Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - EARNINGS RELEASE SUPPLEMENT - KAR Auction Services, Inc. | exhibit992-q42016ersupplem.htm |
| EX-99.1 - EXHIBIT 99.1 - EARNINGS RELEASE - KAR Auction Services, Inc. | exhibit991-q42016earningsr.htm |
| 8-K - 8-K - Q4 EARNINGS RELEASE, SUPPLEMENT & SLIDES - KAR Auction Services, Inc. | form8-kxearningsreleasesup.htm |
2016 Fourth Quarter & Annual Earnings Slides
February 21, 2017
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 materially from those projected, expressed or implied by
such forward-looking statements. Many of these risk factors are outside of the
company’s control, and as such, they involve risks which are not currently known
to the company that could cause actual results to differ materially from forecasted
results. Factors that could cause or contribute to such differences include those
matters disclosed in the company’s Securities and Exchange Commission filings.
The forward-looking statements in this document are made as of the date hereof
and the company does not undertake to update its forward-looking statements.
2
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 flat in 4Q16
IAA volume drove strong performance
Improve operating efficiency
Use excess cash flow to invest in strategic growth initiatives and return
capital to shareholders
Extend and integrate our platforms
Leverage unique data and analytic capabilities
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 EBITDA $825.0 $850.0 $747.9
Capital expenditures $145.0 $145.0 $155.1
Cash taxes related to calendar year $165.0 $165.0 $128.0
Cash interest expense on corporate debt $120.0 $120.0 $97.1
Free cash flow $395.0 $420.0 $367.7
Effective tax rate 37% 37% 37.4%
Net income per share - diluted $1.70 $1.80 $1.60
Operating adjusted net income per share -
diluted
$2.15 $2.25 $2.06
Weighted average diluted shares 139 139 139.1
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)
• Physical auction industry +5%
(NAAA)
IAA
• Adjusted EBITDA +9%
• North American volume growth +10%
• North American inv growth +25%
• North American RPU growth -2%
• Total Loss % +1% (CCC)
• Scrap pricing -1% (American Recycler)
• Miles driven +3% (FHWA)
AFC
• Adjusted EBITDA +1%
• LTU growth 7%
• Provision for credit losses as a
percent of managed receivables 1.8%
from 1.1% prior year
• Indep used retail +4% (NADA)
• Physical auction industry +5%
(NAAA)
KAR
• Revenue growth +17%
• Adjusted EBITDA +15%
• Operating Adjusted EPS +8%
• $432M acquisitions
• $157M dividends paid
• $80M share repurchases (1.9M Shares)
• Diversified and complementary
business services model
• Multiple drivers of growth and
value creation
• Strategic growth and create
shareholder value
ADESA
56%
IAA
35%
AFC
9%
ADESA
56%
IAA
35%
AFC
9%
ADESA
56%
IAA
35%
AFC
9%
$1,428
$1,765
$995
$1,098
$268
$287
$2,691
$3,150
2015 2016
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 Growth (excludes HBC) 25% 14% 25% 14%
RPU Growth (includes HBC) -2% -2% 0% -2%
AFC
LTU Growth 2% 9% 7% 11%
Provision for Credit Losses 2.6% 1.4% 1.8% 1.1%
1 Excluding acquisitions
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
wholecar auction cyclical
recovery (indep auctions)
Complementary
technologies
New geographies
Tool for managing cash
and leverage
2015 $135M Spent $152M Paid $118M Acquisitions $228M Repurchased
2015
Technology $63M
Physical $56M
Chicago Greenfield $16M
$1.08 per share paid
Pittsburgh (Indep Auction)
DataScan (Vehicle
Inspections)
Autoniq (Price Guide
Aggregator)
MobileTrac (Vehicle History
Reports)
HBC (UK Salvage)
$300M two year
authorization approved in
October 2014
6.2M shares repurchased
2016 $155M Spent $157M Paid $432M Acquisitions $80M Repurchased
2016
Technology $77M
Physical $51M
Chicago Greenfield $27M
$1.14 per share paid Brashers (8 Indep Auctions)
Orlando (Indep Auction)
GRS (UK Online Only
Auctions)
Flint (Independent Auction)
$500M three year
authorization approved in
October 2016
1.9M shares repurchased
Dividends
