KAR - Earnings call transcript Q3 2017 | KAR Auction Services, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the KAR Auction Services Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct a question-and-answer session and instructions will be given at that time.

As a reminder, this conference is being recorded. I would now like to introduce Treasurer and Vice President of Investor Relations, Mr. Eliason. Mike

Michael Eliason

financial morning, Auction for earnings ended Services Today, discuss Good for us conference September thank Auction take we'll KAR KAR questions concluding the third the we XX, and XXXX. Andrew. the our joining you today call. Services After Thanks, for of commentary, quarter will performance quarter participants. XXXX from

Safe conference I'd forward-looking Harbor call statements Securities Act results off the any kicks such remind disclaims that to of to uncertainties may company Jim fully meaning Private like update risks such of of our the obligation provision discussion, the and forward-looking the these Litigation and contains of providing prospects that are risks are business, Before statements SEC statements, forward-looking operations, XXXX. within our this involve detailed expressly affect cautioned and you Reform Investors statements. in KAR's In filings. that

mention throughout website. measures will let available to Lastly, financial release also can call, GAAP non-GAAP both the non-GAAP Investor last GAAP the be section we referencing Relations applicable be issued the which financial night, that measures. of that press our in and in is measure me financial Reconciliations found of this we conference

Now Services' call I'd like Jim? over to turn Auction Jim CEO, this Hallett. to KAR

James P. Hallett

Michael, and you, Thank good morning, gentlemen. ladies and

quarter with things dealing third of call me the start let found our ourselves today, especially by consider you the I'm the walk with for I that, extremely agenda month we Before pleased my through when September. that saying in all results, you

our a an Harvey provide overview I capital that want review today, impact I agenda and performance; allocation to And our about some on insight on acquisition of capital summary on was talk future guidance. of of of the of with into with third provide annual and remainder the provide I the to Irma of a for then, the the consolidated our completed Hurricanes quarter; an the want Xrd activities our of update the you allocation remaining to give of year. close TradeRev you outlook on opportunities. terms XX% And October, and the update In brief want

started me where third consolidated XX% this with revenue compared our drive under X% quarter able was get the Consolidated was to margins incremental overview results, up strong let EBITDA we revenue just an of to saw prior we're year. and So XX% growth over growth. on

cash operations All XX% net operating significant generated to free of the first per nine of months have a in increase flow adjusted finally, And income contributed in our this share. XXXX.

online-only and and X% following also to XX.X% hurricanes. the at physical adjusted per up EBITDA were year. adjusted our the to inventory, in meet the mileage around both United EBITDA up prior immediate margin to ADESA ADESA from the see turn prior States sold I I ADESA, volume year. from over increased by increase given Florida in the business need grew markets in and a by volumes. decline revenue to low driven model, quarter, surprised acquire was to the offset this certain mix As the X%, third in for late X% by starting the up with auction X% I'm in physical volume the Texas not part XX% units, online-only the revenue for increased unit was pleased ADESA's shift the demand And that quickly XX.X%,

and quarter, been surprising quarter, also buying the of and dealers talking this of despite I of up about, see in prior losses in where average in were industry And will that in AFC's incurred loan lower loans The markets. half only level and prior EBITDA driven X.X% by year at transactions. XX% our X% in performance Auctions were grow now it experienced incremental in growth physical over Insurance Auto of given auction the on adjusted in year, strong loan approximately turn business. strong down related I'll the throughout were a is to saw with the the number momentarily. third the not performance. AFC. decline outstanding losses The Hurricanes third to actual Adjusted the and transactions in Irma despite losses slightly we've have volumes million SG&A in decline to we the you net that margins control that was Insurance the revenue talk revenue the certain we third XX% in from we $X.X to the continued can Auctions Turning expense results lanes strong expected franchise quarter the EBITDA that XX%, Auto finally, the in Harvey margin the second this quarter activity about decline in XX% the the of is loan saw Loan year. something third that

employees much energy extensive inspired businesses you to each less get that the tell on Florida. communities people from were met storms, many sites fewer have resources the area and pulled and Hurricanes affect flooding. employees the team entire Auto how also ground, that took but I I've visit but and Auction that was property. saw had Auctions. call hurricane the on Houston, an volunteered the heavy the Turning doing that team, they to who organization conditions know receded I Florida the markets devastation and I with in the stops. of the KAR there opportunity by the long have we of to the We Houston, Irma, from of press much around visit the work in The through taking communities did our by with Harvey occurs of the these work damage our where can I total and and did after and to these to hurricanes affected across KAR season incredible the these less seen lifting Houston to other our and spirit the coverage in After took directly loss would only Insurance you in flooding impact well, in obvious we is everyone that rallied saw work energy I to continue massive from It not – assist I the Insurance recently were vehicles. is the we I as and significantly in events that this damage, place. in performing work what the the took truly opportunity were firsthand the we in Auto IAA incredible

pick from hurricane. the tow on help investors the providing tell transportation influx related bring approximately financial Auctions hurricane analyze for hurricanes loss we've revenue. results I our incurred. So once received quickly The we by the truck costs XX,XXX in performance, previously of use impact temporary force third the September, million they related the these into $X.X resources, to committed requires the quarter activity. these incremental to were in to third facilities, Auto accounting that in reduced us our to as that at our than and in the up We can assignments sold Insurance vehicles hurricane that to $XXX,XXX drivers direct net million Net-net, vehicles vehicle labor possible are to the in by increase directly in due our primarily quarter, the of area vehicles, results $X.X is to incurred hurricanes been net insurance impacted, has X,XXX area less approximately approximately assigned as you to we carriers. In

