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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 7, 2024
OPENLANE, Inc.
(Exact name of Registrant as specified in its charter)
| | | | | | | | | | | | | | |
Delaware | | 001-34568 | | 20-8744739 |
(State or other jurisdiction of incorporation) | | (Commission File Number) | | (IRS Employer Identification No.) |
11299 N. Illinois Street, Suite 500
Carmel, Indiana 46032
(Address of principal executive offices)
(Zip Code)
(800) 923-3725
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
| Title of each class | | Trading symbol | | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | | KAR | | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On August 7, 2024, OPENLANE, Inc. (“OPENLANE” or the “Company”) issued a press release announcing its financial results for the three and six months ended June 30, 2024. OPENLANE will host an earnings conference call and webcast, Wednesday, August 7, 2024 at 5:00 p.m., Eastern Time. The conference call may be accessed by calling 1-833-634-2155 and asking to join the OPENLANE call, and the live webcast may be accessed at the investor relations section of corporate.openlane.com. The call will be hosted by OPENLANE Chief Executive Officer Peter Kelly and Chief Financial Officer Brad Lakhia. The call will feature a review of operating highlights and financial results for the three and six months ended June 30, 2024. The press release dated August 7, 2024 is attached to this Current Report on Form 8-K as Exhibit 99.1 and is incorporated herein by reference in its entirety.
On August 7, 2024, OPENLANE also posted supplemental financial information for the three and six months ended June 30, 2024, and Earnings Slides for the three and six months ended June 30, 2024. The supplemental financial information and Earnings Slides can be located at the investor relations section of corporate.openlane.com. The supplemental financial information and Earnings Slides posted on August 7, 2024 are attached to this Current Report on Form 8-K as Exhibits 99.2 and 99.3, respectively, and are incorporated herein by reference in their entirety.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
104 Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.
| | | | | |
| Dated: August 7, 2024 | OPENLANE, Inc. |
| |
| |
| /s/ BRAD S. LAKHIA |
| Brad S. Lakhia Executive Vice President and Chief Financial Officer |
EXHIBIT 99.1
For Immediate Release
Analyst Inquiries: Media Inquiries:
Itunu Orelaru Laurie Dippold
(317) 249-4559 (317) 468-3900
investor_relations@openlane.com laurie.dippold@openlane.com
OPENLANE, Inc. Reports Second Quarter 2024 Financial Results
Carmel, IN, August 7, 2024 — OPENLANE, Inc. (NYSE: KAR), today reported its second quarter financial results for the period ended June 30, 2024.
"OPENLANE’s second quarter and year-to-date results clearly demonstrate the power of our differentiated platform and the strong scalability characteristics of our company," said Peter Kelly, CEO of OPENLANE. "During the quarter, we grew marketplace and finance volumes, increased revenue and delivered strong adjusted EBITDA and operating cash flows. I am confident in OPENLANE’s strategy, we are investing in technology and people to further accelerate innovation and profitable growth."
"OPENLANE’s continued focus on execution and profitable growth delivered solid financial results in the second quarter," said Brad Lakhia, EVP and CFO of OPENLANE. "Consolidated revenue was $432 million, marketplace segment grew volumes by 7% and increased Gross Merchandise Value to nearly $7 billion. AFC was again a strong adjusted EBITDA contributor, and we improved our provision for loan losses versus the first quarter. Our year-to-date generation of $138 million of cash flow from operating activities clearly demonstrates the value — and potential — of our asset-light, digitally focused business."
Second Quarter 2024 Financial Highlights
•Marketplace volumes increased 7% YoY
•Total revenue of $432 million in Q2 2024, representing 4% YoY growth
•Marketplace revenue of $336 million in Q2 2024, representing 5% YoY growth
•Gross Merchandise Value (GMV) of approximately $7 billion, representing 6% YoY growth
•Income from continuing operations of $11 million
•Adjusted EBITDA of $71 million (with Marketplace contributing 46%), including the $2 million year-to-date impact for the newly enacted Canadian Digital Services Tax
•$138 million of cash flow from operating activities on a year-to-date basis
2024 Guidance
As a result of Canada’s abrupt implementation of a retroactive Digital Services Tax (DST), which was enacted on June 28, 2024 retroactive to January 1, 2022, the company has updated its 2024 annual guidance. During the second quarter of 2024, the company recorded $12 million of Canadian DST, of which $10 million related to 2022 and 2023. Assuming no changes to this legislation, including the scope of application, the company estimates this will result in approximately $5 million in incremental cost of services in 2024. The company anticipates taking steps to mitigate this incremental annual cost and therefore does not anticipate a material impact on future periods earnings and cash flows.
| | | | | |
| Annual Guidance |
Income from continuing operations (in millions) | $65 - $80 |
Adjusted EBITDA (in millions) | $285 - $305 |
| Income from continuing operations per share - diluted * | $0.14 - $0.24 |
| Operating adjusted net income from continuing operations per share - diluted | $0.77 - $0.87 |
* The company uses the two-class method of calculating income from continuing operations per diluted share. Under the two-class method, income from continuing operations is adjusted for dividends and undistributed earnings (losses) to the holders of the Series A Preferred Stock, and the weighted average diluted shares do not assume conversion of the preferred shares to common shares.
Earnings guidance does not contemplate future items such as business development activities, strategic developments (such as restructurings, spin-offs or dispositions of assets or investments), contingent purchase price adjustments, significant expenses related to litigation, tax adjustments and changes in applicable laws and regulations (including significant accounting and tax matters) and intangible impairments. The timing and amounts of these items are highly variable, difficult to predict, and of a potential size that could have a substantial impact on the company’s reported results for any given period. Prospective quantification of these items is generally not practicable. Operating adjusted net income from continuing operations per share excludes amortization expense associated with acquired intangible assets, as well as one-time charges, net of taxes. See reconciliations of the company's guidance included below.
Earnings Conference Call Information
OPENLANE will be hosting an earnings conference call and webcast on Wednesday, August 7, 2024 at 5:00 p.m. ET. The call will be hosted by OPENLANE Chief Executive Officer Peter Kelly and Chief Financial Officer Brad Lakhia. The conference call may be accessed by calling 1-833-634-2155 and asking to join the OPENLANE call. A live webcast will be available at the investor relations section of corporate.openlane.com. Supplemental financial information for OPENLANE’s second quarter 2024 results is available at the investor relations section of corporate.openlane.com.
The archive of the webcast will be available following the call at the investor relations section of corporate.openlane.com for a limited time.
About OPENLANE
OPENLANE, Inc. (NYSE: KAR), provides sellers and buyers across the global wholesale used vehicle industry with innovative, technology-driven remarketing solutions. The company's unique end-to-end platform supports whole car, financing, logistics and other ancillary and related services. Our integrated marketplaces reduce risk, improve transparency and streamline transactions for customers around the globe. Headquartered in Carmel, Indiana, the company has employees across the United States, Canada, Europe, Uruguay and the Philippines. For more information and the latest company news, visit corporate.openlane.com.
Forward-Looking Statements
Certain statements contained in this release include, and the company may make related oral, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made that are not historical facts may be forward-looking statements. Words such as "should," "may," "will," "would," "anticipate," "expect," "project," "intend," “contemplate,” "plan," "believe," "seek," "estimate," "assume," “can,” "could," "continue,” "of the opinion," "confident," "is set," "is on track," "outlook," “target,” “positioned,” “predict,” “initiative," "goal," "opportunity" and similar expressions identify forward-looking statements. Such statements are based on management's current assumptions, expectations and/or beliefs, are not guarantees of future performance and are subject to substantial risks, uncertainties and changes that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" in the company's Form 10-K for the year ended December 31, 2023 and in the company's other filings and reports filed with the Securities and Exchange Commission. The forward-looking statements are made as of the date of this release. The company undertakes no obligation to update any forward-looking statements.
OPENLANE, Inc.
Condensed Consolidated Statements of Income
(In millions) (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Operating revenues | | | | | | | |
| Auction fees | $ | 108.7 | | | $ | 103.3 | | | $ | 218.6 | | | $ | 203.2 | |
| Service revenue | 147.1 | | | 155.7 | | | 297.3 | | | 321.3 | |
| Purchased vehicle sales | 80.2 | | | 60.4 | | | 138.4 | | | 115.9 | |
| Finance-related revenue | 95.8 | | | 97.5 | | | 193.8 | | | 197.1 | |
| Total operating revenues | 431.8 | | | 416.9 | | | 848.1 | | | 837.5 | |
| | | | | | | |
| Operating expenses | | | | | | | |
| Cost of services (exclusive of depreciation and amortization) | 245.9 | | | 222.6 | | | 459.8 | | | 446.8 | |
| Selling, general and administrative | 106.0 | | | 111.2 | | | 214.7 | | | 219.2 | |
| Depreciation and amortization | 24.1 | | | 26.8 | | | 48.4 | | | 49.8 | |
| Goodwill and other intangibles impairment | — | | | 250.8 | | | — | | | 250.8 | |
| Total operating expenses | 376.0 | | | 611.4 | | | 722.9 | | | 966.6 | |
| | | | | | | |
| Operating profit (loss) | 55.8 | | | (194.5) | | | 125.2 | | | (129.1) | |
| | | | | | | |
| Interest expense | 37.4 | | | 38.8 | | | 77.1 | | | 77.1 | |
| Other (income) expense, net | 0.2 | | | (21.3) | | | 0.7 | | | (14.2) | |
| Loss on extinguishment of debt | — | | | 1.1 | | — | | | 1.1 |
| | | | | | | |
| Income (loss) from continuing operations before income taxes | 18.2 | | | (213.1) | | | 47.4 | | | (193.1) | |
| | | | | | | |
| Income taxes | 7.5 | | | (19.3) | | | 18.2 | | | (12.0) | |
| | | | | | | |
| Income (loss) from continuing operations | 10.7 | | | (193.8) | | | 29.2 | | | (181.1) | |
| Income from discontinued operations, net of income taxes | — | | | — | | | — | | | — | |
| Net income (loss) | $ | 10.7 | | | $ | (193.8) | | | $ | 29.2 | | | $ | (181.1) | |
| | | | | | | |
| Net income (loss) per share - basic | | | | | | | |
| Income (loss) from continuing operations | $ | — | | | $ | (1.87) | | | $ | 0.05 | | | $ | (1.86) | |
| Income from discontinued operations | — | | | — | | | — | | | — | |
| Net income (loss) per share - basic | $ | — | | | $ | (1.87) | | | $ | 0.05 | | | $ | (1.86) | |
| | | | | | | |
| Net income (loss) per share - diluted | | | | | | | |
| Income (loss) from continuing operations | $ | — | | | $ | (1.87) | | | $ | 0.05 | | | $ | (1.86) | |
| Income from discontinued operations | — | | | — | | | — | | | — | |
| Net income (loss) per share - diluted | $ | — | | | $ | (1.87) | | | $ | 0.05 | | | $ | (1.86) | |
OPENLANE, Inc.
