KAR Auction Services, Inc. (NYSE:KAR), today reported its fourth
quarter financial results for the period ended December 31, 2016.
For the fourth quarter of 2016, the company reported revenue of
$813.7 million as compared with revenue of $695.7 million for the
fourth quarter of 2015, an increase of 17%. Net income for the
fourth quarter of 2016 decreased 6% to $45.5 million, or $0.33 per
diluted share, as compared with net income of $48.3 million, or
$0.35 per diluted share, in the fourth quarter of 2015. Adjusted
EBITDA for the quarter ended December 31, 2016 increased 14% to
$176.5 million, as compared with Adjusted EBITDA of $154.5 million
for the quarter ended December 31, 2015. Operating adjusted net
income per diluted share was $0.45 for the quarter ended December
31, 2016 and 2015.
For the year ended December 31, 2016, the
company reported revenue of $3,150.1 million as compared with
revenue of $2,690.6 million for the year ended December 31, 2015,
an increase of 17%. Net income for the year ended December 31, 2016
increased 4% to $222.4 million, or $1.60 per diluted share, as
compared with net income of $214.6 million, or $1.51 per diluted
share, for the year ended December 31, 2015. Adjusted EBITDA for
the year ended December 31, 2016 increased 15% to $747.9 million,
as compared with Adjusted EBITDA of $649.8 million for the year
ended December 31, 2015. Operating adjusted net income per diluted
share increased 8% to $2.06 for the year ended December 31, 2016,
as compared with operating adjusted net income per diluted share of
$1.90 for the year ended December 31, 2015.
“Our fourth quarter and year-end 2016 results
reflect the stability of our diversified and complementary business
model and our ability to effectively respond to market and
operational variation,” said KAR Chairman and CEO Jim Hallett. “We
remain focused on consistent execution of our core businesses,
enhancing our technology and data analytic capabilities, and
exploring international and other opportunities for continued
expansion.”
Share RepurchasesThe company
repurchased approximately 1.9 million shares of common stock
in the open market for $80.4 million in the fourth quarter of
2016.
Dividend AnnouncementThe
company announced a cash dividend today of $0.32 per share on the
company’s common stock. The dividend is payable on April 4, 2017,
to stockholders of record as of the close of business on March 22,
2017.
2017 Outlook
(in millions, except per share amounts) |
|
Annual Guidance |
|
|
|
Adjusted EBITDA |
|
$825 - $850 |
Capital expenditures |
|
$145 |
Cash taxes |
|
$165 |
Cash interest on corporate debt |
|
$120 |
Free cash flow |
|
$395 - $420 |
Effective tax rate |
|
|
37% |
|
Net income per share |
|
$1.70 - $1.80 |
Operating adjusted net income per share |
|
$2.15 - $2.25 |
Weighted average diluted shares |
|
|
139 |
|
Earnings guidance does not contemplate future
items such as business development activities, strategic
developments (such as restructurings or dispositions of assets or
investments), 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 7 and 8.
Earnings Conference Call InformationKAR Auction
Services, Inc. will be hosting an earnings conference call and
webcast on Wednesday, February 22, 2017 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
1-877-879-6203 and entering conference ID # 5410979 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 and full year 2016 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
1-888-203-1112 and entering passcode 5410979. 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 ServicesKAR
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 more
than 4.4 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 110 countries. Headquartered in Carmel, Ind., KAR has
approximately 17,400 employees across the United States, Canada,
Mexico and the United Kingdom. www.karauctionservices.com
Forward Looking
StatementsCertain 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.
