KAR - Earnings call transcript Q3 2018 | KAR Auction Services, Inc.

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Operator

Good day, ladies and gentlemen and welcome to the KAR Auction Services Inc Q3 2018 Earnings 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. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference Mike Eliason, Treasurer and Vice President of Investor Relations.

begin. may You

Mike Eliason

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

Jim Hallett

volume proposed the third on and you will in our had potential of for impacts comments the our progress Thank update about win you, of outlook the used Insurance Michael, the TradeRev of on our Auctions I then business I we events acquisitions. update our how catastrophic discuss storms and Today, for call. to to values dealer-to-dealer with XXXX spin-off on weather in gentlemen morning plan our conclude the ladies business, welcome and some talk status the on of our and the push for recent our you quarter, Auto and update you and good our performance and we’ve car space, review guidance performance prepare salvage and to in

for XX% Looking per growth saw we performance in in at revenues, KAR’s drove the consolidated quarter, XX% net income share. which third growth

Our performance was in EBITDA the from prior X% adjusted was over loss third million TradeRev for the $XX EBITDA year by third excluding pretax quarter. Adjusted XX%. impacted up was negatively a quarter the up acquisitions

moments. strength think of core all was third our on I TradeRev this in quarter the Revenues bag. call commentary businesses. XX% mixed I more was the what few and demonstrates XXXX. X% this will a ADESA’s of I TradeRev increased in excluding provide performance a would in

expansion the program gross incentives by XX services, was by that offered the However, that expansion basis ancillary and Assurance by and the margin weighed reduced gross the of were of alone TradeRev. down transportation margins mix points ADESA

sold, of in X%. In increase by Total terms continue. increased the saw year up we same-store the driven been volumes trends to vehicles number volume a ADESA with of same-store that for shift mix at XX% up a $XXX X% dealer ARPU from per strong a shift per in vehicles, consignment the The $XXX Obviously contributing continues. was car ARPU sold a to ago. offset of by car decline were commercial XX% we’ve the volumes The auction. year mix vehicles. discussing at is physical

strong and car per strong continues We contributing sold the sold car XX% was in from margins. Auctions the volume on increase course Revenue proceeds higher this driving quarter. its online strong last ARPU of also of a nice Auto $XXX up revenue X% year. growth are had run only growth Insurance in third up per to and $XXX

storms year. how a such moments. X.X% vehicles, last average X% Inventory vehicles spend our impact up from had losses for a performance quarter, and this talking little while was year up receivables major I to X.X% our was of fewer were last. down financial Our about few credit excluding actual that X%. hurricanes CAT hurricane inventory a will prepare as AFC this the good only from for we can more due in were the time quarter levels inventory

We quality the in we’ve first we credit continue fourth portfolio. said, higher to are With three to of that see expecting quarter credit strong the than losses the slightly quarters. be experienced throughout in each

Now, more update on of let with an TradeRev. provide you me

sold. volumes First, let achieving we goals me that our highlight are for

Although than year, not the volume in TradeRev included financials doubled. third quarter last in more our

pace and ADESA. markets. order staff quarter, our discussed by even the in the the markets, grows. confident product added auction increased last we a in dealer-to-dealer field new and accelerate ground introduction of venues to as continue are structure – the to of business and an into for IT TradeRev on evolution local costs other of inside is to operations The As the to we more support and the have going. excellent This support cost TradeRev support to the complement is offered are the product where that transformational today I’m transactions people is

call as our our is provide the progress to of than on in future. will We on our customers our customer value of terms the years focused of expectation the it’s important significant in it on we on creating of will markets in informed the shareholder consolidated In existing develop TradeRev as our to We and more expanding details impact XXXX TradeRev and February. results adapt our TradeRev customers. investors service couple keep our financial our the results plan next current needs believe the of have model markets new the on the to potential during impact in lose of next impacting to profits consolidated money

the on Now, about the talk Auto Auctions. hurricane and season impact me let Insurance

Insurance has prepare for increased Over the loss insurance to Auto total its volumes that events our and improve result catastrophic several past years, ability this to to continuously team customers. from respond Auctions in

in preparation catastrophic for year dedicated works round have a CAT that We Response events. Team

We areas near field refined a customer for have potential operating experience. assets advance. to in storms the We practices consistent deploy to ensure