Condensed Consolidated Balance Sheets
(In millions) (Unaudited)
| | | | | | | | | | | |
| June 30,
2024 | | December 31,
2023 |
| Cash and cash equivalents | $ | 60.9 | | | $ | 93.5 | |
| Restricted cash | 67.7 | | | 65.4 | |
| Trade receivables, net of allowances | 292.1 | | | 291.8 | |
| Finance receivables, net of allowances | 2,220.1 | | | 2,282.0 | |
| Other current assets | 133.3 | | | 109.2 | |
| Total current assets | 2,774.1 | | | 2,841.9 | |
| | | |
| Goodwill | 1,264.0 | | | 1,271.2 | |
| Customer relationships, net of accumulated amortization | 126.8 | | | 136.1 | |
| Operating lease right-of-use assets | 71.5 | | | 75.9 | |
| Property and equipment, net of accumulated depreciation | 160.2 | | | 169.8 | |
| Intangible and other assets | 221.2 | | | 231.4 | |
| Total assets | $ | 4,617.8 | | | $ | 4,726.3 | |
| | | |
Current liabilities, excluding obligations collateralized by
finance receivables and current maturities of debt | $ | 730.5 | | | $ | 692.3 | |
| Obligations collateralized by finance receivables | 1,573.6 | | | 1,631.9 | |
| Current maturities of debt | 272.0 | | | 154.6 | |
| Total current liabilities | 2,576.1 | | | 2,478.8 | |
| | | |
| Long-term debt | — | | | 202.4 | |
| Operating lease liabilities | 65.5 | | | 70.4 | |
| Other non-current liabilities | 35.5 | | | 35.2 | |
| Temporary equity | 612.5 | | | 612.5 | |
| Stockholders’ equity | 1,328.2 | | | 1,327.0 | |
| Total liabilities, temporary equity and stockholders’ equity | $ | 4,617.8 | | | $ | 4,726.3 | |
OPENLANE, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions) (Unaudited)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2024 | | 2023 |
| Operating activities | | | |
| Net income (loss) | $ | 29.2 | | | $ | (181.1) | |
| Net income from discontinued operations | — | | | — | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
| Depreciation and amortization | 48.4 | | | 49.8 | |
| Provision for credit losses | 29.1 | | | 28.4 | |
| Deferred income taxes | 0.4 | | | (29.1) | |
| Amortization of debt issuance costs | 4.7 | | | 4.4 | |
| Stock-based compensation | 10.1 | | | 8.9 | |
| Contingent consideration adjustment | — | | | 1.3 | |
| Net change in unrealized (gain) loss on investment securities | — | | | (0.1) | |
| Investment and note receivable impairment | — | | | 11.0 | |
| Goodwill and other intangibles impairment | — | | | 250.8 | |
| Loss on extinguishment of debt | — | | | 1.1 | |
| Other non-cash, net | 0.1 | | | 0.8 | |
Changes in operating assets and liabilities, net of acquisitions: | | | |
| Trade receivables and other assets | (23.7) | | | (76.2) | |
| Accounts payable and accrued expenses | 39.4 | | | 75.2 | |
| Payments of contingent consideration in excess of acquisition-date fair value | — | | | (2.6) | |
| Net cash provided by operating activities - continuing operations | 137.7 | | | 142.6 | |
Net cash used by operating activities - discontinued operations | (0.1) | | | (0.1) | |
| Investing activities | | | |
| Net decrease (increase) in finance receivables held for investment | 33.1 | | | (24.4) | |
| Purchases of property, equipment and computer software | (25.9) | | | (26.9) | |
| Investments in securities | (1.6) | | | (0.6) | |
Proceeds from the sale of property and equipment | 0.3 | | | 0.3 | |
| Net cash provided by (used by) investing activities - continuing operations | 5.9 | | | (51.6) | |
| Net cash provided by investing activities - discontinued operations | — | | | 7.0 | |
| Financing activities | | | |
| Net decrease in book overdrafts | (1.6) | | | (2.2) | |
| Net (repayments of) borrowings from lines of credit | (81.2) | | | 39.2 | |
| Net (decrease) increase in obligations collateralized by finance receivables | (56.1) | | | 33.1 | |
| Payments for debt issuance costs/amendments | (2.2) | | | (5.3) | |
| Payment for early extinguishment of debt | — | | | (140.1) | |
| Payments on finance leases | (0.6) | | | (1.1) | |
| Payments of contingent consideration and deferred acquisition costs | — | | | (12.4) | |
| Issuance of common stock under stock plans | 0.8 | | | 1.6 | |
| Tax withholding payments for vested RSUs | (3.4) | | | (2.5) | |
| Dividends paid on Series A Preferred Stock | (22.2) | | | (22.2) | |
| Net cash used by financing activities - continuing operations | (166.5) | | | (111.9) | |
| Net cash provided by financing activities - discontinued operations | — | | | — | |
| Net change in cash balances of discontinued operations | — | | | — | |
| Effect of exchange rate changes on cash | (7.3) | | | 8.8 | |
| Net decrease in cash, cash equivalents and restricted cash | (30.3) | | | (5.2) | |
| Cash, cash equivalents and restricted cash at beginning of period | 158.9 | | | 277.7 | |
| Cash, cash equivalents and restricted cash at end of period | $ | 128.6 | | | $ | 272.5 | |
| Cash paid for interest | $ | 74.6 | | | $ | 72.8 | |
| Cash paid for taxes, net of refunds - continuing operations | $ | 29.4 | | | $ | 21.4 | |
| Cash paid for taxes, net of refunds - discontinued operations | $ | — | | | $ | — | |
OPENLANE, Inc.
Reconciliation of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA, operating adjusted net income (loss) and operating adjusted net income (loss) per share as presented herein are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). They are not measurements of our financial performance under GAAP and should not be considered as substitutes for net income (loss) or any other performance measures derived in accordance with GAAP. Management believes that these measures provide investors additional meaningful methods to evaluate certain aspects of the company’s results period over period and for the other reasons set forth below.
EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in our senior secured credit agreement covenant calculations. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance.
Depreciation expense for property and equipment and amortization expense of capitalized internally developed software costs relate to ongoing capital expenditures; however, amortization expense associated with acquired intangible assets, such as customer relationships, software, tradenames and noncompete agreements are not representative of ongoing capital expenditures, but have a continuing effect on our reported results. Non-GAAP financial measures of operating adjusted net income (loss) and operating adjusted net income (loss) per share, in the opinion of the company, provide comparability of the company's performance to other companies that may not have incurred these types of non-cash expenses or that report a similar measure. In addition, operating adjusted net income (loss) and operating adjusted net income (loss) per share may include adjustments for certain other charges.
EBITDA, Adjusted EBITDA, operating adjusted net income (loss) and operating adjusted net income (loss) per share have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.
The following tables reconcile EBITDA and Adjusted EBITDA to income (loss) from continuing operations for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
(In millions), (Unaudited) | 2024 | | 2023 | | 2024 | | 2023 |
Income (loss) from continuing operations | $ | 10.7 | | | $ | (193.8) | | | $ | 29.2 | | | $ | (181.1) | |
| Add back: | | | | | | | |
| Income taxes | 7.5 | | | (19.3) | | | 18.2 | | | (12.0) | |
| Interest expense, net of interest income | 37.1 | | | 37.5 | | | 76.4 | | | 74.9 | |
| Depreciation and amortization | 24.1 | | | 26.8 | | | 48.4 | | | 49.8 | |
| EBITDA | 79.4 | | | (148.8) | | | 172.2 | | | (68.4) | |
| Non-cash stock-based compensation | 3.7 | | | 5.5 | | | 10.7 | | | 9.3 | |
| Loss on extinguishment of debt | — | | | 1.1 | | | — | | | 1.1 | |
| Acquisition related costs | 0.2 | | | 0.3 | | | 0.5 | | | 0.6 | |
| Securitization interest | (29.2) | | | (29.6) | | | (59.1) | | | (57.4) | |
| Severance | 6.0 | | | 1.0 | | | 7.7 | | | 1.5 | |
| Foreign currency (gains)/losses | 0.5 | | | 0.3 | | | 2.5 | | | 0.4 | |
| Goodwill and other intangibles impairment | — | | | 250.8 | | | — | | | 250.8 | |
| Contingent consideration adjustment | — | | | 1.3 | | | — | | | 1.3 | |
| Net change in unrealized (gains) losses on investment securities | — | | | (0.2) | | | — | | | (0.1) | |
| Professional fees related to business improvement efforts | 0.7 | | | 2.1 | | | 1.5 | | | 2.8 | |
Impact for newly enacted Canadian DST related to prior years | 10.0 | | | — | | | 10.0 | | | — | |
| Other | 0.1 | | | — | | | 0.2 | | | 0.8 | |
| Total addbacks/(deductions) | (8.0) | | | 232.6 | | | (26.0) | | | 211.1 | |
| Adjusted EBITDA | $ | 71.4 | | | $ | 83.8 | | | $ | 146.2 | | | $ | 142.7 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2024 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (16.1) | | | $ | 26.8 | | | $ | 10.7 | |
| Add back: | | | | | |
| Income taxes | (1.2) | | | 8.7 | | | 7.5 | |
| Interest expense, net of interest income | 5.2 | | | 31.9 | | | 37.1 | |
| Depreciation and amortization | 21.1 | | | 3.0 | | | 24.1 | |
| Intercompany interest | 3.4 | | | (3.4) | | | — | |
| EBITDA | 12.4 | | | 67.0 | | | 79.4 | |
| Non-cash stock-based compensation | 3.6 | | | 0.1 | | | 3.7 | |
| Acquisition related costs | 0.2 | | | — | | | 0.2 | |
| Securitization interest | — | | | (29.2) | | | (29.2) | |
| Severance | 5.4 | | | 0.6 | | | 6.0 | |
| Foreign currency (gains)/losses | 0.5 | | | — | | | 0.5 | |
| Professional fees related to business improvement efforts | 0.6 | | | 0.1 | | | 0.7 | |
Impact for newly enacted Canadian DST related to prior years | 10.0 | | | — | | | 10.0 | |
Other | — | | | 0.1 | | | 0.1 | |
| Total addbacks/(deductions) | 20.3 | | | (28.3) | | | (8.0) | |
| Adjusted EBITDA | $ | 32.7 | | | $ | 38.7 | | | $ | 71.4 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (219.4) | | | $ | 25.6 | | | $ | (193.8) | |
| Add back: | | | | | |
| Income taxes | (36.0) | | | 16.7 | | | (19.3) | |
