KAR Auction Services, Inc. Reports 2018 Financial Results
CARMEL, Ind., Feb. 19, 2019 /PRNewswire/ -- KAR Auction Services, Inc. (NYSE: KAR), today reported its fourth quarter financial results for the period ended December 31, 2018. For the fourth quarter of 2018, the company reported revenue of $929.0 million as compared with revenue of $890.4 million for the fourth quarter of 2017, an increase of 4%. Net income for the fourth quarter of 2018 decreased 61% to $67.3 million, or $0.50 per diluted share, as compared with net income of $172.8 million, or $1.27 per diluted share, in the fourth quarter of 2017. Adjusted EBITDA for the quarter ended December 31, 2018 increased 6% to $206.6 million, as compared with Adjusted EBITDA of $194.6 million for the quarter ended December 31, 2017. Operating adjusted net income per diluted share decreased 2% to $0.62 for the quarter ended December 31, 2018, as compared with operating adjusted net income per diluted share of $0.63 for the quarter ended December 31, 2017. KAR incurred an operating loss of $15.7 million for the quarter ended December 31, 2018, which was attributable to the rollout of TradeRev.
For the year ended December 31, 2018, the company reported revenue of $3,769.6 million as compared with revenue of $3,458.0 million for the year ended December 31, 2017, an increase of 9%. Net income for the year ended December 31, 2018 decreased 9% to $328.0 million, or $2.42 per diluted share, as compared with net income of $362.0 million, or $2.62 per diluted share, for the year ended December 31, 2017. Adjusted EBITDA for the year ended December 31, 2018 increased 7% to $893.9 million, as compared with Adjusted EBITDA of $838.0 million for the year ended December 31, 2017. Operating adjusted net income per diluted share increased 18% to $2.96 for the year ended December 31, 2018, as compared with operating adjusted net income per diluted share of $2.50 for the year ended December 31, 2017. KAR incurred an operating loss of $53.0 million for the year ended December 31, 2018, which was attributable to the rollout of TradeRev.
"Our fourth quarter and year-end results reflect contributions from across our businesses and continued investment in our future," said Jim Hallett. "We are positioning KAR to navigate the short and long term trends impacting our industry and to capture the opportunities ahead."
2019 Outlook
(in millions, except per share amounts)
Annual
Guidance
Net income
$330.0 - $355.5
Income tax expense
$122.0 - $131.5
Interest expense, net of interest income $220
Depreciation and amortization $281
EBITDA
$953.0 - $988.0
Adjusted EBITDA addbacks, net ($18.0)
Adjusted EBITDA
$935 - $970
Capital expenditures $200
Cash taxes $135
Cash interest on corporate debt $139
Effective tax rate 27%
Net income per share
$2.46 - $2.65
Operating adjusted net income per share
$2.90 - $3.09
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, 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 $0.35 per share on the company's common stock. The dividend is payable on April 4, 2019, to stockholders of record as of the close of business on March 22, 2019.
Potential Spin-off of IAA
In February 2018, the Company announced that its board of directors had approved a plan to pursue the separation of its salvage auction business, currently operated by IAA, through a spin-off. The Company also announced that the separation was subject to customary regulatory approvals, the execution of intercompany agreements between the Company and the new salvage auction company, final approval of the board of directors and other customary matters. The Company continues to work on and evaluate the spin-off and the options available to the Company for maximizing shareholder value. While at this time the Company expects to complete the spin-off in 2019, the Company may, at any time and for any reason until the proposed transaction is complete, abandon, modify or change the terms of the spin-off.
It is currently expected that IAA Spinco will have total net debt of approximately 3.5 times Adjusted EBITDA. The actual amount of debt that will be issued by IAA Spinco will be determined at a future date when capital is raised for IAA Spinco. This is subject to approval by the Board of Directors at the time of the issuance of debt and completion of the spin-off. The total net leverage levels for IAA Spinco and KAR are expected to maintain the current corporate debt rating of BB-/B1 currently held by KAR for both entities. The Company expects to provide additional information on the expected dividend policies and the target leverage levels of each enterprise as we get closer to completion of the spin-off. There can be no assurance as to whether or when the spin-off will occur. IAA Spinco filed its initial Registration Statement on Form 10 on June 28, 2018, Amendment No. 1 to its Registration Statement on Form 10 on August 30, 2018 and Amendment No. 2 to its Registration Statement on Form 10 on November 20, 2018.
Earnings Conference Call Information
KAR Auction Services, Inc. will be hosting an earnings conference call and webcast on Wednesday, February 20, 2019 at 11:00 a.m. EST (10:00 a.m. CST). 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 6385324, while the live web cast will be available at the investor relations section of www.karauctionservices.com. Supplemental financial information for KAR Auction Services' fourth quarter 2018 results is available at the investor relations section of www.karauctionservices.com under the quarterly results page.