Strategic
Investments
Share
Repurchases
Capex
Fourth Quarter Slides
KAR Q4 2016 Highlights
9
($ 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 share - diluted $0.33 $0.35
Operating adjusted net income per share - diluted $0.45 $0.45
Weighted average diluted shares 138.9 139.6
Dividends declared per common share $0.32 $0.27
Effective tax rate 37.0% 35.8%
Cap tal expenditures $36.6 $42.4
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial
information and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
ADESA Q4 2016 Highlights
10
($ 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 $73.2
Adjusted EBITDA $88.0 $77.6
% of revenue 19.9% 21.2%
Vehicles sold 700,000 605,000 16% growth; 4% excluding acquisitions
Physical vehicles sold 523,000 453,000 15% growth, 0% excluding acquisitions
Online only volume 177,000 152,000 Total online 41% of total volumes; Online only 25% of total
Dealer consignment mix % (physical only) 45% 49% 7% dealer consignment volume growth; -7% ex-acquisitions
Conversion rate (N.A. physical) 54.7% 56.1%
Physical RPU $773 $740 Excludes purchased vehicles
Online only RPU $115 $105 Excludes ADESA Assurance
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information
and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
ADESA Incremental Operating Profit
Margin Analysis – Q4 2016
11
($ 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
Operating profit % 14.5%
Q4 2016 Reported Growth
Reported revenue growth $76.4
Reported operating profit growth $3.4
Incremental operating margin 4.5%
Q4 2016 Excluding Acquisitions
Revenue growth $39.0
Operating profit growth ($0.4)
Incremental operating margin -1.0%
IAA Q4 2016 Highlights
12
($ 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 $65.6
% of revenue 26.5% 25.1%
Vehicles sold 610,000 517,000 18% growth; 18% excluding HBC
Inventory growth 25% 14% Excludes HBC
% Purchased contract vehicles 6% 7%
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information
and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
IAA Q4 2016 Gross Profit
13
($ 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 $88.6
% of Revenue 35.1% 15.8% 34.3% 34.9% 11.0% 33.9%
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial
information and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
Three Months Ended
December 31, 2016
Three Months Ended
December 31, 2015
($ 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 revenue" generated by PWI
Total AFC revenue $68.8 $68.2 +2% LTUs, -3% revenue per LTU
Gross profit** $48.6 $48.2
% of revenue 70.6% 70.7%
SG&A $6.8 $6.8
EBITDA $40.4 $41.4
Adjusted EBITDA $34.7 $36.7
Loan transactions 417,000 408,000 2% growth
Revenue per loan transaction unit (LTU)*** $145 $150
Provision for credit losses % of finance receivables 2.6% 1.4%
Managed receivables $1,792.2 $1,641.0 +9% growth
Obligations collateralized by finance receivables $1,280.3 $1,189.0
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information
and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
*** Excludes "Other service revenue"
AFC Q4 2016 Highlights
14
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 Losses
$11.7 $8.0 $5.5 $5.5 $5.5 $2.7 $4.3 $3.5
% of Managed
Receivables
2.62% 1.82% 1.28% 1.31% 1.39% 0.72% 1.22% 1.03%
2016 Annual Slides
KAR Year Ended December 31, 2016 Highlights
17
($ 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 $747.9 $649.8 -$4.5M CAD currency
Net income $222.4 $214.6 -$2.3M CAD currency
Net income per share - diluted $1.60 $1.51 -$0.02 per share CAD currency
Operating adjusted net income per share - diluted $2.06 $1.90
Weighted average diluted shares 139.1 142.3
Dividends declared per common share $1.19 $1.08
Effective tax rate 37.4% 37.0%
Capital expenditures $155.1 $134.7
Cash flow from operating activities $360.8 $475.0
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information
and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
ADESA Year Ended December 31, 2016 Highlights