| Interest expense, net of interest income | 5.4 | | | 32.1 | | | 37.5 | |
| Depreciation and amortization | 24.5 | | | 2.3 | | | 26.8 | |
| Intercompany interest | 8.1 | | | (8.1) | | | — | |
| EBITDA | (217.4) | | | 68.6 | | | (148.8) | |
| Non-cash stock-based compensation | 4.3 | | | 1.2 | | | 5.5 | |
| Loss on extinguishment of debt | 1.1 | | | — | | | 1.1 | |
| Acquisition related costs | 0.3 | | | — | | | 0.3 | |
| Securitization interest | — | | | (29.6) | | | (29.6) | |
| Severance | 0.9 | | | 0.1 | | | 1.0 | |
| Foreign currency (gains)/losses | 0.5 | | | (0.2) | | | 0.3 | |
| Goodwill and other intangibles impairment | 250.8 | | | — | | | 250.8 | |
| Contingent consideration adjustment | 1.3 | | | — | | | 1.3 | |
| Net change in unrealized (gains) losses on investment securities | — | | | (0.2) | | | (0.2) | |
| Professional fees related to business improvement efforts | 1.7 | | | 0.4 | | | 2.1 | |
| Total addbacks/(deductions) | 260.9 | | | (28.3) | | | 232.6 | |
| Adjusted EBITDA | $ | 43.5 | | | $ | 40.3 | | | $ | 83.8 | |
The following table reconciles operating adjusted net income and operating adjusted net income per diluted share to net income (loss) from continuing operations for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
June 30, | | Six Months Ended
June 30, |
(In millions, except per share amounts), (Unaudited) | 2024 | | 2023 | | 2024 | | 2023 |
Net income (loss) from continuing operations (1) | $ | 10.7 | | | $ | (193.8) | | | $ | 29.2 | | | $ | (181.1) | |
| Acquired amortization expense | 9.1 | | | 9.8 | | | 18.4 | | | 17.2 | |
Impact for newly enacted Canadian DST related to prior years | 10.0 | | | — | | | 10.0 | | | — | |
| Loss on extinguishment of debt | — | | | 1.1 | | | — | | | 1.1 | |
| Contingent consideration adjustment | — | | | 1.3 | | | — | | | 1.3 | |
| Goodwill and other intangibles impairment | — | | | 250.8 | | | — | | | 250.8 | |
Income taxes (2) | (2.1) | | | (32.4) | | | (2.5) | | | (34.2) | |
| Operating adjusted net income from continuing operations | $ | 27.7 | | | $ | 36.8 | | | $ | 55.1 | | | $ | 55.1 | |
| | | | | | | |
| Operating adjusted net income from discontinued operations | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | |
| Operating adjusted net income | $ | 27.7 | | | $ | 36.8 | | | $ | 55.1 | | | $ | 55.1 | |
| | | | | | | |
Operating adjusted net income from continuing operations per share - diluted | $ | 0.19 | | | $ | 0.25 | | | $ | 0.38 | | | $ | 0.38 | |
| Operating adjusted net income from discontinued operations per share - diluted | — | | | — | | | — | | | — | |
| Operating adjusted net income per share - diluted | $ | 0.19 | | | $ | 0.25 | | | $ | 0.38 | | | $ | 0.38 | |
| | | | | | | |
Weighted average diluted shares - including assumed conversion of preferred shares | 144.4 | | | 145.3 | | | 145.1 | | | 145.2 | |
(1)The Series A Preferred Stock dividends and undistributed earnings allocated to participating securities have not been included in the calculation of operating adjusted net income and operating adjusted net income per diluted share.
(2)For the three and six months ended June 30, 2024 and 2023, each tax deductible item was booked to the applicable statutory rate. The deferred tax benefits of $52.5 million and $6.5 million associated with the goodwill and tradename impairments in the second quarter of 2023, respectively, resulted in the U.S. being in a net deferred tax asset position. Due to the three-year cumulative loss related to U.S. operations, we currently have a $41.1 million valuation allowance against the U.S. net deferred tax asset.
The following table reconciles EBITDA and Adjusted EBITDA to income from continuing operations for the 2024 guidance presented:
| | | | | | | | | | | |
| 2024 Guidance |
(In millions), (Unaudited) | Low | | High |
| Income from continuing operations | $ | 65 | | | $ | 80 | |
| Add back: | | | |
| Income taxes | 38 | | | 47 | |
| Interest expense, net of interest income | 147 | | | 145 | |
| Depreciation and amortization | 100 | | | 98 | |
| EBITDA | 350 | | | 370 | |
| Total addbacks/(deductions), net | (65) | | | (65) | |
| Adjusted EBITDA | $ | 285 | | | $ | 305 | |
The following table reconciles operating adjusted net income from continuing operations and operating adjusted net income from continuing operations per diluted share to income from continuing operations for the 2024 guidance presented:
| | | | | | | | | | | |
| 2024 Guidance |
(In millions, except per share amounts), (Unaudited) | Low | | High |
| Income from continuing operations | $ | 65 | | | $ | 80 | |
Total adjustments, net | 46 | | | 46 | |
| Operating adjusted net income from continuing operations | $ | 111 | | | $ | 126 | |
| | | |
| Operating adjusted net income from continuing operations per share – diluted | $ | 0.77 | | | $ | 0.87 | |
| | | |
| Weighted average diluted shares - including assumed conversion of preferred shares | 145 | | | 145 | |
EXHIBIT 99.2
OPENLANE, Inc.
Second Quarter 2024 Supplemental Financial Information
August 7, 2024
OPENLANE, Inc.
EBITDA and Adjusted EBITDA Measures
EBITDA and Adjusted EBITDA as presented herein are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). They are not measurements of our financial performance under GAAP and should not be considered as substitutes for net income (loss) or any other performance measures derived in accordance with GAAP.
EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in our senior secured credit agreement covenant calculations. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.
The following tables reconcile EBITDA and Adjusted EBITDA to income (loss) from continuing operations for the periods presented:
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2024 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (16.1) | | | $ | 26.8 | | | $ | 10.7 | |
| Add back: | | | | | |
| Income taxes | (1.2) | | | 8.7 | | | 7.5 | |
| Interest expense, net of interest income | 5.2 | | | 31.9 | | | 37.1 | |
| Depreciation and amortization | 21.1 | | | 3.0 | | | 24.1 | |
| Intercompany interest | 3.4 | | | (3.4) | | | — | |
| EBITDA | 12.4 | | | 67.0 | | | 79.4 | |
| Non-cash stock-based compensation | 3.6 | | | 0.1 | | | 3.7 | |
| Acquisition related costs | 0.2 | | | — | | | 0.2 | |
| Securitization interest | — | | | (29.2) | | | (29.2) | |
| Severance | 5.4 | | | 0.6 | | | 6.0 | |
| Foreign currency (gains)/losses | 0.5 | | | — | | | 0.5 | |
| Professional fees related to business improvement efforts | 0.6 | | | 0.1 | | | 0.7 | |
Impact for newly enacted Canadian DST related to prior years | 10.0 | | | — | | | 10.0 | |
Other | — | | | 0.1 | | | 0.1 | |
| Total addbacks/(deductions) | 20.3 | | | (28.3) | | | (8.0) | |
| Adjusted EBITDA | $ | 32.7 | | | $ | 38.7 | | | $ | 71.4 | |
| | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, 2023 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (219.4) | | | $ | 25.6 | | | $ | (193.8) | |
| Add back: | | | | | |
| Income taxes | (36.0) | | | 16.7 | | | (19.3) | |
| Interest expense, net of interest income | 5.4 | | | 32.1 | | | 37.5 | |
| Depreciation and amortization | 24.5 | | | 2.3 | | | 26.8 | |
| Intercompany interest | 8.1 | | | (8.1) | | | — | |
| EBITDA | (217.4) | | | 68.6 | | | (148.8) | |
| Non-cash stock-based compensation | 4.3 | | | 1.2 | | | 5.5 | |
| Loss on extinguishment of debt | 1.1 | | | — | | | 1.1 | |
| Acquisition related costs | 0.3 | | | — | | | 0.3 | |
| Securitization interest | — | | | (29.6) | | | (29.6) | |
| Severance | 0.9 | | | 0.1 | | | 1.0 | |
| Foreign currency (gains)/losses | 0.5 | | | (0.2) | | | 0.3 | |
| Goodwill and other intangibles impairment | 250.8 | | | — | | | 250.8 | |
| Contingent consideration adjustment | 1.3 | | | — | | | 1.3 | |
| Net change in unrealized (gains) losses on investment securities | — | | | (0.2) | | | (0.2) | |
| Professional fees related to business improvement efforts | 1.7 | | | 0.4 | | | 2.1 | |
| Total addbacks/(deductions) | 260.9 | | | (28.3) | | | 232.6 | |
| Adjusted EBITDA | $ | 43.5 | | | $ | 40.3 | | | $ | 83.8 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2024 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (29.0) | | | $ | 58.2 | | | $ | 29.2 | |
| Add back: | | | | | |
| Income taxes | (1.0) | | | 19.2 | | | 18.2 | |
| Interest expense, net of interest income | 11.9 | | | 64.5 | | | 76.4 | |
| Depreciation and amortization | 42.7 | | | 5.7 | | | 48.4 | |
| Intercompany interest | 13.3 | | | (13.3) | | | — | |
| EBITDA | 37.9 | | | 134.3 | | | 172.2 | |
| Non-cash stock-based compensation | 8.8 | | | 1.9 | | | 10.7 | |
| Acquisition related costs | 0.5 | | | — | | | 0.5 | |
| Securitization interest | — | | | (59.1) | | | (59.1) | |
| Severance | 6.8 | | | 0.9 | | | 7.7 | |
| Foreign currency (gains)/losses | 2.5 | | | — | | | 2.5 | |
| Professional fees related to business improvement efforts | 1.2 | | | 0.3 | | | 1.5 | |
Impact for newly enacted Canadian DST related to prior years | 10.0 | | | — | | | 10.0 | |
| Other | 0.1 | | | 0.1 | | | 0.2 | |
| Total addbacks/(deductions) | 29.9 | | | (55.9) | | | (26.0) | |
| Adjusted EBITDA | $ | 67.8 | | | $ | 78.4 | | | $ | 146.2 | |
| | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 |
(Dollars in millions), (Unaudited) | Marketplace | | Finance | | Consolidated |
Income (loss) from continuing operations | $ | (240.5) | | | $ | 59.4 | | | $ | (181.1) | |
| Add back: | | | | | |
| Income taxes | (39.9) | | | 27.9 | | | (12.0) | |
| Interest expense, net of interest income | 12.5 | | | 62.4 | | | 74.9 | |
| Depreciation and amortization | 45.7 | | | 4.1 | | | 49.8 | |
| Intercompany interest | 14.5 | | | (14.5) | | | — | |
| EBITDA | (207.7) | | | 139.3 | | | (68.4) | |
| Non-cash stock-based compensation | 7.0 | | | 2.3 | | | 9.3 | |
| Loss on extinguishment of debt | 1.1 | | | — | | | 1.1 | |
| Acquisition related costs | 0.6 | | | — | | | 0.6 | |
