and impracticability of predicting certain amounts required by GAAP with a reasonable degree of accuracy. Accordingly, a reconciliation is not available without unreasonable effort.
The following table reconciles EBITDA and Adjusted EBITDA to income (loss) from continuing operations for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
(in millions), (unaudited) | 2022 | | 2021 | | 2022 | | 2021 |
| Income (loss) from continuing operations | $ | (5.4) | | | $ | (15.3) | | | $ | (13.8) | | | $ | 10.9 | |
| Add back: | | | | | | | |
| Income taxes | (9.9) | | | 2.4 | | | (14.6) | | | 26.9 | |
| Interest expense, net of interest income | 25.2 | | | 30.8 | | | 50.7 | | | 61.4 | |
| Depreciation and amortization | 25.9 | | | 27.4 | | | 51.9 | | | 54.3 | |
| EBITDA | 35.8 | | | 45.3 | | | 74.2 | | | 153.5 | |
| Non-cash stock-based compensation | 14.5 | | | 4.3 | | | 19.7 | | | 9.4 | |
| Loss on extinguishment of debt | 7.7 | | | — | | | 7.7 | | | — | |
| Acquisition related costs | 0.3 | | | 1.6 | | | 0.6 | | | 2.9 | |
| Securitization interest | (14.3) | | | (6.8) | | | (24.7) | | | (13.6) | |
| (Gain)/Loss on asset sales | — | | | — | | | (0.1) | | | (0.8) | |
| Severance | 3.3 | | | 0.6 | | | 6.7 | | | 1.0 | |
| Foreign currency (gains)/losses | 3.3 | | | 0.4 | | | 4.5 | | | 2.6 | |
| Contingent consideration adjustment | — | | | 4.5 | | | — | | | 15.7 | |
| Net change in unrealized (gains) losses on investment securities | 3.2 | | | 11.9 | | | 6.2 | | | (31.6) | |
| Professional fees related to business improvement efforts | 0.8 | | | — | | | 8.9 | | | — | |
| Other | 1.5 | | | 0.3 | | | 1.5 | | | 0.2 | |
| Total addbacks/(deductions) | 20.3 | | | 16.8 | | | 31.0 | | | (14.2) | |
| Adjusted EBITDA | $ | 56.1 | | | $ | 62.1 | | | $ | 105.2 | | | $ | 139.3 | |
The following table reconciles operating adjusted net income (loss) and operating adjusted net income (loss) per diluted share to net income (loss) for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
(in millions, except per share amounts), (unaudited) | 2022 | | 2021 | | 2022 | | 2021 |
Net income (loss) from continuing operations (1) | $ | (5.4) | | | $ | (15.3) | | | $ | (13.8) | | | $ | 10.9 | |
| Acquired amortization expense | 8.2 | | | 8.3 | | | 16.8 | | | 16.8 | |
| Loss on extinguishment of debt | 7.7 | | | — | | | 7.7 | | | — | |
| Contingent consideration adjustment | — | | | 4.5 | | | — | | | 15.7 | |
Income taxes (2) | (3.9) | | | (2.0) | | | (6.0) | | | (4.1) | |
Operating adjusted net income (loss) from continuing operations | $ | 6.6 | | | $ | (4.5) | | | $ | 4.7 | | | $ | 39.3 | |
| | | | | | | |
| Net income from discontinued operations | $ | 215.6 | | | $ | 26.8 | | | $ | 223.7 | | | $ | 51.5 | |
| Acquired amortization expense | 4.4 | | | 5.3 | | | 8.8 | | | 12.4 | |
Income taxes (2) | (1.1) | | | (1.3) | | | (2.2) | | | (3.0) | |
| Operating adjusted net income from discontinued operations | $ | 218.9 | | | $ | 30.8 | | | $ | 230.3 | | | $ | 60.9 | |
| | | | | | | |
| Operating adjusted net income | $ | 225.5 | | | $ | 26.3 | | | $ | 235.0 | | | $ | 100.2 | |
| | | | | | | |
Operating adjusted net income (loss) from continuing operations per share - diluted | $ | 0.04 | | | $ | (0.03) | | | $ | 0.03 | | | $ | 0.25 | |
| Operating adjusted net income from discontinued operations per share - diluted | 1.41 | | 0.20 | | 1.48 | | 0.38 |
| Operating adjusted net income per share - diluted | $ | 1.45 | | | $ | 0.17 | | | $ | 1.51 | | | $ | 0.63 | |
| | | | | | | |
Weighted average diluted shares | 155.2 | | | 156.0 | | | 155.9 | | | 158.9 | |
(1)The Series A Preferred Stock dividends and undistributed earnings allocated to participating securities have not been included in the calculation of operating adjusted net income (loss) and operating adjusted net income (loss) per diluted share.
(2)An effective tax rate of 24.5% was used to determine the amount of income tax benefit on the acquired amortization expense and the loss on extinguishment of debt. There was no income tax benefit related to the contingent consideration adjustment because this item is not deductible for income tax purposes.
EXHIBIT 99.2
KAR Auction Services, Inc.
