KAR Auction Services, Inc (KAR)

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KAR Auction Services Inc. (KAR)

Q4 2011 Earnings Call

February 28, 2012 11:00 AM ET

Executives

Jonathan Peisner – EVP and Treasurer

Jim Hallett – CEO

Eric Loughmiller – EVP and CFO

Analysts

Ryan Brinkman – Goldman Sachs

John Lovallo – Merrill Lynch

Chris Ceraso – Credit Suisse

Manav Patnaik – Barclays Capital

Gary Prestopino – Barrington Research

Craig Kennison – Robert W. Baird

Bill Armstrong – C. L. King & Associates

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the KAR Auction Services Incorporated Fourth Quarter Earnings Conference Call. Today’s call is being recorded.

Today’s hosts will be Jim Hallett, Chief Executive Officer for KAR Auction Services Incorporated; Eric Loughmiller, Executive Vice President and Chief Financial Officer of KAR Auction Services Incorporated; and Jonathan Peisner, Vice President and Treasurer of KAR Auction Services Incorporated.

I would now like to turn the call over to Mr. Peisner. Please go ahead, sir.

Jonathan Peisner

Thanks, Nancy and thanks for joining us today for the KAR Auction Services’ fourth quarter and yearend earnings conference call. Today, we will discuss the financial performance of KAR Auction Services for the fourth quarter and year ended December 31st, 2011. After concluding our commentary, we will take questions from participants. We will make every effort to accommodate all of the questions within the hour we have scheduled today.

Before Jim kicks off our discussion, I would like to remind you that this conference call contains forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risk and uncertainties that may affect KAR’s business, prospects and results of operations and such risks are fully detailed in our SEC filings.

In providing forward-looking statements the company expressed disclaims any obligation to update these statements.

Also let me mention that throughout the conference call we will be referencing both GAAP and non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the applicable GAAP financial measures can be found in the press release that we issued yesterday and is also available in the Investor Relation section of our website.

Now, I would like to turn this call over to KAR Auction Services’ CEO, Jim Hallett. Jim?

Jim Hallett

Good, thank you, Jon, and good morning, ladies and gentlemen. Thank you for joining us today. I would like to start out with talking about our 2011 results. We ended year with adjusted EBITDA of $487.2 million. And in terms of our business units Insurance Auto Auctions had an outstanding year. They were able to grow the revenue by 15% and their adjusted EBITDA grew by 14%.

AFC also had another great year. Revenue increased at AFC by 24% and their adjusted EBITDA grew by 28% and I would point out that we did this all while maintaining a portfolio that was 99% current for the entire 2011 year. The performance at ADESA in 2011 was below 2011 and let me try and help you understand what took place there.

We knew that volumes were going to be impacted but the volumes that physical auctions were actually impacted a little bit more than we anticipated. The results came in at 7.7 million units sold by physical auctions and OPENLANE sold another 3000 vehicles approximately.

OPENLANE will now report their volumes with the ADESA volumes as we report to National Auto Auction Association going forward. Another thing that I would point out is our volumes in Canada hurt the ADESA volumes as well. You may or may not recall that automotive leasing came to a complete standstill in Canada in 2008 and standstill in Canada in 2008 and 2009 and with the very large market share that ADESA and OPENLANE has in Canada. The Canadian market was hit harder than the U.S market. So as much as we were disappointed with the volumes. We were very pleased with our dealer consignment initiatives. ADESA’s dealer consignment grew by 13% in 2011 compared to an industry that grew at 10%.

And if we look back to only a couple of years ago ADESA’s volume and dealer consignment was less than 30% and at the end of 2011 ADESA’s dealer consignment was 42%. And the thing that I feel good about is I feel that we still have much runway here to continue to grow our dealer consignment is the industry averages approximately 53% on dealer consignment.

So overall I would say that I am satisfied with our performance and what I would term is a very difficult or tough environment. And I think that the management team has done a good job of doing the best they could in a difficult situation but more so I think we are well positioned for 2012 and beyond and I am going to talk about that a little bit later in my comments.

But now I would like to turn our attention to the OPENLANE integration and I can’t think of anything that’s more critical on my radar right now than the integration of OPENLANE. I am very pleased with the progress that our teams are making. I think they’ve done a great job of bringing these two companies together. A couple of events have taken place is we now have a single sign on where you can sign on and get access to the ADESA dealer block inventory as well as to the OPENLANE inventory.

ADESA dealer block will be migrating to the OPENLANE platform and as we’ve said here before the OPENLANE platform will replace dealer block and eventually dealer block will Block and eventually dealer block will go away.

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