| Securitization interest | — | | | (57.4) | | | (57.4) | |
| Severance | 1.4 | | | 0.1 | | | 1.5 | |
| Foreign currency (gains)/losses | 0.4 | | | — | | | 0.4 | |
| Goodwill and other intangibles impairment | 250.8 | | | — | | | 250.8 | |
| Contingent consideration adjustment | 1.3 | | | — | | | 1.3 | |
| Net change in unrealized (gains) losses on investment securities | — | | | (0.1) | | | (0.1) | |
| Professional fees related to business improvement efforts | 2.3 | | | 0.5 | | | 2.8 | |
| Other | 0.6 | | | 0.2 | | | 0.8 | |
| Total addbacks/(deductions) | 265.5 | | | (54.4) | | | 211.1 | |
| Adjusted EBITDA | $ | 57.8 | | | $ | 84.9 | | | $ | 142.7 | |
Certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters. The following table reconciles EBITDA and Adjusted EBITDA to net income (loss) for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Twelve Months Ended |
(Dollars in millions), (Unaudited) | September 30,
2023 | | December 31,
2023 | | March 31,
2024 | | June 30,
2024 | | June 30,
2024 |
| Net income (loss) | $ | 12.7 | | | $ | 14.3 | | | $ | 18.5 | | | $ | 10.7 | | | $ | 56.2 | |
| Less: Income from discontinued operations | — | | | 0.7 | | | — | | | — | | | 0.7 | |
| Income (loss) from continuing operations | 12.7 | | | 13.6 | | | 18.5 | | | 10.7 | | | 55.5 | |
| Add back: | | | | | | | | | |
| Income taxes | 12.7 | | | 7.6 | | | 10.7 | | | 7.5 | | | 38.5 | |
| Interest expense, net of interest income | 38.5 | | | 38.9 | | | 39.3 | | | 37.1 | | | 153.8 | |
| Depreciation and amortization | 26.4 | | | 25.3 | | | 24.3 | | | 24.1 | | | 100.1 | |
| EBITDA | 90.3 | | | 85.4 | | | 92.8 | | | 79.4 | | | 347.9 | |
| Non-cash stock-based compensation | 4.5 | | | 3.6 | | | 7.0 | | | 3.7 | | | 18.8 | |
| Acquisition related costs | 0.5 | | | 2.0 | | | 0.3 | | | 0.2 | | | 3.0 | |
| Securitization interest | (31.6) | | | (31.4) | | | (29.9) | | | (29.2) | | | (122.1) | |
| Severance | 1.9 | | | 2.1 | | | 1.7 | | | 6.0 | | | 11.7 | |
| Foreign currency (gains)/losses | (1.2) | | | (2.1) | | | 2.0 | | | 0.5 | | | (0.8) | |
| Net change in unrealized (gains) losses on investment securities | 0.5 | | | (0.4) | | | — | | | — | | | 0.1 | |
| Professional fees related to business improvement efforts | 1.7 | | | 2.1 | | | 0.8 | | | 0.7 | | | 5.3 | |
Impact for newly enacted Canadian DST related to prior years | — | | | — | | | — | | | 10.0 | | | 10.0 | |
| Other | 0.9 | | | 0.5 | | | 0.1 | | | 0.1 | | | 1.6 | |
| Total addbacks/(deductions) | (22.8) | | | (23.6) | | | (18.0) | | | (8.0) | | | (72.4) | |
| Adjusted EBITDA from continuing operations | $ | 67.5 | | | $ | 61.8 | | | $ | 74.8 | | | $ | 71.4 | | | $ | 275.5 | |
Results of Operations
OPENLANE Results | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| (Dollars in millions except per share amounts) | 2024 | | 2023 | | 2024 | | 2023 |
| Revenues from continuing operations | | | | | | | |
| Auction fees | $ | 108.7 | | | $ | 103.3 | | | $ | 218.6 | | | $ | 203.2 | |
| Service revenue | 147.1 | | | 155.7 | | | 297.3 | | | 321.3 | |
| Purchased vehicle sales | 80.2 | | | 60.4 | | | 138.4 | | | 115.9 | |
| Finance-related revenue | 95.8 | | | 97.5 | | | 193.8 | | | 197.1 | |
| Total revenues from continuing operations | 431.8 | | | 416.9 | | | 848.1 | | | 837.5 | |
| Cost of services* | 245.9 | | | 222.6 | | | 459.8 | | | 446.8 | |
| Gross profit* | 185.9 | | | 194.3 | | | 388.3 | | | 390.7 | |
| Selling, general and administrative | 106.0 | | | 111.2 | | 214.7 | | | 219.2 | |
| Depreciation and amortization | 24.1 | | | 26.8 | | 48.4 | | | 49.8 | |
| Goodwill and other intangibles impairment | — | | | 250.8 | | — | | | 250.8 | |
Operating profit (loss) | 55.8 | | | (194.5) | | | 125.2 | | | (129.1) | |
| Interest expense | 37.4 | | | 38.8 | | | 77.1 | | | 77.1 | |
| Other (income) expense, net | 0.2 | | | (21.3) | | | 0.7 | | | (14.2) | |
| Loss on extinguishment of debt | — | | | 1.1 | | | — | | | 1.1 | |
Income (loss) from continuing operations before income taxes | 18.2 | | | (213.1) | | | 47.4 | | | (193.1) | |
| Income taxes | 7.5 | | | (19.3) | | | 18.2 | | | (12.0) | |
Income (loss) from continuing operations | 10.7 | | | (193.8) | | | 29.2 | | | (181.1) | |
| Income from discontinued operations, net of income taxes | — | | | — | | | — | | | — | |
Net income (loss) | $ | 10.7 | | | $ | (193.8) | | | $ | 29.2 | | | $ | (181.1) | |
Income (loss) from continuing operations per share | | | | | | | |
| Basic | $ | — | | | $ | (1.87) | | | $ | 0.05 | | | $ | (1.86) | |
| Diluted | $ | — | | | $ | (1.87) | | | $ | 0.05 | | | $ | (1.86) | |
* Exclusive of depreciation and amortization
Overview of OPENLANE Results for the Three Months Ended June 30, 2024 and 2023
Overview
For the three months ended June 30, 2024, we had revenue of $431.8 million compared with revenue of $416.9 million for the three months ended June 30, 2023, an increase of 4%. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased $2.7 million, or 10%, to $24.1 million for the three months ended June 30, 2024, compared with $26.8 million for the three months ended June 30, 2023. The decrease in depreciation and amortization was primarily the result of assets that have become fully depreciated and amortized.
Goodwill and Other Intangibles Impairment
In the second quarter of 2023 the Company recorded non-cash goodwill impairment charges totaling $218.9 million related to our U.S. Dealer-to-Dealer reporting unit and $6.4 million related to our Europe reporting unit (both within the Marketplace segment). The goodwill impairment related to our U.S. Dealer-to-Dealer reporting unit was primarily driven by lower near-term and long-term revenue growth associated with a slower overall recovery in vehicle volumes. The goodwill impairment related to our Europe reporting unit was driven by combining two previously separate reporting units (ADESA U.K. and ADESA Europe) into a single reporting unit. Including ADESA U.K. in the
reporting unit resulted in a reduction in the overall fair value of the combined reporting unit, resulting in an impairment charge. The impairment charges were reported as a component of "Goodwill and other intangibles impairment" in the consolidated statements of income (loss).
In addition, the second quarter 2023 announcement of the rebrand to an OPENLANE branded marketplace from the ADESA branded marketplaces resulted in a non-cash impairment charge totaling $25.5 million (within the Marketplace segment). The impairment charge was reported as a component of "Goodwill and other intangibles impairment" in the consolidated statements of income (loss).
The deferred tax benefits of $52.5 million and $6.5 million associated with the goodwill and tradename impairments in the second quarter of 2023, respectively, resulted in the U.S. being in a net deferred tax asset position. Due to the three-year cumulative loss related to U.S. operations, we recorded a $41.1 million and $36.4 million valuation allowance against the U.S. net deferred tax asset at June 30, 2024 and December 31, 2023, respectively.
Interest Expense
Interest expense decreased $1.4 million, or 4%, to $37.4 million for the three months ended June 30, 2024, compared with $38.8 million for the three months ended June 30, 2023. The decrease in interest expense was primarily the result of the partial repayment of senior note debt in 2023. In addition, interest expense decreased $0.2 million at AFC (to $31.9 million from $32.1 million).
Other (Income) Expense, Net
For the three months ended June 30, 2024, we had other expense of $0.2 million compared with other income of $21.3 million for the three months ended June 30, 2023. The decrease in other income was primarily attributable to the receipt of $20.0 million in connection with the early termination of a contractual arrangement that occurred during the second quarter of 2023 and a net decrease in other miscellaneous income aggregating $1.5 million.
Loss on Extinguishment of Debt
In June 2023, we prepaid $140 million of the senior notes at par with proceeds from the Transaction. We incurred a loss on the extinguishment of the senior notes of $0.7 million in the second quarter of 2023 primarily representative of the write-off of unamortized debt issuance costs associated with the portion of the senior notes repaid, as well as purchase offer expenses. In June 2023, we also entered into the Revolving Credit Facility and incurred a loss on extinguishment of approximately $0.4 million for the debt issuance costs associated with certain banks that are no longer a part of the facility.
Income Taxes
We had an effective tax rate of 41.2% for the three months ended June 30, 2024, compared with an effective tax rate of 9.1% resulting in a benefit on a pre-tax loss for the three months ended June 30, 2023. The effective tax rate for the three months ended June 30, 2024 was unfavorably impacted by an increase in the valuation allowance related to current year movement of the adjusted U.S. net deferred tax asset. The effective tax rate for the three months ended June 30, 2023 was impacted by the goodwill and other intangibles impairment charges and resulting $59.0 million deferred tax benefit recorded with respect to the impairment of tax deductible goodwill and the impairment of other intangibles, partially offset by the $29.6 million deferred tax expense associated with the recording of valuation allowance against the U.S. net deferred tax asset.
Impact of Foreign Currency
For the three months ended June 30, 2024 compared with the three months ended June 30, 2023, the change in the Canadian dollar exchange rate decreased revenue by $1.8 million, operating profit by $0.5 million and net income by $0.2 million. For the three months ended June 30, 2024 compared with the three months ended June 30, 2023, the change in the euro exchange rate decreased revenue by $1.0 million, operating profit by $0.1 million and had no impact on net income.
