Form 8-K KAR Auction Services, For: Aug 04
Tweet
Share
E-mailEXHIBIT 99.1
| EARNINGS RELEASE | ||
For Immediate Release
Analyst Inquiries: Media Inquiries:
Mike Eliason Stephanie Freeman
(317) 249-4559 (317) 343-5020
mike.eliason@karglobal.com stephanie.freeman@karglobal.com
KAR Auction Services, Inc. Reports Second Quarter 2020 Financial Results
Carmel, IN, August 4, 2020 — KAR Auction Services, Inc. (NYSE: KAR), today reported its second quarter financial results for the period ended June 30, 2020. For the second quarter of 2020, the company reported revenue of $419.0 million as compared with revenue of $719.1 million for the second quarter of 2019, a decrease of 42%. For the second quarter of 2020, the company reported a net loss from continuing operations of $32.3 million, or $0.27 per diluted share, as compared with net income from continuing operations of $27.4 million, or $0.20 per diluted share, in the second quarter of 2019. Adjusted EBITDA for the quarter ended June 30, 2020 decreased 41% to $80.0 million, as compared with Adjusted EBITDA of $135.9 million for the quarter ended June 30, 2019. Operating adjusted net income from continuing operations per diluted share decreased 73% to $0.08 for the quarter ended June 30, 2020, as compared with operating adjusted net income from continuing operations per diluted share of $0.30 for the quarter ended June 30, 2019. The company's operating results for the quarter ended June 30, 2020 were significantly impacted by the COVID-19 pandemic, as further discussed below. In addition, the company recorded a $29.8 million charge for the impairment of goodwill and other intangible assets in the second quarter of 2020.
For the six months ended June 30, 2020, the company reported revenue of $1,064.5 million as compared with revenue of $1,408.7 million for the six months ended June 30, 2019, a decrease of 24%. For the six months ended June 30, 2020, the company reported a net loss from continuing operations of $29.5 million, or $0.24 per diluted share, as compared with net income from continuing operations of $42.7 million, or $0.32 per diluted share, in the first six months of 2019. Adjusted EBITDA for the six months ended June 30, 2020 decreased 35% to $168.6 million, as compared with Adjusted EBITDA of $258.8 million for the six months ended June 30, 2019. Operating adjusted net income from continuing operations per diluted share decreased 60% to $0.20 for the six months ended June 30, 2020, as compared with operating adjusted net income from continuing operations per diluted share of $0.50 for the six months ended June 30, 2019. The company's operating results for the six months ended June 30, 2020 were significantly impacted by the COVID-19 pandemic, as further discussed below. In addition, the company recorded a $29.8 million charge for the impairment of goodwill and other intangible assets in the second quarter of 2020.
Impact of COVID-19 on Company Operations
In response to the COVID-19 pandemic, on March 20, 2020 we temporarily suspended physical sale operations, including Simulcast-only sales, across North America. We began operating Simulcast-only sales in select markets on April 6, 2020 and expanded the Simulcast-only sales each week, where possible and as permitted by government directives. We also held Simulcast+ auctions at select locations, a fully digital auction operated remotely with an automated auctioneer, sequential sales, audio and visual cues to simulate the live auction experience and all buyers and sellers interacting virtually through the Simulcast platform.
All ADESA auction locations in the U.S. and Canada are offering vehicles for sale via ADESA Simulcast, DealerBlock and Simulcast+. Most auction locations have resumed offering ancillary and related services, where possible and as permitted by government directives. While ADESA has experienced increasing volumes over the last few months, the business has not fully returned to pre-COVID operations. Given the evolving health, economic,
social and governmental environments, the potential impact that COVID-19 could have on our business remains uncertain.
As a result, we proactively took significant steps to help secure our business and preserve available cash during the second quarter, including but not limited to the following measures:
•Reduced compensation expense by
▪our CEO, CFO and President voluntarily electing to forgo 100% of their respective base salaries and the remainder of our executive officers voluntarily electing to reduce their base salaries by 50% for the second quarter of 2020,
▪reducing base salaries across many levels of the organization for part of the second quarter of 2020,
▪furloughing approximately 11,000 employees in April 2020 (approximately 5,000 have returned to work),
▪commencing a reduction in force in June 2020 (impacting approximately 3,000 of our employees), and
▪our board of directors voluntarily electing to forgo their cash compensation for the second quarter of 2020;
•Prohibited non-essential business travel;
•Suspended non-essential services provided by certain third parties at our locations;
•Delayed or canceled capital projects at our physical auction locations;
•Negotiated the deferral of rent payments with certain landlords;
•Suspended the ADESA Assurance program for part of the second quarter;
•AFC reduced the unused portion of certain floorplan lines with its customers; and
•Suspended the Company's quarterly dividend.
In addition, in June 2020 we issued and sold an aggregate of 550,000 shares of newly issued perpetual convertible preferred stock of the company for net proceeds of approximately $528.2 million.
We have also taken advantage of legislation introduced to assist companies during this time. In the second quarter of 2020, we recorded approximately $7.9 million of employee retention credits taken under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") and approximately $9.7 million under the Canada Emergency Wage Subsidy. These credits partially offset salaries and medical costs recorded in the U.S. and Canada. We will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on our business and financial results.
While we have developed and implemented and continue to develop and implement health and safety protocols, business continuity plans and crisis management protocols in an effort to try to mitigate the negative impact of COVID-19 to our employees, customers and our business, the extent of the impact of the pandemic on our business and financial results will depend on numerous evolving factors that we are not able to accurately predict.
The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.
Business Trends Throughout the Second Quarter
New and used car retail activity was reduced to unprecedented levels in early April. Auto retail operations were required to temporarily close and supply and demand for used cars was disrupted. By mid-April, we were experiencing improved retail automobile sales and demand for used vehicle supply was beginning to improve. Consolidated revenue for the month of April was 28% of revenue for April 2019 and this resulted in an operating loss for April 2020.
2
The company saw improved demand for used vehicles in May. Total vehicles sold were approximately 65% of the volume sold in May 2019 and consolidated revenue for the month of May was 58% of revenue for May 2019. The company was able to reduce its cost structure and generated operating profit in May 2020 that exceeded 70% of operating profit in May 2019.
Improved demand for used vehicles continued throughout June and vehicles sold in June 2020 were 8% above the volume sold in June 2019 and consolidated revenue for the month of June was 91% of revenue for June 2019. The company's operating profit (exclusive of goodwill and other intangibles impairment) in June 2020 exceeded operating profit in June 2019.
Earnings Conference Call Information
KAR will be hosting an earnings conference call and webcast on Wednesday, August 5, 2020 at 8:30 a.m. EDT. 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 1267834, while the live web cast will be available at the investors section of www.karglobal.com. Supplemental financial information for KAR’s second quarter 2020 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 1267834. The archive of the webcast 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 in 2019. 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 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 based on management's current expectations, 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 uncertainties regarding the impact of the COVID-19 virus on our business and the economy generally, and those other matters disclosed in the Company’s Securities and Exchange Commission filings. The Company does not undertake any obligation to update any forward-looking statements.
3
KAR Auction Services, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||
| Operating revenues | |||||||||||||||||||||||
| Auction fees and services revenue | $ | 312.6 | $ | 553.1 | $ | 804.1 | $ | 1,095.0 | |||||||||||||||
| Purchased vehicle sales | 49.6 | 79.3 | 125.1 | 137.1 | |||||||||||||||||||
| Finance-related revenue | 56.8 | 86.7 | 135.3 | 176.6 | |||||||||||||||||||
| Total operating revenues | 419.0 | 719.1 | 1,064.5 | 1,408.7 | |||||||||||||||||||
| Operating expenses | |||||||||||||||||||||||
| Cost of services (exclusive of depreciation and amortization) | 235.1 | 417.4 | 629.7 | 811.3 | |||||||||||||||||||
| Selling, general and administrative | 112.3 | 163.2 | 274.7 | 338.4 | |||||||||||||||||||
| Depreciation and amortization | 46.5 | 47.9 | 94.2 | 92.2 | |||||||||||||||||||
| Goodwill and other intangibles impairment | 29.8 | — | 29.8 | — | |||||||||||||||||||
| Total operating expenses | 423.7 | 628.5 | 1,028.4 | 1,241.9 | |||||||||||||||||||
| Operating profit (loss) | (4.7) | 90.6 | 36.1 | 166.8 | |||||||||||||||||||
| Interest expense | 30.9 | 55.6 | 68.9 | 112.1 | |||||||||||||||||||
| Other expense (income), net | 1.3 | (1.1) | (0.7) | (3.2) | |||||||||||||||||||
| Income (loss) from continuing operations before income taxes | (36.9) | 36.1 | (32.1) | 57.9 | |||||||||||||||||||
| Income taxes | (4.6) | 8.7 | (2.6) | 15.2 | |||||||||||||||||||