Our a needed. on short-term securing real secured to areas has as high the estate risk follow playbook additional and basis land land in team has for

advance local Our technology forecasted. a to planning a assist level that vehicles event we have event cost in not than operation network not sell to can the in hitting were case be manage the moneymakers team will following you so of impair company-wide our of land, the volunteers for when incurred performance. improve a the very and catastrophic weather our steps of have these for to and last, quarter our matter can we established we up major a as but an outlined will able significantly willing quickly. financial cost days we impact the of occurs. mitigate weather impact to Florence, see was and results, Hurricane our performance. at storm believe can a And business. have catastrophic advanced the did In that To the less on prepared salvage negative We events will technology in of level our We process readiness all our be events event third were clear, of stand

continued and increase to supplies repo the in North be condition Now, market strong. have of and in to Used continue are volumes used year-over-year third car car prices let the sales retail strong, America. touch off the lease quarter, used wholesale me on especially

to Nothing wholesale beginning but look in some XXXX. change forward, on a any unexpected, see be we’ve values I we’re price values. from seen As pressure what decline in will

supply Our vehicles and have off lease the prior remains strong, year. is repo increased over

steady in continue lease of supply XXXX. repo off the In growing about at units XXXX. in off to activity million and expect remains sold XXXX car vehicles XX potentially leveling We before for new

this in status confidence I know XXXX. the spin. as So beyond gives forward we us is of everyone interested the look

brief you a give update. me let So

First, everything planned. as advancing is

Revenue currently Revenue reviewer We’re Internal on of our Canada Service transaction. working the the with proposed and

expectations and have that responding update XX the prior spin. treatment has nothing to with the quarter to We of our We to been plan Form tax information on the arisen Thanksgiving. questions third changes

move including of few his will with Eric I SpinCo, pro is for a expectations structure remarks for some Nothing the and proposed to an forma capital in we’re of our We guidance structure that plans and information quickly the all moments. and information changes our conclude on our prepared available. deploy capital. to arisen update needed on once will completing overview in an the will capital comments I has spin the let provide be

We have the not guidance in our any changes made to third quarter.

to We million expect $XXX for of $XXX the adjusted EBITDA million year.

end TradeRev, the of As expect our a guidance lower our range investment be result in in of for of the will XXXX. we launching I

on terms we strategies, of continue acquisitions that adjusted capital In to deployment EBITDA. focus contribute

available cash progress. needed. Our I transactions but have our primary new to revolver we existing fund America. with targeted outside markets of on is to today, announce nothing the making geographic We plan focus are if and North

in look will international In at America. enhance service businesses that our to addition we can to customers the North opportunities, continue also to

Although much a smaller America. also in we’re looking North couple of tuck-in size, acquisitions in at here

the growth are of current and targets Our for within the KAR services. opportunity profitable network provide

it concludes we be Eric for now. turn I So commentary, for over Q&A. will will a additional to that for and remarks some my back Eric.

Eric Loughmiller

today. of Jim. cover couple Thanks, I in have more a items detail just to

minutes I couple a spend at the would of to discussing like margins First, ADESA.

in growth the and X% year. store up X%. in quarter ADESA low. The only unusually quarter, third while the compared acquisitions, as somewhat incremental I adjusted Last for After This last was EBITDA adjusted revenue had analyzing same at related quarter revenue, X%. margins excluding was EBITDA over the only was grew the EBITDA and to adjusted variations were performance opposite. year unusual the we adjusted third EBITDA In margins saw year up X% performance

is of the purchase margin contributed adjusted and quarter and identifiable Lower without transportation mix in profit specific corresponding margin vehicles The margin what relate third gross to declining and drives to in not adjusted a revenue revenue services. margins any increase from to result. for sold Our our of same-store in revenue deterioration EBITDA. EBITDA mix higher revenue this increases

this margins dollars tropical gross EBITDA from months and Auctions, million for profit fact, XXXX of in the the hurricanes and the to over year. adjusted acquisitions, of third prior car gross decline $X $X benefited significant in year. the our XXXX Insurance as XXXX, in $X activity compared incurred a was storm we just from nine third up first the while quarter In is losses in Auto and less sold decreased per quarter At excluding margins only

