KAR - Earnings call transcript Q4 2019 | KAR Auction Services, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the KAR Global Q4 and Full-Year 2019 Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions]

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

Mike Eliason

KAR Dan. will Good today Conference for us concluding performance thank Today December quarter XX, XXXX. questions morning the KAR from and After of financial for the Earnings commentary, will you for Global the we ended we joining our discuss Thanks, Global take Year-End Call. XXXX 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 Let our be throughout me site. also measures we GAAP press is measure non-GAAP applicable the Reconciliations to also the issued both in can Relations non-GAAP financial Investor the will we in night, GAAP last referencing mention financial release the of found of available which financial measures. that conference be section call, that and Web

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

Jim Hallett

Thank you, welcome Michael, call. and good our morning and ladies and to gentlemen,

be I that investors may also and stating forward. our these what accountable will a obvious, and are and for XXXX year, the are path we path by have be start me Let for forward, know want results, that accountable we been challenging a to we has

to is and in XXXX beyond. our today, As I I comments performance in will believe improve that KAR explain well-positioned my

we agenda let for me will outline then So with to it. that, get and today, my

quarter full-year believe our trends provide to for KAR our impact top priorities could First review our performance, of XXXX. and performance, review on in you key the want the that we last, Global insights for want guidance through XXXX, and financial and the summarize items I our fourth XXXX, I to all, our influence walk

a are sets continued us contribute that directly improving in priorities for Our initiatives growth our combination beyond XXXX, performance of XXXX. and up to

start me for revenues I'm increased with performance. basis, saw on the quarter our a we performance, pleased grew fourth our our increase of we adjusted Actually, an financial where EBITDA full-year Let prior X% XX% the increased and X%, adjusted overview and year, with net net revenue consolidated over X%. EBITDA

areas. disappointment XXXX but the look to limited performance two was that is disappointing, you when at KAR, up pieces Our my for make

impacted of but XXXX, High area fell Tech second an of First, at High incurred expectations, our than well just under earnings the our our short recover the still we and the on drain had that significant, expenses more $X and Locksmiths targets. was $XX Tech TradeRev, Locksmiths losses issue at million We negatively exceeded performance is million. by did in volumes our

and believe improve I few strategy lower in will in As our segment, dealer the our go-to-market our have altered new digital we in cover approach success. success moments, I dealer-to-dealer offering. our will that consignment costs achieving a our for

through two in fourth the strong I a quarter a in business, see as results. are had negative As OPENLANE beyond these our our reflected physical platform. business, look of items, performance that in lot well as auction We strength I our

X%, volumes volume commercial are Our grew to grew triple and the addition we dealer Europe XX%, in consignment and volumes of total CarsOnTheWeb. able volume was up X%, our with

continues for $XXX increased the X% from online and consistent $XXX. ARPU and grew grow. marketplaces quarter, in saw increased be in Physical KAR. ARPU ARPU EBITDA online to a business from both physical $XXX to adjusted grew -- performer in ARPU $XXX, fourth AFC only We also X%. the Revenues to

reduce will our We also that made forward. SG&A in going some changes KAR

levels. We and be than our $XX this eliminated organizational severance the Many to higher of the payback of the have compensation number eliminated with quarters. positions had that, less cost overhead for were one-time nearly positions. quarter is two complicated streamlined million, of have and We less a structure in fourth

back XXXX, auto successes combination has the right-size market As a enterprise. Global and strong, the vehicles remained used smaller XXXX wholesale it car expectations. company our some I reflect has last-half choppiness, KAR positive. remaining us retail is industry both the for our challenged and exceeded the of look a outlook but spin-off saw The had on supply and of challenges. is becoming and insurance to of auctions Yet, clearly The of

expectations and that, the to or with delivering execution our meet in exceed ready results going I focus turn forward. So, XXXX am page the on that on

Now an of overview guidance. let with you me XXXX provide

We a million, and in teams Included in integrated to with confidence of this dealer $X.XX. adjusted adjusted combination increased million $XX EBITDA this meeting market, will and to have losses expect the the share at an $XXX target. by million. of of to expectation operating This $XXX reduce serving incurred the approximately per income more net I consignment $X.XX to result in approach is TradeRev sales guidance

American both commercial and volume in dealer North consignment grow. expect segments We to

remain and will Dealer the other market. not Our our physical commercial of lease segment digital are activity Remember segments. repossession returns that by consignment supported are to segment and strong. be expected is

consignment two the specific total Grow and on segment. volume goals profitability consignment in dealer focused dealer dealer our consignment. increase are for We

a where, will how dictate we how our As all or solutions customers times, me we to offer not I will their said should to have sell they many vehicle by when, needs. of

expense digital growth offerings pursue to of our going not at the are We performance. in

the a We sustainable will is term. model that business long with digital for marketplace rational the approach

in me car to Now, XXXX. let speak values used

ARPU. AutoVIN, commercial a cause operate the will We used KAR, strength CarsArrive, value creates and growing physical our of support enhancing being growing all our are our RDN that This services, continue will and supply car that ARPU used consigners to supply opportunity from benefit to of strong and vehicles businesses to modestly. auctions physical also of decline prices our expecting for an to through contribute outside locations

On the our cost we further to side, plan reduce SG&A.

consignment have the The We XXXX opportunities combination corporate in but believe and in be and be we identified reduced licenses eliminated cost name non-payroll that reduce teams XXXX, of XX XXXX. we entertainment will maintenance in dealer January. mobile and lower have TradeRev We sales cost ADESA and expenses, software to cost can seen reductions headcount travel in to early and a few. in positions cost, in device have

challenge I leadership of our team SG&A reduce of XX% XXXX. the a by percent to end continue as to total revenue to our

for want established those to specific We in you. priorities five and have XXXX, I outline

to of KAR. profitability our First, improve overall we want

want consignment we dealer to our grow Secondly, business.