no lower by auctions participation. the to directly land, volumes ADESA at and doubt Insurance the saw had costs reduced the incremental the cancel recorded ADESA used direct markets. and AFC some where reduced Auto had to in the incurred impact as auctions contributed the in we of as And populations that well. Texas hurricanes is car September. as also to strong hurricanes of hurricanes lower due We and expenses All what not physical physical There Auctions large activity very this physical at profit. auctions some hit represent is on probably buyer were Florida and gross impacted

the the online-only on always label I'm pleased that And the in losses we portfolio, experience dealers due we quarter specifically loan independent about the concerned a our we're event. obtaining during And buyers operate. in losses the saw report third were especially minimal. volumes strong damage lots, a of that when their to private to losses very On in September, as this increased are sites type high or on at portfolio hurricane inventory side, flip in and quality our

forward, we the quarters. as hurricane at the expect two are the Looking net Insurance incurred over Auto losses next vehicles Auctions, sold to recover

margins increase this be business profits when activity. in revenue, increased for best sold, their look year can by with operations in their insurance We I can I we carriers quarters. catastrophic lines. vehicles to means pressure cases, couple during asked, we the minor Obviously, as serving able significant challenge these be course possibly you it. drag events from next and a that to And events services is get they're on do and corresponding why that even to profitability. some generate collision often the no were of normal increased will at in but the increased profit costs number agree throughout have the focus And these We of I these And their quite loss? at our their partners under or bottom is a insurance the people, provide created simple answer the no tell

that, XXXX. to our I So want turn to with for guidance

to be on of above $XXX $XXX While guidance not continue range. we changing the to we are million to adjusted of expect our midpoint million XXXX, the in EBITDA

income our for increased few operating have in just Eric and share, more net share per and provide income information let expectations moments. I per a on We will net our guidance adjusted

more to XX% real-time the more cars allows the and TradeRev change bottom overall. hands, Clearly, it venue. I'm going is excited a other of that the TradeRev the take TradeRev of new behind expand piece allows is allocation. opportunities full wholesale channel to franchise turn about about I capital never it's just total see for money aspects getting talk now that used market a TradeRev. at also that force for money to another digital the let is know, more make provides put me and tool line, all of to dealers and to of want I you a to on the as remaining with efforts with TradeRev, their resources the the of This trade-ins dealers digital truly the are and has more Along time going And our KAR, discuss opportunity acquisition industry creates to Now, by the dealer-to-dealer auctions. adjustable market cars, TradeRev. sell

changed. Our capital has strategy allocation not

a through first dividend. Our recurring our stockholders priority strong a flows cash to to predictable return is utilizing provide our

increased from As have announced $X.XX $X.XX share. use to recurring of dividend, After per think best is allocating growth. last night, investment per we our share quarterly our the cash in the strategic we for dividend capital

we acquired on We fourth number I conditions, well. the businesses year. disciplined imminent. believe We shares Because to The will confident diluted of outstanding. about buying ability and predictable timing our to the are to cash. outlook. balanced to and businesses, and look and shares the to consistently year growth in time, allows quarter acquisition utilize generate following that us in I comment our This to will continue represented value. allocating we approach the of third market fully to in serves shares quarter. nature shareholders that on we continue expect stock acquisitions have in are $XXX in capital the of the subject provide In This of contribution the shares million opportunities as open no well. quarter. the report market our our X.X% acquiring conclusion, our open this of throughout And on me at accretive let for our the our progress and And the are our and market end long-term the of capital our consistent

at the XXXX. going are businesses look our as and well positioned quarter forward for First, fourth we

in We with update. February our for outlook provide our will XXXX year-end

of segment, We be ADESA used off-lease for to by primarily supply will and cars the driven strong the repossessions. have continue which

but well fourth space our market the to online auctions, And of good Auto quarter. from will the key The be believe will the have improved benefit handling contributor continue to Auctions our our a a industry loss other quarter total insurance point at hurricanes, resulting year. that of continue but to acquisition an set AFC XX.X% while of the in dealer-to-dealer is moving total in will the rest market-leading I business. for the would the all the fourth auctions. the They're us up believe another calendar in recent spot. strong in indicates assigned performance, of to also to a that historically, the performance the highest quarter, that and credit each Insurance in with And in TradeRev recent auto of vehicles I consignment us data to loss. continue will opportunity third in that physical quarter to face the in claims outside total serve challenges physical total position loss provide I percent resulted claims been is of

that of SG&A this driver overall focused consecutive controlling for our in the controlling of well incremental sets very finally, our recognize an We've continue strong up and two quarters fourth to and had margins. be business profitability important So, we is incremental And salvage strong we quarter. margins, on SG&A.

us it we'll your over to Eric some now So and you be take for thank for turn joining comments, back questions. going to Eric? today. to additional I'm

Eric M. Loughmiller

Thank Jim. you,

Let the of updating by guidance covered. me already details Jim start that has some our within

We for the reflect to acquisition expenditures in of Harvey expectations $XXX Irma. $XXX million have for from used our XXXX Hurricanes million and capital to equipment increased

execute to cash have tax continued strategies and have payments. for reduced expectation also planning certain We our tax

We $XXX million. taxes expecting million. two approximately million flow expect and changes now continue these to of offset, a On of net are $XXX basis, we free to cash cash $XXX

