KAR Auction Services, Inc. (NYSE:KAR), today reported its second
quarter financial results for the period ended June 30, 2016. For
the second quarter of 2016, the company reported revenue of $771.8
million as compared with revenue of $658.3 million for the second
quarter of 2015, an increase of 17%. Net income for the second
quarter of 2016 increased 4% to $61.8 million, or $0.44 per diluted
share, as compared with net income of $59.5 million, or $0.41 per
diluted share, in the second quarter of 2015. Adjusted EBITDA for
the quarter ended June 30, 2016 increased 16% to $197.1 million, as
compared with Adjusted EBITDA of $170.0 million for the quarter
ended June 30, 2015. Operating adjusted net income per diluted
share increased 8% to $0.55 for the quarter ended June 30, 2016, as
compared with operating adjusted net income per diluted share of
$0.51 for the quarter ended June 30, 2015.
For the six months ended June 30, 2016, the
company reported revenue of $1,516.8 million as compared with
revenue of $1,290.7 million for the six months ended June 30, 2015,
an increase of 18%. Net income for the six months ended June 30,
2016 increased 7% to $122.5 million, or $0.88 per diluted share, as
compared with net income of $114.0 million, or $0.79 per diluted
share, in the first six months of 2015. Adjusted EBITDA for the six
months ended June 30, 2016 increased 16% to $386.6 million, as
compared with Adjusted EBITDA of $332.2 million for the six months
ended June 30, 2015. Operating adjusted net income per diluted
share increased 13% to $1.11 for the six months ended June 30,
2016, as compared with operating adjusted net income per diluted
share of $0.98 for the six months ended June 30, 2015.
The company also announced a cash dividend today
of $0.29 per share on the company’s common stock. The dividend is
payable on October 4, 2016, to stockholders of record as of the
close of business on September 21, 2016.
2016 Outlook
KAR Auction Services' previously stated outlook
remains unchanged.
(in millions, except per share amounts) |
|
|
|
|
|
Adjusted EBITDA |
|
$735 - $760 |
Capital expenditures |
|
$ |
145 |
|
Cash taxes |
|
$150 - $160 |
Cash interest on corporate debt |
|
$ |
95 |
|
Free cash flow |
|
$340 - $365 |
Effective tax rate |
|
|
37.5 |
% |
Net income per share |
|
$1.56 - $1.71 |
Operating adjusted net income per share |
|
$2.03 - $2.18 |
|
|
|
See Outlook reconciliations on pages 7 and
8.
Earnings Conference Call Information
KAR Auction Services, Inc. will be hosting an
earnings conference call and webcast on Wednesday, August 3, 2016
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 1-800-768-6490 and entering conference ID #
1348103 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 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 1348103. 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,
Inc.
KAR Auction Services, Inc. (NYSE:KAR), a
FORTUNE® 1000 company, operates worldwide vehicle auction services
and provides related services. Based in Carmel, Indiana, the KAR
group of companies is comprised of ADESA, Inc. (ADESA), Insurance
Auto Auctions, Inc. (IAA), Automotive Finance Corporation (AFC),
and additional business units, with approximately 17,000 employees
and 300 locations. Together, KAR’s complementary businesses
provide support, technology and logistics for the used vehicle
industry. For more information, visit karauctionservices.com.
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.