future, Global want we setting want finally, digital grow our on physical business, near-term to commercial auctions grow to Third, are our and to the of we the KAR into auction performance continue to future. and our want we businesses. up for and focused international These fourth, the transform priorities

on Let priorities. me expand those

Our to we've performance to improve I performance. our actions spoken a improve I've first of have taken priority is in to number already our taken our have to spoken number financial we of actions performance. improve XXXX. a already to

reducing contribution of focus to SG&A, profit on ancillary businesses. the gross In related our and will addition improving we our

Tech profit direct and costs. to reduce to the also need High we for our percentages. targets American need operations at use to technology of KAR, to virtual physical offerings, auctions the to to look and looking the We auction lane a CarsArrive our improve rethink our our Locksmith, We're the specific traditional moves of vehicle number sale. expand North for prior processes, reduce set have AutoVIN, We and gross and

XXXX for to priority dealer volume. was Next consignment grow our

have we We TradeRev have our the strategy. sales now team combined and ADESA clarified of go-to-market and

set comprehensive all our consignment members our consignment training have program provided for sales clear of We sales will volume. we team three-day goal dealer January, North and In for a we a across dealer America. team grow

solution our allows last solution when NADA sell to -- week, sets me solution three this the At a to The distinct we vehicle. a excuse service this from introduced dealer solutions. dealer offerings highway set selling select so

allow in dealer as or of the desires. as all use KAR sales little process the dealer capabilities our to We involvement the of with much as will

three-day or our or delivery on within be is Any move will We vehicle free. guarantee. also radius XXX-mile delivery buying less introduced dealer delivered the metal days three of the TradeRev purchases in

service the approximately importantly, dealer levels, of to physical and the dealer consignment understand auction our are the on locations, consignment X vehicles in most from our I sales process. consignment auction bar physical industry XXX,XXX dealer nearly want sold all and teams auction We vehicles resetting XXXX. sold We physical million

maximum a venue viable that want the get transaction. for to to I a value wholesale auctions physical remain reinforce

sell on sales commercial We continue OEMs continue technology, the consigners. want Using private Canadian the to sites and best-in-class to label private talk provide business. these the I banks. with Thirdly, open volumes U.S. about we for the growing that to increase want and label technology for our markets major and a OPENLANE

ancillary at have the in value the condition increase to to opportunity to share growth, we finance also offer see We targeting vehicles for are services groups an an We not increase vehicles auction. these expand revenue captive the our and OEMs but volume, and at driver these only market this improve we and important time. of the see the of as physical their same

in auction We're is capabilities our our on digital the providing customers. repossession transportation future. be inspections, provide auction reach to the that analytic and the commercial also the other data and our priority operations businesses transform focused leader in the and expanding least physical our services, of of Fourth, to

We are we every rethinking physical at auction our process locations. technology every use and

I auctions to foremost, and want physical the First safer. be

best buying how best of vehicles we is while see spending we our business, and the from and away to with make that possible operations. clear amount when do least the dealers want decisions the it retail the time can dealers information help Secondly,

facilities invest and auctions. operate physical technology in continue we our will to We these use auction that to the

inventory only our will this reducing obtain benefit costs dealers sites. by labor to but at help auction physical required more Not our efficiently, the also will we operate

its the on make significant goals. has is about and to priority increasing not future our likely this auction, The our beyond XXXX. XXXX, longer While good I returns news about in expect investment is, and see the the roadmap priority technology, a capital in achieve expense to our digital structure progress prioritizing more greatest is to

grow platforms international these the separate throughout profits. online Finally, continental our volumes in the fifth we in priority to and opportunity U.K. Each in operate growing grow the our business, auction platforms has Europe. two of

our looking already provide we develop as in that these greater XXXX, Europe. auction in wholesale international Not services growth change growth acquisition primary see can country, of I of the in share services years stay other markets. additional for that to Germany, commercial but Our as European additional within experience driver ahead well the we consigners in provide increase be even CarsOnTheWeb we're developing our operations platform the will we We're only pursuing wholesale international in transactions particular growth. new and a the our are especially and

In results products. have summary, priorities offering approaching We're with future. cost focus the structure our the we our a just different and business of in solutions set XXXX, the the on improve wholesale segments will impact directly providing that not into and

priorities throughout make into allocate shape operating the our we that will initiatives that we decisions year capital. Our the what

for Eric thank it us will to today. turn commentary. again for So, you joining over additional I now Eric?

Eric Loughmiller

Thank you, Jim.

additional on add XXXX. some performance comments Let in our me

I would statement in our like First, a highlight to change presentation. income

auction the high separate profit fourth total finance our our in presentation to XX% we XXXX, as gross understand statements services gross have financial purchase that is a allows This our of the the performance. of of revenue quarter, full-year revenue. related revenue component Almost vehicle revenue are and and Beginning margins. for better sales fees, identifying readers

as in expanded However, vehicle vehicles financial services that of statements for the comparable reflects revenue results ADESA Revenue segment. and with a CarsOnTheWeb. the reported consolidated sale vehicle distorts the margins have of our sales program significant become financial the acquired recently, insurance more of the gross from cost ADESA and purchased purchased from the has reported the sale in price we

impacted I would items couple fourth to our a highlight also quarter of like that results.

