KAR - Earnings call transcript Q1 2019 | KAR Auction Services, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the KAR Auction Services Q1 2019 Earnings Call. [Operator Instructions].

As a reminder, this conference is being recorded. I would now like to introduce your host for today's call, Mr. Mike Eliason, Vice President of Investor Relations and Treasurer. Mr. begin. may you Eliason,

Michael Eliason

KAR morning, we'll KAR you XXXX Auction we'll After performance Call. Good ended the today XX, questions March Earnings joining from for Today, XXXX. of financial the the Services our discuss Services and Sheree. for for quarter commentary, thank concluding us Conference Auction take Thanks, First Quarter participants.

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

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

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

James Hallett

get of and walk you -- were balance executing we'll we're update TradeRev, for including some I Michael, with quarter, with the our our and you discuss with will spin. call today's start seeing that include started reaffirming those our you agenda trends the to capital Welcome I the dividend. quarter plan wrap telling financial year, our an reviewing allocation, My performance, the up But you, Thank get-go performance, XXXX first here, we see our playing call. out in full for guidance good first for financial of me am morning, gentlemen. that from then before ladies XXXX. And with our the for let on our throughout quarter timing the how our the and quarter we full second discussing target year and the on with through budgets. provide And

to that, with $XXX of XX% was Revenue turn the I'll Adjusted was up $X the prior just financials. X%. So up over year. million, over EBITDA billion

quarter In quarter matched first in expectations, first up saw our terms budget. we how of revenues little against the better than a come our

line much Our adjusted budget. with was EBITDA very in

was EBITDA Auctions. EBITDA revenue X% and segment a of growth X% gross mix cars at we reflects in sold decrease with increased X% Insurance at the revenue Auto our evident all saw with for for had half revenue of certainly in channels decline of margins. growth directly related high the growth February drag mix in our the decline ADESA, margins. the profitability RPU in X% change and the combined our terms of TradeRev. a sales the performance, We we auctions. quarter. in volumes the is growth March higher improved reported ADESA and X% About at of revenue had all physical of in XX% the adjusted adjusted The EBITDA. remainder adjusted various at an our mix all In RPU the growth better and of ADESA AFC, in and in last losses month to was the revenue on and sources auction performance EBITDA adjusted revenue The half January revenue a auction for is combined and of lower Lower physical

positions. took acquired of In increase action in TradeRev in and businesses at the quarter. first quarter, the SG&A in increased were these savings and relates to cost over will $XX reduced were to first forward. multiple by locations SG&A in We going reduce elimination from The quarter year. replacement at for through costs of overhead that rest our included cost the the headcount positions corporate million we our our severance these the increased March, that see did corporate the performance, million of we $XX the XXX quarter moves While first and include a the some

few March high Auto XXXX growth months the relatively primary in rates Insurance that leading volume have what increase indicator with a lower contributed experienced Turning a markets, XX. we X% the was to the X% to I volumes first winter of the expect increased as Insurance XXXX. growth combined had Auto year-over-year to for is Canada, the in the quarter. our and over comp point the like XXXX. X level to through good weather last very in our quarter. of We recent comp is quarter out considering Auctions. levels XX% And past Obviously, accident the We second inventory years, at first still late but X% in experienced Auctions we This year weather that saw difficult our mild U.S. enter increase at and a

consolidated be This growth and physical auction. continuing RPU volume dealer consignment TradeRev XXXX. to growth at physical for growth will see we over the X volumes consignment sold volume come XX%. the channels. to off-lease will were volume up first in strong expect all our XX% Despite of vehicles be sold to commercial also to total growth. expect Physical expect consignment expect quarter, reasons. at quarter and volumes for auction volumes in the increase of XXXX. double-digit I decline XXXX dealer volumes especially in commercial to the in continue vehicles growth commercial XX% OPENLANE in both vehicles of driver in in to also Turning volume remainder a dealer our I I continues were ADESA from the key -- auction. X%, commercial the commercial vehicles driver volumes, physical OPENLANE and with key the the auction represented up volumes of

increases the consignment have put commercial the at activity. dealer physical First, pressure volumes in auctions on