| Income (loss) from continuing operations | (32.3) | 27.4 | (29.5) | 42.7 | |||||||||||||||||||
| Income from discontinued operations, net of income taxes | — | 28.2 | — | 90.7 | |||||||||||||||||||
| Net income (loss) | $ | (32.3) | $ | 55.6 | $ | (29.5) | $ | 133.4 | |||||||||||||||
| Net income (loss) per share - basic | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.27) | $ | 0.21 | $ | (0.24) | $ | 0.32 | |||||||||||||||
| Income from discontinued operations | — | 0.21 | — | 0.68 | |||||||||||||||||||
| Net income (loss) per share - basic | $ | (0.27) | $ | 0.42 | $ | (0.24) | $ | 1.00 | |||||||||||||||
| Net income (loss) per share - diluted | |||||||||||||||||||||||
| Income (loss) from continuing operations | $ | (0.27) | $ | 0.20 | $ | (0.24) | $ | 0.32 | |||||||||||||||
| Income from discontinued operations | — | 0.21 | — | 0.68 | |||||||||||||||||||
| Net income (loss) per share - diluted | $ | (0.27) | $ | 0.41 | $ | (0.24) | $ | 1.00 | |||||||||||||||
| Dividends declared per common share | $ | — | $ | 0.35 | $ | 0.19 | $ | 0.70 | |||||||||||||||
4
KAR Auction Services, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
| June 30, 2020 | December 31, 2019 | ||||||||||
| Cash and cash equivalents | $ | 968.5 | $ | 507.6 | |||||||
| Restricted cash | 50.0 | 53.3 | |||||||||
| Trade receivables, net of allowances | 582.3 | 457.5 | |||||||||
| Finance receivables, net of allowances | 1,526.3 | 2,100.2 | |||||||||
| Other current assets | 124.0 | 125.9 | |||||||||
| Total current assets | 3,251.1 | 3,244.5 | |||||||||
| Goodwill | 1,790.9 | 1,821.7 | |||||||||
| Customer relationships, net of accumulated amortization | 179.3 | 207.9 | |||||||||
| Operating lease right-of-use assets | 353.1 | 364.1 | |||||||||
| Property and equipment, net of accumulated depreciation | 583.7 | 609.0 | |||||||||
| Intangible and other assets | 335.9 | 334.0 | |||||||||
| Total assets | $ | 6,494.0 | $ | 6,581.2 | |||||||
| Current liabilities, excluding obligations collateralized by finance receivables and current maturities of debt | $ | 1,246.5 | $ | 1,027.7 | |||||||
| Obligations collateralized by finance receivables | 735.9 | 1,461.2 | |||||||||
| Current maturities of debt | 26.9 | 28.8 | |||||||||
| Total current liabilities | 2,009.3 | 2,517.7 | |||||||||
| Long-term debt | 1,856.9 | 1,861.3 | |||||||||
| Operating lease liabilities | 347.3 | 358.3 | |||||||||
| Other non-current liabilities | 197.8 | 193.7 | |||||||||
| Temporary equity | 528.2 | — | |||||||||
| Stockholders’ equity | 1,554.5 | 1,650.2 | |||||||||
| Total liabilities, temporary equity and stockholders’ equity | $ | 6,494.0 | $ | 6,581.2 | |||||||
5
KAR Auction Services, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
Six Months Ended June 30, | |||||||||||
| 2020 | 2019 | ||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | (29.5) | $ | 133.4 | |||||||
| Net income from discontinued operations | — | (90.7) | |||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 94.2 | 92.2 | |||||||||
| Provision for credit losses | 41.6 | 18.2 | |||||||||
| Deferred income taxes | (13.1) | 3.6 | |||||||||
| Amortization of debt issuance costs | 5.6 | 7.1 | |||||||||
| Stock-based compensation | 7.6 | 10.3 | |||||||||
| Loss on disposal of fixed assets | — | 0.1 | |||||||||
| Goodwill and other intangibles impairment | 29.8 | — | |||||||||
| Other non-cash, net | 4.9 | 5.8 | |||||||||
Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Trade receivables and other assets | (137.5) | (145.7) | |||||||||
| Accounts payable and accrued expenses | 265.3 | 127.4 | |||||||||
| Net cash provided by operating activities - continuing operations | 268.9 | 161.7 | |||||||||
| Net cash provided by operating activities - discontinued operations | — | 155.8 | |||||||||
| Investing activities | |||||||||||
| Net decrease (increase) in finance receivables held for investment | 532.6 | (69.8) | |||||||||
| Acquisition of businesses (net of cash acquired) | — | (120.7) | |||||||||
| Purchases of property, equipment and computer software | (46.7) | (78.4) | |||||||||
| Net cash provided by (used by) investing activities - continuing operations | 485.9 | (268.9) | |||||||||
| Net cash used by investing activities - discontinued operations | — | (37.4) | |||||||||
| Financing activities | |||||||||||
| Net increase in book overdrafts | 5.0 | 44.1 | |||||||||
| Net (decrease) increase in borrowings from lines of credit | (1.9) | 93.5 | |||||||||
| Net decrease in obligations collateralized by finance receivables | (720.5) | (31.0) | |||||||||
| Proceeds from issuance of Series A Preferred Stock | 550.1 | — | |||||||||
| Payments for issuance costs of Series A Preferred Stock | (21.9) | — | |||||||||
| Payments for debt issuance costs/amendments | (3.9) | — | |||||||||
| Payments on long-term debt | (4.7) | (1,291.1) | |||||||||
| Payments on finance leases | (7.8) | (6.9) | |||||||||
| Payments of contingent consideration and deferred acquisition costs | (22.3) | (0.5) | |||||||||
| Issuance of common stock under stock plans | 0.7 | 5.4 | |||||||||
| Tax withholding payments for vested RSUs | (3.7) | (10.4) | |||||||||
| Dividends paid to stockholders | (49.0) | (139.8) | |||||||||
| Cash transferred to IAA | — | (50.9) | |||||||||
| Net cash used by financing activities - continuing operations | (279.9) | (1,387.6) | |||||||||
| Net cash provided by financing activities - discontinued operations | — | 1,317.6 | |||||||||
| Effect of exchange rate changes on cash | (17.3) | 10.8 | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 457.6 | (48.0) | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 560.9 | 304.7 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 1,018.5 | $ | 256.7 | |||||||
| Cash paid for interest, net of proceeds from interest rate derivatives | $ | 63.9 | $ | 98.2 | |||||||
| Cash paid for taxes, net of refunds - continuing operations | $ | 3.6 | $ | 20.5 | |||||||
| Cash paid for taxes, net of refunds - discontinued operations | $ | — | $ | 40.1 | |||||||
6
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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in millions), (unaudited) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net income (loss) | $ | (32.3) | $ | 55.6 | $ | (29.5) | $ | 133.4 | |||||||||||||||
| Less: Income from discontinued operations | — | (28.2) | — | (90.7) | |||||||||||||||||||
| Net income (loss) from continuing operations | (32.3) | 27.4 | (29.5) | 42.7 | |||||||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | (4.6) | 8.7 | (2.6) | 15.2 | |||||||||||||||||||
| Interest expense, net of interest income | 30.6 | 55.0 | 67.8 | 110.9 | |||||||||||||||||||
| Depreciation and amortization | 46.5 | 47.9 | 94.2 | 92.2 | |||||||||||||||||||
| EBITDA | 40.2 | 139.0 | 129.9 | 261.0 | |||||||||||||||||||
| Non-cash stock-based compensation | 2.9 | 4.0 | 8.2 | 10.6 | |||||||||||||||||||
| Acquisition related costs | 0.9 | 3.7 | 2.3 | 7.6 | |||||||||||||||||||
| Securitization interest | (6.0) | (13.8) | (17.4) | (28.6) | |||||||||||||||||||
| Loss on asset sales | 0.5 | 0.4 | 1.0 | 0.9 | |||||||||||||||||||
| Severance | 6.5 | 1.1 | 8.3 | 4.8 | |||||||||||||||||||
| Foreign currency (gains)/losses | 2.7 | — | 3.1 | (0.6) | |||||||||||||||||||
| Goodwill and other intangibles impairment | 29.8 | — | 29.8 | — | |||||||||||||||||||
| IAA allocated costs | — | 0.9 | — | 2.3 | |||||||||||||||||||
| Other | 2.5 | 0.6 | 3.4 | 0.8 | |||||||||||||||||||
| Total addbacks | 39.8 | (3.1) | 38.7 | (2.2) | |||||||||||||||||||
| Adjusted EBITDA | $ | 80.0 | $ | 135.9 | $ | 168.6 | $ | 258.8 | |||||||||||||||
7
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 (loss) and net income (loss) from continuing operations per diluted share for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
(in millions, except per share amounts), (unaudited) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Net income (loss) | $ | (32.3) | $ | 55.6 | $ | (29.5) | $ | 133.4 | |||||||||||||||
| Less: income from discontinued operations | — | (28.2) | — | (90.7) | |||||||||||||||||||
Net income (loss) from continuing operations (1) | (32.3) | 27.4 | (29.5) | 42.7 | |||||||||||||||||||
| Acquired amortization expense | 14.1 | 14.8 | 28.4 | 29.4 | |||||||||||||||||||
| IAA allocated costs | — | 0.9 | — | 2.3 | |||||||||||||||||||
| Acceleration of debt issuance costs | — | 1.8 | — | 1.8 | |||||||||||||||||||
| Goodwill and other intangibles impairment | 29.8 | — | 29.8 | — | |||||||||||||||||||
Income taxes (2) | (1.8) | (4.2) | (2.3) | (8.8) | |||||||||||||||||||
| Operating adjusted net income from continuing operations | $ | 9.8 | $ | 40.7 | $ | 26.4 | $ | 67.4 | |||||||||||||||
| Net income (loss) from continuing operations per share - diluted | $ | (0.25) | $ | 0.20 | $ | (0.23) | $ | 0.32 | |||||||||||||||
| Acquired amortization expense | 0.11 | 0.11 | 0.22 | 0.22 | |||||||||||||||||||
| IAA allocated costs | — | 0.01 | — | 0.02 | |||||||||||||||||||
| Acceleration of debt issuance costs | — | 0.01 | — | 0.01 | |||||||||||||||||||
| Goodwill and other intangibles impairment | 0.23 | — | 0.23 | — | |||||||||||||||||||
| Income taxes | (0.01) | (0.03) | (0.02) | (0.07) | |||||||||||||||||||
| Operating adjusted net income from continuing operations per share - diluted | $ | 0.08 | $ | 0.30 | $ | 0.20 | $ | 0.50 | |||||||||||||||
Weighted average diluted shares (1) | 129.3 | 134.1 | 129.2 | 133.9 | |||||||||||||||||||
(1)The Series A Preferred Stock dividends have not been included in the calculation of operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per diluted share for the three and six months ended June 30, 2020. Likewise, the weighted average diluted share counts do not include the effect of assumed conversion of the Series A Preferred Stock for the three and six months ended June 30, 2020.
(2)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. There was no income tax benefit related to the goodwill and other intangibles impairment because these items were not deductible for income tax purposes.
8
EXHIBIT 99.2
KAR Auction Services, Inc.
Second Quarter 2020 Supplemental Financial Information
August 4, 2020
KAR Auction Services, Inc.
EBITDA and Adjusted EBITDA Measures
EBITDA and Adjusted EBITDA 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.
