ADESA, Inc. Reports Third Quarter 2006 Results
Third Quarter Highlights -- EPS of $0.38 on 13% revenue growth -- Strong revenue and profit growth at Dealer Services Group -- Acquisition of three Texas salvage sites expands operations into nation's second largest salvage market
CARMEL, Ind., Oct. 30 -- 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 September 30, 2006. For the third quarter of 2006, the company reported net income of $34.1 million, or $0.38 per diluted share, both up eight percent from the third quarter of 2005. Third quarter revenues were a record $272.9 million, up 13 percent from last year's third quarter.
"During the third quarter of 2006, ADESA grew its revenues and earnings, expanded its salvage footprint and continued to strengthen its customer offerings," stated ADESA, Inc. Chairman and CEO David Gartzke. "Financial performance from our Dealer Services Group was especially strong in the quarter, as it continued to post double-digit top and bottom line growth. Perhaps most importantly of all, we're pleased to see the retail used vehicle market beginning to show signs of firming, which is a significant factor for increasing vehicles sold at auction."
Quarterly Consolidated Results
For the third quarter of 2006, the company reported that revenues increased 13 percent to $272.9 million, compared with $241.0 million in the third quarter of 2005. The $31.9 million increase in revenues was the result of higher auction ancillary services revenue, benefits from recent acquisitions, increased fee income -- driven in part by higher average wholesale used vehicle prices and favorable Canadian currency translation. Net income for the third quarter of 2006 was $34.1 million, or $0.38 per share, compared with net income of $31.5 million, or $0.35 per share, in the third quarter of 2005. Results for the third quarter of 2006 included approximately $0.8 million of pre-tax, incremental stock-based compensation, or nearly $0.01 per diluted share, while results for the third quarter of 2005 included a $1.5 million after-tax charge ($0.02 per diluted share) related to debt refinancing.
Quarterly Segment Results
Auction Services Group (ASG) revenue in the third quarter of 2006 increased 14 percent from $208.1 million to $236.2 million. The $28.1 million increase in ASG revenues was due to an increase in auction ancillary services revenue -- caused by higher volume of institutional vehicles entered for auction, increased fee income -- 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. Revenue per vehicle sold for the ASG segment increased to $480 compared with $438 for the same quarter in 2005. For the third quarter of 2006, ASG operating profit declined slightly from $40.6 million to $39.9 million. This decrease was driven by both a revenue mix shift to lower margin institutional vehicles and a decline in the company's used vehicle sold conversion rate.
Dealer Services Group (DSG) revenue in the third quarter of 2006 increased 12 percent from $32.9 million to $36.7 million. The $3.8 million increase in revenue was driven by a five percent increase in loan transactions and benefits from both higher interest rates and average values of used vehicles being floored. DSG's third quarter operating profit increased $4.1 million to $24.4 million, compared with $20.3 million in 2005.
Year-to-Date Consolidated Results
For the nine months ended September 30, 2006, the company reported revenue of $834.4 million and net income of $106.5 million, or $1.18 per diluted share, compared with revenue of $730.2 million and net income of $102.4 million, or $1.13 per diluted share for 2005. Results for the first nine months of 2006 include charges of $0.4 million for discontinued operations, while results for the first nine months of 2005 include the impact of the previously mentioned debt refinancing charge and charges of $0.4 million for discontinued operations.
2006 Outlook
ADESA currently expects 2006 diluted earnings per share from continuing operations to be at the lower end of its previously issued earnings guidance range of $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, 42 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
September 30, 2006 September 30, 2005
U.S. GAAP U.S. GAAP Special
Reported Reported Items Adjusted
-------- -------- ------ --------
Operating revenues
Auction services group $236.2 $208.1 $208.1
Dealer services group 36.7 32.9 32.9
-------- -------- --------
Total operating revenues 272.9 241.0 241.0
Operating expenses
Cost of services (exclusive of
depreciation & amortization) 137.8 116.8 116.8
Selling, general and
administrative 64.7 57.5 57.5
Depreciation and amortization 12.1 10.8 10.8
-------- -------- --------
Total operating expenses 214.6 185.1 185.1
Operating profit 58.3 55.9 55.9
Interest expense 7.1 7.4 7.4
Other income, net (1.8) (2.5) $0.5 (1) (2.0)
Loss on extinguishment of debt -- 2.9 (2.9)(2) --
-------- -------- ------ --------
Income from continuing operations
before income taxes 53.0 48.1 2.4 50.5
Income taxes 18.6 16.5 0.9 17.4
-------- -------- ------ --------
Income from continuing operations $34.4 $31.6 $1.5 $33.1
------ --------
Loss from discontinued operations,
net of income taxes (0.3) (0.1)
-------- --------
Net income $34.1 $31.5
-------- --------
Earnings per share - basic
and diluted
Income from continuing operations $0.38 $0.35 $0.02 $0.37
------ --------
Loss from discontinued operations,
net of income taxes -- --
-------- --------
Net income $0.38 $0.35
-------- --------
Weighted average shares outstanding:
Basic 89.90 89.53 89.53
Diluted 90.22 89.97 89.97
(1) The SWAP agreement related to the former Term Loan B facility was terminated in the third quarter 2005, as a result of the amendment and restatement of the credit facility. Consequently, the $0.5 million unrealized gain on hedge that was a component of "Other Comprehensive Income" prior to the termination was recorded as a $0.5 million realized gain in "Other Income" in the third quarter 2005.
