While revenue and gross profit at each of its three largest subsidiaries improved year-over-year, KAR Auction Services reported that its net income decreased 29 percent as a result of refinancing activities during the first quarter.
KAR generated $583.8 million in revenue during the first quarter that ended March 31, representing a 5-percent increase from the $557.6 million in revenue the company posted a year earlier. The company’s adjusted EBITDA for the quarter increased 8 percent to $147.1 million, as compared with adjusted EBITDA of $136.2 million recorded in Q1 of last year.
But as noted, because of the refinancing of debt KAR conducted, the company’s first quarter net income came in at $20.7 million, or $0.15 per diluted share, down from $29.1 million, or $0.21 per diluted share, a year earlier.
However, KAR said its adjusted net income per diluted share for the quarter increased 32 percent to $0.41 versus last year’s level of $0.31.
The company also announced a cash dividend of $0.25 per share on the company’s common stock. The dividend is payable on July 3 to stockholders of record as of the close of business on June 25.
ADESA Q1 Performance
Officials indicated ADESA’s Q1 revenue increased $14.5 million or 5 percent to $298.1 million, up from $283.6 million a year earlier. They attributed the revenue rise primarily as a result of a 7-percent increase in the number of vehicles sold, partially offset by a 2-percent decrease in revenue per vehicle sold.
In addition, the company pointed out High Tech Locksmiths provided $8.2 million of revenue in the quarter, while fluctuations in the Canadian exchange rate resulted in a decrease in revenue of $4.8 million.
“The increase in volume sold was primarily attributable to an increase in institutional volume, including vehicles sold on our online only platform, as well as a 4- percent increase in dealer consignment units sold,” KAR said.
ADESA sold approximately 128,000 and 93,000 vehicles through its online only offerings in the first quarter of 2014 and 2013, respectively.
During the first quarter, the company determined dealer consignment vehicles represented approximately 50 percent of used vehicles sold at ADESA physical auction locations, compared with approximately 48 percent during the year-ago period. Vehicles sold at physical auction locations increased 1 percent year-over-year.
Meanwhile, ADESA’s used-vehicle conversion percentage at physical auction locations — calculated as the number of vehicles sold as a percentage of the number of vehicles entered for sale at ADESA auctions — improved to 63.6 percent, up from 60.5 percent a year earlier.
Officials also calculated that their total revenue per vehicle sold decreased 2 percent year-over-year to approximately $535, down from approximately $550 in the first quarter of last year. However, physical auction revenue per vehicle sold improved by $22, or 3 percent, to $663.
“The increase in physical auction revenue per vehicle sold was primarily attributable to an increase in ancillary and other related services revenue,” the company said.
ADESA shared that online-only auction revenue per vehicle sold decreased $8 to $114.
“The decrease in online-only auction revenue per vehicle sold was attributable to an increased number of cars sold in closed private-label sales. The revenue per vehicle sold in a closed private-label sale is lower than the revenue per vehicle sold in an open online-only auction,” ADESA said.
With all of those figures in mind, ADESA reported that its first-quarter gross profit increased $5.9 million, or 5 percent, to $127.9 million, as gross profit constituted 42.9 percent of revenue, a percentage down slightly year-over-year.
“The decrease in gross profit percentage was primarily the result of the 5-percent increase in cost of services,” ADESA said. “The increase in cost of services was primarily attributable to the inclusion of $5.2 million in costs associated with High Tech Locksmiths, an increase in lower margin non-auction services, increased utilities and snow removal, partially offset by fluctuations in the Canadian exchange rate.”
Insurance Auto Auctions Results
Insurance Auto Auctions officials are still seeing some impact of Superstorm Sandy on their financial results since the year-over-year comparisons include metrics from the division’s work following the natural disaster.
During the first quarter, IAA’s revenue rose $3.4 million, or 2 percent, to $225.0 million as the company reported a 3-percent increase in the amount of vehicles sold.
“Volumes and revenue for the first quarter of 2013 included the impact of Superstorm Sandy. Excluding the impact of Superstorm Sandy, IAA’s revenue and volumes increased 15 percent and 14 percent, respectively, IAA officials said, adding that the company’s total loss vehicle inventory has increased more than 15 percent year-over-year.
Elsewhere, Insurance Auto Auctions noted that vehicles sold under purchase agreements were approximately 6 percent of total salvage vehicles sold in the first quarter, down from 7 percent a year earlier. IAA also indicated online sales volumes represented more than half of the total vehicles sold by the division.
IAA highlighted that its Q1 gross profit increased to $87.1 million, or 38.7 percent of revenue, compared with $62.7 million, or 28.3 percent of revenue, during the same quarter a year ago. Officials explained the gross profit increase was primarily the result of a 13-percent decrease in cost of services relating to Superstorm Sandy as well as a 2-percent increase in revenue.
“The increase in gross profit as a percentage of revenue was mainly attributable to expenses associated with processing total loss vehicles related to Superstorm Sandy for the three months ended March 31, 2013,” IAA said.
“A decrease in the revenue and cost of vehicles sold under purchase agreements also contributed to the increase in gross profit as a percentage of revenue, as the entire selling price of the vehicle is recorded as revenue and cost of services,” the company added.
Over at Automotive Finance Corp., first-quarter revenue increased $8.3 million, or 16 percent, to $60.7 million.
Officials explained the revenue increase came as the result of a 9-percent jump increase in loan transactions and $5.6 million of “other service revenue” generated by PWI, a service contract business that was acquired in June of last year.
AFC determined that its managed receivables increased to $1.1079 billion as of March 31, up from $1.0035 billion a year earlier.
The company noted that revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $5, or 3 percent. Officials said the movement came primarily as a result of an increase in the provision for credit losses and a decrease in floor plan and other fee income, as well as fluctuations in the Canadian exchange rate, partially offset by an increase in average loan values and average portfolio duration.
Nonetheless, AFC watched its gross profit climb 7 percent year-over-year to $44.3 million or 73.0 percent of revenue.
KAR also updated its guidance to reflect the recent refinancing of its credit agreement.
The company expects this year’s adjusted EBITDA to come in between $580 and $600 million. The company also expects net income per share to $0.95 to $1.05 and adjusted net income per share to be $1.35 to $1.45.
Officials projected their 2014 effective tax rate to be approximately 40 percent.
“Adjusted net income per share for 2014 represents GAAP net income per diluted share excluding excess depreciation and amortization and stock-based compensation, both resulting from the 2007 merger, and the loss on extinguishment of debt, all net of taxes,” KAR said.
Additionally, the company expects 2014 cash taxes of approximately $105 to $115 million, cash interest on corporate debt of approximately $61 million and capital expenditures of approximately $105 million. This level would result in free cash flow before dividend payments of approximately $309 to $319 million or $2.17 to $2.24 per share, according to KAR.
Editor’s Note: Look for a report in Thursday’s edition of AuSM Today recapping executive comments shared during KAR’s conference call with investment analysts.