[PART I—FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%E2%80%94FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents KAR Auction Services, Inc.'s unaudited consolidated financial statements for the three months ended March 31, 2023 and 2022, including statements of income, comprehensive income, balance sheets, stockholders' equity, and cash flows, along with condensed notes providing detailed explanations of accounting policies, business operations, segment information, and significant financial events [Consolidated Statements of Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Statements of Income (Three Months Ended March 31) | Metric (in millions) | 2023 | 2022 | | :------------------- | :--- | :--- | | Total operating revenues | $420.6 | $369.4 | | Total operating expenses | $355.2 | $355.7 | | Operating profit | $65.4 | $13.7 | | Interest expense | $38.3 | $25.6 | | Other (income) expense, net | $7.1 | $1.2 | | Income (loss) from continuing operations before income taxes | $20.0 | $(13.1) | | Income taxes | $7.3 | $(4.7) | | Income (loss) from continuing operations | $12.7 | $(8.4) | | Income from discontinued operations, net of income taxes | — | $8.1 | | Net income (loss) | $12.7 | $(0.3) | | Net income (loss) per share - basic | $0.01 | $(0.09) | | Net income (loss) per share - diluted | $0.01 | $(0.09) | [Consolidated Statements of Comprehensive Income](index=4&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Consolidated Statements of Comprehensive Income (Three Months Ended March 31) | Metric (in millions) | 2023 | 2022 | | :------------------- | :--- | :--- | | Net income (loss) | $12.7 | $(0.3) | | Other comprehensive income, net of tax | | Foreign currency translation gain | $2.4 | $1.1 | | Unrealized gain on interest rate derivatives, net of tax | — | $9.1 | | Total other comprehensive income, net of tax | $2.4 | $10.2 | | Comprehensive income | $15.1 | $9.9 | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets (as of) | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | **Assets** | | Cash and cash equivalents | $219.6 | $225.7 | | Restricted cash | $32.2 | $52.0 | | Trade receivables, net | $340.3 | $270.7 | | Finance receivables, net | $2,385.4 | $2,395.1 | | Total current assets | $3,075.0 | $3,022.4 | | Goodwill | $1,466.3 | $1,464.5 | | Total assets | $5,147.9 | $5,119.8 | | **Liabilities, Temporary Equity and Stockholders' Equity** | | Accounts payable | $683.8 | $551.2 | | Obligations collateralized by finance receivables | $1,638.2 | $1,677.6 | | Current maturities of long-term debt | $225.8 | $288.7 | | Total current liabilities | $2,666.4 | $2,643.2 | | Long-term debt | $206.0 | $205.3 | | Total non-current liabilities | $343.1 | $345.8 | | Series A convertible preferred stock | $612.5 | $612.5 | | Total stockholders' equity | $1,525.9 | $1,518.3 | | Total liabilities, temporary equity and stockholders' equity | $5,147.9 | $5,119.8 | [Consolidated Statements of Stockholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Consolidated Statements of Stockholders' Equity (Three Months Ended March 31) | Metric (in millions) | Dec 31, 2022 | Net Income | Other Comprehensive Income | Stock Issuance | RSU Surrender | Stock-based Comp | Preferred Dividends | Mar 31, 2023 | | :------------------- | :----------- | :--------- | :------------------------- | :------------- | :------------ | :--------------- | :------------------ | :----------- | | Total Equity | $1,518.3 | $12.7 | $2.4 | $1.3 | $(1.3) | $3.6 | $(11.1) | $1,525.9 | **Key Changes (Q1 2023):** * Net income contributed **$12.7 million** * Other comprehensive income added **$2.4 million**, primarily from foreign currency translation gain * Dividends on preferred stock totaled **$11.1 million** * Stock-based compensation expense was **$3.6 million** [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows (Three Months Ended March 31) | Activity (in millions) | 2023 | 2022 | | :--------------------- | :--- | :--- | | Net cash provided by (used by) operating activities - continuing operations | $96.1 | $(22.6) | | Net cash provided by (used by) operating activities - discontinued operations | — | $(39.2) | | Net cash used by investing activities - continuing operations | $(13.6) | $(246.7) | | Net cash provided by (used by) investing activities - discontinued operations | $7.0 | $(11.8) | | Net cash (used by) provided by financing activities - continuing operations | $(116.5) | $276.7 | | Net cash provided by financing activities - discontinued operations | — | $22.0 | | Net decrease in cash, cash equivalents and restricted cash | $(25.9) | $(42.9) | | Cash, cash equivalents and restricted cash at end of period | $251.8 | $160.5 | [Condensed Notes to Consolidated Financial Statements](index=11&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) [Note 1—Basis of Presentation and Nature of Operations](index=11&type=section&id=Note%201%E2%80%94Basis%20of%20Presentation%20and%20Nature%20of%20Operations) - KAR is a leading digital marketplace for used vehicles, connecting sellers and buyers across North America and Europe. Its portfolio includes integrated technology, data analytics, financing, logistics, reconditioning, and remarketing solutions, supported by vehicle logistics centers in Canada[28](index=28&type=chunk) - The Marketplace segment serves commercial sellers via the OPENLANE platform and dealer customers through BacklotCars and TradeRev digital marketplaces. AFC (Finance segment) provides floorplan financing to independent used vehicle dealers[29](index=29&type=chunk)[31](index=31&type=chunk)[35](index=35&type=chunk) [Note 2—Sale of ADESA U.S. Physical Auction Business and Discontinued Operations](index=13&type=section&id=Note%202%E2%80%94Sale%20of%20ADESA%20U.S.