KAR - Earnings call transcript Q2 2018 | KAR Auction Services, Inc.

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Operator

Good day, ladies and gentlemen and welcome to the KAR Auction Services Incorporated Second Quarter 2018 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 follow at that time.

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

begin. may You

[0CJR6Z-E Michael Eliason]

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

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

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

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

James P. Hallett

our number our at the progress the to Great. to on XXXX of for growth businesses, performance Thank of and you, performance, a growth insights year, This well net led half a strategic see take growth Operating what our quarter second in uses you call. report the our consolidated welcome I'd for with operating each confirm on adjusted as we quarter the for highlights XX% and good the morning, to of morning of review profit and share basis. Michael, our X% into highlights capital and quarter. second in of of income and EBITDA. XX% to second provide our gentlemen of we're revenue like performance; guidance XX% for a to review look This second ladies $X.XX per the XXXX. Starting pleased as on increased adjusted initiatives, update some

XX their costs acquired companies several any entities we traditional are yet Over make auction and we models the different These substantially technology months, offerings than past do SG&A, they operating the all early have and not have businesses. their of that are of are and developing stages in money. our

new KAR identifying these offerings, other SG&A be Beyond parts on eliminated. reduced in the support required I'm focused SG&A costs technology of to that can or

let Now, comments some with you ADESA's on performance. me provide

We're gaining XX%, the The our is is expectations. The quarter. that with increase in in me online-only commercial down volumes the ADESA clear volumes Total increased in made selling second XX% choice reduced platforms. offerings. XX%, right by market second our dealer consignment up by auction absolutely technology-based more share of online increase First, quarter. volumes were volumes X%. up down volumes, in volumes to in offset X% the decline than physical auction consistent for it an we were developing offset Physical of trend our our with the

industry. private for market-leading dealer-to-dealer We private the commercial in application vehicles sold are auction are develop on and mobile to the over label in We than working year. second the clear sites more the the records for XXX% label now the and quarter, sales we leader was our hard are platform XX,XXX this sites. vehicles, setting we new prior in TradeRev And on increase

through less to OPENLANE over the And back, year aggressively into our remember ADESA vehicles an we in of network. transportation on capabilities I XX% for private ADESA. the TradeRev our we our I in from launch as ensure in new The entire the receive level the buyer using investment TradeRev was to an of I the And set A transportation XX%, with. vehicle sold is TradeRev TradeRev shift they can sold. of sites, with markets an increase ADESA despite see stayed the of growth the to And acquired instant that in that business vehicle, year. can by this new right ARPU to our has vehicles launching expense at In fact, competing ADESA the the buying for helping XXX,XXX to we for sold U.S. services the the about year. markets continue is profits physical than per can the XXXX profit driving gross get think prior we're we is I've when providing If mobile increase at seen strong $XXX long-term other mix. using from that consistent services quote in XXX,XXX label differentiates transportation. applications the pleased successful vehicle up TradeRev support application. from the buyer in of integration CarsArrive all required

our we conservative at XX% AFC growth, to performance financial and receivables loan number XX%. have the total and by AFC's the of generate ability strategy performance, growth increasing at execution. transactions by exceptional revenue generated X% managed only strong while Looking EBITDA a This clearly through XX% and adjusted demonstrates

business. it to XX% a Auctions; EBITDA. the in X% in increase Auto increase A revenue was volumes XX% another a Insurance salvage and strong adjusted in quarter increase in to led Turning

his faster. volumes vehicles total team we can cars at times lot total Everybody providing the our the had salvage for them Kett likely is on quarter. reflected processing helped sell of weather-related Insurance reduce XXXX. and high of The could on over services that in is ago, vehicle. John a from prior inventory. this Auctions focused the customers insurance late have we strong Auto X% inventory wins significant loss a to value-added turn next cycle loss if year Our still inventories and very up aftermath then we of year our level the vehicles more A

me to trends. current remainder comment for outlook the the at At year. on ADESA, with let expect the I continue of the physical mix shift Now, auction

fewer see will vehicles physical vehicles more and dealer at We auction. the commercial consignment

and at with until current Our our consistent is we see continue XX% to we change to XX% that are is will expect we dealer consignment dealer consignment past statements and This XX% commercial, continuing XX% why physical this mix ARPU growing. this outlook is and commercial.

expect will to Our the online off-lease strength the venues growth strong supply to in auction I continue growing volumes. through online-only the XXXX. in the contribute

consignment to TradeRev auctions, platform. increased will through and be volumes by dealer offset declines total expect consignment through At volumes volumes grow We volumes more to car our volumes improve in our the volumes. physical continue commercial label believe sites, dealer that used industry; commercial than will private

of plan. the we see We continue in U.S., TradeRev will we At in in the more half will XXXX of contemplated money in to spend to rollout modest will AFC, transactions. continue originally invest our than second loan the in the growth we

will to losses the average of continue year. continue to managed expect off-lease the low growing. the the And environment independent total rest contribute credit loan and high-value growing We to see that strong dealers, supply balance with for credit to inventory receivable the I balances more should providing

