KAR Auction Services, Inc. Reports Second Quarter 2019 Financial Results
CARMEL, Ind., Aug. 6, 2019 /PRNewswire/ -- KAR Auction Services, Inc. (NYSE: KAR), today reported its second quarter financial results for the period ended June 30, 2019. For the second quarter of 2019, the company reported revenue from continuing operations of $719.1 million as compared with revenue from continuing operations of $623.4 million for the second quarter of 2018, an increase of 15%. Net income from continuing operations for the second quarter of 2019 decreased 27% to $27.4 million, or $0.20 per diluted share, as compared with net income from continuing operations of $37.4 million, or $0.28 per diluted share, in the second quarter of 2018. Adjusted EBITDA from continuing operations for the quarter ended June 30, 2019 decreased 2% to $135.9 million, as compared with Adjusted EBITDA from continuing operations of $139.0 million for the quarter ended June 30, 2018. Operating adjusted net income from continuing operations per diluted share decreased 17% to $0.30 for the quarter ended June 30, 2019, as compared with operating adjusted net income from continuing operations per diluted share of $0.36 for the quarter ended June 30, 2018. KAR incurred operating losses of $16.0 million and $11.3 million for the three months ended June 30, 2019 and 2018, respectively, which were attributable to the rollout of Trade Rev.
For the six months ended June 30, 2019, the company reported revenue from continuing operations of $1,408.7 million as compared with revenue from continuing operations of $1,236.6 million for the six months ended June 30, 2018, an increase of 14%. Net income from continuing operations for the six months ended June 30, 2019 decreased 40% to $42.7 million, or $0.32 per diluted share, as compared with net income from continuing operations of $71.6 million, or $0.53 per diluted share, in the first six months of 2018. Adjusted EBITDA from continuing operations for the six months ended June 30, 2019 decreased 4% to $258.8 million, as compared with Adjusted EBITDA from continuing operations of $268.3 million for the six months ended June 30, 2018. Operating adjusted net income from continuing operations per diluted share decreased 32% to $0.50 for the six months ended June 30, 2019, as compared with operating adjusted net income from continuing operations per diluted share of $0.74 for the six months ended June 30, 2018. KAR incurred operating losses of $32.8 million and $22.4 million for the six months ended June 30, 2019 and 2018, respectively, which were attributed to the rollout of Trade Rev.
"We successfully completed the spin of IAA and are pleased with the early results of the transaction," said Jim Hallett, chairman and CEO of KAR Auction Services, Inc. "We remain confident in our strategy and capital allocation plan, and are highly focused on leading the digital evolution of our industry, managing cost, and executing on the fundamentals of our business."
2019 Outlook
KAR Auction Services' previously stated outlook remains unchanged.
(in millions, except per share
amounts)
Annual
Guidance
Net income from continuing
operations
$123.0 - $137.0
Income tax expense
$50.0 - $56.0
Interest expense, net of interest
income $192
Depreciation and amortization $190
EBITDA
$555.0 - $575.0
Adjusted EBITDA addbacks, net ($25.0)
Adjusted EBITDA
$530 - $550
Capital expenditures $154
Cash taxes $60
Cash interest on corporate debt $110
Effective tax rate 29%
Net income from continuing
operations per share -diluted
$0.92 - $1.02
Operating adjusted net income per
share
$1.24 - $1.34
Weighted average diluted shares 134
---
Earnings guidance does not contemplate future items such as business development activities, strategic developments (such as restructurings, spin-offs or dispositions of assets or investments), gains/losses associated with step acquisitions, contingent purchase price adjustments, significant expenses related to litigation and changes in applicable laws and regulations (including significant accounting and tax matters). The timing and amounts of these items are highly variable, difficult to predict, and of a potential size that could have a substantial impact on the company's reported results for any given period. Prospective quantification of these items is generally not practicable. Forward-looking non-GAAP guidance excludes amortization expense associated with acquired intangible assets, as well as one-time charges, net of taxes. See reconciliations of the company's guidance on pages 8 and 9.