%20Physical%20Auction%20Business%20and%20Discontinued%20Operations) - The ADESA U.S. physical auction business was sold to Carvana in May 2022 for approximately **$2.2 billion** in cash. Its financial results are reported as discontinued operations for all periods presented[39](index=39&type=chunk)[41](index=41&type=chunk) - For the three months ended March 31, 2023, KAR received a net cash inflow of approximately **$30.0 million** from commercial and transition services agreements with Carvana[39](index=39&type=chunk) Income from Discontinued Operations (Three Months Ended March 31, in millions) | Metric | 2023 | 2022 | | :----- | :--- | :--- | | Operating revenues | $— | $220.0 | | Operating profit (loss) | $— | $6.3 | | Income from discontinued operations | $— | $8.1 | [Note 3—Stock and Stock-Based Compensation Plans](index=14&type=section&id=Note%203%E2%80%94Stock%20and%20Stock-Based%20Compensation%20Plans) Stock-Based Compensation Expense (Three Months Ended March 31, in millions) | Award Type | 2023 | 2022 | | :--------- | :--- | :--- | | PRSUs | $(0.1) | $1.9 | | RSUs | $2.8 | $1.4 | | Service options | $0.2 | $0.2 | | Market options | $0.7 | $1.5 | | Total | $3.6 | $5.0 | - In Q1 2023, approximately **0.5 million** PRSUs were granted, vesting based on three-year cumulative Adjusted EBITDA and relative TSR. Approximately **0.6 million** RSUs were granted, vesting in three equal annual installments contingent on continued employment[46](index=46&type=chunk)[47](index=47&type=chunk) - The share repurchase program was extended through December 31, 2023, with approximately **$126.9 million** remaining available. No shares were repurchased during the three months ended March 31, 2023 and 2022[48](index=48&type=chunk) [Note 4—Income (Loss) from Continuing Operations Per Share](index=15&type=section&id=Note%204%E2%80%94Income%20(Loss)%20from%20Continuing%20Operations%20Per%20Share) Income (Loss) from Continuing Operations Per Share (Three Months Ended March 31, in millions except per share amounts) | Metric | 2023 | 2022 | | :------------------------------------------------ | :--- | :--- | | Income (loss) from continuing operations | $12.7 | $(8.4) | | Series A Preferred Stock dividends | $(11.1) | $(10.7) | | Income (loss) from continuing operations attributable to common stockholders | $1.2 | $(19.1) | | Weighted average common shares outstanding | 109.3 | 121.4 | | Effect of dilutive stock options and restricted stock awards | 0.6 | — | | Weighted average common shares outstanding and potential common shares | 109.9 | 121.4 | | Basic EPS from continuing operations | $0.01 | $(0.16) | | Diluted EPS from continuing operations | $0.01 | $(0.16) | - Diluted EPS for Q1 2022 excluded potential common shares due to an anti-dilutive effect from the period's undistributed loss[51](index=51&type=chunk) [Note 5—Finance Receivables and Obligations Collateralized by Finance Receivables](index=15&type=section&id=Note%205%E2%80%94Finance%20Receivables%20and%20Obligations%20Collateralized%20by%20Finance%20Receivables) - AFC sells most of its U.S. dollar-denominated finance receivables on a revolving, non-recourse basis to AFC Funding Corporation, with committed liquidity of **$2.0 billion** at March 31, 2023. AFCI's Canadian facility increased to **C$300 million** in March 2023[52](index=52&type=chunk)[53](index=53&type=chunk)[142](index=142&type=chunk) Finance Receivables and Net Credit Losses (in millions) | Metric | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Total receivables managed | $2,406.4 | $2,416.6 | | Receivables delinquent (31+ days past due) | $19.6 | $17.5 | | Net Credit Losses (3 months ended March 31) | $12.5 | $1.4 | | Allowance for Credit Losses (end of period) | $21.0 | $21.5 | - AFC, AFC Funding Corporation, and AFCI were in compliance with all financial covenants in their securitization agreements as of March 31, 2023[59](index=59&type=chunk)[145](index=145&type=chunk) [Note 6—Long-Term Debt](index=17&type=section&id=Note%206%E2%80%94Long-Term%20Debt) Long-Term Debt (in millions) | Debt Type | Interest Rate | Maturity | March 31, 2023 | December 31, 2022 | | :------------------------ | :------------ | :------- | :------------- | :---------------- | | Term Loan B-6 | Adjusted LIBOR + 2.25% | Sep 19, 2026 | $— | $— | | Revolving Credit Facility | Adjusted LIBOR + 1.75% | Sep 19, 2024 | $65.0 | $145.0 | | Senior notes | 5.125% | Jun 1, 2025 | $350.0 | $350.0 | | European lines of credit | Euribor + 