AFC total in compared have had a vehicles year for losses XXXX catastrophic year. operating the on provision as storms credit a the quarter. for tough our to third results positive from against loss impact in and this last has fewer up significantly comparison was in We

credit where credit for provision was average losses average comp was the to the the While X.X% X.X% of years receivables. only receivables tough losses provision only a this of quarter for was prior

see to AFC quality continue We strong within credit the portfolio.

assumptions we’re the Form the to Spinco. speak for going to Now, make me let in XX

Spinco will amount times and approval and the with be is EBITDA. for in Directors Board of current at will the of issued subject the next information updating held completion XX raised of of the and this a to corporate BB-, reflecting debt total spin. of the Spinco The couple net of when expected adjusted of time Spinco currently issuance KAR. The Form net capital rating to actual by at of has half our KAR We date the weeks financial forma are debt maintain pro by of future levels leverage that by debt determined a will be be three debt

on for to should used information can enterprise. pursue completion provide to that debt adequate KAR and Both enterprise the provide expect growth get shareholders the enterprises additional The expected provide for initiatives. we dividend expected cash opportunities strategic pursue return each levels the of policies of leverage appropriate. closer generate As to post-spin, capital lenders each free strategic spin, to to as and investors and deemed levels growth and we target be significant its flexibility Spinco to to

let with comments additional me guidance Now XXXX. on for conclude some our

EPS changes GAAP million of not million. $X.XX As EPS $X.XX Jim we $X.XX to expect operating mentioned, $XXX And share. $X.XX to $XXX adjusted are per per of share. any of guidance. our we to adjusted to making EBITDA To summarize,

in That in now of cash in even these items. result to our XXXX. spend lower cash, changes items, of our us launch are expecting each the States the our results XXXX each strong causing in be tax successful of expense, is range we flows increased for in no at for in For The are lower This United to results. expenditures range investment the end significant growth TradeRev or remarks. guidance. with expectations interest impacting be the financial for concludes our my the end There of TradeRev of free payments capital increase these our cash will of the to in

operator. turn now back I’ll the So, to call our

you. get questions. So Thank your to we can

Operator

Instructions] of is Bank question [Operator Murphy from And from first our America. John

line Your open. is now

Aileen Smith

is John. This for Smith on Good morning guys. Aileen

Focusing second, the a up in million about be quarterly to loss on is next forward on consistent think about the think in TradeRev a losses good $XX your will of run XQ few basis, TradeRev should with going for we for the way for comment would material that losses Or which persist stepping the rate years? any a future? losses in TradeRev

Eric Loughmiller

this at bit little a seasonality in it. point Aileen, time, there’s to of

give be going in guidance not we’ve the higher quarter year. more in had to this the highest But at not third the year. number. give a $XX I’m quarter. fourth February, into million it next we’ll to you So And you expecting I’m quarter was

Aileen Smith

give more used release TradeRev TradeRev? your helpful. to on a using to has of the incentives? And in the demand service? that in generally the you are you been kind Or in And incentives for bit color result little get customer as being Are response to incentives promote one That’s and way? transaction- your done the in of customers on what highlighted can press Okay. those any the application based they a

Jim Hallett

so Jim. Yes, this is

of First and platform to and on as well station the It’s to is incent received. incentive. been come new incentive platform, an extremely customers the the the we use provide obviously to continue transportation to all,

have country in reached dealers past. something the one cars at as the in more that across on time, I dealers a will In more suggest expect point that probably reaching I to But platform. to And we entire that transactions would something to fact, get and we some we’re not are isn’t this continue and and done. – shipping monitor itself that we continue It’s we reduce as the use would that in will incentive. that, an volume and possibly we’ll

Aileen Smith

last strategic Jim. for Thanks Great. And the Okay. detail. question for

data have made a over and guys and with acquisitions years a and management, investments fleet capabilities number on past focus of You few DRIVIN the including STRATIM. particular

be market think the get you management willing XX, into five, guys Services in the And XX about broader line, ultimately As what you KAR will occupying? think chain do you want value down position you years fleet to services? Auction would Or to what sit? do be point you

Jim Hallett

Yes.