Our outlook for remains business positive. salvage

growth there volumes long a although had are range. We the beginning insurance volume to continues, signs are and run of growth it X% in X% have moderate strong annual to

summary, is increased strong We more at due vehicles expecting details and auction TradeRev I'm can strong provide adjusted factors the ARPU fees. performance $XXX finish to confirming these increased expectations. $XXX million that to with on contributing meet all a increased EBITDA of of Eric The elements million. this XXXX to for guidance moments. in for salvage year buy our can that In we the net including spending to pricing guidance few are other our a are the at seeing of is our

the Now, principals turn to go. like that discussions couple has targets of I'd had international we strategic on certain America. KAR, initiative and with which have around growth, of have update been you North companies for Starting a some preliminary strategic with of initiatives have identified to key activities we outside a on

to we to new into foreseeable are definitive on nothing track the have I but in believe future. announce these today, that expand We markets

data customers. data in great initiative strategic private-label is with certain online-only and we're capabilities. for these on already Another our looking in success to capabilities success also expanding early we progress this solutions our types that is introducing capability salvage analytic of are our made The We've analytical that and of integrating customers. focused that these had We've market intelligent programs the confirms developing.

available proposed the the continue open open Auctions. the Let buying an market market KAR stock plan third update Insurance Auto $XX cash We stock quarter. million in in We capital on spin-off including quarter. the with our finish second of to the in me of activities, in with acquired

Auctions, Auto company. to Insurance the a public steps to required of In through spin-off of terms the create continue work we new many

have Canada for with rulings and Internal private Service. filed We letter Revenue Revenue the

areas to identifying KAR Auctions are where the Auto need capabilities to separate services while as own develop post they We a their spin, Insurance provide will company. transition

technology Auto agreements will be that also have that use other the of at are and on We Insurance developed working KAR by commercial assets been spin. around Auctions used post

involved. we fair be and length. work people and engaging that of terms identified have be done the spin Since in will outside needs to to arm's the that announced We all we to ensure at February, be are experts the the need

agreements all the than We It longer place. as transaction are will take expected. we aspects in have the committed to completing soon the and related transaction as we of just originally

quarter taking it for some on that, going the questions. today. to I'm joining turn will your before say Eric Eric? over with So to I get we back additional us provide color who thanks to

Eric M. Loughmiller

Thanks, Jim.

our me Let on start commenting by guidance.

our previously in has while cash rate rate night. any press in our to in $X.X on interest impact We expense. last interest significant rates increase comment have increased our increased want experienced billion as floating rates; of against of are interest debt our the XXXX, interest guidance on and confirming out caps laid us protected we release I issued as

into Our XXXX, will interest place not in interest expense. so interest our rate rates increase caps further increases significantly are in

for half no million for rate effective rate for XXXX. There exercise. the The employees tax this effective options. our tax higher net interest slightly If this of caps effective $X.XX the $X.XX the our income rate cash am is rate reduce the approximately our this could period adjusted for rate is save in about first exercise in rate that effective fact, expected guidance half. is reduces I rate prior year. our exercise in will us In Year-to-date, stock in reduce expecting alone. year. compared year experienced of stock second tax interest higher of Operating tax tax our share item be year-end, options One of would to to options exercise tax to the per $X the annual is change we than XX%. our in slightly XX%, a to

We million XXX have in guidance. diluted shares weighted assumed average our

We the our to open KAR market and year. purchase shares may are this estimate in shares for below the continuing of reduce number the

about that the value common diluted KAR In count the addition, guidance. the method in changes utilize outstanding shares. count, the can in have variations number the in did included equivalents We from X.X assume any in all not are money. in previous options weighted share we average so share of our treasury impact our computing million stock of stock We stock the

growth adjusted turning and and demonstrate to the the EBITDA incurring STRATIM absorbed adjusted the of we results $XX.X our depreciation million, on includes losses for a totaling amortization, XXXX, are for TradeRev at will point impact long-term second of for Now our million. this planned $X $XX $XXX of to was out Within This us approximately are near-term approximately at operating we quarter for growth. position strength loss second and only so adjusted quarter the I million up incurred losses operating was The EBITDA EBITDA X%. the organic KAR. million. of reduction quarter;

of XX losses now is six This Excluding in the million are our year. we the half prior results second the I XX.X% for quarter not adjusted quarter and included losses months XXXX. months, in until the spend we're creates consolidated two acquired in incurring. of asked been in level guidance. grew the the of EBITDA type EBITDA these over in generated I've TradeRev year. of businesses was of of remind our contemplated and financial you, the TradeRev fourth first of $XX what second alone the the last spending expecting negative year the the is million adjusted $XX