1.25% | Upon demand | $20.8 | $3.7 | | Total debt | | | $435.8 | $498.7 | | Current portion of long-term debt | | | $(225.8) | $(288.7) | | Long-term debt | | | $206.0 | $205.3 | - The **$950 million** Term Loan B-6 was fully prepaid in May 2022 using proceeds from the ADESA U.S. physical auction business sale, resulting in a **$7.7 million** non-cash loss on extinguishment of debt[61](index=61&type=chunk) - In August 2022, **$600 million** of the 5.125% senior notes due 2025 were prepaid via a cash tender offer, also using Transaction proceeds, incurring a **$9.5 million** loss on extinguishment[66](index=66&type=chunk) - As of March 31, 2023, **$140.0 million** of the remaining senior notes are classified as current debt, as the Company is required to offer to redeem or repay them within 365 days of the Transaction close[67](index=67&type=chunk)[137](index=137&type=chunk) - The estimated fair value of long-term debt was **$430.6 million** at March 31, 2023, based on Level 2 broker-dealer quotes[69](index=69&type=chunk) [Note 7—Derivatives](index=18&type=section&id=Note%207%E2%80%94Derivatives) - In January 2020, the Company entered into three pay-fixed interest rate swaps with an aggregate notional amount of **$500 million**, maturing January 23, 2025, to hedge variable rate interest payments[70](index=70&type=chunk) - Hedge accounting was discontinued in February 2022 due to the expected repayment of Term Loan B-6. The swaps were terminated in May 2022, resulting in a **$16.7 million** realized gain recognized in interest expense[71](index=71&type=chunk) [Note 8—Other (Income) Expense, Net](index=19&type=section&id=Note%208%E2%80%94Other%20(Income)%20Expense,%20Net) Other (Income) Expense, Net (Three Months Ended March 31, in millions) | Item | 2023 | 2022 | | :------------------------------------------------ | :--- | :--- | | Change in realized and unrealized (gains) losses on investment securities, net | $0.1 | $3.0 | | Foreign currency (gains) losses | $0.1 | $1.2 | | Investment and note receivable impairment | $11.0 | — | | Other | $(4.1) | $(3.0) | | Total Other (income) expense, net | $7.1 | $1.2 | - The increase in other expense in Q1 2023 was primarily due to an **$11.0 million** impairment of an equity security and note receivable with a single investee that filed for bankruptcy[73](index=73&type=chunk)[76](index=76&type=chunk) [Note 9—Commitments and Contingencies](index=19&type=section&id=Note%209%E2%80%94Commitments%20and%20Contingencies) - The Company is involved in various litigation and disputes in the ordinary course of business. Management does not currently believe the ultimate resolution of these actions will have a material adverse effect on financial condition, results of operations, or cash flows[77](index=77&type=chunk) [Note 10—Accumulated Other Comprehensive Loss](index=20&type=section&id=Note%2010%E2%80%94Accumulated%20Other%20Comprehensive%20Loss) Accumulated Other Comprehensive Loss (in millions) | Item | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :---------------- | | Foreign currency translation loss | $(47.1) | $(49.5) | | Accumulated other comprehensive loss | $(47.1) | $(49.5) | [Note 11—Segment Information](index=20&type=section&id=Note%2011%E2%80%94Segment%20Information) - KAR operates in two reportable segments: Marketplace and Finance. Results of the ADESA U.S. physical auctions are reported as discontinued operations[80](index=80&type=chunk) Segment Financial Information (Three Months Ended March 31, 2023, in millions) | Metric | Marketplace | Finance | Consolidated | | :------------------------------------------ | :---------- | :------ | :----------- | | Operating revenues | $321.0 | $99.6 | $420.6 | | Operating profit (loss) | $(3.6) | $69.0 | $65.4 | | Income (loss) from continuing operations | $(21.1) | $33.8 | $12.7 | | Total assets | $2,376.5 | $2,771.4 | $5,147.9 | Segment Financial Information (Three Months Ended March 31, 2022, in millions) | Metric | Marketplace | Finance | Consolidated | | :------------------------------------------ | :---------- | :------ | :----------- | | Operating revenues | $285.2 | $84.2 | $369.4 | | Operating profit (loss) | $(42.9) | $56.6 | $13.7 | | Income (loss) from continuing operations | $(39.4) | $31.0 | $(8.4) | | Total assets | $2,630.3 | $3,103.5 | $5,733.8 | - Approximately **60%** of foreign operating revenues for Q1 2023 were from Canada, with most of the remainder from Continental Europe[84](index=84&type=chunk) [Note 12—Subsequent Event](index=21&type=section&id=Note%2012%E2%80%94Subsequent%20Event) - Effective May 15, 2023, the Company will change its name to OPENLANE, Inc., reflecting a transformation to an asset-light, digital marketplace company. OPENLANE will serve as both the parent company and go-to-market brand[85](index=85&type=chunk) - The name change may result in a potential non-cash impairment charge in Q2 2023 for the **$122.8 million** ADESA tradename and other definite-lived tradenames, and the useful life of the ADESA tradename will be reassessed[85](index=85&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on KAR Auction