18
($ 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 variance analysis
EBITDA $391.0 $307.5 -$3.3M CAD currency
Adjusted EBITDA $419.5 $328.6 -$3.3M CAD currency
% of revenue 23.8% 23.0%
Vehicles sold 2,885,000 2,465,000 17% growth; 9% excluding acquisitions
Physical vehicles sold 2,142,000 1,873,000 14% growth; 4% excluding acquisitions
Online only volume 743,000 592,000 Total online 42% of total volumes; online only 26% of total
Dealer consignment mix % (physical only) 48% 50% 9% dealer consignment growth; -2% excluding acquisitions
Conversion rate (N.A. physical) 58.3% 58.3%
Physical RPU $753 $701 -$4 CAD currency, excludes purchased vehicles
Online only RPU $110 $102 -$1 CAD currency, excludes ADESA Assurance
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information
and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
ADESA Incremental Operating Profit
Margin Analysis – Year Ended December 31, 2016
19
($ 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 $1,427.8
Operating profit $228.1
Operating profit % 16.0%
YTD 2016 Reported Growth
Reported revenue growth $337.5
Reported operating profit growth $73.7
In remental operating margin 21.8%
YTD 2016 Excluding Acquisitions
Revenue growth $200.4
Operating profit growth $58.2
Incremental operating margin 29.0%
IAA Year Ended December 31, 2016 Highlights
20
($ 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 variance analysis
EBITDA $286.1 $263.7 -$0.9M CAD currency
Adjusted EBITDA $288.9 $265.1 -$0.9M CAD currency
% of revenue 26.3% 26.7%
Vehicles sold 2,184,000 1,970,000 11% growth; 10% excluding HBC
Inventory growth 25% 14% Excludes HBC
% Purchased contract vehicles 7% 7% 5% and 6% excluding HBC for 2016 and 2015
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information
and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
IAA Year Ended December 31, 2016 Gross Profit
21
($ 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 $360.8
% of revenue 36.7% 11.2% 35.5% 37.0% 8.9% 36.3%
* For a more complete explanation of these changes, see the MD&A in the company's
supplemental financial information and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
Year Ended
December 31, 2016
Year Ended
December 31, 2015
($ 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 service revenue" generated by PWI
Total AFC revenue $286.8 $268.4 +7% LTUs, -1% revenue per LTU (includes -$0.6M CAD
currency)
Gross profit** $203.9 $190.4
% of revenue 71.1% 70.9%
SG&A $28.7 $27.8
EBITDA $173.8 $164.1 -$0.4M CAD currency
Adjusted EBITDA $149.3 $147.3 -$0.3M CAD currency
Loan transactions 1,718,000 1,607,000 7% growth
Revenue per loan transaction unit (LTU)*** $148 $150
Provision for credit losses % of finance receivables 1.8% 1.1%
Managed receivables $1,792.2 $1,641.0 +9% growth
Obligations collateralized by finance receivables $1,280.3 $1,189.0
* For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information
and Form 10-K, both for the year ended December 31, 2016.
** Exclusive of depreciation and amortization
*** Excludes "Other service revenue"
AFC Year Ended December 31, 2016 Highlights
22
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
Provision for
Credit Losses
$30.7 $16.0 $12.3 $9.6 $7.2 $6.1 $11.2 $17.1 $44.7 $25.0
% of Managed
Receivables
1.77% 1.08% 1.02% 0.91% 0.78% 0.76% 1.63% 3.31% 6.00% 2.99%
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
1Q
07
3Q
07
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
60
Da
y D
eli
nq
ue
nc
y
Lo
an
s O
uts
tan
din
g (
$M
M)
Outstanding 60 Day Delinquency
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2008 2009 2010 2011 2012 2013 2014 2015 2016E
New Vehicle Sales (SAAR) Growth
NAAA Dealer Consignment Growth
Source: Experian
Source: Edmunds
$7,500
$8,000
$8,500
$9,000
$9,500
$10,000
$10,500
$11,000
$11,500
100
105
10
115
120
125
130
135
14
145
150
Jan-13 Jan-14 Jan-15 Jan-16
AD
ES
A A
vg
W
ho
les
ale
Va
lue
M
UV
VI
&
NA
DA
In
de
x
MUVVI NADA (0 - 8 yrs) ADESA