We share have per for net our income guidance $X.XX to to increased $X.XX.

adjusted impact expectations of of related tax Canadian utilized directly our to accumulated to TradeRev to for on a have rate in per purchase rate our ownership permits how to a technology. XX% expectations in the effective tax net company reduction executed in the Gen in income the our Software, remaining increased on share of in generated XXXX. U.S. $X.XX for TradeRev. acquire biggest taxes also owner is The we estimate have us cash for to XXXX. The Accordingly, to of is operating $X.XX. remaining XX% for effective the Canada We our reduce our This Canada XX%. we year the Nth We and for the year income tax reduction rate from changed the significantly

expect XXXX to on rate than in While we income effective will tax are not will effective Canada. Accordingly, that I know call, prepared guidance tax XXXX to discuss this rate. apply let XXXX generated savings this XXXX the not you I higher our to tax in be

could this on if course, acts in all Of reform tax change Congress XXXX.

and lower the income reflects acquisition In at statement. guidance have impact addition also to impact updated as of share the KAR of effective tax rate, performance on our result The of an weighted will number repurchases. our reduction a outstanding, in TradeRev a average improved XXXX our shares

We are purchase of process in the the accounting. completing

so night in by provided announcement. cash with and of Software flow. incremental into want to commentary Auctions. financial Gen not original EBITDA We statement also highlight in XXXX year. share, per gain supplement earnings statements I delivered provided share recorded include for contemplated operations a of of for Our the adjusted in actual income margins we of valuation on guidance net TradeRev. The our results financial will Beginning and Insurance for income KAR impact the ADESA the be the per of the along does operating TradeRev determining net adjusted is our our fourth that the be last will results are in statements. income not KAR will share per and excluded gain the free consolidate statements earnings in Auto investment not net income strong to to relating guidance our quarter, This material adjusted for Nth it financial our in will the the operating impact in

EBITDA incremental ADESA EBITDA Overall, Our delivered in Auto adjusted margins and adjusted Auctions margin the we delivered in incremental at adjusted margin XX% XX% quarter. of Insurance third quarter, XX%. for was the KAR EBITDA incremental

the strong a is driver primary margins. controlling on SG&A focus of Our incremental

the We to in strong model results operating generating and see flows. consignment the power business continue cash of

can the and I our impact tax hurricanes this quarter, proposed approach shares would growth paid that corporate in reform. a clean ability and back KAR it tax framework the was the quarter. you remaining and did interest our generate reviewed of the to beneficiary activities. confirms analysis during for quarter We the seen of deployed believe our on Jim of see Overall, the third bought capital the in but open same by a an balanced cash. in recently U.S. not in allocation TradeRev, be results, We dividend impact significant acquiring a grow quarter. also Our capital earnings future is all QX market, to completed reform

have $X we debated for in U.S. in you for $X.XX savings in we corporate our income passed. a of expires a tax background, X% announced plans in to being earnings share To each current corporate give in we our Congress before, August The will September, would and some mentioned framework cash headquarters reduction reduction increase rate, provide this million taxes. have the As headquarters. a per tax KAR, level new if develop our current In XXXX. lease

people our furniture, $XX a project and deck technology, As are lease, develop to over and Obviously, headquarters including extending in use total the years that our clearly better needed effectively. parking current consolidate the headquarters we efficiently corporate approximately and building, has while and our a current The teams fixtures locations including facility us today. work we have of that looked will outside allow and in is work infrastructure building. how technology other our facilitates including the million and current we the lease. past end The to near new headquarters outgrown grown at various XX our KAR this options

cost. will million grants, is in available building offset building. secured this $XX available $X $XX for completion these million funds of the of have the the Approximately million and city construction of We are which remaining and state the after

completion an expected the back Andrew, leasing operator, thank upon you XXXX. that for initial call, to your We've be shared And joining me to building years, you term the again with will with quite questions. the of our to today. so us We on is bit information a commence turn call in take of XX August let I

Operator

Sachs. comes question the with of first Matt Fassler Goldman Our from line

Your line is now open.

Matthew J. Fassler

ones. you Thank have much I two guys for remarks. so those quick

ADESA the QX gross much than the The case gross have year. from tracks looking first not historically, within the like ADESA, seem margin seasonality changed that to the been all shift tracked and better this seeing. than really margin, which had at That to lower relates expected didn't you that of we And what QX. it online was mix

So underlying trends accounts the what rate within margin gross for better the ADESA business?

Eric M. Loughmiller

is Eric. this Matt,

me The beyond that physical. one. shift online Let mix take is and

the get had revenue also auctions. shift You revenue along the generating And mix richer the the terms dollar pass-throughs. really we net dependence shift, the and transportation of when realization the profitability which in Q, mix some a truth within a softened has you'll mix is of description of performance currency that the components things have are file and is improvement we see is, physical at of U.S. in our in number less – as on really the like things helped of lines the Canada of these and a

force that and was labor SG&A to in the goes would controlling real the line maintaining volume so physical field well with focus as that a they you the team in was really we account the the for that's on in then we've did working that's auctions. on which in volume proud control a down that that. had know, auction, costs cost that I physical of how the So on also had labor And second, in

Matthew J. Fassler

loss for one, second total a Thanks that. inventory. so hopefully question, relates much quick My to

that indicated the X to was year-on-year, of about that XX% storms, it you ex percentage overall up So points up related that X%.

