KAR - Earnings call transcript Q3 2019 | KAR Auction Services, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the KAR Quarter Third 2019 Earnings Conference Call. [Operator Instructions].

I would now like to hand the conference to your speaker today, Mike Eliason, Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Michael Eliason

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

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

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

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

James Hallett

for and gentlemen, update on The TradeRev, Thank you, going and discuss and provide forward. with our taking performance an welcome are review results, XXXX you to guidance good then that morning, we're that our to speak our today Michael, our call. I you and ladies the topics with improve to want third actions revised quarter to

our results. cover quarter First, me third let

the quarter. are X of short our Our there primary and performance quarter results impacted in fell third expectations, the factors third that in our

volume growth softer growth in were dealer volume. and experienced double-digit consignment volumes than We First, X% in expected. commercial

than While volumes our slower of each we growth channels, grew saw expected. clearly in

the change And is spoken believe timing a the secular and many this it it issue, is customers, not of is market. that and our We in industry. trend we have with a throughout

SG&A second the a in of the third across We and The is led results to the OPENLANE in SG&A factor grew offset at lower decline enough acquisitions. at and realization profit Organic margin. quarter other increases out ADESA margin mix per the revenue. profit gross decreased this Unfortunately, of that to acquired wasn't dollar businesses TradeRev. EBITDA and online X% the driven revenue gross lower-revenue X% volumes businesses. our than at transactions from Volume the excluding impacting TradeRev by ADESA adjusted grew

growth OPENLANE third in slower experienced also the channel in the We quarter.

of lease originations Forward growth XXXX. was quarter third in based on the the expected

growth also of expectations. in performed line decreases of in with AFC lower our rates revenue had facility. We securitization our number cost loan interest seeing and loan per transaction, we're our modest and in both transactions the

the enough offset impact while was throughout slower we that revenue it gross and KAR, SG&A not to a Overall, of margin. mix lower growth provided controlled profit

Now insights some provide happening what on is TradeRev. let me at

business needs effort throughout introduction consignment is that the States. help Dealers meet their make challenges different the our ADESA efforts and a have the United TradeRev multiple of First, accelerate to us combine to sales of necessity. to in having offerings going their TradeRev dealer

asking all the us lowest-cost dealer dealership capabilities, of dealer looking and pursuing be have may one introducing physical, consignment dealers using value calling need of rep allows channels constrained, for. dealers auction the for vehicle. and possible. them physical while highest transaction on they are to whether customers their our immediately to vehicle physical space Having digital lots, sales our or is value a highest maximize the Some and to the consignment not moving each swept the cars what by proceeds seek digital off the all Other and been

effort. of not on profits transaction model. We're advantage We We can below that strategy do joint sales creating the that right revenue in significantly business go-to-market a the of generate our also sustainable focused is on take focused a believe and per future. getting has a are model power economics $XXX

the We should our pursue the and We be do run. and level fees that have we an that of said, we profitable incentives. sustainable believe transaction in for not growth model that reducing economic and With the been long increasing cannot and with within losses have operating targeted To for we pulled at contributing XXXX. accomplish of parameters on this, this million. than operate set to beginning chosen lower financial to volumes approximately back limit $XX the the to the incentives, intentionally we is year

better this To We slows target believe is XXX,XXX teams TradeRev combination a base in the sales more strategy of execute would take the on to and we near our of the markets growth if this in it have down to better target, carefully utilize more local this and incentives term. together even new more ADESA We volume build cars to risk business. buyer lose enter and year. on will our hit the hit greater TradeRev not money,

the the when I there times delay plan to our XXXX. slower faster. we to will believe business believe I you model -- slowdown in growth the are must slower in with not while experiencing order do go are achieve we breakeven tweak

just game. is a TradeRev not volume

the sense digital to and want I'm believe I We customers. to of need complementary to an committed physical a solution. to and model also is to develop us that economic success TradeRev, the customers auction makes solution our that our

dollar the to outcome to It top provide way to that is only paid The solution. offer wholesale unrealistic best until the vehicle. and best equally unrealistic the physical we achieve provide car auction all be prepared the for digital the get must each value think the transaction. value in the channels the is a will maximum goal is is to is receive we To each car for service offer vehicle. outcome, multiple best full think is to to for if that It every

job our offering have that considered. customers to diverse a have sell should vehicles in It wholesale offerings of dealer the where the set many As the decision in I've dictate so is is is the our it in being makes, we not this times every said past, their whatever to our channel job marketplace.

With that, let our guidance. turn me to

disclosed are we guidance earnings in last As release, reducing our for XXXX. we night our

EBITDA We expect $XXX with a wide for X left XXXX. recognize is $XXX million this range of in I only to quarter million that adjusted XXXX.

