Openlane, Inc. · NYSE:OPLN
Openlane — KAR Auction Services — Q4 2016 Earnings Presentation
34 slides from Openlane's earnings presentation, Feb 21, 2017
Slide 1: 2016 Fourth Quarter & Annual Earnings Slides
2016 Fourth Quarter & Annual Earnings Slides February 21, 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 Messages
Key Messages 3 Our Priorities Favorable Market Conditions Performance Off-lease cycle continues Increased total losses Independent used dealer retail sales stable Net Income $222.4 (+4%); Adjusted EBITDA $747.9M (+15%); Free Cash Flow $367.7M (+9%) ADESA RPU increased, but physical volumes
Slide 4: 2017 Outlook
2017 Outlook 4 2017 Low 2017 High 2016 Net income $235.7 $249.7 $222.4 Add back: Income taxes $138.4 $146.6 $132.9 Interest expense, net of interest income $170.0 $170.0 $138.4 Depreciation and amortization $278.0 $278.0 $240.6 EBITDA $822.1 $844.3 $734.3 Total addbacks $2.9 $5.7 $13.6 Adjusted EBIT
Slide 5: 2016 Highlights
2016 Highlights 5 Revenues Highlights Fundamentals ADESA • Adjusted EBITDA +28% • Total volumes +17% (SS 9%) • Physical volumes +14% (SS 4%) • RPU +6% (Physical +7%) • Incremental operating profit 29% • Used retail sales +3% (NADA) • Lease growth +6% (Edmunds) • Open auto loans +9% (Experian) • Phys
Slide 6: Key Operating Metrics
Key Operating Metrics 6 4Q16 4Q15 2016 2015 ADESA Physical Vehicles Sold Growth1 0% 4% 4% 8% Online Only Vehicles Sold Growth 16% 32% 26% 20% Physical RPU Growth 4% 6% 7% 2% Incremental Operating Profit %1 -1.0% 25.1% 29.0% 33.8% IAA Vehicles Sold Growth (includes HBC) 18% 14% 10% 13% Inventory Grow
Slide 7: Capital Allocation Framework
Capital Allocation Framework $617M Returned to Shareholders 2015 – 2016 7 Priorities Historically ~18% - 20% of Adjusted EBITDA, plus strategic investments Technology ~50% Physical ~50% 45% - 50% of FCF Highlights consistency & strength of free cash flow Acquisitions that leverage wholec
Slide 8: Fourth Quarter Slides
KAR ; AUCTION Fourth Quarter Slides SERVICES.
Slide 9: KAR Q4 2016 Highlights
KAR Q4 2016 Highlights 9 ($ in millions, except per share amounts) KAR Q4 2016 Q4 2015 Highlights* Total operating revenues $813.7 $695.7 Gross profit** $325.4 $281.4 SG&A $148.8 $128.5 +$8.4M acquired SG&A EBITDA $174.8 $155.0 Adjusted EBITDA $176.5 $154.5 Net income $45.5 $48.3 Net income per shar
Slide 10: ADESA Q4 2016 Highlights
ADESA Q4 2016 Highlights 10 ($ in millions, except RPU) ADESA Q4 2016 Q4 2015 Highlights* Revenue $442.3 $365.9 +16% volume, +4% Physical RPU, +$37.4M acquisitions Gross profit** $172.9 $144.6 % of revenue 39.1% 39.5% SG&A $89.2 $69.3 +$8.4M acquired SG&A, see MD&A for variance analysis EBITDA $80.4
Slide 11: ADESA Incremental Operating Profit Margin Analysis – Q4 2016
ADESA Incremental Operating Profit Margin Analysis – Q4 2016 11 ($ in millions) Reported Impact of Acquisitions ADESA Excluding Acquisitions Q4 2016 Revenue $442.3 $37.4 $404.9 Operating profit $56.3 $3.8 $52.5 Operating profit % 12.7% 10.2% 13.0% Q4 2015 Revenue $365.9 Operating profit $52.9 Operat
Slide 12: IAA Q4 2016 Highlights
IAA Q4 2016 Highlights 12 ($ in millions) IAA Q4 2016 Q4 2015 Highlights* Revenue $302.6 $261.6 +18% volume, +$0.2M HBC, -$2.7M GBP currency Gross profit** $103.9 $88.6 +$0.6M HBC % of revenue 34.3% 33.9% HBC - 0.8% SG&A $25.3 $25.5 EBITDA $78.8 $65.6 Adjusted EBITDA $80.2 $65.6 % of revenue 26.5% 2
Slide 13: IAA Q4 2016 Gross Profit
