KAR Auction Services chairman and chief executive officer Jim Hallett reiterated that it’s unlikely the company will close any more acquisitions before the end of the year even though he described the activity pipeline as “active.”

Hallett expanded on the point during the company’s latest quarterly conference call by stating, “I can tell you that the senior leadership team at KAR has been very much focused on really reviewing our strategy and clearly identifying what we believe fits and also what we believe doesn’t fit within the KAR strategy as we go forward.

“And I would say that probably my major focus right now is on expanding the buyer base and increasing our market share at ADESA,” Hallett added.

The second part of that comment triggered a series of follow-up questions from investment observers who dissected KAR’s third-quarter performance, which included year-over-year gains in revenue (13 percent to $666.7 million), adjusted EBITDA (9 percent to $163.1 million) and net income (10 percent to $52.3 million, or $0.37 per diluted share).

Hallett revisited the moves KAR already has made to boost its market share, including the acquisition of Pittsburgh Auto Auction earlier this year as well as the new facility in the Chicago market expected to open next year after management broke ground back in September. He insisted the company will continue to pursue brick-and-mortar auctions.

“By adding these brick-and-mortar auctions, there is no question as you go into a new market, you pick up new buyers and not only do you pick up new buyers for the physical auction, but there is a direct correlation with online buyers as to where you have the physical presence,” Hallett said. “So we believe that through these physical auctions we pick up the physical buyer and the online buyer.”

He added: “We’ve taken an opportunity to take a look at our buyers at IAA, take a look at our buyers at ADESA and where they overlap and is there an opportunity to get more the buyers from each of those segments buying in the other segment. We’ve absolutely proved that there is an opportunity to bring buyers from one segment to the other.”

Headwinds at IAA

Hallett acknowledged there are some “headwinds” being experienced at Insurance Auto Auctions. Among them during Q3 were a 17-percent rise in the cost of services. Still, IAA managed a 13-percent rise in revenue to $246.2 million in Q3 as gross profit climbed from $82.1 million to $87.3 million.

However, what’s impact IAA’s performance most is the deterioration in scrap metal prices. Hallett outlined some figures to illustrate the drop-off.

He indicated a crushed car body was selling for about $312 in January of last year. By December, the amount declined to approximately $198. Then when KAR’s third quarter closed on Sept. 30, Hallett pinpointed the sales amount at $124, marking a 60-percent decrease during the 21-month span.

That trend left IAA with a 3-percent drop in revenue per vehicle.

“There is no question that the management team and Insurance Auto Auctions are constantly reviewing their fees, and looking at their service offerings and certainly trying to offset the impact of scrap metal prices, but certainly haven't been able to increase the fees to a level where it completely offset the scrap metal prices,” Hallett said.

Yet another headwind Hallett touched on was the difference in currency rates between the U.S., Canada and other nations.

“As you know, the U.S. dollar is very strong compared to foreign currency, and this reduces the value of the local currency for our foreign buyers,” Hallett said. “These buyers are still very active. They’re still bidding. They’re bidding just as much.

“But unfortunately with their currency being devalued, they’re not able to pay as much for the vehicles as they've been able to pay in the past as they compete with the U.S. dollar,” he continued.

Perhaps these conditions might change soon, impacting IAA’s performance potential?

“I think that we’re going to continue to deal with scrap prices here for some time. I think we're going to continue to deal with foreign currency for some time,” Hallett replied.

“The management team at IAA is very focused on continuing to expand its opportunities working with expanding the buyer base and expanding some of the services that we were providing to the insurance companies,” he continued. “One of the areas that we're really focused on right now is the Total Loss Solution that we are working with the insurance companies that can really accelerate the turn times that it takes for a vehicle to come in and make its way back to the marketplace.”

More developments at TradeRev

During his opening comments, Hallett touched on developments associated with TradeRev. ADESA acquired a 50-percent stake in TradeRev last August. Toronto-based TradeRev began offering its services to dealerships in the Carolinas and Florida this summer.

“TradeRev remains a very, very high priority for me, and we’re allocating more resources to support the U.S. rollout,” Hallett said. “In fact, we are now tapping into some of the talent we have within the OPENLANE organization to assist us with the rollout of TradeRev here in the U.S.