We of have the to to potential recover or the prior Tech related a situation losses year-end. all Locksmiths' portion High to

fourth over may the XXXX. into history volume highest quarter fourth should We off-lease in significant originations saw also be written increase in that XXXX. vehicles the of have increase the number We This in of returned the in a lease December will in quarter. roll or it number

can strong. everything We we finish to are year the doing

with improve specific close our me comments in including upcoming we're Let the that some actions on taking the earnings quarters. to future,

company our we cost accordingly. and our We First, is smaller, over structure I XXX must corporate head reduced positions. eliminating corporate XXXX, recognize adjust March count that in

every cost of will reduce XXXX. and million plan the a number eliminated over by of in recently We position XXXX. our have have XXXX reduce our We in costs continued positions analyzing as to to $XX overhead that first quarter compared

ADESA legacy auctions. We operating are challenging of all processes, physical especially in our the

of cost auction our services. physical reduce capture and reduce in must the our digital methodologies. our created need auction need of auctions direct see delivering order of greater we to cycle As and to transform adoption of improved processes goals customers, we offerings adjust the We our efficiencies to with use the the commercial to businesses into times these physical VirtuaLane, by digital meet

also company address SG&A holding must the the We outside segment.

is customers. valuable Our and of our meeting through revenue our extremely off-premise services. This as we ancillary to see continue growth is is and to needs to mix shifting essential ARPU grow us the

also EBITDA our profit profit at continue However, acceptable levels. we has field costs margins. This it adjusted lower to requires us so to gross overhead and that our operating grow manage

quarter, was This XX.X% X for high. operating total our consolidated goals I third leadership the have SG&A In the specific of too set is revenue. team.

want the of percent immediately. revenue the want to last, in than reduce spent first begin reduce want don't revenue target good I total this I a I getting immediately team enough. less to I XX% just achieve must less that milestone than we SG&A to on second, us And XX% this and achieve. And of believe XXXX. This is SG&A. that to of is SG&A First,

today flows and time charged went we've structure. in this completed we've past. personally challenges to reduce need consistent faced online capital When to the our eliminating In with words, KAR cash over From that Most in cost facing recognized at public I XXXX, seen in that increase the the to to are we debt. be we more provide XXXX, the importantly, with and XXXX earnings before. was overhead challenges other order to transactions we're corporate expected repay to

core our need and to We at While auction is overhead, our may profitable need all improve to different the to our on similar. the of efficiencies circumstances we task growth find in businesses. hand be to reduce in businesses need focus margins today, very

spend long-term our I outlook time see what know on usually and years. the X over next I we

While focus I overall believe anything term now. want the changed don't to our on outlook, I here, in right has right near

products to the improve but the and our meet to we results services develop future, will of continue quarter-to-quarter in our We needs must customers first.

continue we February. In targets mix, get expenses now with to and that call revenue line and our prove to the revenue achieve at our unit on will and in with We will will we XXXX execute gross the grow to we you and total profit next targets those initiatives you for our share stabilized earnings focus meantime, can per revenue. in

on your us plans Thanks more who our information Eric? it take will and to priorities. questions. our will to for I our and listening before financials we Eric, joining turn today for share now

Eric Loughmiller

Jim. some provide Thank would you, color I our on like to performance. more

ARPU with revenue and start comments some me ADESA. around Let at

in third revenue, decline driven X% net ARPU came In by growth that revenue profit X% have dollars lower quarter. decline X% our our increase profit car prior gross to channels was compared from same-store volume, and offset online vehicles sold. in XX% excluding reflects same-store auction online-only in in that car in the lower per revenue the the completed transactions X% ARPU. from channels year. acquired sold. The quarter, dollars in our third were businesses, or XX% Our and grew a of gross a creates our This purchased This by per revenue

per At X% $XXX increased sold. to physical car auction, ARPU

and auction X%, vehicle only revenue prior volumes with the year. was auction physical per consistent grew However, sold

gross gross at on The this XXs. margin lower-margin only to profit point net decrease drove of but margins Our hope and off-premise mix revenue. low the basis a in XXX revenue ancillary profit led services in

lower revenue we cost consolidated per As we basis. changing in SG&A this profit Jim can reducing by believe through result improved mix a transaction cost on mentioned, services address that processes and reducing and of

the margin in this segments offset holding gross to pressure the make to need the ADESA profit company pressure we is within and adjustments segment, While are SG&A ADESA combined.

we as XXXX physical XXXX. Lease be vehicles do have influence positive a ARPU and a as of end visibility a our We continue into well to online-only strong supply on driver returns at will into as channels auction. of

volumes off to not We but begin expect commercial decreasing. leveling

always Our exception. a fourth year strong quarter quarter services, for no is be and ancillary should this

our is have a expectations is This digital under Europe. CarsOnTheWeb expected. volume real is expand in vehicles, as X opportunity performing operating just QX. net Europe we offerings purchased X% total our as of in through The met quarters. Europe us our in revenue, and of profit for

operating $XX.X months. through losses TradeRev X were million

markets. offered year we TradeRev expect ADESA. existing the to also the must to We cost To must operating new reduce approximately this utilize be the being at million. goal, at better incremental launch for We achieve $XX resources the losses and incentives reduce