non-recurring expenses as of fourth from throughout severance First, corporate costs company. we defined number in quarter in the and eliminated positions are severance the a excluded we million adjusted EBITDA. as the are $X.X incurred The

reduced not of computation net net taxes the operations share severance per However, from adjusted by continuing from continuing costs operating quarter excluded adjusted per are income $X.XX. from income net operations share. income costs Fourth severance operating of

for to impacted income income higher compared were the to results as negatively tax rate our quarter a fourth compared rate as expected by XXXX Our effective in XXXX and effective year. tax also

of continuing tax income XX% fourth income the from rate share per for effective The compared effective $X.XX The rate quarter respectively. our and rate full-year of XXXX. share $X.XX income and effective per net adjusted fourth to the was XX% $X.XX. of the reduced operating impact operations severance by The quarter income in in increased tax increases on tax

took its in incurred were reduce The costs cost IAA. actions severance action The XXXX. post-spend as taken in for size car of to operations we structure will right our XXXX

provide to organization on team in and stand IAA company. to their the continue functions as We support IAA they with XXXX up many are corporate the transition closely working for plans separate

that We the receive actual offsets transition our transition services from fee period. IAA incurred during costs

in his in December mentioned offset we approximately High expenses remarks, Jim received incurred Tech $X million XXXX at As that Locksmiths.

Our litigation incurred of realized. recovery will when employees any recorded or is expenses former against ongoing, and be additional losses

and it the believe revenue performing to to half levels of the at we levels lower been XXXX, employee of in business first at stabilized business management although Beyond operate has in High have the profitability lower losses the incurred Locksmiths We turnover. XXXX. than Tech continues due high this

gross of net have in ADESA percent we XXXX, a the Throughout as reported profit revenue segment. lower

While the profit Fourth is quarter related of team gross the our primary services and services profit revenue compared ancillary auction to on has in related focused prior-year. the driver the ancillary XX.X% fees XX.X% the gross and and mix revenue improve lower gross to ADESA was services how of in businesses. margin, been of

Within the revenue is purchase vehicle except revenue. fees and services ADESA auction revenue sales segment, all

related gross margin profitability. effort ancillary services and a in our key initiative to Improving our improve is our

the businesses, our the for ADESA we will focus related segment. impact fourth businesses margin will As on focus and on we did these entire in which and to continue quarter, ancillary improving gross

Our our continues able has AFC at a therefore revenue SG&A total greater and SG&A for financial and also in severance of been to XXXX reporting the fourth AFC expenses during its well as this business reducing absolute slower segment to has has greater $X.X than quarter. compared in full-year million the by a increase in period full-year profitability. adjusted in as AFC of dollars, $X.X quarter. the perform to Company fourth reduced in EBITDA growth. for rate Holding includes the driving growth. XXXX reported done million

We company million in by savings in have expect pursuing SG&A targeted reduce we XXXX up of we that relate a costs. are over XXXX holding actions also to $XX XXXX, $XX in to result as SG&A additional that taken million non-payroll of to

not Now, covered by let me our of Jim. review guidance elements

capital million $XXX $XX $XX Approximately expect million approximately down to is capital to We expenditures technology XXXX XXXX. related is from physical of related million and $XXX expenditures in in million of assets.

represents B XXXX cash higher increase of for We're $XX increase with Term the approximately that corresponding expecting approximately from XX, interest no taxes at Earlier at on XX% cash deductions in interest debt anticipate million expense less $XXX proceeds we expecting exercise an We're statements. of XXXX. income taxes $XX tax financial interest The the of in million. in into our $XXX approximately five income years, Loan create of XXXX. rate million rate approximately outstanding $XX from that entered our with on corporate combined reflects the million This XXXX December for options fixes month, rate on tax of an million. of we stock swap cash this effective X.X%

XXXX. interest that that interest million in reduction rate the cash we This debt rate was debt approximately time, represents corporate from floating At X.X%. the rate a interest on $XXX entered on swap, was our

we XX% significant upon XX% XXXX. a range increase low operations income adjusted by the continuing increase in expect operations continuing expect our from over XXXX from only We and and per the net net XX% generated cash, increase share share over end increase we adjusted XXXX. from XXXX high in based XX% guidance, by of our operations EBITDA Not to per cash to of will to operating but XXXX income

Now, let our a uses me planned close comments of with couple capital. on of

also for As acquisition year, for allocate XXXX, Jim our applies our it starts provided support capital priorities. planning $XXX insights on the our expenditures priorities This these to million top five to with capital we're to pipeline. of

improving to deploy arise. support priorities we're continue growth platform we profitability on long-term and opportunities our for prepared focus to provide immediately, While capital as to the our

being all alternatives shareholders evaluate to a strategic our return with our primary dividend. continue quarterly after focus We through to growth our providing

we KAR repurchase capital. repurchasing We share have that best should shares authorization determine use is a of in the place

today, specific a to continue monitor. have to We of pipeline potential actions discuss no we have but uses

committed a losses continue further we we're dealer-to-dealer targets continuing future, conclusion, pursue be to revenue, operations objectives. believe incurred combination In measured discussed, are losses leadership percentage how profitability our integrations of previously income adjusted revenue growing to as net TradeRev growing long-term gross TradeRev consistent as operations from likely of to and and reducing we our and and reported our sales we meet difficult the and of in growth team operating finally, profit in in with our TradeRev we at dollars with businesses, autonomy. as with ADESA segment can when SG&A our We're With have long-term adjusted EBITDA operated we committed by improving generated reducing will near isolate at that to consistent the complete the business. TradeRev the it of

losses However, will from total this revenue feasible. that the will in of our is improved digital success progress to ADESA segment. profitability Overtime, and measure the we reducing channel long order of measure the real be report as as the on the cost

take turn for time your today, I questions. Daniel to it Thanks to back and will your now

