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CARMEL, Ind. — KAR Auction Services chief executive officer Jim Hallett had a positive tone toward the company's second-quarter performance, calling the period "very strong" during a conference call Wednesday morning.

As far as overall results for the company, KAR had a corporate adjusted EBITDA of $131 million, up 14 percent year-over-year, while net income came in at $28.6 million, up from $12.8 million in the year-ago period.

Meanwhile, revenues jumped 7 percent to $470 million.

"First off, I want to say that I'm very pleased and very excited to report on a very strong second quarter by KAR Auction Services," Hallett shared as began his analysis.

The CEO would go on to break each of the company's three business units down. 

ADESA

Looking at ADESA, revenue in this segment totaled $280.1 million, up less than 1 percent from $279.5 million in the prior-year period. Gross profits move up 1 percent, coming in at $127.3 million.

The division showed stability in gross margins, as well, at 45.4 percent, compared with 45.3 percent in the year-ago period.

The used-vehicle conversion percentage was at 64.9 percent, down a bit from the year-ago level of 67.4 percent.

Commenting on the quarter, Hallett noted: "I'm very pleased with ADESA's performance, especially when you consider that the National Auto Auction Association reported that the industry is down approximately 7 percent and ADESA's volume was down 3 percent in the quarter."

Hallett also discussed some of the dealer consignment initiatives ADESA rolled out, noting that dealer consignments climbed 6 percent in the first half of 2010 and that these units constitute 32 percent of ADESA's business.

"If some of the current trends continue with some of the fleet/lease volumes falling, we could see the industry dip below 9 million vehicles for first time in the last 10 or 12 years. We're not sure how that will play out, we'll have to see how the second half goes," Hallett noted. "But there certainly was a softening of fleet/lease in the first half of the year and we're not sure if that trend is going to continue through the second half of the year or not. …

"But there's no question … we continue to believe in the long-term growth in our dealer consignment and we feel that our dealer consignment initiatives will help offset any softening in some of the other segments," he added.

Insurance Auto Auctions

Continuing on, second-quarter revenue for this business segment was $157.3 million, a gain of 13 percent year-over-year. Its gross profits came in at $65.6 million, up 24 percent year-over-year.

Gross margins were at 41.6 percent, up from 37.9 percent a year ago.

Adjusted EBITDA was $50.3 million, versus $39.3 million in the year-ago period.

"Proceeds continue to remain high," Hallett explained, noting that one way in which the company has driven these gains is through the various buyer initiatives it rolled out. "We have been implementing a number of buyer marketing initiatives in the salvage space and we feel that these initiatives that we've put in place are starting to pay dividends."

As such, the company is seeing more buyers both at the physical auctions and online, he pointed out.

Hallett added: "Obviously, again, strong used-car values are continuing to drive the proceeds and then the steel prices or commodity prices, remaining stable are helping, as well."

Eric Loughmiller, executive vice president and chief financial officer, later noted: "This segment is clicking on all cylinders, to borrow an automotive term."

AFC

Moving over to AFC, this segment posted what Hallett called a "very, very solid" quarter. Its revenues came in at $32.6 million, a 58-percent upswing from the prior-year period. 

Driving most of the revenue uptick was a 33-percent gain in revenue per loan transaction, coupled with the upswing in loan transaction units (up 19 percent), officials pointed out.  

The division's gross profits of $25.5 million were up 92 percent year-over-year. Meanwhile, AFC's gross margins were 78 percent, up from 65 percent.

"Obviously, AFC has been the recipient of a very strong retail used-car market. There's no question, when you've got a hot market, dealers are able to sell to sell their cars quickly, they're able to pay off their loans quickly and return to auction and do it all over again," he stated.

"And there's no question that the hot market has really helped drive the business at AFC," Hallett added.

But he also pointed out, "it hasn't been just the market" that bolstered AFC.

"I think we've had a very strong and disciplined management team. And I think that the medicine we took in 2008 and 2009, when we deliberately lowered the portfolio in anticipation of creating capacity when the market came back, it has served us well," Hallett shared.

Liquidity

Moving on to discuss liquidity, as of June 30, KAR had cash and cash equivalents of $289.4 million. Restricted cash was $8.3 million and working capital was $391.5 million.

The amount available under the credit facility was $250 million. KAR officials made the following note regarding that item: "KAR Auction Services Inc. has a $250 million revolving line of credit as part of the company's $1,865 million ($1.865 billion) credit agreement, which was undrawn as of June 30, 2010.

"There were related outstanding letters of credit totaling approximately $32.7 million, $31.7 million and $31.3 million at June 30, 2010, Dec. 31, 2009 and June 30, 2009, respectively, which reduce the amount available under the senior credit facility," officials added.