single-digit they auction alternative saw it of transact was again second, for these and but XXXX, off-lease summary, digital being channels would total lanes, vehicles. grow by in our that point area see expect returns, other and transacted will been auction in alternative we're dealers ADESA to in TradeRev on. million we commercial excellent drive to me deals has an about the to market, flat And to in displaced peak TradeRev This Physical now. percent, will addressable our seek vehicles increase is that focus will roughly that's in XXXX to In spoke outside the As what prior upper X business. volumes we seeing plateau. the the dealers. This this be overall I the historically volumes exactly last with TradeRev more growth. volumes, have and their year to begin trades physical channels vehicles environment. continues to talk fresh dealer let the auction as the aggregate I with

in like volumes TradeRev TradeRev quarter, the grow started first marketplace. Our explain a would not seeing the did year team sequentially activity to in retail decline the and The why. in I

base the the a its markets. at effectiveness in in result, its the incentives and As buyer of incentives local team looked developing these

to a and launched, repackaged reducing of transportation incentive reducing new to growth incentives, volumes its were March, we result. we have we saw cost and continued February, programs, vehicles The see the volumes TradeRev TradeRev the were reduced increased programs January incentive recognizing focus April. on offerings, distance shipped. would For were especially as The and see in lower and in

over In cars a X,XXX day. fact, mention sold in milestone reached TradeRev single a I would week when we last

objective parameters incentive the we're target the profit continues management So and seen that in we've improvement given within and XXX,XXX structures. selling in TradeRev team. to on the Revenue financial of platform vehicles be achieve gross TradeRev over stay the and to XXXX new strong, our we've on

despite are start that track slow We XXXX. with plan to we had our on the

let turn the Now to spin. me

and As prepared announced The proposed received forward. have are and reorganization press we spin-off move our provided of their rulings, in tax-free have the we we Auto in Canada Insurance on to rulings Revenue Auctions. both IRS release, our

We will here in proposed moments. within for walk IAA financing through several financing will debt let the and Eric transaction be a few next Spinco I launching the you days, the

to complete debt the in financing planning May. currently are We

include that would agreements provide later XX week Form We updated the results KAR this place put quarter will first and of in an the that be between will on Spinco. some information IAA additional and

transaction. spin for Insurance the the We will in final The the CEO, second Auctions with Both onboard expect SEC to Kett place. complete financing is now now Spinco work Board be Vance and team the John receiving management to role Eric John Vance in Director CFO. is subject Johnson in of throughout of and will Auto and the approval. quarter,

dividend component have address of share a on me XXXX, our of The June Board let June as Finally, payable an allocation record of $X.XX important capital our XX. for of Directors X, per process. shareholders of authorized

moved spin. have the dividend dates of forward typical We the expected to timing due our

for enhance We we that Nothing continue the into has continue that growth today, potential growth discussion KAR a believe could permits future. work to our that of will believe the on targeted acquisition we profile. provide number reached opportunities to stage acquisitions but

the the any market in the we structure Spinco, capital our KAR appropriate repurchase not in spin place putting expect stock in an quarter. With in and to process for on do focus open second

some additional I now. my commentary, will your then back we'll turn concludes for it for over that and So Eric? Eric for questions. to remarks come

Eric Loughmiller

conversation Thank a you, have add topics to to Jim. the I few today. only

walk through you let First, me our guidance.

of million EBITDA $XXX adjusted to million expect for $XXX We XXXX.

net on any share guidance yesterday, those I earnings of additional release. share there to no items through adjusted changes the were $X.XX. expect provided income I this not of will that earnings and $X.XX, continue per our items per in net of $X.XX income call. we let walk provided know will $X.XX We in operating to to of you release In

X ADESA financial of terms our performance. our margins are major that consolidated in gross on reduction at a weighed decrease saw our gross to There in margin at In the performance, ADESA. contributors we

vehicle Assurance vehicles cars ADESA to online revenue. and market period and The purchase ADESA the to return Assurance the record the within we revenue and of is as value The the vehicles purchase purchased the allowed any and we at accounting of price vehicle buy time, a auction, required related fees are dealers first on to the return transactions. vehicle the web dealer. specified certain then will to for the plus ADESA program as sell

revenue and related volume per to amount RPU ADESA. TradeRev in also unit $XXX, the our RPU sales cost ancillary to increase gross this increase XX% platform. as an increase was bp majority are sold first at a driven increased $XXX original margin The a purchaser and Physical related caused of Assurance services financial statements. quarter. in This A services CarsOnTheWeb pass-through, services of for increased this returned increased OPENLANE in and quarter. We first services due lower-margin the increased the other reduction was auction only online Revenue We record the ADESA The and the and in ADESA cost increase. and of revenue. to at ancillary other is a business. XXX X% open by both of on revenues in had

also XX.X%. basis, So it $X the quarter. decline TradeRev our in and gross $XX.X revenue, million increased this On driver a a basis while in million added point XXX of million, was $X.X or increased acquisitions consolidated the margin. cause of a in ADESA SG&A growth was SG&A

the reductions the million in XXXX. severance first We headcount to remainder The related approximately savings of be organization. had from realized will $X also throughout in in in corporate these headcount the reductions quarter

