KAR Auction Services, Inc. Reports 2019 Financial Results
CARMEL, Ind., Feb. 18, 2020 /PRNewswire/ -- KAR Auction Services, Inc. (NYSE: KAR), today reported its fourth quarter financial results for the period ended December 31, 2019. For the fourth quarter of 2019, the company reported revenue from continuing operations of $671.3 million as compared with revenue from continuing operations of $593.8 million for the fourth quarter of 2018, an increase of 13%. Net income from continuing operations for the fourth quarter of 2019 increased 1% to $15.3 million, or $0.12 per diluted share, as compared with net income from continuing operations of $15.1 million, or $0.11 per diluted share, in the fourth quarter of 2018. Adjusted EBITDA from continuing operations for the quarter ended December 31, 2019 increased 10% to $122.0 million, as compared with Adjusted EBITDA from continuing operations of $110.5 million for the quarter ended December 31, 2018. Operating adjusted net income from continuing operations per diluted share decreased 10% to $0.19 for the quarter ended December 31, 2019, as compared with operating adjusted net income from continuing operations per diluted share of $0.21 for the quarter ended December 31, 2018. Included in the company's consolidated results were operating losses from TradeRev of $19.8 million and $15.7 million for the three months ended December 31, 2019 and 2018, respectively. In addition, in the fourth quarter of 2019, net income from continuing operations per diluted share and operating adjusted net income from continuing operations per diluted share were negatively impacted by severance payments of $0.05 per diluted share and the increased tax rate over the prior fourth quarter of $0.05 per diluted share.
For the year ended December 31, 2019, the company reported revenue from continuing operations of $2,781.9 million as compared with revenue from continuing operations of $2,442.8 million for the year ended December 31, 2018, an increase of 14%. Net income from continuing operations for the year ended December 31, 2019 decreased 21% to $92.4 million, or $0.70 per diluted share, as compared with net income from continuing operations of $117.6 million, or $0.87 per diluted share, for the year ended December 31, 2018. Adjusted EBITDA from continuing operations for the year ended December 31, 2019 increased 1% to $510.0 million, as compared with Adjusted EBITDA from continuing operations of $505.2 million for the year ended December 31, 2018. Operating adjusted net income from continuing operations per diluted share decreased 17% to $1.04 for the year ended December 31, 2019, as compared with operating adjusted net income from continuing operations per diluted share of $1.26 for the year ended December 31, 2018. Included in the company's consolidated results were operating losses from TradeRev of $71.5 million and $53.0 million for the year ended December 31, 2019 and 2018, respectively. In addition, in 2019, net income from continuing operations per diluted share and operating adjusted net income from continuing operations per diluted share were negatively impacted by severance payments of $0.08 per diluted share and the increased tax rate over the prior year of $0.06 per diluted share.
2020 Outlook
(in millions, except per share
amounts)
Annual
Guidance
Net income from continuing
operations
$126.0 - $139.3
Income tax expense
$53.0 - $59.7
Interest expense, net of interest
income $155.0
Depreciation and amortization $194.0
EBITDA
$528.0 - $548.0
Adjusted EBITDA addbacks, net ($8.0)
Adjusted EBITDA
$520.0 - $540.0
Capital expenditures $135.0
Cash taxes $65.0
Cash interest on corporate debt $90.0
Effective tax rate 30%
Net income from continuing
operations per share -diluted
$0.97 - $1.07
Operating adjusted net income per
share
$1.28 - $1.38
Weighted average diluted shares 130
---
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 April 3, 2020, to stockholders of record as of the close of business on March 20, 2020.
Earnings Conference Call Information
KAR will be hosting an earnings conference call and webcast on Wednesday, February 19, 2020 at 8:30 a.m. EST (7:30 a.m. CST). 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 9167894, while the live web cast will be available at the investors section of www.karglobal.com. Supplemental financial information for KAR's fourth quarter 2019 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 9167894. The archive of the web cast will also be available following the call and will be available at the investors section of www.karglobal.com for a limited time.
About KAR
KAR Auction Services Inc. (NYSE: KAR), known as KAR Global, provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. KAR Global's unique end-to-end platform supports whole car, financing, logistics and other ancillary and related services, including the sale of nearly 3.8 million units valued at approximately $40 billion through our auctions. Our integrated physical, online and mobile marketplaces reduce risk, improve transparency and streamline transactions for customers in more than 80 countries. Headquartered in Carmel, Indiana, KAR Global has approximately 15,000 employees across the United States, Canada, Mexico, U.K. and Europe. For more information go to www.KARglobal.com. For the latest KAR Global news, follow us on Twitter @KARSpeaks.