Second Quarter 2022 Supplemental Financial Information
August 2, 2022
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 income (loss) from continuing operations for the periods presented:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2022 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (36.3) | | | $ | 30.9 | | | $ | (5.4) | |
| Add back: | | | | | |
| Income taxes | (20.2) | | | 10.3 | | | (9.9) | |
| Interest expense, net of interest income | 9.0 | | | 16.2 | | | 25.2 | |
| Depreciation and amortization | 23.8 | | | 2.1 | | | 25.9 | |
| Intercompany interest | 0.6 | | | (0.6) | | | — | |
| EBITDA | (23.1) | | | 58.9 | | | 35.8 | |
| Non-cash stock-based compensation | 11.7 | | | 2.8 | | | 14.5 | |
| Loss on extinguishment of debt | 7.7 | | | — | | | 7.7 | |
| Acquisition related costs | 0.3 | | | — | | | 0.3 | |
| Securitization interest | — | | | (14.3) | | | (14.3) | |
| Severance | 3.1 | | | 0.2 | | | 3.3 | |
| Foreign currency (gains)/losses | 3.3 | | | — | | | 3.3 | |
| Net change in unrealized (gains) losses on investment securities | — | | | 3.2 | | | 3.2 | |
| Professional fees related to business improvement efforts | 0.7 | | | 0.1 | | | 0.8 | |
| Other | 1.3 | | | 0.2 | | | 1.5 | |
| Total addbacks/(deductions) | 28.1 | | | (7.8) | | | 20.3 | |
| Adjusted EBITDA | $ | 5.0 | | | $ | 51.1 | | | $ | 56.1 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2021 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (32.0) | | | $ | 16.7 | | | $ | (15.3) | |
| Add back: | | | | | |
| Income taxes | (3.3) | | | 5.7 | | | 2.4 | |
| Interest expense, net of interest income | 21.4 | | | 9.4 | | | 30.8 | |
| Depreciation and amortization | 24.9 | | | 2.5 | | | 27.4 | |
| Intercompany interest | 0.1 | | | (0.1) | | | — | |
| EBITDA | 11.1 | | | 34.2 | | | 45.3 | |
| Non-cash stock-based compensation | 3.7 | | | 0.6 | | | 4.3 | |
| Acquisition related costs | 1.6 | | | — | | | 1.6 | |
| Securitization interest | — | | | (6.8) | | | (6.8) | |
| Severance | 0.6 | | | — | | | 0.6 | |
| Foreign currency (gains)/losses | 0.4 | | | — | | | 0.4 | |
| Contingent consideration adjustment | 4.5 | | | — | | | 4.5 | |
| Net change in unrealized (gains) losses on investment securities | — | | | 11.9 | | | 11.9 | |
| Other | 0.2 | | | 0.1 | | | 0.3 | |
| Total addbacks/(deductions) | 11.0 | | | 5.8 | | | 16.8 | |
| Adjusted EBITDA | $ | 22.1 | | | $ | 40.0 | | | $ | 62.1 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2022 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (75.7) | | | $ | 61.9 | | | $ | (13.8) | |
| Add back: | | | | | |
| Income taxes | (35.3) | | | 20.7 | | | (14.6) | |
| Interest expense, net of interest income | 22.2 | | | 28.5 | | | 50.7 | |
| Depreciation and amortization | 47.7 | | | 4.2 | | | 51.9 | |
| Intercompany interest | 0.7 | | | (0.7) | | | — | |
| EBITDA | (40.4) | | | 114.6 | | | 74.2 | |
| Non-cash stock-based compensation | 16.1 | | | 3.6 | | | 19.7 | |
| Loss on extinguishment of debt | 7.7 | | | — | | | 7.7 | |
| Acquisition related costs | 0.6 | | | — | | | 0.6 | |
| Securitization interest | — | | | (24.7) | | | (24.7) | |
| (Gain)/Loss on asset sales | (0.1) | | | — | | | (0.1) | |
| Severance | 6.3 | | | 0.4 | | | 6.7 | |
| Foreign currency (gains)/losses | 4.5 | | | — | | | 4.5 | |
| Net change in unrealized (gains) losses on investment securities | — | | | 6.2 | | | 6.2 | |
| Professional fees related to business improvement efforts | 8.0 | | | 0.9 | | | 8.9 | |
| Other | 1.3 | | | 0.2 | | | 1.5 | |
| Total addbacks/(deductions) | 44.4 | | | (13.4) | | | 31.0 | |
| Adjusted EBITDA | $ | 4.0 | | | $ | 101.2 | | | $ | 105.2 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2021 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
| Income (loss) from continuing operations | $ | (62.5) | | | $ | 73.4 | | | $ | 10.9 | |
| Add back: | | | | | |
| Income taxes | 1.7 | | | 25.2 | | | 26.9 | |
| Interest expense, net of interest income | 42.7 | | | 18.7 | | | 61.4 | |
| Depreciation and amortization | 49.4 | | | 4.9 | | | 54.3 | |
| Intercompany interest | 0.2 | | | (0.2) | | | — | |
| EBITDA | 31.5 | | | 122.0 | | | 153.5 | |
| Non-cash stock-based compensation | 8.1 | | | 1.3 | | | 9.4 | |
| Acquisition related costs | 2.9 | | | — | | | 2.9 | |
| Securitization interest | — | | | (13.6) | | | (13.6) | |
| (Gain)/Loss on asset sales | — | | | (0.8) | | | (0.8) | |
| Severance | 0.8 | | | 0.2 | | | 1.0 | |
| Foreign currency (gains)/losses | 2.6 | | | — | | | 2.6 | |
| Contingent consideration adjustment | 15.7 | | | — | | | 15.7 | |
| Net change in unrealized (gains) losses on investment securities | — | | | (31.6) | | | (31.6) | |
| Other | 0.4 | | | (0.2) | | | 0.2 | |
| Total addbacks/(deductions) | 30.5 | | | (44.7) | | | (14.2) | |
| Adjusted EBITDA | $ | 62.0 | | | $ | 77.3 | | | $ | 139.3 | |
Certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters (total KAR results, including the ADESA U.S. physical auctions shown as discontinued operations). The following table reconciles EBITDA and Adjusted EBITDA to net income (loss) for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Twelve Months Ended |
(Dollars in millions), (Unaudited) | September 30,
2021 | | December 31,
2021 | | March 31,
2022 | | June 30,
2022 | | June 30,
2022 |
| Net income (loss) | $ | (1.0) | | | $ | 5.1 | | | $ | (0.3) | | | $ | 210.2 | | | $ | 214.0 | |