“You know, it wasn't that long ago that OPENLANE was rolling out a technology product here in the U.S., and I think they have a lot of experience with rolling out a startup technology company,” he continued.

“I think there is a lot of similarities between the rollout of OPENLANE and TradeRev, and I think where it would be very wise to use that talent we have within the organization,” Hallett went on to say.

Then on Tuesday, TradeRev announced it hired two regional directors to drive the expansion of the company’s United States operations. TradeRev president and co-founder Mark Endras tapped Tim O’Rourke as the Southeast regional director and Michael Niebling as the Midwest regional director.

As the new regional directors in the United States, TradeRev highlighted O’Rourke and Niebling will be responsible for building and strengthening relationships with dealers and hiring in their respective targeted locations, as well as focusing on expanding the company’s overall U.S. footprint. O’Rourke’s work will focus in the Southeast region, where the company has been establishing a presence since this summer. Niebling will focus on building a TradeRev presence in the Midwest states.

“Tim and Michael bring years of knowledge and experience in effectively managing and growing companies in the automotive industry, and we are confident they will successfully lead our growth in these strategically selected markets,” Endras said.

“We’ve been focused on building and growing our footprint in the Southeastern United States for the past several months, and bringing Tim on as regional director to take over this ongoing expansion was the next logical step,” Endras continued.

“We also identified Chicago as a key place to share our game-changing technology next, as it is dense with car dealerships and partners, and centrally located among several different Midwest automotive hubs,” Endras went on to say.

Prior to TradeRev, O’Rourke was most recently the vice president of automotive at Netsertive, a Google premier partner, where he oversaw the development of an entire sales organization focusing on the automotive market. This included developing KPIs, establishing the ramping strategy, staffing, hiring and training processes.

O’Rourke also was the regional sales manager for Autotrader, where he was directing a team of more than 100, and then became the general sales manager for Manheim’s largest market, which included Manheim’s flagship auction, where he was responsible for building the outside and inside sales teams. During his time at Manheim, he influenced the development of sales teams from South Carolina through New England. He has a bachelor’s degree from Jacksonville University.

Niebling was previously the regional sales manager for Dominion Enterprises, where he was responsible for building and strengthening profitable business relationships with potential customers and business partners for product promotion.  He was also the vice president of CompuCredit and was the director of sales for HSBC Bank. Niebling has a bachelor’s degree from Northern Illinois University.

“As TradeRev continues to expand its footprint in the U.S., we needed two successful and experienced individuals on the ground, building and leading our teams in these two key regions,” said Peter Kelly, president of KAR Digital Services and chief technology officer of KAR Auction Services.

“The response from dealers in these markets to TradeRev’s unique and innovative technology has been overwhelmingly positive, and we look forward to sharing it even more widely with Tim and Michael leading the way,” Kelly went on to say.

European visit

Hallett also mentioned that about a month ago, he made a trip to Canvey Island, England to visit with the newest part of ADESA (UK) Limited — HBC Vehicle Services — which the company acquired back in June.

HBC Vehicle Services provides efficient salvage collection and disposal services for some of the U.K.’s top insurance, fleet and accident management companies. Hallett used the visit to meet with management and other employees.

“I can tell you that these commodity prices are having a stronger impact, more negative impact on our U.K. operations than here in North America,” Hallett said. “As you know, and I think previously mentioned or stated on the call about 90 percent of our vehicles with HBC are purchased vehicles so the impact is being felt heavier.

“But the good news is I was very pleased while I was there,” he continued. “The management team had prepared for my arrival and they had actually outlined the strategy of how they plan on shifting the business model both for the seller and the buyer in terms of the pricing and they've actually made a shift in that respect

“I think they've got us in a good position going forward, and I think we'll be pleased with the outcome as we head into 2016,” Hallett went on to say. “But there has been no question in terms of our timing on acquiring that business and scrap metal prices being what they were, we got off to a difficult start.”

The visit also confirmed Hallett’s belief in supporting the team HBC Vehicle Services has in place.

“I think one thing that we've learned from our international relationships is, people very much appreciate allowing the local culture to kind of manage the local culture and not have people from the U.S. and North America come over and tell them how their business model should work. And at this point in time, we have no plans on changing or disrupting that model,” he said.