Our effective in in XX.X% rate first quarter the compared was in XXXX to income XXXX. tax XX.X%

first as income our compared the rate XX.X% These facility. effective credit for acquisitions XX, we our approximately in $XX.X March to tax XXXX, XX% borrowings in year outstanding completed the to on expect had funded XXXX. We only million At revolving be quarter.

borrowings classified from operations. borrowings the we current credit repaying facility anticipate as as generated revolving We cash XXXX in liabilities these from have on

spin. let me give Now you on the progress on some our details more

completed business. the internal we reorganizations salvage the have of First,

have up move the first of letter rulings private Canada, of proposed. were Auctions. entities Revenue making able step we was we our legal Insurance IRS the legal structure receipt in salvage to the tax-free transaction business under the Following This from and Auto the that the

week. expect later Auctions bank that to begin a Auto this the announce for Insurance process will meeting We business the financing

We take expect approximately weeks. this X to process

of for Insurance and We we anticipating EBITDA X.Xx The a loans will funds leverage be used The KAR. KAR are are notes. available term of and completion the fees Insurance term adjusted Currently, Auctions less Auctions. combination to to debt this Auto to debt distributed of net proposing or the upon of will be proceeds existing spin. unsecured repay loans of Auto of from

we including date, and of the record Form issuance the determine date timing date, spin, our and the XX final will of distribution the then exit update Following debt, declaration date.

the June, approvals. spin expect complete to subject We in to necessary receiving all

During post clear spin. Insurance a the spin KAR and remaining view be the commitment color when-issued trading emerge to roadshow complete that both this you as possible. the Auctions meetings quickly will will complete steps additional our to Auto the give on review spin to scheduling I of period, spin as the businesses hope

that my concludes today. So for remarks

turn questions. it now back to can the Let's and your we operator, take

Operator

Instructions]. [Operator

first Bank America. of Our from question with comes Murphy John

John Murphy

a for of So was here. on I the But that the result or you've lot X% Jim, of physical. and and was appreciate moving pressure ADESA look ADESA, with in acquisition when at half of a TradeRev we the there's EBITDA mentioned decline half parts

on like when sounds at we the have rate, standpoint. But volume, mix, as I the may from physical looks very mean, pressured mean, physical was it at the going this, good RPU, look institutional the else far I metrics everything that as operating the conversion So mean, something margins. I there the

assurance tease of levels hard mean, there give back seeing So sort sort of the we're reasonable just I -- don't And I from look I'm to normal know if walk just a of CarsOnTheWeb. out can more getting we're sort and that it's kind you of any not up the there? because, us pressure

Eric Loughmiller

many comments times first will start quarter, the Ironically, in about as preparing the auctions a and retail volumes me and work running which selling that January are first in and see -- we business. vehicles in, with February of of of activity cars and getting make same experienced cars numbers, off-lease use lower facilities quarter. doing going slow the revenue. fourth let quarter then John, through sell and our marketplace. to high lot for lot We The the the some were sale on Jim high-margin phenomena. they're throughout that's the of caused that was those some gave market us a later, in And them, the our

pace. when strong into that's about such a continuing So have margins why in fact, improved greater And cars selling at April. the the started feelings we in March it's

James Hallett

we last excuse to performance. vortex, in is that add couple a weather of we're Yes. said you, John, pleased the time. And going shut that as use all that. in the to here for I that I quite tell they can basically, February, didn't until what not say. But as we March polar really back March, I've there January with as of recall not much -- always I And and we a I'm very, an going weeks of past, mentioned, for see with can March. can think in period and Eric forward And down went we're very sometime we April. good see retail pleased come our into

Eric Loughmiller

And drain on EBITDA. adjusted a was not If on as revenue a It I ADESA either. was drain well did influenced but clarify, not CarsOnTheWeb Assurance could EBITDA influence revenue.

John Murphy

Okay.