We ADESA have part not approximately together clear, allocating will a initiative. physical losses we in to ADESA any $XX keep are our costs at the at place To These as plan million. of better business. be stay within to operating TradeRev TradeRev

X.X% business loan head Most solid impressive had team year losses reduction performance to using without digits, low in we improving is loan their balances. in at back-office performance AFC units loan increases came on were SG&A. in up from average been Revenue the at growth. support the count processes The to technology, transaction has focused but growing the AFC AFC, in At and grew and slightly QX. and single prior of

to our EBITDA, for the discussed adjusted speak me let guidance items me so expectations have updated. through let other we guidance. Now our Jim go

net GAAP operating the our operations through from share net per items and First, expectations per adjusted continuing share. our impacting for EBITDA flow adjusted income income

share $X.XX continuing net income operations $X.XX net expected adjusted share. to be to $X.XX. expect from $X.XX is to share Operating to per We be per income per

we yesterday, a release guidance As disclosed our lower reflect our interest in rate for press to have interest Term on Loan reduced expense B.

XXXX placed the the projects being depreciation. service in better impact reduced also amortization have expected We and we the and appreciation as on visibility have timing of on

effective slightly previous is tax XX% for is Our rate expected to than XXXX, be which guidance. better

our cash guidance expenditures capital We taxes. on and updated also

capital $XXX needs. investments The expenditures capital in to previous are direct increase to expenditures expect for technology We response total to in from million. that guidance XXXX in related is about customer

have the reorganization cash lower reflect prior profit We and for expectations with analyze spin. fees lowered legal activities to -- operating associated to entities the taxes of other analysis an and of our also professional KAR

While are the tax costs the not and costs deductible, activities of prepare spin in directly necessary cash to were related the are reduce our and taxes for deductible that related tax spin completion to certain XXXX.

shares share million also reflect the X.X third in October the authorization repurchase our for for the approximately reduced This have million to of the repurchase We expired that this year average year. $XXX.X weighted number utilized in remaining quarter. shares of

our stock of additional the repurchase expires authorization the authorized has in over XXX October share of common This years. million Directors of XXXX. Board repurchase Our X next an

In capital to acquisition. opportunities we continue business terms allocation grow priorities, through additional evaluate to our of

However, we for that make third our finding given continue sense our EBITDA next opportunities can any from do with expenses businesses ADESA work for so on our our business, reduce that current quarter Improving what results in not couple quarters. primary our but our everyone our going pause priorities not opportunities focus We will are pipeline. continuing our to not in want focus existing to important focus so our profit in a is will to on long-term AFC. be we be miss just the change This adjusted is to margins. today: overhead on meeting But line existing of in efficiencies the or expectations, the a and our most for strategy to gross businesses generated and

Last, at on previously losses High let opportunity Tech me update recover Locksmiths. you recorded the to

litigation expect will litigation former the We our are not any and with year. I through litigation to any of this employees, that of XXXX recovery after stages impact resolution of not and early year-end. means number a do this prior in This for results be

company However, inventory insurance for believe certain fraudulent. losses we were have submitted claims and our payments we with vendor

claim insurer a have our we long-term have substantial We for with support speak. processed is as submitted that being and relationship the

to insurer to process in our claim all with working are We needs this XXXX. satisfy of their

with updated the with The this materially claim timing year. I contributor carrier, year-end. this will impact of this our am range of is understand matter our working importance personally quarter and of resolution involved to in results X biggest wide of they XXXX to the are discussions go and to our and insurance KAR the diligently resolve this to the guidance claim to prior

and lead While us partners as accelerate this our cause relationship unfortunate, coverage claim claims carrier the insurance process of to and are loss circumstances helped our with that us determining long-term to the allow work in the has available the to loss. insurance mitigate

for questions. will That concludes my the operator I so it remarks, to Thank now back turn you.

Operator

America. from of Bank of our Instructions]. come [Operator Murphy And from question line the first will John

Aileen Smith

Smith for Aileen John. is on This

TradeRev TradeRev? other Following for what programs you success your to rollout growth track you And than to on strategies, gauge back in do pursuing if other are incentives define phase can you And what in up the elaborate volume looking how on any, hit your profits, early whether metrics dealers? pulling targets? break-even and you're to on at you're on your the commentary quarter, across and drive around

James Hallett

me take let so Jim, is This Yes. that.

