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Edited Transcript of KAR earnings conference call or presentation 7-Aug-19 3:00pm GMT

Q2 2019 KAR Auction Services Inc Earnings Call

Carmel Aug 14, 2019 (Thomson StreetEvents) -- Edited Transcript of KAR Auction Services Inc earnings conference call or presentation Wednesday, August 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Eric M. Loughmiller

KAR Auction Services, Inc. - Executive VP & CFO

* James P. Hallett

KAR Auction Services, Inc. - Chairman & CEO

* Michael Eliason

KAR Auction Services, Inc. - VP of IR & Treasurer

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Conference Call Participants

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* Alice Linn Wycklendt

Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst

* Bret David Jordan

Jefferies LLC, Research Division - Equity Analyst

* Christopher James Bottiglieri

Wolfe Research, LLC - Research Analyst

* Daniel Robert Imbro

Stephens Inc., Research Division - Research Analyst

* Gary Frank Prestopino

Barrington Research Associates, Inc., Research Division - MD

* John Joseph Murphy

BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst

* Robert James Labick

CJS Securities, Inc. - President & Director of Research

* Ryan J. Brinkman

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Stephanie Benjamin

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Yarden Amsalem

BofA Merrill Lynch, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the KAR Auction Services, Inc. Q2 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to your host, Mr. Mike Eliason, Treasurer and Vice President, Investor Relations. Sir, you may begin.

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Michael Eliason, KAR Auction Services, Inc. - VP of IR & Treasurer [2]

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Thank you, Valerie. Good morning, and thank you for joining us today for the KAR Auction Services Second Quarter 2019 Earnings Conference Call. Today, we will discuss the financial performance of KAR Auction Services for the quarter ended June 30, 2019. After concluding our commentary, we will take questions from participants.

Before Jim kicks off our discussion, I'd like to remind you that this conference call contains forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect KAR's business, prospects and results of operations, and such risks are fully detailed in our SEC filings. In providing forward-looking statements, the company expressly disclaims any obligation to update these statements.

Lastly, let me mention that, throughout this conference call, we will be referencing both GAAP and non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the applicable GAAP financial measure can be found in a press release that we issued last night, which is also available in the Investor Relations section of our website.

Now I would like to turn this call over to KAR Auction Services CEO, Jim Hallett. Jim?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [3]

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Thank you, Michael, and good morning, ladies and gentlemen, and welcome to our call. And I'll say welcome to our first call with the new KAR. I want to start by outlining my agenda for today, what I plan to cover. I want to review the results of the spin-off of Insurance Auto Auctions, update our outlook for 2019, highlight the strategic focus of KAR as a smaller and more focused enterprise, review how we plan to deploy capital in the near term and our capital allocation priorities for the future. And I will spend a few minutes discussing my priorities for M&A targets as well.

As you know, we successfully completed the spin-off of Insurance Auto Auctions on June 28. A primary motivation for completing the spin was to unlock shareholder value that we felt was not being recognized within KAR. And after 1 month, I believe it's clear that we have accomplished our objective of unlocking shareholder value. As we have previously discussed, the separation of KAR and Insurance Auto Auctions will allow each enterprise to focus its attention on its respective core business.

In the case of KAR, we are focused on remarketing used vehicles. And I believe that we are world-class in the remarketing of vehicles, and everything that we do in our business should contribute to remarketing vehicles. We expect our operating decisions, our allocation of capital and our M&A targets to align with our focus on remarketing used cars.

Eric and I have had very positive feedback on the execution of the spin. Investors have expressed support for a more focused and somewhat simpler business model for KAR. Now I believe we need to demonstrate the strength of KAR to our shareholders as we look to grow earnings, consistently generate strong free cash flows and provide performance that will cause our investors to recognize the value of our business and the higher multiple that we believe our business deserves.

We knew it took a little longer to complete the spin than what we originally anticipated. And we appreciate your support and your patience through the process, and now it is behind us.

Let me start by providing an update on our guidance. First, we have not changed our guidance from what we discussed in June prior to the spin. We expect adjusted EBITDA of $530 million to $550 million for 2019. I am confirming our guidance, but I also want to acknowledge that our second quarter performance did not meet our expectations. We grew revenues, excluding purchased vehicles, 7% in the second quarter, and this was in line with our expectations. We fell short of our operating profit and adjusted EBITDA expectations for the quarter. The primary contributor to this shortfall was lower profitability in some of our ancillary and other related businesses.

As we discussed in our financial supplement yesterday, High Tech Locksmiths, a subsidiary of ADESA, incurred an inventory loss of over $5 million. This loss was discovered as the result of an internal investigation, which is still ongoing. We are in litigation with certain former employees, and we are pursuing all avenues to recover this loss. If we are not able to recover this loss in the current year, we are likely to be at the low end of our range of our guidance.

With the second quarter in the books and the spin completed, we are focused on our strategic priorities. During our visits with investors throughout the spin process, we outlined 5 strategic priorities: digital, data and analytics, international, mobility and seamless integration of all of our businesses in order to improve our customer experience.

Today, I want to focus on 3 of these strategic priorities. The most important initiative is our digital efforts in making TradeRev a leader in the dealer-to-dealer space. We continue to make progress, including hitting new milestones for cars sold. We had our first 1,200 transaction day in July, and we also sold 3,000 cars over a consecutive 3-day period. These are milestones that are evidence of our success in the marketplace. To date, we have pursued the dealer-to-dealer space with multiple offerings at ADESA and now the TradeRev platform.

Beginning August 1, we changed the organization's priorities to align ADESA around the goal of being the leader in the U.S. and Canada in the digital dealer-to-dealer wholesale transactions. We have adjusted our incentive pay to recognize the importance of TradeRev winning in each of the markets where it's offered. We recognize that the revenue per transaction at TradeRev is below what is earned at the physical auction, but at scale, we can reduce or eliminate the difference in EBITDA dollars per car sold.

