Openlane, Inc. · NYSE:OPLN
Openlane — KAR Auction Services — Q3 2017 Earnings Presentation
32 slides from Openlane's earnings presentation, Aug 14, 2017
Slide 1: KAR Auction Services, Inc. Corporate Update Third Quarter 2017
KAR Auction Services, Inc. Corporate Update Third Quarter 2017
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation includes forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements are subject to certain risks, trends, and uncertainties that could cause actual results to differ material
Slide 3: Key Investment Highlights
Key Investment Highlights Proven and Resilient Growth Adjusted EBITDA ($MM) Through Diversified Business $800 $700 Mix $600 $500 Strong Free Cash Flow $400 Generation and High Margin $300 $200 $100 Physical and Technological $0 Assets Differentiate KAR 2008 2009 2010 2011 2012 2013 2014 2015 2
Slide 4: Shareholder Value Creation Strategy
Shareholder Value Creation Strategy Extend Digital Footprint Customer Leverage Unique Data and Analytic Capabilities Focus Expand Portfolio of Services and Geographic Presence Leverage Technology Operational Standardize and Centralize Processes Excellence Control SG&A Quarterly Dividen
Slide 5: Vehicle Auction Services Leader
Vehicle Auction Services Leader 2016 Revenue by Segment 2016 Adj. EBITDA by Segment(1) AFC AFC 9% 17% $287 $149 IAA ADESA ~5.1mm vehicles sold in 2016 IAA ADESA 35% $1,098 $1,765 $420 56% 34% 49% Revenue $3,150mm $289 Adj. EBITDA $748mm % margin 24% Wholecar Auctions Salvage Vehicle Auctions Vehicle
Slide 6: North American Car Parc
North American Car Parc Vehicles in Operation Salvage Auctions 290 Million 4+ Million Units units Used Vehicle Removed from Transactions in New Vehicle Sales Operation North America 20 Million Units 13 Million Units ~44 Million units Consumer-to-Consumer Retail Used Vehicle Sales 13 Million Units 31
Slide 7: Consignment Revenue Model
Consignment Revenue Model Wholecar Sellers Wholecar Buyers Dealers Franchised Dealers OEMs and their Captive Finance Arms Revenue: Independent Dealers ~$600 / vehicle Commercial Fleet Customers Wholesale Dealers Financial Institutions Revenue: Rental Car Companies ~$150 / LTU(2) Sell
Slide 8: North American Wholecar Auction Industry
North American Wholecar Auction Industry 14 20 17.5 17.6 16.8 16.6 16.9 16.9 16.5 16.5 16.1 15.6 14.4 13.2 15 12 11.6 12.7 11.2 11.4 10.4 10.6 10.8 10.0 9.9 10 9.5 9.7 9.5 9.5 9.5 10 9.4 9.2 Wholecar Industry Volumes (MM) 9.0 8.7 8.3 8.2 5 8.0 8 64% 60% 60% 60% 0 58% 50% 49% 56% 44% 48% 45% 40% 40%
Slide 9: ADESA – Wholecar Market Fundamentals
ADESA – Wholecar Market Fundamentals New Vehicle Lease Growth Auto Loans Outstanding 5.0 4.5 2.0% Loans Outstanding ($BB) $1,000 60 Day Delinquency Lease Originations (MM) 4.5 4.0 4.0 3.7 $800 1.5% 3.5 3.2 3.0 2.6 $600 1.0% 2.5 2.3 2.3 2.5 2.0 $400 2.0 0.5% 1.4 $200 1.5 1.0 $0 0.0% 1Q07 1Q08 1Q09 1Q
Slide 10: IAA - Salvage Market Fundamentals
IAA - Salvage Market Fundamentals Positive Industry Drivers Total Loss % of Total Claims 18% Accident frequency benefits from rising 16.9% 17% miles driven, an aging vehicle fleet, and 16% 15.6% increasing driver distractions 15% 14.3% 14.2% 14.1% 14.1% Accident severity increasing due to 14% 14
Slide 11: AFC Provides Complementary Service to Buyers