KAR Auction Services, Inc.Condensed
Consolidated Statements of Income(In millions)
(Unaudited)
|
Three Months EndedJune
30, |
|
Six Months EndedJune
30, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Operating revenues |
|
|
|
|
|
|
|
ADESA Auction
Services |
$ |
434.1 |
|
|
$ |
345.0 |
|
|
$ |
835.6 |
|
|
$ |
673.0 |
|
IAA Salvage
Services |
264.8 |
|
|
248.6 |
|
|
534.4 |
|
|
486.6 |
|
AFC |
72.9 |
|
|
64.7 |
|
|
146.8 |
|
|
131.1 |
|
Total operating
revenues |
771.8 |
|
|
658.3 |
|
|
1,516.8 |
|
|
1,290.7 |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of services
(exclusive of depreciation and amortization) |
430.9 |
|
|
366.5 |
|
|
849.6 |
|
|
718.6 |
|
Selling, general and
administrative |
146.9 |
|
|
123.5 |
|
|
288.0 |
|
|
245.0 |
|
Depreciation and
amortization |
59.0 |
|
|
51.8 |
|
|
115.4 |
|
|
102.7 |
|
Total operating
expenses |
636.8 |
|
|
541.8 |
|
|
1,253.0 |
|
|
1,066.3 |
|
|
|
|
|
|
|
|
|
Operating profit |
135.0 |
|
|
116.5 |
|
|
263.8 |
|
|
224.4 |
|
|
|
|
|
|
|
|
|
Interest expense |
35.8 |
|
|
21.8 |
|
|
64.5 |
|
|
42.8 |
|
Other (income) expense,
net |
(0.3 |
) |
|
0.4 |
|
|
(1.6 |
) |
|
(1.8 |
) |
Loss on extinguishment
of debt |
— |
|
|
— |
|
|
4.0 |
|
|
— |
|
|
|
|
|
|
|
|
|
Income before income
taxes |
99.5 |
|
|
94.3 |
|
|
196.9 |
|
|
183.4 |
|
|
|
|
|
|
|
|
|
Income taxes |
37.7 |
|
|
34.8 |
|
|
74.4 |
|
|
69.4 |
|
|
|
|
|
|
|
|
|
Net income |
$ |
61.8 |
|
|
$ |
59.5 |
|
|
$ |
122.5 |
|
|
$ |
114.0 |
|
|
|
|
|
|
|
|
|
Net income per
share |
|
|
|
|
|
|
|
Basic |
$ |
0.45 |
|
|
$ |
0.42 |
|
|
$ |
0.89 |
|
|
$ |
0.81 |
|
Diluted |
$ |
0.44 |
|
|
$ |
0.41 |
|
|
$ |
0.88 |
|
|
$ |
0.79 |
|
|
|
|
|
|
|
|
|
Dividends declared per
common share |
$ |
0.29 |
|
|
$ |
0.27 |
|
|
$ |
0.58 |
|
|
$ |
0.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
KAR Auction Services, Inc.Condensed
Consolidated Balance Sheets(In millions) (Unaudited)
|
June 30,2016 |
|
December 31,2015 |
Cash and cash
equivalents |
$ |
314.7 |
|
|
$ |
155.0 |
|
Restricted cash |
15.0 |
|
|
16.2 |
|
Trade receivables, net
of allowances |
721.4 |
|
|
511.9 |
|
Finance receivables,
net of allowances |
1,729.1 |
|
|
1,632.0 |
|
Other current
assets |
131.5 |
|
|
131.0 |
|
Total current
assets |
2,911.7 |
|
|
2,446.1 |
|
|
|
|
|
Goodwill |
2,006.0 |
|
|
1,795.9 |
|
Customer relationships,
net of accumulated amortization |
487.8 |
|
|
417.7 |
|
Intangible and other
assets |
354.6 |
|
|
344.9 |
|
Property and equipment,
net of accumulated depreciation |
808.3 |
|
|
766.9 |
|
Total assets |
$ |
6,568.4 |
|
|
$ |
5,771.5 |
|
|
|
|
|
Current liabilities,
excluding obligations collateralized by finance receivables
and current maturities of debt |
$ |
1,019.8 |
|
|
$ |
871.0 |
|
Obligations
collateralized by finance receivables |
1,231.2 |
|
|
1,189.0 |
|
Current maturities of
debt |
24.7 |
|
|
153.9 |
|
Total current
liabilities |
2,275.7 |
|
|
2,213.9 |
|
|
|
|
|
Long-term debt |
2,378.3 |
|
|
1,711.2 |
|
Other non-current
liabilities |
455.1 |
|
|
460.3 |
|
Stockholders’
equity |
1,459.3 |
|
|
1,386.1 |
|
Total liabilities and
stockholders’ equity |
$ |
6,568.4 |
|
|
$ |
5,771.5 |
|
|
|
|
|
|
|
|
|
KAR Auction Services, Inc.Condensed
Consolidated Statements of Cash Flows(In millions)
(Unaudited)
|
Six Months EndedJune
30, |
|
2016 |
|
2015 |
Operating
activities |
|
|
|
Net income |
$ |
122.5 |
|
|
$ |
114.0 |
|
Adjustments to reconcile
net income to net cash provided by operating
activities: |
|
|
|
Depreciation and amortization |
