America and Europe. KAR facilitate an efficient marketplace by providing auction services for sellers of used, or "whole
car," vehicles and salvage vehicles through our 254 North American physical auction locations at December 31, 2018, and
multiple proprietary Internet venues. KAR is broken down into two segments: (1) ADESA, the whole car auction services
business, and is the second largest provider of used vehicle auction services in North America; (2) AFC is an important
provides floorplan financing to auction buyers, primarily to independent used vehicle dealers. Revenues are generated
through auction fees from both vehicle buyers and sellers, as well as by providing value-added ancillary services, including
transportation, reconditioning, inspections, marshalling, titling and floorplan financing.
Capital Structure & Relevant Financial Metrics
Recent History & Current Situation
â–ª In October of 2017, KAR acquired the remaining 50% in Traderev, a digital dealer- to- dealer vehicle appraisal and
auctioning system where dealers can launch and participate in real time auctions at any time
- Since its acquisition, Traderev has been intentionally unprofitable to penetrate the market
- FY:18 lost $53 million; FY 19 expected to lose $60 million; 2020 the loss is expected to moderate and
expected to break even in 2021
- Breakeven will require sales of 350k-400k cars on TradeRev, which would be at least double the 2019 sales
rate
- Analysts believe profitability can take longer than expected, due to competition in dealer to dealer channel
and operating expense pressures (Stephens Report, 5/9/19)
- TradRev EBITDA margins expected to be 25%, and margins on physical and other online businesses to be
50%
â–ª On 1/31/19, KAR completed the acquisition of CarsOnTheWeb (COTW), an online auction company serving the
wholesale vehicle sector in Continental Europe that seamlessly connects OEMs, fleet owners, wholesalers and
dealers
- The acquisition advances KAR’s international strategy and extends its strong North American and U.K.-
based portfolio of physical, online, and digital auction marketplaces
- This acquisition caused revenue to increase $30 million in 1Q:19 , along with incentives KAR has offered to
dealers
- Asia and Australia markets are potential long term expansions
â–ª The separation of IAA was announced in February 2018, and was completed on 6/28/19, making KAR a pureplay car
auction company
Business Trends
â–ª ADESA Revenue Drivers
- ADESA and AFC’s main source of revenue are auction fees and added service fees from both the buyer and
seller. These fees are being turned into free cash flow
- ADESA main sources of product are vehicles coming off lease; 15% are repossessions; 10% are from fleets;
and approximately 10% are from car rentals
- Physical auction volumes closely track leasing activity on a 3 year lag, which should give revenue stability
for at least the next 2 years
â–ª Revenue per auction vehicle has been increasing steadily for the past few years due to the increase in the services
- In 2007, ADESA was generating $465 per car sold from auction revenues. In 3Q of 2019, KAR generated
$893 at physical auctions. Of which, approximately $600 comes from additional “service fees”
â–ª TradeRev has strong and visible organic growth
- KAR leverages technology and data analytics for long term growth