These for platforms. new it margin and features less enhance people sellers. not offering and foremost, First are the the cost TradeRev revenue with introducing the and U.S. we our buyers direct is market, to operating are businesses. gross high hiring functions the of In technology to

portion is profitable ADESA This same platform in a ago. $XXX Jim physical the mature, believe saw this gave and AFC I than the the being OPENLANE label training on assist attributes boots up up self-explanatory, driven release other $XXX cars for ARPU. the guidance. by higher XX% on has online-only related is the be quickly. Insurance the the this dealers the app, in to press volumes online-only business. are over and the XX% volume offset we XX% seeing personnel get cars loading closing, Auto transaction believe provide increase average margin This growth. mix the value seven won't on the are dealers ancillary powered this These very of people in per ancillary field auction and we grew includes doubled are prior and ground increase order to TradeRev on in our hiring sold, mass the also so are We platform volumes performance Auctions year. thorough the vehicles in year-over-year. your in update prior I and their lower have in vehicle to rolling will of that business in the ahead by in In at the a questions point get out each a When OPENLANE values markets. fees, like at auction the XX% and we sign of vehicle on local would as and lower the increased with platform started TradeRev, by team mix we services In average on early generated space, of being on In and summary, market into go where detail I category from for just auctions. Obviously, more of the physical out seeing many be transactions higher critical when market in see and revenue. the change the more stages services the as performance private utilizes. I this business. to the that they of and related of more are I I to building is auction auction the auction our platform, exceptional We shift one increase years year. sites

periods. number. free filings the releases our press are it part on number an a we no agreed We In SEC flow in our to this response that to providing have as filings, comment was longer cash non-GAAP of number in prior omit future all represents

provided we Thanks a and operating Our GAAP Suffice cash statements. by this us to Back generated our businesses. seen cash provides cash our to representative flow be amount businesses statement questions. to your net significant our now say, activities, is take you, financial today of cash the continued generate in for it joining which and can Sonia. by of can

Operator

Thank you.

of comes Fassler first Goldman question from Sachs. Our Matt

now open. is line Your

Matthew J. Fassler

morning good you. and guys much so to Thanks

James P. Hallett

morning, Good Matt.

Matthew J. Fassler

color. Thanks questions. so much quick Two for all the

guidance elsewhere implied is you. TradeRev wait arena within level, maintain than second ADESA stronger in your the all, that raising year what's including the performance to for and TradeRev thank the previously platforms, that better extent earnings offset helping investment higher it you in hit? you to it I'll contemplated one, that that's overall platform the salvage my guided Is while the changing your for or of holding losses? while to are First incremental acquired

Eric M. Loughmiller

quite core back pointing strength it to is observation. having into performance year. is The Matt, our the both all business, us growth is some our the of And allowing for salvage invest Good ADESA really the this I without that what Eric. And of was strong. is AFC TradeRev businesses. expectations are the reducing of strong and then all really and profit business out

can actually that's of giving move year. the So, we end the performance even the it's that and faster us strong that confidence the through spend, increase

Matthew J. Fassler

what of when the the like with. the And TradeRev to is about you than much second decided in first you quarter? Eric in go loss the higher had sounds a implied half bit guide you've How your had reported know and expected thought some from than losses you less year, it I

Eric M. Loughmiller

Since started level, it's would from say we let we where at we do. Matt, me guidance the we thought that don't give increase and year just meaningful what a

to would to those that We're the not with it. reduced spend be we is half We half, in second of first the half that going in actually they And The those activities won't be. and just the recurring had, team into in to the plan dollars marketing line event-driven match the it. reallocate second expected and technology. field some we want had have

Matthew J. Fassler

thinking question, the more to the may more second the have missed initial comments, And Jim's business the business? salvage briefly car relate on to you're this I to this so or doing overseas. does in that extent about whole but

James P. Hallett

the that you. really Yes, of focuses would on this really CarsArrive, only we feel like we've business, we opportunity enhance And Matt, to the very would number in with opportunity like TradeRev, but mature that bring the what business, would we not economies. the the that assets and we say that acquire I goes on call – we and whole thank and KAR point to identified a list car markets focuses time, the on. AFC at specific these businesses stable targets have have with

So spoke whole to were that the ones I earlier you car. about related mentioned primarily

Matthew J. Fassler

you Thank much. so

James P. Hallett

Matt. You're welcome,

Operator

you. Thank

of next Our from Prestopino Gary Barrington Research. comes question

is line Your now open.

James P. Hallett

Hi, Gary.

Gary Frank Prestopino

questions. X%. side and auction about Jim morning, of itself to Good car at is side, everyone. Hi. X% in on market couple growing the of the A all

the industry So the growing at share about? to rate you're market of it's of – three a say gaining you're growth safe time

James P. Hallett

And XX% down. and to share. mentioned, growth. would that thing are that I online we phenomenal we're trying share. say it Gary, all And doing to that the what I all gaining we The we feel would definitely commercial definitely and feel consignment is real we segments, agree question. is gaining in one I'm we're is is the our I then dealer up, Eric up both to volumes that mentioned online, market market mentioned dealer quarter, growth your commercial, strength the add physical, I you when digest

Gary Frank Prestopino

salvage towards able where longer-term vehicles like maybe years and major online now to Do that your will investments the because going you're this going can't that a mix in a vehicles feel of probably it some the independents, to certain is XX industry independents you you invest from keep to to move up gave is dealer timeframe with industry beyond or of versus couple of there's commercial most your fewer and year get that percentage? look up

James P. Hallett

You dealer in good much cars. independents. so my data one I as cars by is things can in a by an on the openly When your see that but based talk game, about. time I to focus about independents not not independent and exist, size and game there's you are respect it's make operation. one about especially just all our we're auction, at these and limits analytics, it's very especially of and know, it continue talk primarily we making, the required of independent for that the now our more CarsArrive, the it that that customers kind in the you're to and talk the made sellers the and local the stay in you commercial and steep markets about investments no tremendous question want even that the that us we technology, on investments in smaller, better commercial in life some demanded a very data always to and those to they so we that putting and TradeRev our we think so, about and question that's of think likely be these on investment really one the are think for and we to I have Gary, But reliance investments think on a that I the digital that the to was customers to analytics investment just duopoly room steep – standalone make for there's being decisions; business.