Services, Inc.'s financial condition and results of operations for the three months ended March 31, 2023, compared to the same period in 2022. It covers industry trends, segment performance, liquidity, capital resources, and non-GAAP financial measures like EBITDA and Adjusted EBITDA [Forward-Looking Statements](index=22&type=section&id=Forward-Looking%20Statements) - The report contains forward-looking statements regarding future performance, growth, cost savings, revenue, credit losses, capital expenditures, and strategic initiatives, which are subject to risks and uncertainties[86](index=86&type=chunk) [Automotive Industry and Economic Impacts on our Business](index=22&type=section&id=Automotive%20Industry%20and%20Economic%20Impacts%20on%20our%20Business) - The automotive industry faces unprecedented market conditions due to supply chain issues, semiconductor shortages, and new vehicle production delays, leading to significant fluctuations in used vehicle values and declining wholesale market volumes[87](index=87&type=chunk) - Macroeconomic factors like inflation, rising interest rates, and volatile energy prices impact vehicle affordability and demand, posing risks to operations and industry stability[88](index=88&type=chunk) [Overview](index=22&type=section&id=Overview) - KAR is a digital marketplace for used vehicles, operating two segments: Marketplace (digital platforms, logistics, reconditioning) and Finance (floorplan financing for dealers)[89](index=89&type=chunk)[90](index=90&type=chunk) - The ADESA U.S. physical auctions are now reported as discontinued operations[91](index=91&type=chunk) [Industry Trends](index=23&type=section&id=Industry%20Trends) - The U.S. and Canadian wholesale used vehicle market is approximately **20 million** vehicles, with digital applications like BacklotCars and TradeRev expanding the dealer-to-dealer segment[92](index=92&type=chunk) - AFC's independent used vehicle dealer base was approximately **15,200** in 2022. Key challenges include demand, pricing volatility, consumer financing access, and increased interest rates, which could negatively impact AFC's results[93](index=93&type=chunk)[94](index=94&type=chunk) - Wholesale used vehicle volumes are seasonal, typically declining in Q4 due to holidays and winter weather, affecting revenues and operating expenses[95](index=95&type=chunk) [Sources of Revenues and Expenses](index=23&type=section&id=Sources%20of%20Revenues%20and%20Expenses) - Marketplace revenues primarily consist of auction fees from buyers and sellers for consigned vehicles (where KAR does not take title) and service revenue from logistics, reconditioning, and inspection. Purchased vehicle sales (where KAR takes title) are recorded at gross selling price[97](index=97&type=chunk) - AFC's Finance-related revenue includes interest and fee income, provision for credit losses, and other revenues from finance receivables[97](index=97&type=chunk) - Operating expenses include cost of services (payroll, subcontract, purchased vehicles, supplies) and selling, general and administrative expenses (payroll, sales & marketing, IT, professional fees)[100](index=100&type=chunk) [Results of Operations](index=25&type=section&id=Results%20of%20Operations) Consolidated Results of Operations (Three Months Ended March 31, in millions except per share amounts) | Metric | 2023 | 2022 | Change (%) | | :------------------------------------------ | :--- | :--- | :--------- | | Total revenues from continuing operations | $420.6 | $369.4 | 13.9% | | Operating profit | $65.4 | $13.7 | 377.4% | | Net income (loss) | $12.7 | $(0.3) | N/A | | Basic EPS from continuing operations | $0.01 | $(0.16) | N/A | | Diluted EPS from continuing operations | $0.01 | $(0.16) | N/A | - Depreciation and amortization decreased by **$3.0 million (12%)** to **$23.0 million**, primarily due to fully depreciated assets and a reduction in assets placed in service[104](index=104&type=chunk) - Interest expense increased by **$12.7 million (50%)** to **$38.3 million**, mainly due to an increase in the average interest rate on AFC securitization obligations to **6.6%** (from **2.3%** in 2022), partially offset by debt repayments[105](index=105&type=chunk) - Other expense, net, increased to **$7.1 million** from **$1.2 million**, primarily due to an **$11.0 million** impairment of an equity security and note receivable[106](index=106&type=chunk) - The effective tax rate was **36.5%** for Q1 2023, compared to **35.9%** on a pre-tax loss for Q1 2022[107](index=107&type=chunk) - Foreign currency fluctuations (Canadian dollar and Euro) negatively impacted revenue by **$9.0 million** and net income by **$1.1 million** for Q1 2023[109](index=109&type=chunk) [Marketplace Results](index=26&type=section&id=Marketplace%20Results) Marketplace Segment Results (Three Months Ended March 31, in millions except per vehicle amounts) | Metric | 2023 | 2022 | Change (%) | | :------------------------------------------ | :--- | :--- | :--------- | | Total Marketplace revenue | $321.0 | $285.2 | 12.6% | | Auction fees | $99.9 | $101.4 | -1.5% | | Service revenue | $165.6 | $137.5 | 20.4% | | Purchased vehicle sales | $55.5 | $46.3 | 19.9% | | Operating profit (loss) | $(3.6) | $(42.9) | N/A | | Total vehicles sold | 330,000 | 351,000 | -6.0% | | Auction fees per vehicle sold | $303 | $289 | 4.8% | | Gross profit percentage, excluding purchased vehicles | 42.6% | 37.4% | +5.2 pp | - The **6%** decrease in total vehicles sold was due to an industry-wide lack of wholesale used vehicle supply, affecting both commercial (down **4%**) and dealer consignment (down **8%**) volumes[112](index=112&type=chunk) - Service revenue increased by **$28.1 million (20%)**, driven by higher repossession and remarketing fees (**$10.5M**), transportation revenue (**$8.2M**), and third-party platform fees (**$6.6M**)[114](index=114&type=chunk) - Selling, general and administrative expenses decreased by **$12.8 million (12%)** to **$95.6 million**, primarily due to lower professional fees, IT costs, severance, and stock-based compensation[118](index=118&type=chunk) [Finance Results](index=28&type=section&id=Finance%20Results) Finance Segment Results (Three Months Ended March 31, in millions except volumes and per loan amounts) | Metric | 2023 | 2022 | Change (%) | | :------------------------------------------ | :--- | :--- | :--------- | | Total Finance revenue | $99.6 | $84.2 | 18.3% | | Interest income | $60.6 | $43.2 | 40.3% | | Fee income | $47.6 | $40.2 | 18.4% | | Provision for credit losses | $(12.0) | $(1.4) | N/A | | Operating profit | $69.0 | $56.6 | 21.9% | | Loan transactions | 420,000 | 372,000 | 12.9% | | Revenue per loan transaction | $237 | $226 | 4.9% | | Provision for credit losses (% of average managed receivables) | 2.0% | 0.2% | +1.8 pp | - Revenue per loan transaction increased by **$11 (5%)**, driven by higher interest yields due to a **450 basis point** increase in prime rates since March 31, 2022, and increased floorplan and other fee income[121](index=121&type=chunk) - Gross profit as a percentage of revenue increased to **83.5%** from **82.2%**, primarily due to the **18%** revenue increase outpacing the **9%** increase in cost of services[123](index=123&type=chunk) - Selling, general and administrative expenses increased by **$1.9 million (18%)** to **$12.4 million**, mainly due to higher information technology costs and compensation expense[124](index=124&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=29&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Liquidity Indicators (in millions) | Metric | March 31, 2023 | December 31, 2022 | March 31, 2022 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Cash and cash equivalents | $219.6 | $225.7 | $134.2 | | Restricted cash | $32.2 | $52.0 | $26.3 | | Working capital | $408.6 | $379.2 | $1,023.2 | | Amounts available under the Revolving Credit Facility | $241.0 | $161.0 | $224.0 | | Cash provided by (used by) operating activities (3 months ended) | $96.1 | | $(22.6) | - The Company believes its liquidity sources (cash, working capital, operating cash flow, and Credit Facility availability) are sufficient to meet operating needs, capital requirements, and debt service for the foreseeable future[140](index=140&type=chunk) - The Revolving Credit Facility had **$65.0 million** drawn at March 31, 2023, with **$241.0 million** available for borrowing (net of **$19.0 million** in outstanding letters of credit)[132](index=132&type=chunk)[139](index=139&type=chunk) - AFC's securitization facilities provide committed liquidity of **$2.0 billion** for U.S. finance receivables and **C$300 million** for Canadian receivables, both expiring January 31, 2026[141](index=141&type=chunk)[142](index=142&type=chunk) [EBITDA and Adjusted EBITDA](index=32&type=section&id=EBITDA%20and%20Adjusted%20EBITDA) - EBITDA and Adjusted EBITDA are non-GAAP measures used by management and creditors to evaluate performance, with Adjusted EBITDA including specific adjustments for non-recurring items, stock-based compensation, and other non-cash amounts[146](index=146&type=chunk)[147](index=147&type=chunk) Consolidated EBITDA and Adjusted EBITDA (Three Months Ended March 31, in millions) | Metric | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Income (loss) from continuing operations | $12.7 | $(8.4) | | EBITDA | $80.4 | $38.4 | | Adjusted EBITDA | $58.9 | $49.1 | Consolidated Adjusted EBITDA from Continuing Operations (Twelve Months Ended March 31, 2023, in millions) | Metric | Amount | | :------------------------------------------ | :----- | | Adjusted EBITDA from continuing ops | $241.0 | [Summary of Cash Flows](index=34&type=section&id=Summary%20of%20Cash%20Flows) Summary of Cash Flows (Three Months Ended March 31, in millions) | Activity | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Operating activities - continuing operations | $96.1 | $(22.6) | | Investing activities - continuing operations | $(13.6) | $(246.7) | | Financing activities - continuing operations | $(116.5) | $276.7 | | Net decrease in cash, cash equivalents and restricted cash | $(25.9) | $(42.9) | - Operating cash flow from continuing operations significantly improved to **$96.1 million** (provided) in Q1 