BXB on the that think I focused market, we’re the wholesale space.

think As global only around these about I is services assets here in all think company of about and the that future, America. these I we all a deploying providing that have not the North world,

that seeing when do car assets success for early we’re TradeRev business, leadership and I expectations my analytics, world the think that and position. believe and around will we’ve the acquired, established early dealers how I the position that leadership at TradeRev way transform and the look the in there. data we’ve you

another that then think whole we’ve in serve I about is focused asset that we’re well serving space time. disciplined that just appear. chase and about the have you here focus it’s at in in shiny of in and positioned customers and on focused STRATIM, that object every table, point just we might and really think this a America. our same mobility on not early stay stay And say evolving mobility. to we’re our And at think space I on sale stages seat whole if sale and space acquired North

Aileen Smith

color helpful. is That my really Thanks taking for questions. Great.

Jim Hallett

welcome. very You’re

Operator

you. Thank

from question is next Our Bret from Jefferies. Jordan

now is line Your open.

Bret Jordan

guys. Hey good morning

Jim Hallett

morning, Good Bret.

Eric Loughmiller

Hi, Bret.

Bret Jordan

commented you just Xx it as some possible exposed we the way was to goes? many a or greater as more TradeRev’s year-over-year quarter, its penetration? might – far can up be me that in start How than your Is volume get benchmarking but for Hey. bit you that the to penetration dealerships data

Jim Hallett

you TradeRev it dealer completely think mean, right Well, every rolled America and It’s can serves, the Canada. about North if it say, I out you about think network serves, across in serves I virtually now.

province We’re every in in Canada.

We’re provinces. in those cities every in major

we in have here the coast-to-coast base very States, buyer and States. strong United United are We in a

detailed of most transact you’re franchise dealers platform, to approximately it’s somewhere we some in who the very open number in dealers, if sellers And a it’s question. go then think the plans. and will that strategy wholes filling said, with buy, which with just we buy how that XX,XXX then them, do standpoint, dealers. to that as here buyer yet, so about all to We a is dealing forward out. And in network XXXX have North markets. we XX,XXX we’re we the independents, sell participates XX,XXX really dealers, that as with answers on And all all major neighborhood franchise franchise so so another America are about have of on roll you had are our Now that can can franchise your from the open and independence that in

Bret Jordan

well, – ACV to occurring versus do similar. trying TradeRev share maybe that guess you is dealer-to-dealer market volume of from is on for guess a there I feeling in something the how Yes, Do alternative? standpoint, I much network a have somewhat is an going out

Jim Hallett

assets such with of that share investment. leadership. huge my we as the so, to ACV, tell I is can on Bret, don’t we even us today in a going we that And with we said well. are transformational win I the gives as days backed advantage try assets what know an I there, TradeRev, other use some you the numbers today. but is I’m with feel North here. really dealer. share with And some But we dealers analytics, that us going there’s way CarsArrive, And financing leader that these very establish even that other trying we the AFC, And TradeRev. excited good not that transportation these that’s I know backed I’ve all I’m doing world. companies have never and never we just that that really out with the space. is more for think know, and huge America. data trying for shared and have in is what I only focused date commitment. could there have around is. we as as than to our others tell to was a gaining we my Yes, my up enter space companies as ourselves former results you only comments, in on that we what think, This here on This change more I I’ve you company. been the that business this to the not mean, I’m purchased excited do at are vision. with up can a are commitment

Bret Jordan

you. Okay. Great. Thank

Jim Hallett

You’re welcome.

Operator

from question Our Baird. from Craig next is Kennison

line Your is now open.

Craig Kennison

the a the pull achieved makes sense currently world. thank all on offering first-mover once to your advantage the you well. on my questions earlier. you in freebies wanted some question can as you’ve TradeRev that for confident morning, obviously you’re, you incentive taking incentives and know are I But you follow-up scale? are back to the asked pursue trying or of that I Good

Eric Loughmiller

You know, is Craig, this Eric.

We where and that we then have incentives we those offer back. pulled to market kick start markets have

the tested All market model the much we more that developed the have we want how But marketplace. Do into on outside market able is those volumes incentives. we it the what pull yes, we is the the have incentive, we The yes, to we markets where itself. the How back to fits on the pull in bring are though pursuing, into incentives aggressively? So those growth, evidence buyers can and much back right competitive how have we’ve balance. key been once that sustain equation.

