ADESA, Inc. Reports Second Quarter 2006 Results
Second Quarter Highlights * Revenues grew 12% at Auction Services Group, as vehicles entered into auction hit all-time record * Weak retail used vehicle market adversely affected conversion rates * Realized double-digit revenue and profit growth at Dealer Services Group
CARMEL, Ind., July 27 -- ADESA, Inc. , North America's largest publicly traded provider of wholesale vehicle auctions and used vehicle dealer floorplan financing, today reported its financial results for the quarter ended June 30, 2006. For the second quarter of 2006, the company reported net income of $36.1 million, or $0.40 per share, on revenues of $275.9 million. This compares to net income of $35.9 million, or $0.40 per share, on revenues of $246.5 million for the second quarter of 2005. Results for the second quarter of 2006 included approximately $0.8 million of pre-tax, incremental stock-based compensation, or nearly $0.01 per diluted share.
"I am extremely pleased with the performance of our Dealer Services Group, which continued its trend of double-digit top and bottom line growth in the quarter," stated David Gartzke, ADESA Chairman and CEO. "This was, however, a similar quarter to the first quarter for our Auction Services Group, as the continuing soft retail used vehicle market suppressed conversion rates, adversely affecting our operating results."
Gartzke continued, "From a longer-term perspective, we're seeing a number of encouraging signs, including strong increases in the number of used vehicles coming to auction and increasing lease penetration rates. As used vehicle prices moderate and consumer demand picks up, we should see tangible benefits of the additional vehicles coming to auction in our operating results. In addition, during the second quarter we implemented several important management and operational changes that will continue to better align our people and our operations with our strategic initiatives to grow and improve the company. These actions, together with the strong underlying fundamentals of our business, should serve us well in the years ahead."
Quarterly Consolidated Results
For the second quarter of 2006, the company reported that revenues increased to $275.9 million, compared with $246.5 million in the second quarter of 2005. The $29.4 million increase in revenues was the result of higher auction ancillary services revenue, benefits from recent acquisitions, selective fee increases -- driven in part by higher average wholesale used vehicle prices, and favorable Canadian currency translation. Net income for the second quarter of 2006 was $36.1 million, or $0.40 per share, compared with net income of $35.9 million, or $0.40 per share, in the second quarter of 2005.
Quarterly Segment Results
Auction Services Group (ASG) revenue increased from $214.3 million to $239.7 million in the second quarter of 2006. Revenue per vehicle sold for the ASG segment increased to $478 compared with $434 for the same quarter in 2005. The $25.4 million increase in ASG revenues was due to an increase in auction ancillary services revenue -- caused by a significantly higher volume of used vehicles entered into auction, selective fee increases -- driven in part by higher average wholesale used vehicle prices, benefits from the company's recent acquisitions and the impact of favorable Canadian currency translation. For the second quarter of 2006, ASG operating profit declined $2.9 million to $47.0 million, due primarily to the impact of a significant decline in conversion rates and increased costs for handling an additional 52,000 used vehicles entered into auction.
Dealer Services Group (DSG) revenue increased from $32.2 million to $36.2 million in the second quarter of 2006. The $4.0 million increase in revenue was driven by a 5.5 percent increase in loan transactions, benefits from both higher interest rates and average values of used vehicles being floored and an increase in average portfolio duration. DSG's operating profit increased $2.3 million to $22.0 million, compared with $19.7 million in 2005, reflecting the fact that increased operating revenues more than offset higher operating expenses associated with processing more transactions.
Year-to-Date Consolidated Results
For the six months ended June 30, 2006, the company reported revenue of $561.5 million and net income of $72.4 million, or $0.80 per diluted share, compared with revenue of $489.2 million and net income of $70.9 million, or $0.78 per diluted share for 2005.
2006 Outlook
As discussed on the company's May, 2006 earnings conference call, ADESA continues to expect 2006 diluted earnings per share from continuing operations to be approximately $1.47 to $1.55.
ADESA provides earnings guidance on a continuing operations basis because management believes that this presentation provides useful information to investors to assist them in evaluating the company's results period over period. Guidance does not reflect matters classified as discontinued operations. In addition, the earnings guidance does not contemplate future items such as corporate development activities (including acquisitions), strategic developments (such as restructurings or dispositions of assets or investments), significant litigation, and changes in applicable laws and regulations (including significant accounting and tax matters). 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 a period. Prospective quantification of these items is generally not reasonable.