| Less: Income from discontinued operations | 25.9 | | | (10.1) | | | 8.1 | | | 215.6 | | | 239.5 | |
| Income (loss) from continuing operations | (26.9) | | | 15.2 | | | (8.4) | | | (5.4) | | | (25.5) | |
| Add back: | | | | | | | | | |
| Income taxes | 10.3 | | | (22.1) | | | (4.7) | | | (9.9) | | | (26.4) | |
| Interest expense, net of interest income | 31.7 | | | 31.7 | | | 25.5 | | | 25.2 | | | 114.1 | |
| Depreciation and amortization | 27.4 | | | 28.2 | | | 26.0 | | | 25.9 | | | 107.5 | |
| EBITDA | 42.5 | | | 53.0 | | | 38.4 | | | 35.8 | | | 169.7 | |
| Non-cash stock-based compensation | 3.6 | | | 1.3 | | | 5.2 | | | 14.5 | | | 24.6 | |
| Loss on extinguishment of debt | — | | | — | | | — | | | 7.7 | | | 7.7 | |
| Acquisition related costs | 2.1 | | | 2.1 | | | 0.3 | | | 0.3 | | | 4.8 | |
| Securitization interest | (7.9) | | | (8.3) | | | (10.4) | | | (14.3) | | | (40.9) | |
| (Gain)/Loss on asset sales | — | | | 0.1 | | | (0.1) | | | — | | | — | |
| Severance | 0.8 | | | 1.5 | | | 3.4 | | | 3.3 | | | 9.0 | |
| Foreign currency (gains)/losses | 0.1 | | | 1.1 | | | 1.2 | | | 3.3 | | | 5.7 | |
| Contingent consideration adjustment | 4.4 | | | 4.2 | | | — | | | — | | | 8.6 | |
| Net change in unrealized (gains) losses on investment securities | 20.9 | | | 9.3 | | | 3.0 | | | 3.2 | | | 36.4 | |
| Professional fees related to business improvement efforts | — | | | — | | | 8.1 | | | 0.8 | | | 8.9 | |
| Other | 0.1 | | | — | | | — | | | 1.5 | | | 1.6 | |
| Total addbacks/(deductions) | 24.1 | | | 11.3 | | | 10.7 | | | 20.3 | | | 66.4 | |
| Adjusted EBITDA from continuing ops | $ | 66.6 | | | $ | 64.3 | | | $ | 49.1 | | | $ | 56.1 | | | $ | 236.1 | |
| Adjusted EBITDA from discontinued ops | 30.0 | | | 33.6 | | | 22.6 | | | 2.2 | | | 88.4 | |
| Adjusted EBITDA | $ | 96.6 | | | $ | 97.9 | | | $ | 71.7 | | | $ | 58.3 | | | $ | 324.5 | |
Results of Operations
KAR Results | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| (Dollars in millions except per share amounts) | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues from continuing operations | | | | | | | |
| Auction fees | $ | 99.2 | | | $ | 106.3 | | | $ | 200.6 | | | $ | 208.8 | |
| Service revenue | 147.3 | | | 141.0 | | | 284.8 | | | 287.3 | |
| Purchased vehicle sales | 45.8 | | | 60.1 | | | 92.1 | | | 115.3 | |
| Finance-related revenue | 91.9 | | | 68.6 | | | 176.1 | | | 134.4 | |
| Total revenues from continuing operations | 384.2 | | | 376.0 | | | 753.6 | | | 745.8 | |
| Cost of services* | 211.9 | | | 208.8 | | | 422.7 | | | 412.6 | |
| Gross profit* | 172.3 | | | 167.2 | | | 330.9 | | | 333.2 | |
| Selling, general and administrative | 124.1 | | | 106.4 | | | 243.0 | | | 213.7 | |
| Depreciation and amortization | 25.9 | | | 27.4 | | | 51.9 | | | 54.3 | |
| Operating profit | 22.3 | | | 33.4 | | | 36.0 | | | 65.2 | |
| Interest expense | 25.9 | | | 31.0 | | | 51.5 | | | 61.8 | |
| Other (income) expense, net | 4.0 | | | 15.3 | | | 5.2 | | | (34.4) | |
| Loss on extinguishment of debt | 7.7 | | | — | | | 7.7 | | | — | |
| Income (loss) from continuing operations before income taxes | (15.3) | | | (12.9) | | | (28.4) | | | 37.8 | |
| Income taxes | (9.9) | | | 2.4 | | | (14.6) | | | 26.9 | |
| Income (loss) from continuing operations | $ | (5.4) | | | $ | (15.3) | | | $ | (13.8) | | | $ | 10.9 | |
| Income from discontinued operations, net of income taxes | 215.6 | | | 26.8 | | | 223.7 | | | 51.5 | |
| Net income | $ | 210.2 | | | $ | 11.5 | | | $ | 209.9 | | | $ | 62.4 | |
| Income (loss) from continuing operations per share | | | | | | | |
| Basic | $ | (0.10) | | | $ | (0.16) | | | $ | (0.23) | | | $ | (0.06) | |
| Diluted | $ | (0.10) | | | $ | (0.16) | | | $ | (0.23) | | | $ | (0.06) | |
* Exclusive of depreciation and amortization
Overview of KAR Results for the Three Months Ended June 30, 2022 and 2021
Discontinued Operations
The financial performance of the ADESA U.S. physical auction business is presented as discontinued operations. As a result, revenue, cost of services and all costs of discontinued operations (including the gain on sale) are presented as one line item in the above table as "Income from discontinued operations."
Overview
For the three months ended June 30, 2022, we had revenue of $384.2 million compared with revenue of $376.0 million for the three months ended June 30, 2021, an increase of 2%. Businesses acquired in the last 12 months accounted for an increase in revenue of $16.6 million or 4% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased $1.5 million, or 5%, to $25.9 million for the three months ended June 30, 2022, compared with $27.4 million for the three months ended June 30, 2021. The decrease in depreciation and amortization was primarily the result of assets that have become fully depreciated and a reduction in assets placed in service.
Interest Expense
Interest expense decreased $5.1 million, or 16%, to $25.9 million for the three months ended June 30, 2022, compared with $31.0 million for the three months ended June 30, 2021. The decrease was primarily attributable to an $8.0 million favorable fair value adjustment related to the termination of the interest rate swaps, as well as the prepayment of Term Loan B-6, partially offset by an increase in interest expense at AFC of $6.8 million, which resulted from an increase in the average finance receivables balance for the three months ended June 30, 2022, as compared with the three months ended June 30, 2021.
