KAR Global CFO Eric Loughmiller will retire at the end of 2022, the company announced.
The wholesale auction supplier is conducting a national search for Loughmiller’s replacement and aims to fill the position before he retires, KAR CEO Peter Kelly told investors and analysts on Wednesday during the company’s third-quarter earnings call.
KAR reported higher year-over-year revenue, higher profit per vehicle sold and higher net income from continuing operations for the quarter ended Sept. 30, although Kelly noted that continued wariness about declining conversion rates at auctions.
KAR reported net income of $500,000 from continuing operations, which includes digital and hybrid wholesale divisions such as BacklotCars, Openlane, Carwave and TradeRev. That compares to a net loss of $26.9 million a year ago.
However, KAR posted a net loss of $5.8 million in the quarter ended September 30. This figure includes a $6.3 million loss from discontinued operations attributable to ADESA US, a major auction that he sold to Carvana Co. May 9. KAR now lists ADESA US as a discontinued operation in its financial statements.
KAR’s total revenue for the quarter, excluding ADESA US operations, was $393 million, a 13 percent year-over-year increase.
The company’s market segment sold 314,000 vehicles in the quarter, down from 357,000 sold in the same period a year ago. Gross profit per vehicle sold rose to $320 in the third quarter, an increase of 14 percent. Auction fees per car sold also rose to $283, a 12 percent increase.
The conversion rate in the third quarter was lower than a year ago because the value of used cars is falling and buyers are less willing to pay the higher prices that many sellers want, Kelly said.
The company saw a slight uptick in conversion rates in August, but for the most part they remained below 2021 rates, Kelly said.
The conversion rate varies by channel, he added. While the channel’s conversion rate was 60 percent in 2021, it has fallen to about 50 percent this year, he estimated.
Kelly said he expects used car prices to continue to decline through at least the fourth quarter. Softening used car prices could be a long-term positive for the business, he said, because it would allow more vehicles to return to the wholesale channel.
“However, in the near term, a declining market is often characterized by lower conversion rates, and this can be a headwind for the business in the near term,” Kelly added.
He told investors and analysts that the industry’s lack of wholesale used car supplies remained evident in the third quarter.
“For example, physical auction volumes, which remain a good indicator of industry volumes, fell 8 percent below last year’s third quarter and were 37 percent below pre-COVID-19 levels in Q3 2019,” Kelly said.
He said the most recent quarter was the second lowest volume of physical auctions since the start of the pandemic.
KAR’s financial segment, AFC, generated $99 million in revenue in the third quarter, an increase of 31 percent compared to the third quarter of 2021. Revenue per credit transaction rose to US$250, up 16 percent, and credit transactions rose to 397,000, up 13 percent.
As used car prices continue to decline and interest rates rise, that tends to increase the risk in the finance business, Kelly said.
“While we expect some level of increased risk as we enter 2023, we do not expect it to return to pre-COVID levels,” he said.
Shares of KAR Global fell 10.3 percent to $13.31 in morning trading Wednesday.
Profit from continuing operations for the 3rd quarter: $393 million, up 13 percent year-over-year.
Net income for the 3rd quarter: A net loss of $5.8 million compared to a net loss of $1 million a year ago.
Net income from continuing operations for the 3rd quarter: Net income of $500,000 compared to a net loss of $26.9 million in the same period a year earlier.
Car sales in the 3rd quarter: A total of 314,000 cars, which is 12 percent less.