We are pushing to grow even more aggressively in the last half of the year. We are still in the early innings of the transformation of the dealer-to-dealer space, so rapid growth is possible. I am confident in our ability to bring a comprehensive end-to-end solution to dealers and provide the solution of choice for their wholesale transactions.

In the data and analytics space, we have seen early success in assisting the captive finance companies and major banks with the pricing of vehicles and targeting specific dealers to purchase their off-lease supply. We will continue to look for ways to link our data to our customers' decision-making. Clearly, this capability creates stickiness with our customers, and I believe that we are the clear leader when it comes to data and analytics.

Our international strategy is a combination of combining or identifying and entering new markets outside North America and introducing our many digital offerings in these markets. Our CarsOnTheWeb acquisition earlier this year is performing very well. I expect to grow this business in Europe by taking advantage of their specialized capability in processing cross-border transactions between Western and Eastern Europe. We are also planning to introduce additional car services into the European market.

Perhaps more important than any of the strategic initiatives are -- is our focus on rightsizing KAR as a smaller and more focused business. We have set a goal to get to 25% adjusted EBITDA margin in the next 5 years. This will require us to manage our corporate overhead effectively, continue to use innovation to deliver services to our customers more cost effectively and to manage our costs in the field to match how customers choose to do business.

I am confident that we are up to this challenge, and we will embrace the opportunity to transform our industry while maintaining the exceptional cash-generating characteristics that we've been known for.

Now let me turn to capital deployment. First, we continue to return capital to our shareholders in the form of a dividend. We have declared a dividend of $0.19 per share. This level of dividend represents about 40% of the free cash flow we expect to generate in 2019 on the remaining KAR businesses. At a stock price of about $26 per share, this represents just under a 3% dividend yield. We also see KAR stock at the current valuation as an excellent investment of capital. We expect to repurchase -- or we expect KAR to be in the open market during the third quarter. We have $119.7 million remaining on our authorization that expires in October. I expect us to repurchase all of the $119.7 million in stock during the third quarter.

Our acquisition pipeline remains robust. Our current focus is on businesses that allow us to expand our customer base or enter into new markets. We have both North American and outside of North America opportunities to evaluate. We are focused on businesses that are directly related to remarketing used vehicles or provide services that contribute to the remarketing of used vehicles.

In order to have the right capital structure and resources to meet our needs for the foreseeable future, Eric will be leading an effort to refinance our existing term loans. We expect to pursue a refinancing of the existing term loans and the revolving credit facility and extend their respective maturities. We will also increase the amount of term loan outstanding using the proceeds for general corporate purposes, including future acquisitions. I will let Eric provide more color on these plans in a few moments.

In conclusion, I recognize there is a lot going on in the financial statements of KAR. We have the allocation of certain costs to Insurance Auto Auctions. We have interest expense on corporate debt for KAR pre-spin for the first 6 months of the year, and none of this is allocated to IAA. We also have the impact of the transition services agreement that will result in a reduction in corporate costs in the last 6 months of 2019 for the new KAR. The second half of 2019 will be much cleaner and will allow us to focus on the strength of our business model and its ability to generate strong cash flows. I'm confident in our ability to deliver results and execute on our strategy for growth.

So with that, I'll say thank you again for your support through the spin process. I will now turn it over to Eric for some additional color on our second quarter performance. Eric?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [4]

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Thank you, Jim. Let me start by highlighting some performance metrics. Consolidated revenue was up 19%. However, this includes purchased vehicles where we recognized the sale price of the vehicle as revenue with a corresponding cost of services for the purchase price of the vehicle. If we eliminate the purchased vehicle transaction, our revenue increased 7%.

In terms of volume, we had a 10% increase in total volume, an 8% increase in same-store volume. Physical auction volume was up 1%, and online-only volume was up 20%. We saw 15% growth on our OPENLANE platforms, 37% growth at TradeRev, and we more than doubled our volume in Europe with the addition of CarsOnTheWeb.

We also had improved ARPU in each of our channels. Physical ARPU increased 5% to $882 per car sold, and online-only ARPU increased 27% to $150 per car sold in the second quarter. Within the online-only ARPU, we had ARPU of $105 on the OPENLANE platform and $271 on the TradeRev platform.

The mix of vehicles continued to be favorable for revenue growth. Commercial volumes increased 13%, 11% on a same-store basis. The increased revenue reflects the strong growth in online-only volumes and the ARPU growth at physical auction. Off-lease volumes have begun to plateau. We do not anticipate any significant declines in supply of off-lease vehicles, though, for the next 3 years.

We also see declines in dealer consignment volumes, excluding TradeRev, moderating. Physical auction dealer consignment volume was down 5% in the second quarter, representing 41% of our physical auction volume in the quarter.

Our gross profit at ADESA declined in Q2 as compared to the prior year. Excluding purchased vehicles, gross profit of 43.2% compared to 45.2% in 2018. The decline in gross profit is attributable to lower gross profit in our ancillary and other related businesses, including the impact of the inventory loss at High Tech Locksmiths and increased costs in AutoVIN, our vehicle inspection company, that resulted from a change in certain systems that reduced the efficiency of field personnel temporarily. We have taken action to correct both the High Tech and AutoVIN situations and do not expect them to occur in future quarters.

As Jim mentioned, we are vigorously pursuing recovery of the inventory loss at High Tech Locksmiths. This loss may be offset in a later quarter if we recover all or a portion of this loss prior to year-end. We have recorded the entire inventory loss as of June 30 and will not record any potential recovery until realized.

The AFC business performed in line with our expectations. Loan transaction units were flat year-over-year, and modest revenue growth was offset by a small increase in the provision for loan losses. Net loan losses in the second quarter were less than 2%, and we expect net loan losses to remain below 2% for the remainder of the year.