Other (Income) Expense, Net
For the three months ended June 30, 2022, we had other expense of $4.0 million compared with $15.3 million for the three months ended June 30, 2021. The decrease in other expense was primarily attributable to a decrease in unrealized losses on investment securities of approximately $8.7 million, a decrease in contingent consideration valuation adjustments of $4.5 million and a decrease in other miscellaneous items aggregating $1.0 million, partially offset by an increase in foreign currency losses of $2.9 million.
The Company invests in certain early-stage automotive companies and funds that relate to the automotive industry. We believe these investments have resulted in the expansion of relationships in the vehicle remarketing industry. There were no realized gains on these investments for the three months ended June 30, 2022. The Company had unrealized losses of $3.2 million for the three months ended June 30, 2022. Any future changes in the fair value of these investment securities will be reflected as unrealized gains or losses until these securities are sold.
Income Taxes
We had an effective tax rate of 64.7% resulting in a benefit on a pre-tax loss for the three months ended June 30, 2022, compared with an effective tax rate of -18.6% resulting in expense on a pre-tax loss for the three months ended June 30, 2021. The effective tax rate for the three months ended June 30, 2022 was favorably impacted by the state rate change impact on deferred taxes. The effective tax rate for the three months ended June 30, 2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefit has been recorded.
Income from Discontinued Operations
In May 2022, Carvana acquired the ADESA U.S. physical auction business from KAR. As such, the financial results of the ADESA U.S. physical auction business have been accounted for as discontinued operations for all periods presented. For the three months ended June 30, 2022 and 2021, the Company's financial statements included income from discontinued operations of $215.6 million and $26.8 million, respectively.
Impact of Foreign Currency
For the three months ended June 30, 2022, fluctuations in the euro exchange rate decreased revenue by $6.4 million, operating profit by $0.2 million and net income by $0.1 million. For the three months ended June 30, 2022, fluctuations in the Canadian exchange rate decreased revenue by $3.3 million, operating profit by $0.8 million and net income by $0.5 million.
Overview of KAR Results for the Six Months Ended June 30, 2022 and 2021
Discontinued Operations
The financial performance of the ADESA U.S. physical auction business is presented as discontinued operations. As a result, revenue, cost of services and all costs of discontinued operations (including the gain on sale) are presented as one line item in the above table as "Income from discontinued operations."
Overview
For the six months ended June 30, 2022, we had revenue of $753.6 million compared with revenue of $745.8 million for the six months ended June 30, 2021, an increase of 1%. Businesses acquired in the last 12 months accounted for an increase in revenue of $34.6 million or 5% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased $2.4 million, or 4%, to $51.9 million for the six months ended June 30, 2022, compared with $54.3 million for the six months ended June 30, 2021. The decrease in depreciation and amortization was primarily the result of assets that have become fully depreciated and a reduction in assets placed in service.
Interest Expense
Interest expense decreased $10.3 million, or 17%, to $51.5 million for the six months ended June 30, 2022, compared with $61.8 million for the six months ended June 30, 2021. The decrease was primarily attributable to a realized gain of $16.7 million related to the discontinuance of hedge accounting and termination of the interest rate swaps, as well as the prepayment of Term Loan B-6, partially offset by an increase in interest expense at AFC of $9.8 million, which resulted from an increase in the average finance receivables balance for the six months ended June 30, 2022, as compared with the six months ended June 30, 2021.
Other (Income) Expense, Net
For the six months ended June 30, 2022, we had other expense of $5.2 million compared with other income of $34.4 million for the six months ended June 30, 2021. The increase in other expense was primarily attributable to unrealized losses on investment securities of approximately $6.2 million for the six months ended June 30, 2022, compared with unrealized gains on investment securities of approximately $31.6 million for the six months ended June 30, 2021, as well as a reduction in realized gains of approximately $17.2 million and an increase in foreign currency losses of $1.9 million, partially offset by a decrease in contingent consideration valuation adjustments of $15.7 million and a decrease in other miscellaneous items aggregating $1.6 million.
The Company invests in certain early-stage automotive companies and funds that relate to the automotive industry. We believe these investments have resulted in the expansion of relationships in the vehicle remarketing industry. There were no realized gains on these investments for the six months ended June 30, 2022. The Company had unrealized losses of $6.2 million for the six months ended June 30, 2022. Any future changes in the fair value of these investment securities will be reflected as unrealized gains or losses until these securities are sold.
Income Taxes
We had an effective tax rate of 51.4% resulting in a benefit on a pre-tax loss for the six months ended June 30, 2022, compared with an effective tax rate of 71.2% for the six months ended June 30, 2021. The effective tax rate for the six months ended June 30, 2022 was favorably impacted by the state rate change impact on deferred taxes. The effective tax rate for the six months ended June 30, 2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefit has been recorded.
Income from Discontinued Operations
In May 2022, Carvana acquired the ADESA U.S. physical auction business from KAR. As such, the financial results of the ADESA U.S. physical auction business have been accounted for as discontinued operations for all periods presented. For the six months ended June 30, 2022 and 2021, the Company's financial statements included income from discontinued operations of $223.7 million and $51.5 million, respectively.
Impact of Foreign Currency
For the six months ended June 30, 2022, fluctuations in the euro exchange rate decreased revenue by $9.5 million, operating profit by $0.2 million and net income by $0.1 million. For the six months ended June 30, 2022, fluctuations in the Canadian exchange rate decreased revenue by $3.7 million, operating profit by $0.9 million and net income by $0.6 million.
