KAR - Earnings call transcript Q1 2022 | KAR Auction Services, Inc.

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Operator

Good morning. Thank you for standing by.

Your conference call will begin momentarily. Again, please continue to standby. Thank you. you by. thank and day, for standing Good Welcome Conference Call. KAR Auction XXXX Earnings Services QX to the At all this mode. listen-only time, participants are a in After will the there question-and-answer speaker session. be a presentation, ]. [Operator Instructions recorded. advised conference be Please is today's being ]. Instructions [Operator your I would now Relations. Michael to hand Investor Treasurer VP speaker over and the Eliason, today, conference like to Please go ahead.

Michael Eliason

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

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

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

Global Peter I'd like this Now, Kelly. Peter. to turn over CEO, to call KAR

Peter Kelly

our to provide this I'm performance to on here you with good morning all everybody. morning, you, update Global. of at KAR and delighted Mike, Thank an be

first some remainder in to business. update I are performance divestiture context guidance you and of the you ADESA first call, provide our results physical of today's like quarter on for status U.S, would the on will the auction But around expected detail XXXX. I of our So with

Used of leading and to over million And our for this and help at doing marketplaces growth. historic on even our from a our most. value as digital a in remains our our million and that history greatest industry in to rapidly the transformation transaction next at level. North February employees, the transaction, vehicle platforms the transactions first technologies within advance approximately America marketplaces. with a for shift represents wholesale would with digit used milestone vehicles that week. our more customers per and so, vehicle transaction It transformative I driving our channel digital is vehicles. the In advanced will customers, We level year the year significant, customers, expected future digital that brands, platforms, the our the retail market And close to us our transaction the A be believe in for stockholders. our back Our and outlined in physical will need is a our cash we're us more world's increase vision to build The cars more company, profit market believe operating rationale vehicles as the at intact. per develop fuel and XXX,XXX in an solutions provide the to company. going digital to investor to and call to XX share. believe a transaction we our will asset greatest down deploy benefits in deliver on quarter, gross $XX volumes that Together allow we our pay likely streamline with forward. structure, strong and generate more stockholders. us greatest on forward expanding of market will simplify Call EBITDA enables investments focus our I capabilities, for the and us This It helps increasing like we our this We this plenty flexibility faster announcement, of strategy, our debt, and it about rate sharing and to continue And KAR to look of on call. also February our will to you us and Update We our KAR. that transaction our It and the that terms around schedule have June, flows opportunity our grow. enhances Analyst focus margins will generate We we details energy help long-term our more believe transaction business. customers us us strategy, drive And capital would allocation. outlined will Day our enable financial our our for becoming growing will creating growth later margins value enable profile. sold future

time, financial which the So treated in discuss is my Also our discuss like operation of our results say about results a last today two in to going rest divested speak our year. business, remainder ADESA our night, in segments. at the for outlook the I and Consistent of auction remarks discontinued as release Eric U.S. our exclude to the I'd earnings reports. business first-quarter I'm in the this physical that with

which the marketplace segments. segments, formerly AFC we ADESA called segments, Our the and

The challenging. first was quarter

industry. Notwithstanding used broader vehicles. pricing particularly affecting across with well. case Our are business. many to is of negatively volumes the the as the of our a off-lease extent aspects consigned case we the be all and also that, made issues vehicle impacted gains by it's continue This vehicles for dealer certainly to vehicles, lesser vehicle But important commercial supply that

adjusted sold. auction highlight of flat with EBITDA, million gross also excluding was of increased of profit a a $XXX XX.X% from vehicle generated represented business. For XXXX. KAR million, we of decrease first We from the year. QX This last prior revenue, the purchased we not total fee that And and quarter auction include include, generated of quarter in that of generated overall, profit per a year. this decrease was performance million U.S. a the does of XX% We same X% $XXX quarter again our gross vehicles. in ADESA the The revenue, $XX same physical

realized results of QX marketable a important gain XXXX to million sale $XX However, note included securities. the our that on it's

the TradeRev, performance in CARWAVE. of decline $XXX the And generated was BacklotCars over in In Within volumes by in profit provide and growth segment, representing XX,XXX positive XX% an auction XX% experienced we vehicle billion Dealer in increase quarter, QX quarter I'll sold versus another segment, solid This growth by QX of by That and over $X commercial the a business, XXX,XXX facilitated year, of AFC we XXX,XXX per were over year. declined year. sale our QX generated $XXX the on revenue continued $XX XX% of the increased unit few that prior our represented million $X.X of of of organic versus by the units. million acquisition In Those our detail units, driven or our last marketplace QX segment. of more in we volumes mainly proceeds. Consignment volumes, of last on year. per with gross was prior growth down gross versus driven XXXX. in vehicles. Marketplace of strain XX% This sector the volumes X% increase of by an moments. We a revenue,

the supply the XX% a of to XXXX. number led in of off-lease sales. them us prices vehicles of the vehicles. significant our the impacted in is highs, chain vehicle the challenges, production mentioned rates clear, our transactions. principally of This loss vehicle lagging equity also very a compared OPENLANE retain performance impacted negatively semiconductor So all-time reduction conversion supply that was reduction ends. ago, to and of QX this new performance more terms to lease share I ongoing at few materially as of want platform shortages, in new remained and This consumers channel customers impacted moments the in returned With business. strong. than the and I not off-lease first-quarter off-lease top to means very this of those used vehicles they're a vehicle return when the to their have or This to within funnel be And likely at by

production In accurately solutions category. year sales and a Fewer flows that new when when vehicle factors to believe and and in OPENLANE in are vehicle in will general, the stronger production volumes and growth these Vehicle ultimately dealers our continued while our confident result to nor through sales by and that increases when trade-ins, I'm us return positions neither receive, to than in that were more grow business. we our in new ago. reduced one predict vehicle our shortages off-lease fact, share dealer-to-dealer headwind temporary. And to investments these new off-lease fewer normal levels. franchise car also our can customers retain it was We factors commercial well

the our on per of our per business performance same performance, versus year. grew an over CARWAVE vehicles last quarter saw with quarter year. XX%, our our addition fewer our sold we while for So with TradeRev, to the seller same count and said versus dealer-to-dealer revenue quarter, volume That BacklotCars, vehicles prior XX% the by the increased we growing posted we we're by pleased seller in