Operator

Our America. question John comes Murphy Instructions] of first Bank from [Operator with

is now line open. Your

John Murphy

it seems something the indicating a sort or to growth core stuff efforts that the going of of Tech be to based has business sort maybe this a time where core plan, effort are when in growth but has changed business, on like is bit you seems CarsOnTheWeb, you guys. these initiatives been TradeRev, to what's and that with not a that going which A and just happened is where might more off on side you drive of of underperformance the understand it been in on lot to It or of are of headcount strategic, something on, right-sizing? I reduction the on seems morning, management going on some and the there Locksmiths High has and go costs business. you back ball is Good and second like the of little the your is there the the going inflated. of Is question, in trying there sort first what's a something like SG&A little bit need that think eyes on question the draw there too now also reductions and after to the there core performance. there business are focused according in am and core diversion or restructuring you cost

Eric Loughmiller

Well, John, this Eric. is

incentives to Let structure, so, Relative think all and has this. about it that our can have will growth me I profitable segment. expectations. there let's slowed down start of have high When in add the we CarsOnTheWeb then and into cutback, in too cost dealer-to-dealer specifically break things get pieces we a the you model have TradeRev, have model clearly to some of and the it business Jim the so brought. that talk with we things to cost was specifically right-sized order long-term outperformed we

well. doing are very they fact, In

exceeding expectations, of our are bit a direct comes our our down can delivery happened think this; cost were our or We we that labor? the cost the shortening in to make, many has model very services and is that at have efficiently, with an and is a years, moves very the component technology I that of well, lastly, have platforms, use business, deliver then an ten-and-half profitability Jim across for and service, there. little on time car it's and the core now auction I on of is to of that the months more, expected of we and fact, you labor and how to All our has you to I more months reliance costs ancillary a fine think way, XX is it's up but think the direct efficient property, owned inflated. reasons. end have done speak more all grow Jim the to The I into is amount What this opportunity don't VirtuaLane reducing of can we passionate structure it let will improve less initiative many come about the business, how

Jim, So, core cost to we how to are the the use about talk business? technology the structure reduce may in going be

Jim Hallett

my but as think our to John, like there in some to and first I say, safer. think business, processes making about is have these -- question Yes, auction my have re-engineer as that auction kind our legacy I you we of physical to mentioned comments, business, I I is no and think priority we of rethink

that, really car designated about through I to continue We and to auctions, reducing will around the times sit people see down drive to coming you when needed be auction, obviously dealers day touch car, with atmosphere on and -- in limit required are auction. the car the but reducing have people second on you the they drivers, this physical the reducing be are of through the talk reducing to and be and car we car process, office and leader lanes, the the the and come without bidding about The to we if its actually the are in seen to the yard, the in that moving been will walk bid person industry you we spot, safety, that labor, want auction your a industry, in a but and car, we theater-like want dealers right to amount the safety, these car they the can actually are and to sell your and people handle safety on on the virtual that, they car the car, talk the a for we not sitting the be be the how will safety as moving want touch along car. as you will it, they move in and the moves screen, can can the do to really they

will and equipped there, continue you told we the and auctions auctions that approach to those of VirtuaLane, have to our but to have we labor have with and I we I the would point, had that savings year commercial XX with as with equipped rest VirtuaLane So, were that, XX cost in would without what I call I -- maybe pushing now the and would our customers XX, supporting numbers, not with reductions VirtuaLane be were roughly hopefully, equipped XXXX. to as all where theater-like we'll we we for to closer getting in report auctions that you of going the last auctions, we're to all VirtuaLanes that XX, have year-end atmosphere, of -- into do we

year a We're that. double sell grow of pleased with can VirtuaLane. concept, we're we sold we VirtuaLane cars expectation minimum year, and in we our number of number the is will in last a add cars maybe that VirtuaLane very on expect We going to this

that, a with take So, pause. I'll

Eric Loughmiller

vehicle that. that the we We no john, there sales, is in core and the gross quarter that's gross XX excluding which up fourth think purchased by margin was year-over-year, our continue can profit our business core ADESA improving business process. in last in going forward margin And bps comment, in trend again, one early

John Murphy

seems maybe you're the the mean, with after in these -- it I question, business going you're sense, Okay, it. is the so which like core mean and business transition, yes, shifting make initiatives, shifting I growth second all then and is

on very if dealer-to-dealer, sounds it to is like Is different seems you to TradeRev sort with that to relative in you're the you So And or specifically on the as what's maybe well you and in going what thing your fairly may is what CarsOnTheWeb, kind there when TradeRev on it cut not or anything because TradeRev, look wholesalers do, of meaning, more is after that is do else success decide it but TradeRev, CarsOnTheWeb going of know, to channel declare going way going also the your happen may your right you opposed think bait you it's at the the auction. with underperforming. on auctions, traditionally are much discussing it? was what like than see expectations,

like to about but So, it's the I'm traditional answer TradeRev, mean like kill, is understand I it's to addressable whether I'd that, we or fill million industry, really I it your on think you seems sort the mean also outside as industry. what XX the as channel is and the auction unit just what well? wholesaler the more trying fortified of in market,

Jim Hallett

Yes.

and think dealer want So, speak start consignment, consignment, -- products going to want I that, want segment, total with to dealer about I and two as I but we our and TradeRev, to John, as about have grow let we total you dealer first total to me start investors I employees, want consignment, a them really we as thinking there. dealer about want consignment to to speak and are I think the our industry,

on sell can you and consignment, trade When that those those of auction the we last long year, as year. and car, and those the sold consignment. together, We last looking XXX,XXX have as TradeRev we dealer not car approximately where we and vehicles segment, physical at get we XXX,XXX as cars can drive, the where in sold have vehicles where dealer sell, one we're sell of we two to quite auctions, and channels, we grow concerned we frankly, physical I'm reported, add sell

You can math. do the

total grow consignment. projecting dealer we that We are will

we're that needed that knew go-to-market were able reset I we to that dealer expenses quarter, short, our up can did take -- give slow going and possibly category, tell I certainly going in to consignment down you win were speed and told and We up, we it we strategy. slowed to last fell we but we're we to what you and TradeRev, in to are at to took volumes volume and the down, to we our competition, in we some our

from decided that the put that services other transportation We we but very can't with convinced continue most this local but and sustainable digital it. ancillary win it's on the consciously the at of We that We these from to sales [indiscernible] through been to believe was only total into sit representatives TradeRev. meetings well-positioned that January. into ADESA Indianapolis changed. of to integrated in the market the very North that can teams, three very we throwing service, on model by cut, it. with and At across with we're we our providing has incentives, with It's teams and consignments. those combined dealer one got this with we've a part, have business offerings, no and to or to days, believe I'm sales not go-to-market we They're incentives. win I we market and centers, dealer our have ADESA, XXX physical, longer America strategy all two pleased that those to sales and go cut point service speak of incentives for brought the chase not I markets, contact I all cannot it.