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 6385324. 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 approximately 6 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 120 countries. Headquartered in Carmel, Ind., KAR has approximately 18,400 employees across the United States, Canada, Mexico and the United Kingdom. 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
Year Ended
December 31,
December 31,
2018 2017 2018 2017
---
Operating revenues
ADESA Auction Services $
508.5 $
473.2 $
2,101.9 $
1,937.5
IAA Salvage Services 335.2 335.4 1,326.8 1,219.2
AFC 85.3 81.8 340.9 301.3
Total operating
revenues 929.0 890.4 3,769.6 3,458.0
Operating expenses
Cost of services
(exclusive of
depreciation and
amortization) 543.2 525.1 2,142.7 1,987.2
Selling, general and
administrative 176.6 172.5 732.8 640.2
Depreciation and
amortization 67.1 69.4 269.9 264.6
Total operating
expenses 786.9 767.0 3,145.4 2,892.0
Operating profit 142.1 123.4 624.2 566.0
Interest expense 52.8 42.1 192.0 164.0
Other expense
(income), net 1.0 (0.2) (3.5) (1.9)
Loss on extinguishment
of debt - 27.5
Gain on previously
held equity interest
value - (21.6) (21.6)
Income before income
taxes 88.3 103.1 435.7 398.0
Income taxes 21.0 (69.7) 107.7 36.0
Net income $
67.3 $
172.8 $
328.0 $
362.0
Net income per share
Basic $
0.50 $
1.28 $
2.44 $
2.66
Diluted $
0.50 $
1.27 $
2.42 $
2.62
Dividends declared per
common share $
0.35 $
0.35 $
1.40 $
1.31
KAR Auction Services, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
December 31, December 31,
2018 2017
---
Cash and cash
equivalents $
337.1 $
317.2
Restricted cash 27.6 19.4
Trade receivables,
net of allowances 765.6 725.5
Finance
receivables, net
of allowances 2,000.8 1,899.6
Other current
assets 183.1 175.7
Total current
assets 3,314.2 3,137.4
Goodwill 2,213.7 2,191.7
Customer
relationships, net
of accumulated
amortization 302.3 375.6
Intangible and
other assets 399.8 371.4
Property and
equipment, net of
accumulated
depreciation 976.2 908.2
Total assets $
7,206.2 $
6,984.3
Current
liabilities,
excluding
obligations
collateralized by
finance
receivables and
current maturities
of debt $
1,166.4 $
1,018.7
Obligations
collateralized by
finance
receivables 1,445.3 1,358.1
Current maturities
of debt 13.1 12.4
Total current
liabilities 2,624.8 2,389.2
Long-term debt 2,654.3 2,667.7
Other non-current
liabilities 462.9 442.5
Stockholders'
equity 1,464.2 1,484.9
Total liabilities
and stockholders'
equity $
7,206.2 $
6,984.3
KAR Auction Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
Year Ended
December 31,
2018 2017
---
Operating activities
Net income $
328.0 $
362.0
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization 269.9 264.6
Provision for credit losses 39.1 38.5
Deferred income taxes 0.1 (93.5)
Amortization of debt issuance
costs 10.6 10.4
Stock-based compensation 23.4 24.2
(Gain) loss on disposal of
fixed assets (0.8) (0.8)
Loss on extinguishment of debt - 27.5
Gain on previously held equity
interest value - (21.6)
Other non-cash, net 0.2 8.1
Changes in operating assets and liabilities,
net of acquisitions:
Trade receivables and other
assets (66.5) (57.4)
Accounts payable and accrued
expenses 145.8 26.8
Net cash provided by operating
activities 749.8 588.8
Investing activities
Net increase in finance
receivables held for
investment (138.6) (148.5)
Acquisition of businesses (net
of cash acquired) (45.2) (73.3)
Purchases of property,
equipment and computer
software (198.0) (152.2)
Advance to equity method
investee - (5.0)
Proceeds from the sale of
property and equipment 0.6 0.7
Net cash used by investing
activities (381.2) (378.3)
Financing activities
Net (decrease) increase in
book overdrafts (8.9) 8.3
Net decrease in borrowings
from lines of credit - (80.5)
Net increase in obligations
collateralized by finance
receivables 101.4 65.0
Proceeds from long-term debt - 2,717.0
Payments for debt issuance
costs/amendments (12.5) (22.6)
Payments on long-term debt (17.0) (2,436.7)
Payments on capital leases (31.3) (30.1)
Payments of contingent
consideration and deferred
acquisition costs (18.3) (7.0)
Initial net investment for
interest rate caps - (1.7)
Issuance of common stock under
stock plans 15.0 11.4
Tax withholding payments for
vested RSUs (10.2) (5.9)
Repurchase and retirement of
common stock (150.0) (150.0)
Dividends paid to stockholders (188.3) (174.8)
Net cash used by financing
activities (320.1) (107.6)
Effect of exchange rate
changes on cash (20.4) 14.0
Net increase in cash, cash
equivalents and restricted
cash 28.1 116.9
Cash, cash equivalents and
restricted cash at beginning
of period 336.6 219.7
Cash, cash equivalents and
restricted cash at end of
period $
364.7 $
336.6
Cash paid for interest, net of
proceeds from interest rate
caps $
180.8 $
147.1
Cash paid for taxes, net of
refunds $
121.9 $
126.0
KAR Auction Services, Inc.