XXXX the While And sale the significant able had year-on-year, guidance uncertainties This our still we same marketable adjusted in of of $XXX for securities growth the I of applied million to XX% now that and growth --we're during that XXXX. encouraging. expect is industry adjusted would to provide from uniquely four set excluded we the believe months had approximately we in discontinued challenging represent delivering results. gains face we're in operations this now deliver circumstances their EBITDA to exist into XXXX. realized across accounting XXXX our EBITDA

the do key the we factors on XXXX this As control that in exist. the our are results are delivering and in continue drivers The focus following. within that to opportunities

earlier, I AFC QX. As noted well in performed

into from the year. our I this visibility this strong expect continued current to balance see AFC Given performance of business, throughout

digital on we not separately contribute do ADESA just XXXX through operating we economics. our results expect strong market energy meaningfully its to and report it to Although strong share, model, Canada,

growing to also dealer-to-dealer contributor We a XXXX. our business in expect digital be

at the organization end towards the cost contribute beyond in digital in our SG&A. transaction contributions important services least businesses, XXXX our structure have an the annual will XXXX. that and to manage well opportunity of meaningful consistent as expect improved to be XXXX, U.S. business to We years, prior given once it reduction CarsArrive We in our believe that auction our as of that cost related some progress at our AutoVIN. make as normal businesses will level be expect and fact per the The physical approximately ADESA material By levels. a of these underperform off-lease efforts run such streamline historical business, diligence reflective year. also and earnings One the cost to is top-of-funnel the meaningfully OPENLANE businesses $XX to will rate for particular, closes, million targeting We're off-lease their our I business. to performance versus vehicle impossible reductions is, XX% we of believe service we our supply business and of deliver additional to by area that structure fully success down an is

and customer that relationships. I an However, a remains It key profits. OPENLANE an our of and capability, and of be integrated is important am very essential confident represents will valuable largest to deeply OPENLANE some important asset. driver future very our

As driven number I believe our look will for by and encouraged our past I be of factors. important growth growth, XXXX, prospects I'm a by that

commercial in digital by both industry, volume towards shift of marketplaces entire the parts our Firstly, across business. and increased secular is which of dealer a driving

commercial Secondly, in by recovery volumes.

will over ago. hoped But historical I'm Given frame a towards take than issues recover the for longer I chain confident levels. will this new likely supply that time have six vehicles, with would continued it months ultimately place

So see of not a I as it if. when, question

Canada, finally, have And strong going cost Third, market position make performance our focus being performance the will and in allocation. a ADESA like continued support company. future like where a on continuous AFC capital I'd as differentiated offerings regards efficiency by and our remarks businesses strong to we asset-light an forward. few

our of us in allow mentioned greater I completion divestiture capital flexibility of allocation. earlier, terms the As will

amount substantial of We outstanding debt. expect to our a down pay

to continue most create position and the in We for and to capture our our value that opportunities expand ahead and invest addressable us the the will platforms technology customers, market.

shares. will a continues our And Eric allow believe be more currently structure it transaction, more have and this repurchase stock the moments. is, I growth. in capital KAR's we and in deploying capacity capital drive ability to be nimble strategic to to speak undervalued, if to few it as Following will to that

our and a As closes. new previous we June company to Investor U.S. when assumptions. update, we committed announcement Analyst for the we announced we our update and the auction save-the-date updated you to after this we intend will set to -- send materials ADESA currently and Day reflect of transaction, physical targeting We're an deal

more During this the details KAR strategy, -- that I'm future into meeting, our to will date expectations in we this meeting performance. publish forward we'll go set. growth, June, during our deeply will is go discussion, we as for and and soon as and looking

So closing my this here messages remarks summarize like key in my some I'd today. of morning, to for

physical our Our optimistic With transaction across to growth, customers. execute close in to is of in we remain ADESA to for a and opportunities services a and strategy company, current for beyond expanded more The will and both dealer portfolio future. within customers, digital both both our share for transaction solutions, considerable next [Indiscernible] auction growth be This capture support focused increased be smaller I what our of we for our expected to and market our terms U.S. asset-light market. transformative and and the believe intend KAR meaningful very week. commercial includes to

For future And growth have XXXX, like-for-like challenging EBITDA adjusted excited spoke circumstances believe energized on industry. look we September. last and in set our we for ahead. that the a XX% a as we expect CAGR representing to we're to by million $XXX in Day of we exceeding to significant growth, opportunity of on spite for uniquely basis, opportunity the XX% adjusted Analyst deliver facing We our the a EBITDA,

expanding them ahead opportunities to customer and market large the and and and next invest. with combination we of will we our opportunities platforms, And a innovate a drive growth addressable on which margin Ultimately, We have you strong of that differentiated space improvements. the revenue our assets capture believe and call discussing month. to strategy forward diverse and these look base, to our

to results detailed who So with the will of that, quarter. over review more I'll it Eric the a hand provide for financial Eric.