In summary, KAR's financial performance in the second quarter was below our expectations due to lower gross profit in our ancillary and other related businesses, primarily High Tech Locksmiths and AutoVIN. We do not expect the situations that caused lower gross profit in the second quarter to continue for the remainder of 2019.

Now let me briefly discuss the impact of the completed spin on our financial statements. First, effective June 28, Insurance Auto Auctions became a discontinued operation. We are presenting the impact of Insurance Auto Auctions in our financial statements in a single line item, net of income taxes, for all periods presented. This includes all direct costs and expenses incurred on behalf of IAA but does not include corporate allocations of costs in historical periods. This will result in a difference between what we report as discontinued operations and what IAA reports as their historical financial statements in the Form 10. Beginning July 1, IAA will reimburse KAR for any transition services in accordance with the transition services agreement. This reimbursement will be at cost.

In our balance sheets for the periods prior to June 30, 2019, we have aggregated the current and noncurrent assets and liabilities of IAA into single line items in each area of the balance sheet. We have also provided a single line item for each of net cash provided by operating activities, net cash used by investing activities and net cash provided by financing activities of the discontinued operations in our cash flow statement. This allows our investors to see the balance sheet and cash flow information of KAR's continuing operations. This is not presented on a pro forma basis as if the spin had occurred as of the beginning of the year.

One item worth noting in our financial statements is the treatment of debt and related interest expense. The KAR financial statements for the first 6 months of the year reflect all of the interest on corporate indebtedness as KAR interest expense. Our corporate debt was an obligation of KAR and not any individual subsidiary. We do not allocate corporate interest expense to our subsidiaries. On June 28, a dividend of $1.278 billion was received from IAA and used to retire a significant portion of term loans B4 and B5. This will result in a reduction in interest expense at KAR in the second half of 2019.

In terms of our capital structure, we now have less than 1 turn of senior leverage at KAR. As we look forward, we expect to use leverage on our balance sheet to fund the execution of our strategy, especially any future acquisitions. With the term loans B4 and B5 maturing in 2021 and 2023 and our revolving credit facility maturing in 2021, we intend to amend and extend our credit facilities in early September -- pardon me, I had a tickle in my throat, subject to acceptable market conditions. We are expecting to increase our term loan borrowings with the proceeds being used for general corporate purposes, including future acquisitions. We expect any proceeds received from the refinancing to increase our cash balances upon closing. We expect to complete the refinancing of our debt prior to September 30, 2019. We will continue to have a target net leverage of 3x adjusted EBITDA.

That concludes my remarks. And so I'll turn it back to Valerie to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from John Murphy of Bank of America.

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Yarden Amsalem, BofA Merrill Lynch, Research Division - Research Analyst [2]

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This is Yarden on for John. So my first question is on the guidance. And I know you mentioned some inventory losses and delayed expenses as a negative factor. But even at the low end, your 2019 outlook still implies somewhat of an acceleration in the back half of the year. Is this driven by the continued integration and I guess, ramp of your acquired businesses or maybe some normalization of costs that you don't expect to repeat in the second half? I'm just curious to hear your thoughts about the different drivers there and whether there's anything you need to expect to happen in 3Q or 4Q.

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [3]

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Yes. So I think a couple of things. Number one is, quite frankly, business is good. We're seeing revenues up. We're seeing volumes up. And business is much better than what we've seen in the first half of the year. I also believe that we're going to get the benefit of some of the costs that we took out in the first quarter of the year. We'll start to see some of those benefits realized here as we go into the second half of the year. Eric, would you add to that?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [4]

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And then, you are correct, some of these events in the ancillary services affected the first half. We've made changes, and our gross profit will be stronger in the second half than it was in the first half. And then lastly, we will be receiving payment from IAA for a portion of the transition services, which is in our cost structure in the first half. So the net will be a reduced corporate overhead in the second half of the year as well from that.

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Yarden Amsalem, BofA Merrill Lynch, Research Division - Research Analyst [5]

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Okay. That's very helpful. And my next question is on TradeRev. And I know it's early days, but is there a set of metrics or data points that you guys are looking at, both in the near term and longer term, to determine success? I'm just trying to understand how do you think about future investment and what level of spending makes sense given -- going forward given the current performance that you're seeing.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [6]

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Well, the primary metric we're looking at is cars sold. And we do have parameters under which how much money we're willing to invest in losses in that business, of course, that we laid out at the beginning of the year. But it's really pursuing market share. Jim, do you want to talk more about that and how you're pursuing market share?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [7]

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Yes. I think one of the things that I mentioned in my commentary is I mentioned that we made a change on August 1, where we have aligned the sales team at TradeRev and the sales team at ADESA physical auctions. And if I can expand on that for just a moment and give you a little bit of background, and how we plan to go forward here, I think, is really critical to how we see success in the back half of the year.

Up until now, I would tell you that ADESA and TradeRev have, for the most part, operated as independent offerings, almost independent companies. And you could say, in fact, they were actually competing with each other to some extent. In some cases, you had 2 different salespeople on 2 different days calling on the same dealer, offering a different value proposition, one on TradeRev and perhaps one on physical auctions. Effective August 1, we have aligned those 2 sales teams, and the real goal here is to focus on dealer consignment. And we want to win dealer consignment regardless of what channel it comes in. We want to be able to offer the dealer a digital offering on TradeRev, but we also know that not every dealer is going to take that offering. We want to be able to offer that dealer the opportunity to sell the car in a physical auction and allow the dealer to make the choice of use one channel, use the other channel or perhaps use both channels and maybe one channel for certain cars and another channel for other cars. I'm sure you get that picture.

