KAR Auction Services, Inc. Reports First Quarter 2018 Financial Results


  • First quarter 2018 revenue increased 10% to $950.5 million.
  • Net Income Per Share increased 32%, Operating Adjusted Net Income Per Share increased 32% and Adjusted EBITDA increased 9% over the three months ended March 31, 2017.

CARMEL, Ind., May 08, 2018 (GLOBE NEWSWIRE) -- KAR Auction Services, Inc. (NYSE:KAR), today reported its first quarter financial results for the period ended March 31, 2018. For the first quarter of 2018, the company reported revenue of $950.5 million as compared with revenue of $866.6 million for the first quarter of 2017, an increase of 10%. Net income for the first quarter of 2018 increased 30% to $90.0 million, or $0.66 per diluted share, as compared with net income of $69.2 million, or $0.50 per diluted share, in the first quarter of 2017. Adjusted EBITDA for the quarter ended March 31, 2018 increased 9% to $229.4 million, as compared with Adjusted EBITDA of $210.6 million for the quarter ended March 31, 2017. Operating adjusted net income per diluted share increased 32% to $0.82 for the quarter ended March 31, 2018, as compared with operating adjusted net income per diluted share of $0.62 for the quarter ended March 31, 2017.

“We are pleased with our solid first quarter performance and consolidated results,” said Jim Hallett, chairman and CEO of KAR Auction Services, Inc. “We remain focused on growing our core business, advancing our strategic priorities, and evolving our business to meet the ongoing changes in our industry.”

2018 Outlook

KAR Auction Services' previously stated outlook remains unchanged.

(in millions, except per share amounts)Annual
Guidance
  
Net income$329.0 - $349.7
Income tax expense$115.6 - $122.9
Interest expense, net of interest income$191 
Depreciation and amortization$268 
EBITDA$903.6 - $931.6
Addbacks, net($8.6) - ($6.6)
Adjusted EBITDA$895 - $925
Capital expenditures$185 
Cash taxes$125 
Cash interest on corporate debt$130 
Free cash flow$455 - $485
Effective tax rate 26%
Net income per share$2.40 - $2.55
Operating adjusted net income per share$2.89 - $3.04
Weighted average diluted shares 137 

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 July 5, 2018, to stockholders of record as of the close of business on June 21, 2018.

Potential Spin-off
On February 27, 2018, the Company announced that its board of directors had approved a plan to pursue the separation of its salvage auction business through a spin-off, creating a new independent, publicly traded company. The transaction is expected to be tax-free to shareholders and should be completed within 12 months from the announcement date, 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.

Earnings Conference Call Information
KAR Auction Services, Inc. will be hosting an earnings conference call and webcast on Wednesday, May 9, 2018 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 3191819, while the live web cast will be available at the investor relations section of www.karauctionservices.com. Supplemental financial information for KAR Auction Services’ first 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 3191819. 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 more than 5.5 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 120 countries. Headquartered in Carmel, Ind., KAR has approximately 17,500 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.

KAR Auction Services, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)

 Three Months Ended
March 31,
 2018 2017
Operating revenues   
ADESA Auction Services$528.1  $498.0 
IAA Salvage Services337.3  297.4 
AFC85.1  71.2 
Total operating revenues950.5  866.6 
    
Operating expenses   
Cost of services (exclusive of depreciation and amortization)535.0  501.2 
Selling, general and administrative187.4  157.4 
Depreciation and amortization70.3  64.5 
Total operating expenses792.7  723.1 
    
Operating profit157.8  143.5 
    
Interest expense41.5  40.3 
Other income, net(0.1) (0.1)
    
Income before income taxes116.4  103.3 
    
Income taxes26.4  34.1 
    
Net income$90.0  $69.2 
    
Net income per share   
Basic$0.67  $0.51 
Diluted$0.66  $0.50 
    
Dividends declared per common share$0.35  $0.32 


KAR Auction Services, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)

 March 31,
2018
 December 31,
2017
Cash and cash equivalents$330.8  $317.2 
Restricted cash20.6  19.4 
Trade receivables, net of allowances963.6  725.5 
Finance receivables, net of allowances1,919.9  1,899.6 
Other current assets176.2  175.7 
Total current assets3,411.1  3,137.4 
    
Goodwill2,212.0  2,191.7 
Customer relationships, net of accumulated amortization353.0  375.6 
Intangible and other assets380.5  371.4 
Property and equipment, net of accumulated depreciation909.6  908.2 
Total assets$7,266.2  $6,984.3 
    
Current liabilities, excluding obligations collateralized by
  finance receivables and current maturities of debt
$1,256.9  $1,018.7 
Obligations collateralized by finance receivables1,354.2  1,358.1 
Current maturities of debt16.8  12.4 
Total current liabilities2,627.9  2,389.2 
    
Long-term debt2,664.3  2,667.7 
Other non-current liabilities453.9  442.5 
Stockholders’ equity1,520.1  1,484.9 
Total liabilities and stockholders’ equity$7,266.2  $6,984.3 