Jim Hallett

just a would add, is this that I approach. willy-nilly Craig, And

need need how as detailed the very to then go a as as leadership as to on the how we we have there. that, position going execute on determine and about advancing and are to to right from and plan do we strategy now. I strategy. win volume the is we product can that you volume, And we the think mentioned, And We of win focus we

Craig Kennison

my question to And you. more second with has do macro Thank considerations.

it’s down? and recession How that for defensive make a business business automotive environment? that. strong ways. But type I’m that curious your downturn, SAAR like kind type we something what XX%, to drop where if maybe in decisions And many react would side to you prepare advance very encounter of a of in got garden-variety we maybe You’ve would a to of slow were saw

Jim Hallett

research adjusts. a first cost a we lot thing seen thing to the mean, everybody going through is there I that say our the that. as I’m and time. knows invite that of I think XXXX outcome business, we’ve that how and And to we variable, The pull, a managed different saw think levers the add number variable of we one we’re at And our looking adjust labor business and downturn is and with could our to resilient demonstrated But is from our resilient. of major can very I course XXXX. that structure to being the that. and of is market I’d for you as Eric, And we’ve

Eric Loughmiller

Craig, economic we on on of in and, obviously, to might generating where and period rates. can back in allows which Yes, period pull be maximize sometimes we focused there We shareholders CapEx, can cash focus that us we returns how growth do. a to lower more pressure, on a

know, returns with that. recessionary performance And that a market do and XX% and as lease thing the hit the back trades pull later, that the Jim we even you three protect you of kind our visibility adjust to mentioned can of other because two our in The of labor periods. mentioned in SAAR, and business things their forces. would have, lot all we we years there’s can model

Jim Hallett

we of through that approximately years, got add recession just in went ones. from gave numbers the during through great never those XXXX, that, transactions time. that backwards ADESA during lost XXX,XXX half AFC XXXX I course couple time. a would is the cut we almost over I went Yes, as you And

flat grew stayed those we we year every during and most what probably proud we year of did, business other that’s I recessionary one our actually I’m times. think the worst and

Craig Kennison

Okay. you. That’s great Thank context.

Jim Hallett

You’re welcome.

Operator

Gary Our comes Research. next from Barrington of question Prestopino

now line is open. Your

Gary Prestopino

around good your out rolled Hi, morning. I’ll calls, coast-to-coast. increasing on Jim, yet, But the you conference out. it’s be you’re in roll to TradeRev said investment but call, it jumping

money you you roll say it’s rolled could out So it but to spending maybe out. coast-to-coast, explain, are you

a So was there trying fuzzy I going on. little am

could So you explain that? maybe

Jim Hallett

properly Yes, in were I maybe markets we’ve West And East buyer the we’ve I I major got Coast number didn’t stretch can, are Gary, base and are we is go kind going Coast the of the one, articulate that fell most East from of now we’ve and Coast back we’re markets the the coast-to-coast, I West around middle. kind would in middle. got got on the of Coast markets that’s but we think and to fell and that to what kind coming is in the

Gary Prestopino

Okay.

to the basically, increase... are made the country, this is statement really you So that’s it’s money what spending you rolled and not out across

Eric Loughmiller

Okay.

go than largest clarify. me first the focused We deeper got on to help and Let that. cities we’ve now

Gary Prestopino

Okay.

Eric Loughmiller

is dealer-to-dealer stretch go geography gradually geographic a and market metropolitan going areas you as to the – This share into get smaller coverage. market, so you’re

Gary Prestopino

some Can throughout will you this give us XXXX? continue of idea

Jim Hallett

Yes.

Gary Prestopino

right. All Thank you. Okay.

Jim Hallett

You’re welcome.

Operator

Our from Bottiglieri Chris Wolfe from next is Research. question

open. now is line Your

Chris Bottiglieri

if Very start one recall with. I quickly to

unit was hear gross year-over-year. then accretive Did You correctly per that international day from only I and profit the said be would ? the $X the versus acquisitions down one bolt-ons

Jim Hallett

Yes, you did.

Chris Bottiglieri

perfect. Okay,

Eric Loughmiller

shortly accretive, accounting expect if accretive to is very to haven’t earnings, yet. Adjusted to everything are be contributing purchase want I quite They by profitable. And to profits. to them careful not immediately, and to done but predict – not be be expect final, we way, we thereafter. the we want would them accretive I to and accretive value don’t

Chris Bottiglieri

Got it.