Overview of OPENLANE Results for the Six Months Ended June 30, 2024 and 2023
Overview
For the six months ended June 30, 2024, we had revenue of $848.1 million compared with revenue of $837.5 million for the six months ended June 30, 2023, an increase of 1%. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased $1.4 million, or 3%, to $48.4 million for the six months ended June 30, 2024, compared with $49.8 million for the six months ended June 30, 2023. The decrease in depreciation and amortization was primarily the result of assets that have become fully amortized.
Goodwill and Other Intangibles Impairment
In the second quarter of 2023 the Company recorded non-cash goodwill impairment charges totaling $218.9 million related to our U.S. Dealer-to-Dealer reporting unit and $6.4 million related to our Europe reporting unit (both within the Marketplace segment). The goodwill impairment related to our U.S. Dealer-to-Dealer reporting unit was primarily driven by lower near-term and long-term revenue growth associated with a slower overall recovery in vehicle volumes. The goodwill impairment related to our Europe reporting unit was driven by combining two previously separate reporting units (ADESA U.K. and ADESA Europe) into a single reporting unit. Including ADESA U.K. in the reporting unit resulted in a reduction in the overall fair value of the combined reporting unit, resulting in an impairment charge. The impairment charges were reported as a component of "Goodwill and other intangibles impairment" in the consolidated statements of income (loss).
In addition, the second quarter 2023 announcement of the rebrand to an OPENLANE branded marketplace from the ADESA branded marketplaces resulted in a non-cash impairment charge totaling $25.5 million (within the Marketplace segment). The impairment charge was reported as a component of "Goodwill and other intangibles impairment" in the consolidated statements of income (loss).
The deferred tax benefits of $52.5 million and $6.5 million associated with the goodwill and tradename impairments in the second quarter of 2023, respectively, resulted in the U.S. being in a net deferred tax asset position. Due to the three-year cumulative loss related to U.S. operations, we recorded a $41.1 million and $36.4 million valuation allowance against the U.S. net deferred tax asset at June 30, 2024 and December 31, 2023, respectively.
Interest Expense
Interest expense was $77.1 million for the six months ended June 30, 2024 and 2023. Interest expense decreased as a result of the partial repayment of senior note debt in 2023; however, AFC had a $2.1 million increase in interest expense (to $64.5 million from $62.4 million) and the increase was attributable to an increase in the average interest rate on the AFC securitization obligations to approximately 7.6% for the six months ended June 30, 2024, as compared with approximately 7.0% for the six months ended June 30, 2023.
Other (Income) Expense, Net
For the six months ended June 30, 2024, we had other expense of $0.7 million compared with other income of $14.2 million for the six months ended June 30, 2023. The decrease in other income was primarily attributable to the receipt of $20.0 million in connection with the early termination of a contractual arrangement that occurred during the second quarter of 2023, a $2.1 million increase in foreign currency losses on intercompany balances and a net decrease in other miscellaneous income aggregating $5.1 million, partially offset by the 2023 impairment of an equity security and note receivable with the same investee aggregating $11.0 million and a $1.3 million contingent consideration valuation adjustment in 2023.
Loss on Extinguishment of Debt
In June 2023, we prepaid $140 million of the senior notes at par with proceeds from the Transaction. We incurred a loss on the extinguishment of the senior notes of $0.7 million in the second quarter of 2023 primarily representative of the write-off of unamortized debt issuance costs associated with the portion of the senior notes repaid, as well as purchase offer expenses. In June 2023, we also entered into the Revolving Credit Facility and incurred a loss on extinguishment of approximately $0.4 million for the debt issuance costs associated with certain banks that are no longer a part of the facility.
Income Taxes
We had an effective tax rate of 38.4% for the six months ended June 30, 2024, compared with an effective tax rate of 6.2% resulting in a benefit on a pre-tax loss for the six months ended June 30, 2023. The effective tax rate for the six months ended June 30, 2024 was unfavorably impacted by an increase in the valuation allowance related to current year movement of the adjusted U.S. net deferred tax asset. The effective tax rate for the six months ended June 30, 2023 was impacted by the goodwill and other intangibles impairment charges and resulting $59.0 million deferred tax benefit recorded with respect to the impairment of tax deductible goodwill and the impairment of other intangibles, partially offset by the $29.6 million deferred tax expense associated with the recording of valuation allowance against the U.S. net deferred tax asset.
Impact of Foreign Currency
For the six months ended June 30, 2024 compared with the six months ended June 30, 2023, the change in the Canadian dollar exchange rate decreased revenue by $1.4 million, operating profit by $0.4 million and net income by $0.1 million. For the six months ended June 30, 2024 compared with the six months ended June 30, 2023, the change in the euro exchange rate decreased revenue by $0.1 million and had no impact on operating profit and net income.
Marketplace Results | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
(Dollars in millions, except volumes) | 2024 | | 2023 | | 2024 | | 2023 |
| Auction fees | $ | 108.7 | | | $ | 103.3 | | | $ | 218.6 | | | $ | 203.2 | |
| Service revenue | 147.1 | | | 155.7 | | | 297.3 | | | 321.3 | |
| Purchased vehicle sales | 80.2 | | | 60.4 | | | 138.4 | | | 115.9 | |
| Total Marketplace revenue from continuing operations | 336.0 | | | 319.4 | | | 654.3 | | | 640.4 | |
| Cost of services* | 229.1 | | | 206.1 | | | 426.2 | | | 413.9 | |
| Gross profit* | 106.9 | | | 113.3 | | | 228.1 | | | 226.5 | |
| Selling, general and administrative | 94.0 | | | 98.5 | | | 188.8 | | | 194.1 | |
| Depreciation and amortization | 21.1 | | | 24.5 | | | 42.7 | | | 45.7 | |
| Goodwill and other intangibles impairment | — | | | 250.8 | | | — | | | 250.8 | |
| Operating profit (loss) | $ | (8.2) | | | $ | (260.5) | | | $ | (3.4) | | | $ | (264.1) | |
| | | | | | | |
| Commercial vehicles sold | 217,000 | | | 180,000 | | | 439,000 | | | 347,000 | |
| Dealer consignment vehicles sold | 151,000 | | 164,000 | | | 301,000 | | | 327,000 | |
| Total vehicles sold | 368,000 | | 344,000 | | 740,000 | | 674,000 |
| Gross profit percentage, excluding purchased vehicles* | 41.8% | | 43.8% | | 44.2% | | 43.2% |
* Exclusive of depreciation and amortization
Overview of Marketplace Results for the Three Months Ended June 30, 2024 and 2023
Total Marketplace Revenue
Revenue from the Marketplace segment increased $16.6 million, or 5%, to $336.0 million for the three months ended June 30, 2024, compared with $319.4 million for the three months ended June 30, 2023. The change in revenue included the impact of a decrease in revenue of $1.4 million due to fluctuations in the Canadian dollar exchange rate and $1.0 million due to fluctuations in the euro exchange rate. The increase in revenue was primarily attributable to the increase in purchased vehicle sales and an increase in auction fees, partially offset by a decrease in service revenue (discussed below).
The 7% increase in the number of vehicles sold was comprised of a 21% increase in commercial volumes and an 8% decrease in dealer consignment volumes. The gross merchandise value ("GMV") of vehicles sold for the three months ended June 30, 2024 and 2023 was approximately $6.8 billion and $6.4 billion, respectively.
Auction Fees
Auction fees increased $5.4 million, or 5%, to $108.7 million for the three months ended June 30, 2024, compared with $103.3 million for the three months ended June 30, 2023. The number of vehicles sold increased 7%. Auction fees per vehicle sold for the three months ended June 30, 2024 decreased $6, or 2%, to $295, compared with $301 for the three months ended June 30, 2023. The decrease in auction fees per vehicle sold reflects a larger mix of lower-fee commercial vehicles sold in the second quarter of 2024.
Service Revenue
Service revenue decreased $8.6 million, or 6%, to $147.1 million for the three months ended June 30, 2024, compared with $155.7 million for the three months ended June 30, 2023, primarily as a result of a decrease in transportation revenue of $17.4 million, of which $20.9 million related to a change in a key customer contract that resulted in the customer's second quarter of 2024 revenue being recorded on a net commission basis instead of a gross basis, as it was recorded in the second quarter of 2023. This decrease was partially offset by increases in inspection service revenue of $3.1 million, repossession and remarketing fees of $3.0 million, reconditioning revenue of $1.2 million and a net increase in other miscellaneous service revenues aggregating approximately $1.5 million.
Purchased Vehicle Sales
The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicles sold, which represent approximately 2% of total vehicles sold. Purchased vehicle sales increased $19.8 million, or 33%, to $80.2 million for the three months ended June 30, 2024, compared with $60.4 million for the three months ended June 30, 2023, primarily as a result of an increase in purchased vehicles sold in Europe.
Gross Profit
For the three months ended June 30, 2024, gross profit from the Marketplace segment decreased $6.4 million, or 6%, to $106.9 million, compared with $113.3 million for the three months ended June 30, 2023. Gross profit decreased primarily as a result of a new digital services tax in Canada (see below), which represented a decrease of $12.0 million and a $2.4 million decrease in gross profit resulting from a higher mix of commercial volumes. Partially offsetting the decrease were gross profit improvements driven by a $5.9 million increase in auction and service volumes and $2.1 million from pricing.
Gross profit from the Marketplace segment was 31.8% of revenue for the three months ended June 30, 2024, compared with 35.5% of revenue for the three months ended June 30, 2023. The new Canadian Digital Services Tax (see below) decreased gross profit as a percentage of revenue by 360 basis points for the three months ended June 30, 2024. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 41.8% and 43.8% for the three months ended June 30, 2024 and 2023, respectively. Excluding purchased vehicle sales, gross profit as a percentage of revenue decreased for the three months ended June 30, 2024 as compared with the three months ended June 30, 2023, primarily due to a new Canadian Digital Services Tax (see below), partially offset by a change in a key customer contract (see discussion in "Service revenue" above).
On June 28, 2024, Canada enacted a new 3% Digital Services Tax (“DST”) on certain online revenues, including online marketplace service revenues, of companies with consolidated revenues of at least €750 million. The Canadian DST is retroactive to January 1, 2022. The Company recorded $12.0 million of Canadian DST to cost of services in the second quarter of 2024. Approximately $2 million, $5 million and $5 million relates to Canadian DST for the six months ended June 30, 2024 and the years ended December 31, 2023 and 2022, respectively.
Selling, General and Administrative
Selling, general and administrative expenses from the Marketplace segment decreased $4.5 million, or 5%, to $94.0 million for the three months ended June 30, 2024, compared with $98.5 million for the three months ended June 30, 2023, primarily as a result of decreases in compensation expense of $4.8 million, incentive-based compensation of $2.1 million, stock-based compensation of $0.8 million and miscellaneous expenses aggregating $1.0 million, partially offset by an increase in severance of $4.2 million.