Gary Frank Prestopino

focusing And new then SG&A with you're you're but would and TradeRev, the I of your and expenses that where in in here, of comments other be investing you've the mentioned that investing lot focus you're what on at a things endeavors? on start independent know

James P. Hallett

primary mind has number So, foremost, working KAR first into the across I'm we SG&A But are on of station to initiatives they SG&A take us focus we for all size and our go the waiting isn't end as really as a not got already is where focus, And and And this on is working XXXX. that I the today. senior going left things. we're and top a will focused sit of the we're you of regardless we're But for on of through we've something a train Gary, innovation businesses, number that said. today. to This XXXX, being that going automation. management team of the on be for.

business, think do have more we to more we find have do continue about innovation, SG&A. to do how to to to and improve automation, way a we that As have we we

Gary Frank Prestopino

a Thanks lot. Okay.

James P. Hallett

You're welcome, Gary.

Operator

you. Thank

comes Our CJS from next of Securities. Labick question Bob

now open. Your line is

James P. Hallett

Bob. Good morning,

Bob J. Labick

a I to to that forward then just that result growth think should most markets, you've of from same growth those of wanted doubling growth volumes how about TradeRev? highlighted we kind year-over-year growth Good Obviously, Thanks of quarter the last going questions. entering the sequential Is same-store this could well. for tremendous or in so and with as TradeRev. speak, start volume, market at is taking was and new see or we morning. path in

James P. Hallett

right. you're the Thank you for observation. And

point continuing on that to pace, records it gets basis today. daily, rapid we weekly, at a the turning, flywheel turn talk see hitting we're about is speak can and TradeRev inflection where monthly think I a I as and

that think thought I of I'm – I sorry, there. lost my track

Eric M. Loughmiller

dealers to previously selling been doing that we're is, business Bob thing with. other we One hadn't

James P. Hallett

done of my moment. thought we're a lost the doing I'm is with we go. what to normal wanted I are never it's with we're we've that where dealers we're seeing that But is, there sorry of business dealers that before track because TradeRev the Bob, fact a with That's your seeing matter seeing thought business lot for I of in to Yeah. be have don't people now been, where dealing knew never you where name where we markets to physical presence. exist, us a with market hardly dealers we've we're the But and prior where showing talk TradeRev. talk up and the a, that with just And it coast-to-coast about call, as TradeRev we we about what a would buyer network. technology we I has, reach have

We to have and California sending cars buyers and in and York buyers to buying cars them and New them in buying New Texas. York sending California

that the much And didn't this, auctions. I'll just one as but it's I would you the asked one cannibalizing So I as I of things often comment reach physical the you is, are And Jim we on, your tell you have. get of anticipated. – not ask

new us, bring might. that TradeRev, that dealers, into thinking. into we go nearly speak, thought that we sales, but been the to were our we both auctions I onto we has some really to a for delight the and felt sellers it's Going obviously being haven't would degree that to cannibalized and to platform, cannibalize so which new And to the them of haven't we extent cannibalize real it had markets been able our buyers physical

Bob J. Labick

and continue helpful and sounds which going to it's from here, is to That's great. accelerate like Okay. terrific

international be was led think If disruptor months, to I acquisitions. Just the think to international comments as a the I going technology. X and back by XX the opportunities story to earlier on potential

in the a bringing asset-light approach and assets Now you're approach assets just and seeking potential like technology? it. to to it bringing taking of internationally then sounds mindset where potentially of the seeking more your internationally technology now What assume then I hybrid physical changed in change

James P. Hallett

Well, mind, first our asset-light focus. have still an say, I we would right? That's

acquisitions. real that's focus these and analytics, to couldn't Our mortar to there asset-light, brick is some data be attached estate, some some say not technology, of

good management buyer these say base So, these good we you're we an to focus bring. through I thing and with expand buyer on solid And solid the on a layering we you number businesses, acquiring business the team, comes and and we can that as buyer could aside each we a that's would the walk really base an and business believe technology of that a list, base established acquire with I buyer we these by adding from we strong base, on one again, with acquisitions established these focus but that I enhancements by think them. I And offerings. that think that add take the technology familiar that business way we

that combination going to So, to both. base. say we've away it's be that I an from I asset-light wouldn't say you would of a gotten

But Some of of disrupt these we There the of be technology It's take sizes. real really combination them of putting a and may me of let number that some companies feel and together and technology businesses and will no and grow in big both the more about market auction-related a businesses transformational make technology-based one of then be various deal estate some that a here. collection talking we're market. and can thing clear. is

Bob J. Labick

of for taking we Okay. my Super. a Thanks Very exciting. I learn can't and further question. little more go it. wait till

James P. Hallett

to can't you. you. it Thank wait with share I

Operator

Thank you.

from Our Jefferies. Bret question Jordan comes of next

Your line is now open.