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. EBITDA and Adjusted EBITDA 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 tables reconcile EBITDA and Adjusted EBITDA to net income (loss) from continuing operations for the periods presented:
| Three Months Ended June 30, 2020 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | (4.4) | $ | 16.0 | $ | (43.9) | $ | (32.3) | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 2.5 | 5.6 | (12.7) | (4.6) | |||||||||||||||||||
| Interest expense, net of interest income | 0.6 | 9.2 | 20.8 | 30.6 | |||||||||||||||||||
| Depreciation and amortization | 38.2 | 2.6 | 5.7 | 46.5 | |||||||||||||||||||
| Intercompany interest | (1.5) | (0.1) | 1.6 | — | |||||||||||||||||||
| EBITDA | 35.4 | 33.3 | (28.5) | 40.2 | |||||||||||||||||||
| Intercompany charges | 1.5 | — | (1.5) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 1.2 | 0.4 | 1.3 | 2.9 | |||||||||||||||||||
| Acquisition related costs | 0.9 | — | — | 0.9 | |||||||||||||||||||
| Securitization interest | — | (6.0) | — | (6.0) | |||||||||||||||||||
| Loss on asset sales | 0.5 | — | — | 0.5 | |||||||||||||||||||
| Severance | 5.6 | 0.4 | 0.5 | 6.5 | |||||||||||||||||||
| Foreign currency (gains)/losses | (0.1) | — | 2.8 | 2.7 | |||||||||||||||||||
| Goodwill and other intangibles impairment | 29.8 | — | — | 29.8 | |||||||||||||||||||
| Other | 2.3 | — | 0.2 | 2.5 | |||||||||||||||||||
| Total addbacks | 41.7 | (5.2) | 3.3 | 39.8 | |||||||||||||||||||
| Adjusted EBITDA | $ | 77.1 | $ | 28.1 | $ | (25.2) | $ | 80.0 | |||||||||||||||
2
| Three Months Ended June 30, 2019 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 50.5 | $ | 27.4 | $ | (50.5) | $ | 27.4 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 21.8 | 11.3 | (24.4) | 8.7 | |||||||||||||||||||
| Interest expense, net of interest income | 0.6 | 16.1 | 38.3 | 55.0 | |||||||||||||||||||
| Depreciation and amortization | 38.0 | 2.6 | 7.3 | 47.9 | |||||||||||||||||||
| Intercompany interest | 4.0 | (1.6) | (2.4) | — | |||||||||||||||||||
| EBITDA | 114.9 | 55.8 | (31.7) | 139.0 | |||||||||||||||||||
| Intercompany charges | 3.6 | — | (3.6) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 1.6 | 0.4 | 2.0 | 4.0 | |||||||||||||||||||
| Acquisition related costs | 1.2 | — | 2.5 | 3.7 | |||||||||||||||||||
| Securitization interest | — | (13.8) | — | (13.8) | |||||||||||||||||||
| Loss on asset sales | 0.4 | — | — | 0.4 | |||||||||||||||||||
| Severance | 0.9 | — | 0.2 | 1.1 | |||||||||||||||||||
| Foreign currency (gains)/losses | (0.5) | — | 0.5 | — | |||||||||||||||||||
| IAA allocated costs | — | — | 0.9 | 0.9 | |||||||||||||||||||
| Other | 0.5 | 0.1 | — | 0.6 | |||||||||||||||||||
| Total addbacks | 7.7 | (13.3) | 2.5 | (3.1) | |||||||||||||||||||
| Adjusted EBITDA | $ | 122.6 | $ | 42.5 | $ | (29.2) | $ | 135.9 | |||||||||||||||
| Six Months Ended June 30, 2020 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 19.7 | $ | 40.6 | $ | (89.8) | $ | (29.5) | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 11.3 | 13.7 | (27.6) | (2.6) | |||||||||||||||||||
| Interest expense, net of interest income | 1.2 | 22.7 | 43.9 | 67.8 | |||||||||||||||||||
| Depreciation and amortization | 77.3 | 5.3 | 11.6 | 94.2 | |||||||||||||||||||
| Intercompany interest | (2.5) | (0.9) | 3.4 | — | |||||||||||||||||||
| EBITDA | 107.0 | 81.4 | (58.5) | 129.9 | |||||||||||||||||||
| Intercompany charges | 3.2 | — | (3.2) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 3.3 | 0.8 | 4.1 | 8.2 | |||||||||||||||||||
| Acquisition related costs | 2.1 | — | 0.2 | 2.3 | |||||||||||||||||||
| Securitization interest | — | (17.4) | — | (17.4) | |||||||||||||||||||
| Loss on asset sales | 1.0 | — | — | 1.0 | |||||||||||||||||||
| Severance | 6.9 | 0.4 | 1.0 | 8.3 | |||||||||||||||||||
| Foreign currency (gains)/losses | 1.7 | — | 1.4 | 3.1 | |||||||||||||||||||
| Goodwill and other intangibles impairment | 29.8 | — | — | 29.8 | |||||||||||||||||||
| Other | 2.5 | — | 0.9 | 3.4 | |||||||||||||||||||
| Total addbacks | 50.5 | (16.2) | 4.4 | 38.7 | |||||||||||||||||||
| Adjusted EBITDA | $ | 157.5 | $ | 65.2 | $ | (54.1) | $ | 168.6 | |||||||||||||||
3
| Six Months Ended June 30, 2019 | |||||||||||||||||||||||
(Dollars in millions), (Unaudited) | ADESA | AFC | Corporate | Consolidated | |||||||||||||||||||
Net income (loss) from continuing operations | $ | 92.9 | $ | 57.9 | $ | (108.1) | $ | 42.7 | |||||||||||||||
| Add back: | |||||||||||||||||||||||
| Income taxes | 37.7 | 22.1 | (44.6) | 15.2 | |||||||||||||||||||
| Interest expense, net of interest income | 1.0 | 33.0 | 76.9 | 110.9 | |||||||||||||||||||
| Depreciation and amortization | 73.0 | 5.0 | 14.2 | 92.2 | |||||||||||||||||||
| Intercompany interest | 11.1 | (2.8) | (8.3) | — | |||||||||||||||||||
| EBITDA | 215.7 | 115.2 | (69.9) | 261.0 | |||||||||||||||||||
| Intercompany charges | 6.8 | — | (6.8) | — | |||||||||||||||||||
| Non-cash stock-based compensation | 4.0 | 0.9 | 5.7 | 10.6 | |||||||||||||||||||
| Acquisition related costs | 2.8 | — | 4.8 | 7.6 | |||||||||||||||||||
| Securitization interest | — | (28.6) | — | (28.6) | |||||||||||||||||||
| Loss on asset sales | 0.9 | — | — | 0.9 | |||||||||||||||||||
| Severance | 3.6 | — | 1.2 | 4.8 | |||||||||||||||||||
| Foreign currency (gains)/losses | (1.1) | — | 0.5 | (0.6) | |||||||||||||||||||
| IAA allocated costs | — | — | 2.3 | 2.3 | |||||||||||||||||||
| Other | 0.7 | 0.1 | — | 0.8 | |||||||||||||||||||
| Total addbacks | 17.7 | (27.6) | 7.7 | (2.2) | |||||||||||||||||||
| Adjusted EBITDA | $ | 233.4 | $ | 87.6 | $ | (62.2) | $ | 258.8 | |||||||||||||||
Other than during the financial covenant "holiday" provided by the Fourth Amendment Agreement to the Credit Agreement, certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters. The following table reconciles EBITDA and Adjusted EBITDA to net income for the periods presented:
Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||||||
(Dollars in millions), (Unaudited) | September 30, 2019 | December 31, 2019 | March 31, 2020 | June 30, 2020 | June 30, 2020 | ||||||||||||||||||||||||
| Net income (loss) | $ | 35.3 | $ | 19.8 | $ | 2.8 | $ | (32.3) | $ | 25.6 | |||||||||||||||||||
| Less: Income from discontinued operations | 0.9 | 4.5 | — | — | 5.4 | ||||||||||||||||||||||||
| Income (loss) from continuing operations | 34.4 | 15.3 | 2.8 | (32.3) | 20.2 | ||||||||||||||||||||||||
| Add back: | |||||||||||||||||||||||||||||
| Income taxes | 13.2 | 9.3 | 2.0 | (4.6) | 19.9 | ||||||||||||||||||||||||
| Interest expense, net of interest income | 37.2 | 38.3 | 37.2 | 30.6 | 143.3 | ||||||||||||||||||||||||
| Depreciation and amortization | 46.4 | 50.1 | 47.7 | 46.5 | 190.7 | ||||||||||||||||||||||||
| EBITDA | 131.2 | 113.0 | 89.7 | 40.2 | 374.1 | ||||||||||||||||||||||||
| Non-cash stock-based compensation | 4.5 | 5.2 | 5.3 | 2.9 | 17.9 | ||||||||||||||||||||||||
| Loss on extinguishment of debt | 2.2 | — | — | — | 2.2 | ||||||||||||||||||||||||
| Acquisition related costs | 2.7 | 1.9 | 1.4 | 0.9 | 6.9 | ||||||||||||||||||||||||
| Securitization interest | (13.3) | (13.0) | (11.4) | (6.0) | (43.7) | ||||||||||||||||||||||||
| Loss on asset sales | 0.8 | 0.4 | 0.5 | 0.5 | 2.2 | ||||||||||||||||||||||||
| Severance | 0.9 | 9.6 | 1.8 | 6.5 | 18.8 | ||||||||||||||||||||||||
| Foreign currency (gains)/losses | (0.4) | 0.3 | 0.4 | 2.7 | 3.0 | ||||||||||||||||||||||||
| Goodwill and other intangibles impairment | — | — | — | 29.8 | 29.8 | ||||||||||||||||||||||||
| Other | 0.6 | 4.6 | 0.9 | 2.5 | 8.6 | ||||||||||||||||||||||||
| Total addbacks | (2.0) | 9.0 | (1.1) | 39.8 | 45.7 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 129.2 | $ | 122.0 | $ | 88.6 | $ | 80.0 | $ | 419.8 | |||||||||||||||||||
4
Results of Operations
KAR Results
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions except per share amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Auction fees and services revenue | $ | 312.6 | $ | 553.1 | $ | 804.1 | $ | 1,095.0 | |||||||||||||||
| Purchased vehicle sales | 49.6 | 79.3 | 125.1 | 137.1 | |||||||||||||||||||
| Finance-related revenue | 56.8 | 86.7 | 135.3 | 176.6 | |||||||||||||||||||
| Total revenues | 419.0 | 719.1 | 1,064.5 | 1,408.7 | |||||||||||||||||||
| Cost of services* | 235.1 | 417.4 | 629.7 | 811.3 | |||||||||||||||||||
| Gross profit* | 183.9 | 301.7 | 434.8 | 597.4 | |||||||||||||||||||
| Selling, general and administrative | 112.3 | 163.2 | 274.7 | 338.4 | |||||||||||||||||||
| Depreciation and amortization | 46.5 | 47.9 | 94.2 | 92.2 | |||||||||||||||||||
| Goodwill and other intangibles impairment | 29.8 | — | 29.8 | — | |||||||||||||||||||
| Operating profit (loss) | (4.7) | 90.6 | 36.1 | 166.8 | |||||||||||||||||||
| Interest expense | 30.9 | 55.6 | 68.9 | 112.1 | |||||||||||||||||||
| Other expense (income), net | 1.3 | (1.1) | (0.7) | (3.2) | |||||||||||||||||||
| Income (loss) from continuing operations before income taxes | (36.9) | 36.1 | (32.1) | 57.9 | |||||||||||||||||||
| Income taxes | (4.6) | 8.7 | (2.6) | 15.2 | |||||||||||||||||||
| Net income (loss) from continuing operations | (32.3) | 27.4 | (29.5) | 42.7 | |||||||||||||||||||
| Net income from discontinued operations | — | 28.2 | — | 90.7 | |||||||||||||||||||
| Net income (loss) | $ | (32.3) | $ | 55.6 | $ | (29.5) | $ | 133.4 | |||||||||||||||
| Net income (loss) from continuing operations per share | |||||||||||||||||||||||
| Basic | $ | (0.27) | $ | 0.21 | $ | (0.24) | $ | 0.32 | |||||||||||||||
| Diluted | $ | (0.27) | $ | 0.20 | $ | (0.24) | $ | 0.32 | |||||||||||||||
* Exclusive of depreciation and amortization
Overview of KAR Results for the Three Months Ended June 30, 2020 and 2019
Overview
For the three months ended June 30, 2020, we had revenue of $419.0 million compared with revenue of $719.1 million for the three months ended June 30, 2019, a decrease of 42%. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased $1.4 million, or 3%, to $46.5 million for the three months ended June 30, 2020, compared with $47.9 million for the three months ended June 30, 2019. The decrease in depreciation and amortization was primarily the result of a reduction in assets placed in service or acquired, resulting from a reduction in capital spending and no acquisitions in 2020.
Goodwill and Other Intangibles Impairment
In light of the impact that the COVID-19 pandemic has had on the economy, forecasts for all reporting units were revised. These circumstances contributed to lower sales, operating profits and cash flows at ADESA Remarketing Limited through the first part of 2020 as compared to 2019, and the outlook for the business was significantly reduced. This analysis resulted in the impairment of the goodwill balance totaling $25.5 million in our ADESA
5
Remarketing Limited reporting unit and a non-cash goodwill impairment charge was recorded for this amount in the second quarter of 2020.
In addition, in the second quarter of 2020, a non-cash customer relationship impairment charge of approximately $4.3 million was also recorded in the ADESA Remarketing Limited reporting unit, representing the impairment in the value of this reporting unit’s customer relationships.
Interest Expense
Interest expense decreased $24.7 million, or 44%, to $30.9 million for the three months ended June 30, 2020, compared with $55.6 million for the three months ended June 30, 2019. The decrease was primarily attributable to a decrease in the weighted average interest rate of approximately 1.1% and a decrease of $821.9 million in the average outstanding balance of corporate debt for the three months ended June 30, 2020 compared with the three months ended June 30, 2019, resulting from the pay down of debt of approximately $1.3 billion in connection with the spin-off of IAA on June 28, 2019 and a net increase in term loan debt of approximately $0.5 billion in connection with the debt refinancing on September 19, 2019. In addition, there was a decrease in interest expense at AFC of $7.0 million, which resulted from a decrease in the average finance receivables balance and in incremental interest rates for the three months ended June 30, 2020, as compared with the three months ended June 30, 2019.