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@karglobal.com
gene.rodriguez@karglobal.com
KAR Auction Services, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)
Three Months Ended
Year Ended
December 31,
December 31,
2019 2018 2019 2018
Operating revenues
Auction fees and
services revenue $
504.0 $
475.3 $
2,133.5 $
1,985.1
Purchased vehicle
sales 79.3 33.2 295.5 116.8
AFC 88.0 85.3 352.9 340.9
Total operating
revenues 671.3 593.8 2,781.9 2,442.8
Operating expenses
Cost of services
(exclusive of
depreciation and
amortization) 394.9 332.3 1,617.1 1,321.5
Selling, general and
administrative 164.7 148.7 662.0 608.8
Depreciation and
amortization 50.1 42.6 188.7 172.4
Total operating
expenses 609.7 523.6 2,467.8 2,102.7
Operating profit 61.6 70.2 314.1 340.1
Interest expense 39.5 52.5 189.5 191.2
Other (income)
expense, net (2.5) 0.8 (7.7) (3.0)
Loss on extinguishment
of debt - 2.2
Income from continuing
operations before
income taxes 24.6 16.9 130.1 151.9
Income taxes 9.3 1.8 37.7 34.3
Income from continuing
operations 15.3 15.1 92.4 117.6
Income from
discontinued
operations, net of
income taxes 4.5 52.2 96.1 210.4
Net income $
19.8 $
67.3 $
188.5 $
328.0
Net income per share -basic
Income from continuing
operations $
0.12 $
0.11 $
0.70 $
0.88
Income from
discontinued
operations 0.03 0.39 0.73 1.56
Net income $
0.15 $
0.50 $
1.43 $
2.44
Net income per share -diluted
Income from continuing
operations $
0.12 $
0.11 $
0.70 $
0.87
Income from
discontinued
operations 0.03 0.39 0.72 1.55
Net income $
0.15 $
0.50 $
1.42 $
2.42
Dividends declared per
common share $
0.19 $
0.35 $
1.08 $
1.40
KAR Auction Services, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
December 31, December 31,
2019 2018
Cash and cash equivalents $
507.6 $
277.1
Restricted cash 53.3 27.6
Trade receivables, net of allowances 457.5 454.6
Finance receivables, net of allowances 2,100.2 2,000.8
Other current assets 125.9 100.6
Current assets, discontinued operations - 453.5
Total current assets 3,244.5 3,314.2
Goodwill 1,821.7 1,676.9
Customer relationships, net of accumulated amortization 207.9 227.4
Operating lease right-of-use assets 364.1
Intangible and other assets 334.0 303.4
Non-current assets, discontinued operations - 1,053.3
Property and equipment, net of accumulated depreciation 609.0 631.0
Total assets $
6,581.2 $
7,206.2
Current liabilities, excluding obligations collateralized by $
1,027.7 $
952.0
finance receivables and current maturities of debt
Obligations collateralized by finance receivables 1,461.2 1,445.3
Current maturities of debt 28.8 13.1
Current liabilities, discontinued operations - 214.4
Total current liabilities 2,517.7 2,624.8
Long-term debt 1,861.3 2,654.3
Operating lease liabilities 358.3
Other non-current liabilities 193.7 196.9
Non-current liabilities, discontinued operations - 266.0
Stockholders' equity 1,650.2 1,464.2
Total liabilities and stockholders' equity $
6,581.2 $
7,206.2
KAR Auction Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
Year Ended
December 31,
2019 2018
Operating activities
Net income $
188.5 $
328.0
Net income from discontinued operations (96.1) (210.4)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 188.7 172.4
Provision for credit losses 40.1 36.9
Deferred income taxes (3.3) 3.0
Amortization of debt issuance costs 12.2 10.6
Stock-based compensation 19.6 19.6
Loss (gain) on disposal of fixed assets 0.2
Loss on extinguishment of debt 2.2
Other non-cash, net 11.9 (0.4)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables and other assets (3.0) (49.0)
Accounts payable and accrued expenses 19.8 127.9
Net cash provided by operating activities - continuing operations 380.8 438.6
Net cash provided by operating activities - discontinued operations 161.2 284.3
Investing activities
Net increase in finance receivables held for investment (132.7) (138.6)
Acquisition of businesses (net of cash acquired) (120.7) (45.2)
Purchases of property, equipment and computer software (161.6) (131.3)
Net cash used by investing activities - continuing operations (415.0) (315.1)
Net cash used by investing activities - discontinued operations (37.4) (66.1)
Financing activities
Net decrease in book overdrafts (4.7) (20.7)
Net increase in borrowings from lines of credit 19.3
Net increase in obligations collateralized by finance receivables 3.8 101.4
