KAR records net profit, saw reduced conversion rates in Q2

KAR Global said Tuesday it brought in more profit per vehicle it sold in the second quarter but noted a growing disconnect between buyer and seller expectations across its digital and hybrid wholesale marketplaces.

The company reported a robust bottom-line profit for the quarter but said it lost money when its figures were adjusted to reflect its continuing operations, given the May sale of its large ADESA U.S. auction unit to online used-vehicle retailer Carvana Co.

KAR reported net income of $210.2 million in the quarter ended June 30. That includes income from ADESA U.S. through the time KAR owned it during the quarter as well as the gain KAR made selling the business to Carvana. The deal was finalized May 9, and KAR now lists ADESA U.S. as discontinued operations on its financial statement.

KAR recorded a $5.4 million net loss from continuing operations, which include its remaining digital and hybrid wholesaling units such as BacklotCars, Openlane, Carwave and TradeRev.

KAR’s total revenue in the quarter — not including the ADESA U.S. operations — was $384.2 million, up 2 percent from the year-earlier period.

While wholesale vehicle sales in the quarter dropped 22 percent because of a major decline in commercial volumes and a slight dip in dealer consignment volumes, gross profit per vehicle sold rose 11 percent to $282.

The company used more than $900 million in proceeds from the ADESA U.S. sale to pay down its debts, KAR CEO Peter Kelly told analysts during a Wednesday earnings call.  

Kelly also said KAR is going to keep an eye on its marketplace conversion rate — the percentage of vehicles offered for sale in its wholesale channels that actually sold — in the second half of 2022. That rate dropped to 36 percent in the second quarter compared with 48 percent in the year-earlier period.

That slip indicates buyer demand weakened as sellers held out “for higher vehicle prices that they have been accustomed to getting over recent quarters,” Kelly said.

If a misalignment between buyer sentiments and seller expectations sticks around, it could hurt KAR’s earnings, Kelly acknowledged. He said the company’s 2022 adjusted earnings before interest, taxes, depreciation and amortization might land closer to $245 million vs. KAR’s forecast of $265 million made earlier in this year.

Stock purchase offering

KAR also announced its offer to purchase up to $600 million of its senior notes due in 2025, which carry a 5.125 percent interest rate.

The company said it repurchased $82 million of common stock in the second quarter.

KAR reported $800 million in available cash as of June 30.

Its shares were down 3.2 percent to $16 at market close Wednesday.

Q2 revenue from continuing operations: $384.2 million, up 2 percent from the year-earlier period

Q2 net income: $210.2 million, compared with $11.5 million in the year-earlier period

Q2 net income from continuing operations: Net loss of $5.4 million, compared with a net loss of $15.3 million in the
year-earlier period

Q2 vehicle sales: 343,000 total vehicles, down 22 percent