Income Taxes
We had an effective tax rate of 12.5% for the three months ended June 30, 2020, compared with an effective tax rate of 24.1% for the three months ended June 30, 2019. The 2020 rate was unfavorably impacted by the goodwill and other intangibles impairment charge for which no tax benefit has been recorded. This was partially offset by the tax benefit from recording net operating losses and deductions related to stock-based compensation expenses.
Net Income from Discontinued Operations
On June 28, 2019, the Company completed the separation of its salvage auction business, IAA, through a spin-off, creating a new independent publicly traded salvage auction company. As such, the financial results of IAA have been accounted for as discontinued operations in the comparable 2019 results presented. For the three months ended June 30, 2020 and 2019, the Company's financial statements included income from discontinued operations of $0.0 million and $28.2 million, respectively.
Impact of Foreign Currency
For the three months ended June 30, 2020, fluctuations in the Canadian exchange rate decreased revenue by $1.3 million, operating profit by $0.4 million, net income (loss) by $0.1 million and net income (loss) per diluted share by less than $0.01. For the three months ended June 30, 2020, fluctuations in the European exchange rate decreased revenue by $0.4 million and had no impact on operating profit, net income (loss) and net income (loss) per diluted share. In addition, for the three months ended June 30, 2020, as a result of the goodwill and other intangibles impairment in the U.K., fluctuations in the British pound exchange rate decreased the net loss by $1.1 million.
Business Trends Throughout the Second Quarter
The Company has been subject to numerous orders and directives that have impacted our ability to operate our business throughout North America and in Europe. As a result of restrictions on our operations, we have adjusted our business processes to meet the needs of our customers while complying with all laws, regulations, mandates and directives in each individual market we operate. In many cases, we have had to limit the number of employees and customers within our physical locations at any given time and modify the delivery of services to our customers. Our results in the quarter ended June 30, 2020 were negatively impacted by the impact COVID-19 had on our business, especially in the month of April. However, we were able to make adjustments in our operations that have permitted us to improve performance steadily throughout the quarter.
New and used car retail activity was reduced to unprecedented levels in early April. Auto retail operations were required to temporarily close and supply and demand for used cars was disrupted. By mid-April, we were experiencing improved retail automobile sales and demand for used vehicle supply was beginning to improve. The Company was prepared to meet the needs of the wholesale used car marketplace with its technology-based auction platforms throughout North America and in Europe. For the month of April, total vehicles sold were approximately
6
27% of the volume sold in April 2019. Consolidated revenue for the month April was 28% of revenue for April 2019. Consolidated gross profit for the month of April was below 20% of revenue due to the low level of revenue and this contributed to an operating loss for the month.
The Company saw improved demand for used vehicles in May and buyers and sellers were transacting on our digital platforms in order to obtain inventory to support the level of retail demand for used vehicles. Total vehicles sold were approximately 65% of the volume sold in May 2019. Consolidated revenue for the month of May was 58% of revenue for May 2019. However, our operating processes were adjusted to support 100% of all transactions being completed through our digital platforms and KAR had gross profit of 47% of revenue for the month. The Company also maintained reduced selling, general and administrative expenses and was able to generate operating profit and Adjusted EBITDA that exceeded 70% of the amounts generated in May 2019.
Improved demand for used vehicles continued throughout June and vehicles sold in June 2020 were 8% above the volume sold in June 2019 and consolidated revenue for the month of June was 91% of revenue for June 2019. We continued to sell all vehicles using our digital platforms and were able to generate gross profit for the month that was approximately 50% of revenue. We were also able to maintain lower overhead costs through this period of volume growth. As a result, we were able to generate operating profit margins (exclusive of goodwill and other intangibles impairment) and Adjusted EBITDA margins for the month that were above 20% of revenue. The Company believes that certain changes made in its business processes that were necessitated by the COVID-19 outbreak are sustainable going forward. The Company has reduced the labor required to process wholesale auction transactions and reduced its selling, general and administrative expenses.
Immediately prior to actions taken in late March 2020, the Company had over 15,000 active employees. In early April, the Company furloughed approximately 11,000 employees. Since early April, we have called back approximately 5,000 employees throughout the Company. In late June 2020, we notified approximately 3,000 furloughed employees that changes in our business processes have resulted in the elimination of their positions in August 2020. As of August 2020, we have approximately 2,000 employees on furlough that may be called back to work. We do not expect to increase our workforce back to pre-pandemic levels.
Overview of KAR Results for the Six Months Ended June 30, 2020 and 2019
Overview
For the six months ended June 30, 2020, we had revenue of $1,064.5 million compared with revenue of $1,408.7 million for the six months ended June 30, 2019, a decrease of 24%. Businesses acquired accounted for an increase in revenue of $18.3 million or 2% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization increased $2.0 million, or 2%, to $94.2 million for the six months ended June 30, 2020, compared with $92.2 million for the six months ended June 30, 2019. The increase in depreciation and amortization was primarily the result of certain assets placed in service over the last twelve months and depreciation and amortization for the assets of businesses acquired in 2019.
Goodwill and Other Intangibles Impairment
In light of the impact that the COVID-19 pandemic has had on the economy, forecasts for all reporting units were revised. These circumstances contributed to lower sales, operating profits and cash flows at ADESA Remarketing Limited through the first part of 2020 as compared to 2019, and the outlook for the business was significantly reduced. This analysis resulted in the impairment of the goodwill balance totaling $25.5 million in our ADESA Remarketing Limited reporting unit and a non-cash goodwill impairment charge was recorded for this amount in the second quarter of 2020.
In addition, in the second quarter of 2020, a non-cash customer relationship impairment charge of approximately $4.3 million was also recorded in the ADESA Remarketing Limited reporting unit, representing the impairment in the value of this reporting unit’s customer relationships.
7
Interest Expense
Interest expense decreased $43.2 million, or 39%, to $68.9 million for the six months ended June 30, 2020, compared with $112.1 million for the six months ended June 30, 2019. The decrease was primarily attributable to a decrease in the weighted average interest rate of approximately 0.9% and a decrease of $880.5 million in the average outstanding balance of corporate debt for the six months ended June 30, 2020 compared with the six months ended June 30, 2019, resulting from the pay down of debt of approximately $1.3 billion in connection with the spin-off of IAA on June 28, 2019 and a net increase in term loan debt of approximately $0.5 billion in connection with the debt refinancing on September 19, 2019. In addition, there was a decrease in interest expense at AFC of $10.5 million, which resulted from a decrease in the average finance receivables balance and in incremental interest rates for the six months ended June 30, 2020, as compared with the six months ended June 30, 2019.
Income Taxes
We had an effective tax rate of 8.1% for the six months ended June 30, 2020, compared with an effective tax rate of 26.3% for the six months ended June 30, 2019. The 2020 rate was unfavorably impacted by the goodwill and other intangibles impairment charge for which no tax benefit has been recorded. This was partially offset by the tax benefit from recording net operating losses and deductions related to stock-based compensation expenses.
Net Income from Discontinued Operations
On June 28, 2019, the Company completed the separation of its salvage auction business, IAA, through a spin-off, creating a new independent publicly traded salvage auction company. As such, the financial results of IAA have been accounted for as discontinued operations in the comparable 2019 results presented. For the six months ended June 30, 2020 and 2019, the Company's financial statements included income from discontinued operations of $0.0 million and $90.7 million, respectively.
Impact of Foreign Currency
For the six months ended June 30, 2020, fluctuations in the Canadian exchange rate decreased revenue by $1.5 million, operating profit by $0.3 million, net income (loss) by $0.1 million and net income (loss) per diluted share by less than $0.01. For the six months ended June 30, 2020, fluctuations in the European exchange rate decreased revenue by $1.6 million and had no impact on operating profit, net income (loss) and net income (loss) per diluted share. In addition, for the six months ended June 30, 2020, as a result of the goodwill and other intangibles impairment in the U.K., fluctuations in the British pound exchange rate decreased the net loss by $0.7 million.
8
ADESA Results
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions, except per vehicle amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Auction fees and services revenue | $ | 312.6 | $ | 553.1 | $ | 804.1 | $ | 1,095.0 | |||||||||||||||
| Purchased vehicle sales | 49.6 | 79.3 | 125.1 | 137.1 | |||||||||||||||||||
| Total ADESA revenue | 362.2 | 632.4 | 929.2 | 1,232.1 | |||||||||||||||||||
| Cost of services* | 217.2 | 392.9 | 587.9 | 763.6 | |||||||||||||||||||
| Gross profit* | 145.0 | 239.5 | 341.3 | 468.5 | |||||||||||||||||||
| Selling, general and administrative | 79.5 | 121.9 | 202.3 | 248.5 | |||||||||||||||||||
| Depreciation and amortization | 38.2 | 38.0 | 77.3 | 73.0 | |||||||||||||||||||
| Goodwill and other intangibles impairment | 29.8 | — | 29.8 | — | |||||||||||||||||||
| Operating profit (loss) | $ | (2.5) | $ | 79.6 | $ | 31.9 | $ | 147.0 | |||||||||||||||
| Vehicles sold | 648,000 | 994,000 | 1,510,000 | 1,940,000 | |||||||||||||||||||
| Institutional vehicles sold in North America | 502,000 | 701,000 | 1,124,000 | 1,382,000 | |||||||||||||||||||
| Dealer consignment vehicles sold in North America | 131,000 | 268,000 | 343,000 | 510,000 | |||||||||||||||||||
| Vehicles sold in Europe | 15,000 | 25,000 | 43,000 | 48,000 | |||||||||||||||||||
| Percentage of vehicles sold online | 100 | % | 59 | % | 78 | % | 58 | % | |||||||||||||||
| Conversion rate at North American physical auctions | 63.5 | % | 66.1 | % | 63.4 | % | 64.9 | % | |||||||||||||||
| Physical auction revenue per vehicle sold, excluding purchased vehicles | $ | 839 | $ | 882 | $ | 884 | $ | 879 | |||||||||||||||
| Online only revenue per vehicle sold, excluding purchased vehicles | $ | 152 | $ | 150 | $ | 158 | $ | 148 | |||||||||||||||
* Exclusive of depreciation and amortization
Overview of ADESA Results for the Three Months Ended June 30, 2020 and 2019
Revenue
Revenue from ADESA decreased $270.2 million, or 43%, to $362.2 million for the three months ended June 30, 2020, compared with $632.4 million for the three months ended June 30, 2019. The decrease in revenue was the result of a decrease in the number of vehicles sold and a decrease in average revenue per vehicle sold. The decrease in revenue included the impact of decreases in revenue of $1.1 million due to fluctuations in the Canadian exchange rate and $0.4 million due to fluctuations in the European exchange rate.
The decrease in vehicles sold was primarily attributable to a 29% decrease in institutional volume, including vehicles sold on our online only platform, as well as a 50% decrease in dealer consignment units sold for the three months ended June 30, 2020 compared with the three months ended June 30, 2019. Online sales volume for ADESA represented approximately 100% of the total vehicles sold in the second quarter of 2020, compared with approximately 59% in the second quarter of 2019. "Online sales" includes the following: (i) selling vehicles directly from a dealership or other interim storage location; (ii) online solutions that offer vehicles for sale while in transit to auction locations; (iii) vehicles sold on the TradeRev platform; (iv) vehicle sales in Europe, including units sold by COTW; (v) simultaneously broadcasting video and audio during the physical auctions to online bidders (ADESA Simulcast and Simulcast+); and (vi) bulletin-board or real-time online auctions (DealerBlock®). Online only sales, which do not include vehicles sold on ADESA Simulcast, Simulcast+ or DealerBlock, accounted for approximately 52% of ADESA's North American online sales volume. ADESA sold approximately 321,000 (including approximately 35,000 from TradeRev) and 416,000 (including approximately 41,000 from TradeRev) vehicles through its North American online only offerings in the second quarter of 2020 and 2019, respectively. For the three months ended June 30, 2020, dealer consignment vehicles represented approximately 30% of used vehicles sold at ADESA physical auction locations, compared with approximately 41% for the three months ended June 30, 2019. The volume of vehicles sold at physical auction locations in the second quarter of 2020 decreased approximately 44% compared with the second quarter of 2019. The used vehicle conversion percentage at North American physical auction locations, calculated as the number of vehicles sold as a percentage of the number of vehicles entered for
9
sale at our ADESA auctions, decreased to 63.5% for the three months ended June 30, 2020, compared with 66.1% for the three months ended June 30, 2019.