Dividend Announcement
The company announced a cash dividend today of $0.19 per share on the company's common stock. The dividend is payable on October 3, 2019, to stockholders of record as of the close of business on September 20, 2019.
Potential Refinancing of Credit Facilities
We intend to amend and extend our credit facilities in early September, subject to acceptable market conditions. We are expecting to increase our Term Loan borrowings with the proceeds being used for general corporate purposes including future acquisitions. We expect any proceeds received from the refinancing to increase our cash balances upon closing. We expect to complete the refinancing of our debt prior to September 30, 2019.
Earnings Conference Call Information
KAR Auction Services, Inc. will be hosting an earnings conference call and webcast on Wednesday, August 7, 2019 at 11:00 a.m. EDT (10:00 a.m. CDT). The call will be hosted by KAR Auction Services, Inc.'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 2399573, while the live web cast will be available at the investor relations section of www.karauctionservices.com. Supplemental financial information for KAR Auction Services' second quarter 2019 results is available at the investor relations section of www.karauctionservices.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 2399573. The archive of the web cast will also be available following the call and will be available at the investor relations section of www.karauctionservices.com for a limited time.
About KAR Auction Services
KAR Auction Services (NYSE: KAR) provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. KAR's unique end-to-end platform supports whole car, salvage, financing, logistics and other ancillary and related services, including the sale of nearly 3.5 million units valued at over $40 billion through our auctions. Our integrated physical, online and mobile marketplaces reduce risk, improve transparency and streamline transactions for customers in more than 70 countries. Headquartered in Carmel, Ind., KAR has approximately 15,000 employees across the United States, Canada, Mexico and Europe. For more information go to www.karauctionservices.com. For the latest KAR news 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 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 matters disclosed in the Company's Securities and Exchange Commission filings. The Company does not undertake any obligation to update any forward-looking statements.
Analyst Inquiries:
Media Inquiries:
Mike Eliason
Gene Rodriguez Miller
(317) 249-4559
(317) 343-5243
mike.eliason@karauctionservices.com
gene.rodriguez@karauctionservices.com
KAR Auction Services, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
---
Operating revenues
ADESA Auction
Services $
632.4 $
538.3 $
1,232.1 $
1,066.4
AFC 86.7 85.1 176.6 170.2
Total operating
revenues 719.1 623.4 1,408.7 1,236.6
Operating expenses
Cost of services
(exclusive of
depreciation and
amortization) 417.4 330.2 811.3 658.5
Selling, general and
administrative 163.2 149.9 338.4 305.4
Depreciation and
amortization 47.9 42.1 92.2 88.4
Total operating
expenses 628.5 522.2 1,241.9 1,052.3
Operating profit 90.6 101.2 166.8 184.3
Interest expense 55.6 48.4 112.1 89.7
Other income, net (1.1) (0.5) (3.2) (0.8)
Income from
continuing
operations before
income taxes 36.1 53.3 57.9 95.4
Income taxes 8.7 15.9 15.2 23.8
Income from
continuing
operations 27.4 37.4 42.7 71.6
Income from
discontinued
operations, net of
income taxes 28.2 55.8 90.7 111.6
Net income $
55.6 $
93.2 $
133.4 $
183.2
Net income per share -basic
Income from
continuing
operations $
0.21 $
0.28 $
0.32 $
0.53
Income from
discontinued
operations 0.21 0.41 0.68 0.83
Net income $
0.42 $
0.69 $
1.00 $
1.36
Net income per share -diluted