Eric Loughmiller

for like start the ADESA in explaining by U.S. Thank basis the to you, business physical the Peter. of auction would filings. I various presentation

by operations. as auction businesses we're First, the for operation. auction activity financial a physical treat from to removing U.S. ADESA our GAAP the U.S. in physical results business continuing statements discontinued required all from ADESA This

as I KAR clarity, this For refer to will operations throughout our RemainCo continuing discussion.

of statement, flows. The for is impact our we remove and sheet first discontinued all discontinued activity from balance of detailed income the statement operations ops cash

information in operations not in press in discontinued aggregate As of is the statements. presented We our can you see various financial each in present statements financial the release, the for detail. do line item

statement cost for SG&A activity sheet, in statement. or in revenue, held and And auction in reflect example, statement presented is prior from flows to U.S. cash line discontinued of of income year this a each line the the income used a services, the all financial discontinued statements single for on then we or category cash net of cash aggregate the net In financial provided the in asset we net by operations, ADESA cash It taxes. liability the of Income operations. manner each we physical of business presentations, balance discontinued category as present item, sale. operation. single For as flows, flow And activity restate so a a item. present

We this for restatement financial first have completed the statements. quarter

share to We that do complete determining be operations available as forward. of so We each XXXX going soon but will have not have for of each as today, is transaction. with information impact discontinued we it will the quarter you provide of after comparisons quarter it the you

an by or that have was discussed business U.S. for financial transaction. has X-K auction, published Carve-out as ADESA in the provided the as been of statements -- Carvana. to other We and was information part provided physical financial

of the reflect different RemainCo. corporate discontinued basis notice statements financial the -- auction the for $XX.X was of with will presentation Accordingly, business the costs primarily statements our to KAR operations million the requires You part these physical the presentation is revenue U.S. in statements business costs the to to not costs allocated allocation that carve-out The include The relation of of substantially financials the likely than from financials the carve-out and U.S. include GAAP allocation for based perspective of operations. the the ADESA transaction that in headcount KAR are business statements. Carvana. carve-out physical of Carvana. not KAR the in on from of

costs of Some for transition by these will be KAR retained RemainCo services Carvana. the of agreement the with duration

will contracts. termination Some of be retained of these costs third-party relate with to the the and contractual costs existing technology providers until relationships

of As at the on Peter sale want costs adjusted of continuing estimate full-year. ADESA our comment also I our reported the KAR of results million $XXX forma any the is U.S. does in XXXX. XXXX, expectation pro This reducing not Auction adjustments. closing KAR to a for the represents This Physical operations for of RemainCo for include EBITDA mentioned, Business. of outlook for priority following RemainCo

agreement For commercial of example, Carvana with transaction. a as we have part this

expected commercial the of of non-recurring severance termination These or expectations the from KAR EBITDA, Our XXXX, of payments. end with net date treatment the agreement, in the collected extent our include from to to revenue encourage adjusted like of actually historically. our build transaction close be and contract will expenses the reconciliation any to consistent income included RemainCo

be on closed if January the XXXX. activity We transaction pro forma X, will not as including

summarize be Up U.S. this our that sale to in billion. expectation transaction until The assign leases of purchase be price will certain to of the total the are held will million this near from let $XX Business from landlords. Auction transaction the Given close for will future, Physical ADESA me consent the received back proceeds you. $X.X

will closing of the gain. receive before We in the shortly of transaction. on consents expect all these properties substantial transaction This a after result or to the

taxes. approximately that be the rate and billion. at taxes, of a taxed of fees, expenses We will state gain including $X.XX applicable We estimate expect net approximately be to XX.X%, the net gain

transaction. We be expect second this upon quarter closing XXXX of gain will the the of in realized

As to utilize repaying will used Upon redeem repay we repayment existing debt. our senior credit of transaction, the notes. term or we had closing. our net of the proceeds loan unsecured the three to be of senior will After Vsix days within previously remaining agreements proceeds require repay disclosed, closing the debt,

XXX within the or We expect to apply closing to net repay remaining redeem days senior notes. unsecured proceeds of

timing on senior on have redemption the BX sheet down we not of the requirement XXXX, XX, notes transaction the debt to as repay classified redeeming sheet within unsecured XXXX as balance steps Xst. to of as balance June no this because the be from and will term year are of the premium given date. In March is notes closing repay of notes debt We unsecured the non-current three our classified our X, to days. as XXXX The this as March XX, prior the within the current, one requirement there borrowings June senior expected loan

portion the in as We expect notes of senior a of terms June XX, our and obligations as the reclassified the accordance to current of be notes senior with expectations, indenture. XXXX

last authorization repurchase increased has in by $XXX Directors through our our share mentioned December extended As night, of authorization XXXX. the Board release million, this XX, and

and next over with stock recovery yet combined several digital We business shares the the of of of volumes the our closing attractive digital Dealer-to-Dealer expect the as in expect repositioning KAR not experienced to expectation Carvana market in growth profitable we in years. growth company the purchasing anticipate over volumes our the we cash-generating an price. as reflected we businesses believe transaction, next the commercial with for Business We open the a opportunistically. is several our Following have increase years marketplace

in repurchase on properly A if quarter. the does future. performance the not few comments first flexibility in KAR market value the KAR We our quick shares have to the near

continuing the quarter-end. from First, due quarter was operations the and timing to both operations discontinued our is cash negative, operations. This for of

saw Europe reversed physical the with the was reflection of marketplace RemainCo's terms any experienced Canada, customers. in low cash ADESA over February. see of constrained. the but impacted transactions, wholesale January Payables was is a RemainCo can KAR TradeRev, our Thursday. the OPENLANE, This and in and several our or quarter-end. businesses, CARWAVE, cash. only a U.S. Release March, for of Auction cash We Supplement by and of vehicles, some recovery in net supply especially the change not all remains quarter in transaction patterns ADESA although disclosed impact what days is our sheet, in of still you ADESA following the in will ending use on Earnings supply KAR In As balance the our Receivables disclosed next be in volume changes volume XXQ, reflected. the Trade BacklotCars, use a This not The and

contributor Our gross was in to major auction vehicle profit increase Overall the businesses at BacklotCars fee XX% first an sold this by was our year. March. to $XXX A challenged increase fees situation. per This performance $XXX implemented to prior the vehicle sold in increased from in in increases in per quarter. early supply contributed marketplace the

adjusted driven However, the January combined improved with significantly it XX% quarter. in March EBITDA quarter. performance AFC The the and per strong To March The digital by first fee performance that represents profit dealer-to-dealer and better a vehicle the our in we sold. continued saw business March gross volume the increases was of performance February. for in than improved put results perspective, approximately were growth

levels year-over-year, increasing of positive channels wholesale loan of was AFC. volumes revenue market decreased flat the The by number all loans dealer the of was performance transactions including losses the impact trend of drives of strong of performance per inventories transaction, loan low -- rates. the segments this low interest transactions. strong The and across credit retail in was at Although driven backdrop all against

positive levels dealers challenges is vehicles improved The operations. inventory as a higher values We AFC supply car sold. continue payoffs cars floor. that for drives are in for the car elevated loan our to see wholesale used prices drives per average Low of

today. I'm that remarks. of have plenty sure my questions So you concludes

call. our will I portion So the Amanda, ask Operator Thank our of you. to Q&A begin