Volumes sold for the three months ended June 30, 2020 were materially impacted by the COVID-19 related restrictions placed on businesses throughout the world. For the three months ended June 30, 2020 we held all sales in a Simulcast-only format to protect the health and well-being of our workforce and customers. All vehicles were offered online, cars did not run across the block and we limited access to our physical locations to promote social distancing measures and help prevent the spread of COVID-19.
Physical auction revenue per vehicle sold decreased $43, or 5%, to $839 for the three months ended June 30, 2020, compared with $882 for the three months ended June 30, 2019. Physical auction revenue per vehicle sold includes revenue from seller and buyer auction fees and ancillary and other related services, which includes non-auction services and excludes the sale of purchased vehicles. Physical auction fees per car sold were consistent at $428 for the three months ended June 30, 2020 compared with the three months ended June 30, 2019. The $43 decrease was attributable to a decrease in lower margin ancillary services revenue.
Online only auction revenue per vehicle sold decreased $21 to $211 for the three months ended June 30, 2020, compared with $232 for the three months ended June 30, 2019. The decrease in online only auction revenue per vehicle sold was attributable to a decrease in purchased vehicle sales. The entire selling price of the purchased vehicles sold at auction is recorded as revenue ("Purchased vehicle sales"). Excluding purchased vehicle sales, online only revenue per vehicle would have been $152 and $150 for the three months ended June 30, 2020 and 2019, respectively. The $2 increase in online only revenue per vehicle, excluding purchased vehicles, was attributable to increased revenue per vehicle for units sold on the TradeRev platform.
Gross Profit
For the three months ended June 30, 2020, gross profit for ADESA decreased $94.5 million, or 39%, to $145.0 million, compared with $239.5 million for the three months ended June 30, 2019. Gross profit for ADESA was 40.0% of revenue for the three months ended June 30, 2020, compared with 37.9% of revenue for the three months ended June 30, 2019. Gross profit as a percentage of revenue increased for the three months ended June 30, 2020 as compared with the three months ended June 30, 2019 as a result of a 45% decrease in cost of services. As noted elsewhere, we have taken measures to reduce expenses to help protect our business while our operations have been impacted by COVID-19, and vehicles sold online require less direct labor. In addition, our gross profit as a percentage of revenue is impacted by purchased vehicle sales. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicle sold. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 46.4% and 43.2% for the three months ended June 30, 2020 and 2019, respectively.
Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment decreased $42.4 million, or 35%, to $79.5 million for the three months ended June 30, 2020, compared with $121.9 million for the three months ended June 30, 2019, primarily due to decreases in compensation expense of $16.4 million, incentive-based compensation of $6.5 million, marketing costs of $6.0 million, travel expenses of $3.8 million, professional fees of $2.9 million, supplies expense of $2.4 million, telecom costs of $1.2 million, other miscellaneous expenses aggregating $1.9 million and the recording of the Employee Retention Credit provided under the CARES Act and the Canada Emergency Wage Subsidy of $6.9 million, partially offset by increases in bad debt expense of $3.8 million and severance of $1.8 million.
Goodwill and Other Intangibles Impairment
In light of the impact that the COVID-19 pandemic has had on the economy, forecasts for all reporting units were revised. These circumstances contributed to lower sales, operating profits and cash flows at ADESA Remarketing Limited through the first part of 2020 as compared to 2019, and the outlook for the business was significantly reduced. This analysis resulted in the impairment of the goodwill balance totaling $25.5 million in our ADESA Remarketing Limited reporting unit and a non-cash goodwill impairment charge was recorded for this amount in the second quarter of 2020.
10
In addition, in the second quarter of 2020, a non-cash customer relationship impairment charge of approximately $4.3 million was also recorded in the ADESA Remarketing Limited reporting unit, representing the impairment in the value of this reporting unit’s customer relationships.
Overview of ADESA Results for the Six Months Ended June 30, 2020 and 2019
Revenue
Revenue from ADESA decreased $302.9 million, or 25%, to $929.2 million for the six months ended June 30, 2020, compared with $1,232.1 million for the six months ended June 30, 2019. The decrease in revenue was the result of a decrease in the number of vehicles sold and a decrease in average revenue per vehicle sold. Businesses acquired in the last 12 months accounted for an increase in revenue of $18.3 million, of which approximately $12.7 million was included in "Purchased vehicle sales." The decrease in revenue included the impact of decreases in revenue of $1.6 million due to fluctuations in the European exchange rate and $1.4 million due to fluctuations in the Canadian exchange rate.
The decrease in vehicles sold was primarily attributable to a 19% decrease in institutional volume, including vehicles sold on our online only platform, as well as a 31% decrease in dealer consignment units sold for the six months ended June 30, 2020 compared with the six months ended June 30, 2019. Online sales volume for ADESA represented approximately 78% of the total vehicles in the first six months of 2020, compared with approximately 58% in the first six months of 2019. "Online sales" includes the following: (i) selling vehicles directly from a dealership or other interim storage location; (ii) online solutions that offer vehicles for sale while in transit to auction locations; (iii) vehicles sold on the TradeRev platform; (iv) vehicle sales in Europe, including units sold by COTW; (v) simultaneously broadcasting video and audio during the physical auctions to online bidders (ADESA Simulcast and Simulcast+); and (vi) bulletin-board or real-time online auctions (DealerBlock®). Online only sales, which do not include vehicles sold on ADESA Simulcast, Simulcast+ or DealerBlock, accounted for approximately 61% of ADESA's North American online sales volume. ADESA sold approximately 688,000 (including approximately 68,000 from TradeRev) and 783,000 (including approximately 72,000 from TradeRev) vehicles through its North American online only offerings in the first six months of 2020 and 2019, respectively. For the six months ended June 30, 2020, dealer consignment vehicles represented approximately 35% of used vehicles sold at ADESA physical auction locations, compared with approximately 39% for the six months ended June 30, 2019. The volume of vehicles sold at physical auction locations in the first six months of 2020 decreased approximately 30% compared with the first six months of 2019. The used vehicle conversion percentage at North American physical auction locations, calculated as the number of vehicles sold as a percentage of the number of vehicles entered for sale at our ADESA auctions, decreased to 63.4% for the six months ended June 30, 2020, compared with 64.9% for the six months ended June 30, 2019.
Volumes sold for the six months ended June 30, 2020 were materially impacted by the COVID-19 related restrictions placed on businesses throughout the world. Beginning the week of March 16, we experienced a significant decline in volumes, as customers began to cease operations in response to local, state and provincial directives. Throughout the second quarter, we held all sales in a Simulcast-only format to protect the health and well-being of our workforce and customers. All vehicles were offered online, cars did not run across the block and we limited access to our physical locations to promote social distancing measures and help prevent the spread of COVID-19.
Physical auction revenue per vehicle sold increased $5, or 1%, to $884 for the six months ended June 30, 2020, compared with $879 for the six months ended June 30, 2019. Physical auction revenue per vehicle sold includes revenue from seller and buyer auction fees and ancillary and other related services, which includes non-auction services and excludes the sale of purchased vehicles.
Online only auction revenue per vehicle sold increased $17 to $237 for the six months ended June 30, 2020, compared with $220 for the six months ended June 30, 2019. The increase in online only auction revenue per vehicle sold was attributable to an increase in TradeRev revenue. In addition, the entire selling price of the purchased vehicles sold at auction is recorded as revenue ("Purchased vehicle sales"). Excluding purchased vehicle sales, online only revenue per vehicle would have been $158 and $148 for the six months ended June 30, 2020 and 2019, respectively. The $10 increase in online only revenue per vehicle, excluding purchased vehicles was attributable to increased revenue per vehicle for units sold on the TradeRev platform.
11
Gross Profit
For the six months ended June 30, 2020, gross profit for ADESA decreased $127.2 million, or 27%, to $341.3 million, compared with $468.5 million for the six months ended June 30, 2019. Gross profit for ADESA was 36.7% of revenue for the six months ended June 30, 2020, compared with 38.0% of revenue for the six months ended June 30, 2019. Gross profit as a percentage of revenue decreased for the six months ended June 30, 2020 as compared with the six months ended June 30, 2019 as a result of purchased vehicle sales. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicle sold. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 42.4% and 42.7% for the six months ended June 30, 2020 and 2019, respectively. The remaining decrease in gross profit as a percentage of revenue relates to the shut down of the physical auctions on March 20, 2020 in response to the COVID-19 pandemic. Businesses acquired in the last 12 months accounted for an increase in cost of services of $15.6 million for the six months ended June 30, 2020.
Selling, General and Administrative
Selling, general and administrative expenses for the ADESA segment decreased $46.2 million, or 19%, to $202.3 million for the six months ended June 30, 2020, compared with $248.5 million for the six months ended June 30, 2019, primarily due to decreases in compensation expense of $15.8 million, incentive-based compensation of $11.8 million, marketing costs of $8.4 million, travel expenses of $4.7 million, supplies expense of $2.3 million, professional fees of $2.1 million, other miscellaneous expenses aggregating $2.0 million and the recording of the Employee Retention Credit provided under the CARES Act and the Canada Emergency Wage Subsidy of $6.9 million, partially offset by increases in bad debt expense of $3.9 million, information technology costs of $2.0 million and costs associated with acquisitions of $1.9 million.
Goodwill and Other Intangibles Impairment
In light of the impact that the COVID-19 pandemic has had on the economy, forecasts for all reporting units were revised. These circumstances contributed to lower sales, operating profits and cash flows at ADESA Remarketing Limited through the first part of 2020 as compared to 2019, and the outlook for the business was significantly reduced. This analysis resulted in the impairment of the goodwill balance totaling $25.5 million in our ADESA Remarketing Limited reporting unit and a non-cash goodwill impairment charge was recorded for this amount in the second quarter of 2020.
In addition, in the second quarter of 2020, a non-cash customer relationship impairment charge of approximately $4.3 million was also recorded in the ADESA Remarketing Limited reporting unit, representing the impairment in the value of this reporting unit’s customer relationships.
12
AFC Results
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions except volumes and per loan amounts) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| AFC revenue | $ | 56.8 | $ | 86.7 | $ | 135.3 | $ | 176.6 | |||||||||||||||
| Cost of services* | 17.9 | 24.5 | 41.8 | 47.7 | |||||||||||||||||||
| Gross profit* | 38.9 | 62.2 | 93.5 | 128.9 | |||||||||||||||||||
| Selling, general and administrative | 5.6 | 6.4 | 12.1 | 13.6 | |||||||||||||||||||
| Depreciation and amortization | 2.6 | 2.6 | 5.3 | 5.0 | |||||||||||||||||||
| Operating profit | $ | 30.7 | $ | 53.2 | $ | 76.1 | $ | 110.3 | |||||||||||||||
| Loan transactions | 420,000 | 437,000 | 868,000 | 898,000 | |||||||||||||||||||
| Revenue per loan transaction, excluding “Warranty contract revenue” | $ | 115 | $ | 178 | $ | 136 | $ | 177 | |||||||||||||||
* Exclusive of depreciation and amortization
Overview of AFC Results for the Three Months Ended June 30, 2020 and 2019
Revenue
For the three months ended June 30, 2020, AFC revenue decreased $29.9 million, or 34%, to $56.8 million, compared with $86.7 million for the three months ended June 30, 2019. The decrease in revenue was primarily the result of a 35% decrease in revenue per loan transaction and a 4% decrease in loan transactions.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $63, or 35%, primarily as a result of an increase in provision for credit losses for the three months ended June 30, 2020, as well as decreases in interest yield and floorplan fee income, partially offset by an increase in average portfolio duration. Revenue per loan transaction excludes "Warranty contract revenue."