I a then Okay. IAA. on That’s clarification. a dig And take to good want

So segments? slow from grew inventory share macro were was volume and data? kind rates or I perspective, down you it little Are like reasonably taking this loss other vehicle retained How of strong. to total you do year-over-year. ex reconcile you axillary bit. Yet to the CAT seems a it The

Jim Hallett

and of and is we business, methodology physical on to talk physical about tailwinds tailwinds I as driven, continuing are as you’re business as major the offering base, business. about that we one, commodity all road. got on. forward. And kinds goes customers, salvage I environment international and hybrid online. think position the the age name of offer think always the supporting to the winning the And I continuing winning more drivers in adding time, that we’re I it’s we new think some think proving repairs, auction some we go now look the to few And when them vehicles currencies, car look those you but rolling new yourself all, And share vehicle also we you’ve mean, forward number international as list the some buyer we every to and marketplace. that we about drivers, that in on in continue miles out those services. a and organically as here. we Those products the new the have where are believe are think a in major drivers about been business really for at and a not prices, are And salvage and of tailwinds of and think out well you the all cost are where

Chris Bottiglieri

stronger? estimates? the positive some movements lot salvage being why maybe And loss it on you just be sense. given like the of a that total rates Can Can total affects confluence the the currency loss with to I factors getting used a or makes car tie in that decelerating? stronger in pricing dollar That rates are metal guess weakening, of backdrop, scrap

Jim Hallett

mild It’s total it it think total close much has the to as are XXX% do as comparison with hail anything. they tend weather-related in activity go loss factoring into damage actually been into to have. they’ll that losses total I year to have of it’s These claims. And and it’s give say in damage. you very more storms a a couple it year percent anything. statistics. I’d storms mean, of had – to insurance been pretty as carriers, But to much as hail Chris. I It’s as but got color we more the talk and be might than been events, than probably light We’ve to has a hurricanes,

Chris Bottiglieri

That make it. it. Got sense. I Thank you. appreciate

Operator

Our next Benjamin from SunTrust. Stephanie question is from

now is line open. Your

Stephanie Benjamin

good Hi, morning.

Jim Hallett

Good morning, Stephanie.

Stephanie Benjamin

if bit ADESA. margin get to profile at a wanted color, on Just the possible, just more

this expectations – did think see past I the the acquisitions. of was pressure that from quarter first acquisitions, where year over But we ex kind will of margins deteriorate. the these quarter

or even the is deterioration just if changed factors, couple from throughout anything of called the So ex see guess to trying the there just year. you XQ slight know specific just that has to a of out I but first caused I acquisitions? specific what just wondering half kind quarter

Jim Hallett

Yes, Stephanie. question. Good

down I’d a fees, services the than sooner the than report these many like the cars dollars. purely lot prepare dollars the are it’s as just – ARPU margin think physical. say, as on at physical or a mix and the cars one and profile, just record sooner a point for draw And lot The would is traditional that we’re of of of to less to does we’re they percentage – of to that auction you just of from doing unfocused physical $XXX. thing online to I auction that more them seeing your And we mix margins work I out vehicles sellers means to somewhat. that But auctions, to these on is result get sale. that will had report a of higher those

Eric Loughmiller

me bit let of a Stephanie, little color. add And

the of of in revenue of XXXX, lot of a of and gross service We seasonality. was is did really there it year rebounded. Going And probably back that weighs the quarter then in at have bit a that to It third that’s generating. the just what can we and quarter, quarter have ADESA the lower-margin we’re in quarter actually – and XX.X% be and the that down. service a transportation that how mix and ancillary the XX.X% margin third fourth – lowest-margin is

Stephanie Benjamin

great. more it. bit little my level. kind other And is of Got That’s just high also question then

this first the on You commented value, some on year. seeing pressure is which wholesale really time

particular strong. on demand remained a be take what have to pretty driving has trying as might Just if that wonder well, you considering

there? wondering you going might on what Just see

Eric Loughmiller

Yes, that you mean, X% to prices our start the XXXX into it all capacity, And expectations. at went is Stephanie, talking we’re know, me We about I saying first, thinking time this of X%. first the take let as said, decrease that I as XXXX, down exceeded by market any all.

think I supply the just of it’s a matter marketplace. in

very, about thinking the thinking to of think, off. Santa may prices be the anything time coming a we’re the we’re continue supply going think there and supplies a And off-lease – strong. year tendency the strong that I have that’s which I material. in where drop to about market I to Claus, we’re be seasonality where repossessions very it’s for don’t vehicles of But and be and mentioned into You

Stephanie Benjamin

All much. helpful. really That’s you right, it. Got so thank

Jim Hallett

welcome. You’re

Operator

Our next question is from Bob Securities. Labick from CJS

Your line open. is now

Bob Labick

for Good morning. Thanks taking question. the

Jim Hallett

Good morning, Bob.

