CARMEL, IN – ADESA, Inc. reported its first quarter financial results for the period ended March 31, 2006. For the first quarter of 2006, the company reported that net income increased 3.7 percent from the first quarter of 2005 to $36.3 million, or $0.40 per share, on revenues of $285.6 million. Included in these results is a $2.7 million pre-tax charge, or $0.02 per diluted share, related to unreconciled balance sheet differences concealed by a former employee at the company's Kitchener, Ontario, facility. During the first quarter of 2006, the company also implemented Statement of Financial Accounting Standards (SFAS) 123( R ), share-based payment, which resulted in approximately $1.0 million of pre-tax, incremental stock-based compensation, or nearly $0.01 per diluted share. For the first quarter of 2005, the company reported net income of $35.0 million, or $0.38 per share, on revenues of $242.7 million.
For the first quarter of 2006, the company reported a 17.7 percent increase in revenues to $285.6 million, compared with $242.7 million in the first quarter of 2005. The $42.9 million increase in revenues was primarily the result of significant growth in institutional vehicles sold which require more ancillary services, such as reconditioning and transportation, strong performance by AFC and acquisition related revenue growth. Favorable Canadian currency translation also impacted revenue in the quarter by approximately $3.3 million. Selling, general and administrative expenses for the first quarter of 2006, included $2.7 million pre-tax, or $0.02 per diluted share, for the previously mentioned Kitchener charge and $1.0 million pre-tax, or approximately $0.01 per diluted share, of incremental stock-based compensation cost. Net income for the first quarter was $36.3 million, or $0.40 per share, compared with net income of $35.0 million, or $0.38 per share, in the first quarter of 2005.
As compared to the first quarter of 2005, Auction and Related Services (ARS) revenue increased 17.2 percent to $250.4 million. Revenue per vehicle sold for the ARS segment increased to $471 compared with $415 for the same quarter in 2005. A significant increase in the number of institutional vehicles entered was the primary driver of the increase in revenue per vehicle sold, as these vehicles require a higher level of transportation, reconditioning and other ancillary services. Also, contributing to the increase in revenue per vehicle was the mix of salvage vehicles sold, selective fee increases – driven in part by higher average wholesale used vehicle prices, and the impact of Canadian currency translation. ARS operating profit declined by 8.2 percent to $48.1 million, compared with $52.4 million a year ago, as operating expenses increased 25.4 percent to $202.3 million. The primary contributors to the increase in ARS operating expenses were the costs for handling over 41,000 additional used vehicles, a significant increase in lower margin services such as reconditioning and transportation, higher fuel costs and the previously noted Kitchener charge.
For the first quarter of 2006, Dealer Financing (AFC) revenue increased 21.4 percent to $35.2 million. During the quarter, revenue per loan transaction increased 20 percent to $125, while loan transaction unit volume grew 0.7 percent to 280,952. The increase in revenue per loan transaction primarily resulted from an increase in the average value of used vehicles being floored and higher interest rates. An increase in average portfolio duration as well as a decrease in the provision for loan losses also contributed to the increase in revenue per loan transaction. AFC's operating profit increased by 25.9 percent to $21.4 million, compared with $17.0 million in 2005, reflecting the fact that increased operating revenues more than offset higher operating expenses associated with processing more transactions, which resulted in improved operating margins as compared with the first quarter of 2005.Quarterly segment income statements, including statistical information, for 2006, 2005, 2004, 2003 and 2002 can be found at the company's Web site www.adesainc.com.