Slide 1: KAR Auction Services Corporate Update Second Quarter 2017
KAR Auction Services, Inc. Corporate Update Second 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 Adjusted EBITDA ($MM) $800 Proven and Resilient Growth $700 Through Diversified Business $600 Mix $500 $400 Strong Free Cash Flow $300 Generation and High Margin $200 $100 $0 Physical and Technological 2008 2009 2010 2011 2012 2013 2014 2015 2016 Assets Differentiate
Slide 4: Shareholder Value Creation Strategy
Shareholder Value Creation Strategy Extend and Integrate Our Distinct Portfolio of Assets Customer Leverage Unique Data and Analytic Capabilities Focus Expand Portfolio of Services and Geographic Presence Provide Best in Class Remarketing Channels Operational Standardize and Centralize Pro
Slide 5: Vehicle Auction Services Leader
Vehicle Auction Services Leader 2016 Revenue by Segment 2016 Adj. EBITDA by Segment(1) AFC AFC 9% 17% $287M $149M $420M $1,098M $1,765M ~5.1mm vehicles sold in 2016 ADESA IAA 49% 35% ADESA Revenue $3,150mm $289M 56% Adj. EBITDA $748mm IAA % margin 23.7% 34% Whole Car Auctions Salvage Vehicle Auction
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 Whole Car Sellers Whole Car 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 ~$150 / LTU(2) Se
Slide 8: North American Wholecar Auction Industry
North American Wholecar Auction Industry 14 20 17.5 17.6 16.8 16.6 16.9 16.9 16.5 16.5 16.1 15.6 14.4 13.2 15 12 11.6 12.7 11.2 11.4 10.4 10.6 10.8 10.0 9.9 10 9.5 9.7 9.5 9.5 9.5 10 9.4 9.2 Wholecar Industry Volumes (MM) 9.0 8.7 8.3 8.2 5 8.0 8 0 6 (5) 4 (10) 2 (15) 0 (20) 2002 2003 2004 2005 2006
Slide 9: ADESA – Whole Car Market Fundamentals
ADESA – Whole Car Market Fundamentals New Vehicle Lease Growth Auto Loans Outstanding 5.0 2.0% Loans Outstanding ($BB) $1,000 60 Day Delinquency Lease Originations (MM) 4.5 4.0 $800 1.5% 3.5 $600 1.0% 3.0 2.5 $400 2.0 0.5% $200 1.5 1.0 $0 0.0% 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15 1Q16 0.5 0.
Slide 10: IAA - Salvage Market Fundamentals
IAA - Salvage Market Fundamentals Positive Industry Drivers Increasing Total Loss % of Total Claims 19% Accident frequency benefits from rising 18% miles driven, an aging vehicle fleet, and 17% increasing driver distractions 16% Accident severity increasing due to 15% 14% vehicle complexity and
Slide 11: AFC Provides Complementary Service to Buyers
AFC Provides Complementary Service to Buyers AFC Highlights Independent Dealer Used Vehicle Retail Sales 14.5 Short-term (~65 day) secured financing to 13.9 Industry Units Sold (MM) 14.0 13.3 independent used car dealers 13.5 12.8 12.7 12.9 13.0 Provides liquidity to auctions 12.5 12.2 12.0 Po
Slide 12: 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 13: Financial Overview
KAR Financial Overview AUCTION SERVICES
Slide 14: First Quarter 2017 Performance
First Quarter 2017 Performance Revenue Gross Profit* $1,000 $867 $400 $326 $365 $800 $758 $300 $ MM $600 $ MM $200 43.0% 42.2% $400 $100 $200 $0 $0 1Q16 1Q17 1Q16 1Q17 Adjusted EBITDA Operating Adjusted Net Income Per Share $250 $190 $211 $0.62 $200 $0.60 $0.55 $150 $ MM $0.40 $100 25.0% 24.3% $0.20
Slide 15: March 31, 2017 Leverage
March 31, 2017 Leverage (US$ in millions) 12/31/2017 Maturity Term Loan B-2 (Adjusted LIBOR(1) + 3.1875%) $1,080 2021 Term Loan B-3 (Adjusted LIBOR(1) + 3.50%) 1,337 2023 Revolving Credit Facility (Adj LIBOR(1) + 2.50%) 13 2021 Unamortized debt issuance discounts (13) Capital Leases 44 Total 2,461 L
Slide 16: Three Year Trends and Outlook
Three Year Trends and Outlook Expected Environmental Trends Strategic Priorities Growth in off-lease and repo vehicle volumes Capital Extend and integrate 5%-7% annual growth in salvage deployment our platforms Leverage unique Improve auction industry volumes data and analytic operating capabilities
Slide 17: Appendix
KAR Appendix AUCTION SERVICES
Slide 18: Non-GAAP Financial Measures
Non-GAAP Financial Measures EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as
Slide 19: Q1 2017 Adjusted EBITDA Reconciliation
Q1 2017 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended March 31, 2017 ADESA IAA AFC Corporate Consolidated Net income (loss) $51.3 $32.2 $20.9 ($35.2) $69.2 Add back: Income taxes 29.0 18.0 11.8 (24.7) 34.1 Interest expense, net of interest income 0.1 – 10.3 29.8 40.2 Depreciation
Slide 20: Q1 2016 Adjusted EBITDA Reconciliation
