Slide 1: KAR Auction Services, Inc. Corporate Update Second Quarter 2018
KAR Auction Services, Inc. Corporate Update Second Quarter 2018
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: Multiple Businesses With Leading Market Positions
Multiple Businesses With Leading Market Positions Wholecar Auctions Salvage Vehicle Auctions Vehicle Floorplan Financing Dealer and institutional vehicles Total loss vehicles (insurance Independent dealer vehicle (e.g., off-lease, repossessions) companies, charities, etc) inventory (floorplan) finan
Slide 4: Key Investment Highlights
Unique Industry Strong Fundamentals and Visible Generate Organic Growth Consistent Free Cash Flow 1 2 Key Investment Highlights Clear Leverage Shareholder 4 3 Technology and Friendly Capital Data Analytics for Allocation Long Term Growth Framework 4
Slide 5: Unique Industry With Large Total Addressable Market
Unique Industry With Large Total Addressable Market 290 Million 4+ Million Vehicles in Units Operation Salvage Auctions ~44 20 Million Units New Vehicle Sales Million 13 Million Units Removed from Operation Used Vehicle Transactions in North America 13 Million Units 31 Million Units Consumer-to-Cons
Slide 6: North American Wholecar Auction Industry Lags SAAR Which Provides Visibility
North American Wholecar Auction Industry Lags SAAR Which Provides Visibility 16.9 17.5 17.6 17.2 16.8 16.6 16.9 16.5 16.5 16.1 15.6 14.4 13.2 12.7 11.6 11.3 11.5 11.6 10.4 11.1 Wholecar Industry Volumes (MM) 10.6 10.0 9.9 9.5 9.7 9.5 9.5 9.5 9.4 9.2 9.0 8.7 8.3 8.2 8.0 53% 40% 40% 48% 44% 48% 49% 39
Slide 7: Consignment Revenue Model Provides Strong Free Cash Flow and Margins
Consignment Revenue Model Provides Strong Free Cash Flow and Margins Wholecar Sellers Value-Added Services Wholecar Buyers Dealers Franchised Dealers OEMs and their Captive Independent Dealers Finance Arms Wholesale Dealers Commercial Fleets Financial Institutions Revenue: ~$600 / Reve
Slide 8: Wholecar Market Fundamentals Support Visible ADESA Organic Growth
Wholecar Market Fundamentals Support Visible ADESA Organic Growth Lease Origination Growth = Off-Lease Growth Increasing Auto Loans = Repo Volume Growth $1,200 2.0% 4.5 4.4 4.2 1.8% Lease Originations (MM Units) Auto Loans ($BB) 3.8 $1,000 1.6% 3.4 60 Day Delinquency 1.4% $800 2.6 2.7 1.2% 2.3 $600
Slide 9: Salvage Market Fundamentals Support Visible IAA Organic Growth
Salvage Market Fundamentals Support Visible IAA Organic Growth Positive Industry Drivers Increasing Total Loss % of Total Claims • Accident frequency benefits from rising 18.0% miles driven, an aging vehicle fleet, and 16.9% increasing driver distractions 15.6% • Accident severity increasing due to
Slide 10: AFC Short-Term Floorplan Financing Provides Complementary Service to Buyers
AFC Short-Term Floorplan Financing Provides Complementary Service to Buyers Unique Vehicle Floorplan Lender Independent Dealer Used Vehicle Retail Sales • Short-term (~65 day) secured financing 14.1 13.9 to independent used car dealers MM Units Sold 13.3 • Provides liquidity to auctions 12.8 12.7 12
Slide 11: Leverage Technology and Data Analytics For Long Term Growth
Leverage Technology and Data Analytics For Long Term Growth IPO 2009 2011 2014 2015 2016 2017 2018 DATA SCIENCE 11
Slide 12: Strong and Visible Organic Growth
Strong and Visible Organic Growth Expected Environmental Trends Strategic Priorities Growth in off-lease and repo auction industry volumes ~ 60/40 commercial vs. dealer consignment seller mix … Capital Extend and integrate deployment our platforms … should drive increases in Leverage unique Improve
Slide 13: Shareholder Value Creation Strategy Creates Long-Term Growth Opportunities