Bret Jordan

guys. Hey. Good morning,

Eric M. Loughmiller

Good morning.

James P. Hallett

Good Bret. morning,

Bret Jordan

sort is that of of a metric sort dealerships could at the as Hey. look there we penetration growth? feeling into, far On get you're a start TradeRev, number for to as of

Eric M. Loughmiller

issue is was get mean as is the all think further No, – new it and and markets. the this earlier, Bret. asked maybe issue we I we No. along,

in would not the willing growth that we'll number maybe buyers. one that point, measure indication buyers unique look be you is to thinking the some I'm at. at sure of disclose an of competitively, we're So, we but give maybe

in are we those as but sure that so selling? the numbers to Our Bret, add as that's tell not more of sellers, that's our metric on. goal know, what you is not cars why cars, Volume, just so, How business. would much. focused many I'm And you measure key sellers is selling we're

Bret Jordan

way looked Okay. Because the And, I TradeRev like sort ARPU profile to or a didn't TradeRev sounds better country. cars amongst to at But that talking guess, it swap as for each of are dealers about the hold a for resale maybe across around more it – look to other if originally, locally. car. the way of really be trading maybe you're they for might want some stuff it guys

guess these ADESA kind your ARPU transaction we than and cars looking are higher at? are I of So, value what average

James P. Hallett

Yeah.

So seller lower typical that revenue physical cars. cars. Bret, get would of in fees, the mix necessarily we're opportunity the floor There's using our not financing our are but services. They dollar cars. our there's inspection you are not listen. number at These buyer through earlier, CarsArrive the mentioned on They higher sell an everything generated not being revenue we services. of terms AFC see a plan. And network. generated are I are do also through a ancillary being of auction. revenue It's to all customers only dollar and getting growth, these A

AutoVIN. service dealers not that and an we're inspection can see. have going with those we increased on videos We only again, with let And also and innovating inspections, now, further we're intelligence, pictures but artificial

generated from the revenue just more than transaction is itself. there So, being

services. quarter, is about spoke day, when the at last about you auction at about that of revenue physical from So ancillary half the of think end at the $XXX that I

buying I sell at purchased new the fresh So, maybe trades. consumer. then to we're is by the these I your time this fresh little to to go that we inventory is trades this mean that right dealers trades? And comment just about talking being services, over-aged car or ancillary opportunity bit fresh This a still is differently. just is same are want about have a the back

fresh get appeal to to but be able not trades is to say couldn't from directly those real sell what to dealer. here the that inventory, that's Now, aged they buyers the the is

I've hopefully your answered question. So

Bret Jordan

Yeah. it. Thank you. Appreciate

James P. Hallett

welcome. You're

Operator

Thank you.

from Our Stephanie of comes SunTrust. question Benjamin next

now open. Your is line

James P. Hallett

morning. Good

Stephanie Benjamin

afternoon you I Good where Hi. Jim, kind to kind to expanding data analytics or your and of morning. capabilities. go back data about the wanted of comment spoke just

customized maybe little or kind you could So you're salvage on a was your was that customized about if been could to a some on provide what particularly you hoping to looking of e-mail I the side, able expand so know kind approach kind I bit – I services. or talk to hoping provide what being there's maybe that customers. of more before of

looking just further. you what expand on So be looking might to

James P. Hallett

talk Yes. is with in America. comment me by one to finance DRIVIN the in I largest to nothing they said, of like Jim, you, industry. they There of them changer. your a with tell I'll and excited said recently, When Great captive game a question it. let me, visited made this is about companies start acquisition the

was start and really telling help this customers they I'll so our better demand needed decisions. us driven. And was making there in It were say

their on better better to making their what of millions how whereas they just in the how All that So they needed in, sorts on price they crunch, we the basically all should much different and portfolio have cars, much decisions can vehicles, we on And be of because vehicles. them own has have sell make they so millions data KAR decisions. channel and car reconditioning. on help data spending should data help more

gotten very very would we've on call, OEMs very, vehicles. get number and well. with help doing, I we're different demonstrated pilots pilots what to into proved well. these of and customers. that's commercial these we're a what a a They definitely lift able And And number have sellers So our of,

the we really the the what get that salvage is thing second was side the The expect of business. interest gate out on we coming of would didn't

down has of there's was business, salvage basically Kett in week. the ever John waiting I And insurance and, Eric? me be the salvage. of the can able We're John you last speak as guide would in the nobody with to being data a some to to too, down right what to lineup prices salvage salvage price being Kett told this fact, customers able to we're this provide get point right on market. a provided which where but In business Eric, more of

Eric M. Loughmiller

do And that of make get What's and it of helping to tens more cars. buyers they data are then, really them help that what is Stephanie, The efficient. the analytics interesting most interesting to buy. on thousands a can based part through cars usually

that And $X,XXX, so, $XXX. buys you are $XXX a out want data, the there the at there $X,XXX buyer looking to are cars to – cars that may all doesn't to take that be be

available, where cars that that. help give can the e-mail things of notifications You are like with process, them

