Insurance Auto Auctions Reports Q2 Net Earnings Increase of 70%
28 July 1999
Insurance Auto Auctions Reports Second Quarter Net Earnings Increase of 70% Vs. Prior Year; Increases Second Half Earnings Estimates-- Second Quarter Net Earnings Increased 70% -- EPS Increased 68% to 37 Cents vs. 22 Cents for Prior Year -- Six-Month Net Earnings Up 111% -- 3rd and 4th Qtr Earnings Forecast Increased 15% to 20% Above Analysts' Estimates SCHAUMBURG, Ill., July 28 -- Insurance Auto Auctions, Inc. , citing continued margin improvements and increased volumes, today reported second quarter net earnings climbed 70 percent to $4.3 million, or 37 cents per share, from $2.5 million, or 22 cents per share, for the same quarter a year ago. For the quarter ended June 30, 1999, net sales increased 9 percent to $82.5 million compared with $75.4 million in the second quarter of 1998. Earnings from operations for the quarter rose 53 percent to $7.5 million from $4.9 million for the same quarter a year ago. Gross profit for the quarter increased 19 percent to $22.7 million, up from $19.0 million for the same quarter a year ago. Gross profit per unit for the quarter was $183 per unit compared with $165 per unit for the same quarter a year ago, an increase of 11 percent. Direct operating expenses per unit for the second quarter were $115 per unit, slightly above a year earlier. "Our second quarter earnings reflect not only the historical, seasonal strength of the second quarter, but also the continuing impact of our strategy to improve the profitability of our business and our customers' returns," said Chris Knowles, chief executive officer. "We continue to roll out our profitability enhancement initiatives and focus on marketing efforts to increase sales volumes." Six-Month Results Improve Sharply In the first six months of 1999, net earnings increased 111 percent to $7.1 million, or 62 cents per share, as compared with $3.4 million, including special charges, or 30 cents per share, for the same period a year ago. Earnings from operations increased to $12.9 million, up from $6.9 million for the same period a year ago. Net sales for the first six months of 1999 were $162.4 million compared with $144.0 million for the first six months of 1998. Gross profit for the first six months of 1999 was $42.6 million, up 20 percent from the same period in 1998. Gross profit per unit for the first six months of 1999 was $171 per unit compared with $154 per unit in the prior year, an increase of 11 percent. Direct operating expenses per unit increased to $111 for the first six months of 1999, compared with $109 per unit for the same period in 1998. Vehicle Sales Volume Increases The volume of vehicles sold increased to 124,000 in the second quarter of 1999, up 8 percent from the 115,000 vehicles processed in the same period for the previous year. The number of vehicles processed through purchase agreements for the quarter ended June 30, 1999, represented 29 percent of all vehicles sold, compared with 31 percent for the same period in 1998. For the first six months of 1999, the volume of vehicles sold was 250,000, as compared to 230,000 for the same period for the previous year. The number of vehicles processed through purchase agreements for the six months ended June 30, 1999, represented 29 percent of all vehicles sold, down from 31 percent for the same period in 1998. "Although the number of vehicles processed through purchase agreements will continue to decline as a percentage of total vehicles sold, we continue to believe the purchase agreement is important to our ability to provide our customers with flexible, creative solutions required to meet their needs," Knowles commented. Second Half Earnings Estimate The company expects earnings per share for the third quarter ending September 30, 1999, and the fourth quarter ending December 31, 1999, each to be 15 to 20 percent above analyst's expectations of $0.20 and $0.25 per diluted share, respectively. The change reflects the higher than anticipated benefits from the company's efforts to increase the company's gross profit per unit and customer returns and higher than forecasted sales volume. Strategic Initiatives Under Way The company continues to commit resources to identifying and developing additional customer valued services, such as the recently announced appraisal business, focusing on opportunities to add value to the insurance industry's automobile claims process and reduce time and costs for these customers. "We undertook these initiatives in