a Our management faster reports Peter than volumes, really and change. losses now Kelly. our to we were growing business made This

the we sales Peter people of mind leadership strong think together got team. well. and a only the better of Kelly ADESA, OPENLANE this TradeRev I and that digital the focused was the ADESA most know resources using the the team really ADESA founder And strength all but team the at strategy is very on are with not and that as team within combining of

incentives that relationship don't the And miles were that believe then any were these longer-term and don't develops I country sticky, believe we car Transporting relied a XXX to dealer. less really, XXX, I I relationships. providing they across don't on transport a incentives. think, XXX, incentives creating long-term car that and with

transaction. the need gain. per the this years interested is in looks volume road. increase And that a what not XX then interested a loan I'm revenue to really game. business long short-term I'm like in X down a believe there's we and This in

And those chase offerings to as speak, something you isn't is that we technology current, as come The going going I about, teams to at the dealers point all that's ADESA, solutions without for of And they this spoke we whether need don't profitability. time must the store or something some require going they towards to at happen, technology. cross-train to contact can have we're prefer here have us doing we one is motion contact, to X person TradeRev What have of that of digital. telling in been believe this volume that support products, that in ultimately and the represent we're now, one that one for and the are to and to point keep we can the and it dealer. the generate technology working capital be profits physical our and

at maintained year one we the of size that market can to end possibly finish we It's be importantly, XXXX. bit. as dealers a And think is but this we all. day, increase continue what multiple always go ready the as the as approach, the that gives slow to strong do just to the physical better but, having it look going dealer having the the one fees. will believe not And we've at I hard that, more a together fits going we're digital offering And that want offering we choice. really And offerings, to We're choice. well, in to to look not down little do

Eric Loughmiller

is Eric. And Aileen, this

defined marketplace success consignment we've the dealer volume, total ADESA measure add. dealer team grow grow grow that Look, physical consignment volume. Not volume. me grow TradeRev focus the one Let volume, is for and not on of

James Hallett

to Eric's and and dealer my TradeRev consignment physical was in quarter point, again. commentary, between And I up actually it the said between X% in

confidence we So we're seeing together, this signs have that work. that better this can

Aileen Smith

conversion something Great. That's quarter at down? continued Are yet may at was versus there auctions? something institutional price very mix slightly metric change selective quarter dragged And all? getting dealer Did declined in year-over-year. consignment, with behavior to to helpful to commentary. increase have conversion more the with Or question, the follow-up that dealer respect in as that total they consignment this on going on a that across institutional

James Hallett

Yes.

on So a of couple retail. buy on is, the what what the quarter also is third all, dealers And they willing and was And sellers they're was what stock when an soft, soft willing and of first an there effect points I retail has to would what it accept. that ultimately willing to has make impact pay. and they're in soft. to the It are

what So soft, the there's was was and anticipated. that much quarter no question it we softer than

thing other on good on -- the you dealer news I of The commercial the business. the side will is tell

that is we you've winning winning of We if because off. to reason technology, an And continue getting you is always in analytics -- basis. those investments we're are and we're investments made we I've over maintained winning data will share and wins way with is made losses talk the on share. we're the now paying share. winning the and And investments with I And platforms individual years, the we the the investments we listened the more through about in that in win made our me overall, But share. to tell our don't we

Operator

come Wolfe line question Bottiglieri from next from Chris Research. our the And will of

Christopher Bottiglieri

on at gives be more I when the seeing market you'll like you're theoretically, for today -- I you you get to do flow competitors the fees profits years and markets that to one the are anything the your have head care -- there so probably? XX Like there. level like local don't if raise So want that you hold ability able that two to burn about have the sense being willingness just and feasible is money and presumably questions. you confidence guess volumes first think do? to capital to it's they in

James Hallett

focus we again, I believe that we're their we But well. what taking absolutely. doing. need that probably I that as think look -- of fees believe that Yes, Yes. I -- I anecdotally, at believe a to they're on first think close all,

said, of so a believe going it's we case following here. doing case creating not model, it's a profitable them, do we a I in of what need And to forward as

one said, that With they have offering.

offering, the to I single offering And win one offering a both I here. believe is repeating have win here. -- digital as the we really think long-term game be only. believe offerings, that it's am here. competitors can we Our single-technology and But offering those a digital I don't it's assets that I have. physical going have long

yes, we platform, we a And so the and TradeRev, have have technology.

have company, the have we combined we transportation have But a company. approach. better have We also together we finance inspection an company, a

And a this other to as one all. not it's from. size services number that dealers of say, fits have make that offering a I more We choose much get holistic

dealers I those pay those for by services, for all they'll believe will provider. provided services and one So pay

fees. the And our end at raising are the day, we of

is at We doing. have to fees, and the our guy really and looking their not raised other we raise what we're continue fees,

Christopher Bottiglieri

thing. if to then you. get helpful. maybe put we want give a off-lease just kind about us just the that Got whole guidance in that's for insurance of is And guidance. any and profitable framework And I That's I there assuming most recovery think those second, like your implied aside then to vehicles. and both year-to-date? profitable your because least relative are a impact vehicles for you're understanding to think QX what the simplify But growth way

like in get for expecting you're of terms sense QX. there of a kind what Just

James Hallett

Yes.