(2) In the third quarter 2005, a charge was incurred for the write-off of unamortized debt issuance costs associated with the Company's June 2004 credit facility and expenses related to the amended and restated credit facility.
ADESA, Inc.
Consolidated Statements of Income
(In millions, except per-share data)
(Unaudited)
Nine Months Ended Nine Months Ended
September 30, 2006 September 30, 2005
U.S. GAAP U.S. GAAP Special
Reported Reported Items Adjusted
-------- -------- ------ --------
Operating revenues
Auction services group $726.3 $636.1 $636.1
Dealer services group 108.1 94.1 94.1
-------- -------- --------
Total operating revenues 834.4 730.2 730.2
Operating expenses
Cost of services (exclusive of
depreciation & amortization) 419.7 346.4 346.4
Selling, general and
administrative 195.4 168.4 168.4
Depreciation and amortization 33.9 30.0 30.0
-------- -------- --------
Total operating expenses 649.0 544.8 544.8
Operating profit 185.4 185.4 185.4
Interest expense 21.2 24.0 24.0
Other income, net (5.3) (6.3) $0.5 (1) (5.8)
Loss on extinguishment of debt -- 2.9 (2.9)(2) --
-------- -------- ------ --------
Income from continuing operations
before income taxes 169.5 164.8 2.4 167.2
Income taxes 62.6 62.0 0.9 62.9
-------- -------- ------ --------
Income from continuing operations $106.9 $102.8 $1.5 $104.3
------ --------
Loss from discontinued operations,
net of income taxes (0.4) (0.4)
-------- --------
Net income $106.5 $102.4
-------- --------
Earnings per share - basic
Income from continuing operations $1.19 $1.14 $0.02 $1.16
------ --------
Loss from discontinued operations,
net of income taxes -- --
-------- --------
Net income $1.19 $1.14
-------- --------
Earnings per share-diluted
Income from continuing operations $1.19 $1.14 $0.01 $1.15
------ --------
Loss from discontinued operations,
net of income taxes (0.01) (0.01)
-------- --------
Net income $1.18 $1.13
-------- --------
Weighted average shares outstanding:
Basic 89.84 89.97 89.97
Diluted 90.21 90.43 90.43
(1) The SWAP agreement related to the former Term Loan B facility was terminated in the third quarter 2005, as a result of the amendment and restatement of the credit facility. Consequently, the $0.5 million unrealized gain on hedge that was a component of "Other Comprehensive Income" prior to the termination was recorded as a $0.5 million realized gain in "Other Income" in the third quarter 2005.
(2) In the third quarter of 2005, a charge was incurred for the write-off of unamortized debt issuance costs associated with the Company's June 2004 credit facility and expenses related to the amended and restated credit facility.
ADESA, Inc.
Condensed Consolidated Balance Sheets
(In millions)
September 30, 2006 December 31, 2005
(unaudited)
----------- -----------
Cash and cash equivalents $218.5 $245.9
Trade receivables, net 272.1 188.6
Finance receivables, net 233.9 196.7
Retained interests in finance
receivables sold 67.2 56.8
Other current assets 34.8 36.1
----------- -----------
Total current assets 826.5 724.1
Goodwill 559.0 532.6
Intangible and other assets 113.9 92.9
Property and equipment, net 606.7 595.9
----------- -----------
Total assets $2,106.1 $1,945.5
----------- -----------
Current liabilities, excluding
current maturities of debt $483.2 $352.1
Current maturities of debt 30.0 70.0
----------- -----------
Total current liabilities 513.2 422.1
Long-term debt 330.0 362.5
Other non-current liabilities 65.7 71.0
Stockholders' equity 1,197.2 1,089.9
----------- -----------
Total liabilities and equity $2,106.1 $1,945.5
----------- -----------