The provision for credit losses increased to 4.3% of the average managed receivables for the three months ended June 30, 2020 from 1.7% for the three months ended June 30, 2019.
Gross Profit
For the three months ended June 30, 2020, gross profit for the AFC segment decreased $23.3 million to $38.9 million, or 68.5% of revenue, compared with $62.2 million, or 71.7% of revenue, for the three months ended June 30, 2019. The decrease in gross profit as a percent of revenue was primarily the result of a 34% decrease in revenue and a 27% decrease in cost of services. The decrease in cost of services was primarily the result of decreases in compensation expense of $3.1 million, PWI expenses of $1.7 million, incentive-based compensation of $0.6 million and other miscellaneous expenses aggregating $1.2 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC decreased $0.8 million, or 13%, to $5.6 million for the three months ended June 30, 2020, compared with $6.4 million for the three months ended June 30, 2019, primarily as a result of decreases in incentive-based compensation, travel expenses, promotion expenses and other miscellaneous expenses totaling $1.3 million, partially offset by an increase in compensation-related expense of $0.5 million.
Overview of AFC Results for the Six Months Ended June 30, 2020 and 2019
Revenue
For the six months ended June 30, 2020, AFC revenue decreased $41.3 million, or 23%, to $135.3 million, compared with $176.6 million for the six months ended June 30, 2019. The decrease in revenue was primarily the result of a 23% decrease in revenue per loan transaction and a 3% decrease in loan transactions.
13
Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $41, or 23%, primarily as a result of an increase in provision for credit losses for the six months ended June 30, 2020, as well as decreases in interest yield and floorplan fee income, partially offset by an increase in average portfolio duration. Revenue per loan transaction excludes "Warranty contract revenue."
The provision for credit losses increased to 3.8% of the average managed receivables for the six months ended June 30, 2020 from 1.6% for the six months ended June 30, 2019.
Gross Profit
For the six months ended June 30, 2020, gross profit for the AFC segment decreased $35.4 million to $93.5 million, or 69.1% of revenue, compared with $128.9 million, or 73.0% of revenue, for the six months ended June 30, 2019. The decrease in gross profit as a percent of revenue was primarily the result of a 23% decrease in revenue and a 12% decrease in cost of services. The decrease in cost of services was primarily the result of decreases in compensation expense of $2.6 million, PWI expenses of $1.5 million, incentive-based compensation of $0.9 million and other miscellaneous expenses aggregating $0.9 million.
Selling, General and Administrative
Selling, general and administrative expenses at AFC decreased $1.5 million, or 11%, to $12.1 million for the six months ended June 30, 2020, compared with $13.6 million for the six months ended June 30, 2019, primarily as a result of decreases in incentive-based compensation of $0.9 million, travel expenses of $0.4 million and other miscellaneous expenses aggregating $0.7 million, partially offset by an increase in compensation-related expense of $0.5 million.
Holding Company Results
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
| Selling, general and administrative | $ | 27.2 | $ | 34.9 | $ | 60.3 | $ | 76.3 | |||||||||||||||
| Depreciation and amortization | 5.7 | 7.3 | 11.6 | 14.2 | |||||||||||||||||||
| Operating loss | $ | (32.9) | $ | (42.2) | $ | (71.9) | $ | (90.5) | |||||||||||||||
Overview of Holding Company Results for the Three Months Ended June 30, 2020 and 2019
Selling, General and Administrative
For the three months ended June 30, 2020, selling, general and administrative expenses at the holding company decreased $7.7 million, or 22%, to $27.2 million, compared with $34.9 million for the three months ended June 30, 2019, primarily as a result of decreases in compensation expense of $3.3 million, professional fees of $2.8 million, stock-based compensation expense of $0.7 million, travel expenses of $0.7 million, incentive-based compensation of $0.5 million, telecom costs of $0.5 million and other employee related expenses of $0.5 million, partially offset by increases in information technology costs of $1.3 million.
Overview of Holding Company Results for the Six Months Ended June 30, 2020 and 2019
Selling, General and Administrative
For the six months ended June 30, 2020, selling, general and administrative expenses at the holding company decreased $16.0 million, or 21%, to $60.3 million, compared with $76.3 million for the six months ended June 30, 2019, primarily as a result of decreases in professional fees of $5.3 million, compensation expense of $4.8 million, incentive-based compensation of $4.1 million, stock-based compensation expense of $1.6 million, travel expenses of $1.0 million and other miscellaneous expenses of $2.6 million, partially offset by increases in information technology costs of $2.4 million and medical expenses of $1.0 million.
14
LIQUIDITY AND CAPITAL RESOURCES
We believe that the significant indicators of liquidity for our business are cash on hand, cash flow from operations, working capital and amounts available under our Credit Facility. Our principal sources of liquidity consist of cash generated by operations and borrowings under our revolving credit facility.
| June 30, 2020 | December 31, 2019 | June 30, 2019 | |||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| Cash and cash equivalents* | $ | 968.5 | $ | 507.6 | $ | 233.0 | |||||||||||
| Restricted cash | 50.0 | 53.3 | 23.7 | ||||||||||||||
| Working capital | 1,241.8 | 726.8 | 380.5 | ||||||||||||||
| Amounts available under the revolving credit facility** | 325.0 | 325.0 | 278.0 | ||||||||||||||
| Cash flow from operations for the six months ended | 268.9 | 161.7 | |||||||||||||||
*Cash and cash equivalents at June 30, 2020 included approximately $528.2 million in net proceeds from newly issued perpetual convertible preferred stock of the Company.
**There were related outstanding letters of credit totaling approximately $25.0 million, $27.4 million and $32.5 million at June 30, 2020, December 31, 2019 and June 30, 2019, respectively, which reduced the amount available for borrowings under the revolving credit facility.
We regularly evaluate alternatives for our capital structure and liquidity given our expected cash flows, growth and operating capital requirements as well as capital market conditions. The COVID-19 pandemic is having a significant impact on our business. As a result, we have implemented several measures that we believe will enhance liquidity for the foreseeable future. Some of these measures include, but are not limited to, the following:
•Reduced compensation expense by
▪our CEO, CFO and President voluntarily electing to forgo 100% of their respective base salaries and the remainder of our executive officers voluntarily electing to reduce their base salaries by 50% for the second quarter of 2020,
▪reducing base salaries across many levels of the organization for part of the second quarter of 2020,
▪furloughing approximately 11,000 employees in April 2020 (approximately 5,000 have returned to work),
▪commencing a reduction in force in June 2020 (impacting approximately 3,000 of our employees), and
▪our board of directors voluntarily electing to forgo their cash compensation for the second quarter of 2020;
•Prohibited non-essential business travel;
•Suspended non-essential services provided by certain third parties at our locations;
•Delayed or canceled capital projects at our physical auction locations;
•Negotiated the deferral of rent payments with certain landlords;
•Suspended the ADESA Assurance program for part of the second quarter;
•AFC reduced the unused portion of certain floorplan lines with its customers; and
•Suspended the Company's quarterly dividend.
In addition, in June 2020 we issued and sold an aggregate of 550,000 shares of newly issued perpetual convertible preferred stock of the Company for net proceeds of approximately $528.2 million.
We have also taken advantage of legislation introduced to assist companies during this time. In the second quarter of 2020, we recorded approximately $7.9 million of employee retention credits taken under the CARES Act and approximately $9.7 million under the Canada Emergency Wage Subsidy. These credits partially offset salaries and medical costs recorded in the U.S. and Canada. We will continue to monitor and assess the impact the CARES Act and similar legislation in other countries may have on our business and financial results. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued disruption could materially affect our liquidity.
15
Summary of Cash Flows
| Six Months Ended June 30, | |||||||||||
| (Dollars in millions) | 2020 | 2019 | |||||||||
| Net cash provided by (used by): | |||||||||||
| Operating activities - continuing operations | $ | 268.9 | $ | 161.7 | |||||||
| Operating activities - discontinued operations | — | 155.8 | |||||||||
| Investing activities - continuing operations | 485.9 | (268.9) | |||||||||
| Investing activities - discontinued operations | — | (37.4) | |||||||||
| Financing activities - continuing operations | (279.9) | (1,387.6) | |||||||||
| Financing activities - discontinued operations | — | 1,317.6 | |||||||||
| Effect of exchange rate on cash | (17.3) | 10.8 | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | $ | 457.6 | $ | (48.0) | |||||||
Cash flow provided by operating activities (continuing operations) was $268.9 million for the six months ended June 30, 2020, compared with $161.7 million for the six months ended June 30, 2019. The increase in operating cash flow was primarily attributable to changes in operating assets and liabilities as a result of the timing of collections and the disbursement of funds to consignors for auctions held near period-ends, as well as a net increase in non-cash item adjustments, partially offset by decreased profitability attributable to reduced operations beginning March 20, 2020, resulting from COVID-19 restrictions on our business.
Net cash provided by investing activities (continuing operations) was $485.9 million for the six months ended June 30, 2020, compared with net cash used by investing activities of $268.9 million for the six months ended June 30, 2019. The increase in net cash from investing activities was primarily attributable to:
•a net decrease in finance receivables held for investment of approximately $602.4 million;
•a decrease in cash used for acquisitions of approximately $120.7 million; and
•a reduction in capital expenditures of approximately $31.7 million.
Net cash used by financing activities (continuing operations) was $279.9 million for the six months ended June 30, 2020, compared with $1,387.6 million for the six months ended June 30, 2019. The decrease in net cash used by financing activities was primarily attributable to:
•a decrease in payments on long-term debt. In the second quarter of 2019, the Company used net cash provided by financing activities from discontinued operations (cash received from IAA in the separation) to prepay approximately $1.3 billion of its term loan debt;
•net proceeds of approximately $528.2 million received from the issuance of the Series A Preferred Stock in the second quarter of 2020;
•a decrease in dividends paid to stockholders of approximately $90.8 million; and
•a decrease in cash transferred to IAA of $50.9 million;
partially offset by:
•a net decrease in the obligations collateralized by finance receivables of approximately $689.5 million;
•a net decrease in borrowings on lines of credit of approximately $95.4 million;
•a net decrease in book overdrafts of approximately $39.1 million; and
•an increase in cash used for payments of contingent consideration of approximately $21.8 million.