Goodwill and Other Intangibles Impairment
See the above discussion of goodwill and other intangibles impairment in the consolidated results of operations for OPENLANE, Inc.
Overview of Marketplace Results for the Six Months Ended June 30, 2024 and 2023
Total Marketplace Revenue
Revenue from the Marketplace segment increased $13.9 million, or 2%, to $654.3 million for the six months ended June 30, 2024, compared with $640.4 million for the six months ended June 30, 2023. The change in revenue included the impact of a decrease in revenue of $1.1 million due to fluctuations in the Canadian dollar exchange rate and $0.1 million due to fluctuations in the euro exchange rate. The increase in revenue was primarily attributable to the increase in purchased vehicle sales and auction fees, partially offset by the decrease in service revenue (discussed below).
The 10% increase in the number of vehicles sold was comprised of a 27% increase in commercial volumes and an 8% decrease in dealer consignment volumes. The gross merchandise value ("GMV") of vehicles sold for the six months ended June 30, 2024 and 2023 was approximately $13.8 billion and $12.4 billion, respectively.
Auction Fees
Auction fees increased $15.4 million, or 8%, to $218.6 million for the six months ended June 30, 2024, compared with $203.2 million for the six months ended June 30, 2023. The number of vehicles sold increased 10%. Auction fees per vehicle sold for the six months ended June 30, 2024 decreased $7, or 2%, to $295, compared with $302 for the six months ended June 30, 2023. The decrease in auction fees per vehicle sold reflects a larger mix of lower-fee commercial vehicles sold in the first six months of 2024.
Service Revenue
Service revenue decreased $24.0 million, or 7%, to $297.3 million for the six months ended June 30, 2024, compared with $321.3 million for the six months ended June 30, 2023, primarily as a result of a decrease in transportation revenue of $40.8 million, of which $42.5 million related to a change in a key customer contract that resulted in the customer's revenue for the first six months of 2024 being recorded on a net commission basis instead of a gross basis, as it was recorded in the first six months of 2023. This decrease was partially offset by increases in repossession and remarketing fees of $5.4 million, inspection service revenue of $5.4 million, key service revenue of $2.2 million, reconditioning revenue of $1.8 million and a net increase in other miscellaneous service revenues aggregating approximately $2.0 million.
Purchased Vehicle Sales
The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicles sold, which represent approximately 2% of total vehicles sold. Purchased vehicle sales increased $22.5 million, or 19%, to $138.4 million for the six months ended June 30, 2024, compared with $115.9 million for the six months ended June 30, 2023, primarily as a result of an increase in purchased vehicles sold in Europe.
Gross Profit
For the six months ended June 30, 2024, gross profit from the Marketplace segment increased $1.6 million, or 1%, to $228.1 million, compared with $226.5 million for the six months ended June 30, 2023. Gross profit improvements were driven by a $13.4 million increase in auction and service volumes and $4.4 million from pricing. These improvements were partially offset by a new digital services tax in Canada (see below), which represented a decrease of $12.0 million and a $4.2 million decrease in gross profit resulting from a higher mix of commercial volumes.
Gross profit from the Marketplace segment was 34.9% of revenue for the six months ended June 30, 2024, compared with 35.4% of revenue for the six months ended June 30, 2023. The new Canadian Digital Services Tax (see below) decreased gross profit as a percentage of revenue by 180 basis points for the six months ended June 30, 2024. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 44.2% and 43.2% for the six months ended June 30, 2024 and 2023, respectively. Excluding purchased vehicle sales, gross profit as a percentage of revenue increased for the six months ended June 30, 2024 as compared with the six months ended June 30, 2023, primarily due to a change in a key customer contract (see discussion in "Service revenue" above), increased volumes and cost savings initiatives, partially offset by a new Canadian Digital Services Tax (see below).
On June 28, 2024, Canada enacted a new 3% Digital Services Tax (“DST”) on certain online revenues, including online marketplace service revenues, of companies with consolidated revenues of at least €750 million. The Canadian DST is retroactive to January 1, 2022. The Company recorded $12.0 million of Canadian DST to cost of
services in the second quarter of 2024. Approximately $2 million, $5 million and $5 million relates to Canadian DST for the six months ended June 30, 2024 and the years ended December 31, 2023 and 2022, respectively.
Selling, General and Administrative
Selling, general and administrative expenses from the Marketplace segment decreased $5.3 million, or 3%, to $188.8 million for the six months ended June 30, 2024, compared with $194.1 million for the six months ended June 30, 2023, primarily as a result of decreases in compensation expense of $6.6 million, incentive-based compensation of $4.5 million, professional fees of $1.3 million and other miscellaneous expenses aggregating $0.6 million, partially offset by increases in severance of $4.8 million, stock-based compensation of $1.6 million and information technology costs of $1.3 million.
Goodwill and Other Intangibles Impairment
See the above discussion of goodwill and other intangibles impairment in the consolidated results of operations for OPENLANE, Inc.
Finance Results | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| (Dollars in millions, except volumes and per loan amounts) | 2024 | | 2023 | | 2024 | | 2023 |
| Finance-related revenue | | | | | | | |
| Interest income | $ | 59.5 | | | $ | 61.9 | | | $ | 120.5 | | | $ | 122.5 | |
| Fee income | 45.9 | | | 44.1 | | | 94.4 | | | 91.7 | |
| Other revenue | 2.4 | | | 3.7 | | | 4.5 | | | 7.1 | |
| Provision for credit losses | (12.0) | | | (12.2) | | | (25.6) | | | (24.2) | |
| Total Finance revenue | 95.8 | | | 97.5 | | | 193.8 | | | 197.1 | |
| Cost of services* | 16.8 | | | 16.5 | | | 33.6 | | | 32.9 | |
| Gross profit* | 79.0 | | | 81.0 | | | 160.2 | | | 164.2 | |
| Selling, general and administrative | 12.0 | | | 12.7 | | | 25.9 | | | 25.1 | |
| Depreciation and amortization | 3.0 | | | 2.3 | | | 5.7 | | | 4.1 | |
| Operating profit | $ | 64.0 | | | $ | 66.0 | | | $ | 128.6 | | | $ | 135.0 | |
| | | | | | | |
| Loan transactions | 415,000 | | 402,000 | | | 837,000 | | | 822,000 | |
| Revenue per loan transaction | $ | 231 | | | $ | 243 | | | $ | 232 | | | $ | 240 | |
* Exclusive of depreciation and amortization
Overview of Finance Results for the Three Months Ended June 30, 2024 and 2023
Revenue
For the three months ended June 30, 2024, the Finance segment revenue decreased $1.7 million, or 2%, to $95.8 million, compared with $97.5 million for the three months ended June 30, 2023. The decrease in revenue was primarily the result of a 5% decrease in revenue per loan transaction, partially offset by a 3% increase in loan transactions.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $12, or 5%, primarily as a result of a decrease in loan values, partially offset by an increase in interest yields and a decrease in net credit losses.
The provision for credit losses increased to 2.1% of the average managed receivables for the three months ended June 30, 2024 from 2.0% for the three months ended June 30, 2023. The provision for credit losses is expected to be approximately 2% or under, on a long-term basis, of the average managed receivables balance. However, the actual losses in any particular quarter or year could deviate from this range.
Gross Profit
For the three months ended June 30, 2024, gross profit for the Finance segment decreased $2.0 million, or 2%, to $79.0 million, or 82.5% of revenue, compared with $81.0 million, or 83.1% of revenue, for the three months ended June 30, 2023. The decrease in gross profit as a percent of revenue was primarily the result of a 2% increase in cost of services and the 2% decrease in revenue. The increase in cost of services of $0.3 million was primarily the result of increases in credit checks and filing fees of $0.2 million and other miscellaneous expenses aggregating $0.4 million, partially offset by a decrease in lot check expenses of $0.3 million.
Selling, General and Administrative
Selling, general and administrative expenses for the Finance segment decreased $0.7 million, or 6%, to $12.0 million for the three months ended June 30, 2024, compared with $12.7 million for the three months ended June 30, 2023 primarily as a result of decreases in stock-based compensation of $1.1 million and incentive-based compensation of $1.1 million, partially offset by increases in compensation expense of $1.3 million and other miscellaneous expenses aggregating $0.2 million.
Overview of Finance Results for the Six Months Ended June 30, 2024 and 2023
Revenue
For the six months ended June 30, 2024, the Finance segment revenue decreased $3.3 million, or 2%, to $193.8 million, compared with $197.1 million for the six months ended June 30, 2023. The decrease in revenue was primarily the result of a 3% decrease in revenue per loan transaction, partially offset by a 2% increase in loan transactions.
Revenue per loan transaction, which includes both loans paid off and loans curtailed, decreased $8, or 3%, primarily as a result of a decrease in loan values and an increase in net credit losses, partially offset by an increase in interest yields.
The provision for credit losses increased to 2.2% of the average managed receivables for the six months ended June 30, 2024 from 2.0% for the six months ended June 30, 2023. The provision for credit losses is expected to be approximately 2% or under, on a long-term basis, of the average managed receivables balance. However, the actual losses in any particular quarter or year could deviate from this range.
Gross Profit
For the six months June 30, 2024, gross profit for the Finance segment decreased $4.0 million, or 2%, to $160.2 million, or 82.7% of revenue, compared with $164.2 million, or 83.3% of revenue, for the six months ended June 30, 2023. The decrease in gross profit as a percent of revenue was primarily the result of a 2% increase in cost of services and the 2% decrease in revenue. The increase in cost of services of $0.7 million was primarily the result of increases in professional fees of $0.4 million, travel expenses of $0.3 million and other miscellaneous expenses aggregating $0.6 million, partially offset by a decrease in lot check expenses of $0.6 million.
Selling, General and Administrative
Selling, general and administrative expenses for the Finance segment increased $0.8 million, or 3%, to $25.9 million for the six months ended June 30, 2024, compared with $25.1 million for the six months ended June 30, 2023 primarily as a result of increases in compensation expense of $1.7 million and title handling costs of $1.0 million, partially offset by decreases in incentive-based compensation of $1.1 million and other miscellaneous expenses aggregating $0.8 million.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2024, our sources of liquidity consisted of cash on hand, working capital and amounts available under our Revolving Credit Facilities. Our principal ongoing sources of liquidity consist of cash generated by operations and borrowings under our Revolving Credit Facilities.
| | | | | | | | | | | | | | | | | |
| June 30, | | December 31, | | June 30, |
| (Dollars in millions) | 2024 | | 2023 | | 2023 |
| Cash and cash equivalents | $ | 60.9 | | | $ | 93.5 | | | $ | 242.4 | |
| Working capital | 198.0 | | 363.1 | | 437.9 |
Amounts available under the Revolving Credit Facilities | 346.5 | | 133.3 | | 105.0 |
| Cash provided by operating activities for the six months ended | 137.7 | | | | 142.6 | |
We regularly evaluate alternatives for our capital structure and liquidity given our expected cash flows, growth and operating capital requirements as well as capital market conditions.