So if understand go side there ADESA sort said it us on will auction I or increase backlog? magnitude like of any about might anything flow of mean backlog months? there the kind in a of insurance on ready lots think coming Auto XX% to there what that inventory sounds to in the the that cars Is inventory. sort like give can you cleared out get that the was we the Auctions, dimension of sort a to of you that of Is out. are way it,

Eric Loughmiller

that weeks, aren't number. than full. you, our on few we've a lots cars so will focused lots I our and the tell never more Again, and ADESA there the on No.

been most year. Our lots this have for actually of full

the the lots We will indicator were the But have volume sit lots a time, a of come it's But say cars number don't a long we not up. of cars coming specific and over full, give only many I good inventory capacity. evidence. the the reason that term there it's in that's number, a short in, commercial

a of The some continuing at magazine being cars in there And morning auction add number that the I'll the industry And retailers are is to being demanding very information see were off-lease other this work it. we're reconditioning to about cleaner sold talking popular. large is thing cars because returned. an are

John Murphy

sneak one what I transition might be if And stranded and Okay. Insurance costs either could in Auctions on spin. on follow-up side stand-up The about we put what the or then the as cost on of get costs you -- the side, of sort on an could just dimension sort companies understanding ADESA those the we think should split can the on there? for a have us so Auto

Eric Loughmiller

in in it they million is about of have we that KAR, with XX, is will provide they the hasn't the again, -- segment being $XX About that allocated bear. them to Remainco though the IAA that provide incremental changed. longer in costs and cost no Form once from up and in stand And past we the the disappear in will to essence Yes. services. support half from Form and XX that's the to There cost

So they million and it's move disappear of KAR. roughly from it We'll half the to already is the through over them up incurred SG&A. IAA once stand -- $XX

Operator

from comes Chris Research. Our Bottiglieri Wolfe from next question

Christopher Bottiglieri

a be a Want a Thanks year. throughout the follow acceleration would sequential Color little bit Is -- to massive units the on way the TradeRev. pretty XXX,XXX there for up to there. still

to the the to on average So if like contextualize monthly for you're wondering I a growth now. was April's QX assess kind relative cadence there's way to maybe of

James Hallett

to also and what that seeing I through you're opportunity more think continue activity, saying the more new markets. seeing Well, you're inventory retail seeing you're process, is open you're us trade-in for

to the without And open And XXXX. forward. markets, that at the on to through to XXX when start call, markets we to within that's you XXX I on forward our week I it one the goal markets go in selling the day, here and told getting it a I good plays we what driving enthusiasm we're just throughout currently much confidence and think actually think the balance the was indicator year. but fact those as day as selling continue that you was was a were we last very team. the really track And cars into weeds, of think we're know of get for I to mentioned, we going starts I last -- lot create and see out that really, X,XXX a April it

Eric Loughmiller

just add, XX% Chris, growth. to year. It the was And wasn't just quarter the over was up first volume sequential -- prior it

many the are in in in X,XXX growth saw April we was And the in first than We April the stronger seeing That's months new performance X entered. strong much markets day. what's we've driving quarter. in of very cars the rate

Christopher Bottiglieri

That's a to really just helpful. that. then And follow-up

part of of be as be acquire. like You with kind sense capital mentioned the you'd Any dealer-to-dealer thoughts looking allocation TradeRev for helpful. give to through area you you'll maybe one you market, as where that. looking be acquisition activity I competitors where wondering can was would a be think us there

James Hallett

would you what is. our in I about Chris, focus acquisitions, terms would say -- of remind Yes. spoke we capital I or previously of terms in that of where

will with in the I've and that growing online on acquisition space. and area this today. continue look We international share to whole opportunities focused at in we the to continue we selling. continue is to That terms focus of that, area got space international out to our be you digital And nothing platform. With that then markets other on

Operator

with Craig from Our Kennison next question Baird. comes

Craig Kennison

on what metric. engagement new I want is extent a better adding what the the have driver? the to of by XX% dealers? last that TradeRev, And that on for that year? users platform is bigger for growth driven to start that To been What's function extent

James Hallett

Yes.

their marketplace, are combination the familiar opportunity platform, and is I just So And things that some they longer a -- Craig, with adding more new and the spent the the spoke about -- that with all people dealers I you time it become come we management think out our visiting people it's of become with can growth. the that really you it, to and drive can talking question Number on be kind platform, one, just that dealers, there them organically, how I more that change some introducing past there to new And think. it you certainly inventory. help them teams market in train dealers and familiar of people sending it dealers those the adding this become it getting use habits people, about. no the can with difficult. how just and with other teach just have we the discussion, being just difficult. habits product, those with out talking getting markets. come And having help Florida need it. then in had That to your familiar to the old things, helps launch weekend, is It's is dealers about changing if we in and launch have with and and your I of to

to got taking are and product here. that a to in basically through understand market to those of dealers we break need old new them creatures help we're habits. just And habit, You

Eric Loughmiller

Craig, thing. be on And me one clear let

growth rate different -- year-over-year existing markets in growth. than New markets contributor a the would adoption in be

Craig Kennison

Right.