ex Now industry natural losses by when keep from there been slowdown than actually the the seeing. inventory have storm, a the other the loss we its on that production or the bit the was loss is you somehow more rate moderation offset growth this in is increase of of a inventory inventory of then surge total Does other is total the saw what total words, out in channel a subdued storms? of that storms

James P. Hallett

Yeah, Matt, Jim. this is

businesses being total what see certainly was I years And get seen way shook focus the to number back if off you've the I quarter. years written I out. think, and continues that I'd normally are a say about we think the I more two we is quarter in trend, you would commentary, quarter one is that is rates quarter grow. mentioned strongest my on percentage not and What reflect vehicles of more just talking third or focused fourth the on I of in the expect I would on the that were it's XX.X%.We and three take XX%. only loss that

as an think, in anomaly it's Eric, add of I look more to I a would So, to it that? – at third want you quarter. the

Eric M. Loughmiller

Matt. Yeah,

year, in XX% over the prior our last the a XX% over fourth builds. in and was quarter Just inventory strong Those year. are prior the up reminder, inventory third quarter, of year, the up

be growth well. So X% is excluding performance we as up the storms strong year quite a ago a given to had the even

Matthew J. Fassler

it. so guys. That's very much you fair. Appreciate Thank

James P. Hallett

You're welcome, Matt.

Operator

of Kennison question Craig the line comes next with Baird. our from And

open. Your now line is

James P. Hallett

Craig. morning, Good

Craig R. Kennison

And morning. Good also you the wondering of Yeah, share could TradeRev. dealer around focus Really this then what key dealer is questions. morning. we so address Thank want can taking in track to good metrics to on competitive your I'm Who you the engagements, else space? landscape. performance. dealer for are that if my kind

James P. Hallett

Right.

Okay, Craig, that. let me take

you think our it about all, addressable doubles of total market. TradeRev, First when

million in typically And that another XX If number a to vehicles auctions, there's XX it's vehicles vehicles total. million auction. don't get about you dealer think to the that come physical of about physical

vehicles offer, at I've can a entrants, we of best market seen some the confident we're tell opportunity that it's one, in this the think I'm area. the is confident – at right get I've seeing the this as market, and in position. I'm for continued look that are leadership in not I technology. other trying fast of number have TradeRev and absolutely as you I'm are TradeRev, that I'm to a its another to that And transacted companies it's of confident really There that confident space, kind expand to application I being just the the much but we see mobile that that's on into a existing now, really as want as product we the leadership channel we and is case I the as new leadership that best a TradeRev this that of I product So marketplace. market. a position are I that can bigger have And that number I as try look as and not amount to an initially TradeRev best as can. much to grow

a the very on. that how You tool and bottom-line take product, a dealer? a knowing very, I more back know how this to dealer, had money we I've out how when a it have number because I'll with it. like my that This This once that I've allows this, can. not I've of, And services just that It's is of a really getting trade-ins question made shared these interested was mention in And with sold? get is final is think dealers. they're that days to a a I bundle the markets with I this you us share able real myself resonates get sell if could I the having is they us a before, as product often to we XXX% you introduce signed and as hard. many thing, information have product cars me, then of to again, was I'd we soon with and up rolled the could new Because car more one, I company is much the this time very on really to as other to would

control a TradeRev we AFC ride the can example, I on it For to can us position provide us business, now gives we drive forward. And of entire in cars provide app, going (XX:XX) financing, puts which the complete it think transportation. or better

So and I hope, I've anything if answered else? your there's questions

Craig R. Kennison

(XX:XX-XX:XX). Difficulty] [Technical

James P. Hallett

I think I lost you.

Eric M. Loughmiller

not you. we're hearing Craig,

Operator

Murphy All from of our question the And comes John Bank with America. right. line next of

Your open. line is now

John Murphy

guys. morning Good

James P. Hallett

Good morning, John.

John Murphy

this your maybe the as TradeRev. a so wholesalers and at you're to online the is I looking really follow-up complementary just sort efforts after auctions and the Jim, on mean, of physical this, market you goes mean, I have folks will be that or and disintermediated, in think the business online the the now? also and you those at do may will potentially this be away that eat physical who right

James P. Hallett

There is online no and fits question that it our strategy. strategy digital into our

does it I displace we know look – wholesaler. that believe, does at that we I as to know the think John, know repeat, business, we it can market we the that know expand this again and we displace that – we

controlling four dealerships take still they phone get to value know, don't gross of and got they the you and they best the wholesalers, get many their to I trade, wholesalers and a controlling how and sell. on they really amount always the trade, when they trade-in, today, profit phone, the a on you know the wholesalers as number and because operate, And cars favorite five they eat new If the not say, number their as getting the get too. wholesalers they're

prices you the of and allows go got money, what end money the that's available appraisal here that rolling real your allows sense. to committed make the best those get you're that to you start in, instant know profit in, as the from if And the it deal. that, dealer moment coming what that makes and ahead at day getting you've market in is live the his today, So gross is

Eric M. Loughmiller

not important that? is, OPENLANE the add XXXX, And that's is, online. truth dealer-to-dealer emphasis, And Jim, off-lease we OPENLANE, can acquired clearly is there John, the and vehicles. that beyond commercial In to have And what's we was to sell system does there's I expand anything you this let product call think believe it that, itself. the me add. an do we opportunity cars to an

James P. Hallett

a add Yeah. well want years telling goes the question that just car responsibility the where the that is, that market where never decide customers and then to Again, the I another for be the the should is, to the dictate and other it sells. we you as best want that maybe cars platforms, We this your channels, markets, we've been believe provide is let sold. thing is bought to our John, to best and best and to channel.