Marketplace Results | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (Dollars in millions, except per vehicle amounts) | 2022 | | 2021 | | 2022 | | 2021 |
| Auction fees | $ | 99.2 | | | $ | 106.3 | | | $ | 200.6 | | | $ | 208.8 | |
| Service revenue | 147.3 | | | 141.0 | | | 284.8 | | | 287.3 | |
| Purchased vehicle sales | 45.8 | | | 60.1 | | | 92.1 | | | 115.3 | |
| Total Marketplace revenue from continuing operations | 292.3 | | | 307.4 | | | 577.5 | | | 611.4 | |
| Cost of services* | 195.7 | | | 195.1 | | | 391.5 | | | 385.4 | |
| Gross profit* | 96.6 | | | 112.3 | | | 186.0 | | | 226.0 | |
| Selling, general and administrative | 110.5 | | | 97.6 | | | 218.9 | | | 196.1 | |
| Depreciation and amortization | 23.8 | | | 24.9 | | | 47.7 | | | 49.4 | |
| Operating profit (loss) | $ | (37.7) | | | $ | (10.2) | | | $ | (80.6) | | | $ | (19.5) | |
| | | | | | | |
| Commercial vehicles sold | 177,000 | | | 274,000 | | | 351,000 | | | 594,000 | |
| Dealer consignment vehicles sold | 166,000 | | 168,000 | | 343,000 | | 306,000 |
| Total vehicles sold | 343,000 | | 442,000 | | 694,000 | | 900,000 |
| Auction fees per vehicle sold | $ | 289 | | | $ | 240 | | | $ | 289 | | | $ | 232 | |
| Gross profit per vehicle sold* | $ | 282 | | | $ | 254 | | | $ | 268 | | | $ | 251 | |
| Gross profit percentage, excluding purchased vehicles* | 39.2% | | 45.4% | | 38.3% | | 45.6% |
| On-premise mix | 13% | | 14% | | 14% | | 13% |
| Off-premise mix | 87% | | 86% | | 86% | | 87% |
* Exclusive of depreciation and amortization
Overview of Marketplace Results for the Three Months Ended June 30, 2022 and 2021
Revenue
Revenue from the Marketplace segment decreased $15.1 million, or 5%, to $292.3 million for the three months ended June 30, 2022, compared with $307.4 million for the three months ended June 30, 2021. The decrease in revenue was the result of a decrease in the number of vehicles sold, partially offset by an increase in average revenue per vehicle sold. Businesses acquired in the last 12 months accounted for an increase in revenue of $16.6 million. The change in revenue included the impact of decreases in revenue of $6.4 million and $2.9 million due to fluctuations in the euro exchange rate and the Canadian exchange rate, respectively.
On-premise marketplace sales are initiated online for vehicles at any of our locations across Canada and include ADESA Simulcast, Simulcast+ and DealerBlock sales. Off-premise marketplace sales are initiated online and include Openlane, BacklotCars, CARWAVE, TradeRev and ADESA Europe sales. The 22% decrease in the number of vehicles sold was comprised of a 35% decline in commercial volumes and a 1% decrease in dealer consignment volumes. For the three months ended June 30, 2022, our marketplaces had a conversion rate of 36% of vehicles offered, as compared with 48% for the three months ended June 30, 2021.
Auction fees per vehicle sold for the three months ended June 30, 2022 increased $49, or 20%, reflecting higher vehicle values, the introduction of new dealer off-premise auction fees and a smaller mix of lower-fee commercial off-premise vehicles.
Service revenue for the three months ended June 30, 2022 increased $6.3 million, or 4%, primarily as a result of an increase in repossession fees and platform fees provided by third-parties, partially offset by a decrease in inspection service revenue and transportation revenue resulting from the decrease in vehicles sold. Typically consigned vehicles located at our facilities utilize our service offerings at a higher rate than off-premise vehicles.
Gross Profit
For the three months ended June 30, 2022, gross profit for the Marketplace segment decreased $15.7 million, or 14%, to $96.6 million, compared with $112.3 million for the three months ended June 30, 2021. Cost of services increased less than 1% for the three months ended June 30, 2022, while revenue decreased 5% during the same period. Gross profit for the Marketplace segment was 33.0% of revenue for the three months ended June 30, 2022, compared with 36.5% of revenue for the three months ended June 30, 2021. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 39.2% and 45.4% for the three months ended June 30, 2022 and 2021, 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 the last 12 months accounted for an increase in cost of services of $9.5 million for the three months ended June 30, 2022.
Gross profit as a percentage of revenue decreased for the three months ended June 30, 2022 as compared with the three months ended June 30, 2021, primarily due to the 22% decrease in vehicles sold. A decline in the mix of off-premise commercial vehicles sold also resulted in a reduction of gross profit as a percentage of revenue. In addition, the net gross profit on purchased vehicles was lower as a result of declining used vehicle prices during the second quarter of 2022, transportation costs increased and there were no benefits taken under the Canada Emergency Wage Subsidy in the second quarter of 2022, resulting in a reduction to gross profit as a percentage of revenue.
Selling, General and Administrative
Selling, general and administrative expenses for the Marketplace segment increased $12.9 million, or 13%, to $110.5 million for the three months ended June 30, 2022, compared with $97.6 million for the three months ended June 30, 2021, primarily as a result of increases in stock-based compensation of $8.1 million, selling, general and administrative expenses associated with acquisitions of $4.0 million, bad debt expense of $2.2 million, severance of $1.4 million, professional fees of $0.6 million and travel expenses of $0.5 million, partially offset by decreases in information technology costs of $1.8 million, fluctuations in the Canadian exchange rate of $0.9 million and miscellaneous expenses aggregating $2.1 million. In addition, the Employee Retention Credit provided under the Canada Emergency Wage Subsidy was $0.9 million less for the three months ended June 30, 2022, compared with the three months ended June 30, 2021.
Overview of Marketplace Results for the Six Months Ended June 30, 2022 and 2021
Revenue
Revenue from the Marketplace segment decreased $33.9 million, or 6%, to $577.5 million for the six months ended June 30, 2022, compared with $611.4 million for the six months ended June 30, 2021. The decrease in revenue was the result of a decrease in the number of vehicles sold, partially offset by an increase in average revenue per vehicle sold. Businesses acquired in the last 12 months accounted for an increase in revenue of $34.6 million. The change in revenue included the impact of decreases in revenue of $9.5 million and $3.3 million due to fluctuations in the euro exchange rate and the Canadian exchange rate, respectively.