But as we see that, one of the most critical things for dealers, especially in the urban areas, is to get these vehicles off of their lot as quickly as they can. Real estate is at a premium, and these trades that they're not going to be keeping for retail, they need to be off their lot. And one thing that we have that our major competitors in this space don't have is we have a lot of real estate. And our plan is to capture that car, sweep that car off their lots and get it to our lot as quickly as we possibly can. Once we get it inside our compound, once we get it inside our security, it's going to be much easier to image these cars and to launch these cars in a much more effective and efficient manner.

In fact, if I could describe to you what our plan would be, as we get the car, we're immediately going to ask the dealer to launch that car on TradeRev, not wait for the sale to come up on sale day at the physical auction, immediately launch that car on TradeRev. If it doesn't sell on TradeRev, then we're going to have that car go into the physical auction and hopefully, sell that car in the physical auction. If perhaps it doesn't sell in the physical auction, then, before it leaves our premises, we're going to relaunch it on TradeRev, maybe ask the dealer for a price adjustment but relaunch the car again. So you can see there's kind of a waterfall event here of TradeRev, physical, back to TradeRev. And we believe that this gives us a much better opportunity to get this vehicle sold at one of these stages.

The other thing that we've done is we've aligned our fee structure. Between ADESA and TradeRev, the fees are similar in terms of what it costs you to sell a dealer consignment vehicle. And then I mentioned in my remarks, we've also aligned incentive pay. So what we have is we have the TradeRev team and we have the dealer consignment team at ADESA physical auctions, we have them working towards one number on dealer consignment. There's one compensation program, and this closely aligns these teams to work much better together. And I think that this combination can really accelerate what we're going to be able to accomplish here in the second half of the year in hitting our goals.

Just to add a couple more comments, I think one of the things I hear a lot from investors is they talk about how much are we cannibalizing the ADESA physical auctions. And there's no question. There is some cannibalization that's going to take place. But let me paint this picture for you. Overall, ADESA has about a 20% share of the dealer consignment market in North America. I'm not concerned about cannibalizing some of that 20% at ADESA physical auction. Quite frankly, that's what I'm trying to drive towards. What I'm really focused on is I'm focused on the 80%. How do I go after my competitors, whether it be independent auctions or the major groups that we compete with? How do I go after them and take share in the dealer consignment? And then how do I go after the addressable market, which is 9 million -- we estimate at 9 million to 10 million units? How do I go after to that addressable market where no cars are even coming to an auction today? And how do I get a larger share of that market?

So I believe that between what we've done with the sales teams, what we've done with the fee structure, what we've done on incentive pay and now what we've done on approaching the total addressable market, that there's a real opportunity for us to see a quick acceleration here through the back half of the year. And I mentioned some numbers that we pointed to. We had a record day here in July of over 1,200 vehicles in one single day, a record 3 days where we sold over 3,000 cars. I believe this is a good indication of what can happen. So I know that was a long-winded explanation, but I'll stop there.

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Yarden Amsalem, BofA Merrill Lynch, Research Division - Research Analyst [8]

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It's really helpful. I guess my last question is that the conversion rates at ADESA improved materially from last year. Can you maybe discuss some of the drivers there and whether you think it's sustainable?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [9]

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The primary driver, that is the mix of vehicles. With a high commercial mix, the conversion rate will always be higher. That's the nature of our business. Those commercial vehicles are more likely to sell because that's their avenue for monetizing those assets, whether they be captive finance companies, banks, fleet operators, et cetera. So it's really the mix, and that conversion rate is consistent with what we've seen in previous years where we had very high commercial mix as well. And I believe it will be sustainable as long as the mix stays heavily commercial.

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Operator [10]

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Our next question comes from Stephanie Benjamin of SunTrust.

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Stephanie Benjamin, SunTrust Robinson Humphrey, Inc., Research Division - Associate [11]

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So I wanted to touch back a little bit on ADESA gross margin for the quarter. So it's kind of a 2-part question, but the first part of the question is, looking at what you reported for ADESA and then adjusting it for the purchased vehicles, it does look like that, just from a sequential basis, that impact to purchased vehicles did accelerate a bit. I think it was, call it, 400 to 500 basis points. So is that what we should expect kind of going forward in the back half just looking at the impact of purchased vehicles versus last year? And then the second part of that is taking, okay, the adjusted -- adjusting out for the purchased vehicles, taking that aside, and then even adjusting for the inventory loss you called out, it looks like margins were still down, call it, 100 bps year-over-year. So maybe if you could speak to the reason for that very adjusted still margin decline and kind of expectations of what of that was really only specific to the quarter and what we can expect going forward? I know there's a lot in there, but I -- okay.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [12]

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Thanks, Stephanie. Yes. I think I have this, Stephanie. This is Eric. So I'll respond. First, you are right. With the launch of the ADESA Assurance program across all of our marketplaces, we have more purchased vehicles as a result of that program offered to our buyers. And we expect it to continue. In the Q that we will file most likely tonight and in the supplement, we're giving you the actual revenue related to purchased vehicles, so you can begin to parse out these pieces in our financial statements. And it was that 500 bps difference in margins. It was only 300 a year ago.

If I net out vehicles, the difference this year compared to last year was 200 basis points at ADESA, 45.2% last year to 43.2%. While about half of that was the inventory loss, there was more than the inventory loss and reduced gross margin performance in the ADESA business from ancillary and related services, and those are additional costs and other items at High Tech Locksmiths that had significantly reduced profitability and margin. And also, the AutoVIN situation that we mentioned, that reduced margins.

Those 2 items, which I believe were temporary and will not be repeated, if they had not occurred, if we had, had our normal margin profile, actually, margins would have been flat year-over-year, excluding the impact of purchased vehicles. And I did that calculation not making it approximately flat. We took out the specific items that we know of, and we would have been flat on percent margin. That gives us confidence that we can perform at a higher level in the second half than what you saw in the first half.