Operator

you. Thank ]. [Operator Instructions

now Ryan line open. is Brinkman is question from of the first JPMorgan, with your Our line

Rajat Gupta

is Gupta taking This on Thanks Ryan. for Roger for Great. question. the

versus a on of of of guidance us question How in for driving you what's movement? it a sense full-year XQ in from I year. to GPU, commercial the volume or the follow-up. Could question as that the could first a first of trajectory us give improvements much was much guidance, if have services terms sense give is agreement well? of was the SG&A the how also the or/and you sequential Just EBITDA the a embedded That

Peter Kelly

Thank you, Rajat.

take that me Let question.

terms what In performance -- additive full our XXX bridge I'd for guess number sort year, QX of the of I there's QX a the say from to are to our of performance. factors that

what Let continue. would say And to that I are. QX our performance, the expect in factors me outline those I [Indiscernible]

So I to see a for additives the QX as base performance these it.

some improving We Eric digital an D-to-D the that we monetization of in businesses. the contribution about March. the EBITDA side expect spoke made on changes in

certainly fully-reflect these month reflected not every in going really will weren't fully-reflected QX, forward. those So but -- be

So an aspect. that's importance

to expect improvements businesses. in see performance some We the and OPENLANE corresponding services

some expect of impact these a require going incremental positive soon them as don't and live we new I'd June programs top July. volume. customers, with May a going of and and have And also say these have to live We certain starting programs funnel of the as number in

well. I'd but it's up ramp the expect you we will us the reductions at which to positive of year. So contribution OPENLANE, do But say incremental for QX be will movement story helpful. And Carvana It's modest, incremental the relatively agreement. mentioned, commercial There they for -- second positive a incremental then, to over role, course be play and it of will is tend the there be as SG&A the as will although half well. as a those services

the So from provides essentially -- the the that to to bridge, QX Rajat, XXX. the

Eric Loughmiller

the add And could agreement. something on if I commercial Rajat,

contract the a We agreement. have there a commercial is in volume -- minimum

assumes guidance is minimum only Our the achieved.

So in there of assumed a number contractual the we've to no is minimum. risks there because

wanted will the used while of minimum and a not minimum it specific a volume-oriented we have number, but know disclose I transactions, the terms is our is there expectations. in everyone to the We

Rajat Gupta

That's Understood. helpful.

that. up just So maybe following on

from to partners. alternatives physical you dealer see public look at many And lot heard also We due deciding of OEM the will announcements obviously a to customers of platform. the

or moving maybe -- side us of physical impacting a acquiring ADESA? OPENLANE from maybe conversations are a I of is has So the you update using the on you backlash, OPENLANE to the give then seeing much Backlot? ADESA, and us business, that can how because shift customer our or give more how are are OEM the of away just maybe, you are you Thanks. sense maybe the if a been, because dealers How kind and an or mean, of this platform can from some digital competitor for of you that. seeing just

Peter Kelly

haven't Thanks. Rajat. is KAR Obviously, we with And focus post-transactions, the that. stay backlash seen Eric my the on, for that as RemainCo in no, that platforms described and confine it, I'll remarks regard.

more we provide we interested do to me But let there what not can regard. bit uniformly strategy very I understand customers a see our strategy think transactions, digital our bring fewer, a in the pretty that. say them and customers where more I'd for see future that on context understand are the and and can -- I solutions them, the much to the think and little

our some, time or of divested, -- did required For as to has the It big and and in was exactly stuff. acquired, of of digest that little bit industry. all in I'd initial to a announcement a transaction the stages been sort sure what event very the say there take was confusion

the they're the Commercial and time in enthusiastic as digital our step on bring And, our had our initial extent, think would, I'd of be transactions rationale, to customers to to see, think that along probably the that saying which market. that, frankly Buyer, and characterize I'm strategy, weeks follows, response whether regards as and of of customers what there of future it's in lot see not the this and understand some announcement post us to I in are the it transaction did which excited might another types days opportunities as enables said I I'm we customers new with weeks start bring accelerate all it's for to I early to possible offerings a but I them, understand we've it's us, initial I in most spend to RemainCo discussions exciting and or Given again focus Dealer, interested those guess very we did or that how certainly this working than customers important KAR. more development which personally. solutions some whether the digital the They, they will our Seller product And transaction to with past. about the road. it's those. are And it's can I direction, think of investments And

I one about our particular, present, our sellers comment even in look the say and other if have So,um, through rates the guess conversion though COVID commercial increased talked I I'd at to I than into were phone would of say sustain stronger conversion keen future. very the -pandemic. supply customers our the top rates are to those rates low, is strong are they pre conversion I

channel. for looking high can as that top, conversion they're So we keep returns that through we opportunities. of How volume do still ensure

forward. customers lot So a listen, and going a what opportunity think our there's and I between looking alignment good are of there's think for our I strategy

Rajat Gupta

queue. for back lot a and the Thanks to I'll Understood. get the details,

Peter Kelly

Rajat. you Thank

Operator

of Murphy next is Bank Our with America. question from John

Your line open. now is

Aileen Smith

morning, on is Aileen Smith everyone. for John. Good This

you made. of of ask comments understood it wanted around on $XXX prior some in I you've the I just to -- So the outlook the sure another make correctly context question million

assuming the physical $XXX in was was basis reduce is $XXX going of Within the by EBITDA broadly. million, assume results that forma negative, sale to the year-over-year business the and any to changes $XXX I'm headwinds the fair transaction new a announced remaining outlook, equal outside of your I is holds reduction from market the physical that in sales last adjusted the the XXXX ADESA versus secondary ADESA it just think comment million pro auctions more incremental or industry persistent particularly is market. on headwinds million to due which the