AFC Provides Complementary Service to Buyers AFC Highlights Independent Dealer Used Vehicle Retail Sales 14.5 13.9 Short-term (~65 day) secured financing to Industry Units Sold (MM) 14.0 13.3 independent used car dealers 13.5 12.8 12.9 12.7 13.0 Provides liquidity to auctions 12.5 12.2 12.0 Po
Slide 12: Three Year Trends and Outlook
Three Year Trends and Outlook Expected Environmental Trends Strategic Priorities Growth in off-lease and repo auction industry volumes ~ 60/40 commercial vs. dealer Capital Extend and integrate deployment our platforms consignment seller mix … Leverage unique Improve data and analytic operating capa
Slide 13: Historical Financial Performance
Historical Financial Performance Revenue Free Cash Flow $3,150 $368 AFC IAA ADESA $338 $2,691 $287 $319 $321 $2,417 $2,220 $268 ($ in millions) $241 ($ in millions) $2,007 $250 $1,098 $225 $194 $994 $896 $716 $830 $1,765 $1,271 $1,428 $1,097 $1,166 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 V
Slide 14: Capital Allocation Framework
Capital Allocation Framework Over $700M Returned to Shareholders 2015 – 2017 Strategic Share Capex Dividends Investments Repurchases Historically ~18% - 20% of 45% - 50% of FCF Acquisitions that leverage Tool for managing cash Adjusted EBITDA, plus Highlights consistency & wholecar auction
Slide 15: June 30, 2017 Leverage
June 30, 2017 Leverage (US$ in millions) Balance Maturity Term Loan B-4 (Adjusted LIBOR + 2.25%) $717 2021 Term Loan B-5 (Adjusted LIBOR + 2.50%) 1,050 2023 Revolving Credit Facility (Adjusted LIBOR + 2.00%) 0 2021 Senior Notes (Fixed 5.125%) 950 Capital Leases 38 Total 2,755 Less: Available Cash (4
Slide 16: Appendix
KAR Appendix AUCTION SERVICES
Slide 17: Non-GAAP Financial Measures
Non-GAAP Financial Measures EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as
Slide 18: 2008 Adjusted EBITDA Reconciliation
2008 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2008 ADESA IAA AFC Corporate Consolidated Net income (loss) $52.5 $9.2 ($151.3) ($126.6) ($216.2) Add back: Income taxes 33.7 6.3 10.2 (81.6) (31.4) Interest expense, net of interest income – 0.2 – 213.2 213.4 Depreciation a
Slide 19: 2009 Adjusted EBITDA Reconciliation
2009 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2009 ADESA IAA AFC Corporate Consolidated Net income (loss) $94.4 $25.8 $19.1 ($116.1) $23.2 Add back: Income taxes 56.0 16.2 8.4 (69.5) 11.1 Interest expense, net of interest income 0.5 1.4 – 170.3 172.2 Depreciation and am
Slide 20: 2010 Adjusted EBITDA Reconciliation
2010 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2010 ADESA IAA AFC Corporate Consolidated Net income (loss) $80.1 $44.7 $38.4 ($93.6) $69.6 Add back: Income taxes 43.6 26.7 21.1 (64.2) 27.2 Interest expense, net of interest income 0.9 2.3 7.2 130.9 141.3 Depreciation and
Slide 21: 2011 Adjusted EBITDA Reconciliation
2011 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2011 ADESA IAA AFC Corporate Consolidated Net income (loss) $55.8 $65.5 $57.2 ($106.3) $72.2 Add back: Income taxes 17.9 36.1 29.6 (65.8) 17.8 Interest expense, net of interest income 0.7 2.1 12.0 128.0 142.8 Depreciation an
Slide 22: 2012 Adjusted EBITDA Reconciliation
2012 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2012 ADESA IAA AFC Corporate Consolidated Net income (loss) $38.4 $56.5 $64.1 ($67.0) $92.0 Add back: Income taxes 14.5 33.7 46.0 (34.6) 59.6 Interest expense, net of interest income 0.8 1.4 15.0 101.9 119.1 Depreciation and