Summary of Cash Flows
| | | | | | | | | | | |
| Six Months Ended
June 30, |
| (Dollars in millions) | 2024 | | 2023 |
| Net cash provided by (used by): | | | |
| Operating activities - continuing operations | $ | 137.7 | | | $ | 142.6 | |
| Operating activities - discontinued operations | (0.1) | | | (0.1) | |
| Investing activities - continuing operations | 5.9 | | | (51.6) | |
| Investing activities - discontinued operations | — | | | 7.0 | |
| Financing activities - continuing operations | (166.5) | | | (111.9) | |
| Financing activities - discontinued operations | — | | | — | |
| Net change in cash balances of discontinued operations | — | | | — | |
| Effect of exchange rate on cash | (7.3) | | | 8.8 | |
| Net decrease in cash, cash equivalents and restricted cash | $ | (30.3) | | | $ | (5.2) | |
Cash flow from operating activities (continuing operations) Net cash provided by operating activities (continuing operations) was $137.7 million for the six months ended June 30, 2024, compared with $142.6 million for the six months ended June 30, 2023. Cash provided by continuing operations for the six months ended June 30, 2024 consisted primarily of cash earnings and an increase in accounts payable and accrued expenses, partially offset by an increase in trade receivables and other assets. Cash provided by continuing operations for the six months ended June 30, 2023 consisted primarily of cash earnings and an increase in accounts payable and accrued expenses, partially offset by an increase in trade receivables and other assets.
Changes in AFC’s accounts payable balance are presented in cash flows from operating activities while changes in AFC’s finance receivables are presented in cash flows from investing activities. Changes in these balances can cause variations in operating and investing cash flows.
Cash flow from investing activities (continuing operations) Net cash provided by investing activities (continuing operations) was $5.9 million for the six months ended June 30, 2024, compared with net cash used by investing activities of $51.6 million for the six months ended June 30, 2023. The cash provided by investing activities for the six months ended June 30, 2024 was primarily from a decrease in finance receivables held for investment, partially offset by purchases of property and equipment. The cash used by investing activities for the six months ended June 30, 2023 was primarily from purchases of property and equipment and an increase in finance receivables held for investment.
Cash flow from financing activities (continuing operations) Net cash used by financing activities (continuing operations) was $166.5 million for the six months ended June 30, 2024, compared with $111.9 million for the six months ended June 30, 2023. The cash used by financing activities for the six months ended June 30, 2024 was primarily due to repayments on lines of credit, a net decrease in obligations collateralized by finance receivables and dividends paid on the Series A Preferred Stock. The cash used by financing activities for the six months ended
June 30, 2023 was primarily due to the early repayment of senior notes, dividends paid on the Series A Preferred Stock, payments of contingent consideration and payments for debt issuance costs, partially offset by an increase in borrowings from lines of credit and a net increase in obligations collateralized by finance receivables.
Cash flow from operating activities (discontinued operations) Net cash used by operating activities (discontinued operations) was $0.1 million for the six months ended June 30, 2024 and 2023.
Cash flow from investing activities (discontinued operations) There were no investing activities (discontinued operations) for the six months ended June 30, 2024, compared with net cash provided by investing activities of $7.0 million for the six months ended June 30, 2023. The cash provided by investing activities for the six months ended June 30, 2023 was attributable to the final proceeds from the sale of the ADESA U.S. physical auction business.
Cash flow from financing activities (discontinued operations) There were no financing activities (discontinued operations) for the six months ended June 30, 2024 and 2023.
Second Quarter 2024 Earnings Slides // August 7, 2024
2 Q2 | 2024 Forward-Looking Statements Certain statements contained in this presentation include, and OPENLANE may make related oral, "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements made that are not historical facts (including but not limited to expectations, estimates, assumptions, projections and/or financial guidance) may be forward-looking statements. Words such as "should," "may," "will," "would," "anticipate," "expect," "project," "intend,“ “contemplate,” "plan," "believe," "seek," "estimate," "assume," “can,” "could," "continue,” "outlook," “target” and similar expressions identify forward-looking statements. Such statements are based on management's current assumptions, expectations and/or beliefs, are not guarantees of future performance and are subject to substantial risks, uncertainties and changes that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" in OPENLANE’s Form 10-K for the year ended December 31, 2023 and in OPENLANE’s other filings and reports filed with the Securities and Exchange Commission. Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements are made as of the date of this presentation. OPENLANE undertakes no obligation to update any forward-looking statements.
3 Q2 | 2024 2024 Guidance Reflects Newly Enacted Canadian DST 2024 GUIDANCE (In millions, except per share amounts) (Unaudited) Low High Income from continuing operations $65 $80 Add back: Income taxes 38 47 Interest expense, net of interest income 147 145 Depreciation and amortization 100 98 EBITDA $350 $370 Total addbacks/(deductions), net (65) (65) Adjusted EBITDA $285 $305 Income from continuing operations per share – diluted * $0.14 $0.24 Income from continuing operations $65 $80 Total adjustments, net 46 46 Operating adjusted net income from continuing operations $111 $126 Operating adjusted net income from continuing operations per share – diluted $0.77 $0.87 Weighted average diluted shares – including assumed conversion of preferred shares 145 145 * The company uses the two-class method of calculating income (loss) from continuing operations per diluted share. Under the two-class method, income from continuing operations is adjusted for dividends and undistributed earnings (losses) to the holders of the Series A Preferred Stock, and the weighted average diluted shares do not assume conversion of the preferred shares to common shares.
4 Q2 | 2024 Second Quarter & Year-to-Date Results
5 Q2 | 2024 OPENLANE Q2 & YTD 2024 Highlights* ($ in millions, except per share amounts) OPENLANE Q2 2024 Q2 2023 YTD 2024 YTD 2023 Total operating revenues from continuing operations $431.8 $416.9 $848.1 $837.5 Gross profit** $185.9 $194.3 $388.3 $390.7 % of revenue** 43.1% 46.6% 45.8% 46.7% SG&A $106.0 $111.2 $214.7 $219.2 Other (income) expense, net*** $0.2 ($21.3) $0.7 ($14.2) EBITDA $79.4 ($148.8) $172.2 ($68.4) Adjusted EBITDA $71.4 $83.8 $146.2 $142.7 Income (loss) from continuing operations $10.7 ($193.8) $29.2 ($181.1) Income (loss) from continuing operations per share – diluted $ - ($1.87) $0.05 ($1.86) Weighted average diluted shares 108.6 109.6 109.4 109.4 Operating adjusted net income from continuing operations per share – diluted $0.19 $0.25 $0.38 $0.38 Weighted average diluted shares – including assumed conversion of preferred shares 144.4 145.3 145.1 145.2 Effective tax rate 41.2% 9.1% 38.4% 6.2% Capital expenditures $13.0 $14.9 $25.9 $26.9 * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three and six months ended June 30, 2024. ** Exclusive of depreciation and amortization. *** The first quarter of 2023 included an $11 million charge related to an investment in an early-stage automotive company. The second quarter of 2023 included the receipt of a $20 million early termination payment.
6 Q2 | 2024 Marketplace Q2 & YTD 2024 Highlights* ($ in millions, except volumes) Marketplace Q2 2024 Q2 2023 YTD 2024 YTD 2023 Auction fees $108.7 $103.3 $218.6 $203.2 Service revenue $147.1 $155.7 $297.3 $321.3 Purchased vehicle sales $80.2 $60.4 $138.4 $115.9 Total Marketplace revenue from continuing operations $336.0 $319.4 $654.3 $640.4 Gross profit** $106.9 $113.3 $228.1 $226.5 % of revenue, excluding purchased vehicles** 41.8% 43.8% 44.2% 43.2% SG&A $94.0 $98.5 $188.8 $194.1 Other (income) expense, net*** $0.2 ($21.0) $0.7 ($14.0) EBITDA $12.4 ($217.4) $37.9 ($207.7) Adjusted EBITDA $32.7 $43.5 $67.8 $57.8 % of revenue 9.7% 13.6% 10.4% 9.0% Commercial vehicles sold 217,000 180,000 439,000 347,000 Dealer consignment vehicles sold 151,000 164,000 301,000 327,000 Total vehicles sold 368,000 344,000 740,000 674,000 * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three and six months ended June 30, 2024. ** Exclusive of depreciation and amortization. *** The first quarter of 2023 included an $11 million charge related to an investment in an early-stage automotive company. The second quarter of 2023 included the receipt of a $20 million early termination payment.
7 Q2 | 2024 Finance Q2 & YTD 2024 Highlights* ($ in millions, except for revenue per loan transaction) Finance Q2 2024 Q2 2023 YTD 2024 YTD 2023 Interest income $59.5 $61.9 $120.5 $122.5 Fee income $45.9 $44.1 $94.4 $91.7 Other revenue $2.4 $3.7 $4.5 $7.1 Provision for credit losses ($12.0) ($12.2) ($25.6) ($24.2) Total Finance revenue $95.8 $97.5 $193.8 $197.1 Gross profit** $79.0 $81.0 $160.2 $164.2 % of revenue** 82.5% 83.1% 82.7% 83.3% SG&A $12.0 $12.7 $25.9 $25.1 Other (income) expense, net $ - ($0.3) $ - ($0.2) EBITDA $67.0 $68.6 $134.3 $139.3 Adjusted EBITDA $38.7 $40.3 $78.4 $84.9 Loan transactions 415,000 402,000 837,000 822,000 Revenue per loan transaction $231 $243 $232 $240 Provision for credit losses % of finance receivables 2.1% 2.0% 2.2% 2.0% Managed receivables $2,239.1 $2,418.3 $2,239.1 $2,418.3 Obligations collateralized by finance receivables $1,573.6 $1,717.4 $1,573.6 $1,717.4 * For a more complete explanation of these changes, see the MD&A in the company's supplemental financial information and Form 10-Q, both for the three and six months ended June 30, 2024. ** Exclusive of depreciation and amortization.
8 Q2 | 2024 June 30, 2024 Leverage (US$ in millions) Balance Maturity Revolving Credit Facility (Adjusted Term SOFR + 2.25%) $28 2028 Canadian Revolving Credit Facility (Adjusted Term CORRA +2.50%) 29 2028 Senior Notes (Fixed 5.125%) 210 2025 Other 15 Total 282 Less: Cash and cash equivalents 61 Net Debt 221 Net Debt Ratio 1 0.8 Corporate Credit Ratings: S&P B, Moodys B1 1 When calculating the corporate net debt to Adjusted EBITDA leverage ratio, we use the balance sheet “Cash and cash equivalents” amount instead of available cash as defined by our credit agreement.