115.4 |
|
|
102.7 |
|
Provision for credit losses |
13.8 |
|
|
9.1 |
|
Deferred income taxes |
(7.2 |
) |
|
(9.1 |
) |
Amortization of debt issuance
costs |
4.2 |
|
|
3.4 |
|
Stock-based compensation |
9.8 |
|
|
5.8 |
|
Excess tax benefit from stock-based
compensation |
(5.8 |
) |
|
(5.0 |
) |
Loss on extinguishment of debt |
4.0 |
|
|
— |
|
Other non-cash, net |
3.5 |
|
|
1.6 |
|
Changes in operating assets
and liabilities, net of acquisitions: |
|
|
|
Trade receivables and other
assets |
(207.3 |
) |
|
(139.3 |
) |
Accounts payable and accrued
expenses |
106.0 |
|
|
117.3 |
|
Net cash
provided by operating activities |
158.9 |
|
|
200.5 |
|
Investing
activities |
|
|
|
Net increase in finance receivables
held for investment |
(103.5 |
) |
|
(118.2 |
) |
Acquisition of businesses, net of
cash acquired |
(353.3 |
) |
|
(115.1 |
) |
Purchases of property, equipment
and computer software |
(75.5 |
) |
|
(64.2 |
) |
Proceeds from the sale of property
and equipment |
— |
|
|
0.1 |
|
Decrease in restricted cash |
1.2 |
|
|
0.6 |
|
Net cash used
by investing activities |
(531.1 |
) |
|
(296.8 |
) |
Financing
activities |
|
|
|
Net increase in book
overdrafts |
36.9 |
|
|
30.5 |
|
Net decrease in borrowings from
lines of credit |
(140.0 |
) |
|
— |
|
Net increase in obligations
collateralized by finance receivables |
34.8 |
|
|
234.9 |
|
Proceeds from long-term debt |
1,336.5 |
|
|
— |
|
Payments for debt issuance
costs/amendments |
(19.5 |
) |
|
(10.8 |
) |
Payments on long-term debt |
(646.4 |
) |
|
(8.8 |
) |
Payments on capital leases |
(11.7 |
) |
|
(9.6 |
) |
Payments of contingent
consideration and deferred acquisition costs |
(3.6 |
) |
|
(1.2 |
) |
Issuance of common stock under
stock plans |
10.6 |
|
|
14.0 |
|
Excess tax benefit from stock-based
compensation |
5.8 |
|
|
5.0 |
|
Repurchase and retirement of common
stock |
— |
|
|
(22.1 |
) |
Dividends paid to stockholders |
(77.0 |
) |
|
(76.5 |
) |
Net cash
provided by financing activities |
526.4 |
|
|
155.4 |
|
Effect of exchange rate
changes on cash |
5.5 |
|
|
(7.2 |
) |
Net increase in
cash and cash equivalents |
159.7 |
|
|
51.9 |
|
Cash and cash
equivalents at beginning of period |
155.0 |
|
|
152.9 |
|
Cash and cash
equivalents at end of period |
$ |
314.7 |
|
|
$ |
204.8 |
|
Cash paid for
interest |
$ |
58.0 |
|
|
$ |
38.0 |
|
Cash paid for taxes,
net of refunds |
$ |
68.4 |
|
|
$ |
72.3 |
|
|
|
|
|
|
|
|
|
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 EndedJune
30, |
|
Six Months EndedJune
30, |
(in millions),
(unaudited) |
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
Net
income |
$ |
61.8 |
|
|
$ |
59.5 |
|
|
$ |
122.5 |
|
|
$ |
114.0 |
|
Add back: |
|
|
|
|
|
|
|
Income taxes |
37.7 |
|
|
34.8 |
|
|
74.4 |
|
|
69.4 |
|
Interest expense, net
of interest income |
35.7 |
|
|
21.8 |
|
|
64.4 |
|
|
42.7 |
|
Depreciation and
amortization |
59.0 |
|
|
51.8 |
|
|
115.4 |
|
|
102.7 |
|
EBITDA |
194.2 |
|
|
167.9 |
|
|
376.7 |
|
|
328.8 |
|
Non-cash stock-based
compensation |
4.9 |
|
|
3.4 |
|
|
10.4 |
|
|
6.3 |
|
Loss on extinguishment
of debt |
— |
|
|
— |
|
|
4.0 |
|
|
— |
|
Acquisition related
costs |
3.3 |
|
|
1.0 |
|
|
5.9 |
|
|
3.1 |
|
Securitization
interest |
(6.7 |
) |
|
(4.2 |
) |
|
(13.1 |
) |
|
(8.1 |
) |
Minority interest |
1.0 |
|
|
0.4 |
|
|
1.6 |
|
|
0.5 |
|
Other |
0.4 |
|
|
1.5 |
|
|
1.1 |
|
|
1.6 |
|
Total addbacks |
2.9 |
|
|
2.1 |
|
|
9.9 |
|
|
3.4 |
|
Adjusted
EBITDA |
$ |
197.1 |
|
|
$ |
170.0 |
|
|
$ |
386.6 |
|
|
$ |