that to of a things as most the a physical first the really of came it result certainly had growth X soft in through was as you, There you physical was take we at market at I'd our thank the the if growth So look ancillary impact guidance, of services. about an quarter, thought at And Really gross Chris. all, our our auction. X lower is, or point profit auction.

spin, The the second out -- our company. team. And I I as we leadership was to our costs adjust coming many complimentary we cases, going the in knew were our costs. say, of have rightsize And to of would we be knew and,

a would done move say continue job. we've criticism good move I be to think my would and need fast faster. didn't I to enough, we we

And which in volumes, to of volumes that XXXX. on we XXXX. were Will also highest your the we was third, gets lease cars question said fourth is the these December We written all thoughts in history know quarter? capture leases some those month in it those -- of written in though plateaus, the see we the even of really peaks roll able that off-lease don't these to into I the will peaks, Some It as cars in hold being are the plateaus. XXXX. say. It really XXXX? cars over into sellers my Or because

over returns what We next X go and off-lease level of in years, X forward. we or it's terms visibility happens into have the as great pretty

So we to our continuing our and as go forward. returns volume see lease of big driver profitability we be a

question? answer I did Chris, So your

Christopher Bottiglieri

Yes.

I did. think you

Operator

next Ryan from question from our line come will And of Brinkman the JPMorgan.

Ryan Brinkman

persist? please exactly? expect they will long trends the timing And earlier issues you'd you are issues? that the you industry to those volume on Could softer that What comment timing attributed how do

James Hallett

could it as and out long got the the was. the of we We But business a retail predicting time didn't ago, retail anticipate quarter listen, as I lack Ryan. things soft didn't Well, of on being anticipate as a the And around caused of there's world itself. did. lot outside that industry on soft as going speculate as car it the of to what right, you that, going

here that get that a hopeful year. continue move it the I'm the that we of to we'll back forward normal and retail blip to But was towards end with said, as

Eric Loughmiller

this is Ryan, And Eric.

Let talk in me that month while volumes, December being was the big we September, add. XXXX, a about year Even lease very October at -- to soft.

only subset. big the quarter of that that the know was markets operations. end the car a was auction. It soft. retail of the companies retail I That's and of used have the the get some we That's supporters when late-model physical into public are other the very perspective from of at soft look So you subprime car. the

We the time, That conversion is mean, had weren't at seller corrects the over price. just value of buyers or about expectations will know rate. of correct the pay we history, the this will But months. to supply question earlier willing seller raise the reduce short coming would That a inventory. transact. which weeks, volume period will of itself. Either not it the from and buyer relatively The will I The move.

Ryan Brinkman

in million? helpful. I you'd High impact material fourth just loss taken That's heard a could the be issue $X Can the neutral would Locksmiths that have is mention that to Tech magnitude the the impact quarter. at And only potential you you given inventory And on confirm XQ? this then already positive the still roughly

Eric Loughmiller

offset losses. up This least at be where claim. to ends mid-single specific no magnitude, could given would And while you're downside. with number, insurance and is just the we it Ryan, see the recovery, We'll be earlier the right. greater. a digits the haven't There's

Ryan Brinkman

ask initiative benefits on finally, have tracked might couple added Okay. fair New ago? to might plan of how your was because costs. the I have there Wave want a also Got I it. And relative learn was could to that part you I years any expectation, a the outlined impression update of but in bit provide is under the the then just because

it? reduction? is to about it targeted still data initiative cetera. protect Is SG&A that the being that's talked don't that, et such Or area hiring had I technologists, for you're a slew an maybe important of scientists, looking an You Ph.D.s, know, maybe

James Hallett

Yes.

isn't of it at responsibility and to what and Ryan. not is the across reduction all question, and that take number first of does to we and creates our a going But parts job do and every need scrutinize it. job we're SG&A business look that So a businesses. a that what and foremost, our There

I business that we've benefits to, what system to easier and a the that goes is us. And New those make And of with would New tell we've you, seen market our with Wave. So do gains, and market again, attribute across all. But with seen it done enhanced share much with Wave I for all new, Wave New features product really seen we've to gains. share customers can we've what

monetizing the And -- would no is -- analytics area. data and more is with commentary, the data, analytics. and I've it other this by and that in that it's again, is rewarded it data not we've I'll by position paid the share. data to getting question we attribute the I area absolutely get said taken way And with a There's leadership necessarily analytics and my repeat there's that getting way for

share that, grow And specifics, you continued side. won without And major have commercial with would tell getting that, in so on business. I the some we've to we

Operator

And come of from will line our the next SunTrust. Benjamin from Stephanie question

Stephanie Benjamin

I maybe of a the the this trends bit on to quarter. little follow what did, these volumes and, wanted why industry was little the can know and kind can of historically that it -- fact, of some this improved. see where about of more bit the the that slowdown in this, timing retail and me before of and seen the just trend, question a up was be the timing, before said you just we lack so softer it I guess, you but driver volume you've I learn during historical and