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 increasing due to
vehicle complexity and technology content
leading to more total losses
Increase in non-insurance supply
244
251
258
264
269 271 271 270
271 272
275 276
283
289
9.0
9.5
10.0
10.5
11.0
11.5
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E
Size (millions) Average Vehicle Age (years)
25
Increasing Total Loss % of Total Claims
12.5%
13.5%
14.5%
15.5%
16.5%
17.5%
1Q
08
3Q
08
1Q
09
3Q
09
1Q
10
3Q
10
1Q
11
3Q
11
1Q
12
3Q
12
1Q
13
3Q
13
1Q
14
3Q
14
1Q
15
3Q
15
1Q
16
3Q
16
Source: CCC Information Services
0.0
0.5
1.0
1.5
.0
2.5
2008 2009 2010 2011 2012 2013 2014 2015 2016
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-term (~65 day) secured financing to
independent used car dealers
Provides liquidity to auctions
Portfolio managed through disciplined
underwriting and consistent credit standards
Utilizes risk based pricing model
Significant risk mitigation processes (local
presence, lot checks, credit pulls, etc)
Securitization provides liquidity
− AFC funding in place through Jan 2020
− US$1,500 million and C$125 million
committed liquidity
($1,280 million drawn as of 12/31/16)
26
Source: NADA
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
%
Pr
ov
ide
fo
r C
red
it L
s
Av
g M
an
ag
ed
Re
c (
$M
M)
$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
Three Year Trends and Outlook
Expected Environmental Trends
~ 60/40 commercial
vehicle vs. dealer
consignment mix …
… should drive
increases in revenue
per vehicle sold
Strategic Priorities
Leverage unique
data and analytic
capabilities
Capital
deployment
Extend and integrate
our platforms
Improve
operating
efficiency
Investment over three
years for deployment
of New Wave online
solution
Target senior
leverage
Return to shareholders
through:
• Recurring dividend &
share repurchases
• Strategic acquisitions
adjusted EBITDA
or less
3X
$20M - $25M
Appendix
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 senior secured credit agreement
covenant calculations. Free cash flow is defined as Adjusted EBITDA less cash interest expense on corporate debt
(Credit Facility), capital expenditures and cash taxes related to the calendar year. Management believes that the
inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide
additional information to investors about one of the principal measures of performance used by the company’s creditors.
In addition, management uses EBITDA, Adjusted EBITDA and free cash flow to evaluate the company’s performance.
Depreciation expense for property and equipment and amortization expense of capitalized internally developed
software costs relate to ongoing capital expenditures; however, amortization expense associated with acquired
intangible assets, such as customer relationships, software, tradenames and noncompete agreements are not
representative of ongoing capital expenditures, but have a continuing effect on our reported results. Non-GAAP
financial measures of operating adjusted net income and operating adjusted net income per share, in the opinion of the
company, provide comparability to other companies that may not have incurred these types of non-cash expenses or
that report a similar measure. In addition, net income and net income per share have been adjusted for certain other
charges, as seen in the following reconciliation.
EBITDA, Adjusted EBITDA, free cash flow, operating adjusted net income and operating adjusted net income per share
have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the
results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other
companies.
Non-GAAP Financial Measures
29
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
Depreciation and amortization 27.4 23.5 7.7 6.1 64.7
Intercompany interest 9.3 9.5 (8.7) (10.1) –
EBITDA $80.4 $78.8 $40.4 ($24.8) $174.8
Intercompany charges 3.1 – – (3.1) –
Non-cash stock-based compensation 1.2 0.7 0.4 1.7 4.0
Loss on extinguishment of debt – – 1.4 – 1.4
Acquisition related costs 1.3 – – 0.1 1.4