Shareholder Value Creation Strategy Creates Long-Term Growth Opportunities Customer Operational Capital Focus Excellence Allocation • Extend Digital • Leverage • Quarterly Footprint Technology Dividend • Leverage Unique • Standardize and • Acquisitions & Data and Analytic Centralize Strategic Capabi
Slide 14: History of Profitable Growth
History of Profitable Growth REVENUE FREE CASH FLOW Visible and predictable top line growth History of free cash flow generation growth ADESA IAA AFC $3,458 $443 $3,150 $301 $368 $2,691 $287 $338 $ in millions $319 $321 $2,417 $ in millions $2,220 $268 $1,219 $250 $1,098 $225 $994 $896 $830 $1,765 $
Slide 15: Clear Shareholder Friendly Capital Allocation Framework
Clear Shareholder Friendly Capital Allocation Framework Strategic Share PRIORITIES Capex Dividends Investments Repurchases • Historically ~18% - 20% of • 45% - 50% of FCF • Acquisitions that leverage • Tool for managing cash and Adjusted EBITDA, plus • Highlights consistency & wholecar auction cycli
Slide 16: March 31, 2018 Leverage
March 31, 2018 Leverage (US$ in millions) Balance Maturity Term Loan B-4 (Adjusted LIBOR + 2.25%) $711 2021 Term Loan B-5 (Adjusted LIBOR + 2.50%) 1,042 2023 Revolving Credit Facility (Adjusted LIBOR + 2.00%) 0 2021 Senior Notes (Fixed 5.125%) 950 2025 Capital Leases 48 Total 2,751 Less: Available C
Slide 17: Appendix
AUCTION SERVICES... APPENDIX
Slide 18: Non-GAAP Financial Measures
Non-GAAP Financial Measures EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as
Slide 19: 2008 Adjusted EBITDA Reconciliation
2008 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2008 ADESA IAA AFC Corporate Consolidated Net income (loss) $52.5 $9.2 ($151.3) ($126.6) ($216.2) Add back: Income taxes 33.7 6.3 10.2 (81.6) (31.4) Interest expense, net of interest income – 0.2 – 213.2 213.4 Depreciation a
Slide 20: 2009 Adjusted EBITDA Reconciliation
2009 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2009 ADESA IAA AFC Corporate Consolidated Net income (loss) $94.4 $25.8 $19.1 ($116.1) $23.2 Add back: Income taxes 56.0 16.2 8.4 (69.5) 11.1 Interest expense, net of interest income 0.5 1.4 – 170.3 172.2 Depreciation and am
Slide 21: 2010 Adjusted EBITDA Reconciliation
2010 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2010 ADESA IAA AFC Corporate Consolidated Net income (loss) $80.1 $44.7 $38.4 ($93.6) $69.6 Add back: Income taxes 43.6 26.7 21.1 (64.2) 27.2 Interest expense, net of interest income 0.9 2.3 7.2 130.9 141.3 Depreciation and
Slide 22: 2011 Adjusted EBITDA Reconciliation
2011 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2011 ADESA IAA AFC Corporate Consolidated Net income (loss) $55.8 $65.5 $57.2 ($106.3) $72.2 Add back: Income taxes 17.9 36.1 29.6 (65.8) 17.8 Interest expense, net of interest income 0.7 2.1 12.0 128.0 142.8 Depreciation an
Slide 23: 2012 Adjusted EBITDA Reconciliation
2012 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2012 ADESA IAA AFC Corporate Consolidated Net income (loss) $38.4 $56.5 $64.1 ($67.0) $92.0 Add back: Income taxes 14.5 33.7 46.0 (34.6) 59.6 Interest expense, net of interest income 0.8 1.4 15.0 101.9 119.1 Depreciation and
Slide 24: 2013 Adjusted EBITDA Reconciliation
2013 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2013 ADESA IAA AFC Corporate Consolidated Net income (loss) $50.2 $56.6 $76.1 ($115.2) $67.7 Add back: Income taxes 40.1 32.8 40.2 (31.6) 81.5 Interest expense, net of interest income 0.6 0.8 16.7 86.2 104.3 Depreciation and
Slide 25: 2014 Adjusted EBITDA Reconciliation
2014 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2014 ADESA IAA AFC Corporate Consolidated Net income (loss) $86.4 $79.7 $76.6 ($73.4) $169.3 Add back: Income taxes 43.2 48.4 48.6 (44.5) 95.7 Interest expense, net of interest income 0.6 0.2 18.7 66.4 85.9 Depreciation and
Slide 26: 2015 Adjusted EBITDA Reconciliation