X And does sort words, incentives? your understanding new base? change drivers, respond than to users In different incentives big it those other do your you existing of how structure

James Hallett

with is can where being make the that financing, done has effective has being leadership the there, offer team may most incentive sat are most on example, those get Those on and we shorter an you transportation. market are ship what effective. it team more the tried how I incentives incentives, impactful those TradeRev it really offer through we've some to walked It's to that it's can all. where distances. the dealers really one as use the maybe inspections, kind sometimes, and things sense country. And of in car we the and bang best are in management obviously not we focused local team the down a miles a of size terms you think your X,XXX maybe terms And the for the do the the are on is what offer getting really best that understand buck transportation. across transportation big most do But the of incentives. not think but of And the can and I and one fits is that the and transportation, then focused that nice

Operator

question Gary next Our from with Prestopino Barrington. comes

Gary Prestopino

through went said some you didn't quite just it I adjusted things you that the was you to Jim, that on Can down. incentives. all again? -- TradeRev through able in of you terms write go

James Hallett

go -- Well Yes. ahead, Gary.

Gary Prestopino

No. go ahead. Go ahead,

James Hallett

Okay.

So and the cases, Eric? is, incentives And And big some cars, where I make that's transportation. the the looked sweet the in And and terms of spot that as on we've sweet getting at incentives, the it biggest one didn't that? thing looked in that particularly was transportation best sense X,XXX at of the we really to really return looked the where spot miles be said, we are shipping country. areas at. across where the and is we that

Eric Loughmiller

if distance we in dealer he's it miles X,XXX a we Yes. a no is regular the market on a buy, or does to a highest what's did Gary, to X,XXX participant what the be And to not transported going value. Obviously, local a car market. focused car in get good the shipping is have that

support. the of weans get the going to to we're some for the the get further high you as of the provide to to So the our cost away. one TradeRev, sales. closer off it the bill total one-off focuses you And pay we willing we actually transportation. But then may was control and to cost And market, it therefore, more focused,

bit build Let's lot base, single little more a to transactions lot to give a than a a rather customer transactions. individual

to it's you're at X,XXX very XXX and provide methodology sweet XXX spot looking sound let's if transporting, the miles. X,XXX more to So miles say, a deployed, they versus

Gary Prestopino

dealers? the Okay. as dealers And you're more suppliers of franchise the seeing independent mix being and the of TradeRev of being buyers still the vehicles

James Hallett

Yes.

independent For well. franchisors part, off well are but as the There the are -- that, buying exceptions primary mentioned, some buyers you most dealers as and are Gary. platform as strong the to as the franchises are the sellers

Operator

comes with question Benjamin next from Our Stephanie SunTrust.

Stephanie Benjamin

I I what just ADESA up wanted bit said. a think and missed I'm you follow some margin, on it trying of to apologize if just little I growth through to But as terms for ADESA the and lower-margin in ancillary of a nothing due clear then accounting Assurance of a bit reduction services. little CarsOnTheWeb also there was and gets to the new. That's

to through should So that an gross going of are of about lower I'm that -- we about backlog at -- forward. the you should should trying think we services those maybe ancillary going then from the actual think that margin it impact we quarter? mentioned because think fact the less Is see ADESA how a of how And auctions Assurance impact forward?