just another gets think access potential developing like market, to as I slice is And that. of outcome XX another multiple some this you get channels, so, channel about that But of we the million that if a (XX:XX) I And vehicles. channel. it's

Eric M. Loughmiller

the on channel or the In we're And it of OPENLANE report expecting label will that'll become this unit two. get than channel, the still environment. be I dealer all online reported that our system, of the commercial volumes, this the the the private bit on will between be commercial but is it, we am we'll this mix will within and and just in on how terms working channel this, higher TradeRev OPENLANE a channel little dealer per completed through as volume revenue that the and is

John Murphy

of lot Seems like it a sense. makes

looking XX.X%, was you next about over these years, – Second more for. make that rate, was of in will a question that think actually mix curious profitable? just higher the result much that solely was coming as two that's bit we a it think time, were on that just we lease higher institutional little than that the increase tsunami auctions physical and actually of do a I'm conversion and if vehicles, the

James P. Hallett

richer One, conversion I these agree your a that I'd have was tend mix say things, of would vehicles, a to John. there off-lease with rate. – which statement you two higher

for I'd thing interested I off-lease activity, number move these to system. kinds They that the conversion Houston that No We've think I'm I that forward, be through is, wholesale storms, markets tell that I'd the high with – And of hopeful in that that can definitely hurricanes but to in, activity. point Florida had of cars act other come drove what I'm real to estimates, The – vehicles retail stockpiling sure really sellers, on knows an these impact them. heard to rates feel the hundreds drove stay replaced. confident here. point lost all there's are the were. well. would or you retail these I one and not that want which can needing expect conversion of cars thousands as And But I they're vehicles in of commercial going relatively confident

John Murphy

Eric, low mean, Okay. on the were And just lastly then provisions AFC the side. I on

up the you curious and is, next working fourth you as forward? floor better you're the of maybe you dealers plan and Just things how as into and quarter should beyond going look we forward tightening that year, do with your think we there, and are maybe state sustainable performance think – lines, the that expect

Eric M. Loughmiller

quarter third We'll We're talk rate we it am good to portfolio loss a assessment. consistent good have year. lower so have result. John, in typically little is quarter, but, – actually expect with in continue levels we'll Yes, a good Yes. to more at bit We little a for look fairly will had as coming that's the right about that X% loss anticipating yes, I these down fourth a is guidance as some above we seasonality. expecting now. XXXX and we X.XX% into looking be the still I'm even again, give a bit how forward. We shape. There us more, I you bit the February said is in X.XX% to what very of I but in

James P. Hallett

was we're Yeah. the portfolio. John, discipline We're just add we're but with I per that take a to going even not And loan portfolio, to with going that, you at $XXX. would that it was it look one, to to grow of X% believe market, But the as at our terms going if maintain the revenue comments chase continue the to down you look at market. number in I transaction, Eric's volume.

the chasing with So there, the maintain let's grow opportunity if know it. let's market, so discipline, there's we'll market, again, you let's advantage chase our of that take and without an opportunity not

John Murphy

very Great. guys. Thank much, you

James P. Hallett

You're welcome.

Eric M. Loughmiller

John. Thanks

Operator

from next with Ryan of our comes question And line the Brinkman JPMorgan.

is Your now line open.

James P. Hallett

Ryan. Hey,

Ryan Brinkman

car in the about the What discuss it I'm to the ARPU to happening hurricanes guessing more prices? what's in of maybe ADESA think and with percentage you hurricanes, Hi, the and was thanks driver Could Hi. happening the used vehicles my lower been in happening also go? August July XQ online the used do you can you since what's taking in prices talk prior sold do then where might X% car increase business? has for but the just with of please questions. only,

James P. Hallett

try I'll it. a lot there, Ryan, There's and cover Okay.

we next. So terms we're think of then, revenue, I the vehicles the of it's that to, mix and were speaking where going I really in think

Eric M. Loughmiller

of numbers Let on, X% ARPU on the just numbers two. We the would mix what's those was an we There on the vehicles, report. ARPU continue the business. it's historical happening go to up between don't two even the mix I citing, – at is average, me focusing but that and the as look on in up, and number that those it's our add physical are I prefer a was separate to online our you're average down separate auction you to before start the revenue get

unit per both revenue channels. was So up on

James P. Hallett

sorry, Ryan, rest your of And question. to the

a kicked talked prices X% much the very actually prices dip you used course line were a about of prices. used to of over in the September. a – We're bit little X%. I X% said with would can norm that that as again, storms in in the that We've car tell to of the drop. the car year somewhere in that, range And we X% You result up expecting

it rather throughout So as – year. favorable prices, the expectations think, with line up we I our been prices have

Ryan Brinkman

then, And last see. I Thanks. just question...

Eric M. Loughmiller

compared lease in And will not on that have put XXX,XXX terminations we let's continue additional to us. another to that that XXXX forget pressure XXXX,

Ryan Brinkman

way, have then, your to Very overseas been the have some your finally what the an (XX:XX) to of expand of questions update might purchase now curious a on us in helpful. desire Thanks. volume internationally just to cetera? our TradeRev. on like decision et There UK the little do with remainder in asset anything And bit give just maybe an a with couple already, but light trials have of if doing been

James P. Hallett

Yes.