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Stephanie Benjamin, SunTrust Robinson Humphrey, Inc., Research Division - Associate [13]

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Okay. So got it. So just really, as we look through this year, the kind of the transition as we start to model ADESA Assurance means that margins will be down year-over-year based on what you reported last year. But if you net out the past 2 years of these purchased vehicles, it's more of those temporary items. So is that kind of the right way to think about it?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [14]

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Right, Stephanie. We are netting it out of both years, though. And we're giving you both years data in each quarter so that you can calculate. We look at the business on a net, not a gross basis relative to purchased vehicles. That's -- you have it correct. They should not have an impact, and I will be giving that information going forward.

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [15]

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Yes. And then, Stephanie, I would just weigh in here. The purpose here is the ADESA Assurance program is a very good program, it's a profitable program. And I believe it's helping us grow our business.

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Stephanie Benjamin, SunTrust Robinson Humphrey, Inc., Research Division - Associate [16]

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Got it. And then lastly, this is also just -- I wanted to speak a little bit in terms of you mentioned with TradeRev and just kind of adjusting the fee structure to make it more attractive or kind of similar between physical and TradeRev. When did that begin? Or can you kind of talk about what you're seeing, just early results there? And then that's it for me.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [17]

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And Stephanie, as many people know, our buy fee structure can be market by market in the United States and Canada, in particular. And what we're doing is, in markets, trying to eliminate major differences in sell fees and buy fees relative to selling a dealer consignment car in any given market. So where we're seeing differences, we are aligning them, and it will depend which one is adjusted. We have opportunities, perhaps, for more fees on the TradeRev side. And it may put some reductions on the ADESA side in certain markets, but we don't think it will be material either way.

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Operator [18]

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Our next question comes from Chris Bottiglieri of Wolfe Research.

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Christopher James Bottiglieri, Wolfe Research, LLC - Research Analyst [19]

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I was doing some math to make sure -- the AutoVIN, it sounded like it was roughly equal to the headwind from inventory, the [$5.4 million]. Is that a good calculation I just did?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [20]

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It would not have been that big. There's more at High Tech than just inventory, Chris. You're probably right on the headwind relative to margins. It just wasn't all AutoVIN. It was both additional cost issues at High Tech Locksmiths and a portion of AutoVIN.

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Christopher James Bottiglieri, Wolfe Research, LLC - Research Analyst [21]

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Got you, guys. So let's just say we give you credit for all of that just goes away, kind of back-to-normal Q3, start of Q3. I'd probably have you up about 4% then on kind of like, let's just call it, clean EBITDA versus back half implied 10% growth at the low end. Pretty attractive used car environment in Q2. I don't know why that gets better. Anything else you could point to that's discrete that would kind of give it more credibility for the back half guide? Anything you could point to would be helpful there.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [22]

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Yes. You'll have the offset of corporate expenses with the reimbursement from IAA that will be direct in the second half. Keep in mind that discontinued operations has very specific rules, and what you see in the IAA financial statements is not how I record them in the first half of the year. My costs are my costs, and I don't get to allocate out the same way that they have to pick up allocations to show their business as it exists. So they're more, call it, on a pro forma basis, and I'm on an actual. So Chris, that is going to be a component that's very specific, where we will have a recovery of costs in the second half that was not present in the first half.

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [23]

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And I think the other thing I would add, Chris, and I mentioned it earlier, but we did take out costs in the first quarter of the year. And I believe that we will get the benefit of those costs in the latter half of the year.

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Christopher James Bottiglieri, Wolfe Research, LLC - Research Analyst [24]

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Got you. Okay. And then TradeRev, switching gears to TradeRev, a couple of comments there I kind of want to dig a little bit deeper on. So I [wondered] if you could talk about aligning the fee structure at ADESA versus TradeRev? Does this implicitly mean that you've raised fees at TradeRev or cut fees at kind of the ADESA branch level? I just wanted to get a sense for what you mean by aligning the fee structure there.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [25]

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Before I let Jim talk about generalities, we were [$271 million] in the current quarter versus about [$250 million] prior. So there, you see that -- the impact of that, Chris, I think. And we think there's room for that to get even higher. So the fee structure is really to make -- again, there's a value proposition to remarketing a vehicle, and there's no difference if it's on TradeRev or ADESA physical. It's worth a certain value.

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Christopher James Bottiglieri, Wolfe Research, LLC - Research Analyst [26]

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Got you. That's actually helpful. And then big picture, I think you made some comments about EBITDA being indifferent between TradeRev and physical. I know this is somewhat illustrative, it's a brand-new concept. And I don't know that you have any markets that have scaled yet. But to the best of your ability, if you were to look at like a market-level contribution analysis, is there a way to frame for us what the TradeRev profit contribution is per unit relative to legacy physical so we can think about, as some of this dealer migrates to TradeRev, how that impacts the P&L of your model going forward? That would be helpful.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [27]

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Well, while this is very difficult to do on a market, I would not extrapolate individual markets. We are mature in the Toronto market, for example, in Canada, where the company was founded. And the profitability there is very comparable to what we would get in the individual dealer consignment vehicle at ADESA Toronto. So again, the unfortunate part is in both of those analyses, you're not fully loading it with corporate expenses. That gets tough. But relative to contribution, it's very comparable in a mature market, which -- I think that's something that we can point out. We are the #1 player in physical auctions in Canada. We are the #1 player in digital auctions in Canada. And we're finding it to be a market that they can coexist without diminishing our profits in those markets.

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Christopher James Bottiglieri, Wolfe Research, LLC - Research Analyst [28]

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Got you. Okay. And then one -- this is a really quick one. How many days a week is TradeRev open when you cite this 1,000 per day figures? Just trying to get a sense for how many days you actually operate in a given a week.