2015 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2015 ADESA IAA AFC Corporate Consolidated Net income (loss) $109.2 $92.8 $83.2 ($70.6) $214.6 Add back: Income taxes 62.3 52.4 51.3 (40.1) 125.9 Interest expense, net of interest income 0.1 – 24.1 66.6 90.8 Depreciation and
Slide 27: 2016 Adjusted EBITDA Reconciliation
2016 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2016 ADESA IAA AFC Corporate Consolidated Net income (loss) $156.9 $101.1 $88.4 ($124.0) $222.4 Add back: Income taxes 92.7 59.3 54.0 (73.1) 132.9 Interest expense, net of interest income (0.3) – 34.1 104.6 138.4 Depreciatio
Slide 28: 2017 Adjusted EBITDA Reconciliation
2017 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2017 ADESA IAA AFC Corporate Consolidated Net income (loss) $260.9 $166.0 $103.9 ($168.8) $362.0 Add back: Income taxes 52.9 38.0 26.6 (81.5) 36.0 Interest expense, net of interest income – – 43.6 119.0 162.6 Depreciation an
Slide 29: ADESA Metrics - Annual
ADESA Metrics - Annual 2017 2016 2015 2014 2013 Revenue2 $1,937.5 $1,765.3 $1,427.8 $1,271.0 $1,165.5 Total Volume 3,180 2,885 2,465 2,198 2,055 Online Only Volume 938 743 592 495 407 Total Online Volume % 46% 42% 40% 38% 35% Physical Conversion % (N.A.) 60.4% 58.0% 58.3% 58.2% 56.9% Dealer Consignm
Slide 30: ADESA Metrics - Quarter
ADESA Metrics - Quarter 1Q18 4Q17 3Q17 2Q17 1Q17 4Q16 3Q16 2Q16 1Q16 Revenue2 $528.1 $473.2 $477.1 $489.2 $498.0 $442.3 $457.4 $450.8 $414.8 Total Volume 878 744 788 830 818 700 732 750 703 Online Only Volume 309 237 241 245 215 177 180 198 188 Total Online Volume % 52% 49% 46% 46% 44% 43% 41% 41% 4
Slide 31: Used Vehicle Value Indices - Quarterly
Used Vehicle Value Indices - Quarterly YoY Index Change Age 1Q17 2Q17 3Q17 4Q17 1Q18 Industry All +4.1% +3.7% +1.9% +2.3% +0.0% JCP/NADA 0-8 yrs -4.7% -4.5% -2.6% -0.1% 0.8% Black Book 2-6 yrs -5.9% -5.1% -3.5% -0.8% -0.9% RVI 2-5 yrs -6.1% -5.6% -2.7% +0.1% 0.1% • Increased industry (commercial) vo
Slide 32: IAA Metrics - Annual
IAA Metrics - Annual 2017 2016 2015 2014 2013 Revenue $1,219.2 $1,098.0 $994.4 $895.9 $830.0 Total Volume 2,369 2,184 1,970 1,732 1,616 Inventory Growth (North America) 3% 25% 14% 20% -3% Purchased Vehicle Mix % 5% 7% 7% 6% 7% Gross Profit $441.1 $390.0 $360.8 $340.2 $284.1 Gross Margin (IAA) 36.2%
Slide 33: IAA Metrics - Quarter
IAA Metrics - Quarter 1Q18 4Q17 3Q17 2Q17 1Q17 4Q16 3Q16 2Q16 1Q16 Revenue $337.3 $335.4 $287.7 $298.7 $297.4 $302.6 $261.0 $264.8 $269.6 Total Volume 643 635 562 580 592 610 516 523 534 Inventory Growth (North 4% 3% 12% 9% 17% 25% 22% 11% 4% America) Purchased Vehicle Mix % 4% 4% 5% 5% 5% 6% 7% 6%
Slide 34: AFC Metrics - Annual
AFC Metrics - Annual 2017 2016 2015 2014 2013 Revenue $301.3 $286.8 $268.4 $250.1 $224.7 Loan Transaction Units (LTU) 1,688 1,718 1,607 1,445 1,355 Revenue per Loan Transaction, $159 $148 $150 $155 $157 Excluding “Other Service Revenue” Ending Managed Finance Receivables $1,912.6 $1,792.2 $1,641.0 $
Slide 35: AFC Metrics - Quarter
AFC Metrics - Quarter 1Q18 4Q17 3Q17 2Q17 1Q17 4Q16 3Q16 2Q16 1Q16 Revenue $85.1 $81.8 $78.2 $70.1 $71.2 $68.8 $71.2 $72.9 $73.9 Loan Transaction Units 464 414 402 416 456 417 426 422 454 (LTU) Revenue per Loan Transaction, Excluding $166 $178 $174 $148 $138 $145 $148 $154 $146 “Other Service Revenu
Slide 36: AFC Provision for Credit Losses - Annual
AFC Provision for Credit Losses - Annual 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Ending Managed $1,912.6 $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 $1,802.2 $1,732.5 $1,474.9 $1,208.4 $1,051.4 $925.8 $798.8 $688.6 $516.4
Slide 37: AFC Provision for Credit Losses - Quarterly
AFC Provision for Credit Losses - Quarterly 1Q18 4Q17 3Q17 2Q17 1Q17 4Q16 3Q16 2Q16 1Q16 Ending Managed $1,933.2 $1,912.6 $1,809.2 $1,736.5 $1,760.7 $1,792.2 $1,785.4 $1,738.6 $1,705.5 Receivables Average Managed $1,922.9 $1,860.9 $1,772.9 $1,748.6 $1,776.5 $1,788.8 $1,762.0 $1,722.1 $1,673.3 Receiv