In advance of this morning’s conference call with investment analysts, KAR Auction Services reported its second-quarter performance Tuesday, highlighting a 40-percent gain in net income among other increases.

For the quarter that ended June 30, KAR generated $541.4 million in revenue, up 11 percent from $487.9 million posted in the second quarter of last year.

The company’s adjusted EBITDA for the quarter increased 9 percent to $140.2 million, rising from $128.1 million in the previous year’s span.

And KAR’s second-quarter net income spiked 40 percent to $33.4 million or $0.24 per diluted share. A year earlier, this figure came in at $23.9 million or $0.17 per diluted share in the second quarter of 2012.

The company’s adjusted net income per share for the second quarter increased 31 percent to $0.34 versus adjusted net income per share of $0.26 for the same quarter last year. Officials pointed out adjusted net income for the second quarter of this year excludes a $1.6 million net loss ($2.7 million pre-tax) due to costs incurred for processing vehicles damaged in Superstorm Sandy.

Six-Month Performance Figures

Through the first half of 2013, the company reported revenue of $1.1 billion, up from $994.8 million for the first six months of last year and marking an increase of 10 percent.

KAR’s adjusted EBITDA increased 5 percent to $276.4 million, rising from $263.0 million. Net income jumped 25 percent to $62.5 million, or $0.45 per diluted share, as compared with net income of $49.9 million, or $0.36 per diluted share, for the first six months of 2012.

Adjusted net income per share climbed 14 percent to $0.65 versus the year-ago figure of $0.57 percent share. Adjusted net income for the first six months of 2013 excludes an $8.0 million net loss ($13.5 million pre-tax) due to costs incurred for processing vehicles damaged in Superstorm Sandy.

More Details on Impact of Superstorm Sandy

In the first six months of 2013, the company indicated Insurance Auto Auctions incurred a pre-tax net loss of $13.5 million related to the processing of Superstorm Sandy vehicles.

“This net loss has been excluded from adjusted EBITDA in accordance with the definitions in our credit agreement,” KAR officials said. “These losses are net of auction services revenue realized or to be realized upon the sale of the vehicles.

“The significantly higher tow costs incurred in order to respond to the requirements of our customers, increased occupancy costs due to the leasing of temporary locations to process Superstorm Sandy vehicles and increased labor costs for the temporary work force brought into the New York and New Jersey area resulted in a net loss on the sale of the Superstorm Sandy vehicles,” they went on to say.

Update on 2013 Outlook

KAR said it continues to expect 2013 adjusted EBITDA to settle between $535 and $540 million. The company also expects net income per share to come in between $0.82 and $0.87 and adjusted net income per share of $1.15 and $1.20, both assuming an effective tax rate of approximately 40 percent.

Officials points out the 2013 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, as well as Superstorm Sandy costs, all net of taxes.

Additionally, the company now expects 2013 cash taxes of approximately $70 million, cash interest expense on corporate debt of approximately $78 million and capital expenditures of approximately $95 million.

“This would result in free cash flow before dividend payments of approximately $292 to $297 million,” the company said.

Dividend and Secondary Offering of Common Stock

In other company finance news, KAR’s board of directors also announced a cash dividend Tuesday of $0.19 per share on the company’s common stock.

The dividend is payable on Oct 3 to stockholders of record as of the close of business on Sept. 24.

Furthermore, KAR announced the commencement of an underwritten offering of 15.0 million shares of its common stock by existing stockholder KAR Holdings II, subject to market and other conditions.

KAR Holdings II is controlled by entities affiliated with Kelso Investment Associates VII, GS Capital Partners VI, ValueAct Capital Master Fund and Parthenon Investors II.

Officials said the company will not receive any proceeds from the offering. In connection with the offering, officials said KAR Holdings II intends to grant the underwriters an option to purchase up to 2.25 million additional shares.

Officials explained the offering will be made pursuant to the company’s existing effective shelf registration statement on Form S-3 filed with the Securities and Exchange Commission.

Credit Suisse Securities, Goldman, Sachs & Co. and J.P. Morgan Securities LLC are acting as joint book-running managers for the offering.

When available, copies of the prospectus supplement and accompanying prospectus related to this offering may be obtained from:

Credit Suisse Securities
Attention: Prospectus Department
One Madison Avenue, New York, N.Y. 10010
Telephone: (800) 221-1037
Email: newyork.prospectus@credit-suisse.com

Goldman, Sachs & Co.
Attention: Prospectus Department
200 West Street, New York, N.Y. 10282
Telephone: (866) 471-2526
Fax: (212) 902-9316
Email: prospectus-ny@ny.email.gs.com

J.P. Morgan Securities
c/o Broadridge Financial Solutions
1155 Long Island Avenue, Edgewood, N.Y 11717
Telephone: (866) 803-9204

“This press release does not constitute an offer to sell or the solicitation of an offer to buy the securities, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction,” KAR said.

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