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [29]

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Yes. So TradeRev is open 7 days a week. The fact of the matter is we receive a car and we image the car and launch the car as the car comes to us. So basically, that's one of the big benefits of TradeRev, is you don't have to wait for a sale day to come up. You can sell the car immediately. And as you may know, that's all said and done in 45 minutes.

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Christopher James Bottiglieri, Wolfe Research, LLC - Research Analyst [30]

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Got you. Got you. Is there any reason I can't take your 1,000 per day and multiply it times 90 then?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [31]

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Yes. There is a pattern to retail activity. Monday would be the biggest day of the week every week. And you'd probably see less activity towards the end of the week and the weekend, when they're focused on the retail transaction and they don't wholesale as many cars. So you'd see a lot of activity post Saturday as they're loading cars and getting ready. And Monday is the biggest day of the week for digital, not unlike Super Monday in the holidays, people get back and that's when you get online and start selling your goods and services.

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Operator [32]

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Our next question comes from Bret Jordan of Jefferies.

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Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [33]

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Do you guys have any feeling for, I guess, market share trends with TradeRev versus Manheim Express or ACV? I mean -- I guess, I mean, when you think about the dealers that you're pitching TradeRev to, are they, in many cases, already using another app?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [34]

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No. First of all, I think that ACV is probably closer to what TradeRev -- to the TradeRev offering in terms of the transaction and how the transaction takes place. I think Manheim Express is different from TradeRev and ACV. But I believe that -- I lost track of your question there for a minute.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [35]

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So Bret, the market share of all of those products is really small relative to the dealer consignment market. I think trying to compare TradeRev to ACV as if that market is stand-alone is a mistake. They both, last year, sold around 100,000 vehicles in total. That's it. Out of an -- our industry sold over 5 million dealer consignment vehicles. So it's a new product launch. Relative to each other, though, again, there's not a meaningful difference until they start talking about each other as if they're separate from our industry. Right now, they're a small part of the industry that we think can grow very fast. Jim?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [36]

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Okay. When you think about it, if you take all of these different competitors, we're looking at about 0.5 million cars a year of a total addressable market of somewhere in the order of 9 million to 10 million. So we're still in the very, very early stages of this.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [37]

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We will acknowledge that we believe, in the United States, that ACV has more volume than TradeRev. But in Canada, TradeRev is the clear leader against all products.

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Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [38]

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Okay. And I guess you sort of try to gauge an inflection point. I think Jim mentioned, when at scale, the EBITDA contribution from TradeRev would be, I guess, comparable to the business -- to the legacy business. What kind of scale are we talking about? I mean how many units would we need to really sort of get to a tipping point?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [39]

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Our model is looking at the last digital network that we saw grow rapidly, and that was the OPENLANE environment. And to be honest, it looks similar. It's in that 350,000 to 400,000 units. It looks like that's sufficient scale to absorb all of the infrastructure around. And again, I -- we aren't there yet. So what will happen -- but that looks like the inflection point to me, Bret, and we talked about that on our road show as well.

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Operator [40]

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Our next question comes from Ryan Brinkman of JPMorgan.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [41]

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Clearly, you were correct in your observation that you have unlocked shareholder value by the spin of IAA. I wonder, though, did the value that the market assigned to IAA relative to KAR, and we're seeing another step-down in the KAR shares today, of course, did that track differently than you might have supposed? And does that enter at all into how you view the opportunity for dividend versus repurchase?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [42]

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So I'll answer the first part of that, and maybe Eric can pick up some of that as well, Ryan. There's no question that, to your point, we actually overachieved our expectation on Insurance Auto Auctions. So on a large picture, I think I overachieved, but there's no question that we do feel that ADESA is undervalued and it dropped to a level lower than what we expected.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [43]

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And relative to share buybacks, yes, we are expecting to utilize the remaining authorization and take advantage of the fact that we think our stock is undervalued versus what the long-term value should be.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [44]

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Okay. And then finally from me but still on capital allocation. Recently, Cars.com completed a review that some speculated could have ended in a sale. Can you talk about what you look for in an acquisition in Canada? I think investors have so far had an expectation that acquisitions would mostly be sort of asset-light software system type purchases in Europe like CarsOnTheWeb, with the U.S. physical business pretty much in place. Is that still the right thinking on Europe, et cetera? Or are there yard opportunities still in the U.S.? Or would you even maybe consider acquisitions that are a little bit more outside of the box?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [45]

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Yes. So Ryan, I think, first and foremost, we believe in digital, and we believe the world is going digital. And we will continue to invest in this asset-light manner wherever we can and with the platforms that we have, whether it be the OPENLANE platform, the TradeRev platform, the CarsOnTheWeb platform, the GRS platform we have in the U.K. So anytime that we can invest in technology that will enhance our opportunity to service our dealers, that's always top of mind. But that's not to say that we wouldn't look at other opportunities. People ask me from time to time, would you ever consider buying a physical auction? And although we say it's going digital, we know that transformation is not going to happen overnight, and there's going to be some time. And if there was an opportunity to buy a physical auction or buy physical auctions in a market that we're underserved, where there's a buyer base that we don't currently have or there's a customer mix that we didn't have, we'd kind of take a look at that sort of thing. And there might be some physical auctions that we'd still feel we could buy and have enough runway that we'd get our investment back many times over before this transformation is fully completed.

We said in the commentary, what do we really do well. And we believe that, world-class, we remarket cars. At the very, very core, that's what we do best. So anything that we should be doing, that we should be investing in should be helping us remarket cars. And if you look at our strategy and you look at the investments we make, that's where we should be investing. So I hope that gives you a little bit more flavor for how we think about the markets.