I those services pretty only mean a reported proving definitely this as was of in going put of and driver and do to earlier to as this driver. be are we things business anywhere complete well UK, would together resources Canada. there's number are absolute UK, to say world. the results. very question addressable works that business XXX% how the really to the the Ryan, expand not but we've were the have in do in to total I Those can has the market. what I in control And wasn't and get no the it receiving this the is and very, done the to bundle get pilots So but point product the we successful much to in of that your customers all a terms call the And drivers,

Ryan Brinkman

Thank Very you. good.

James P. Hallett

You're welcome.

Operator

with our And of the comes next line from question Barrington. Gary Prestopino

Your line is now open.

James P. Hallett

Hi, Gary.

Gary Frank Prestopino

morning. Hey. guys? How Good are you

James P. Hallett

Pretty good.

Gary Frank Prestopino

Good. Good.

in our the up Here there you the quick expense bump and interest expense, on and projections is bump for it a in there give interest D&A is up on together, big like of some that a G&A. big couple Based here. of just sequentially metrics questions a the numbers looks us putting

reading is I'm that? unless there here, a I'm in So what wrong reason for

James P. Hallett

– Well, not refinancing. is may both like assumptions increase may in a that in expense percentage interest of of our by a rate there happen. high well, by is impacted December. the the And looks some likelihood impacted It terms are guidance, or

really front, up, more do acquisition, including the On I because are every time the TradeRev. it numbers an and D&A, going like end I up acquisitions D&A is, with

placed have fairly of have of with which longer that assets have but shorter things short in a use lives, is the assets some being as year in around will relate to cases. also a some some will bit We more a more little service, life, the they or hurricanes, those

Gary Frank Prestopino

guess I'm for don't QX I that, probably but anything XXXX, I you've for know XXXX? So are leading to proxies in they good what given those is not levels

James P. Hallett

everybody, the assets the from accounting a I'm wait are Let's this you February. And numbers we some in in to and beginning purchase that off for have XXXX. little on the that bit long Gary, till is lived hedging roll I give reason

some so, I'll And year. offsets that in February, up you those there come are next give numbers but probably

Gary Frank Prestopino

then have as mean, to business. the a TradeRev, first it And much or that investment price made that you, but about when recall revenue questions first you lot of model, fee with it talking been fee you success it I far Okay. the discovery question, was asked a success it, so the a wasn't business? to last moved a as there's seem as much I as Is correct business bought

James P. Hallett

fee-based. we also Yeah. somewhere physical I mean, success about opportunity the that that. question. but discovery, were the I And we you somewhere and between it's – between price a revenue opportunities told question there's There's that think, no what No, it's online no do auction. a the Gary, and

Gary Frank Prestopino

Okay.

through sell system, So for you if paid it get the business, a then it? success you a is fee car

James P. Hallett

apply fee. if that fee. success a are some success predominately would predominantly fees It's and fees sold, it's bidding There are car there subscription is but not

Eric M. Loughmiller

Yeah.

Gary Frank Prestopino

pay seller or or both? the the buyer Does

James P. Hallett

for a rates the to we're buyer as we be subscribe, the Well, will that's but generally model subscription the seller, system. whether might that be it introducing different, to on the but it's the primarily them charge market,

Gary Frank Prestopino

Okay. Thank you.

James P. Hallett

You're welcome.

Operator

comes And with of the our Stephens, Bienvenu Ben next question Inc. line from

Your line now open. is

James P. Hallett

Ben. Hey,

Benjamin Bienvenu

be last that volume in I'm replacement from and Good in morning, the of to guys. rate ask substantial And key strong, I Irma kind continues up XQ higher? that? want XX% about dealer drove stemming year-over-year drivers really demand of behind to pretty to dealer almost grounding quarter, a Harvey the wondering, grounding rate extent, what against Hurricane year. the growth

James P. Hallett

to being by second together buy first the quarter, XX% it we've but incent I to seen, up you're dealers assistance. was companies Ben, – it's the XX%, in really quarter. trend XX% programs the think get correct a with finance to It's residual put been in on putting captive and some the

Benjamin Bienvenu

increasing why you sustainable to higher think then, how The said you're enough. is? balances AFC. loan seeing loan per what And transaction talk due and higher you're to shifting ex-credit Fair loss you about gears pretty revenue substantially, provisions, this kind you average balances. of Can seeing Okay. there,

James P. Hallett

Yeah.

about. richer the cars mix that to of back we goes it think, I talked

rough lease cars of the off-lease and if more in, numbers, like the come you You've in sold car been just know, that's car. the around average these $XX,XXX, auctions, you average cars vehicles got and the so – $XX,XXX many are these average take a but as

So what's driving that. that's

Benjamin Bienvenu

of Great. Best luck. Okay. Thanks.

James P. Hallett

welcome. You're

Operator

line comes And Consumer next question the from with of Edge. James our Albertine

line open. now Your is

James P. Hallett

Good morning.

James J. Albertine

fair Hurricane total and Appreciate I and taking but looking point, there the you. are your the one and got Katrina claims respect total knows future. assessed you will back come vehicles is respect mentioned, point? historically, Wanted morning. that again, the in there's Sandy, loss months still are dwell is really being November. significantly going out, experience, not you've of imagine, with vehicles is understand, out this would in Good so Thank but no point generally many a no to this a up ask how activity loss surprises, In with generally right, you few there to to Hurricane at playbooks storm to But vehicles it likely on the from October to that here Wanted – question. forth. and

James P. Hallett

no on is bottom. to make the understood I that. want surprises sure I I'm sorry. There

James J. Albertine

of that you see XX,XXX number deal saying I going mean here... asked you've vehicles materially, to do with, from up sort significantly the You're been

James P. Hallett

No.