2023 from **$(22.6) million** (used) in Q1 2022, driven by changes in operating assets and liabilities and reduced contingent consideration payments[152](index=152&type=chunk)[153](index=153&type=chunk) - Investing cash flow from continuing operations decreased to **$(13.6) million** (used) in Q1 2023 from **$(246.7) million** (used) in Q1 2022, primarily due to a smaller increase in finance receivables held for investment[155](index=155&type=chunk) - Financing cash flow from continuing operations shifted to **$(116.5) million** (used) in Q1 2023 from **$276.7 million** (provided) in Q1 2022, mainly due to decreased borrowings from lines of credit and obligations collateralized by finance receivables, and preferred stock dividends[156](index=156&type=chunk) [Capital Expenditures](index=35&type=section&id=Capital%20Expenditures) - Capital expenditures for Q1 2023 were **$12.0 million**, down from **$13.5 million** in Q1 2022. Expected capital expenditures for fiscal year 2023 related to continuing operations are approximately **$65 million**[160](index=160&type=chunk) [Dividends](index=36&type=section&id=Dividends) - Holders of Series A Preferred Stock received **$11.1 million** in cash dividends for Q1 2023, compared to **$10.7 million** in in-kind dividends for Q1 2022[161](index=161&type=chunk) - The Company has suspended its quarterly common stock dividend, with future decisions dependent on financial condition, contractual restrictions, and capital requirements[162](index=162&type=chunk) [Contractual Obligations](index=36&type=section&id=Contractual%20Obligations) - Contractual obligations for long-term debt, interest, finance leases, operating leases, and contingent consideration are detailed in the Annual Report on Form 10-K for December 31, 2022, with operating lease obligations changing in the ordinary course of business[163](index=163&type=chunk) [Critical Accounting Estimates](index=36&type=section&id=Critical%20Accounting%20Estimates) - Critical accounting estimates are discussed in the Annual Report on Form 10-K for December 31, 2022[164](index=164&type=chunk) [Off-Balance Sheet Arrangements](index=36&type=section&id=Off-Balance%20Sheet%20Arrangements) - As of March 31, 2023, the Company had no off-balance sheet arrangements deemed reasonably likely to have a material current or future effect on its financial condition, results of operations, or cash flows[165](index=165&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details KAR Auction Services, Inc.'s exposure to market risks, specifically foreign currency and interest rate fluctuations, and the strategies used to manage these risks [Foreign Currency](index=37&type=section&id=Foreign%20Currency) - Foreign currency exposure primarily arises from transactions in Canadian dollars, British pounds, and Euros. Foreign currency losses on intercompany loans were **$0.1 million** in Q1 2023, down from **$1.2 million** in Q1 2022[167](index=167&type=chunk) - A **1%** change in the month-end Canadian dollar exchange rate would impact foreign currency losses on intercompany loans by **$0.8 million** and net income by **$0.5 million**[167](index=167&type=chunk) [Interest Rates](index=37&type=section&id=Interest%20Rates) - The Company is exposed to interest rate risk on variable rate borrowings. Interest rate swap agreements were previously used to manage this exposure but were terminated in May 2022 following the repayment of Term Loan B-6[168](index=168&type=chunk)[170](index=170&type=chunk) - A hypothetical **100 basis point** increase in short-term rates (LIBOR) would have increased interest expense by approximately **$0.3 million** for the three months ended March 31, 2023[171](index=171&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) This section outlines the evaluation of the Company's disclosure controls and procedures, the remediation of a previously identified material weakness, and any changes in internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=38&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) - As of March 31, 2023, management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective[173](index=173&type=chunk) [Remediation of Material Weakness](index=38&type=section&id=Remediation%20of%20Material%20Weakness) - A material weakness in internal controls over financial reporting related to cash flow presentation for discontinued operations and contingent consideration was identified in Q4 2022[174](index=174&type=chunk) - Management performed a risk assessment and implemented controls, successfully remediating the material weakness during Q1 2023[174](index=174&type=chunk) [Changes in Internal Control over Financial Reporting](index=38&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) - Except for the remediation efforts, there were no other changes in internal control over financial reporting during Q1 2023 that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[175](index=175&type=chunk) [PART II—OTHER INFORMATION](index=39&type=section&id=PART%20II%E2%80%94OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) This section addresses the Company's involvement in legal proceedings and disputes arising in the ordinary course of business - Management does not believe that the ultimate resolution of current litigation and disputes will have a material adverse effect on the Company's financial condition, results of operations, or cash flows[177](index=177&type=chunk) [Item 1A. Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) This section refers investors to the comprehensive discussion of risk factors in the Company's Annual Report on Form 10-K, along with additional risks that may arise - Investors should carefully consider the risk factors discussed in the Annual Report on Form 10-K for December 31, 2022, and other filings, as these could materially and adversely affect the business[179](index=179&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=39&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section provides information on the Company's unregistered sales of equity securities and details of its share repurchase program - The Company previously issued common stock in connection with the BacklotCars (857,630 shares for **$15 million**) and CARWAVE (1,953,124 shares for **$30 million**) acquisitions, exempt from registration under Section 4(a)(2) of the Securities Act[181](index=181&type=chunk) Issuer Purchases of Equity Securities (Three Months Ended March 31, 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) | | :------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | :------------------------------------------------------------------------------------------------- | | January 1 - January 31 | — | $— | — | $126.9 | | February 1 - February 28 | — | — | — | $126.9 | | March 1 - March 31 | — | — | — | $126.9 | | Total | — | $— | — | | - The share repurchase program, authorized for up to **$500 million**, was extended through December 31, 2023, with approximately **$126.9 million** remaining available for repurchase. No shares were repurchased during Q1 2023[182](index=182&type=chunk)[183](index=183&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section provides a comprehensive index of exhibits filed with the Quarterly Report on Form 10-Q, including agreements, certificates, and other documents incorporated by reference or filed herewith - The exhibit index lists various agreements, including separation, merger, and purchase agreements, as well as corporate governance documents, debt instruments, and compensation plans[186](index=186&type=chunk)[187](index=187&type=chunk)[188](index=188&type=chunk)[189](index=189&type=chunk)[190](index=190&type=chunk) [Signature](index=45&type=section&id=Signature) This section contains the signature of the duly authorized officer, confirming the filing of the report - The report was signed by Brad S. Lakhia, Executive Vice President and Chief Financial Officer, on May 3, 2023[195](index=195&type=chunk)

Revenue and Financial Performance - For the year ended December 31, 2022, total revenues from continuing operations were $1,519.4 million, an increase of 5% compared to $1,450.6 million in 2021[192]. - Total operating revenues for 2022 were $1,519.4 million, an increase of 4.7% from $1,450.6 million in 2021[332]. - Net income for the year ended December 31, 2022, was $241.2 million, compared to a net loss of $0.3 million for the same period in 2021[275]. - The company reported a net income of $241.2 million for the year ended December 31, 2022, compared to a net income of $66.5 million in 2021, marking an increase of approximately 262.5%[345]. - The company reported a comprehensive income of $216.4 million for 2022, compared to $74.5 million in 2021[335]. - Adjusted EBITDA for the year ended December 31, 2022, was $231.2 million, down from $270.2 million in 2021, indicating a decrease of 14.4%[274]. - For the three months ended December 31, 2022, consolidated income from continuing operations was $41.9 million, compared to $15.2 million for the same period in 2021, representing a year-over-year increase of 175.8%[273]. Segment Performance - The Marketplace segment's revenues primarily include auction fees and service revenue, with auction fees representing a significant portion of total revenue[189]. - Total Marketplace revenue decreased by $17.9 million, or 2%, to $1,143.5 million for the year ended December 31, 2022, compared to $1,161.4 million for 2021[204]. - The company reported a loss from continuing operations of $105.7 million in the Marketplace segment for the year ended December 31, 2022, compared to a loss of $126.2 million in 2021, showing an improvement of 4.0%[274]. - Finance segment revenue increased by $86.7 million, or 30%, to $375.9 million for the year ended December 31, 2022, compared to $289.2 million for 2021[214]. - Gross profit for the Finance segment increased by $79.0 million, or 34%, to $312.8 million for the year ended December 31, 2022, compared to $233.8 million for 2021[217]. Auction and Vehicle Sales - Auction fees decreased to $370.3 million in 2022 from $399.2 million in 2021, while service revenue increased to $590.3 million from $541.3 million[192]. - The number of vehicles sold decreased