TradeRev. that. So follow-up just a maybe heads we so there around kind of wrap our I context bit then just can on a And have more little

Eric Loughmiller

on we they car, it's Stephanie. say All is a lot. coming up is disclose inventory, got adjusted what we not at This rates they're and need lack in first of and quarter don't sense on dealers inventory, dealer not one always a to seller And the have OPENLANE it's while that price is the even to declining to I'll the been pricing the shows slowdown, feels the Cars pace that third experiencing, at more and the see pay. a what saw buyer their add when expectations Eric. we have have rate. sufficient slightly right, be their this less car supply, that on in specifically, What of to this. it the back, full slower the shot expectations we're on what and we to don't disconnect between of inventory the is to you? will willing Does a sufficient because has a we've and ironically, conversion make today. If they looking than for aggressive the lot bidding conversion pay platform. inventory, going buyer sellers They're selling take because

did And there's seen consigners see it in as even seen These again, it We've periods it. because past, saw weeks 'XX, when back, cars. We where 'XX, adjustments -- over go few need the you 'XX, to this. the a you in move different occur these 'XX. we've to

Stephanie Benjamin

and some No. at trade their just any the -- traded No, their sourcing way the lease in-house, and vehicles helpful. through -- so Is versus concern dealers are there of that that taking maybe auction? that's trade-ins going or supplementing basically vehicles trade own overall inventory

James Hallett

trade-ins dealer, car possibly former cars. was first much trade-ins. way, mean source I Yes. was it. I the always through I being I selling selling Dealers Listen, new and I vehicles. tell cars to choice selling can That always have source on my trade-in, sourced the could. own as a my always was was their two I you they and I as getting was

best But XX,XXX programs they always a years what of keep provide private-label vehicles. that young, on and sourced old, miles those lot their provide them, reconditioning. need is So OPENLANE good They'll off-lease own X those they've don't condition, they always the vehicles XX,XXX, cars, XX,XXX, right, can.

can to and the than row off-lease sell labels. cars we get retail it of attraction lot the basically your in vehicle, back front I private You the take today. those And put and ready, think that's say, as the it it

Stephanie Benjamin

I helpful. Got quickly a of then just -- TradeRev. it. on this And that's And No, is more clarification.

is I kind U.S.? building cost itself. question the that strategy, but of understand think network to not rollout dealerships think of marketplace, affect across my TradeRev the So the any effect, I necessarily on builds that beauty is I chasing does which this -- platform the of creating volumes actual dealer-to-dealer the at So just

to you can to bit little that expense just but dealers comment about just access at the the to again that not if So just platform. volumes a have make target maybe any sure necessarily rollout,

James Hallett

well. part and take then to in I'm of let going that, Eric going weigh to as I'm Yes. first

line bottom is the rollout. we So the haven't postponed

the the of do to we continue pace Eric, We we've that including to you the rollout, add the to think, I of incentives rollout, that slowed added something? that. pace but want And

Eric Loughmiller

new opposed together do. is by used platform the us ADESA, train rep strategy, which car to better to market any about, to we a that in But all Yes. immediately is available them hire that them if a there's TradeRev, dealer having at what to what the on a transact with has is as business contact

already customer, We have already business. know people that know that that

By resources the over quarters. said, hiring as know I think on he but faster. these next on so that using Jim pulling entering the back TradeRev the down markets you'll see the pace slow sometimes And already I accelerate what dealer, like to go several you independent us of said,

Operator

And come Gary our Research. line the from from of next will question Prestopino Barrington

Gary Prestopino

TradeRev Is portend personnel in with And that of a QX. in what Eric, internally? that direct about because million step-down forces? see just to the would doing XXXX, you losses million that yet then knocking a to $XX losses doing of reducing -- in at of back talk a you've the quarters, better after million of you're forward. sales And of strategy, you're at going $X million lose about just the it $XX mentioned actually could a going first combining accounts, to so and lost wanted looks you're loss TradeRev $XX these are rate I the result going want about incentives that running X like quarter. we And what together you're keep you that

Eric Loughmiller

are very that. better Thank is less of up summed which well. our per it these of you breadth incremental Gary, over transaction, to but take advantage Yes, of time coverage making possibly for you've have cost dealers. the volume changes we going reduce to

the they're am the allocating selling ADESA to I changing in not in out my not going what quarter. ADESA. fourth -- mean, hire pointed commentary, TradeRev are I I We We vehicle. of structure less We're if cost a to cost TradeRev

And the losses in That part, of hopefully, pace are will of the TradeRev in that to in their on TradeRev the we ADESA. cost attributable and a sale how accelerate the able to activity over volume. stay fourth time, reduce directly some result at quarter be, may growth will are and