Peter Kelly

think a I Yes, reasonable that's assumption.

to that challenging their million I the and let's that candidly, I we months $XXX expected is what normal OEM ago. issue vehicle levels just the say facing six more indication perhaps And challenges back that getting think proven supply I would new valid. than I in would addressing say, think and the are customers have are production on that's think still

think So I accurate. there is you it summarize the way

Aileen Smith

any is to or by are understand in on need of you online catalyze interested the to there is offered to and need is by shift process follow Okay. do to or traffic they And vehicles Rajat's to you your you resources whether to shift that customers that you marketplace think Great. whether Or auction some of ADESA of there an to dealer digital? extensive you education to or continue make the houses happening. not customers of relatively Is up go rather other industry And KAR. wanted second that I seeing how to a customers I an question. are change on. offered quickly? to commented But you wanted or incremental by on spend it costs time discussion with through? physical happening from And mentioned change ask I But instead competitor. the moving actively alternatives shifts, those which dealers then specifically

Peter Kelly

I'll a -- that in Let answer second. here to attempt me

would about on me go more for to Let just back talked a context. moment the question I just a $XXX normal you a prior Those assessment challenges facing the terms give Businesses. declined OPENLANE little bit like are headwind your Services some to that performance my of current just of a something lease that represents million performance. significant, I versus is of in say, off

And maybe to that that show back, about headwind opportunity RemainCo does our as in grow talking So in an is business. indicative regard. I how see but this I'm that of up

on have go your no, I on, this would been I because with say customers. or part? to additional question our to effort we other our education guess, does require So

of part We've been stay I transformation. for culture think many years communication company in in and our with communication is to close around them, digital customers. our partnership with close very

and a on I in. many industry our and customers, their performing Dealer-side, the of experienced customers on And think company represent that's the of has, the the case so obviously Buy-sides to like the customers, of helped understand digital highest they I very we're digital the find I our of think something our powerful, channels. solutions our effective, very in, think them solutions, drive and the Commercial that our we're both Sale digital that at business, transformation

think us So want not the you? of the these deliver a What make discussion see could of kind exclusively and to these that being better? be these do the is have a our you be focused you to redoubling And I for market. best. we that. enables customers. fully on solutions are ambiguous that's hey, with can we would would would of We are sort to to say But would we it have going We're that solutions well, focused or I how So as advantage the that committed us message we that, do bring effort. to very to of, of, terms in do could this

Aileen Smith

we to that ADESA Okay. lot any of That's But I'm since on implications Obviously, cases should the be offer, then near physical it. many AFC. are we're commentary. then may dealers that customer And about. I'm one is getting Carvana the I get ADESA Got helpful sale that or using question financing financing if something ADESA. can AFC Services, to very they and sure if sure a around bigger even thinking going acquire physical is in have from the not auction. And AFC Auction capability does the side longer-term auctions

from thinking forward site, to be as is going modeling about any perspective. we risks So should the digest you physical that there AFC a

Peter Kelly

believe of AFC a on don't ADESA risk sale context the provide that. hurt that that some And the or will to U.S. be Auction there Physical is I business. by

in whether our wholesale serves who at marketplaces, used at also AFC physical. purchasing independent dealers marketplaces but are at competitors cars market, KAR's car or As digital the you ADESA, mentioned, including

AFC dealer's important So vehicle requires it's that when they with relationship support dealer, that dealer of establishes very the the where the inventory. irrespective purchasing

very percentage total ADESA, from of from been their And always were or of okay. relatively strategy. part purchased KAR's as a a that, marketplaces much has AFC's of loans that's small result only So

AFC think I So really has view. a channel of agnostic point

vehicle. as long car, buy finance dealer the a to will the As AFC wants

So we don't any see risk.

show up any seen haven't the in We numbers. risks

the this We transaction. the whatsoever haven't announcing of customer erosion seen past days base since any XX in

effects So there's think knock-on any there. I don't

Eric Loughmiller

Aileen, And add. let me

our AFC the RemainCo. locations are that personnel U.S. Physical agreement no the to duration rent of with As at through contract Auction Carvana, of commercial KAR on-site on-site at part will that costs ADESA remain

So that's locations. logistics attractive to available customers resources the those the still arrangement an for us having relative to at AFC

Aileen Smith

Okay. thanks the for Fantastic, questions, taking guys.

Peter Kelly

much. very you Thank

Operator

Our Prestopino with next question Barrington from is Research. Gary

now is line Your open.

Gary Prestopino

a sales, about, reducing time will SG&A Peter, everyone. mean, of what an talk when morning, running optimal you? good be there? do feel over would was XX%, I as what year-over-year, your Hey, for you percentage Hey, Eric, but percentage optimal, number you be at it XX%, number versus

Peter Kelly

I it the guess forth. as two segments businesses, described structure, and we have SG&A AFC I'd comes have [Indiscernible] percentage the the they say And on segments. of what characteristics somewhat margin a so is segments, to I and and revenue if different so when

our it volumes or separately ultimately then I that blend to sense much is, that rate. So for SG&A we total But which thought some guess I'd reduction together number expect I in will, would see at the terms extent, what will today, and they grow fully revenue relative and make say a them of slower of SG&A might more in do absolute to and we it as say help KAR is at significant opportunity. analysis. those a is what grow, some terms to look

expectation to that to going for in part in June. So I that as look percent of our I've We'll part our sure, into declining with SG&A I Analyst broader into of the do in revenue But honestly, modeling. Day more targets detailed. a our group, more a forward is have go of rather some and but I'd speak detail

Gary Prestopino

Okay. And then just a second question.