KAR Auction Services, Inc.Condensed
Consolidated Statements of Income(In millions, except per
share data) (Unaudited)
|
Three Months EndedDecember
31, |
|
Year EndedDecember
31, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Operating revenues |
|
|
|
|
|
|
|
ADESA Auction
Services |
$ |
442.3 |
|
|
$ |
365.9 |
|
|
$ |
1,765.3 |
|
|
$ |
1,427.8 |
|
IAA Salvage
Services |
302.6 |
|
|
261.6 |
|
|
1,098.0 |
|
|
994.4 |
|
AFC |
68.8 |
|
|
68.2 |
|
|
286.8 |
|
|
268.4 |
|
Total operating
revenues |
813.7 |
|
|
695.7 |
|
|
3,150.1 |
|
|
2,690.6 |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of services
(exclusive of depreciation and amortization) |
488.3 |
|
|
414.3 |
|
|
1,827.4 |
|
|
1,548.5 |
|
Selling, general and
administrative |
148.8 |
|
|
128.5 |
|
|
583.1 |
|
|
502.0 |
|
Depreciation and
amortization |
64.7 |
|
|
56.0 |
|
|
240.6 |
|
|
212.8 |
|
Total operating
expenses |
701.8 |
|
|
598.8 |
|
|
2,651.1 |
|
|
2,263.3 |
|
|
|
|
|
|
|
|
|
Operating profit |
111.9 |
|
|
96.9 |
|
|
499.0 |
|
|
427.3 |
|
|
|
|
|
|
|
|
|
Interest expense |
38.0 |
|
|
24.2 |
|
|
138.8 |
|
|
91.4 |
|
Other expense (income),
net |
0.3 |
|
|
(2.5 |
) |
|
(0.5 |
) |
|
(4.6 |
) |
Loss on extinguishment
of debt |
1.4 |
|
|
— |
|
|
5.4 |
|
|
— |
|
|
|
|
|
|
|
|
|
Income before income
taxes |
72.2 |
|
|
75.2 |
|
|
355.3 |
|
|
340.5 |
|
|
|
|
|
|
|
|
|
Income taxes |
26.7 |
|
|
26.9 |
|
|
132.9 |
|
|
125.9 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
45.5 |
|
|
$ |
48.3 |
|
|
$ |
222.4 |
|
|
$ |
214.6 |
|
|
|
|
|
|
|
|
|
Net income per
share |
|
|
|
|
|
|
|
Basic |
$ |
0.33 |
|
|
$ |
0.35 |
|
|
$ |
1.62 |
|
|
$ |
1.53 |
|
Diluted |
$ |
0.33 |
|
|
$ |
0.35 |
|
|
$ |
1.60 |
|
|
$ |
1.51 |
|
|
|
|
|
|
|
|
|
Dividends declared per
common share |
$ |
0.32 |
|
|
$ |
0.27 |
|
|
$ |
1.19 |
|
|
$ |
1.08 |
|
KAR Auction Services, Inc.Condensed
Consolidated Balance Sheets(In millions) (Unaudited)
|
December 31,2016 |
|
December 31,2015 |
Cash and cash
equivalents |
$ |
201.8 |
|
|
$ |
155.0 |
|
Restricted cash |
17.9 |
|
|
16.2 |
|
Trade receivables, net
of allowances |
682.9 |
|
|
511.9 |
|
Finance receivables,
net of allowances |
1,780.2 |
|
|
1,632.0 |
|
Other current
assets |
158.4 |
|
|
131.0 |
|
Total current
assets |
2,841.2 |
|
|
2,446.1 |
|
|
|
|
|
Goodwill |
2,057.0 |
|
|
1,795.9 |
|
Customer relationships,
net of accumulated amortization |
461.0 |
|
|
417.7 |
|
Intangible and other
assets |
355.9 |
|
|
344.9 |
|
Property and equipment,
net of accumulated depreciation |
842.5 |
|
|
766.9 |
|
Total assets |
$ |
6,557.6 |
|
|
$ |
5,771.5 |
|
|
|
|
|
Current liabilities,
excluding obligations collateralized by finance receivables
and current maturities of debt |
$ |
949.5 |
|
|
$ |
871.0 |
|
Obligations
collateralized by finance receivables |
1,280.3 |
|
|
1,189.0 |
|
Current maturities of
debt |
105.2 |
|
|
153.9 |
|
Total current
liabilities |
2,335.0 |
|
|
2,213.9 |
|
|
|
|
|
Long-term debt |
2,365.1 |
|
|
1,711.2 |
|
Other non-current
liabilities |
460.2 |
|
|
460.3 |
|
Stockholders’
equity |
1,397.3 |
|
|
1,386.1 |
|
Total liabilities and
stockholders’ equity |
$ |
6,557.6 |
|
|
$ |
5,771.5 |
|
KAR Auction Services, Inc.Condensed
Consolidated Statements of Cash Flows(In millions)
(Unaudited)
|
Year EndedDecember
31, |
|
2016 |
|
2015 |
Operating
activities |
|
|
|
Net income |
$ |
222.4 |
|
|
$ |
214.6 |
|
Adjustments to reconcile net income to net cash provided
by operating activities: |
|
|
|
Depreciation and
amortization |
240.6 |
|
|
212.8 |
|
Provision for
credit losses |
40.5 |
|
|
18.8 |
|
Deferred income
taxes |
(4.2 |
) |
|
5.0 |
|
Amortization of
debt issuance costs |
8.8 |
|
|
7.2 |
|
Stock-based
compensation |
18.1 |
|
|