So that gone. deal is

wants us providing by how dealer think the do we want win service, and they it In channel doing long-term, in do if the us you do it to win think on that it choice. I in to that what

to this win company, don't can channels, got but quite that reset, plan, a we're company, there's that's that success, the we reflect services, you collection again, assets seeing. our this early that tell we've ancillary doesn't XXXX whether things and long-term, else that to be the I'm also choice, services, in like deliver can I'm I a tell going business, XXXX, has platforms, nobody believe, what transportation ancillary deliver business inspection able dealer, know confident industry our frankly, the to I support can discouraged very I'm our not and it's We I I how total what to of the in finance with you, and and month in the great we've

John Murphy

mid-XX% seems and can the It question. ask helpful, in one conversion very year-over-year. mundane rate just That's if was flat I quick like the roughly maybe

pricing vehicle used general consensus the think will that come I expectation, down. Your is

may your maybe of as to quarters going vehicles just should pay and in to price rate are more being of clear this quarter. So, they inventory Is kind realistic because the a don't be, get and we're seems a that needs stubborn the I sellers next they're bit it than there few now? this, conversion they fourth little institutional be early XXXX it thought clear to mean if to like the institutional a the maybe they're I they were tick little backlog more going in being here up like stubborn and clear in awful seems

Jim Hallett

Yes, some speak well. then add that, as comments and to let John, I'll Eric

first fourth quarter of coming that quarter of of First a fourth said, in our or of be we weren't sell was amount record in XXXX. was off-lease strong, would to of the carryover going in the all, we sure of there the was very to leases quarter, vehicles told if volume the XXXX, you and that back to some we written going volume call the quarter, supply last on that fourth because

In split and here, volume the fact, Eric would speak quarter. carried quarter Eric? I first of that over kind has got out of to to think and of I you, the it will some tell fourth it

Eric Loughmiller

to believe to only because one well wanted was I model, difficulty] auction, on cars that John, a Yes, at The because is what online that. higher the it. and [technical price business did the very went conversion to after We add get the lower rate you is shot year-end. they

strong had and the into for actually best. performance, the were was ARPU. first the We help that probably kind of good physical and So cars I it's going off our and business quarter, online very the held think

their to take to to probably move got we questions. others on John, So

John Murphy

you. Thank

Eric Loughmiller

You're welcome.

Operator

you. Thank

Labick question Securities. with comes next from CJS Our Bob

Your is open. now line

Bob Labick

morning. Good you. Thank

Jim Hallett

Bob. Good morning,

Bob Labick

want just back step I to on TradeRev.

that's little been So guess on on incentives and it or is QX loss. QX happening and you were third was Obviously, you I the I think prospectively quarter reduce in call were something back that Have the incentives pull going then higher. going to back, implied forward? pulled a they

Jim Hallett

Yes.

So, but the on we pulled getting XXXX, as is, thing fourth we incentives they've did pulled go back the into basically, quarter, we as the Bob, and through that back other been we're then went and go-to-market the got losses, for we New we into resetting approach take Eric? resetting we additional as behind as XXXX, did strategy were our us losses and Year. our our we our plan

Eric Loughmiller

at as Jim burden would a that earnings as mentioned, to quarter, probably was reduced have expenses reduced carry the increased it and that and not on from We important, activity in but we the Bob. what clearly expected, the really, took volume fourth quarter definitely XXXX. that and most which reduced into we the -- look first Yes, but action programs be revenue losses, the

Bob Labick

you much what's the difference how incentives Got early, far? recent, pullback rates so been it. too given -- conversion And it's in impacting the been has there basis in same-store on or same is when like a of very can but model incentives, just in it tell market, happening then probably the you has change

Eric Loughmiller

measure we're in measuring Well, it thing, although one pieces. we two

with We consignment dealer our beginning in are very pleased volumes, XXXX.

dealer growing get quarter, our between pleased within total, the very mix and physical the and start sell are meeting consignment money. doing and offerings We get that, also first full vehicles we combined are an year, job we with many letting we when we're team the objective Right, with of in of report the sales but so quarter they I consignment and online the end, wherever attracting dealer more of into the them our Jim? think most is pleased excellent our that

Jim Hallett

the reaction here, team. Absolutely. We've the the I to but first disappointed year we part get with had say, excited don't early and our of not of invested want I'm just this about sales Bob,

teams think we've by opportunity that we've has together space, training, team have before, an really culturally, aligned much markets. we I programs, are sales and where the are aligned that really understand and weren't we to aligned sales our not we come motivated we now and think that, only where I win we've done I this think aligned, very compensation

good and right dealers feedback I are on that's think speaking. not that optimistic, from had very I've plan, just directly a the training confident go-to-market with we Jim and with the I've we seen I'm have the very path here.