our belief that the new services we offer our customers are strategic to the direction of the industry and critical to our future growth," Knowles said. Founded in 1982, Insurance Auto Auctions, Inc. is the largest provider of automotive and specialty salvage services in the United States, providing insurance companies with cost-effective, turnkey solutions to process and sell total-loss and recovered-theft vehicles, a $3 billion per year industry. The company currently has 50 auction sites across the United States. This press release, particularly the second half earnings estimate, contains forward-looking information that is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, expressed or implied by such forward-looking information. The company's actual results could differ materially from those discussed or implied herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the Company's annual report, Form 10-K for the fiscal year ended December 31, 1998, or subsequent quarterly reports. Among these risks are legislative acts, changes in the market value of salvage, competition, quality and quantity of inventory available from suppliers and dependence on key insurance company suppliers. For additional information regarding Insurance Auto Auctions free of charge via fax, dial 1-800-PRO-INFO and use the company's stock symbol, "IAAI." Additional information about Insurance Auto Auctions, Inc. is available on the World Wide Web at http://www.iaai.com Comparative Statistics (rounded from actuals) Three Months Ended Six Months Ended June 30, June 30, Increase Increase 1999 1998(Decrease) 1999 1998 (Decrease) Total Vehicles 124,000 115,000 8% 250,000 230,000 9% Per Unit: Gross Profit $183 $165 11% $171 $154 11% Direct Operating Expenses $115 $114 1% $111 $109 2% Insurance Auto Auctions, Inc. and Subsidiaries Condensed Consolidated Statements of Operations Three Month Periods Six Month Periods Ended June 30, Ended June 30, (Unaudited) (Unaudited) 1999 1998 1999 1998 Net Sales: Vehicle sales $54,411,000 $51,894,000 $105,669,000 $99,063,000 Fee income 28,120,000 23,506,000 56,740,000 44,895,000 82,531,000 75,400,000 162,409,000 143,958,000 Cost and expenses: Cost of sales 59,836,000 56,375,000 119,777,000 108,466,000 Direct operating expenses 14,199,000 13,132,000 27,823,000 25,129,000 Amortization of acquisition costs 949,000 954,000 1,899,000 1,898,000 Special charges -- -- -- 1,564,000 Earnings from operations 7,547,000 4,939,000 12,910,000 6,901,000 Other (income)expense: Interest expense 493,000 537,000 987,000 1,064,000 Interest (income) (326,000) (222,000) (551,000) (396,000) Earnings before income taxes 7,380,000 4,624,000 12,474,000 6,233,000 Income taxes 3,123,000 2,127,000 5,364,000 2,867,000 Net earnings $4,257,000 $2,497,000 $7,110,000 $3,366,000 Earnings per share: Basic $.37 $.22 $.62 $.30 Diluted $.37 $.22 $.62 $.30 Weighted average shares outstanding: Basic 11,421,000 11,312,000 11,381,000 11,309,000 Diluted 11,600,000 11,459,000 11,495,000 11,409,000 Insurance Auto Auctions, Inc. and Subsidiaries Condensed Consolidated Balance Sheets June 30, December 31, 1999 1998 (Unaudited) Assets Current assets: Cash and cash equivalents. $16,342,000 $11,682,000 Short-term investments 14,154,000 11,138,000 Accounts receivable, net 34,135,000 37,415,000 Inventories 11,432,000 11,229,000 Other current assets 1,828,000 1,676,000 Total current assets 77,891,000 73,140,000 Property and equipment, at cost, net 23,727,000 22,312,000 Deferred income taxes 3,504,000 2,976,000 Other assets, principally goodwill, net 127,038,000 128,916,000 $232,160,000 $227,344,000 Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt $216,000 $216,000 Accounts payable 25,305,000 30,939,000 Accrued liabilities 6,367,000 6,097,000 Income taxes 1,715,000 582,000 Total current liabilities 33,603,000 37,834,000 Long-term debt, excluding current installments 20,053,000 20,116,000 Accumulated postretirement benefits obligation 3,345,000 3,485,000 Deferred income taxes 7,892,000 7,154,000 Total liabilities 64,893,000 68,589,000 Shareholders' equity: Preferred stock, par value of $.001 per share Authorized 5,000,000 shares; none issued. -- -- Common stock, par value of $.001 per share Authorized 20,000,000 shares; issued and outstanding 11,466,358 and 11,327,169 shares as of June 30, 1999 and December 31, 1998, respectively 11,000 11,000 Additional paid-in capital 133,571,000 132,171,000 Retained earnings 33,685,000 26,573,000 Total shareholders' equity 167,267,000 158,755,000 $232,160,000 $227,344,000