Reconciliation of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, operating adjusted net income and operating adjusted net income 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 and operating adjusted net income 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 and operating adjusted net income per share may include adjustments for certain other charges.
EBITDA, Adjusted EBITDA, operating adjusted net income and operating adjusted net income 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) 2018 2017 2018 2017
Net income $
67.3 $
172.8 $
328.0 $
362.0
Add back:
Income taxes 21.0 (69.7) 107.7 36.0
Interest expense, net
of interest income 51.5 41.8 188.1 162.6
Depreciation and
amortization 67.1 69.4 269.9 264.6
EBITDA 206.9 214.3 893.7 825.2
Non-cash stock-based
compensation 5.5 7.7 24.3 25.2
Loss on extinguishment
of debt 27.5
Acquisition related
costs 2.1 1.7 7.3 6.8
Securitization
interest (14.5) (9.9) (51.5) (34.9)
Minority interest 0.1 4.4
Gain on previously
held equity interest
value (21.6) (21.6)
Severance 1.8 0.9 5.8 2.9
IAA separation costs 1.3 8.1
Foreign currency
gains/losses 3.9 3.9
Other (0.4) 1.4 2.3 2.5
Total addbacks (0.3) (19.7) 0.2 12.8
Adjusted EBITDA $
206.6 $
194.6 $
893.9 $
838.0
The following table reconciles operating adjusted net income and operating adjusted net income per share to net income and net income per share for the periods presented:
Three Months Ended
Year Ended
December 31, December 31,
(in millions, except
per share amounts),
(unaudited) 2018 2017 2018 2017
Net income $
67.3 $
172.8 $
328.0 $
362.0
Acquired amortization
expense 20.1 27.0 89.5 103.7
IAA separation costs 1.3 8.1
Loss on extinguishment
of debt 27.5
Gain on previously
held equity interest
value (21.6) (21.6)
Reduction in taxes for
revaluation of
deferred taxes (102.7) (102.7)
Increase in taxes for
mandatory
repatriation of
undistributed foreign
earnings 11.1 11.1
Income taxes (1) (5.1) (1.1) (24.1) (35.1)
Operating adjusted net
income $
83.6 $
85.5 $
401.5 $
344.9
Net income per share -
diluted $
0.50 $
1.27 $
2.42 $
2.62
Acquired amortization
expense 0.15 0.20 0.66 0.75
IAA separation costs 0.01 0.06
Loss on extinguishment
of debt 0.20
Gain on previously
held equity interest
value (0.16) (0.16)
Reduction in taxes for
revaluation of
deferred taxes (0.75) (0.74)
Increase in taxes for
mandatory
repatriation of
undistributed foreign
earnings 0.08 0.08
Income taxes (0.04) (0.01) (0.18) (0.25)
Operating adjusted net
income per share -
diluted $
0.62 $
0.63 $
2.96 $
2.50
Weighted average
diluted shares 134.9 136.5 135.7 138.0
(1) The effective tax rate for 2018
was used to determine the amount
of income tax benefit on the
adjustments to net income. The
effective income tax rates for
2017 were adjusted to reflect
the tax reform items reflected
as separate line items in the
above reconciliation
(revaluation of deferred taxes
and repatriation of
undistributed foreign earnings).
The following table reconciles EBITDA and Adjusted EBITDA to net income for the 2019 guidance presented:
2019 Outlook
(in millions), (unaudited) Low High
Net income $
330.0 $
355.5
Add back:
Income tax expense 122.0 131.5
Interest expense, net of interest income 220.0 220.0
Depreciation and amortization 281.0 281.0
EBITDA 953.0 988.0
Total addbacks, net (18.0) (18.0)
Adjusted EBITDA $
935.0 $
970.0
The following table reconciles operating adjusted net income and operating adjusted net income per share to net income and net income per share for the 2019 guidance presented:
2019 Outlook
(in millions, except per share amounts), (unaudited) Low High
Net income $
330.0 $
355.5
Acquired amortization expense 80.0 80.0
Income taxes (21.6) (21.6)
Operating adjusted net income $
388.4 $
413.9
Net income per share - diluted $
2.46 $
2.65
Acquired amortization expense 0.60 0.60
Income taxes (0.16) (0.16)
Operating adjusted net income per share - diluted $
2.90 $
3.09
Weighted average diluted shares 134 134
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SOURCE KAR Auction Services, Inc.