KAR Auction Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)

 Three Months Ended
March 31,
 2018 2017
Operating activities   
Net income$90.0  $69.2 
  Adjustments to reconcile net income to net cash provided by
  operating activities:
   
  Depreciation and amortization70.3  64.5 
  Provision for credit losses9.6  11.6 
  Deferred income taxes2.4  (3.1)
  Amortization of debt issuance costs2.7  2.5 
  Stock-based compensation6.4  5.8 
  Gain on disposal of fixed assets(0.1) (0.3)
  Other non-cash, net(4.4) 2.9 
  Changes in operating assets and liabilities, net of acquisitions:   
  Trade receivables and other assets(249.9) (94.3)
  Accounts payable and accrued expenses225.3  83.2 
Net cash provided by operating activities152.3  142.0 
Investing activities   
  Net (increase) decrease in finance receivables held for investment(29.6) 21.4 
  Acquisition of businesses (net of cash acquired)(23.3)  
  Purchases of property, equipment and computer software(38.7) (37.2)
  Advance to equity method investee  (5.0)
  Proceeds from the sale of property and equipment0.1  0.1 
Net cash used by investing activities(91.5) (20.7)
Financing activities   
  Net increase in book overdrafts23.1  31.4 
  Net decrease in borrowings from lines of credit  (67.2)
  Net decrease in obligations collateralized by finance receivables(3.0) (41.0)
  Payments for debt issuance costs/amendments  (0.1)
  Payments on long-term debt  (6.1)
  Payments on capital leases(7.8) (7.4)
  Payments of contingent consideration and deferred acquisition costs(3.0) (3.0)
  Issuance of common stock under stock plans5.6  4.3 
  Tax withholding payments for vested RSUs(9.7) (3.6)
  Dividends paid to stockholders(47.0) (43.7)
Net cash used by financing activities(41.8) (136.4)
Effect of exchange rate changes on cash(4.2) 1.8 
Net increase (decrease) in cash, cash equivalents and restricted cash14.8  (13.3)
Cash, cash equivalents and restricted cash at beginning of period336.6  219.7 
Cash, cash equivalents and restricted cash at end of period$351.4  $206.4 
Cash paid for interest$29.8  $37.1 
Cash paid for taxes, net of refunds$28.6  $39.3 


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 Ended
March 31,
(in millions), (unaudited)2018 2017
    
Net income$90.0  $69.2 
Add back:   
Income taxes26.4  34.1 
Interest expense, net of interest income41.3  40.2 
Depreciation and amortization70.3  64.5 
EBITDA228.0  208.0 
Non-cash stock-based compensation6.7  6.0 
Acquisition related costs2.2  2.1 
Securitization interest(11.4) (8.1)
Minority interest  1.7 
Severance1.5  0.7 
Other2.4  0.2 
  Total addbacks1.4  2.6 
Adjusted EBITDA$229.4  $210.6 

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
March 31,
(in millions, except per share amounts), (unaudited)2018 2017
    
Net income$90.0  $69.2 
  Acquired amortization expense26.9  25.2 
  Income taxes (1)(6.1) (8.3)
Operating adjusted net income$110.8  $86.1 
    
Net income per share – diluted$0.66  $0.50 
  Acquired amortization expense0.20  0.18 
  Income taxes(0.04) (0.06)
Operating adjusted net income per share – diluted$0.82  $0.62 
    
Weighted average diluted shares135.8  138.3 

(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, Adjusted EBITDA and free cash flow to net income for the 2018 guidance presented:

 2018 Outlook
(in millions), (unaudited)Low High
    
Net income$329.0  $349.7 
Add back:   
Income tax expense115.6  122.9 
Interest expense, net of interest income191.0  191.0 
Depreciation and amortization268.0  268.0 
EBITDA903.6  931.6 
  Total addbacks, net(8.6) (6.6)
Adjusted EBITDA$895.0  $925.0 
Cash interest expense on corporate debt(130.0) (130.0)
Capital expenditures(185.0) (185.0)
Cash taxes related to calendar year(125.0) (125.0)
Free cash flow$455.0  $485.0 

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 2018 guidance presented:

 2018 Outlook
(in millions, except per share amounts), (unaudited)Low High
    
Net income$329.0  $349.7 
  Acquired amortization expense90.0  90.0 
  Income taxes(23.4) (23.4)
Operating adjusted net income$395.6  $416.3 
    
Net income per share – diluted$2.40  $2.55 
  Acquired amortization expense0.66  0.66 
  Income taxes(0.17) (0.17)
Operating adjusted net income per share – diluted$2.89  $3.04 
    
Weighted average diluted shares137  137 


Analyst Inquiries:      Media Inquiries:
Mike Eliason Gene Rodriguez
(317) 249-4559    (317) 343-5243
mike.eliason@karauctionservices.com  gene.rodriguez@karauctionservices.com