KAR Auction Services, Inc. (NYSE:KAR) Q3 2019 Earnings Conference Call - Final Transcript

Nov 06, 2019 • 11:00 am ET


KAR Auction Services, Inc. (NYSE:KAR) Q3 2019 Earnings Conference Call - Final Transcript


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Ladies and gentlemen, thank you for standing by and welcome to the KAR Quarter Three 2019 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference to your speaker today, Mike Eliason, Treasurer and Vice President of Investor Relations. Please go ahead, sir.

Mike Eliason

Thanks, Victor. Good morning and thank you for joining us today for the KAR Auction Services' Third Quarter 2019 Earnings Conference Call. Today we'll discuss the financial performance of KAR Auction Services for the quarter ended September 30, 2019. After concluding our commentary, we'll take questions from participants. Before Jim kicks off our discussion, i'd like to remind you that this conference call contains forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect KAR's business, prospects and results of operations and such risks are fully detailed in our SEC filings. In providing forward-looking statements, the company expressly disclaims any obligation to update these statements. Let me also mention that throughout this conference call, we'll be referencing both GAAP and non-GAAP financial measures, reconciliations of the non-GAAP financial measures to the applicable GAAP financial measure can be found in the press release that we issued yesterday, which is also available in the Investor Relations section of our website.

Now I'd like to turn this call over to KAR Auction Services' CEO Jim Hallett. Jim?

James P. Hallett

Thank you Michael and good morning ladies and gentlemen, and welcome to our call. The topics that i want to discuss with you today are our third quarter results, provide you with an update on TradeRev, speak to our revised guidance for 2019 and then review the actions that we're taking to improve our performance going forward.

First, let me cover our third quarter results. Our results in the third quarter fell short of our expectations. And there are two primary factors that impacted our performance in the third quarter. First, volumes were softer than expected, we experienced double-digit growth in commercial volume in 7% growth in dealer consignment volumes. While volumes grew in each of our channels, we clearly saw slower growth than expected.

We have spoken with many of our customers. And this trend is throughout the industry and we believe that it is a timing issue and it is not a secular change in the market. The second factor impacting our results in the third quarter is the revenue mix out of ADESA that led to a decline in gross profit margin, and adjusted EBITDA margin. We decreased SG&A across the businesses, other than the increases that TradeRev and the SG&A from acquired businesses.

Unfortunately, this wasn't enough to offset the lower gross profit realization per dollar of revenue. Volume grew 9% at ADESA, excluding acquisitions, organic volumes grew 7% driven by lower revenue online transactions at OPENLANE and TradeRev. We also experienced slower growth in the OPENLANE channel in the third quarter. Forward growth