James J. Albertine

– like or big do you pretty feel number? that's a

James P. Hallett

No, we feel that's a good number.

James J. Albertine

even through degree, you help understand of online or per sort we margins us better? and respect given – the can about any And of any if in online there that you've unit some color gross with some past, maybe in – think I to and and in sort provide there is when that. individual appreciate think physical? color of then physical to versus I Is to channels, may, dollars can you if ask I Understood. channels sort EBIT

James P. Hallett

ADESA the generating the $XXX per car sold. excluding sold, high margin Jamie – my that revenue as it's business you $XXX less is It's in which to only number. car channels, we'll cheat there's give a only very per looking Only generating, Assurance revenue, online at channel, that's sheet compared the of I'm physical dollars but

– margin to ADESA. in dollars, a way gross margins, be going talking the my describe and average have physical a margins, XX%s. is say high. guide. very that that be it. a it's going the you technology-based XX% as to I more typically to so And auction, The margin you're here's auction, much be business, that's It's on know, to gross And over at going far closer to online to going I'm

in kind that's magnitude. the there's all I So mean, The our of SG&A, businesses. SG&A of relative split – it

Does So to that of than comes what is it down percent. really to the probably magnitude important relative make is more the revenue margin the you, sense Jamie?

James J. Albertine

It does indeed.

luck you quarter. thank of appreciate the the for best that, Just clarification. next in and I

James P. Hallett

you. Thank

Eric M. Loughmiller

you. Thank

Operator

And from with question CJS our Securities. next line comes the of Bob Labick

line now open. is Your

James P. Hallett

Bob. Hey,

Robert Labick

start hi. to they with utilizers coming services? ADESA. your Wanted of lease Good capacity Do vehicles ancillary for your be and existing off you more the ancillary given enough ADESA to higher services lot morning, at there's tend have a locations that obviously

James P. Hallett

forward to and yes, looking would That are opportunity. we the be, Bob,

Robert Labick

on stand Excellent. has your you And you to then come past your Is land that You in where give utilization improving acres there about in the going? that do us update process? land stand? more and where strategy shifting growing to an or yards. can acquisition How or talked been you just at IAA,

James P. Hallett

cases, we cases we're Yeah. once merging. talk Bob, a some some isn't while land and continue to a we of deal acquire in we're thing and in it. need land about and kind some with, in an we everyday cases that It's we relocating, as thing. we're In capacity, expanding,

just on that? a management part it's acquisition is Eric, of we focused that's add staff totally and and do. do what want have just we to that land you the So of of the something land,

Eric M. Loughmiller

not hundreds of on per Yeah. I year surprising, that acres be year-end we're every quantifying specific adding mean, call. in more Maybe the we'll year.

Robert Labick

right. Thanks much. All Super. very

James P. Hallett

You're welcome.

Operator

question And Research. Wolfe from Bottiglieri of Chris the our line comes next with

now is line Your open.

Chris Bottiglieri

Hi.

James P. Hallett

Hi, Chris.

Chris Bottiglieri

question. I my had Hi. Thanks for taking question. a

rates accident IAA Just high-single to digit. probably I the probably think wanted down to like slightly. trending kind loss is digit through up change Looks of that contributing slightly the get mid-single to total volumes. rate are sense

growth? the doing there just Because more Are that in trying non-insured your the peers double-digit of kind – two? So kind more I'm collectively are maybe you both driving maybe between to that Are bridging of are are? explain of doing gap you just what's non-insurance? the just like could of help you're drivers it vehicles looks what think

James P. Hallett

growing So business. necessarily I think, it's non-insurance don't the

a world business we we and the that prices, for U.S. at about we going think to those we it's think think take accident I of think as rate the the now. of are think things we look about drivers cost you we international proceeds, parts that And think about all much the replacement the steel of currency, really base, it's IAA the up. commodity repairs, the about compared business, buyer proceeds, think at about we drivers things right as that about, prices, tailwinds very all look as then currencies

Eric M. Loughmiller

And, even Chris, you though declining increasing, made miles in a frequency auto is accidents... driven statement is that

Chris Bottiglieri

Yeah.

Eric M. Loughmiller

a if vehicles, we as volume supplementing ...the were insurance and look, car be We're park total IAA of which you at growing, losses. X%, more not vehicles with cars looking tells direct. seeing purchased look lot is we're so there's vehicles to. trend if actually for more the I'd purchase surprisingly, is place that'd a down to is there's And we needing not you our are because first

We the have enough companies right do now. with to servicing insurance

James P. Hallett

of Yeah. is Chris, to one the car other age area the I'd point park.

much aging years. going to think And order park, XX park you years is write a repairing age to have about rather still this cars car somewhere of the companies off that's higher as car average to XX the them. in tendency You've these have got than insurance a are

Chris Bottiglieri

want Then switch of I makes sense. That over to lot to physical.

outlook low-single kind your volume. previously was of growth digit like think auction I So in physical

the hurricane guess I their reallocated storm, made as it's headwind. with selling there days, from the understand was maybe maybe a the if all I acceleration kind inventory. everything online less to ascribe of of I with dealers about less auction units way Now But online, X-point acceleration growth came physical because of and and

quarters piecing outlook out all as think So the what of this maybe a physical kind look right couple for of together, kind now? you do from is you

James P. Hallett

Yeah.