Eric Loughmiller

Yes.

vehicles. So Stephanie, of good question. purchased impact The

That where but we're vehicles risk Assurance services. really of the but also processing permanent we from it, we we our up in programs, online some part the bought are during don't cost due the CarsOnTheWeb at one, has multiple purchase a ADESA before which margins the car was period that be we'll bigger Just will the to can begin That the VAT as of see decline grossing and because basis in. over was operate countries points. change that's we and revenue XXX is

and Services even And our said, think is off-premise. you that back the bring it The now I would see call a to basis XXX industry effort temporary. revenues -- It's up. margins Auction greater additional calls we'll know from I you'll impact that to With reverse I transitory. service think see, that points, a again, I think where the to situation, mix temporary provide other, your think the I and

separately, business the all see of we a we fleets on with that margin at temporary. different We ride-sharing willing over and take are growing marketplace lower are the impact a opportunities. change this revenue think and more quarter but as to I the But was more car-sharing time, the

Stephanie Benjamin

talk Great. and killing during And could the phone that TradeRev's a I little unless quarter. improved then I think you apologize, didn't gross again, as about you I also out, entirely? it in my And was misinterpret that bit margin mentioned well but

Eric Loughmiller

quarter, to the that we in better. revenue. Yes. see substantially as what programs. we made I percent really it these being the think yet, XX% not physical gross And the And TradeRev vehicle a we've car mature across increased. the thing on has tell in would is business comment of cars is the realizing situation, but or marketplace. we're quite We're versus point very I at We've you, in with a the that great consignment all brought that's not as again, stage. say, there incentive -- margin physical than we car change we're margin seeing there in TradeRev will That's greater again, consistent they're revenue the ultimate And sold online see auction a margins, the difference we're I'm a Last also with gross this It's margin dealer auction, up sells per close. I the other where if a sure direction a dollars sold for the said.

Operator

Daniel from Inc. comes Stephens with Imbro question next Our

Daniel Imbro

increases if to been Have I hold at TradeRev RPU, incentives? what you you've any you I you to at the Are incentive questions. Have then you RPU offset your mentioned on these pricing to as follow those peers taking that kind And competitive just are mentioning Obviously, of drove done TradeRev. up that wanted these RPU, few you of able some program seen dialed dialing last part on up market responses back as Eric, to in the back? back incentives. recall that? up dialing

James Hallett

second So part Daniel, the I'll and I'll take then let the of that. part Eric that, take of first

about we dealers, with the and we people talk market about with going we our our on what's anecdotal forward. talk can marketplace, just and real continue generally Certainly, about and reps in value in infrastructure customer. it's competition. the competitors with to focused market a really good of to but it's segment going we're And are terms most know But for the we our listen doing cars. building sales deliver marketplace. million we what field, to get the the the being there the X in and know out in competition technology, support that and we In feedback the these -- the We on not to we're the part, this but

talk talk take inspections. -- gets and about offer transaction of technology we talk transportation, we about care take arbitrations. we other take terms in care we that handle and done, how care payment it's of we about we how so services our our and finance, of We talk the we but the yes, about title, our And how

I just conversation off. an is the Just than those I earlier are areas in the I -- is, focused as lot in goal -- and said, win on is that can marathon. not this with a there here, create we're we more guess This another -- said is comment, have looking And We're selling cars is that at And sprint. a to a that assets we're the we create we long-term looking think marathon. that not the value. value the our

Eric Loughmiller

and the and were were were TradeRev sticking they it. the willing margin provide value the dealers of And for then to transactions RPU this incentives value went the transaction package specifically the because the paying. pay margin to to the is we recognized transaction costs RPU. -- up more them. I that able reduce reduced to want pay lower to goes they of they though, because that and it is executing on then for willing to not it transportation the when our the up It had The buy, influence the did and in But then increase support can also incentives. find they're with because when part we what Separately, cars that team the

Daniel Imbro

We're drive gross think better mentioned on Okay. that track profitability if already kind a losses. loss? we're million losses, that. the year? margin it first call that side? Eric, as full RPU and you year it the scale? that to to gross that's to we quarter, get so And you move in a for the minute through in going the we the Is going sustaining, just Do your what's just Got I call Or improvement what's know there ago, how XX%. on we're driving seeing as And seeing it, saw But margins close of, it. follow-up $XX still the pretty quick then already to

Eric Loughmiller

people hand-to-hand doing scenes. I'd training, It's it's the this field say. people to of TradeRev the to cost images are and behind it's the of there with dealers, the support all combat, Where like the is that. staff, [indiscernible]. talking Again, team the that the to sales entering out that's they're All the work, the helping dealers

it think to normal offset exciting a the because volume about am new the team revenue So had cost in which that's was of it. confident cost the we've I a SG&A ahead future I and driver I business. it big of expense as some what going growth that the in And -- quarters of or generates the what's picks that's of field is, talked up, will, that

we per-car-sold will increased with gross absorb to a some start basis. of margin this So on that

Operator

Jefferies. Our next question with Jordan comes from Bret

Bret Jordan

open I dealer a using response they it Are As that ACV. you Or one? pitching is bit the guess, to on usually them? of to got against more both you are experience, How's focusing seeing two platforms?