James P. Hallett

you And, four Stephanie, file dealer you the I bit not you least buy. a want Eric, Yeah. what go does called And sent the cars cars I'll find daily this former e-mail to is three history cars to a or cars in a it, we going most one windy sort you for that two profit, to on. have buyers. have be am this forgive I push sell, the here, back to the cars daily what sell little to to I delete your that want cars What again, fastest, program, And, or the of me, spend is me XXX or button. the the for but cars e-mail. trying being is turn what if this we immediately XXX of I'm through going what

morning those they database. it We we've on increased that have metrics you're that can on sending cars. we because cars these on take send have our based had say done may color. history. but they've dealer an the only cars those rate bought your we've I increased take – rate also inbox, we're and have specific going that you tremendously an tell But different also had when able not cars – four Not four right those to car buy your all four had now recommend every cars we should in And that to you you open wasn't

like and that. car gone they they've So searched and they've another bought

for this for So, this to the we're manufacturers but the dealers. doing their we're do motivated buyers, being really by

number tell have as nothing think us we to that three stuff their take I it cars sell use And on. you'd other the that and increase through sell to manufacturers, tell is data you can buyers got that the rate increase can daily here. mean and manufacturers I to that the going network. get hands roll this analytics, out now entire e-mail about we you, their to to right dying there's for to of of to I and continue we this asked and the have dealer So sellers just are do it's absolutely

more asked hope for, covered. than I you little but you a that's I So, got

Stephanie Benjamin

helpful I forward Very No. to hearing really and looking more. it. appreciate Absolutely. Thanks.

James P. Hallett

you. Thank

Operator

Thank you.

comes of question Kennison from Craig next Our Baird.

line Your is open. now

Unknown Speaker

(XX:XX) I wanted Alice gentlemen. Yeah. Hi. services your on just to about This Craig. follow-up Good and ancillary for on comments is morning ARPU.

trend Just how transactions should your continue we ADESA think forward? years, a the to more that's headwind three about can efforts presumably move services ARPU at offset way going growth? ARPU online, next meaningful But over on because to ancillary a in that as growth

Eric M. Loughmiller

are at (XX:XX). it's Alice revenue marketplace. revenue. inspections on to Yes, We our doing services that come that We're auctions. even never interesting. Good from revenue question about on our measure the Not and be that off-premise, the generated generating cars talking being sold all we're of might is cars

services, the as in is So, services and we're those lane. use Alice that They Kontos his more continuing our provide mix whether all valuation it vehicles, of will on of to enhance If are over (XX:XX), this. to index there however and that We higher to they can sell, of likely connect online we mentioned then Jim cars think the our ARPU. or values cars. the comments at the the and out we look are driver the grow. be this value These ultimately indices, in

Unknown Speaker

wondering, some function needle for six seeing factors mix metric quarters. touch a talk It's Great. Can new the primarily on of you pretty this conversion to up tools I of been nicely meaningful I'm you at behind the last want just is way? or And the and initiatives I moving in are customer rate. on that? the it physical your a auction actually about guess

James P. Hallett

These cars. Even vehicles younger, them to online, better easier to Yes, mileage, are lower auction. seeing I it we're higher-quality it's condition. reports when primarily able the coming sell and condition make attractive cars the think They buy to cars. mix we of get you're for buyer that are very these

car and program actually is that a ADESA we insurance certain time. the actually it. within and – resell don't recently that put served very, we'll that that a we buyback rate. and car higher it more we specified in has of other time provide successfully, the take and a they The buy sell where They is creating after is period Assurance creates product of expanded confidence conversion the buyers, us for conversion a call more back place been, program again, program Assurance period can that And we've if ADESA has or very very

Unknown Speaker

me. for Thanks. Great. all That's

James P. Hallett

(XX:XX). Alice Thanks,

Operator

Thank you.

Bottiglieri question Research. Chris of comes Wolfe from Our next

Your open. line is now

Chris Bottiglieri

Hi. Thank you the for questions. taking

from of high maybe services average I transaction some a mix a with start much able at you just higher disentangling to level complexity to and guess, that given how of going are the kind commercial helping reported ARPU mix the the higher I'm shifting. So, quantify ancillary figures? is prices one,

James P. Hallett

use way you're it's but the driver, as more primary Chris, Well, of the – services. because cars the asking, those

and they be higher happen to So – value.

do the example, a of the venue. So, with which in in very asking that is little it's online getting hard component lease although lane, report is, is for in inspection disentangle that very growth have there we're way to it But to helpful strong actually me. end selling you're inspections, car the

go mileage. and good end three-years again, low to banks of to finance the cars, cap companies So, condition, lease value typically, already old, inspections in higher

than to was vehicles call the to by other is trade average, typically than any years dealer how this Does know of driven commercial commercial disentangle don't and going off, of eight for the than marketplace. higher I ago that it auctioned XX% the that's mix you? a value it, consignment you being which So, more actually make car sense

Chris Bottiglieri

is revenue of marketplace business the I think the No, service That's I'm to goes as it in there's kind get at guess I some this disappears. concerns digital, does. helpful. trying ancillary

this you the within you XXX% what that. buckets the do if revenue understand world sticks. maybe digital think – to what goes say some services, to mix like trying are are just bigger think if you segment of of future, to were the some of of what some And So like these