Bob Labick

real to strategy highway Okay, the you. but way, were new great. queue changes differences in and thank in quick, name, in the by a I'll sell in Can before? differences you to primary the And highlight then, the and go-to-market sell, doing you jump versus back new the love just what what we the just are last one highway

Eric Loughmiller

a XXX going vehicle, thing vehicle onto and it's buys is a your there, through the capabilities the buyer you step auction, concept turn making this grounding they Or you it buyer, your dealer maximum you we'll that The of important us of bids within high want. the the you all all location, process? like through, which we as wherever are it the you they dealer then, digital enough, into way, get to delivery value for can sitting, of guarantee that transactions, we're most within transact do liquidity in manage result not and days, and add channel, over where say, it the a back aware to across TradeRev, want want miles to end do it's to to there put in, vehicle, it a waterfall, to take It's dealer and retail. our if get X will you process and the think to on take then, take sensible the they of that Well, want of is, even select they to is our platforms more guarantee see if the what it are. physical take we and Jim? to want do the get we for to the

Jim Hallett

Yes, and call the manual, and and offerings I've that service offerings I I on doing I'm day, the car choose cars tell of control. what I highway manual there's service, and really the preached. car. I it's back then, didn't to down you that control come cruise tell you're one-size-fits-all, taking want and automatic how somebody to me, I I've our how come coming at and sell, different the price wanted of has different coming at going at former and want I We're that rolled NADA, and Eric said, me of cruise and work the do them the the end then, those dealer's for point what to the of think dealer, available, based I would choices, was there're think three and most and you, I in maybe we say, and and We're going different there, there's to three obviously really were what to we always out the business, to there's points, given care options yourself service is the can were not to all going price a want products being and and to channels, do condition business. what telling

that is our choices, this one but really those contact dealers to can those customers. all So about choice, that of represent providing services point with having and all

Eric Loughmiller

And no get selection to them for fixed cost the they whatever for, they're for make. the a cost to there's asking seller service the

Bob Labick

much. thank right, All Terrific. very you

Eric Loughmiller

You're welcome.

Operator

you. Thank

comes Brinkman next Morgan. with Our question JP from Ryan

now line Your is open.

Ryan Brinkman

first just other Maybe couple in you're this Or space A on ACV or just see for up questions it there? environment could against you bumping TradeRev competitors business, the TradeRev. maybe thanks. established Hi, is you that the speak to do competitive also? upstart

Jim Hallett

increase that, competitors this has ACV space. there you competitors product beyond this to I we competition focused helps that's, do end about Ryan, and space, and think will the We consignment, to be consignment dealer total at obviously, end so our increasing gotten need us total and that offering and dealer consignment. in we the the but this competition, day, in the TradeRev continue just on talking to are there's tell day, there of be recognize another at organization Yes, our other really at aware the need got is of what of but dealer I to a TradeRev. I'm

Ryan Brinkman

other TradeRev? think costs, XXXX technology should the be pretty million better overhead to $XX we the expect faster you we subsidies, for fixed then at business seem that about order how to like break even profitability less forward profitability, Okay, so loss is at cetera? and in Do at of to et And on that costs, growth transportation, XXXX? improvement thanks. the amortize or disciplines more the of path path to with marketing or growth in And implied given get looking should still guidance a during point would material about versus the begin some now to least

Jim Hallett

that be we so our believe believe that us Ryan, around we and believe yes, breakeven in and with to pace. we're strategy go XXX,XXX market we that to can that's and discipline somewhere between with, get still looking to we to that new to Yes, start our going our still We there. XXXX, accelerate believe going reach to XXX,XXX and is breakeven enable cars, incentives,

Eric Loughmiller

business. add And at will integrated we a cost on this for by model reduce me looking basis, the let consolidated dealer consignment Ryan, actually approach our

as it's So taking just resources and it's put even over ultimately also in not TradeRev, processes combine together to million time. advantage the $XX additional teams add incremental combined transactions operating some and ADESA we not then having the of the sales cost

So it's a little both.

rest of also on So efficiency help TradeRev enterprise we're don't the component. out separate improve just There's gaining that for focus of the that'll isolated you. profitability. the We've the

delivery take to the incentives you think those opportunities especially accelerate the end when a I the and our lower improve of model the in moves away. made year, cost likelihood, have XXXX we've at

Ryan Brinkman

helpful, you. thank very Great,

Eric Loughmiller

welcome. You're

Operator

Thank you.

next comes Inc. Stephens, Imbro question from Daniel with Our

line open. now Your is

Daniel Imbro

for Hey, good my questions. guys. morning, Thanks taking

of gross and Can about a used to profit. one we're then have margins back on weighing call the services you normally catch-up now a higher vehicles. If changed on you gross ADESA's to ago, a we as headwinds, out of few vehicles, ancillary First seeing be sell in do you you talk subsequent of kind gross headwind follow-up. benefit on about you as guys gross a kind gross I see dollar years those near-term that talked to what's underlying through margin, not I margin services where to margin. and but sold Eric, quarters ancillary think continue

Eric Loughmiller

the is interesting success change. thanks Dan, influencing question. our is the Yes, for What's

on the three, go doing the back offsite, that more lot lot auction. where the we're years, four doing ancillary of services, vehicles condition of you aren't services, a at If we're predominantly a of vehicle improving transportation site now

the and dollars like improving the profit beyond there, but auction that's for percentages. transportation, what contributes we but again on think talk relative broader going up, So, that, I'm our puts growing focusing a I'm very related change but goes on occurs when that business I when with inspections, I business, offering gross to and call profit activity, those what around and we it sold, repossession that cars are auction the ancillary about phenomena gotten grow, so services, that dollars our same growing, the much a gross dollars on, focused progress is pressure we've pleased business little have on

Daniel Imbro

the EBITDA of underlying those losses, ex-TradeRev guide? kind flat those it your kind guidance the think and growth said the and we midpoint you of core I the then described seems guidance. helpful Jim, $XX on we of year-over-year? million of so you're of Where clarifier a in of reconcile points $XX or cost at think guys business can is how cuts year-over-year, look about you should implying and at mean, like made you're how you improvement the that's Okay, improvements have operating million assumes a you auction, the guide as I but making number EBITDA assumes TradeRev's

Eric Loughmiller

deliver, say promise on priorities. under frankly, XXXX disappointing our where I a a result. want very and where Yes, so after we that let me and again, quite focused I position never in over saw be to we're

you, on speak deliver the can to the We are than results over very rather year, told of themselves going at we promising. I'm that the for end and let confident what we've

Daniel Imbro

Okay, Thanks. got it.