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Operator [46]

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Our next question comes from Gary Prestopino of Barrington Research.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [47]

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Eric, could you -- you mentioned you had some issues at AutoVIN, and I didn't quite capture that. Could you just very briefly say what was going on there that caused some of the issues on the gross margin?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [48]

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Yes. So Gary, this is Jim. I'll take that. At AutoVIN, we were installing a new technology that was being put in place to enhance the efficiency of our inspectors' daily routes that they take in terms of how they get assigned. And quite frankly, what happened is the technology was being installed. We actually ended up doing less inspector -- less inspections per inspector per day. And we caught the glitch. We adjusted the technology, and we're back to normal operating at this point in time. So it was just kind of a -- it was kind of a 30-day blip, where we've seen this take place and has since been corrected.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [49]

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So Gary, the net effect is revenue went down and the cost was flat from what it would have been because we were having less inspections completed.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [50]

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Yes. That's right. Okay. And then just a couple other ones because most of my questions have been answered. Can you -- and I know TradeRev is in an early stage, but is it working out where it's like an 80-20 rule, where there's 20% of the dealers that are hooked onto it are using 80% -- doing 80% of the transactions? I'm just trying to get an idea of what the actual uptake among a dealer would be in terms of usage and doing transactions.

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [51]

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Yes. Gary, I don't know if I could put percentage numbers on it. All I can say to you is that it's very spread out. It is very different market by market. And obviously, it's very different in Canada than it is in the United States. And you just can't take what we did in Canada and bring it to the United States. The market has nuances and has differences. It's market by market. It's dealer by dealer. And it's really boots on the ground. And it's going out and presenting the value proposition and really now presenting the choice. And you can't go out and tell a dealer that he's a dinosaur and he's got to come to this new technology overnight. I think you have to go out and demonstrate to the dealer what the benefits are of each product, what the economics are of each product and then let the dealer basically decide. The same way we let the commercial customers decide whether they want to sell in a physical environment or on an online platform. So I hope that makes sense to you.

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Gary Frank Prestopino, Barrington Research Associates, Inc., Research Division - MD [52]

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Yes, it does. And then lastly, I just -- in terms of CarsOnTheWeb, with the tech platform that you have there, what would be your annual capacity of vehicles that you could use, you could sell through that tech platform now? Or is it just unlimited because it's a tech platform?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [53]

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Gary, there's -- as you said, it's an unlimited opportunity. If you think of CarsOnTheWeb today, CarsOnTheWeb is a small company. I mean we're going to sell somewhere in the order of 70,000 cars this year. When you think of the carpark in Europe, it's compared to the carpark here in North America. So there's a huge opportunity there. We think we have the best platform, and we think we're positioning ourselves with our relationships around the world to really be the winner in that space. So again, it's going to take some time, but the opportunity is huge.

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Operator [54]

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Our next question comes from Daniel Imbro of Stephens.

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Daniel Robert Imbro, Stephens Inc., Research Division - Research Analyst [55]

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First one, just a broader question on the wholesale channel as it relates to used vehicle prices. If I recall a few years ago, used vehicles prices were falling, so more off-lease units kind of went down the funnel towards physical auction. As we've seen used vehicle prices increasing, are you starting to see any signs that dealers are grounding more units? Or is the return rate of units making it to auction changing at all?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [56]

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So are we speaking of dealer vehicles here? Or are we speaking of the off-lease vehicles? I'm sure -- make sure I understand your question.

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Daniel Robert Imbro, Stephens Inc., Research Division - Research Analyst [57]

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Of the off-lease units, are the grounding dealers taking down more of those as we've seen used vehicle prices improve year-over-year?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [58]

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No. Actually, we kind of give -- have been giving that number. The grounded dealer number is leveling off. It's not going -- initially, we saw it growing, and now it's flattened out. And we're seeing the most significant growth being in the private label channel and in the physical auction channel. I mean again, we're at 2 million units being sold at physical auction across the industry that are off-lease. That's a very significant increase, and it continues to grow.

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Daniel Robert Imbro, Stephens Inc., Research Division - Research Analyst [59]

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Got it. And then just a question on AFC. Revenue growth did moderate there. You said it was in line with your expectations. But can you talk about how that segment is exposed to interest rates? I think I remember, over the last few years, a rising rate environment supported growth at AFC. Can you talk about how the exposure of that segment would be in a falling rate environment?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [60]

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It's actually a fee-based business with an interest rate spread on top of it. We reprice daily on new loans, so it's not as interest rate-sensitive. And the average term is about 65 days, so it's not as interest rate-sensitive as most loan portfolios. I would tell you, its activity is probably more in line with what's happening on the consumer loan side, which we don't participate in, but it's retail activity. And they're flat in a market where we told you the physical auction volumes were up 1%. That is their primary customer. While they pick up some TradeRev, the OPENLANE customer is not likely to be using AFC because that's a franchise dealer buying, and we don't finance the franchise dealers through AFC. They use the captive finance. So that's why it's in line. It is flat. It was relatively close to the total change in physical auction volume for us. And that's kind of how I measure it, Dan. And I would say interest rates aren't a big impact, and declining interest rates will probably be good for retail -- used retail car sales, which will be good for their portfolio. That -- it has nothing to do with cost of funds.

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Daniel Robert Imbro, Stephens Inc., Research Division - Research Analyst [61]

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Got it. And then just one last quick clarifier, if I could. Jim, apologies if I missed this, but did you guys update at all your full year TradeRev either unit or operating loss targets? Or did you reiterate the 200,000 and $60 million in losses?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [62]

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I did not. But based on what you say here, I will. We had set out the first of the year that -- we stated our goal was to hit 200,000 cars at TradeRev. And we have not taken our eye off that goal. We've got the accelerator to the floor. And I think with the changes that we made here August 1, I'm looking for acceleration. And I continue to push for that 200,000. We've also announced that we were going to have $60 million in operating losses, and that number has not changed.