Securitization interest – – (7.7) – (7.7)
Minority interest 1.1 – – – 1.1
Other 0.9 0.7 0.2 (0.3) 1.5
Total Addbacks 7.6 1.4 (5.7) (1.6) 1.7
Adjusted EBITDA $88.0 $80.2 $34.7 ($26.4) $176.5
Revenue $442.3 $302.6 $68.8 – $813.7
Adjusted EBITDA % margin 19.9% 26.5% 50.4% 21.7%
31
Q4 2015 Adjusted EBITDA Reconciliation
($ 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
Depreciation and amortization 22.4 21.7 7.6 4.3 56.0
Intercompany interest 12.1 9.5 (7.9) (13.7) –
EBITDA $73.2 $65.6 $41.4 ($25.2) $155.0
Intercompany charges 1.9 0.1 – (2.0) –
Non-cash stock-based compensation 0.9 0.3 0.3 1.4 2.9
Acquisition related costs 0.6 – 0.2 0.2 1.0
Securitization interest – – (5.5) – (5.5)
Minority interest 0.2 (1.1) – – (0.9)
Other 0.8 0.7 0.3 0.2 2.0
Total Addbacks 4.4 – (4.7) (0.2) (0.5)
Adjusted EBITDA $77.6 $65.6 $36.7 ($25.4) $154.5
Revenue $365.9 $261.6 $68.2 – $695.7
Adjusted EBITDA % margin 21.2% 25.1% 53.8% 22.2%
32
YTD 2016 Adjusted EBITDA Reconciliation
($ 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
Depreciation and amortization 100.0 87.9 31.1 21.6 240.6
Intercompany interest 41.7 37.8 (33.8) (45.7) –
EBITDA $391.0 $286.1 $173.8 ($116.6) $734.3
Intercompany charges 10.9 0.3 – (11.2) –
Non-cash stock-based compensation 4.6 2.6 1.8 10.1 19.1
Loss on extinguishment of debt – – 1.4 4.0 5.4
Acquisition related costs 4.9 0.2 0.1 3.4 8.6
Securitization interest – – (28.0) – (28.0)
Minority interest 3.8 – – – 3.8
(Gain)/Loss on asset sales 1.6 0.2 – 0.6 2.4
Other 2.7 (0.5) 0.2 (0.1) 2.3
Total Addbacks 28.5 2.8 (24.5) 6.8 13.6
Adjusted EBITDA $419.5 $288.9 $149.3 ($109.8) $747.9
Cash interest expense on corporate debt (97.1)
Capital expenditures (155.1)
Cash taxes related to calendar year (128.0)
Free cash flow $367.7
Revenue $1,765.3 $1,098.0 $286.8 – $3,150.1
Adjusted EBITDA % margin 23.8% 26.3% 52.1% 23.7%
33
YTD 2015 Adjusted EBITDA Reconciliation
($ 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
Depreciation and amortization 86.2 80.8 30.8 15.0 212.8
Intercompany interest 49.7 37.7 (25.3) (62.1) –
EBITDA $307.5 $263.7 $164.1 ($91.2) $644.1
Intercompany charges 7.9 0.7 – (8.6) –
Non-cash stock-based compensation 3.8 1.1 1.3 6.5 12.7
Acquisition related costs 2.7 0.1 0.2 1.8 4.8
Securitization interest – – (18.7) – (18.7)
Minority interest 0.8 (1.4) – – (0.6)
(Gain)/Loss on asset sales 3.6 (0.1) – – 3.5
Other 2.3 1.0 0.4 0.3 4.0
Total Addbacks 21.1 1.4 (16.8) – 5.7
Adjusted EBITDA $328.6 $265.1 $147.3 ($91.2) $649.8
Cash interest expense on corporate debt (61.3)
Capital expe ditures (134.7)
Cash taxes related to calendar year (116.0)
Free cash flow $337.8
Revenue $1,427.8 $994.4 $268.4 – $2,690.6
Adjusted EBITDA % margin 23.0% 26.7% 54.9% 24.2%
34
Operating Adjusted Net Income
per Share Reconciliation
($ 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)
Operating adjusted net income $62.7 $62.6 $286.6 $269.7
Net income per share − diluted $0.33 $0.35 $1.60 $1.51
Acquired amortization expense 0.19 0.16 0.70 0.62
Loss on extinguishment of debt 0.01 – 0.04 –
Income taxes (0.08) (0.06) (0.28) (0.23)
Operating adjusted net income per share − diluted $0.45 $0.45 $2.06 $1.90
Weighted average diluted shares 138.9 139.6 139.1 142.3
Three Months ended
December 31,
Year ended
December 31,
(1)Acquired amortization expense was $25.8 million ($16.3 million net of tax) and $22.3 million ($14.3 million net of tax) for the three months ended
December 31, 2016 and 2015, respectively. For the year ended December 31, 2016 and 2015, acquired amortization expense was $97.1 million
($60.8 million net of tax) and $87.5 million ($55.1 million net of tax), respectively.
(2)We incurred a loss on the extinguishment of debt totaling $1.4 million ($0.9 million net of tax) and $5.4 million ($3.4 million net of tax) for the three
months and year ended December 31, 2016, respectively.
(3)The effective tax rate at the end of each period presented was used to determine the amount of income tax on the adjustments to net income.