IAA Q4 2016 Gross Profit 13 ($ in millions) IAA HBC Total IAA HBC Total Revenue $290.6 $12.0 $302.6 $249.8 $11.8 $261.6 Cost of Services** 188.6 10.1 198.7 162.5 10.5 173.0 Gross Profit $102.0 $1.9 $103.9 $87.3 $1.3 $88.6 % of Revenue 35.1% 15.8% 34.3% 34.9% 11.0% 33.9% * For a more complete explana
Slide 14: AFC Q4 2016 Highlights
($ in millions, except for revenue per loan transaction) AFC Q4 2016 Q4 2015 Highlights* Interest and fee income $69.6 $63.9 Other revenue $2.6 $2.7 Provision for credit losses ($11.7) ($5.5) $9.4M actaual losses; $2.2M increase in allowance Other service revenue $8.3 $7.1 +17% in "Other service rev
Slide 15: AFC Provision for Credit Losses
AFC Provision for Credit Losses 15 4Q16 3Q16 2Q16 1Q16 4Q15 3Q15 2Q15 1Q15 Ending Managed Receivables $1,792.2 $1,785.4 $1,738.6 $1,705.5 $1,641.0 $1,529.6 $1,476.9 $1,355.8 Average Managed Receivables $1,788.8 $1,762.0 $1,722.1 $1,673.3 $1,585.3 $1,503.3 $1,416.4 $1,363.5 Provision for Credit Losse
Slide 16: 2016 Annual Slides
KAR 2016 Annual Slides AUCTION SERVICES.
Slide 17: KAR Year Ended December 31, 2016 Highlights
KAR Year Ended December 31, 2016 Highlights 17 ($ in millions, except per share amounts) KAR YTD 2016 YTD 2015 Highlights* Total operating revenues $3,150.1 $2,690.6 -$11.9M CAD currency Gross profit** $1,322.7 $1,142.1 SG&A $583.1 $502.0 EBITDA $734.3 $644.1 -$4.5M CAD currency Adjusted EBITDA $747
Slide 18: ADESA Year Ended December 31, 2016 Highlights
ADESA Year Ended December 31, 2016 Highlights 18 ($ in millions, except RPU) ADESA YTD 2016 YTD 2015 Highlights* Revenue $1,765.3 $1,427.8 +17% volume, +7% physical RPU, +$137.1M acquisitions Gross profit** $728.8 $590.9 % of revenue 41.3% 41.4% SG&A $327.0 $276.6 +$27.7M acquired SG&A, see MD&A for
Slide 19: ADESA Incremental Operating Profit Margin Analysis – Year 2016
ADESA Incremental Operating Profit Margin Analysis – Year Ended December 31, 2016 19 ($ in millions) Reported Impact of Acquisitions ADESA Excluding Acquisitions YTD 2016 Revenue $1,765.3 $137.1 $1,628.2 Operating profit $301.8 $15.5 $286.3 Operating profit % 17.1% 11.3% 17.6% YTD 2015 Revenue $1,42
Slide 20: IAA Year Ended December 31, 2016 Highlights
IAA Year Ended December 31, 2016 Highlights 20 ($ in millions) IAA YTD 2016 YTD 2015 Highlights* Revenue $1,098.0 $994.4 +11% volume, +$25.8M HBC, -$2.8M CAD currency, -$6.9M GBP currency Gross profit** $390.0 $360.8 +$3.5M HBC % of revenue 35.5% 36.3% SG&A $104.2 $98.1 +$1.5M HBC, see MD&A for vari
Slide 21: IAA Year Ended December 31, 2016 Gross Profit
IAA Year Ended December 31, 2016 Gross Profit 21 ($ in millions) IAA HBC Total IAA HBC Total Revenue $1,046.4 $51.6 $1,098.0 $968.6 $25.8 $994.4 Cost of Services** 662.2 45.8 708.0 610.1 23.5 633.6 Gross Profit $384.2 $5.8 $390.0 $358.5 $2.3 $360.8 % of revenue 36.7% 11.2% 35.5% 37.0% 8.9% 36.3% * F
Slide 22: AFC Year Ended 2016 Highlights
($ in millions, except for revenue per loan transaction) AFC YTD 2016 YTD 2015 Highlights* Interest and fee income $275.1 $246.8 Other revenue $10.3 $9.7 Provision for credit losses ($30.7) ($16.0) $27.7M actual losses; $3.0M increase in allowance Other service revenue $32.1 $27.9 +15% in "Other ser
Slide 23: AFC Provision for Credit Losses
AFC Provision for Credit Losses 23 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 Ending Managed Receivables $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 Average Managed Receivables $1,732.5 $1,474.9 $1,208.4 $1,051.4 $925.8 $798.8 $688.6 $516.4 $744.4 $835.3 Pr