11.7 |
|
Excess tax
benefit from stock-based compensation |
(17.2 |
) |
|
(7.1 |
) |
Loss on disposal
of fixed assets |
0.1 |
|
|
0.9 |
|
Loss on
extinguishment of debt |
5.4 |
|
|
— |
|
Other non-cash,
net |
9.5 |
|
|
2.0 |
|
Changes
in operating assets and liabilities, net of
acquisitions: |
|
|
|
Trade
receivables and other assets |
(194.7 |
) |
|
(127.0 |
) |
Accounts payable
and accrued expenses |
31.5 |
|
|
136.1 |
|
Net cash
provided by operating activities |
360.8 |
|
|
475.0 |
|
Investing
activities |
|
|
|
Net increase in
finance receivables held for investment |
(176.4 |
) |
|
(295.9 |
) |
Acquisition of
businesses, net of cash acquired |
(432.1 |
) |
|
(118.1 |
) |
Purchases of
property, equipment and computer software |
(155.1 |
) |
|
(134.7 |
) |
Proceeds from
the sale of property and equipment |
— |
|
|
0.3 |
|
(Increase)
decrease in restricted cash |
(1.7 |
) |
|
0.8 |
|
Net cash used
by investing activities |
(765.3 |
) |
|
(547.6 |
) |
Financing
activities |
|
|
|
Net increase in
book overdrafts |
17.7 |
|
|
10.7 |
|
Net (decrease)
increase in borrowings from lines of credit |
(59.5 |
) |
|
140.0 |
|
Net increase in
obligations collateralized by finance receivables |
96.8 |
|
|
349.8 |
|
Proceeds from
long-term debt |
1,336.5 |
|
|
— |
|
Payments for
debt issuance costs/amendments |
(32.8 |
) |
|
(10.9 |
) |
Payments on
long-term debt |
(662.6 |
) |
|
(21.5 |
) |
Payments on
capital leases |
(25.6 |
) |
|
(20.5 |
) |
Payments of
contingent consideration and deferred acquisition costs |
(3.6 |
) |
|
(1.2 |
) |
Initial net
investment for interest rate caps |
— |
|
|
(2.2 |
) |
Issuance of
common stock under stock plans |
6.6 |
|
|
22.7 |
|
Excess tax
benefit from stock-based compensation |
17.2 |
|
|
7.1 |
|
Repurchase and
retirement of common stock |
(80.4 |
) |
|
(227.6 |
) |
Dividends paid
to stockholders |
(157.1 |
) |
|
(151.9 |
) |
Net cash
provided by financing activities |
453.2 |
|
|
94.5 |
|
Effect of exchange rate
changes on cash |
(1.9 |
) |
|
(19.8 |
) |
Net increase in
cash and cash equivalents |
46.8 |
|
|
2.1 |
|
Cash and cash
equivalents at beginning of period |
155.0 |
|
|
152.9 |
|
Cash and cash
equivalents at end of period |
$ |
201.8 |
|
|
$ |
155.0 |
|
Cash paid for
interest |
$ |
124.5 |
|
|
$ |
79.7 |
|
Cash paid for taxes,
net of refunds |
$ |
121.6 |
|
|
$ |
129.9 |
|
KAR Auction Services,
Inc.Reconciliation of Non-GAAP Financial
Measures
EBITDA, Adjusted EBITDA, free cash flow,
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. Free cash flow is
defined as Adjusted EBITDA less cash interest expense on corporate
debt (Credit Facility), capital expenditures and cash taxes related
to the calendar year. 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, Adjusted
EBITDA and free cash flow 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, free cash flow,
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 EndedDecember
31, |
|
Year EndedDecember
31, |
(in millions),
(unaudited) |
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
Net
income |
$ |
45.5 |
|
|
$ |
48.3 |
|
|
$ |
222.4 |
|
|
$ |
214.6 |
|
Add back: |
|
|
|
|
|
|
|
Income taxes |
26.7 |
|
|
26.9 |
|
|
132.9 |
|
|
125.9 |
|
Interest expense, net
of interest income |
37.9 |
|
|
23.8 |
|
|
138.4 |
|
|
90.8 |
|
Depreciation and
amortization |
64.7 |
|
|
56.0 |
|
|
240.6 |
|
|
212.8 |
|
EBITDA |
174.8 |
|
|
155.0 |
|
|
734.3 |
|
|
644.1 |
|
Non-cash stock-based
compensation |
4.0 |
|
|
2.9 |
|
|
19.1 |
|
|
12.7 |
|
Loss on extinguishment
of debt |
1.4 |
|
|
— |
|
|
5.4 |
|
|
— |
|
Acquisition related
costs |
1.4 |
|
|
1.0 |
|
|
8.6 |
|
|
4.8 |
|
Securitization
interest |
(7.7 |
) |
|
(5.5 |
) |
|
(28.0 |
) |
|
(18.7 |