Q1 2016 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended March 31, 2016 ADESA IAA AFC Corporate Consolidated Net income (loss) $39.3 $24.9 $24.0 ($27.5) $60.7 Add back: Income taxes 23.3 14.9 14.6 (16.1) 36.7 Interest expense, net of interest income 0.1 – 7.8 20.8 28.7 Depreciation
Slide 21: 2008 Adjusted EBITDA Reconciliation
2008 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2008 ADESA IAA AFC Corporate Consolidated Net income (loss) $52.5 $9.2 ($151.3) ($126.6) ($216.2) Add back: Income taxes 33.7 6.3 10.2 (81.6) (31.4) Interest expense, net of interest income – 0.2 – 213.2 213.4 Depreciation a
Slide 22: 2009 Adjusted EBITDA Reconciliation
2009 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2009 ADESA IAA AFC Corporate Consolidated Net income (loss) $94.4 $25.8 $19.1 ($116.1) $23.2 Add back: Income taxes 56.0 16.2 8.4 (69.5) 11.1 Interest expense, net of interest income 0.5 1.4 – 170.3 172.2 Depreciation and am
Slide 23: 2010 Adjusted EBITDA Reconciliation
2010 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2010 ADESA IAA AFC Corporate Consolidated Net income (loss) $80.1 $44.7 $38.4 ($93.6) $69.6 Add back: Income taxes 43.6 26.7 21.1 (64.2) 27.2 Interest expense, net of interest income 0.9 2.3 7.2 130.9 141.3 Depreciation and
Slide 24: 2011 Adjusted EBITDA Reconciliation
2011 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2011 ADESA IAA AFC Corporate Consolidated Net income (loss) $55.8 $65.5 $57.2 ($106.3) $72.2 Add back: Income taxes 17.9 36.1 29.6 (65.8) 17.8 Interest expense, net of interest income 0.7 2.1 12.0 128.0 142.8 Depreciation an
Slide 25: 2012 Adjusted EBITDA Reconciliation
2012 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2012 ADESA IAA AFC Corporate Consolidated Net income (loss) $38.4 $56.5 $64.1 ($67.0) $92.0 Add back: Income taxes 14.5 33.7 46.0 (34.6) 59.6 Interest expense, net of interest income 0.8 1.4 15.0 101.9 119.1 Depreciation and
Slide 26: 2013 Adjusted EBITDA Reconciliation
2013 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2013 ADESA IAA AFC Corporate Consolidated Net income (loss) $50.2 $56.6 $76.1 ($115.2) $67.7 Add back: Income taxes 40.1 32.8 40.2 (31.6) 81.5 Interest expense, net of interest income 0.6 0.8 16.7 86.2 104.3 Depreciation and
Slide 27: 2014 Adjusted EBITDA Reconciliation
2014 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2014 ADESA IAA AFC Corporate Consolidated Net income (loss) $86.4 $79.7 $76.6 ($73.4) $169.3 Add back: Income taxes 43.2 48.4 48.6 (44.5) 95.7 Interest expense, net of interest income 0.6 0.2 18.7 66.4 85.9 Depreciation and
Slide 28: 2015 Adjusted EBITDA Reconciliation
2015 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2015 ADESA IAA AFC Corporate Consolidated Net income (loss) $109.2 $92.8 $83.2 ($70.6) $214.6 Add back: Income taxes 62.3 52.4 51.3 (40.1) 125.9 Interest expense, net of interest income 0.1 – 24.1 66.6 90.8 Depreciation and
Slide 29: 2016 Adjusted EBITDA Reconciliation
2016 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2016 ADESA IAA AFC Corporate Consolidated Net income (loss) $156.9 $101.1 $88.4 ($124.0) $222.4 Add back: Income taxes 92.7 59.3 54.0 (73.1) 132.9 Interest expense, net of interest income (0.3) – 34.1 104.6 138.4 Depreciatio
Slide 30: LTM Adjusted EBITDA Reconciliation
LTM Adjusted EBITDA Reconciliation ($ in millions) (unaudited) Twelve months Three months ended ended June 30, September 30, December 31, March 31, March 31, 2016 2016 2016 2017 2017 Net income (loss) $61.8 $54.4 $45.5 $69.2 $230.9 Add back: Income taxes 37.7 31.8 26.7 34.1 130.3 Interest expense, n
Slide 31: Operating Adjusted Net Income Per Share Reconciliation (Q1 2017 & Q1 2016)
Operating Adjusted Net Income Per Share Reconciliation (Q1 2017 & Q1 2016) ($ in millions, except per share amounts) Three Months ended March 31, 2017 2016 Net income $69.2 $60.7 Acquired amortization expense (1) 25.2 22.0 Loss on extinguishment of debt (2) – 4.0 Income taxes (3) (8.3) (9.8) Operati
Slide 32: 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 33: Used Vehicle Value Indices
Used Vehicle Value Indices YoY Index Change Age Jan Feb Mar Industry All +6.7% +4.8% +1.0% NADA 0-8 yrs -6.4% -7.7% -7.3% Black Book 2-6 yrs -6.0% -5.9% -5.8% RVI 2-5 yrs -5.7% -6.4% -7.0% Fed All -3.7% -4.3% -4.7% Increased commercial volumes are driving wholesale prices lower (ADESA) Revenue p
Slide 34: 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 35: 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 36: 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