KAR Holdings Posts 3Q Revenue Jump

By Richard Greene, AR NewsMagazine Editor
November 14, 2007

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CARMEL, Ind. — Even in a challenging market, KAR Holdings, which is the umbrella company for the privately held group of ADESA companies, reported Wednesday that revenue growth was "exceptionally strong," especially on the salvage side of business.

Officials also indicated that it is unlikely ADESA will be as aggressive acquiring more auctions going forward, as it was during September, October and November of this year. However, officials qualified this statement by saying that they still see growth ahead. As opportunities arise, it is likely the company will move on them.

3Q Results

Overall, KAR Holdings said third-quarter revenue rose 10.6 percent to $394.3 million, as compared with $356.4 million posted in the same time frame of last year. Last year's figure reflects the revenue results of both ADESA and Insurance Auto Auctions before they were combined into one entity and went private.

Adjusted EBITDA, as defined in the company's senior credit facility dated April 20, 2007, was up 10.9 percent to $97.7 million for the time frame, compared with last year's third-quarter adjusted EBITDA of $88.1 million for the combined companies.

For the nine-month period, the company said revenue spiked 10.9 percent to just shy of $1.2 billion, versus revenue of $1.07 billion.

Adjusted EBITDA for the nine-month period rose 6 percent to $307.9 million, compared to $290.4 million last year.

According to Eric Loughmiller, KAR Holdings' chief financial officer, ADESA Auctions reported third-quarter revenue of $241.4 million, an increase of 14 percent over the prior year.

"For the nine months ended Sept. 30, 2007, revenues of $710.1 million represents an increase of 11 percent over the same period in 2006," he explained. "The increase in revenue reflects a 4-percent increase in units sold."

Regarding IAA, Loughmiller said it "continued its strong performance" this year, with revenues of $117.7 million, up 9 percent over the prior year.

"For the first nine months of 2007, IAA generated revenue of $360.8 million, an increase of 14 percent over the prior year," he added.

Brian Clingen, KAR Holdings' chairman and chief executive officer, said the results were encouraging given the current market conditions.

"In what has continued to be a challenging environment for the whole-car business, as both new and used vehicle sales continue to exhibit a weak environment to the extent that pricing strength exists in the marketplace, we feel that really is the result of the reduced supply of vehicles coming to market," Clingen noted.

"But nonetheless, ADESA's whole-car auction business has continued to perform extremely well in that environment," Clingen added.

"We continue to see excellent performance from our sales team and the group that Jim Hallett (president and CEO) has put in place, as they continue to win new accounts, and as they improve sales of our ancillary services to our institutional customers," he continued.

As for the salvage side of the business, Clingen said it, too, has demonstrated "exceptional" growth. "Our salvage business continues to be an extremely strong performer for us," he pointed out. "Our same-store unit growth for the first nine months was 8.1 percent, with the remainder of the increase related to increases in auction fees and revenues from businesses acquired during 2006."

At the same time, Clingen said that IAA recently announced the acquisition of a facility in Las Vegas, which he said should close in the next 90 days. According to Clingen, this new facility represents "the largest metropolitan area that was not previously served by IAA."

Don't Expect Further Acquisition Mania

Loughmiller went on to indicate that ADESA auctions have seen a drop-off in the number of factory cars brought to the lanes of late, particularly program cars from the rental companies. But this loss of business has been offset by an upswing in the number of fleet-lease units, he noted.

Moreover, Loughmiller said ADESA has worked on boosting its dealer consignment business. He credits the climb in this business to Hallett and his team.

Although ADESA experienced a beehive of acquisition activity near the National Auto Auction Association's event in mid-September, which included the announcements of auction purchases in Syracuse, N.Y.; Fargo, N.D.; Sioux Falls, S.D.; and Quebec City, Canada, both Clingen and Loughmiller said that this intense pace cannot be sustained in the months ahead.

"While we'll have some select opportunities, we don't think there is a large opportunity for acquisitions at least domestically in the U.S., as well as in Canada, as we move forward," Loughmiller projected.

"While I can't tell you what will really happen, I don't think we will be closing four acquisitions in a three-month period on an ongoing basis," Clingen concluded.

Auction/Wholesale