16
Second Quarter 2020 Earnings Slides August 4, 2020
Forward-Looking Statements This presentation includes forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on management’s current expectations, are not guarantees of future performance and are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected, expressed or implied by such forward-looking statements. Many of these risk factors are outside of the company’s control, and as such, they involve risks which are not currently known to the company that could cause actual results to differ materially from forecasted results. Factors that could cause or contribute to such differences include those uncertainties regarding the impact of the COVID-19 virus on our business and the economy generally, and those other matters disclosed in the company’s Securities and Exchange Commission filings. The forward-looking statements in this document are made as of the date hereof and the company does not undertake to update its forward-looking statements. 2
Business Trends Through Second Quarter April • Vehicles sold: 27% of April 2019 • Total revenue: 28% of April 2019 • Consolidated gross profit: Below 20% of revenue • Operating loss for the month May • Vehicles sold: 65% of May 2019 • Total revenue: 58% of May 2019 • Consolidated gross profit: 47% of revenue • Operating profit & Adjusted EBITDA: exceeded 70% of the amounts in May 2019 June • Vehicles sold: 8% above June 2019 • Total revenue: 91% of June 2019 • Consolidated gross profit: ~50% of revenue • Operating profit margins (exclusive of goodwill and other intangibles impairment) & Adjusted EBITDA margins: above 20% of revenue 3
Second Quarter Summary ❑ Vehicles sold down 35% YoY o Consolidated revenue declined 42% ❑ Operations o 100% of transactions online o Ancillary services limited o Improved gross profit margin % o Reduced operating expenses as a result of reduced headcount ❑ Liquidity o Cash flow positive o Over $900M in cash and cash equivalents at June 30 o $325M undrawn revolver 4
Perpetual Convertible Preferred Stock ❑June 2020 investment led by funds advised by Apax Partners, L.P. with participation by Periphas Capital, L.P. ❑$550M in newly issued perpetual convertible preferred stock ❑7.0% dividend; PIK for first 8 quarters ❑Converts to common at $17.75/share 5
June 30, 2020 Leverage (US$ in millions) Balance Maturity Term Loan B-6 (Adjusted LIBOR + 2.25%) $943 2026 Revolving Credit Facility (Adjusted LIBOR + 1.75%) - 2024 Senior Notes (Fixed 5.125%) 950 2025 Finance Leases & Other 38 Total 1,931 Less: Available Cash* (879) Net Debt $1,052 Senior Secured Net Leverage Ratio 0.2 Total Net Debt Ratio 2.5 Corporate Credit Ratings: S&P B, Moodys B2 * As defined in the Credit Agreement 6
Second Quarter Results 7
KAR Q2 2020 Highlights ($ in millions, except per share amounts) Q2 Q2 KAR Highlights* 2020 2019 Total operating revenues $419.0 $719.1 Gross profit** $183.9 $301.7 % of revenue 43.9% 42.0% 49.8% in Q2 2020, excluding purchased vehicle sales SG&A $112.3 $163.2 Q2 2020 includes goodwill/intangibles impairment of EBITDA $40.2 $139.0 $29.8M Adjusted EBITDA $80.0 $135.9 Q2 2020 includes goodwill/intangibles impairment charge Net income (loss) from continuing operations ($32.3) $27.4 of $29.8M Net income (loss) from continuing operations Q2 2020 includes goodwill/intangibles impairment charge ($0.27) $0.20 per share – diluted of $29.8M Operating adjusted net income from continuing $0.08 $0.30 operations per share – diluted Weighted average diluted shares 129.3 134.1 Dividends declared per common share $ -- $0.35 Effective tax rate 12.5% 24.1% Impact of goodwill impairment * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three months ended June 30, 2020. ** Exclusive of depreciation and amortization 8
ADESA Q2 2020 Highlights ($ in millions, except RPU) ADESA Q2 2020 Q2 2019 Highlights* Auction fees and services revenue $312.6 $553.1 Purchased vehicle sales $49.6 $79.3 Total ADESA Revenue $362.2 $632.4 Decrease in vehicles sold and average revenue per vehicle sold Gross profit** $145.0 $239.5 45% decrease in cost of services and vehicles sold online require less % of revenue 40.0% 37.9% direct labor SG&A $79.5 $121.9 EBITDA $35.4 $114.9 Q2 2020 includes goodwill/intangibles impairment of $29.8M Adjusted EBITDA $77.1 $122.6 % of revenue 21.3% 19.4% Vehicles sold 648,000 994,000 Institutional vehicles sold in North America 502,000 701,000 Dealer consignment vehicles sold in North America 131,000 268,000 Includes TradeRev volume of 35,000 in Q2 2020 and 41,000 in Q2 2019 Vehicles sold in Europe 15,000 25,000 Percentage of vehicles sold online 100% 59% Conversion rate at North American physical auctions 63.5% 66.1% Physical RPU $839 $882 Excludes purchased vehicles Online only RPU $152 $150 Excludes purchased vehicles; Includes Openlane, TradeRev & Europe * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three months ended June 30, 2020. ** Exclusive of depreciation and amortization 9
AFC Q2 2020 Highlights ($ in millions, except for revenue per loan transaction) Q2 Q2 Highlights* AFC 2020 2019 Interest and fee income $65.1 $83.7 Other revenue $2.0 $2.6 Provision for credit losses ($19.0) ($8.4) Warranty contract revenue $8.7 $8.8 PWI revenue Total AFC revenue $56.8 $86.7 -35% revenue per LTU, -4% loan transactions Gross profit** $38.9 $62.2 % of revenue 68.5% 71.7% SG&A $5.6 $6.4 EBITDA $33.3 $55.8 Adjusted EBITDA $28.1 $42.5 Loan transactions 420,000 437,000 4% decrease Increased credit losses Revenue per loan transaction*** $115 $178 Decreases in interest rates & floorplan fees Provision for credit losses % of finance receivables 4.3% 1.7% Managed receivables $1,548.3 $2,070.1 $735.9 $1,422.3 Obligations collateralized by finance receivables * For a more complete explanation of these changes, see the MD&A in the company’s supplemental financial information and Form 10-Q, both for the three months ended June 30, 2020. ** Exclusive of depreciation and amortization 10 *** Excludes “Warranty contract revenue"
Y e a r - to- Date Results 11
KAR Six Months Ended June 30, 2020 Highlights ($ in millions, except per share amounts) KAR YTD 2020 YTD 2019 Highlights* Total operating revenues $1,064.5 $1,408.7 Gross profit** $434.8 $597.4 % of revenue 40.8% 42.4% 46.3% YTD 2020, excluding purchased vehicle sales SG&A $274.7 $338.4 YTD 2020 includes goodwill/intangibles impairment of EBITDA $129.9 $261.0 $29.8M Adjusted EBITDA $168.6 $258.8 YTD 2020 includes goodwill/intangibles impairment Net income (loss) from continuing operations ($29.5) $42.7 charge of $29.8M Net income (loss) from continuing operations per YTD 2020 includes goodwill/intangibles impairment ($0.24) $0.32 share – diluted charge of $29.8M Operating adjusted net income from continuing $0.20 $0.50 operations per share – diluted Weighted average diluted shares 129.2 133.9 Dividends declared per common share $0.19 $0.70 Effective tax rate 8.1% 26.3% Impact of goodwill impairment * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the six months ended June 30, 2020. ** Exclusive of depreciation and amortization 12
ADESA Six Months Ended June 30, 2020 Highlights ($ in millions, except RPU) ADESA YTD 2020 YTD 2019 Highlights* Auction fees and services revenue $804.1 $1,095.0 Operations shut down the last 2 weeks of March Purchased vehicle sales $125.1 $137.1 Includes $12.7M from acquisitions Total ADESA Revenue $929.2 $1,232.1 Decrease in vehicles sold and average revenue per vehicle sold Gross profit** $341.3 $468.5 % of revenue 36.7% 38.0% Purchase vehicles & shut down of auctions in March SG&A $202.3 $248.5 EBITDA $107.0 $215.7 YTD 2020 includes goodwill/intangibles impairment of $29.8M Adjusted EBITDA $157.5 $233.4 % of revenue 17.0% 18.9% Vehicles sold 1,510,000 1,940,000 Institutional vehicles sold in North America 1,124,000 1,382,000 Dealer consignment vehicles sold in North America 343,000 510,000 Includes TradeRev volume of 68,000 YTD 2020 and 72,000 YTD 2019 Vehicles sold in Europe 43,000 48,000 Percentage of vehicles sold online 78% 58% Conversion rate at North American physical auctions 63.4% 64.9% Physical RPU $884 $879 Excludes purchased vehicles Online only RPU $158 $148 Excludes purchased vehicles; Includes Openlane, TradeRev & Europe * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the six months ended June 30, 2020. ** Exclusive of depreciation and amortization 13
AFC Six Months Ended June 30, 2020 Highlights ($ in millions, except for revenue per loan transaction) YTD YTD Highlights* AFC 2020 2019 Interest and fee income $148.9 $170.6 Other revenue $4.7 $5.4 Provision for credit losses ($35.9) ($16.6) Warranty contract revenue $17.6 $17.2 PWI revenue Total AFC revenue $135.3 $176.6 -23% revenue per LTU, -3% loan transactions Gross profit** $93.5 $128.9 % of revenue 69.1% 73.0% SG&A $12.1 $13.6 EBITDA $81.4 $115.2 Adjusted EBITDA $65.2 $87.6 Loan transactions 868,000 898,000 3% decrease Increased credit losses Revenue per loan transaction*** $136 $177 Decreases in interest rates & floorplan fees Provision for credit losses % of finance receivables 3.8% 1.6% Managed receivables $1,548.3 $2,070.1 $735.9 $1,422.3 Obligations collateralized by finance receivables * For a more complete explanation of these changes, see the MD&A in the company’s supplemental financial information and Form 10-Q, both for the six months ended June 30, 2020. ** Exclusive of depreciation and amortization *** Excludes “Warranty contract revenue" 14
HISTORICAL DATA 15
ADESA Revenue & Gross Profit 3Q18 4Q18 2018 1Q19 2Q19 3Q19 4Q19 2019 1Q20 2Q20 Auction Fees & $496.0 $475.3 $1,985.1 $541.9 $553.1 $534.5 $504.0 $2,133.5 $491.5 $312.6 Services Revenue Purchased Vehicle $31.0 $33.2 $116.8 $57.8 $79.3 $79.1 $79.3 $295.5 $75.5 $49.6 Sales Total ADESA $527.0 $508.5 $2,101.9 $599.7 $632.4 $613.6 $583.3 $2,429.0 $567.0 $362.2 Revenue Gross $219.2 $198.7 $871.1 $229.0 $239.5 $227.4 $212.4 $908.3 $196.3 $145.0 Profit Gross 41.6% 39.1% 41.4% 38.2% 37.9% 37.1% 36.4% 37.4% 34.6% 40.0% Profit % Gross Profit %, Net of 44.2% 41.8% 43.9% 42.2% 43.2% 42.5% 42.1% 42.6% 39.9% 46.4% Purchased Vehicle Sales 16