On-premise marketplace sales are initiated online for vehicles at any of our locations across Canada and include ADESA Simulcast, Simulcast+ and DealerBlock sales. Off-premise marketplace sales are initiated online and include Openlane, BacklotCars, CARWAVE, TradeRev and ADESA Europe sales. The 23% decrease in the number of vehicles sold was comprised of a 41% decline in commercial volumes, partially offset by a 12% increase in dealer consignment volumes.
Auction fees per vehicle sold for the six months ended June 30, 2022 increased $57, or 25%, reflecting higher vehicle values, the introduction of new dealer off-premise auction fees and a smaller mix of lower-fee commercial off-premise vehicles.
Service revenue for the six months ended June 30, 2022 decreased $2.5 million, or 1%, primarily as a result of a decrease in inspection service revenue and transportation revenue resulting from the decrease in vehicles sold, partially offset by an increase in repossession fees, reconditioning revenue and platform fees provided by third-parties. Typically consigned vehicles located at our facilities utilize our service offerings at a higher rate than off-premise vehicles.
Gross Profit
For the six months ended June 30, 2022, gross profit for the Marketplace segment decreased $40.0 million, or 18%, to $186.0 million, compared with $226.0 million for the six months ended June 30, 2021. Cost of services increased 2% for the six months ended June 30, 2022, while revenue decreased 6% during the same period. Gross profit for the Marketplace segment was 32.2% of revenue for the six months ended June 30, 2022, compared with 37.0% of revenue for the six months ended June 30, 2021. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 38.3% and 45.6% for the six months ended June 30, 2022 and 2021, 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 the last 12 months accounted for an increase in cost of services of $19.1 million for the six months ended June 30, 2022.
Gross profit as a percentage of revenue decreased for the six months ended June 30, 2022 as compared with the six months ended June 30, 2021, primarily due to the 23% decrease in vehicles sold. A decline in the mix of off-premise commercial vehicles sold also resulted in a reduction of gross profit as a percentage of revenue. In addition, the net gross profit on purchased vehicles was lower, transportation costs increased and there were no benefits taken under the Canada Emergency Wage Subsidy in the first six months of 2022, resulting in a reduction to gross profit as a percentage of revenue.
Selling, General and Administrative
Selling, general and administrative expenses for the Marketplace segment increased $22.8 million, or 12%, to $218.9 million for the six months ended June 30, 2022, compared with $196.1 million for the six months ended June 30, 2021, primarily as a result of increases in selling, general and administrative expenses associated with acquisitions of $8.2 million, stock-based compensation of $8.1 million, professional fees of $6.8 million, severance of $3.6 million, bad debt expense of $3.5 million, compensation expense of $1.1 million and travel expenses of $1.1 million, partially offset by decreases in incentive-based compensation of $3.4 million, information technology costs of $2.7 million, fluctuations in the Canadian exchange rate of $0.9 million and miscellaneous expenses aggregating $4.7 million. In addition, the Employee Retention Credit provided under the Canada Emergency Wage Subsidy was $2.1 million less for the six months ended June 30, 2022, compared with the six months ended June 30, 2021.
Finance Results | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (Dollars in millions except volumes and per loan amounts) | 2022 | | 2021 | | 2022 | | 2021 |
| Finance-related revenue | | | | | | | |
| Interest income | $ | 46.5 | | | $ | 33.1 | | | $ | 89.7 | | | $ | 64.6 | |
| Fee income | 42.7 | | | 35.1 | | | 82.9 | | | 72.2 | |
| Other revenue | 2.6 | | | 2.2 | | | 4.8 | | | 4.2 | |
| Net recovery (provision) for credit losses | 0.1 | | | (1.8) | | | (1.3) | | | (6.6) | |
| Total Finance revenue | 91.9 | | | 68.6 | | | 176.1 | | | 134.4 | |
| Cost of services* | 16.2 | | | 13.7 | | | 31.2 | | | 27.2 | |
| Gross profit* | 75.7 | | | 54.9 | | | 144.9 | | | 107.2 | |
| Selling, general and administrative | 13.6 | | | 8.8 | | | 24.1 | | | 17.6 | |
| Depreciation and amortization | 2.1 | | | 2.5 | | | 4.2 | | | 4.9 | |
| Operating profit | $ | 60.0 | | | $ | 43.6 | | | $ | 116.6 | | | $ | 84.7 | |
| | | | | | | |
| Loan transactions | 401,000 | | | 356,000 | | | 773,000 | | | 728,000 | |
| Revenue per loan transaction | $ | 229 | | | $ | 193 | | | $ | 228 | | | $ | 185 | |
* Exclusive of depreciation and amortization
Overview of Finance Results for the Three Months Ended June 30, 2022 and 2021
Revenue
For the three months ended June 30, 2022, the Finance segment revenue increased $23.3 million, or 34%, to $91.9 million, compared with $68.6 million for the three months ended June 30, 2021. The increase in revenue was primarily the result of a 19% increase in revenue per loan transaction and a 13% increase in loan transactions.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $36, or 19%, primarily as a result of an increase in loan values, an increase in interest yields driven by an increase in prime rates, an increase in floorplan fees and other fee income per unit, a decrease in net credit losses and an increase in average portfolio duration.
The provision for credit losses decreased to 0.0% of the average managed receivables for the three months ended June 30, 2022 from 0.4% for the three months ended June 30, 2021.
Gross Profit
For the three months ended June 30, 2022, gross profit for the Finance segment increased $20.8 million, or 38%, to $75.7 million, or 82.4% of revenue, compared with $54.9 million, or 80.0% of revenue, for the three months ended June 30, 2021. The increase in gross profit as a percent of revenue was primarily the result of a 34% increase in revenue, partially offset by an 18% increase in cost of services. The increase in cost of services was primarily the result of increases in compensation expense of $1.2 million, incentive-based compensation of $0.8 million, lot check expenses of $0.4 million and other miscellaneous expenses aggregating $0.1 million.
