Slide 1: KAR Auction Services, Inc. Corporate Update
KAR Auction Services, Inc. Corporate Update August 2016
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 Experienced Management Team with Proven Track Record Attractive Financial Model Generating Significant Free Cash Poised to Benefit from Positive Cyclical Trends – Expected Increases in Forward Volumes Established Market Leader Across Core Businesses Multiple Avenu
Slide 4: Leading Provider of Vehicle Auction Services in North America
Leading Provider of Vehicle Auction Services in North America 2015 Revenue by Segment 2015 Adj. EBITDA by Segment(1) AFC 10% AFC 20% ADESA ADESA 4.4mm vehicles sold in 2015 44% IAA 52% 38% Revenue $2,640mm Adj. EBITDA $650mm % margin 24.6% IAA 36% Whole Car Auctions Salvage Vehicle Auctions Vehicle
Slide 5: The North American Car Parc: Vehicle Remarketing is a Large and Growing Market
The North American Car Parc: Vehicle Remarketing is a Large and Growing Market Vehicles in Operation Salvage Auctions 283 Million 4+ Million Units units Used Vehicle Removed from Transactions in New Vehicle Sales Operation North America 20 Million Units 13 Million Units ~42 Million units Consumer-to
Slide 6: Benefiting from Volume Recovery in Whole Car
Benefiting from Volume Recovery in Whole Car North American Whole Car Auction Volume & New Vehicle Sales 14 20 16.9 17.5 17.0 17.0 17.0 16.8 16.6 16.9 16.5 16.5 16.1 15.6 14.4 13.2 15 12 12.7 11.6 11.2 10.4 10.7 10.0 10.2 9.8 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
Slide 7: Vehicle Flow – Whole Car and Salvage Markets
Vehicle Flow – Whole Car and Salvage Markets Whole Car Consignors Whole Car Buyers Dealers Franchised Dealers OEMs and their Captive Finance Arms Revenue: Independent Dealers ~$560 / vehicle* Commercial Fleet Customers Wholesale Dealers Financial Institutions Revenue: Rental Car Comp
Slide 8: Off-lease Auction Funnel
Off-lease “Auction Funnel” Revenue Inventory Gross Per Unit Margin % ~$100 Higher “Online Only” – Private Label ~2-3 days “Online Only” – Open ~2-3 days ADESA In-lane buyer or Online buyer Competitors ~$700 Lower 8
Slide 9: Continued Positive Salvage Market Fundamentals
Continued Positive Salvage Market Fundamentals Positive Demand Drivers Increased use of alternative parts in collision repair Increasing vehicle complexity and technology content Increase in non-insurance supply, including charity, direct-to-consumer and dealer sales International demand Lar
Slide 10: AFC Presents a Significant Competitive Advantage for KAR
AFC Presents a Significant Competitive Advantage for KAR AFC Highlights Revenue Per Loan Transaction(2) Portfolio managed to short duration with strong $159 $156 $157 $155 $150 underwriting and control environment − Short-term secured financing Growing portfolio Consistent credit standards 201
Slide 11: Long-term Outlook
Long-term Outlook Opportunities Challenges Volume increases Scrap values Cyclical recovery at ADESA Foreign currency trends Salvage volumes Competition LTU growth Capital deployment Acquisition integration Increase RPU at physical auctions Used vehicle prices Used vehicle pri
Slide 12: Financial Overview
KAR Financial Overview AUCTION SERVICES
Slide 13: Second Quarter 2016 Performance
Second Quarter 2016 Performance Revenue Gross Profit* $800 $658 $772 $400 $341 $292 $600 $300 $ MM $ MM $400 $200 44.3% 44.2% $200 $100 $0 $0 Q2 2015 Q2 2016 Q2 2015 Q2 2016 Adjusted EBITDA Operating Adjusted Net Income Per Share $250 $197 $0.55 $200 $170 $0.60 $0.51 $150 $ MM $ MM $0.40 $100 25.8%
Slide 14: 2016 YTD Performance
2016 YTD Performance Revenue Gross Profit* $2,000 $800 $667 $1,517 $572 $1,500 $1,291 $600 $ MM $ MM $1,000 $400 44.3% 44.0% $500 $200 $0 $0 YTD 2015 YTD 2016 YTD 2015 YTD 2016 Adjusted EBITDA Operating Adjusted Net Income Per Share $500 $387 $1.25 $0.98 $1.11 $400 $332 $1.00 $300 $0.75 $ MM $ MM $2
Slide 15: June 30, 2016 Leverage
June 30, 2016 Leverage (US$ in millions) 6/30/2016 Maturity Term Loan B-2 $1,092 2021 Term Loan B-3 1,347 2023 Revolving Credit Facility 0 2021 Capital Leases 47 Total 2,486 Less: Available Cash (243) Net Debt $2,243 Net Debt /Adjusted EBITDA 3.19 The above calculation ignores any unamortized debt d
