CARMEL, Ind. -

During a long discussion about the company’s 2011 financial performance and more, KAR Auction Services chief executive officer Jim Hallett projected specific future wholesale volume numbers after saying 2012 is a “trough year.”

Hallett told a conference call filled with investment analysts Tuesday that “the steepest volume declines are behind us.
 
“I think 2012 industry volumes will be comparable to what we’ve seen in 2011, about 7.7 million sold at physical auctions (throughout the industry) and about another 300,000 vehicles by OPENLANE,” continued Hallett, who specifically mentioned the OPENLANE figure since those units hadn’t previously been included in totals tabulated by the National Auto Auction Association.

“There may be a channel shift that occurs, but we don’t expect that shift to be seismic or sudden,” Hallett stressed. “I think more importantly we’re well positioned whether it is virtual or it is physical to be able to sell the car.
 
“As I look at our expectations for the next few years, we’ve all been all hearing that new-car sales will continue to improve,” he went on to surmise. “We know that lease originations have improved over the past two years and will continue to improve going forward. And we’ve had discussions with many if not all of our commercial consigners who support our view and given us much visibility into what they’re volume projections are not only for 2012 but for the next few years going forward.”

Hallett then pinpointed where he thinks wholesale volumes will land beyond this year.

“We would expect that in 2013 wholesale auction sales would approach 8.4 million vehicles growing to nearly 9 million vehicles in 2015,” he predicted.

KAR’s Overall Performance

Within a backdrop Hallett called “difficult,” KAR generated financial increases both in the fourth quarter and year-over-year.

Looking first at just the fourth quarter, the company posted $479.8 million in revenue, an 8-percent climb from $443.2 million in the year-ago period. As a result, KAR’s fourth-quarter adjusted EBITDA for the quarter increased 9 percent to $112.1 million from $103.0 million a year earlier.
 
The company’s net income improved by an even greater margin — 99 percent — to $14.5 million or 11 cents per diluted share, as compared with $7.3 million 5 cents per diluted share in the fourth quarter of 2010.

KAR indicated its adjusted net income per share for the fourth quarter was 21 cents versus 20 cents during the fourth quarter of 2010, representing an increase of 5 percent.

The positive comparisons continued when the company tabulated its full-year financial performance.

KAR’s 2011 revenue came in at $1.886 billion, up from $1.823 billion a year earlier, resulting in a 3-percent rise.

Its adjusted EBITDA also ticked 3 percent higher, moving from $475.2 million to $487.2 million.

Looking at full-year net income, the company watched the figure move up 4 percent from $69.6 million or 51 cents per diluted share to $72.2 million or 52 cents per diluted share.

Meanwhile, KAR’s adjusted net income per share for the year settled at $1.16 versus a year earlier when it was $1.05, marking a 10-percent increase.

“Overall I would say I’m satisfied with our performance in what I would term as a very difficult or tough environment,” Hallett stressed. “I think the management team has done a good job of doing the best they could in a difficult situation.

“But more so I think we’re well positioned for 2012 and beyond,” he added.

KAR’s 2012 Financial Outlook

KAR is expecting this year’s adjusted EBITDA to come in at approximately $515 million. The company also expects net income per share of 85 to 90 cents and adjusted net income per share of $1.15 to $1.20, both assuming an effective tax rate of between 30 percent and 35 percent.
 
“Adjusted net income per share represents GAAP net income per diluted share excluding excess depreciation and amortization and stock-based compensation, both resulting from the 2007 merger, net of taxes, as well as other items,” KAR executive vice president and chief financial officer Eric Loughmiller explained.

Additionally, the company is projecting 2012 cash taxes of approximately $70 million, cash interest expense on corporate debt of approximately $95 million and capital expenditures of approximately $90 million.

“This would result in free cash flow of approximately $260 million,” Loughmiller calculated.

Hallett closed Tuesday’s call by emphasizing, “I assure that the leadership team at KAR is very focused and remains focused on achieving all of our objectives in 2012 and going forward.”

Editor’s Note: Keep watch of AR Today later this week for reports on KAR’s discussion about ADESA’s 2011 performance, as well as integration with OPENLANE, along with highlights on Insurance Auto Auctions and Automotive Finance Corp.