Selling, General and Administrative
Selling, general and administrative expenses for the Finance segment increased $4.8 million, or 55%, to $13.6 million for the three months ended June 30, 2022, compared with $8.8 million for the three months ended June 30, 2021 primarily as a result of increases in stock-based compensation of $2.2 million, compensation expense of $1.0 million, incentive-based compensation of $0.5 million and other miscellaneous expenses aggregating $1.1 million.
Overview of Finance Results for the Six Months Ended June 30, 2022 and 2021
Revenue
For the six months ended June 30, 2022, the Finance segment revenue increased $41.7 million, or 31%, to $176.1 million, compared with $134.4 million for the six months ended June 30, 2021. The increase in revenue was primarily the result of a 23% increase in revenue per loan transaction and a 6% increase in loan transactions.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $43, or 23%, primarily as a result of an increase in loan values, an increase in interest yields driven by an increase in prime rates, an increase in floorplan fees and other fee income per unit and a decrease in provision for credit losses for the six months ended June 30, 2022.
The provision for credit losses decreased to 0.1% of the average managed receivables for the six months ended June 30, 2022 from 0.7% for the six months ended June 30, 2021.
Gross Profit
For the six months ended June 30, 2022, gross profit for the Finance segment increased $37.7 million, or 35%, to $144.9 million, or 82.3% of revenue, compared with $107.2 million, or 79.8% of revenue, for the six months ended June 30, 2021. The increase in gross profit as a percent of revenue was primarily the result of a 31% increase in revenue, partially offset by a 15% increase in cost of services. The increase in cost of services was primarily the result of increases in compensation expense of $1.7 million, incentive-based compensation of $1.2 million, lot check expenses of $0.8 million and credit check expenses of $0.5 million, partially offset by a decrease in other miscellaneous expenses aggregating $0.2 million.
Selling, General and Administrative
Selling, general and administrative expenses for the Finance segment increased $6.5 million, or 37%, to $24.1 million for the six months ended June 30, 2022, compared with $17.6 million for the six months ended June 30, 2021 primarily as a result of increases in stock-based compensation of $2.3 million, compensation expense of $1.5 million, professional fees of $1.3 million, incentive-based compensation of $0.5 million and other miscellaneous expenses aggregating $0.9 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.
| | | | | | | | | | | | | | | | | |
| June 30, | | December 31, | | June 30, |
| (Dollars in millions) | 2022 | | 2021 | | 2021 |
| Cash and cash equivalents | $ | 804.4 | | | $ | 177.6 | | | $ | 583.5 | |
| Restricted cash | 28.1 | | | 25.8 | | | 53.8 | |
| Working capital | 448.6 | | | 382.5 | | | 731.3 | |
| Amounts available under the Revolving Credit Facility* | 325.0 | | | 325.0 | | | 325.0 | |
| Cash provided by operating activities for the six months ended | 128.5 | | | | | 188.7 | |
* There were related outstanding letters of credit totaling approximately $27.3 million, $27.6 million and $29.7 million at June 30, 2022, December 31, 2021 and June 30, 2021, respectively, which reduced the amount available for borrowings under the Revolving Credit Facility.
The increase in cash and cash equivalents is the result of net proceeds received from the sale of the ADESA U.S. physical auction business in May 2022, partially offset by the use of such proceeds to repay a portion of the Company's debt. We regularly evaluate alternatives for our capital structure and liquidity given our expected cash flows, growth and operating capital requirements as well as capital market conditions.
Summary of Cash Flows | | | | | | | | | | | |
| Six Months Ended June 30, |
| (Dollars in millions) | 2022 | | 2021 |
| Net cash provided by (used by): | | | |
| Operating activities - continuing operations | $ | 128.5 | | | $ | 188.7 | |
| Operating activities - discontinued operations | (429.3) | | | 96.9 | |
| Investing activities - continuing operations | (193.2) | | | (309.5) | |
| Investing activities - discontinued operations | 2,066.4 | | | (16.2) | |
| Financing activities - continuing operations | (948.0) | | | (153.6) | |
| Financing activities - discontinued operations | 10.8 | | | 40.3 | |
| Effect of exchange rate on cash | (6.1) | | | 6.4 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 629.1 | | | $ | (147.0) | |
Cash flow provided by operating activities (continuing operations) was $128.5 million for the six months ended June 30, 2022, compared with $188.7 million for the six months ended June 30, 2021. The decrease in operating cash flow was primarily attributable to changes in operating assets and liabilities as a result of the timing of collections and the disbursement of funds to consignors for auctions held near period-ends and decreased profitability, partially offset by a net increase in non-cash item adjustments.
Net cash used by investing activities (continuing operations) was $193.2 million for the six months ended June 30, 2022, compared with $309.5 million for the six months ended June 30, 2021. The decrease in net cash used by investing activities was primarily attributable to:
•a decrease in cash used for acquisitions of $79.8 million;
•a decrease in the additional finance receivables held for investment of approximately $43.6 million; and
•a decrease in investments in securities of approximately $15.0 million;
partially offset by:
•a decrease in the proceeds from sale of investments of approximately $21.1 million.
Net cash used by financing activities (continuing operations) was $948.0 million for the six months ended June 30, 2022, compared with $153.6 million for the six months ended June 30, 2021. The increase in net cash used by financing activities was primarily attributable to:
•the prepayment of Term Loan B-6 in May 2022, which resulted in an increase in debt payments of $923.9 million;
partially offset by:
•a decrease in the repurchase of common stock of approximately $98.8 million; and
•an increase in the additional obligations collateralized by finance receivables of approximately $31.5 million.
Debt Tender Offer
On August 2, 2022, the Company commenced an offer to purchase for cash up to $600,000,000 principal amount of its 5.125% Senior Notes due 2025, exclusive of any applicable premiums paid in connection with such tender offer and accrued and unpaid interest. The tender offer is being made only by and pursuant to the terms set forth in the offer to purchase, dated August 2, 2022, and is subject to a number of conditions set forth therein that may be waived or changed.