Eric M. Loughmiller

So bucket the market transportation. is biggest

that for has the do you – to the choose physically. you sale, way car to the do moved there online reconditioning. the in buyer. a be to and Jim, gets You over if reconditioning, biggest cannot needs can't send by what is the do you dealer. the car not as if And Internet Reconditioning the second It

occur cost get benefit is auction to where And they is online You you attending a Chris when and be having vehicle. interesting the for the focused good bring buyer intersection analysis. to the and the that. then the question sell we it on not can do very get really less it What asked who the a ancillary value services that will can to That's will we're auction. a tools

Chris Bottiglieri

Got helpful. you. That's

We having thus industry mobile-to-mobile. mobile just Express just first Then related By Okay. leader launched. is mover you're and Manheim math, on above far like auction looks our platforms. recently the picture it to question ACV a experienced big advantage on there

you where markets that to thinking TradeRev these guess finding dealers this that are are about are overlap, you today? I find how exclusive do So, are you guys or

James P. Hallett

think always you some competitors repeat. the there's going but There's somebody to with of I obviously be I'll space, phrase the in that used competitors, me mentioned competitors. recently

because position space, that's ourselves inspections. the the two competitor, people and this We take be revenue said, we and platforms, position in have really and about we most the and I we we half they digital get services, the that to financing, leader. won't try assets it's ourselves win not to compete And winner. want want Cox have we there's that other that to of physical companies frankly, the auctions do other most businesses, but position that I winner all As here the only to leader increased want transportation, to do believe that and it's and everything use only guess the the will say the usually as in quite to be platforms second that try to get our know That's because and we do profitability. these ancillary have and the leadership on not because ourselves of spend to most talk we can to TradeRev,

popping has down cutting and the assets. collection go kind to nobody and dents there's can world that keys. I assets You in of this these else mean of

to can a the believe position will that I sure don't competitors, thing continue do leadership everything to this I'm gasoline but now So, in that going we and that I be I to put lose yes, there we're make spot. on

Eric M. Loughmiller

putting The be gasoline comment. to on reason the market. the And me first just we're let add one in the is

You Jim? do or right be offering. want early Maybe don't second, first the you first, but to have better be you be to

James P. Hallett

question. No

Eric M. Loughmiller

Otherwise, the uphill we will an can if battle we give services overcome best you though there, but even competition think have that already success. first chance it's arsenal for you're the fighting of being

into we're And so, pushing first. hard to get these markets

Chris Bottiglieri

helpful. Got Very you. you. Thank

James P. Hallett

You're welcome.

Operator

you. Thank

Ben question Our from Stephens, Bienvenu comes next Incorporated. of

open. now line Your is

Benjamin Bienvenu

morning, guys. Good Thanks. Hi.

James P. Hallett

morning. Good

Eric M. Loughmiller

Hi, Ben.

Benjamin Bienvenu

I wanted to ask about the The really strong IAA segment. continues volume (XX:XX).

off of in the just (XX:XX) curious the around growth business. trajectory rate you're remarks – You saying some higher, point prepared just seemed total comments given perpetuating the that might about moving be some those and it volume in (XX:XX) of did I'm thinking what people might make to around the your secular indicators that how and to driver curious moderating growth. be,

James P. Hallett

Yes.

think, most got I So, of I that.

would those up broke to to of years any moderation. all, maybe in X%. And that of significant time, But, past over experienced several in had to this at maybe And related. would is up point bit you that say, primarily We're X% a see we You we could X%. slip it's fact to The little point I little we'd a we say the storms we haven't first time. weather up bit. of tell this

in would happen at up time. this place take we and know to look look we I that's things point But any for forbid, we God can Now, time, that would these they for, why some think moderation. can

Benjamin Bienvenu

TradeRev. then to to forward. for relates here? business, back that of I'm from in ability this as elevated or And of move level curious run you guys. think Great. be be moderate it as SG&A volume leverage of the expect to spend share XXXX, the or would Clearly, expected expenses for it the to you It's rate in we trying accelerate half. kind on could that Just we ceding as the extend beyond Okay. about

Eric M. Loughmiller

to just of out is away. particular happens comments What don't one, number the don't Ben, beyond point a but So, go make grows. case, revenue this XXXX, I'll lot just in we I'll costs you, the

not yet of the But gross we're but on spend improve, can net as out volume XXXX. to for the offset the in information this any our SG&A some growth expectations provides so matures. margin And giving business

Benjamin Bienvenu

That's Great. Okay. Thanks. of luck. helpful. Best

Eric M. Loughmiller

Thank you.

Operator

Thank you.

question Research. John Northcoast of next comes from Healy Our

Your line is open. now

John Healy

ask wanted picture to you. Jim Thank question. a Hey, big I

in your used over (XX:XX:XX) And of on you out trying what as step really volume now. seems rely your is car how the auction seems If And and pretty conversion healthy the they've at weeks the look like the you been think very past couple if trends a sustainable and of used the It market in the market, of couple came experiences, years. on at that quite you car you strong terms volumes. of just and good lot think for the next a thoughts year kind kind talk back at business market for auction and kind in are and like take used growth dealers used wholesale impressive. this last dealers franchise and in get rates is you driving has the to the the success been it of right look to of values numbers of dealer in you I'm full you as units health

James P. Hallett

Yeah.