Eric Loughmiller

welcome. You're

Operator

Thank you.

Our next with Glynn Edge. question Derek Consumer comes from

open. Your now line is

Derek Glynn

for the taking Thanks questions. good Yes, morning.

TradeRev, did you to or suggest Did kind as you of see their incentives? and increase Just on response offering? others followed make competitors other you reduced just fees follow-up to what from sue had see any to changes anything one

Eric Loughmiller

comments, weight how going game. This we factual, the space win don't I don't the that's to a win, excuse is I not anecdotal am to of that, it. on anything we game, to clichés, and hear I things, in I but not do information, not past. behaving, a really but in only that's right have terms used can again, and is say competition I've hear and anecdotal -- I don't I in a know have commenting and that to in, by short-term anything of factual, these am it's a use know lot model put focused not I winning, absolutely long-term here. the on this our to We be me. is the

the focused don't out be and add, surveyed on We there, and that it, believe collection let us I'm that on advantage of got we give want I'm me I Derek, results, everything but the aware hear, this they It's have possible. platform inventory I to focused surveyed our at I I was driving to we noticed and and support was to quickly and asked them. way and customers, unfair the getting but competition the of for assets team were using as to our what location the were obtaining as down providing price, we retail it for important what looking people the to right Incentives us. list and as transact to

Jim Hallett

there if point can results Eric, we're use and we've and delivery we've of good the can our on speak what I to delivering can now couple in changes two technology on the Yes, Eric's to were the focused. that's terms points, I to levels, that of very, and get were we took survey terms work service focused I said, don't of and us change. tell technology to that we the platform that our week become couple a that need survey, along and now Listen, were on there Eric on into of of provide to and we've the with like were, the the of how my you dealers couple want percentage mentioned service they'd are mentioned very where fees a follow-up They to small what frankly taken of of processed single that Dealers transaction of a point, where a We're those in the I that. changes but in a a made I couple every and quite also see listened as focused did things and that that former action to add results use you, that in other and dealer talked dealers. life. I Eric, on. things action a

to and Yes, we feedback give sum competition. that real, We're us got so and we important to the how our guidance reacted So not business it together. dealers was on customer our at at looking what's to we're the put our all it. up, from is model looking

Derek Glynn

think just That's contemplated helpful. first, two recovery High in recovery for got is issue items only possibility $X then mentioned further are it. that draft there share And a then you Okay, more Locksmiths, Tech your for for million, results, clarification, of I any a in but XXXX? million guidance? $XX from secondly, repurchases And

Jim Hallett

So and the let allocation me start with capital

want and our target not we have buybacks three mentioned, leverage is times changed. three and to to I frankly, the forward, allocation going we that times at was in exceed exceed capital. to do and continue to not buying priorities to and leverage you our that our the in of did the all We alternatives want state leverage buyback did want not quarter back did we quite first evaluate any the quarter, capital in that fourth shares, not fourth deploy

we dividend, going can on acquisitions we our forward. a share look then, do on share have have based a of things buyback place We those, to we continue act prioritize we prioritize at pipeline how that authorization, and in authorization and

and the time, trigger those, the first quarter, any quarter on at again, we any in So, we the back pull point but didn't shares fourth buy in can Eric?

Eric Loughmiller

out Yes, because but nor, recovery, a don't it and second, I to it so any think be in First, net that, additive EBITDA from income me in not earnings a it be in different process. would be to let point two included from would outcome it and we a would there not it's litigation, potential adjusted That's for would if That through but litigation. is I included than EBITDA, the litigation be organization be would come accordingly. relative long not though recovery considered the any ongoing, would adjusted know to things adjusted see adjusted little High so when game operations, continuing be positive EBITDA. will Tech a Locksmith, in that, is and it non-operating would EBITDA,

on So that don't being of part guidance. our count as

Derek Glynn

Got it.

Okay, thank you.

Operator

you. Thank

comes Our from Bret with next question Jordan Jefferies.

Your line is now open.

Bret Jordan

guys. morning, good Hey,

Jim Hallett

morning. Good

Eric Loughmiller

Bret. morning, Good

Bret Jordan

the -- The of XX% rate by 'XX. the target comment SG&A on the is on end

fourth for standpoint, modeling a the within the target from to is or that full that fourth Just a quarter quarter? achieve

Jim Hallett

Yes.

look I of but tell there I if reduce stone and you very have a lot a that I have about, we our there's So, goal let and target, there's to day-to-day and that would we a coming say, as few the think stake target target, to maybe business. aggressive to I'll don't that place, I quarter, of examples, very outset I'm don't that give a put you, call got on, something that but in results, XX%, focus want If initiatives where can bit and continue our to Bret we in going I got we in things target our achieve. we but to little me this then it towards of to tell not have won't and in would sure that at and talk those any some is course a is, to point no down, work got and here, be, get have you've just monumental that give this and things we I'll we're can me that going, XXXX, target lot each we've to about a opportunity, is want have task some we it's to company, we the of time, turned that for there's and SG&A put to see you a see to you a I XX% talk a let the you be as don't know get in we SG&A in at recognize ground, about a in to or out you've there,

get and line innovation, reduced. finish to more to we've and do there work all, to and can, this on is less the to entertainment technology at in First headcount, has we of look people continue more company no eliminating travel headcount through use wherever do have through getting got innovating to of

We've and what a we licenses those those we've at. mobile You we the look within devices on know, you and have losses. that which talked are have at These devices that reduce we're about talk look plans the to to this about huge the we TradeRev you mobile charges on and done then, taking software company, organization, maintenance. we the and how

there, We putting continue XX% to look and out that at know a on of every there's of I aspect our in SG&A get I whether businesses, XXXX. that will I every by taking one focus year-over-year. of be we're Bret that as being is target there percent of a That's that total SG&A a each using better of metric, the revenue, team metric building XXXX, and the we're accountable at measuring end quarter and and our improving for.

dollars. not it's So It's okay.