James Hallett

Yes.

I see Bret, that see look think you platforms. to think that that -- where I tend buyers you it, both at is

car. that tend dealers factual that, we're of one or a one kind to of And get other the think lot can pick that's but anywhere feedback the again, will they'll -- platform. the buyers to but to don't I market I getting that's around sell have sell, just they in that a information on go

Bret Jordan

do got them them of usually Yes, dealer themselves train Okay. doing it themselves? you And they you've your use with labor helping as fairly it. and stay to have there, ramp Or goes. upload sort and them to Are as long labor then out now? you're far weaning off

James Hallett

longer period to Yes. the the having the dealer have them part, same with that or a need assist made or we're TradeRev transformational get and months is extent. X last probably the for with X continue different leadership their to for team and will, We're And really if at It's you of year some a that dealer. course that that last in most through over time. of strategy the was change. finding them to hold our this that the to person hand, don't to, there having we we decision dealers stay them quite But help

Bret Jordan

what final, of profile the average ADESA Okay. to then you TradeRev average car? what seeing its And value of are Maybe the car? is sort compared a

James Hallett

$X,XXX Yes. in to the of It's somewhere $X,XXX. order

Operator

Our question comes next from Bob Labick Securities. with CJS

Robert Labick

a lot Obviously, TradeRev. on color of

ask the for that. as I'd well. you of jump and IAA part thank because I So big a on over company obviously a question figured

James Hallett

right? of talk ought just we business our part a to It's about, little

Robert Labick

not. Why Yes.

So I questions. guess two

very have capture, quarter. about you the X% nice First, in price

X%? then inventory So the I Jim, that. for this was but wondering, price And growth you is the going X% Was on volume volume? Because to growth. to that growth. Or if you then forward X% anticipating, with could you obviously in mentioned X%. there were you expand then you're volume quarter that X% X% X% a good and thoughts mentioned plus And obviously the

James Hallett

Yes.

-- we're was of volume Bob, X%. growth So X% I talking to

Robert Labick

forward? Great. you so how then please. do the And price, is X% drivers And -- going talk Okay. sustainable think the the about of that

James Hallett

percent more that you total things written seeing one more that is accidents. drivers Well, when we're that think of being we're business, a the and vehicles as seeing off of the Yes. of about

that more cars was of we to in a a fact, -- new a total loss. of quarter, terms sophistication to write-off higher-dollar right driving be as talked of overall. it tends the And matter at car, in a proceeds down result around higher-dollar XX%, declared car. accidented XX% of the tendency all these all with a and in about of cars. more what And were there's And that As to technologies, comes that's the vehicles these of more

that of those our other these now. All base, anything? tailwinds talking -- buyer for Eric, or they scrap add about about X the you certain prices. tailwinds role. extent, to back, about you driven, of get would the tend of things kind a proceeds all to all miles about all But your Talking think international business things different drive are and You be overall the driving they a drivers, that metal X playing right kind when up you're vehicles. add at to talking

Eric Loughmiller

as to that Jim's fee -- buy from increased more increases on came only The the for acquiring, buy and X% The they're thing through paying realized then we point. they're the average fee. vehicles

Robert Labick

it. Got

Okay. but now Great. And obviously, guess ask. it then would I if I I'll be not soon guess,

you uses much of dividend terms at capital us allocation expectations can In forward? of tell free about and IAA, cash how and going

James Hallett

Yes.

into management until the too on us really it's the that to actually for new in have need and we a motion. early think bit Board I wait the spin And really, Board comment and And team happens. to So that. we little a place set will

to those place Eric? of the time preparing get in at we're the spin. execution obviously, Although, things the of

Eric Loughmiller

a is. be to decision Board will as policy It new what Yes. dividend the by

they And we to so on until will occurs, the not providing do we because spin be what information any don't intend know.

Operator

from John Our next with comes question Sykes Nomura.