– to would tell single few low thoughts let mid-digit maintain at physical. And me on why. growth would you still give we I that a So

say going going look There's and no their cars. As the next is continuing at our to cars business heavily of. you a good finance repossessions. driven take where forward, some we very for to Consumers maybe by leasing slowdown speak on be visibility are years, these off-lease then been few to the it's and

volumes but And many to so where we the believe well. can I low-single think the cars. come. going And these ancillary cars it also and grow, And are these going so I we up can that absorb know mid-digit channel services growth the can do I get see online physical to as market. drive will that It's the that we think pick auction, only

So we the on going on numbers. that the in I comfortable just those think pretty we have with visibility based marketplace, and feel what's

Chris Bottiglieri

you. Got

getting technology just sorry, your then, from this most any And into you quick CXC under ever unrelated Okay. capabilities market. now app sizable and But that? yourself BXB have are one the type that of you that envision you more points in pretty scenario the theoretical. know could I one, are market? the prevent it, that the friction doing what from Maybe TradeRev

James P. Hallett

say if business, get of never, Well, the and to learned learned never Yeah. out been prediction to I've you've I've around.

and very will as And said, never. say said the I say and focused never anytime customer. where would focused to the soon. see wholesale be. outset, that's the that I is changing we're dealer So on don't continue our with that that on I our focused We're strategy at But business, being

Chris Bottiglieri

Yeah, that's helpful. Thank you.

James P. Hallett

you. Thank

Operator

from question line Bret next Jordan And of our comes the with Jefferies.

now Your line open. is

Bret Jordan

morning, guys. Good Hey.

James P. Hallett

Bret. Hey,

Bret Jordan

Did late. say anything little the given about the a hurricanes cycle split? time volume on Got impact the in you insurance processing or time

James P. Hallett

probably balance cars over next just sell going we're Bret, two quarters. of mentioned Yeah. I that the the hurricane to the

Bret Jordan

TradeRev, the is versus selling And are number I we we amongst might were? Are saying that up? a you dealers traction, as cars on great. that then where Okay, participate, the measure guess your there the the conversion go more are number, of conversion shown dealers

James P. Hallett

close we that a conversion, very We But metric very something we keep a important spell and out. for very, track us. certainly it's it's and on don't eye that certainly, Yeah.

Eric M. Loughmiller

It's actually what cars just converts in auction and to see in of It's a probably a conversion across color, to might other similar is there's lane, venues physical terms are it we And than to closer online report lot that effective that how low network. acquired. in the many of rate have the very listings? terms very of discovery it that because run price

Bret Jordan

Was it something you would report...

James P. Hallett

just Again, ... we

Bret Jordan

report going you that Is something or...? forward would

James P. Hallett

a it, to It No, than commercial but I flavor. the Bret, a lower given again doubt be much car. we've at honest, converts rate you

Bret Jordan

you. Thank great. Okay,

James P. Hallett

welcome. You're

Operator

And question next line the comes from Gabelli. Matthew of with our Paige

open. now is line Your

Matthew Paige

Good morning.

couple a regards TradeRev, buying quick me. ones time to now then agreement? if ability the right you of purchase it with a Just was purchase that guess rest to remind the And why the I could was to it? the original follow-on from that, buy of of to us the part

James P. Hallett

Right.

have Number us I of the a reasons. for half or the lot purchase why focused we one buy to sense tell other of very on digital. you taking we're original – whole to is a buy just now? made XX% that. So would And We place. to did agreement know transformation there's a second it

transformation you're and bundle was I a resources and in more are phones, take you to just the industry more car and XX% be than the things the you with have as that other thing better And really business doing over do able to to or the say, it and control mobile place. of when with direct manage other We're – more asset, as whether partner. other services industries it. could Now able product people apply, XXX% their continues to

Matthew Paige

land, Are to guidance transportation me. you'll the and would much you through I to are that as need Great. cost related as lastly directional hurricanes? quantify you how would for And units, some also costs more left able come then to provide down? sell less or assume

James P. Hallett

not in costs you I think No, not We're we that is what transportation labor land. the costs for primarily expect. we've getting shared going than to The any The to place. more with more going care of taking that land It's outlined Yeah. are we the that's itself. be anything you. is the be

the think And spent. so money I is

went in off third the that direct as As cars, revenue bring now in. we'll into and we we the quarter, expenses sell back those money said,

Eric M. Loughmiller

a after recover we'll corresponding couple we're Yeah. Matt. quarters, we're seeing September pretty comfortable but Again, see up We'll have loss. revenue, ends we it where the of can

Matthew Paige

for a on nice quarter. thanks congrats the Well, Excellent. color, and

James P. Hallett

Thank you.

Operator

to would I And like now Hallett, conference CEO, closing turn over remarks. the for Jim back to Mr.

James P. Hallett

and forward. we investors perform not in We here being investments all management on and good I we're thank think businesses well, everybody going and where well, of interest the all in feels to business, our about forward XXXX grow and few to the our interest only want continuing with next Well, that as our visibility years. the performing are business. we have the say, very I continue I appreciate course to have feels we about to and the heading set business good to over look call up to you. you today, the thank satisfy the continuing I the that for team our very Good. company And can your your tell XXXX in and but

thank on, that, new in look to year. with the So to being for we'll forward and you you talking

Operator

you participating in Ladies disconnect. and the does have thank And a day. you may all today's Everyone This conclude conference. gentlemen, for wonderful program.

KAR Auction Services (KAR) 1 Nov 172017 Q3 Earnings call transcript