ADESA Metrics - Annual 2019 2018 2017 2016 2015 Revenue2 $2,429.0 $2,101.9 $1,937.5 $1,765.3 $1,427.8 Total Volume 3,784 3,472 3,180 2,885 2,465 Online Only Volume (N.A.) 1,533 1,304 938 743 592 Total Online Volume %3 58% 54% 46% 42% 40% Physical Conversion % (N.A.) 62.8% 61.6% 60.4% 58.0% 58.3% Dealer Consignment Mix % (Physical) 40% 42% 45% 48% 50% Physical RPU1 $884 $844 $775 $753 $701 Online Only RPU1 $149 $121 $113 $110 $102 Gross Margin2 37.4% 41.4% 42.0% 41.3% 41.4% 1 Excluding purchased vehicle sales 2 Includes purchased vehicle sales 3 Includes ADESA Simulcast and DealerBlock volume 17
ADESA Metrics - Quarter 2Q20 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 2Q18 Revenue2 $362.2 $567.0 $583.3 $613.6 $632.4 $599.7 $508.5 $527.0 $538.3 Total Volume 648 862 887 957 994 945 811 876 907 Online Only Volume (N.A.) 321 367 355 396 416 367 306 343 346 Total Online Volume %3 100% 63% 59% 59% 59% 57% 54% 54% 54% Physical Conversion % 63.5% 63.3% 58.4% 62.8% 66.1% 63.8% 58.5% 62.9% 62.4% (N.A.) Dealer Consignment Mix % 30% 38% 39% 43% 41% 38% 40% 44% 43% (Physical) Physical RPU1 $839 $914 $886 $893 $882 $875 $868 $850 $839 Online Only RPU1 $152 $163 $155 $151 $150 $144 $122 $126 $118 Gross Margin2 40.0% 34.6% 36.4% 37.1% 37.9% 38.2% 39.1% 41.6% 42.9% 1 Excluding purchased vehicle sales 2 Includes purchased vehicle sales 3 Includes ADESA Simulcast and DealerBlock volume 18
AFC Metrics - Annual 2019 2018 2017 2016 2015 Revenue $352.9 $340.9 $301.3 $286.8 $268.4 Loan Transaction Units (LTU) 1,783 1,760 1,688 1,718 1,607 Revenue per Loan Transaction, $178 $175 $159 $148 $150 Excluding “Warranty Contract Revenue” Ending Managed Finance Receivables $2,115.2 $2,014.8 $1,912.6 $1,792.2 $1,641.0 Ending Obligations Collateralized by $1,461.2 $1,445.3 $1,358.1 $1,280.3 $1,189.0 Finance Receivables % Vehicles Purchased at Any Auction 84% 83% 85% 83% 84% Active Dealers 12,900 12,300 12,400 12,200 11,300 Vehicles per active dealer 16 15 15 15 16 Average Credit Line $270,000 $270,000 $250,000 $260,000 $230,000 Avg Value Outstanding per Vehicle $10,000 $10,200 $9,900 $9,500 $9,100 19
AFC Metrics - Quarter 2Q20 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 2Q18 Revenue $56.8 $78.5 $88.0 $88.3 $86.7 $89.9 $85.3 $85.4 $85.1 Loan Transaction Units 420 448 443 442 437 461 428 433 435 (LTU) Revenue per Loan Transaction, Excluding $115 $155 $178 $180 $178 $177 $180 $177 $177 “Warranty Contract Revenue” Ending Managed Finance $1,548.3 $1,954.8 $2,115.2 $2,110.4 $2,070.1 $1,989.1 $2,014.8 $1,979.7 $1,958.6 Receivables Ending Obligations Collateralized by Finance $735.9 $1,349.9 $1,461.2 $1,428.4 $1,422.3 $1,360.6 $1,445.3 $1,366.3 $1,358.0 Receivables 20
AFC Provision for Credit Losses - Annual 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Ending Managed $2,115.2 $2,014.8 $1,912.6 $1,792.2 $1,641.0 $1,371.1 $1,107.6 $1,004.2 $883.2 $771.6 $613.0 $506.6 $847.9 Receivables Average Managed $2,059.9 $1,959.8 $1,802.2 $1,732.5 $1,474.9 $1,208.4 $1,051.4 $925.8 $798.8 $688.6 $516.4 $744.4 $835.3 Receivables Provision for Credit $35.3 $32.9 $33.9 $30.7 $16.0 $12.3 $9.6 $7.2 $6.1 $11.2 $17.1 $44.7 $25.0 Losses % of Managed 1.7% 1.7% 1.9% 1.8% 1.1% 1.0% 0.9% 0.8% 0.8% 1.6% 3.3% 6.0% 3.0% Receivables 21
AFC Provision for Credit Losses - Quarterly 2Q20 1Q20 4Q19 3Q19 2Q19 1Q19 4Q18 3Q18 2Q18 Ending Managed $1,548.3 $1,954.8 $2,115.2 $2,110.4 $2,070.1 $1,989.1 $2,014.8 $1,979.7 $1,958.6 Receivables Average Managed $1,751.6 $2,035.0 $2,112.8 $2,090.3 $2,029.6 $2,002.0 $1,997.3 $1,969.2 $1,945.9 Receivables Provision for $19.0 $16.9 $9.8 $8.9 $8.4 $8.2 $10.8 $7.3 $7.1 Credit Losses % of Managed 4.3% 3.3% 1.9% 1.7% 1.7% 1.6% 2.2% 1.5% 1.5% Receivables 22
APPENDIX 23
Non-GAAP Financial Measures 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 the company's 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 the company’s creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate the company’s 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 non-compete 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 to other companies that may not have incurred these types of non-cash expenses or that report a similar measure. In addition, net income (loss) and net income (loss) per share have been adjusted for certain other charges, as seen in the following reconciliation. 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. 24
Q2 2020 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended June 30, 2020 ADESA AFC Corporate Consolidated Net income (loss) from continuing ($4.4) $16.0 ($43.9) ($32.3) operations Add back: Income taxes 2.5 5.6 (12.7) (4.6) Interest expense, net of interest income 0.6 9.2 20.8 30.6 Depreciation and amortization 38.2 2.6 5.7 46.5 Intercompany interest (1.5) (0.1) 1.6 - EBITDA $35.4 $33.3 ($28.5) $40.2 Intercompany charges 1.5 - (1.5) - Non-cash stock-based compensation 1.2 0.4 1.3 2.9 Acquisition related costs 0.9 - - 0.9 Securitization interest - (6.0) - (6.0) Loss on asset sales 0.5 - - 0.5 Severance 5.6 0.4 0.5 6.5 Foreign currency (gains)/losses (0.1) - 2.8 2.7 Goodwill and other intangibles impairment 29.8 - - 29.8 Other 2.3 - 0.2 2.5 Total Addbacks 41.7 (5.2) 3.3 39.8 Adjusted EBITDA $77.1 $28.1 ($25.2) $80.0 Revenue $362.2 $56.8 – $419.0 Adjusted EBITDA % margin 21.3% 49.5% 19.1% 25
Q2 2019 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended June 30, 2019 ADESA AFC Corporate Consolidated Net income (loss) from continuing $50.5 $27.4 ($50.5) $27.4 operations Add back: Income taxes 21.8 11.3 (24.4) 8.7 Interest expense, net of interest income 0.6 16.1 38.3 55.0 Depreciation and amortization 38.0 2.6 7.3 47.9 Intercompany interest 4.0 (1.6) (2.4) - EBITDA $114.9 $55.8 ($31.7) $139.0 Intercompany charges 3.6 - (3.6) - Non-cash stock-based compensation 1.6 0.4 2.0 4.0 Acquisition related costs 1.2 - 2.5 3.7 Securitization interest - (13.8) - (13.8) Loss on asset sales 0.4 - - 0.4 Severance 0.9 - 0.2 1.1 Foreign currency (gains)/losses (0.5) - 0.5 - IAA allocated costs - - 0.9 0.9 Other 0.5 0.1 - 0.6 Total Addbacks 7.7 (13.3) 2.5 (3.1) Adjusted EBITDA $122.6 $42.5 ($29.2) $135.9 Revenue $632.4 $86.7 – $719.1 Adjusted EBITDA % margin 19.4% 49.0% 18.9% 26
YTD 2020 Adjusted EBITDA Reconciliation ($ in millions) Six Months ended June 30, 2020 ADESA AFC Corporate Consolidated Net income (loss) from continuing $19.7 $40.6 ($89.8) ($29.5) operations Add back: Income taxes 11.3 13.7 (27.6) (2.6) Interest expense, net of interest income 1.2 22.7 43.9 67.8 Depreciation and amortization 77.3 5.3 11.6 94.2 Intercompany interest (2.5) (0.9) 3.4 - EBITDA $107.0 $81.4 ($58.5) $129.9 Intercompany charges 3.2 - (3.2) - Non-cash stock-based compensation 3.3 0.8 4.1 8.2 Acquisition related costs 2.1 - 0.2 2.3 Securitization interest - (17.4) - (17.4) Loss on asset sales 1.0 - - 1.0 Severance 6.9 0.4 1.0 8.3 Foreign currency (gains)/losses 1.7 - 1.4 3.1 Goodwill and other intangibles impairment 29.8 - - 29.8 Other 2.5 - 0.9 3.4 Total Addbacks 50.5 (16.2) 4.4 38.7 Adjusted EBITDA $157.5 $65.2 ($54.1) $168.6 Revenue $929.2 $135.3 – $1,064.5 Adjusted EBITDA % margin 17.0% 48.2% 15.8% 27
YTD 2019 Adjusted EBITDA Reconciliation ($ in millions) Six Months ended June 30, 2019 ADESA AFC Corporate Consolidated Net income (loss) from continuing $92.9 $57.9 ($108.1) $42.7 operations Add back: Income taxes 37.7 22.1 (44.6) 15.2 Interest expense, net of interest income 1.0 33.0 76.9 110.9 Depreciation and amortization 73.0 5.0 14.2 92.2 Intercompany interest 11.1 (2.8) (8.3) - EBITDA $215.7 $115.2 ($69.9) $261.0 Intercompany charges 6.8 - (6.8) - Non-cash stock-based compensation 4.0 0.9 5.7 10.6 Acquisition related costs 2.8 - 4.8 7.6 Securitization interest - (28.6) - (28.6) Loss on asset sales 0.9 - - 0.9 Severance 3.6 - 1.2 4.8 Foreign currency (gains)/losses (1.1) - 0.5 (0.6) IAA allocated costs - - 2.3 2.3 Other 0.7 0.1 - 0.8 Total Addbacks 17.7 (27.6) 7.7 (2.2) Adjusted EBITDA $233.4 $87.6 ($62.2) $258.8 Revenue $1,232.1 $176.6 – $1,408.7 Adjusted EBITDA % margin 18.9% 49.6% 18.4% 28
Operating Adjusted Net Income from Continuing Operations per Share Reconciliation ($ in millions, except per share amounts), (unaudited) Three Months ended Six Months ended June 30, June 30, 2020 2019 2020 2019 Net income (loss) ($32.3) $55.6 ($29.5) $133.4 Less: Income from discontinued operations - (28.2) - (90.7) Net income (loss) from continuing operations (1) ($32.3) $27.4 ($29.5) $42.7 Acquired amortization expense 14.1 14.8 28.4 29.4 IAA allocated costs - 0.9 - 2.3 Acceleration of debt issuance costs - 1.8 - 1.8 Goodwill and other intangibles impairment 29.8 - 29.8 - Income taxes (2) (1.8) (4.2) (2.3) (8.8) Operating adjusted net income from continuing operations $9.8 $40.7 $26.4 $67.4 Net income (loss) from continuing operations per share − diluted ($0.25) $0.20 ($0.23) $0.32 Acquired amortization expense 0.11 0.11 0.22 0.22 IAA allocated costs - 0.01 - 0.02 Acceleration of debt issuance costs - 0.01 - 0.01 Goodwill and other intangibles impairment 0.23 - 0.23 - Income taxes (0.01) (0.03) (0.02) (0.07) Operating adjusted net income from continuing operations $0.08 $0.30 $0.20 $0.50 per share − diluted Weighted average diluted shares (1) 129.3 134.1 129.2 133.9 (1) The Series A Preferred Stock dividends have not been included in the calculation of operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per diluted share for the three and six months ended June 30, 2020. Likewise, the weighted average diluted share counts do not include the effect of assumed conversion of the Series A Preferred Stock for the three and six months ended June 30, 2020. (2) 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. There was no income tax benefit related to the goodwill and other intangibles impairment because these items were not deductible for income tax purposes. 29
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Glory Family Heritage (Gloryfh Limited ) Wins 7 Awards at Bloomberg Businessweek Chinese Edition “Financial Institutions 2026”
- FERRARI N.V.: PERIODIC REPORT ON THE BUYBACK PROGRAM
- Brightstar Lottery Signs Seven-Year Contract Extension with Washington's Lottery
Create E-mail Alert Related Categories
SEC FilingsSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