and my you the you're OEM with commentary elaborate maybe there, from? some are had that understanding growth -- of coming the OPENLANE. new You these anticipating, programs -- so you some could is of mentioned Could you most this where in programs your programs new

Peter Kelly

would I programs new existing customers. as characterize these, with Gary,

had more don't X.X these is the our talk about terms not markedly little about talked say of I'd okay, different. years was And where programs are conversion is the the frankly the rather be off-lease reflective customer that vehicles specific also and it contracts. in selling customers a rates would certainly different into we've reality but sort Within of -- their But what to today go funnel they're So I'd the selling? today? channel, ago. the this I higher, experiencing portfolio how's is of, within we being specifics, vehicle

programs in those customers working some had we some regard. that with address So and that of aspects

Gary Prestopino

Okay. Thank you

Peter Kelly

You're welcome, you. Gary. Thank

Operator

question Bret from Jefferies. next Our the line Jordan is with of

open. now is line Your

Bret Jordan

Good Hey. morning, guys.

Peter Kelly

Bret. morning, Good

Bret Jordan

little us maybe into that And where CARWAVE, just seeing give an Could the you merging to the a of integration it talk you're bit about business? going is? to as backlog update how

Peter Kelly

good you. Thank Yes, question.

Wave perspective, of is that it we've So a Wave track, a is on X into, called number had now Wave attributes. we and from key we in -- and essence X. X X integration it Wave waves, broke two complete

point of the of Backlot be First the one, across new the and inspection that so consistent improved the same and for format both. deployment channel CARWAVE, intake a common vehicle was and would both into either

that to deployed improved and within gone, pleased BacklotCars quarter. inspection So the was first platform We're what has an that's had inspection before. that relative new how with capability

and experience. it's a improvement consistence So an

I addressing of and -- it we call was aspects policy programs. a aspect the of the second lot pricing the The the

As the about talked done That improvement policy that platforms. was to been impacts; a the Eric monetization of X. deployment of really can common framework, in has apply BacklotCars, a revenue what and of that number and that both has

to deployments the It's end by not more going past get QX complete for hard currently QX, towards technology done to things, that come our protections maturity vehicle solution. protection, buyer team wanted has In we seller looking how gone. with provides there's of positive on tracking we're and There we of are the protection type that Q, customer to that's terms of, performance of the is both we're was what is in terms And, buyer or increased transaction. the more those that of and guaranteed it monetize that's pleased the we the and working okay, protection, doing the it integrated benefits, were to on that with QX expected, the both then products the, has at impact seller the but increased that of has

Bret Jordan

then an sites percentage us well physical you maybe was but this relationship, salesperson? really ADESA to of continues idea or Great. digital obviously guess do that I of commented Okay. And ADESA AFC dependent or came didn't ADESA what that of give you AFC of regardless at most just originations could loan the upon

Eric Loughmiller

part still sites. terms, be do about would breakdown include not I their XX% Canada, in KAR planning ADESA from which have is of will Just of [Indiscernible], general a it's floor RemainCo. that

So ADESA. XX% in U.S. And Canada from again major versus of portfolio that don't we I

of Although substantial amount that. U.S. be would a

Peter Kelly

[Indiscernible]. I Eric, I maybe -- actually think Actually, can

I XX% car, think it's

Eric Loughmiller

I'm all right. sorry, platform. KAR XX% across you're

Peter Kelly

low teens. ADESA is the in U.S. Yes.

Eric Loughmiller

XX% XX% -- -

Peter Kelly

XX% - XX%

Eric Loughmiller

be right. speaking Thank you for U.S. Peter. Generally That ADESA would correcting me,

Peter Kelly

Yes.

about to it's So clarify, U.S. XX% XX% ADESA properties. KAR

Eric Loughmiller

And [Indiscernible] KAR would OPENLANE. include CARWAVE, TradeRev, BacklotCars,

ADESA just than more Canada. Yes. it's So

Bret Jordan

you. Thank Great. Okay.

Peter Kelly

You're welcome. Bret. you. Thank

Operator

Our Labick from next Bob question is CJS Securities. from

open. now line is Your

Bob Labick

Great. Good for questions. Thanks morning. my taking

Peter Kelly

morning, Bob. Good

Bob Labick

discuss expect you business wanted the the kind with of of up conversion out? to couple from free just step years kind in forward what's bit free targeted terms I a the going expense of to kind of the now of flow So we little the pick forward? this the big going EBITDA picture What's profile cash of And transformation. what's back cash should Can a interest leverage? CapEx flow? profile

Peter Kelly

going let speak I'm a to specifics. Eric to little more

question. the Let just Appreciate me Bob. offer perspectives, a of couple

continue. at we given meaningful amount continue a a all, have for that a of those is physical was generator, or expenses we also CapEx. cash cash there a strong have is footprint, First areas then think annual so of need look which for cash reduced where reduced of our to reduced flow business capital auction business, cash flow positive outlays, I The KAR. a will generation the the be I characteristics strong that will story If investments

more expenses obviously, on that. to some color say of So ask that diminished. as also, debt. I'll little are I'd And reduced cash Those to service has provide Eric a well.