) |
Minority interest |
1.1 |
|
|
(0.9 |
) |
|
3.8 |
|
|
(0.6 |
) |
(Gain)/Loss on asset
sales |
0.3 |
|
|
0.3 |
|
|
2.4 |
|
|
3.5 |
|
Other |
1.2 |
|
|
1.7 |
|
|
2.3 |
|
|
4.0 |
|
Total
addbacks |
1.7 |
|
|
(0.5 |
) |
|
13.6 |
|
|
5.7 |
|
Adjusted
EBITDA |
$ |
176.5 |
|
|
$ |
154.5 |
|
|
$ |
747.9 |
|
|
$ |
649.8 |
|
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 EndedDecember
31, |
|
Year EndedDecember
31, |
(in millions,
except per share amounts), (unaudited) |
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
Net income |
$ |
45.5 |
|
|
$ |
48.3 |
|
|
$ |
222.4 |
|
|
$ |
214.6 |
|
Acquired
amortization expense (1) |
25.8 |
|
|
22.3 |
|
|
97.1 |
|
|
87.5 |
|
Loss on
extinguishment of debt (2) |
1.4 |
|
|
— |
|
|
5.4 |
|
|
— |
|
Income
taxes (3) |
(10.0 |
) |
|
(8.0 |
) |
|
(38.3 |
) |
|
(32.4 |
) |
Operating adjusted net
income |
$ |
62.7 |
|
|
$ |
62.6 |
|
|
$ |
286.6 |
|
|
$ |
269.7 |
|
|
|
|
|
|
|
|
|
Net income per share –
diluted |
$ |
0.33 |
|
|
$ |
0.35 |
|
|
$ |
1.60 |
|
|
$ |
1.51 |
|
Acquired
amortization expense |
0.19 |
|
|
0.16 |
|
|
0.70 |
|
|
0.62 |
|
Loss on
extinguishment of debt |
0.01 |
|
|
— |
|
|
0.04 |
|
|
— |
|
Income
taxes |
(0.08 |
) |
|
(0.06 |
) |
|
(0.28 |
) |
|
(0.23 |
) |
Operating adjusted net
income per share – diluted |
$ |
0.45 |
|
|
$ |
0.45 |
|
|
$ |
2.06 |
|
|
$ |
1.90 |
|
|
|
|
|
|
|
|
|
Weighted average
diluted shares |
138.9 |
|
|
139.6 |
|
|
139.1 |
|
|
142.3 |
|
(1) Acquired amortization expense was $25.8 million ($16.3
million net of tax) and $22.3 million ($14.3 million net of tax)
for the three months ended December 31, 2016 and 2015,
respectively. For the year ended December 31, 2016 and 2015,
acquired amortization expense was $97.1 million ($60.8 million net
of tax) and $87.5 million ($55.1 million net of tax),
respectively.
(2) We incurred a loss on the extinguishment of debt totaling
$1.4 million ($0.9 million net of tax) and $5.4 million ($3.4
million net of tax) for the three months and year ended December
31, 2016, respectively.
(3) 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, Adjusted
EBITDA and free cash flow to net income for the 2017 Outlook
presented:
|
2017 Outlook |
(in millions),
(unaudited) |
Low |
|
High |
|
|
|
|
Net
income |
$ |
235.7 |
|
|
$ |
249.7 |
|
Add back: |
|
|
|
Income taxes |
138.4 |
|
|
146.6 |
|
Interest expense, net
of interest income |
170.0 |
|
|
170.0 |
|
Depreciation and
amortization |
278.0 |
|
|
278.0 |
|
EBITDA |
822.1 |
|
|
844.3 |
|
Total
addbacks |
2.9 |
|
|
5.7 |
|
Adjusted
EBITDA |
$ |
825.0 |
|
|
$ |
850.0 |
|
Cash interest expense
on corporate debt |
(120.0 |
) |
|
(120.0 |
) |
Capital
expenditures |
(145.0 |
) |
|
(145.0 |
) |
Cash taxes related to
calendar year |
(165.0 |
) |
|
(165.0 |
) |
Free cash
flow |
$ |
395.0 |
|
|
$ |
420.0 |
|
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 2017 guidance
presented:
|
2017 Outlook |
(in millions,
except per share amounts), (unaudited) |
Low |
|
High |
|
|
|
|
Net income |
$ |
235.7 |
|
|
$ |
249.7 |
|
Acquired
amortization expense |
101.1 |
|
|
101.1 |
|
Income
taxes |
(37.4 |
) |
|
(37.4 |
) |
Operating adjusted net
income |
$ |
299.4 |
|
|
$ |
313.4 |
|
|
|
|
|
Net income per share –
diluted |
$ |
1.70 |
|
|
$ |
1.80 |
|
Acquired
amortization expense |
0.72 |
|
|
0.72 |
|
Income
taxes |
(0.27 |
) |
|
(0.27 |
) |
Operating adjusted net
income per share – diluted |
$ |
2.15 |
|
|
$ |
2.25 |
|
|
|
|
|
Weighted average
diluted shares |
139 |
|
|
139 |
|
Analyst Inquiries:
Mike Eliason
(317) 249-4559
mike.eliason@karauctionservices.com
Media Inquiries:
Tobin Richer
(317) 249-4521
tobin.richer@karauctionservices.com
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