Gary Prestopino

then a you're in field. And your about look but and also the at that, of SG&A that take long, all your you and going out and lot Okay. talk to what volumes demand and hard COGS a mentioned supply

bit diminishes little could that the COGS do SG&A field? the you side, what better Because ancillary book, it the margins. you could you do maybe a could in So obviously, talk about on on better you what side services any

that would be to a attack. place So

what So you're some give idea looking of do. us to

James Hallett

think one you share are question great about, a I here. that's thoughts I'll and Gary, lot and we thinking Yes. a that with some

understand First to labor our of as need XX% related. business, we our you of costs at all, are that look

And and in So we but still the where screen And able heard reconditioning of cars. it physical have that, auction anymore. can can at drive in absolutely go you've the to the about necessarily basically, especially about as past still labor, the VirtuaLane be they they the parked comfortably, through where to you lanes sit think the lane the a come buy they off and the -- us have and to spot, it pictures dealers see in get doesn't legacy address car the on business. get talk

forward. and car XX is of a major have out can see to with equipped still this auctions now of report would can has with on We equip to the the couple go VirtuaLane that want auctions which come car we is if our in really VirtuaLane, they the condition balance make our points I to the same doing thing, -- sitting and if a competitor very and our And there, walk of also they auction. advance car, they in is go continue business the been they in around physical encouraging. And about the as we want

just they've all-digital second one car In doing they're announced any XXX% fact, to is No recently, the virtual. goes move And through in their they're the they through lane auction. last about to -- that auction lanes. XXX% announced week, that

move. that So there's question way this the the industry no moving is and is must

to do the reimagine how auction. at have physical we We things

and that has Let these the it's a been workweek? I long. work to I to of thinking Those we're Is reduce auction of right auction took targeting that that upset only it dealers auctions? me what really down And And XX longer one examples lots do lanes? an what a lanes from that costs. number and across through going can auction savings. of be Think focus we a to we operate thinking and on of of that XX give list the really eliminate could X.X-day also with extra lanes? of on but math ran XX you Could terms we're week that even an is it's to could about the list, minutes mean, things X-day types There's to mean our and go things, auctions. lanes about. today, A the XX-lane X could we're some workweek? idea know But the it going are because in is XX give just you And the an -- you've do things that we you that would about, would down X auction. at

of October, for a and will is what reimagining And held humbled remarketers from just safety the and is the spent transformation other keynote of stop to running spent all, in And I'll is in about meeting the then I of this future. we're second do that my talking speaker. here Association we're Auto to Indianapolis, have time I in talking auctions to I just National recently first thing and the auctions be to my all was operate And its all, Auction physical about that time it annual have all mention here way the but going -- the the to physical auction of standpoint; going that cars. auction

not that but lot lot some going we a opportunity working on gain big focus of think So on today, think I'm to there trust significant is there's there. quantify We've I of it. it, brain a but got

Gary Prestopino

it field, continual And this accomplish can Is this a just that you're a over program? doing you the is is X-year a -- out just lastly is, is Or what in it something program? year?

James Hallett

these continuous I think I -- it we improvement. launched launched it's as we get can now, Many we speak. and it's of being I can believe think work can things, that certainly, we to we at other want the by too, it's not thing there's And it certainly, just I'll line. don't always you that's any I what think do. auction tell important, auction. finish that

We have our bring customers to us. with

out shove down force-feed You throat it and and their go just it. can't

can bit should it to to X faster on getting and that proposition they go It's on last ask what to have and they the understand and And dealers most my running we're harder have the a OEMs way there we've cases. You customers to the is the tell older why And little the with than not it. prepared in want I to but got for our or make sure -- your we're going come because support the now are dealers not support you, was been you fast, to VirtuaLane generations. speed value go with X tremendous from doing the car with some have of customers an us. cars. to But that still hanging them we the they've point right are

Operator

come Kennison the question line from from our And will next Baird. Craig of

Craig Kennison

below is that something more that of well so it QX of wanted achieving full I that your address goal such in the immediate? percentage that you're you something wanted the year? is as Or revenue SG&A of to below I is And to then quickly XXXX goal? unfold get to next is cadence of will a sales throughout Jim, clarify, in XX% that year can XXXX.

James Hallett

Yes.