Eric Loughmiller

board had set have target all not times years. had we've the discussion, leverage leverage a less target many, with many understood. We've we although that Bob, substantially our than three the it's for yet, it's

of will it of the and that the disclosed be today, than that. XX-Q you'll to little our will for million for $XX CapEx take million I because be in in It KAR discussion. unsecured expectations But been senior number there That towards And for will RemainCo, $XX well And while million see down reduction my $XX also, from we've $XXX the notes have disclosed. the redemption. prior to announcing So Global, be The of previously timing expectation for a regained. is influence interest will to million, in transaction. that it get significantly to the XXXX. be I a repaying know this that once filed year don't the likely to $XX will some There's us bonds that less million cash that of the described several expense of are mechanics timing that. factors

par conversion at a at improved excluding taxes, on cash be will once get was So payment it, tax I cash One from over past qualifier that, actually free be we the the substantial that it what flow as slightly am transaction. will look am we that. the likely of including $XXX Business. from I'm sale tax, do excluding 'XX tax ADESA in the that gain in in will excess payment million, of U.S. my and on Auction be so cash that not I ongoing the Physical

Bob Labick

to wait, you two, I'm And give say details Certainly, maybe have questions. enough. not the little can a now, fair you how thank dealer-dealer, then insight. sure there. digital-dealer hopefully for And you us will we much but

that what disadvantages consolidate might Backlot going of about going we or to and and brands just to continue you what think or should CARWAVE. are is dealer-to-dealer that strategy the advantages indefinitely the going is multiple how forward. In having forward, terms brands, And U.S. brand and

Eric Loughmiller

Bob, I consolidate we brands. the of would expect integration, with Wave X

marketplace CARWAVE sense. and -- side effects BacklotCars have of network model. Now, seller we see format business, doesn't on marketplace on think with live may the ultimately both as marketplaces. those I a Fragmenting dealing make within digital that we buyer format But the a the we're

Bob Labick

Okay, great. Absolutely.

Peter Kelly

open to further have again, off-lease other we vehicles. this goes interrupt. the upstream flow I marketplace. vehicles Bob, can of also an candidly. way, but have that speak have types that, the strategy to more, sorry would we into to say get we potential we than the By And commercial Dealer-to-Dealer And vehicles,

RDN we the in is used vast majority possess of As platform companies our I mentioned, the by across United States. vehicles

into get one them marketplace, digital vehicles makes type into marketplace. of As single flow upstream an any to sense it

going June, I we an that part So as on of you're in forward. think call in important our more to that's see going will to well. going be provide details strategy And our

Bob Labick

of on terms as an profits per parameters units of set? you're profitability bit to of that to now if a June trajectory the so, for goal at think in should growth digital again, XXX? maybe for getting little to trajectory, maybe and about maybe of terms in share appreciate one that the dealer-to-dealer But the those XXXX there how and was general maybe super That's from the investment like here. the And think the Are the And kind path how well. trying opportunity last or thinking a unit of what's phase the in Is Is it a I end then EBITDA. $XXX million, by and we still take digital the linear? Okay. two for about market with turning dealer-to-dealer.

Peter Kelly

Good Bob. question. what I'd say, guess I

the being a of target we're we at think that as target, a as will looking again still update specific think appropriate. I say in we I and but is target, the provide would zone more June, I in think that

Okay.

regard. a perspective I at very looking a much So in still we're volume think target that from

EBITDA that exceeded saw think in marketplace that per also reasonable. is TradeRev vehicle target in that per will I QX. our we vehicle EBITDA the say I

that is So will this vehicle marketplace. per level again, that EBITDA even in in possible I specifics, But to more gives me confidence we possible that of and hope. maybe provide that marketplace, this exceed

a area. aiming targets, and the of that's what plausible that's And I for. think it's think as we're I generally right So set

In terms of how we get there.

and out we're -- businesses I phase cash losses of profit, to But in of generating listen, development and we've forth. and having and the got revenues of so drain. a being on invest product also to in are terms think now these so substantial continue I the so think we're gross businesses

Maybe going linear businesses be progression And this the time. I the little of terms I in my exclude business frankly is these this corporate see a of over expectation terms in bucket certainly up profitability. perfectly to from at will contribution increase probably level a think costs, more unit bit if profitable ramps But will linear, year, -- it's it year. we're here. we think not probably their absolute of a

Bob Labick

Okay, super. Thank you much. very

Peter Kelly

You're welcome you. Thank Bob.

Operator

Imbro, is question with Stephens. Daniel from next Our

now is line open. Your

Daniel Imbro

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

Peter Kelly

Morning.

Daniel Imbro

materially And core wanted the I talk to margin fee down, talk increase. was to Gross think that the it Can year-over-year about drivers I maybe the you purchased pretty just about first, ADESA vehicles, back fight that? excluding quarter the pick high this volume, we driven it we volume Gross just if of XXs, right about is see until really should margin [Indiscernible] the where way lower up? was by think

Eric Loughmiller

this, again -- the Well at net down But vehicles. I'll out ADESA much from things look than it's the Daniel, purchased I'll vehicles, net point do was XX% impact look that. from does on one substantial a you of it basis. it a purchased there's profit is gross in segment, consolidated When about more substantial XX% of

January model. March in there's been has think what So from a volumes in extremely I months of we've business stronger, just quarter. suffered We there and the a I although consistent lack in the light first more the two experiencing, so at February. especially don't much change with as profit say been the look The quarter I'll it, first of much it, in scale gross was

anything broken, at a of issue I mix you think it, is mix As look in revenue. QX, I think I don't have bit a of

which not the high purchased taken out. a purchased Auction it vehicles, U.S. impact was Physical and bit platforms which did was little of unusual ADESA vehicles from given the have We a include business,

So normalized. in thinking, volumes all looking get last normalized year I'm all, you as to experiencing moves where and I at year were were say they'll and January to back February. start and it you'll won't normal, in from see what but the we on

Peter Kelly

relative showed add gross to down funnels, mix the more across And I'd up generator is business of numbers that can being maybe portfolio. our comment, profit with highest one the aggregate set XX%, that probably shift OPENLANE. also in volumes OPENLANE well. top I as at the the If say, Yeah.

