ADESA Inc. Reports Operating Results (10-Q)

ADESA

Inc. (KAR, Financial) filed Quarterly Report for the period ended 2010-03-31.

Adesa

Inc. has a market cap of $1.99 billion; its shares were traded at around $14.77 with and P/S ratio of 1.1. KAR is in the portfolios of RS Investment Management, Steven Cohen of SAC Capital Advisors.

Highlight of Business Operations:

Interest expense decreased $11.7 million, or 25%, to $34.9 million for the three months ended March 31, 2010, compared with interest expense of $46.6 million for the three months ended March 31, 2009. The decrease in interest expense was primarily the result of a $250.0 million prepayment on Term Loan B in the fourth quarter of 2009, a $225.6 million prepayment on the principal amount of the 10% senior subordinated notes in January 2010 and a $28.3 million repayment on Term Loan B in February 2010. In addition, a decrease in interest rates over the past twelve months has reduced interest expense for our variable rate debt instruments. Partially offsetting the decreases was an increase in interest expense at AFC of $1.4 million that resulted from the adoption of Accounting Standards Update 2009-16 on January 1, 2010. Prior to the adoption of this guidance, this expense was recorded as a reduction of revenue.

Other income was $2.9 million for the three months ended March 31, 2010 compared with other expense of $1.7 million for the three months ended March 31, 2009, representing an increase of $4.6 million. The change in other (income) expense was primarily representative of foreign currency transaction gains for the three months ended March 31, 2010 versus foreign currency transaction losses for the three months ended March 31, 2009.

Revenue from ADESA decreased $14.7 million, or 5%, to $273.6 million for the three months ended March 31, 2010, compared with $288.3 million for the three months ended March 31, 2009. The decrease in revenue was primarily a result of a 10% decrease in the number of vehicles sold, offset by a 5% increase in revenue per vehicle sold to approximately $560 for the three months ended March 31, 2010, compared with the three months ended March 31, 2009.

Selling, general and administrative expenses for the ADESA segment decreased $0.9 million, or 2%, to $51.8 million for the three months ended March 31, 2010 compared with the three months ended March 31, 2009, primarily due to a $2.5 million decrease in compensation and related employee benefit costs, a $1.5 million decrease in professional fees, as well as a net $0.8 million decrease in telecommunications and other expenses. The decreases in selling, general and administrative were partially offset by a $1.7 million increase in stock-based compensation expense, a $1.5 million increase related to fluctuations in the Canadian exchange rate and a $0.7 million increase in marketing costs.

Revenue from IAAI increased $20.8 million, or 15%, to $158.8 million for the three months ended March 31, 2010, compared with $138.0 million for the three months ended March 31, 2009. The increase in revenue was primarily a result of an increase in average selling price for vehicles sold at auction.

Selling, general and administrative expenses at IAAI increased $5.6 million, or 37%, to $20.6 million for the three months ended March 31, 2010, compared with $15.0 million for the three months ended March 31, 2009. The increase in selling, general and administrative expenses was attributable to increases in incentive compensation based on the performance of IAAI as well as stock-based compensation expense.

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