332.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 EndedJune
30, |
|
Six Months EndedJune
30, |
(in millions,
except per share amounts), (unaudited) |
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
Net income |
$ |
61.8 |
|
|
$ |
59.5 |
|
|
$ |
122.5 |
|
|
$ |
114.0 |
|
Acquired amortization expense
(1) |
24.6 |
|
|
21.8 |
|
|
46.6 |
|
|
42.9 |
|
Loss on extinguishment of debt
(2) |
— |
|
|
— |
|
|
4.0 |
|
|
— |
|
Income taxes (3) |
(9.2 |
) |
|
(8.0 |
) |
|
(19.0 |
) |
|
(16.2 |
) |
Operating adjusted net
income |
$ |
77.2 |
|
|
$ |
73.3 |
|
|
$ |
154.1 |
|
|
$ |
140.7 |
|
|
|
|
|
|
|
|
|
Net income per share –
diluted |
$ |
0.44 |
|
|
$ |
0.41 |
|
|
$ |
0.88 |
|
|
$ |
0.79 |
|
Acquired amortization expense |
0.18 |
|
|
0.15 |
|
|
0.34 |
|
|
0.30 |
|
Loss on extinguishment of debt |
— |
|
|
— |
|
|
0.03 |
|
|
— |
|
Income taxes |
(0.07 |
) |
|
(0.05 |
) |
|
(0.14 |
) |
|
(0.11 |
) |
Operating adjusted net
income per share – diluted |
$ |
0.55 |
|
|
$ |
0.51 |
|
|
$ |
1.11 |
|
|
$ |
0.98 |
|
|
|
|
|
|
|
|
|
Weighted average
diluted shares |
139.3 |
|
|
144.1 |
|
|
139.1 |
|
|
144.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
- Acquired amortization expense was $24.6 million ($15.3 million
net of tax) and $21.8 million ($13.8 million net of tax) for the
three months ended June 30, 2016 and 2015, respectively. For the
six months ended June 30, 2016 and 2015, acquired amortization
expense was $46.6 million ($29.0 million net of tax) and $42.9
million ($26.7 million net of tax), respectively.
- We incurred a loss on the extinguishment of debt totaling $4.0
million ($2.5 million net of tax) for the six months ended June 30,
2016.
- 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 2016 Outlook
presented:
|
2016 Outlook |
(in millions),
(unaudited) |
Low |
|
High |
|
|
|
|
Net
income |
$ |
216.9 |
|
|
$ |
237.5 |
|
Add back: |
|
|
|
Income taxes |
130.1 |
|
|
142.5 |
|
Interest expense, net
of interest income |
142.0 |
|
|
140.0 |
|
Depreciation and
amortization |
240.0 |
|
|
235.0 |
|
EBITDA |
729.0 |
|
|
755.0 |
|
Total addbacks |
6.0 |
|
|
5.0 |
|
Adjusted
EBITDA |
$ |
735.0 |
|
|
$ |
760.0 |
|
Cash interest expense
on corporate debt |
|
(95.0 |
) |
|
|
(95.0 |
) |
Capital
expenditures |
|
(145.0 |
) |
|
|
(145.0 |
) |
Cash taxes related to
calendar year |
|
(155.0 |
) |
|
|
(155.0 |
) |
Free cash
flow |
$ |
340.0 |
|
|
$ |
365.0 |
|
|
|
|
|
|
|
|
|
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 2016 Outlook
presented:
|
2016 Outlook |
(in millions,
except per share amounts), (unaudited) |
Low |
|
High |
|
|
|
|
Net income |
$ |
216.9 |
|
|
$ |
237.5 |
|
Acquired amortization expense |
100.0 |
|
|
100.0 |
|
Loss on extinguishment of debt |
4.0 |
|
|
4.0 |
|
Income taxes |
(39.0 |
) |
|
(39.0 |
) |
Operating adjusted net
income |
$ |
281.9 |
|
|
$ |
302.5 |
|
|
|
|
|
Net income per share –
diluted |
|
1.56 |
|
|
|
1.71 |
|
Acquired amortization expense |
|
0.72 |
|
|
|
0.72 |
|
Loss on extinguishment of debt |
|
0.03 |
|
|
|
0.03 |
|
Income taxes |
|
(0.28 |
) |
|
|
(0.28 |
) |
Operating adjusted net
income per share – diluted |
$ |
2.03 |
|
|
$ |
2.18 |
|
|
|
|
|
Weighted average
diluted shares |
139.0 |
|
|
139.0 |
|
|
|
|
|
|
|
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.
Analyst Inquiries:
Mike Eliason
(317) 249-4559
mike.eliason@karauctionservices.com
Media Inquiries:
Darci Valentine
(317) 249-4414
darci.valentine@karauctionservices.com
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