So, I of think couple a things.

not as years. as only good economy. need making are to to with a it seen the very independent in the seeing are cars. it has lot First Unemployment business is well. we're and low franchise we now of of at are Right this money level, a in but buying They're seeing car as all, I working, we're new we've in they transportation. People people many the think tie and the very, And dealers economy.

XX auto John very back what that things the $X We in availability at leases leasing loans like. the XXXX and These future. are of to people be nobody, about that even to million X going are between talked out talked million going it's The in trillion we TradeRev. the and And supply cars in digital out. away. very, than It's of of those it that's as years as We That's somewhere drop our to all out loans. grow going the looks then million three plateau positioned visibility. look over and automotive going maybe strong off-lease that million platforms those And and speak. nobody about to at We and cars through source cars we look a being and but I units. is, though going to We think like down credit. it, there's have They're right we think very XXXX. from written have X.X know for picture. historical XXXX cycle still about That XX.X there, of like channels XXXX, there are That's stable kind sell at right? aren't kind and this a to us, They're think online about we better be and are XX% with off-lease going One highs, you SAAR looks our the coming XXXX. coming to that good looks know be foreseeable good out wherever at being cars coming today – true. where of not of out stable this continuing tailwinds we're we're We away. of

John Healy

Fair IAA. enough. question a just on And

and business think look think into we you opportunity an you is are the as for kind or spin of there business that guys you potentially before the portfolio, about a potential at kind go and when you standalone? as spin of – year any up recompete chunks renewal or is meaningful of about the now business as risk next As the the come

James P. Hallett

John, Yeah. question. good

IAA our would we biggest the And customers with customers. insurance are in opportunity is what I insurance the aligned with the the fastest-growing companies with on customers. market think the right large share we clearly insurance insurance companies. serving is existing call of focused and terms

seller's products real this that that like able bring a business to that IAA innovative sellers know side. I times gain where the think, on of buyers new were as cycle about think his provide that the Stephanie and I I I is we're pricing, I out information team the Kett on are the about, talk other to like information, opportunity to This some on talked more existing well. we're we about, stuff creates a guide we provide with reducing the think talking opportunity salvage John and lot it is and side IAA. working this those of stuff. more for customers And I share with create new with all able salvage as for the

Eric M. Loughmiller

just always RFPs the there's of business in process, specifically, part marketplace as It's part in it's the John, And, usual. businesses. of of and both our

John Healy

Understood. And question. just one final

could the you On you mechanics if it's I spin, spin what of what us know color you letter give longer the out kind on little get guys the up? more things maybe bit ruling the to that thought? of what are private just holding are taking aspects a for the relative is to don't or maybe

James P. Hallett

Yeah.

question of we frankly, thing, that that my here little Then optimistic at no John, been say spin there's I statement, in So, committed we bit took make of other the guess, think doing the of in originally in more have complete One the clear very on to and that timing about were I that. I we're than things we getting had clear the I place the more number acquisitions. we're on want we what We anticipated. thing the the a timeframe and to really right. towards quite and terms outset, – spin. what to a some than may achieve I optimistic make that think

those are of these that working resources be activity of on In acquisition fact, of activity takes would well. some working now, on the working many some both the and spin as we're it And on resources.

maybe can Eric, there's those. with speak also issues. that, you timing And, some to So,

Eric M. Loughmiller

John. Yeah,

We place. have in to get agreements

lenders to As our Also, press the debt a in just when on to typically market a don't in you, there's tell their books. are a loans not way. there's – anxious finalized, want new structure we have into you of I we mentioned that's would steps number have and put be release, to

more the So, calendar difficult to there. year proving early trying do is in something actually

open introduce you market out new Just company. where public the go to windows would and a aren't

risk. enters would We're tell that all hard. at into that working has arisen So, it's Nothing us it.

go. we here So,

Just get us give right. it time the done to

John Healy

luck. good and Understood

Eric M. Loughmiller

Okay. Great. Thanks, John.

Operator

Thank...

Eric M. Loughmiller

all I we think have, that's Sonia.

Operator

to over any back our This to Jim now does like would question-and-answer Hallett turn call I remarks. conclude session. for the closing

James P. Hallett

our interest in stock. and Great. Thank appreciate company very Obviously, you, for we our Sonia, your everybody and being call on today. the in much thanks

exciting tailwinds. I of lot is in excited an a an of this for about time. got lot time We've think spin. – I say front our of I'm It's that businesses. we've exciting got opportunities the a us.

with I very two management boards what's great got good I'm great think going to two create will teams we two teams. these to companies. excited two guide on opportunity the we companies I the about management industry. believe and have in

about and what's excited when sound little with on that I visibility about opportunities experienced the and place, new really of how enthusiastic rapid it's really way got we have that specifically, kind this growth transform the I'm is and I done. of a and encouraging said, we've a the we if to TradeRev, chance taking business over we the some I As see believe And going the gets have products to velocity the we're bringing growth you that really this market. that

So, leave it. with talking and I'll appreciate quarter. next look that, We you on. we you Thank forward being for to

Operator

the conclude Ladies This conference. does conclude program. this does and gentlemen, today's

a have You disconnect. day. great may Everyone, all

KAR Auction Services (KAR) 8 Aug 182018 Q2 Earnings call transcript