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Operator [63]

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The next question comes from Bob Labick of CJS Securities.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [64]

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Just to help us quantify. It was helpful to note the change in the IAA corporate expense. Can you quantify the difference or, I guess, what they'll pay you in the second half so that corporate will be down x in the second half based on the recoupment from IAA?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [65]

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Well, it will be based upon the services they utilize, Bob. So at this point, I'd rather not -- it's a meaningful number, but it wouldn't be material to the overall financials. It's millions of dollars but not tens of millions of dollars. That'll size it.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [66]

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Got it. Great. That's helpful. And then I guess bigger-picture question. In terms of the, I guess you're calling them purchased cars, the ADESA Assurance, it seems like revenues there were up, I don't know, close to 200% and close to $80 million this quarter. Can you talk about the drivers behind that? Is that from OPENLANE? Is that now from TradeRev? Or what's causing the material increase in ADESA Assurance year-over-year?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [67]

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Well, first of all, I think it's a product that has created a lot of confidence with dealers buying cars. Anytime that you can create more confidence for the dealer to buy that vehicle and to have some kind of assurance around price on that vehicle, then he's more likely to buy more vehicles, whether it be an online vehicle or whether it be at the physical auction or whether it be on TradeRev, any of those venues. And so what we're doing is we're offering a product where they buy ADESA Assurance upfront. And if they haven't sold that car in a specified period of time and under certain conditions, they can return that car. And we will repurchase that car, and then we will go on and resell it in the marketplace. We put increased focus on the product, and the product is doing exceptionally well. It's creating the behavior that we anticipated. It's driving sales. I mentioned earlier, it's profitable, and we're seeing real success.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [68]

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Okay. But to be clear, that's also part of -- or TradeRev is on that -- on ADESA Assurance as well in addition to OPENLANE and then obviously the regular auctions?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [69]

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No. TradeRev is not on ADESA Assurance. TradeRev has different arbitration policies. So there are purchased vehicles at TradeRev. We do not count them in our car count. If the car is returned and basically, you reverse the transaction, we do not include those as a second sale. And it's a very small number.

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John Joseph Murphy, BofA Merrill Lynch, Research Division - MD and Lead United States Auto Analyst [70]

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Okay. So it's not in the 41,000, but it is in the ADESA Assurance revenue?

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [71]

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No. They are not buying ADESA. In the 41,000, there are no resales of vehicles. And they are not using the ADESA Assurance program independently at TradeRev.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [72]

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Okay. Got it. So that's just -- it's just...

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [73]

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Physical auction.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [74]

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Right. It's just physical auction or OPENLANE.

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [75]

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OPENLANE. It's basically our private label platforms in ADESA auctions.

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Robert James Labick, CJS Securities, Inc. - President & Director of Research [76]

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Okay. And then -- so what's the material change year-over-year? I mean, it's such a big number.

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [77]

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We've made it available on more transactions. It used to be very limited, and we're saying, no, this is a good program. And it's profitable for us. When you net out the sale price and purchase price of the vehicle and the fees we collect, it's a profitable offering. We also have more cars -- we also have purchased about 20% -- now this is unique, about 20% of the transactions at CarsOnTheWeb are reflected as purchased vehicles also as a result of the nature of title transfer in different European countries. That is probably also a meaningful contributor to the increase. And that is not ADESA Assurance. Those are just called purchased vehicles. We don't really purchase it, but we're at risk, so it's recorded in the same way.

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Operator [78]

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We have a question from Alice Wycklendt of Baird.

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Alice Linn Wycklendt, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [79]

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Helpful commentary on the changes in your sales team approach with TradeRev. But apologies if I missed it. I'm wondering why your customer-facing incentives this quarter -- how may they -- those have changed? And then what impact have you seen?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [80]

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Yes. So as we think about it, we continue to monitor transportation. Transportation is probably the #1 incentive that we use for our buyers. And at one point in time, we were transporting cars different distances, and we were providing different incentives. We continue to tweak that, and we tweak that on a market-by-market basis. And I think that's probably the biggest motivator for buyers to want to buy more cars on TradeRev.

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Eric M. Loughmiller, KAR Auction Services, Inc. - Executive VP & CFO [81]

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And Alice, for magnitude, we expect those types of incentives to represent roughly 1/3 of the operating loss for the year.

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Alice Linn Wycklendt, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [82]

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That's helpful. And then just one quick follow-up, a clarification on the share repurchase, if you don't mind. Is that contemplated in your current guidance?

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [83]

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Well, we have not -- as you saw in the guidance we give you the 134 million shares, which is roughly what's out there. We have not adjusted that for what potentially could be the share repurchases completed this quarter. We did not adjust the share count.

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Operator [84]

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Thank you. As we have no further questions at this time, I'd like to turn the conference back over to CEO, Jim Hallett, for any closing remarks.

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James P. Hallett, KAR Auction Services, Inc. - Chairman & CEO [85]

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Thank you, Valerie, and thank you to everybody that's been on today. I really appreciate your interest and your continued support here. I'll tell you, frankly, I'm feeling very, very optimistic about what's going to take place in the second half of the year here. We got off to a little bit of a struggle in January and February, the first half of the year. We've done a number of things that I won't repeat. But we've done a number of things. We've taken a number of steps, a number of actions. We're committed to our guidance of $530 million to $550 million. I believe, if we can execute on the things that we've said we're going to execute on, I believe we will deliver on that guidance and then commit to hitting those numbers. I'm excited about the changes that we've made in TradeRev. I really believe that there can be quick acceleration here. And I believe that we can drive those volumes with the new go-to-market strategy that we have. I think as we continue to rightsize this company and to do the things that we're talking about here, make the right acquisitions and the right allocation of the capital, I believe this is a great business. And I believe that we have great opportunities in front of us. And now it's time for us to demonstrate that we can get out there and execute on the things that we've told you about, With this spin being behind us, no distractions, let's get to work.

So I appreciate you being on. Thank you, and we'll look forward to talking to you next quarter.

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Operator [86]

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Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.