Proceeds from long term debt 947.6
Payments for debt issuance costs/amendments (14.1) (12.5)
Payments on long-term debt (1,749.0) (17.0)
Payments on finance leases (15.9) (15.4)
Payments of contingent consideration and deferred acquisition costs (9.4) (18.1)
Issuance of common stock under stock plans 4.3 15.0
Tax withholding payments for vested RSUs (10.8) (10.2)
Repurchase and retirement of common stock (119.7) (150.0)
Dividends paid to stockholders (164.3) (188.3)
Cash transferred to IAA (50.9)
Net cash used by financing activities - continuing operations (1,163.8) (315.8)
Net cash provided by (used by) financing activities - discontinued operations 1,317.6 (4.3)
Effect of exchange rate changes on cash 12.8 (20.4)
Net increase in cash, cash equivalents and restricted cash 256.2 1.2
Cash, cash equivalents and restricted cash at beginning of period 304.7 303.5
Cash, cash equivalents and restricted cash at end of period $
560.9 $
304.7
Cash paid for interest, net of proceeds from interest rate caps $
170.0 $
180.8
Cash paid for taxes, net of refunds - continuing operations $
37.8 $
57.9
Cash paid for taxes, net of refunds - discontinued operations $
41.4 $
64.0
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 Year Ended
December 31, December 31,
(in millions),
(unaudited) 2019 2018 2019 2018
Net income $
19.8 $
67.3 $
188.5 $
328.0
Less: Income from
discontinued
operations (4.5) (52.2) (96.1) (210.4)
Net income from
continuing operations 15.3 15.1 92.4 117.6
Add back:
Income taxes 9.3 1.8 37.7 34.3
Interest expense, net
of interest income 38.3 51.2 186.4 187.3
Depreciation and
amortization 50.1 42.6 188.7 172.4
EBITDA 113.0 110.7 505.2 511.6
Non-cash stock-based
compensation 5.2 4.5 20.3 20.4
Loss on extinguishment
of debt 2.2
Acquisition related
costs 1.9 2.1 12.2 7.3
Securitization
interest (13.0) (14.5) (54.9) (51.5)
Loss on asset sales 0.4 0.4 2.1 1.7
Severance 9.6 1.9 15.3 5.7
Foreign currency
(gains)/losses 0.3 3.7 (0.7) 3.7
IAA allocated costs 1.3 2.3 5.2
Other 4.6 0.4 6.0 1.1
Total addbacks 9.0 (0.2) 4.8 (6.4)
Adjusted EBITDA $
122.0 $
110.5 $
510.0 $
505.2
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 Year Ended
December 31, December 31,
(in millions, except per
share amounts),
(unaudited) 2019 2018 2019 2018
Net income $
19.8 $
67.3 $
188.5 $
328.0
Less: income from
discontinued operations (4.5) (52.2) (96.1) (210.4)
Net income from continuing
operations 15.3 15.1 92.4 117.6
Acquired amortization
expense 14.4 13.6 58.3 63.2
IAA allocated costs 1.3 2.3 5.2
Acceleration of debt
issuance costs 1.8
Loss on extinguishment of
debt 2.2
Income taxes (1) (5.4) (1.6) (18.7) (15.5)
Operating adjusted net
income from continuing
operations $
24.3 $
28.4 $
138.3 $
170.5
Net income from continuing
operations per share -
diluted $
0.12 $
0.11 $
0.70 $
0.87
Acquired amortization
expense 0.11 0.10 0.44 0.46
IAA allocated costs 0.01 0.02 0.04
Acceleration of debt
issuance costs 0.01
Loss on extinguishment of
debt 0.02
Income taxes (0.04) (0.01) (0.15) (0.11)
Operating adjusted net
income from continuing
operations per share -
diluted $
0.19 $
0.21 $
1.04 $
1.26
Weighted average diluted
shares 130.1 134.9 132.9 135.7
(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 2020 guidance presented:
2020 Outlook
(in millions),
(unaudited) Low High
Net income from
continuing
operations $
126.0 $
139.3
Add back:
Income tax
expense 53.0 59.7
Interest
expense, net of
interest income 155.0 155.0
Depreciation and
amortization 194.0 194.0
EBITDA 528.0 548.0
Total addbacks,
net (8.0) (8.0)
Adjusted EBITDA $
520.0 $
540.0
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 from continuing operations and net income from continuing operations per diluted share for the 2020 guidance presented:
2020 Outlook
(in
millions,
except
per
share
amounts),
(unaudited) Low High
Net
income
from
continuing
operations $
126.0 $
139.3
Acquired
amortization
expense 57.0 57.0
Income
taxes (17.1) (17.1)
Operating
adjusted
net
income
from
continuing
operations $
165.9 $
179.2
Net
income
from
continuing
operations
per
share -
diluted $
0.97 $
1.07
Acquired
amortization
expense 0.44 0.44
Income
taxes (0.13) (0.13)
Operating
adjusted
net
income
from
continuing
operations
per
share -
diluted $
1.28 $
1.38
Weighted
average
diluted
shares 130 130
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SOURCE KAR Auction Services, Inc.