Income from
continuing
operations $
0.20 $
0.28 $
0.32 $
0.53
Income from
discontinued
operations 0.21 0.41 0.68 0.82
Net income $
0.41 $
0.69 $
1.00 $
1.35
Dividends declared
per common share $
0.35 $
0.35 $
0.70 $
0.70
KAR Auction Services, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
June 30, December 31,
2019 2018
---
Cash and cash
equivalents $
233.0 $
277.1
Restricted cash 23.7 27.6
Trade receivables,
net of allowances 592.8 454.6
Finance
receivables, net
of allowances 2,055.6 2,000.8
Other current
assets 143.8 100.6
Current assets,
discontinued
operations - 453.5
Total current
assets 3,048.9 3,314.2
Goodwill 1,817.6 1,676.9
Customer
relationships, net
of accumulated
amortization 231.1 227.4
Operating lease
right-of-use
assets 370.5
Intangible and
other assets 314.7 303.4
Non-current
assets,
discontinued
operations - 1,053.3
Property and
equipment, net of
accumulated
depreciation 595.0 631.0
Total assets $
6,377.8 $
7,206.2
Current
liabilities,
excluding
obligations
collateralized by
finance
receivables and
current maturities
of debt $
1,152.6 $
952.0
Obligations
collateralized by
finance
receivables 1,422.3 1,445.3
Current maturities
of debt 93.5 13.1
Current
liabilities,
discontinued
operations - 214.4
Total current
liabilities 2,668.4 2,624.8
Long-term debt 1,390.8 2,654.3
Operating lease
liabilities 365.5
Other non-current
liabilities 200.5 196.9
Non-current
liabilities,
discontinued
operations - 266.0
Stockholders'
equity 1,752.6 1,464.2
Total liabilities
and stockholders'
equity $
6,377.8 $
7,206.2
KAR Auction Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
Six Months Ended
June 30,
2019 2018
---
Operating activities
Net income $
133.4 $
183.2
Net income from
discontinued
operations (90.7) (111.6)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and
amortization 92.2 88.4
Provision for credit
losses 18.2 16.4
Deferred income
taxes 3.6 1.5
Amortization of debt
issuance costs 7.1 5.3
Stock-based
compensation 10.3 9.6
Loss on disposal of
fixed assets 0.1
Other non-cash, net 5.8 (4.0)
Changes in operating assets and
liabilities, net of acquisitions:
Trade receivables
and other assets (145.7) (161.0)
Accounts payable and
accrued expenses 127.4 177.9
Net cash provided by
operating
activities -
continuing
operations 161.7 205.7
Net cash provided by
operating
activities -
discontinued
operations 155.8 166.7
Investing activities
Net increase in
finance receivables
held for investment (69.8) (63.0)
Acquisition of
businesses (net of
cash acquired) (120.7) (23.3)
Purchases of
property, equipment
and computer
software (78.4) (51.4)
Net cash used by
investing
activities -
continuing
operations (268.9) (137.7)
Net cash used by
investing
activities -
discontinued
operations (37.4) (27.8)
Financing activities
Net increase in book
overdrafts 44.1 13.2
Net increase in
borrowings from
lines of credit 93.5
Net (decrease)
increase in
obligations
collateralized by
finance receivables (31.0) 1.0
Payments on long-
term debt (1,291.1) (3.6)
Payments on capital
leases (6.9) (7.6)
Payments of
contingent
consideration and
deferred
acquisition costs (0.5) (7.4)
Issuance of common
stock under stock
plans 5.4 8.4
Tax withholding
payments for vested
RSUs (10.4) (10.0)
Repurchase and
retirement of
common stock - (50.0)
Dividends paid to
stockholders (139.8) (94.2)
Cash transferred to
IAA (50.9)
Net cash used by
financing
activities -
continuing
operations (1,387.6) (150.2)
Net cash provided by
(used by) financing
activities -
discontinued
operations 1,317.6 (7.3)
Effect of exchange
rate changes on
cash 10.8 (9.8)
Net (decrease)
increase in cash,
cash equivalents
and restricted cash (48.0) 39.6
Cash, cash
equivalents and
restricted cash at
beginning of period 304.7 303.5
Cash, cash
equivalents and
restricted cash at
end of period $