Slide 24: ADESA – Whole Car Market Fundamentals
Wholesale Used Vehicle Values ADESA – Whole Car Market Fundamentals Dealer Consignment vs SAAR Growth New Vehicle Lease Growth 24 Source: BEA, NAAA Auto Loans Outstanding 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 2011 2012 2013 2014 2015 2016 0.0% 0.5% 1.0% 1.5% 2.0% $0 $200 $400 $600 $800 $1,000
Slide 25: IAA - Salvage Market Fundamentals
IAA Volume Sold IAA - Salvage Market Fundamentals Source: Polk and ADESA Analytical Services Growing & Aging North American Car Parc Positive Industry Drivers Accident frequency benefits from rising miles driven, an aging vehicle fleet, and increasing driver distractions Accident severity increa
Slide 26: AFC Provides Complementary Service to Buyers
AFC Provides Complementary Service to Buyers Managed Receivables & Net Provision for Credit Losses Independent Dealer Used Vehicle Retail Sales 12.2 12.8 12.7 12.9 13.3 13.9 11.0 11.5 12.0 12.5 13.0 13.5 14.0 14.5 2011 2012 2013 2014 2015 2016 Ind us try Un its So ld ( MM ) AFC Highlights Short-te
Slide 27: Three Year Trends and Outlook
$395M to $420M Free cash flow expected in 2017 and levels at or above that for 2018-2019 Capital Deployment Growth in off-lease and repo vehicle volumes 5%-7% annual growth in salvage auction industry volumes Potential for a 1% reduction in corporate income tax = $.02/share increase in net income 27
Slide 28: Appendix
KAR ; AUCTION Appendix SERVICES.
Slide 29: EBITDA and Non-GAAP Definitions
EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in the company's
Slide 30: Q4 2016 Adjusted EBITDA Reconciliation
30 Q4 2016 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended December 31, 2016 ADESA IAA AFC Corporate Consolidated Net income (loss) $27.9 $29.0 $19.8 ($31.2) $45.5 Add back: Income taxes 16.0 16.8 12.2 (18.3) 26.7 Interest expense, net of interest income (0.2) – 9.4 28.7 37.9 Depre
Slide 31: Q4 2015 Adjusted EBITDA Reconciliation
31 Q4 2015 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended December 31, 2015 ADESA IAA AFC Corporate Consolidated Net income (loss) $25.1 $23.3 $21.4 ($21.5) $48.3 Add back: Income taxes 13.9 11.1 13.4 (11.5) 26.9 Interest expense, net of interest income (0.3) – 6.9 17.2 23.8 Depre
Slide 32: YTD 2016 Adjusted EBITDA Reconciliation
32 YTD 2016 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2016 ADESA IAA AFC Corporate Consolidated Net income (loss) $156.9 $101.1 $88.4 ($124.0) $222.4 Add back: Income taxes 92.7 59.3 54.0 (73.1) 132.9 Interest expense, net of interest income (0.3) – 34.1 104.6 138.4 Depr
Slide 33: YTD 2015 Adjusted EBITDA Reconciliation
33 YTD 2015 Adjusted EBITDA Reconciliation ($ in millions) Year ended December 31, 2015 ADESA IAA AFC Corporate Consolidated Net income (loss) $109.2 $92.8 $83.2 ($70.6) $214.6 Add back: Income taxes 62.3 52.4 51.3 (40.1) 125.9 Interest expense, net of interest income 0.1 – 24.1 66.6 90.8 Depreciati
Slide 34: Operating Adjusted Net Income per Share Reconciliation
34 Operating Adjusted Net Income per Share Reconciliation ($ in millions, except per share amounts) 2016 2015 2016 2015 Net income $45.5 $48.3 $222.4 $214.6 Acquired amortization expense (1) 25.8 22.3 97.1 87.5 Loss on extinguishment of debt (2) 1.4 – 5.4 – Income taxes (3) (10.0) (8.0) (38.3) (32.4