Bret Jordan

And missed question, might one I have that. got this. Yes, then

Eric Loughmiller

be want transcript. Jim. I clear the We correction, a want fewer more in work. is there people doing to And

Jim Hallett

that. figured I I Yes, Yes. did guess… How

Eric Loughmiller

an more less thought doing You was people I said And work? that error.

Jim Hallett

My you the correction. thank for apologies, Yes.

Bret Jordan

Yes, one question on TradeRev.

you loss. in TradeRev for think for target volume out you a put XX? out a Did threw the target smaller I there

Jim Hallett

total a expect but on there. do dealer the It's the TradeRev will we have putting TradeRev. target that number With not specific dealer out We volume said, to volume consignment, I'm applied of and have don't I numbers volume that consignment. increase,

Bret Jordan

you. right, thank All

Jim Hallett

are You welcome.

Operator

you. Thank

comes final SunTrust. Stephanie question with from Our Benjamin

is line now open. Your

Stephanie Benjamin

just the helpful, around key Thank to a on, bow may into, just kind you to XXXX, Hi, summarize, that if thank be dealer you. I a I'll it, if maybe just be is you lot going initiatives is you to kind me how going kind squeezing of are put of of two a could Thanks drivers there lot could grow in kind growth just for up? it everything you're just going consignment we in. call that consolidate of think there be know would obviously as it, of you so could bucket, on the the brief, maybe you. call if keep sum that

Eric Loughmiller

bottom Stephanie. for of that contact, with We've reps dealer and products there. TradeRev, time XXX That's strategy consignment. point of two go-to-market thanks physical out of got is shot grow to we're We've got both with got how those in a a one and and auctions at Well, line got a we've sales that, products we've dealer for going one business.

our the that have broadest consignment, into to So, understand, in summary, to the simplified pick in industry market easy Right, is segmenting Stephanie, we understand, simplified very in offering but the offering, it's but dealer-to-dealer pricing of have instead the easy Jim? to the had alternatives total you from. confusing offering, for

Jim Hallett

Yes.

Stephanie Benjamin

it. Got

what your growth expected, gains guess kind also So, I overall within of view market the market into growth it share that that, outlook? is fit the on as to is of the

Jim Hallett

Yes.

getting you the of use know, those our more of economics open analytics, at entire believe think we'd our these to company, cars there's get platforms, get of grow and at more those So, the our share commercial the online as and through the we cars look and consignment We those for segments, physical sell those much sale commercial that cars better especially we segments, as then we gains in of I look sellers, market and believe at dealer business online, more and can in much, commercial look data and we segments. auctions. the both both where through of and

we So, gain we can believe there. share

and well that that to the TradeRev, whether and and go-to-market to that with grow about we're that a of repeat business. Program, strategy, business or we contact Better dealer sorry a we believe to that we believe can service, also going wants, dealer of that one going point whatever we're it, our whether physical to that We that our increase provide through as comes as auction talked dealer commercial share and Together consignment, our overall to it, the reinforce comes

Eric Loughmiller

mobile do deals believe industry. industry have -- of part And can Stephanie, digital the transacted our these the a the offer, or the for remains offerings historically outside auction wholesale we our of offerings, especially TAM units one expand We an million of we opportunity target. marketplace that consignment as important That X opportunity.

Jim Hallet

of to I the me, lot you consignment noteworthy, go-get, is, than of our dealer to of being if is lot largest that XX% and market in that, XX%, players market today, market the if go be a a more at think one opportunity physical two of Stephanie there's one to about and could of that's add that that auction get thing Yes, the industry. might share

Stephanie Benjamin

and it Thank really that. at All leave you. helpful, I'll

Jim Hallet

Okay. Thank you, Stephanie.

Eric Loughmiller

Thank Stephanie. you,

Operator

concludes and to like Thank question-and-answer Hallett, for gentlemen, any Jim our call you, now would this to over closing ladies remarks. I back KAR's turn session. the CEO,

Jim Hallett

continued your thank the today. for I company. Daniel, investors appreciate you I being and want Thank to and just interest say to you, continued on our your in support call our

very I think XXXX has and certainly transparent been that I've challenges. its that its very, difficulties

for think I we accept accountability that.

support think have We've We're good it confident we We're that forward. on given going are these we priorities. money going to are at I five you, but we're take not five we a those. areas comes on going We've to defined here I look we're optimism, really planning, we areas, first stay on the to sheer to defined We're to have ourselves company. going and on track, going shortly. focused that up what's our the and very important coming to that it's be on, I going to on to this us. guidance and path forward, not good that we focus everything think chasing have focused be it's these and business and just to right allocate got and deliver believe the we that that sound reporting quarter on forward going we're

to for you to day. and forward thank our great the you quarterly call, So, conference being Have a talking on look you we'll call. on

Operator

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

disconnect. now may You

KAR Auction Services (KAR) 19 Feb 202019 Q4 Earnings call transcript