256.7 $
343.1
Cash paid for
interest, net of
proceeds from
interest rate caps $
98.2 $
88.0
Cash paid for taxes,
net of refunds -
continuing
operations $
20.5 $
39.3
Cash paid for taxes,
net of refunds -
discontinued
operations $
40.1 $
32.4
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 Six Months Ended
June 30,
June 30,
(in millions),
(unaudited) 2019 2018 2019 2018
Net income $
55.6 $
93.2 $
133.4 $
183.2
Less: Income from
discontinued
operations (28.2) (55.8) (90.7) (111.6)
Net income from
continuing
operations 27.4 37.4 42.7 71.6
Add back:
Income taxes 8.7 15.9 15.2 23.8
Interest expense,
net of interest
income 55.0 47.4 110.9 88.4
Depreciation and
amortization 47.9 42.1 92.2 88.4
EBITDA 139.0 142.8 261.0 272.2
Non-cash stock-
based compensation 4.0 4.4 10.6 10.1
Acquisition related
costs 3.7 1.5 7.6 3.7
Securitization
interest (13.8) (12.7) (28.6) (24.1)
Severance 1.1 0.9 4.8 2.4
Foreign currency
gains/losses (0.6)
IAA allocated costs 0.9 1.3 2.3 2.5
Other 1.0 0.8 1.7 1.5
Total addbacks (3.1) (3.8) (2.2) (3.9)
Adjusted EBITDA $
135.9 $
139.0 $
258.8 $
268.3
The following table reconciles operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share to net income and net income per share for the periods presented:
Three Months Ended Six Months Ended
June 30,
June 30,
(in millions,
except per share
amounts),
(unaudited) 2019 2018 2019 2018
Net income $
55.6 $
93.2 $
133.4 $
183.2
Less: income from
discontinued
operations (28.2) (55.8) (90.7) (111.6)
Net income from
continuing
operations 27.4 37.4 42.7 71.6
Acquired
amortization
expense 14.8 15.4 29.4 35.7
IAA allocated
costs 0.9 1.3 2.3 2.5
Acceleration of
debt issuance
costs 1.8 1.8
Income taxes (1) (4.2) (5.0) (8.8) (9.5)
Operating adjusted
net income from
continuing
operations $
40.7 $
49.1 $
67.4 $
100.3
Net income from
continuing
operations per
share -diluted $
0.20 $
0.28 $
0.32 $
0.53
Acquired
amortization
expense 0.11 0.11 0.22 0.26
IAA allocated
costs 0.01 0.01 0.02 0.02
Acceleration of
debt issuance
costs 0.01 0.01
Income taxes (0.03) (0.04) (0.07) (0.07)
Operating adjusted
net income from
continuing
operations per
share -diluted $
0.30 $
0.36 $
0.50 $
0.74
Weighted average
diluted shares 134.1 135.6 133.9 135.8
(1) The
effective
tax rate at
the end of
each period
presented
was used to
determine
the amount
of income
tax on the
adjustments
to net
income.
The following table reconciles EBITDA and Adjusted EBITDA to net income from continuing operations for the 2019 guidance presented:
2019 Outlook
(in millions),
(unaudited) Low High
Net income
from
continuing
operations $
123.0 $
137.0
Add back:
Income tax
expense 50.0 56.0
Interest
expense, net
of interest
income 192.0 192.0
Depreciation
and
amortization 190.0 190.0
EBITDA 555.0 575.0
Total
addbacks, net (25.0) (25.0)
Adjusted
EBITDA $
530.0 $
550.0
The following table reconciles operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per share to net income from continuing operations and net income from continuing operations per share for the 2019 guidance presented:
2019 Outlook
(in
millions,
except
per
share
amounts),
(unaudited) Low High
Net
income
from
continuing
operations $
123.0 $
137.0
Acquired
amortization
expense 60.0 60.0
Income
taxes (17.4) (17.4)
Operating
adjusted
net
income
from
continuing
operations $
165.6 $
179.6
Net
income
from
continuing
operations
per
share -
diluted $
0.92 $
1.02
Acquired
amortization
expense 0.45 0.45
Income
taxes (0.13) (0.13)
Operating
adjusted
net
income
from
continuing
operations
per
share -
diluted $
1.24 $
1.34
Weighted
average
diluted
shares 134 134
View original content to download multimedia:http://www.prnewswire.com/news-releases/kar-auction-services-inc-reports-second-quarter-2019-financial-results-300897509.html
SOURCE KAR Auction Services, Inc.