Slide 23: 2013 Adjusted EBITDA Reconciliation
2013 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2013 ADESA IAA AFC Corporate Consolidated Net income (loss) $50.2 $56.6 $76.1 ($115.2) $67.7 Add back: Income taxes 40.1 32.8 40.2 (31.6) 81.5 Interest expense, net of interest income 0.6 0.8 16.7 86.2 104.3 Depreciation and
Slide 24: 2014 Adjusted EBITDA Reconciliation
2014 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2014 ADESA IAA AFC Corporate Consolidated Net income (loss) $86.4 $79.7 $76.6 ($73.4) $169.3 Add back: Income taxes 43.2 48.4 48.6 (44.5) 95.7 Interest expense, net of interest income 0.6 0.2 18.7 66.4 85.9 Depreciation and
Slide 25: 2015 Adjusted EBITDA Reconciliation
2015 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2015 ADESA IAA AFC Corporate Consolidated Net income (loss) $109.2 $92.8 $83.2 ($70.6) $214.6 Add back: Income taxes 62.3 52.4 51.3 (40.1) 125.9 Interest expense, net of interest income 0.1 – 24.1 66.6 90.8 Depreciation and
Slide 26: 2016 Adjusted EBITDA Reconciliation
2016 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2016 ADESA IAA AFC Corporate Consolidated Net income (loss) $156.9 $101.1 $88.4 ($124.0) $222.4 Add back: Income taxes 92.7 59.3 54.0 (73.1) 132.9 Interest expense, net of interest income (0.3) – 34.1 104.6 138.4 Depreciatio
Slide 27: LTM Adjusted EBITDA Reconciliation
LTM Adjusted EBITDA Reconciliation ($ in millions) (unaudited) Twelve months Three months ended ended September 30, December 31, March 31, June 30, June 30, 2016 2016 2017 2017 2017 Net income (loss) $54.4 $45.5 $69.2 $57.2 $226.3 Add back: Income taxes 31.8 26.7 34.1 33.9 126.5 Interest expense, ne
Slide 28: ADESA Metrics
ADESA Metrics 2016 2015 2014 2013 2012 Revenue2 $1,765.3 $1,427.8 $1,271.0 $1,165.5 $1,097.2 Total Volume 2,885 2,465 2,198 2,055 1,885 Online Only Volume 743 592 495 407 296 Total Online Volume % 42% 40% 38% 35% 31% Physical Conversion % 58.3% 58.3% 58.2% 56.9% 56.9% Dealer Consignment Mix % 48% 50
Slide 29: Used Vehicle Value Indices
Used Vehicle Value Indices YoY Index Change Age 1Q17 2Q17 YTD17 Industry All +4.1% +3.7% +3.9% NADA 0-8 yrs -7.0% -7.3% -7.2% Black Book 2-6 yrs -5.9% -5.1% -5.5% RVI 2-5 yrs -6.1% -5.6% -5.9% Increased industry (commercial) volumes are driving wholesale prices higher (ADESA) Revenue per unit so
Slide 30: IAA Metrics
IAA Metrics 2016 2015 2014 2013 2012 Revenue $1,098.0 $994.4 $895.9 $830.0 $716.1 Total Volume 2,184 1,970 1,732 1,616 1,429 Inventory Growth (North America) 25% 14% 20% -3% 18% Purchased Vehicle Mix % 7% 7% 6% 7% 7% Gross Profit $390.0 $360.8 $340.2 $284.1 $266.6 Gross Margin 35.5% 36.3% 38.0% 34.2
Slide 31: AFC Metrics
AFC Metrics 2016 2015 2014 2013 2012 Revenue $286.8 $268.4 $250.1 $224.7 $193.8 Loan Transaction Units (LTU) 1,718 1,607 1,445 1,355 1,240 Revenue per Loan Transaction, $148 $150 $155 $157 $156 Excluding “Other Service Revenue” Adjusted EBITDA $149.3 $147.3 $143.5 $133.6 $120.2 Ending Managed Financ
Slide 32: AFC Provision for Credit Losses
AFC Provision for Credit Losses 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Ending Managed $1,792.2 $1,641.0 $1,371.1 $1,107.6 $1,004.2 $883.2 $771.6 $613.0 $506.6 $847.9 Receivables Average Managed $1,732.5 $1,474.9 $1,208.4 $1,051.4 $925.8 $798.8 $688.6 $516.4 $744.4 $835.3 Receivables Provi