Finance segment propels KAR Global's Q4 net income gains

Digital-focused wholesale auctions provider KAR Global's net income rose in the fourth quarter amid revenue gains and a strong performance from its finance segment.

For the fourth quarter, KAR reported $41.9 million net income from continuing operations, which include its digital and hybrid wholesaling units such as BacklotCars, Openlane and TradeRev. That's compared with $15.2 million in net income from continuing operations for the same quarter in 2021. The company said it closed on the sale of land in Montreal in October 2022 for a $33.9 million gain.

KAR's fourth-quarter net income was $37.1 million, up from $5.1 million in the year earlier quarter. Its fourth-quarter 2022 net income figure factors in a $4.8 million pretax loss from the company's discontinued operations pertaining to ADESA U.S., the large auction unit it sold to Carvana Co. on May 9. KAR now lists ADESA U.S. as discontinued operations on its financial statement.

KAR's fourth-quarter revenue, not including ADESA U.S. operations, was $372.8 million, up 4.2 percent from the same period a year earlier.

In a Wednesday fourth-quarter earnings call, KAR Global CEO Peter Kelly said some of the market challenges that existed for the company in 2022 are still present in 2023, including below-normal new-vehicle production, below-normal wholesale marketplace volumes and weaker conversion rates.

Kelly said that while lower used-vehicle values "will help drive more volume and will be a long-term positive," an environment where used-vehicle values are declining could put short-term pressure on conversion rates. He added that price declines, coupled with high interest rates, may create higher-risk environments in KAR's finance business.

KAR in 2022 finished integrating its digital auction platforms BacklotCars and Carwave into one business. The company retired the Carwave platform and the new auction format within BacklotCars will be rolled out across the U.S. throughout 2023, Kelly said. KAR's finance segment, AFC, generated $100.7 million in revenue in the fourth quarter, up 27 percent from the year-earlier period. Revenue per loan transaction rose to $257, up 11 percent, and loan transactions increased 15 percent to 392,000.

KAR Global shares rose 8.2 percent to $15.28 in trading around 12:40 p.m. Wednesday.

Q4 revenue from continuing operations: $372.8 million, up 4.2 percent from the year-earlier period.

Q4 net income: $37.1 million, compared with $5.1 million in the year-earlier period.

Q4 net income from continuing operations: $41.9 million, compared with $15.2 million in the year-earlier period.

Q4 vehicle sales: 289,000 total vehicles, down 15.5 percent.

2022 revenue from continuing operations: $1.52 billion, up 4.7 percent from the year-earlier period.

2022 net income: $241.2 million, compared with $66.5 million in the year-earlier period.

2022 net income from continuing operations: $28.6 million, compared with a net loss of $800,000 in the year-earlier period.

2022 vehicle sales: 1.3 million total vehicles, down 19 percent.