About ADESA, Inc.
Headquartered in Carmel, Indiana, ADESA, Inc. is North America's largest publicly traded provider of wholesale vehicle auctions and used vehicle dealer floorplan financing. The company's operations span North America with 54 ADESA used vehicle auction sites, 39 Impact salvage vehicle auction sites and 85 AFC loan production offices. For further information on ADESA, Inc., visit the company's Web site at http://www.adesainc.com/ .
Quarterly segment income statements, including statistical information, for 2006, 2005, 2004, 2003 and 2002 can be found at the company's Web site http://www.adesainc.com/ .
ADESA, Inc.
Consolidated Statements of Income
(In millions, except per-share data)
(Unaudited)
Three Months Ended Three Months Ended
June 30, 2006 June 30, 2005
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Operating revenues
Auction services group $239.7 $214.3
Dealer services group 36.2 32.2
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Total operating revenues 275.9 246.5
Operating expenses
Cost of services (exclusive of
depreciation & amortization) 137.7 115.1
Selling, general and administrative 63.8 56.1
Depreciation and amortization 11.0 10.0
------- -------
Total operating expenses 212.5 181.2
Operating profit 63.4 65.3
Interest expense 7.1 8.5
Other income, net (1.8) (2.3)
------- -------
Income from continuing operations
before income taxes 58.1 59.1
Income taxes 21.9 23.0
------- -------
Income from continuing operations $36.2 $36.1
Loss from discontinued operations,
net of income taxes (0.1) (0.2)
------- -------
Net income $36.1 $35.9
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Earnings per share --
basic
Income from continuing operations $0.40 $0.40
Loss from discontinued operations,
net of income taxes -- --
------- -------
Net income $0.40 $0.40
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Earnings per share --
diluted
Income from continuing operations $0.40 $0.40
Loss from discontinued operations,
net of income taxes -- --
------- -------
Net income $0.40 $0.40
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Weighted average shares outstanding:
Basic 89.86 89.69
Diluted 90.21 90.14
ADESA, Inc.
Consolidated Statements of Income
(In millions, except per-share data)
(Unaudited)
Six Months Ended Six Months Ended
June 30, 2006 June 30, 2005
---------------- ----------------
Operating revenues
Auction services group $490.1 $428.0
Dealer services group 71.4 61.2
------- -------
Total operating revenues 561.5 489.2
Operating expenses
Cost of services (exclusive of
depreciation & amortization) 281.9 229.6
Selling, general and administrative 130.7 110.9
Depreciation and amortization 21.8 19.2
------- -------
Total operating expenses 434.4 359.7
Operating profit 127.1 129.5
Interest expense 14.1 16.6
Other income, net (3.5) (3.8)
------- -------
Income from continuing operations
before income taxes 116.5 116.7
Income taxes 44.0 45.5
------- -------
Income from continuing operations $72.5 $71.2
Loss from discontinued operations,
net of income taxes (0.1) (0.3)
------- -------
Net income $72.4 $70.9
======= =======
Earnings per share --
basic
Income from continuing operations $0.81 $0.79
Loss from discontinued operations,
net of income taxes -- --
------- -------
Net income $0.81 $0.79
======= =======
Earnings per share --
diluted
Income from continuing operations $0.80 $0.78
Loss from discontinued operations,
net of income taxes -- --
------- -------
Net income $0.80 $0.78
======= =======
Weighted average shares outstanding:
Basic 89.81 90.19
Diluted 90.23 90.67
ADESA, Inc.
Condensed Consolidated Balance Sheets
(In millions)
June 30, 2006 December 31, 2005
(unaudited)
------------- -----------------
Cash and cash equivalents $217.1 $245.9
Trade receivables, net 248.7 188.6
Finance receivables, net 247.7 196.7
Retained interests in finance
receivables sold 63.6 56.8
Other current assets 35.3 36.1
------- -------
Total current assets 812.4 724.1
Goodwill 547.3 532.6
Intangible and other assets 111.1 92.9
Property and equipment, net 605.6 595.9
------- -------
Total assets $2,076.4 $1,945.5
========= =========
Current liabilities, excluding
current maturities of debt $419.2 $352.1
Current maturities of debt 70.0 70.0
------- -------
Total current liabilities 489.2 422.1
Long-term debt 347.5 362.5
Other non-current liabilities 71.4 71.0
Stockholders' equity 1,168.3 1,089.9
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Total liabilities and equity $2,076.4 $1,945.5
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