EXHIBIT 99.4
KAR Global Announces Cash Tender Offer for Notes
Carmel, IN, August 2, 2022 — KAR Auction Services, Inc., d/b/a KAR Global (NYSE: KAR) (the “Company”), today announced that it commenced a cash tender offer (the “Tender Offer”) to purchase its 5.125% Senior Notes due 2025 (CUSIP Nos. 48238TAA7 / U24457AA8) (the “Notes”) in a principal amount of up to $600,000,000, exclusive of any applicable premiums paid in connection with the Tender Offer and accrued and unpaid interest. The terms and conditions of the Tender Offer are set forth in an Offer to Purchase, dated August 2, 2022 (the “Offer to Purchase”), which is being sent to all registered holders (collectively, the “Holders”) of Notes.
| | | | | | | | | | | | | | | | | | | | | | | |
| Title of Security | Issuer | CUSIP Numbers (1) | Principal Amount Outstanding | Tender Cap | Base Consideration(2)(3) | Early Tender Premium(2) | Total Consideration(2)(3) |
| 5.125% Senior Notes due 2025 | KAR Auction Services, Inc. | 48238TAA7 U24457AA8 | $950,000,000 | $600,000,000 | $977.50 | $30.00 | $1,007.50 |
(1) No representation is made as to the correctness or accuracy of the CUSIP numbers listed in this press release, the Offer to Purchase or printed
on the Notes. They are provided solely for the convenience of Holders of the Notes.
(2) Per $1,000 principal amount of Notes.
(3) Excludes Accrued Interest, which will be paid in addition to the Base Consideration or the Total Consideration, as applicable.
Holders of Notes must validly tender and not validly withdraw their Notes on or before 5:00 p.m., New York City time, on August 15, 2022, unless extended (such date and time, as the same may be extended, the “Early Tender Date”) in order to be eligible to receive the Total Consideration. Holders of Notes who validly tender their Notes after the Early Tender Date and on or before the Expiration Date (as defined below) will be eligible to receive only the applicable Base Consideration, which is equal to the Total Consideration minus the Early Tender Premium, as set forth in the table above. In addition to the applicable consideration, Holders whose Notes are accepted for purchase in the Tender Offer will receive accrued and unpaid interest to, but excluding, the date on which the Tender Offer is settled. The settlement date for Notes validly tendered and accepted for purchase before the Early Tender Date (if the Company elects to do so) is currently expected to be on or about August 17, 2022 and the final settlement date, if any, is expected to be August 31, 2022.
The Tender Offer will expire at 11:59 p.m., New York City time, on August 29, 2022, unless extended (such date and time, as the same may be extended, the “Expiration Date”). As set forth in the Offer to Purchase, validly tendered Notes may be validly withdrawn at any time on or before 5:00 p.m., New York City time, on August 15, 2022, unless extended (the “Withdrawal Deadline”).
The consummation of the Tender Offer is subject to the satisfaction of certain conditions as set forth in the Offer to Purchase. The Company reserves the right, in its sole discretion, to waive any and all conditions to the Tender Offer with respect to the Notes.
If any Notes are validly tendered and the principal amount of such tendered Notes exceeds the Tender Cap as set forth in the table above, any principal amount of the Notes accepted for payment and purchased, on the terms and subject to the conditions of the Tender Offer, will be prorated based on the principal amount of validly tendered Notes, subject to the Tender Cap and any prior purchase of Notes on any day following the Early Tender Date and prior to the Expiration Date.
Any Notes that are validly tendered at or prior to the Early Tender Date (and not validly withdrawn at or prior to the Withdrawal Deadline) will have priority over any Notes that are validly tendered after the Early Tender Date. Accordingly, if the principal amount of any Notes validly tendered at or prior to the Early Tender Date (and not validly withdrawn at or prior to the Withdrawal Deadline) and accepted for purchase equals or exceeds the Tender Cap, no Notes validly tendered after the Early Tender Date will be accepted for purchase.
The Company’s obligations to accept any Notes tendered and to pay the applicable consideration for them are set forth solely in the Offer to Purchase. This press release is neither an offer to purchase nor a solicitation of an offer to sell any Notes. The Tender Offer is made only by, and pursuant to the terms of, the Offer to Purchase, and the information in this press release is qualified by reference to the Offer to Purchase. Subject to applicable law, the Company may amend, extend, waive conditions to or terminate the Tender Offer.
J.P. Morgan Securities LLC is the Dealer Manager for the Tender Offer. Persons with questions regarding the Tender Offer should contact J.P. Morgan Securities LLC at (866) 834-4666 (toll-free) or (212) 834-3822 (collect). Requests for copies of the Offer to Purchase should be directed to D.F. King & Co., Inc., the Tender and Information Agent for the Tender Offer, at (212) 269-5550 (banks and brokers), (800) 488-8095 (toll-free) or email at [email protected].
About KAR Global
KAR Auction Services, Inc., d/b/a KAR Global (NYSE: KAR), provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. KAR Global’s unique end-to-end platform supports whole car, financing, logistics and other ancillary and related services. Our integrated physical, online and mobile marketplaces reduce risk, improve transparency and streamline transactions for customers in about 75 countries. Headquartered in Carmel, Indiana, KAR Global has employees across the United States, Canada, Mexico, Uruguay, Europe and the Philippines.
Forward-Looking Statements
Certain statements contained in this press release include “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. In particular, statements made in this press release that are not historical facts (including, but not limited to, expectations, estimates, assumptions and/or projections regarding the industry, business, future operating results, potential acquisitions and anticipated cash requirements) may be forward-looking statements. Words such as “should,” “may,” “will,” “anticipate,” “expect,” “project,” “target,”
“intend,” “plan,” “believe,” “seek,” “estimate,” “assume,” “could,” “continue” and similar expressions identify forward-looking statements. The forward-looking statements contained in this press release are based on management’s current assumptions, expectations and/or beliefs, are not guarantees of future performance and are subject to substantial risks, uncertainties and changes that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, and those described from time to time in our filings with the Securities and Exchange Commission. Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this press release are made as of the date on which they are made and we do not undertake to update any forward-looking statements.
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