9 Q2 | 2024 Historical Data
10 Q2 | 2024 Marketplace Metrics (Volumes in thousands) 2Q24 1Q24 2023 4Q23 3Q23 2Q23 1Q23 2022 Revenue1 ($M) $336.0 $318.3 $1,251.7 $294.7 $316.6 $319.4 $321.0 $1,143.5 Commercial vehicles sold 217 222 710 183 180 180 167 661 Dealer consignment vehicles sold 151 150 621 135 159 164 163 636 Total vehicles sold 368 372 1,331 318 339 344 330 1,297 Gross profit percentage1 31.8% 38.1% 36.0% 36.0% 37.0% 35.5% 35.3% 32.6% Gross profit percentage, excluding purchased vehicles 41.8% 46.6% 44.3% 45.3% 45.8% 43.8% 42.6% 38.8% Income (loss) from continuing operations ($M) ($16.1) ($12.9) ($277.5) ($17.7) ($19.3) ($219.4) ($21.1) ($105.7) Adjusted EBITDA ($M) $32.7 $35.1 $108.3 $23.7 $26.8 $43.5 $14.3 $29.4 Gross Merchandise Value ($B) $6.8 $7.0 $24.1 $5.7 $6.0 $6.4 $6.0 $23.2 1 Includes purchased vehicle sales
11 Q2 | 2024 Finance Metrics ($ in millions, except for revenue per loan transaction; LTUs in thousands) 2Q24 1Q24 2023 4Q23 3Q23 2Q23 1Q23 2022 Interest income $59.5 $61.0 $248.4 $62.9 $63.0 $61.9 $60.6 $202.8 Fee income $45.9 $48.5 $183.3 $46.0 $45.6 $44.1 $47.6 $171.9 Other revenue $2.4 $2.1 $12.3 $2.5 $2.7 $3.7 $3.4 $11.0 Provision for credit losses ($12.0) ($13.6) ($50.6) ($14.8) ($11.6) ($12.2) ($12.0) ($9.8) Total Finance revenue $95.8 $98.0 $393.4 $96.6 $99.7 $97.5 $99.6 $375.9 Loan Transaction Units (LTU) 415 422 1,625 397 406 402 420 1,562 Revenue per Loan Transaction $231 $232 $242 $243 $246 $243 $237 $241 Income (loss) from continuing operations $26.8 $31.4 $122.7 $31.3 $32.0 $25.6 $33.8 $134.3 Adjusted EBITDA $38.7 $39.7 $163.7 $38.1 $40.7 $40.3 $44.6 $201.8 Ending Managed Finance Receivables $2,239.1 $2,313.7 $2,305.0 $2,305.0 $2,379.1 $2,418.3 $2,406.4 $2,416.6 Ending Obligations Collateralized by Finance Receivables $1,573.6 $1,597.2 $1,631.9 $1,631.9 $1,695.3 $1,717.4 $1,638.2 $1,677.6
12 Q2 | 2024 APPENDIX
13 Q2 | 2024 Non-GAAP Financial Measures EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings as described in the company's senior secured credit agreement covenant calculations. Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by the company’s creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate the company’s performance. Depreciation expense for property and equipment and amortization expense of capitalized internally developed software costs relate to ongoing capital expenditures; however, amortization expense associated with acquired intangible assets, such as customer relationships, software, tradenames and non-compete agreements are not representative of ongoing capital expenditures but have a continuing effect on our reported results. Non-GAAP financial measures of operating adjusted net income (loss) and operating adjusted net income (loss) per share, in the opinion of the company, provide comparability to other companies that may not have incurred these types of non-cash expenses or that report a similar measure. In addition, net income (loss) and net income (loss) per share have been adjusted for certain other charges, as seen in the following reconciliation. EBITDA, Adjusted EBITDA, operating adjusted net income (loss) and operating adjusted net income (loss) per share have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.
14 Q2 | 2024 Q2 2024 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended June 30, 2024 Marketplace Finance Consolidated Income (loss) from continuing operations ($16.1) $26.8 $10.7 Add back: Income taxes (1.2) 8.7 7.5 Interest expense, net of interest income 5.2 31.9 37.1 Depreciation and amortization 21.1 3.0 24.1 Intercompany interest 3.4 (3.4) - EBITDA $12.4 $67.0 $79.4 Non-cash stock-based compensation 3.6 0.1 3.7 Acquisition related costs 0.2 - 0.2 Securitization interest - (29.2) (29.2) Severance 5.4 0.6 6.0 Foreign currency (gains)/losses 0.5 - 0.5 Professional fees related to business improvement efforts 0.6 0.1 0.7 Impact for newly enacted Canadian DST related to prior years 10.0 - 10.0 Other - 0.1 0.1 Total addbacks/(deductions) 20.3 (28.3) (8.0) Adjusted EBITDA $32.7 $38.7 $71.4 Revenue $336.0 $95.8 $431.8 Adjusted EBITDA % margin 9.7% 40.4% 16.5%
15 Q2 | 2024 Q2 2023 Adjusted EBITDA Reconciliation ($ in millions) Three Months ended June 30, 2023 Marketplace Finance Consolidated Income (loss) from continuing operations ($219.4) $25.6 ($193.8) Add back: Income taxes (36.0) 16.7 (19.3) Interest expense, net of interest income 5.4 32.1 37.5 Depreciation and amortization 24.5 2.3 26.8 Intercompany interest 8.1 (8.1) - EBITDA ($217.4) $68.6 ($148.8) Non-cash stock-based compensation 4.3 1.2 5.5 Loss on extinguishment of debt 1.1 - 1.1 Acquisition related costs 0.3 - 0.3 Securitization interest - (29.6) (29.6) Severance 0.9 0.1 1.0 Foreign currency (gains)/losses 0.5 (0.2) 0.3 Goodwill and other intangibles impairment 250.8 - 250.8 Contingent consideration adjustment 1.3 - 1.3 Net change in unrealized (gains) losses on investment securities - (0.2) (0.2) Professional fees related to business improvement efforts 1.7 0.4 2.1 Total addbacks/(deductions) 260.9 (28.3) 232.6 Adjusted EBITDA $43.5 $40.3 $83.8 Revenue $319.4 $97.5 $416.9 Adjusted EBITDA % margin 13.6% 41.3% 20.1%
16 Q2 | 2024 YTD 2024 Adjusted EBITDA Reconciliation ($ in millions) Six Months ended June 30, 2024 Marketplace Finance Consolidated Income (loss) from continuing operations ($29.0) $58.2 $29.2 Add back: Income taxes (1.0) 19.2 18.2 Interest expense, net of interest income 11.9 64.5 76.4 Depreciation and amortization 42.7 5.7 48.4 Intercompany interest 13.3 (13.3) - EBITDA $37.9 $134.3 $172.2 Non-cash stock-based compensation 8.8 1.9 10.7 Acquisition related costs 0.5 - 0.5 Securitization interest - (59.1) (59.1) Severance 6.8 0.9 7.7 Foreign currency (gains)/losses 2.5 - 2.5 Professional fees related to business improvement efforts 1.2 0.3 1.5 Impact for newly enacted Canadian DST related to prior years 10.0 - 10.0 Other 0.1 0.1 0.2 Total addbacks/(deductions) 29.9 (55.9) (26.0) Adjusted EBITDA $67.8 $78.4 $146.2 Revenue $654.3 $193.8 $848.1 Adjusted EBITDA % margin 10.4% 40.5% 17.2%
17 Q2 | 2024 YTD 2023 Adjusted EBITDA Reconciliation ($ in millions) Six Months ended June 30, 2023 Marketplace Finance Consolidated Income (loss) from continuing operations ($240.5) $59.4 ($181.1) Add back: Income taxes (39.9) 27.9 (12.0) Interest expense, net of interest income 12.5 62.4 74.9 Depreciation and amortization 45.7 4.1 49.8 Intercompany interest 14.5 (14.5) - EBITDA ($207.7) $139.3 ($68.4) Non-cash stock-based compensation 7.0 2.3 9.3 Loss on extinguishment of debt 1.1 - 1.1 Acquisition related costs 0.6 - 0.6 Securitization interest - (57.4) (57.4) Severance 1.4 0.1 1.5 Foreign currency (gains)/losses 0.4 - 0.4 Goodwill and other intangibles impairment 250.8 - 250.8 Contingent consideration adjustment 1.3 - 1.3 Net change in unrealized (gains) losses on investment securities - (0.1) (0.1) Professional fees related to business improvement efforts 2.3 0.5 2.8 Other 0.6 0.2 0.8 Total addbacks/(deductions) 265.5 (54.4) 211.1 Adjusted EBITDA $57.8 $84.9 $142.7 Revenue $640.4 $197.1 $837.5 Adjusted EBITDA % margin 9.0% 43.1% 17.0%
18 Q2 | 2024 Operating Adjusted Net Income per Share Reconciliation ($ in millions, except per share amounts), (Unaudited) Three Months ended Six Months ended June 30, June 30, 2024 2023 2024 2023 Net income (loss) from continuing operations (1) $10.7 ($193.8) $29.2 ($181.1) Acquired amortization expense 9.1 9.8 18.4 17.2 Impact for newly enacted Canadian DST related to prior years 10.0 - 10.0 - Loss on extinguishment of debt - 1.1 - 1.1 Contingent consideration adjustment - 1.3 - 1.3 Goodwill and other intangibles impairment - 250.8 - 250.8 Income taxes (2) (2.1) (32.4) (2.5) (34.2) Operating adjusted net income from continuing operations $27.7 $36.8 $55.1 $55.1 Operating adjusted net income from discontinued operations $ - $ - $ - $ - Operating adjusted net income $27.7 $36.8 $55.1 $55.1 Operating adjusted net income from continuing operations per share – diluted $0.19 $0.25 $0.38 $0.38 Operating adjusted net income from discontinued operations per share – diluted - - - - Operating adjusted net income per share – diluted $0.19 $0.25 $0.38 $0.38 Weighted average diluted shares - including assumed conversion of preferred shares 144.4 145.3 145.1 145.2 (1) The Series A Preferred Stock dividends and undistributed earnings allocated to participating securities have not been included in the calculation of operating adjusted net income and operating adjusted net income per diluted share. (2) For the three and six months ended June 30, 2024 and 2023, each tax deductible item was booked to the applicable statutory rate. The deferred tax benefits of $52.5 million and $6.5 million associated with the goodwill and tradename impairments in the second quarter of 2023, respectively, resulted in the U.S. being in a net deferred tax asset position. Due to the three year cumulative loss related to U.S. operations, we currently have a $41.1 million valuation allowance against the U.S. net deferred tax asset.
v3.24.2.u1
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OPENLANE, Inc.
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DE
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001-34568
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20-8744739
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