Bob Labick

in scale ROI it you to takes any Yes, maybe say starting or know yet investment this don’t the the on profitability? long if or not, expected And can talk how market reach I on TradeRev. but you about given can

Jim Hallett

know, the the can you really of versus be on that Bob, size market I market. market, that anchored an going mix which immediate the quite You specific initially. attract Often effect dependent the customer the big and of market. getting Often going in from in in receptivity varies dealers it really times, times, have maybe to and think it’s that and

bottom directly line that I the So can’t tell you is would determine anything that.

varies add it would I from to anything? market. think you Eric, market

Eric Loughmiller

we then individual is add, the statement, Not from Yes. reach our The a you as Bob, can see to can that income and across by you It’s it’s we only but become not inflection talked that about. the enterprise. profitable across absorb going thing that And market I’m going hit point SG&A an markets SG&A. market. all have we’ll locally, hit – into scale to markets

that As have we takes much to adding the then market you businesses been operating fixed I as getting think it’s the experience And a cost as we we the technology cover of commercial and entirety have much the scale, on that, side. know, up with longer in off.

Bob Labick

how sellers a have TradeRev at Got the the general, volumes year? for just in more that And it. Great. maybe, then used trended than

Eric Loughmiller

all repeat have to give competitive. know that out had I to I time it success getting is business I’d But and first and don’t focus giving to want is Bob. them out. out, probably do roll objective key of in a that doing that. I be And on team, seller sellers publicly. of a it, that having me hesitant the that’s a that, I you available to is they metric the is it. repeat the they’re a metric probably of I’ll I retention, theirs. If be today. don’t tell focus have won’t that – highly That big

Bob Labick

a Fair to bit. just enough. Maybe Jumping clarify little IAA.

times? SpinCo. upcoming you still you’ll for both later? and how that three Or that on that you leverage? is that’s where think in will is below have have Is if going RemainCo target, about imply leverage does – supposed – Form more still I debt up is the times X.X the M&A targeted drive thought that it on be expect And XX to leverage would Or said you that probably the that side side that the forward? about

Jim Hallett

your decision, be Bob, spin we time giving we’re Directors the that times. will expecting is of the to is that That’s decision So that of in what We at at a at to subject it. but X.X that SpinCo go expect you rhetoric. at levered Board spin, by that many point indication time. Relative date final there’s the into that factors the were

international you we’ve we’re about on. these working of is other talked to and One which acquisitions things

have sense giving and as more today, at leverage we’re So get closer we make the of the all those for when again, would we some it you date facts. But as future influence indication. to more that RemainCo will spin,

Bob Labick

Thank perfect. Okay, you.

Operator

would questions. I over Jim the time, of showing Services no I Auction CEO this call Inc. further like Hallett, At KAR back turn to to am

Jim Hallett

you, Thank for Okay, everyone, great. being on today.

continue to I time. really and We stock. think And in our grateful your it’s be interest our exciting for company

finish I go think, we exciting into it’s XXXX. we XXXX, up and as

markets us. a to what have we the to into bring going think good I visibility

up. that’s about come the spin excited We’re

create I to transformation then I solid two today forward the think to about data And going with we’re we disciplined, and early the involvement got focused, then And talked excited are that’s TradeRev going we you our going assets management really we analytics think teams. you talked on with a many pleased we’ve serves and think two about stay are great strong the made stand-alone and bets going think business about I’m of when companies that here. very our for leadership to and position about we’ve mobility. stay that and look I’m that really there and good really bets, we in I really to. lot we customers, and to have focused our here on

forward on today, you look to being we you. for to in you and So thank Thank February. talking

Operator

thank you conference. program. for in your today’s the Ladies concludes and This gentlemen, participation

You may now disconnect.

KAR Auction Services (KAR) 7 Nov 182018 Q3 Earnings call transcript