March, the And set some reductions I've under that told to the goal under told and we've is you be goal. that speak. So I it We're done at we or in on as It's the year, XX%. recent working cost the reductions we about motion. throughout the here. did of in I've -- cost course you

Craig Kennison

on wanted then And give you chance to a to comment Europe. I

working the Europe? volume's profile the feels maybe in committed to It You said your in a had with you line volume profit it goals. was like you're that still know phase. just as year. Could of you what's ahead And in I in address earlier clarify of hyper-growth what

James Hallett

that performing of asking. Yes. expectations. to we've absolutely you been do for thing management good able is got our first there. very all, a to The we've -- CarsOnTheWeb Thank team our been been weren't we've allowed what to, to that some to we've relationships them able able has volumes. and get to introduce to do, increase And that they to us able

other carpark The opportunity, as North Europe in Europe, think about companies carpark the the in thing is here that any other what of size that carpark -- the you you aren't And do in the about think CarsOnTheWeb, equal if there America. to CarsOnTheWeb exactly the does.

contributor CarsOnTheWeb a and And forward. so going think think our opportunity, there's will be growth a to real big we we

Craig Kennison

the And around then spin. finally,

growth and some revenue in targets, described? You X% time to still frame about goals the you EBITDA X% margins. long-term reasonable Are XX% talked growth those

James Hallett

Yes.

Operator

the next from our of Consumer from Glynn come question line Derek Edge will Research. And

Derek Glynn

on Just TradeRev. two questions

for quarter? on any or on if better strategy there or last you Wondering TradeRev in can this business significant dynamic the hoping space. raise that TradeRev? then ADESA that a for more pivot lead hiccups them has changes? Manheim the those to you've elaborate TradeRev? perhaps been competitive able two respect First, did over would Obviously, recent environment more dealer-to-dealer Were across in align the capital. incentive you to with sales the to impact in changes quarter changes on competitive from private the get some competitor the and the just to seen have any What just to team to color both And secondly,

James Hallett

So there. let me parts multiple start. There's

got I think of most them. I

competing. an were it our ADESA And was change." we TradeRev -- were had teams starting it the companies. almost that of We great the saying, Let saying say, me had a I'll really And our It through was we with "This and as we needs and were with employees X was who start created it, change they management. excited this that's to teams, competitor. is had and encouraging very the like We fault, much a are as a own X employees company take I'll company, merger point. our it was

are And we brought pleased so listened think together we I under leadership. and employees single our that them to this that

That a cross-training there's mentioned I cross-training going continues. of on. lot

If It's I at paid this get or the programs. paid. get and car. or dealer aligned so more We somebody compensation We I also a not, sell looked now looked we've car, at way programs, TradeRev getting somebody at car, ADESA. you're if money car sell it's it's I at And just make got that car. more money compensation paid got those

programs So I good. think compensation aligning those were

know are going information. from information. in fan are different back, car cars. a one sold. factual industry still If also I car another a it's count I organizations. more competitive don't we cars And It's hear that to differently counted and tell car, one not lot what One on I'm I tend Quite competitors. of things a factual to standpoint, is I sold. and sold. anecdotal doing. again, anything I comes not the that then it how count And people cars. big they frankly, car like you car how I about a hear the don't is with of have know about sale get my arbitrated

hand, into has I no I'll said: go other on question we in the out we're we term. it space, when have. competitors that wins field. in is the the think believe it long offering our what the to I I There's There's But originally but And competition competitive. that nobody So run there back

Operator

Bret question from next from will Jefferies. Jordan come the And

Bret Jordan

that But I think transportation incentive being cadence question. spend free have sort well? thrown of see on ACV with the you you do lot deals, a as off been into that competitive landscape last slowing I but backing of a also? Express of or there's follow-up Manheim see do some them

James Hallett

how At because But time. sustainable know the this disclose creating I what market see that information would respond. they they transactions doesn't the don't incentives publicly. any doing these they're all wouldn't over temporary we point, value expect We'll see aren't in

Bret Jordan

your build force? you sales Will

Eric Loughmiller

heavy to incentives the first and we're at the first doing to We do were the market. it stop a same probably the to were driver of initially level. build we it, Bret,

James Hallett

breakeven, want and We Bret, this XXXX. milestone. start we're on I we you, just that's need Yes. that's to in still to believe, need term. stand was a going to to money. talk But about tell that on add me and where let breakeven, we at -- we be break not even own to making to track, And long is its business we

some is of not at the much and can about much doing. And that so throw this things market, throw how money we're the we how at the -- we market how incentives can do

As it realize by this we there. did to And game. now not think those throwing to of of that's we incentives fact, matter going incentives kind a it's out ourselves I win

Operator

question the And showing back at further to time. closing Hallett call turn not I'm I'd remarks. to over this any any for like Jim

James Hallett

commentary, February this my in you how can it's we we've our nothing to we we in the appreciate support you All full things going And to we're execute dealing things you to seen on talked rightsize going can to right. tell to and today. have forward ready about, Thank to company we as execute doing on confidence is the you, that with. about. got and before, areas. And that on. you on to to we're in we the your continued that that haven't that you to and ready the we're look demonstrate continue But to business I and team appreciate being some execute talking mentioned I we're by grow Obviously, we I things things talked that all

I have day. that, a being with you on. So great appreciate

Operator

concludes participating. Thank today's for Ladies call. and gentlemen, this you conference

You may now disconnect.

KAR Auction Services (KAR) 10 Nov 192019 Q3 Earnings call transcript