Slide 16: Capital Allocation Framework
Capital Allocation Framework Strategic Share Repurchase Dividends Investments Program Qtrly dividend of $0.29 per Priority for free cash flow $300M share Acquisitions that leverage the Two year authorization 45% - 50% of free cash flow cyclical recovery Tool for managing cash / Highl
Slide 17: 2016 Capital Allocation Actions
2016 Capital Allocation Actions Capital Structure Completed ASR; Retired Additional 800K Shares in January 2016 Increased Annual Dividend 7% to $1.16 Per Share Refinanced and Extended Credit Agreement Increased U.S. Securitization Facility $100M to $1.25B Acquisitions (~$355M aggregate p
Slide 18: Key Investment Highlights
Key Investment Highlights Experienced Management Team with Proven Track Record Attractive Financial Model Generating Significant Free Cash Poised to Benefit from Positive Cyclical Trends – Expected Increases in Forward Volumes Established Market Leader Across Core Businesses Multiple Avenu
Slide 19: Appendix
KAR Appendix AUCTION SERVICES
Slide 20: Non-GAAP Financial Measures
Non-GAAP Financial Measures EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as
Slide 21: 2015 Adjusted EBITDA Reconciliation
2015 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2015 ADESA IAA AFC Corporate Consolidated Net income (loss) $109.2 $92.8 $83.2 ($70.6) $214.6 Add back: Income taxes 62.3 52.4 51.3 (40.1) 125.9 Interest expense, net of interest income 0.1 – 24.1 66.6 90.8 Depreciation and
Slide 22: Q2 2016 Adjusted EBITDA Reconciliation
Q2 2016 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended June 30, 2016 ADESA IAA AFC Corporate Consolidated Net income (loss) $46.2 $25.2 $23.0 ($32.6) $61.8 Add back: Income taxes 27.1 15.1 14.0 (18.5) 37.7 Interest expense, net of interest income – – 8.2 27.5 35.7 Depreciation and
Slide 23: Q2 2015 Adjusted EBITDA Reconciliation
Q2 2015 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended June 30, 2015 ADESA IAA AFC Corporate Consolidated Net income (loss) $32.0 $24.6 $18.7 ($15.8) $59.5 Add back: Income taxes 17.5 14.6 11.5 (8.8) 34.8 Interest expense, net of interest income 0.2 – 5.5 16.1 21.8 Depreciation an
Slide 24: Q2 YTD 2016 Adjusted EBITDA Reconciliation
Q2 YTD 2016 Adjusted EBITDA Reconciliation ($ in millions) Six Months ended June 30, 2016 ADESA IAA AFC Corporate Consolidated Net income (loss) $85.5 $50.1 $47.0 ($60.1) $122.5 Add back: Income taxes 50.4 30.0 28.6 (34.6) 74.4 Interest expense, net of interest income 0.1 – 16.0 48.3 64.4 Depreciati
Slide 25: Q2 YTD 2015 Adjusted EBITDA Reconciliation
Q2 YTD 2015 Adjusted EBITDA Reconciliation ($ in millions) Six Months ended June 30, 2015 ADESA IAA AFC Corporate Consolidated Net income (loss) $54.5 $49.6 $39.7 ($29.8) $114.0 Add back: Income taxes 32.4 29.9 24.3 (17.2) 69.4 Interest expense, net of interest income 0.3 – 10.6 31.8 42.7 Depreciati
Slide 26: LTM Adjusted EBITDA Reconciliation
LTM Adjusted EBITDA Reconciliation ($ in millions) (unaudited) Twelve months Three months ended ended September 30, December 31, March 31, June 30, June 30, 2015 2015 2016 2016 2016 Net income (loss) $52.3 $48.3 $60.7 $61.8 $223.1 Add back: Income taxes 29.6 26.9 36.7 37.7 130.9 Interest expense, ne
Slide 27: Operating Adjusted Net Income Per Share Reconciliation (Q2 2016 & Q2 2015)
Operating Adjusted Net Income Per Share Reconciliation (Q2 2016 & Q2 2015) ($ in millions, except per share amounts) Three Months ended June 30, 2016 2015 Net income $61.8 $59.5 Acquired amortization expense (1) 24.6 21.8 Income taxes (2) (9.2) (8.0) Operating adjusted net income $77.2 $73.3 Net inc
Slide 28: Operating Adjusted Net Income Per Share Reconciliation (Q2 YTD 2016 & Q2 YTD 2015)
Operating Adjusted Net Income Per Share Reconciliation (Q2 YTD 2016 & Q2 YTD2015) ($ in millions, except per share amounts) Six Months ended June 31, 2016 2015 Net income $122.5 $114.0 Acquired amortization expense (1) 46.6 42.9 Loss on extinguishment of debt (2) 4.0 – Income taxes (3) (19.0) (16.2)