John Sykes

bit ends the got at was question Moody's, be. on the cash what with to to flow, reason tied I the cash too. get free let existing degree of decent shareholder just get business sort of deleveraging continue kind a a My a it guess really I of want me to looking, look trying to is -- you They to in But And going negative. the as they've the to for up But And happening. what flow sense versus they're the generate this that is initiatives? will that's watch free little of you of much amount go to last when existing question. see that how ask business

Eric Loughmiller

John, Eric. So this is

proceeds as using foremost, of of first in be the debt. distributed we of as to raised and The proceeds entire repay to reorganization, -- the And Remainco all will back are mentioned the part existing tax-free I the IAA capital Remainco. the I comments, by

be spin. the level Remainco So lower than leverage the at will

them to that's out, to credit a think caused be see how I proceeds Spinco, that the We have but they are the looking see is the come process Remainco. And think Again, I that of questions put in also part process. debt, on we'll they're that am have going now to watch. of do repay positive. transaction used but we've debt might they answered answered days, we've begun questions and confident launch I rating the next their the couple ratings of at we'll they And us

Operator

[Operator Instructions].

Our next Consumer Edge Glynn Research. Derek question from comes with

Derek Glynn

around commentary loss Just frequency. following up the total on

disclosed Just total you've the the based been fairly increasing year-over-year. over has CXC data years, on loss

that level Just where is rate curious if out? actually loss there top total may you any think

James Hallett

game, as the X stepped Yes. we frankly, from door maybe think peak But Total around XX%. And we guessing is we now there just But where bit Great history, XX%. a opportunity question XX%. question certainly, little ago. It's Eric were is game I XX%, and often that to? asked. at back to well, X years over and continue when Quite of And the it does grow. And that it you for I get we thought, a you're to always as know, grow. losses had you're a but think I on of years. or conversations them get knocking got have predicting we watched many

So a with grow little maybe that. that, at XX%, felt we XX%, always than Eric? more

Eric Loughmiller

parts. it industry the top Who out there collision in XX%. bit be Maybe robust replacement At a some to of repair knows? to use car value the they point, is a needs little though, and because will parts, the those

which think there than is will repaired still totaled. be number of at a cars there by a cars level more I significant that So

James Hallett

my And I'll comment. maybe just reinforce earlier

will one, financial forward. to going as legislation also of thinking think I'm what it Number we're and from about into these what right maybe And more As be more the vehicle but to the the X it play vehicles seeing then reasons. future, they repaired start you about I talk sorts more replaced. around off cars go be only a repair into increases those get be and things standpoint, for we complex, sure can can there's more opportunity how and and technology,

Derek Glynn

And came the we think quarter? about credit then just separately losses takes little were should And for expecting. year? on the through the puts that than we it. The a there provision Got during how were lower of trend What in remainder AFC. and

James Hallett

Yes.

much pretty -- AFC it activity. retail think I operated follows the

-- as same X.X%. a That it know ago. much think I the loan exactly year losses pretty well, was I at was were our

losses with loan much were line very our in So expectations.

market. retail I performed the to AFC that Eric? think

Eric Loughmiller

by little And first we not that was did ago Right. a get And in a the number little quarter. in portfolio the a the better that's transactions. of than year probably driven growth

gone down loan cars has because truth As get for the the value has you as And in likelihood up. were those value. they are average up is, we balance the up of gone can profile vehicles of the that's but our X%, see, credit high as good selling

transactions. to I was in that's volume what's contributed really loan So think a -- -- it decline again, X% despite number but of flat,

Operator

over am I the showing turn I to like time. now in Speakers, call to Mr. no remarks. closing further queue back questions Jim the this at Hallett would for any

James Hallett

Thank you, Sheree.

want your continued gentlemen, this say to of ladies I a Thank and comments. all, morning. being our thank you interest you First for for of I'll on couple make in company. just

as at as the quarter the first I we As the expected. was it outset, said was, --

to. we slow goal I say said would that you reach I it that that got we on selling there we extremely deliver and platform confident deliver XXX,XXX but on will XXXX. would we will am a TradeRev that spoke was of on, what I our that in choppiness reassure we cars to want to some I TradeRev start, off to also And mentioned However,

So forward. inning, we're moved a April think I maybe fast and March into slow. up bit early and we But going little catching as

to pleased with also there's that, no make sure I'm So confusion.

the that will that, We are happen, doing to are our June. a of and going spin. end And by it's plans happen

Have thank with develop. to on, look for catching day. So as forward you you great things a up we'll and being

Operator

and for thank participating concludes gentlemen, the conference. in program. This Ladies you today's

a have all disconnect, wonderful You and day. may

KAR Auction Services (KAR) 9 May 192019 Q1 Earnings call transcript