Daniel Imbro

a a as how up of last the know function then conceptual so just how Physical if few of over cycles, when I the the environment Reconditioning have transactions picks similar plan to but and is year you Used bit think over to think that last been trying given that a digital, sellers most And it. guys with need Or the wouldn't inventory? meet lack of Got do I declined, question, said past the U.S. Eric, how fully of more needs prices Just you why much for sale your of the have locations? ADESA commercial those reconditioning to Assets customers to decline, Physical the cycles? prices pending

Peter Kelly

all trend, I some buyers. all of needs think is I'd of towards types and the across what say for But sellers there And seller. secular also that the is continued consistent That guess I there more fundamental digital more say I would is services. trends, is true. that's those types and

when digital a from off-lease of high-end, the I there purely vehicles of that a overtime? quite very Yes. sell vehicles high heavily is we That's the is sell they everything damage with space So some our diminish across format. at vehicles look Yes. types it. to we that are see way how for down that? premium, And damaged. all prices I But $XXXX And portfolio, to little sell in going

right? of is I'm diminishing customer need but of I that saying -- no think So there, been for has But element that, time. an there's do there choice over not so sort need

goes think zero, and I away I time, think but it ultimately say. continues guess should goes I -- forever don't I to diminish to over

Eric Loughmiller

our the reconditioning. We And for the the vehicle it seller started even some reconditioning selling the reconditioning responsibility and handle they've marketplace if It for call they can and more to after our the will necessity, through continues retail-ready the vehicle Daniel, out They've do And buyer. services value get evidenced doing, can transaction buyers I as not think needs would me it believe learned, buyer at we're of add, to purchased it we to reconditioning if of that car. the are capabilities me continue. surprise of recon. had willing full that the We capacity. the let by look

Daniel Imbro

EBITDA we right mentioned And clarify Peter, in the then Got a just inventory a the it. function shortages think XXX you the follow-up of now. helpful. the That's not remarks just this the any to forward. of or would the Does That's equity I gains XQ guidance on quickly. if year. then excludes XX% excluded the and this be the last growth equity would gains that equity million year going XXX gains from in include year $XX

Peter Kelly

expectations. There are does equity no include No, in it not any. gains year's this

So the that basis, those excludes that. would then like-for-like numbers in last will a performance -- year's on then two comparing XXX excluded that had And be we XX%.

Daniel Imbro

doesn't the XQ XXX The it. Got XX. Got Thanks. include it.

Peter Kelly

Absolutely not.

You're very welcome. Thank you, Daniel.

Michael Eliason

of more quick it out time. I may it be believe to we're I one in. question, Amanda, try one could there think fit question. If we'll we make

Operator

is from comes line now Faghri your from Guggenheim, question Ali final open. Our

Ali Faghri

in. for squeezing thanks Awesome. Good morning, me

the Carvana. of sale the question specific OPENLANE on business Just physical a more the to from implication U.S. on

talked So over the years, in OPENLANE management [Indiscernible] vehicle physical about reconditioning OEMs the storage. company's being offer ability KAR the and asset has to the around

of Physical U.S. sale the that focused to are differentiation Carvana, on versus you business proposition segment. the to do digital-only your competitors value commercial competitive the Auction With how see OEMs, impacting the who increasingly and

Peter Kelly

of I on physical of sold them other property our appreciate as recall the of But guess don't assets, that I OPENLANE the sense some the was Ali. OPENLANE, founder frankly. a making I sell the would physical at last close OPENLANE year, I physical property. arguments X% vehicles question. comment. them or that actually Thanks, look OPENLANE I I'll from to if auctions or sold say,

of the don't exact dealership XX% them I from sold know plus percent. lots. So XX%,

physical I say, there. had distributed of are don't think ability necessity to range do OPENLANE, never they those to We go a that we to direct wide So don't the ADESA They where the well, frankly, all assets get a cars looked sell on lets when And auctions. at auctions. to?

that I the mode on that or physical should. a OPENLANE. don't they makes are a customer necessity as asset the think So choice

marketplace has I I years. very high what think worked low percentage digital OPENLANE the the that and digital provide OPENLANE dealer, and great work for XX and products mode on think transact that is, cars effective a seller build a that's for And the for of quickly focused at cost. their

I channel think it. we our being customers hope, enables to are acquisition innovations a to that more by offer. lot past very pleased bring focus. more perhaps with service And the And I us redouble whole done frankly, have this just think on I we focused than our

So see a see of dependency I opportunity don't OPENLANE. I the with and lot

differentiated clearly customers we're think competitors. set a I - of vis our And vis -a an value got where strong area all and proposition. it's and compelling unrivaled where we've

Ali Faghri

Thank you.

Peter Kelly

Ali. welcome, You're

in remain I'm conclude I for the accelerate little strategy So, With the asset-like company. our appreciate smaller more Again, current what hey, week. customers, and transaction more our for a and And the optimistic just a growth, the over, digital of transformative future capture to to will market. intend to believe close we KAR we for a few beyond and I considerable opportunities our closing I going both is next within expected ADESA for to I very nimbler a for focused believe be our company, and remarks. stockholders. with know be to we're the transaction

was When areas quarter supply same a AFC. quarter off-lease in XX% question headwind. the There's no to relative we particularly that's made significant and business, [Indiscernible] that. a decline Dealer-to-Dealer where I The about year, in many of said, first believe Business our challenging. in in progress That facing meaningful last our

very We like-for-like have industry spite affects And EBITDA be guidance environment -- our delivered and basis. year, that'll that I'd $XXX represents a million business. that as in characterize accomplished growth our this adverse adjusted XX% on what a in

with have. performance the don't of I So in the the face love number, pleased but I'm the headwinds we

Buyer-side is I We As capitalize the about business. think digital And to in that past a I And seller will ahead marketplaces out excited very addition, to expect intend excited come. opportunities is that on by what look years industry. in we both our the the customers. to play of shift our for year, secular commercial and Commercial lie see the team recovery and both I'm this towards Dealer Seller in and very a on volumes

we believe significant a I for So growth. had opportunity

differentiated market and a platforms, innovate which invest. We have large base, a to space and strong customer in

with thank to your today's end look an So looking attending and reconnecting questions the thank for more update, that plans. Analyst sometime we future And and call. we're conversation. to providing morning. on intend close transaction our for we'll in after forward out we In June. you And save-the-date all next to forward Day I'm a our this targeting send you that, I details and on all

Operator

for This concludes today's conference you participating. call. Thank

now may disconnect. You

KAR Auction Services (KAR) 4 May 222022 Q1 Earnings call transcript