by 19%, with a 30% decline in commercial volumes and a 2% decrease in dealer consignment volumes[205]. - Approximately 487,000 vehicles were sold in the North American digital dealer-to-dealer marketplace for the year ended December 31, 2022, down from 550,000 in 2021[184]. - Auction fees decreased by $28.9 million, or 7%, to $370.3 million for the year ended December 31, 2022, compared to $399.2 million for 2021[206]. Expenses and Costs - Depreciation and amortization decreased by $9.7 million, or 9%, to $100.2 million for the year ended December 31, 2022, compared to $109.9 million for 2021[194]. - Interest expense decreased by $6.5 million, or 5%, to $119.2 million for the year ended December 31, 2022, compared to $125.7 million for 2021[196]. - Selling, general and administrative expenses for the Finance segment increased by $1.1 million, or 12%, to $10.2 million for the three months ended December 31, 2022[246]. - Total interest expense, net of interest income, for the year ended December 31, 2022, was $116.5 million, compared to $124.8 million in 2021, reflecting a decrease of 6.5%[274]. Cash Flow and Liquidity - Cash provided by operating activities from continuing operations decreased significantly to $4.1 million in 2022 from $233.9 million in 2021, primarily due to changes in working capital[276]. - Net cash used by financing activities for continuing operations was $1,621.9 million in 2022, compared to net cash provided of $204.0 million in 2021, mainly due to long-term debt payments[280]. - Cash flow from investing activities for continuing operations was $70.0 million in 2022, a significant recovery from a cash outflow of $1,186.4 million in 2021[279]. - As of December 31, 2022, cash and cash equivalents totaled $225.7 million, with an additional $161.0 million available under the Revolving Credit Facility[248][262]. Debt and Financial Obligations - The Company incurred a non-cash loss of $7.7 million on the extinguishment of debt in the second quarter of 2022 due to the prepayment of Term Loan B-6[251]. - The company incurred a loss on extinguishment of debt amounting to $17.2 million in 2022[332]. - The total contractual cash obligations as of December 31, 2022, amounted to $673.1 million, with $344.6 million due within one year[285]. - The company had $145.0 million drawn on the Revolving Credit Facility as of December 31, 2022, with no borrowings on the facility at December 31, 2021[254]. Goodwill and Assets - Following the sale of the ADESA U.S. physical auction business in 2022, approximately $1.1 billion of goodwill was allocated to the disposal group, with no impairment identified during the quantitative assessment[301]. - The carrying value of the U.S. Dealer-to-Dealer reporting unit's goodwill was $306.2 million as of December 31, 2022, with a fair value substantially exceeding its carrying value[303]. - Total current assets decreased to $3,022.4 million in 2022 from $3,391.8 million in 2021, primarily due to a reduction in trade receivables[339]. - The total assets of the company decreased to $5,119.8 million in 2022 from $7,450.7 million in 2021[339]. Credit Losses and Provisions - The allowance for credit losses was $21.5 million as of December 31, 2022, compared to $23.0 million at December 31, 2021[267]. - The provision for credit losses increased to 1.1% of average managed receivables for the three months ended December 31, 2022, compared to (0.2%) in the prior year[244]. - The allowance for credit losses (ACL) as of December 31, 2022, was $21.5 million, reflecting management's assessment of qualitative risk factors[324]. Stockholder Information - Series A Preferred Stock holders received cash dividends totaling $22.2 million for the year ended December 31, 2022, while dividends in kind were approximately $21.6 million and $41.1 million for the years ended December 31, 2022 and 2021, respectively[289]. - The company has suspended its quarterly common stock dividend, with future decisions dependent on financial condition, contractual restrictions, and capital requirements[290]. - The number of issued and outstanding shares decreased from 121,163,050 in 2021 to 108,914,678 in 2022, a reduction of about 10.1%[345]. Miscellaneous - The company operates through two segments: Marketplace and Finance, with performance measured through detailed budgeting and monitoring[368]. - The integration of the CARWAVE digital auction platform with BacklotCars was completed in Q4 2022, enhancing marketplace functionality[356]. - The company maintains a minimum cash reserve of 1% to 3% of total receivables sold as security for receivables, classified as "Restricted cash" on the balance sheets[372].

Financial Data and Key Metrics Changes - For Q4 2022, consolidated revenues excluding purchase vehicle sales increased by 7% to $327.8 million, with total revenue for the full year reaching over $1.5 billion, a 5% increase compared to 2021 [4][99][108] - The finance segment generated Q4 revenue of $101 million, a 27% increase year-over-year, driven by a 15% growth in transactions and an 11% increase in revenue per transaction [4][99] - Total gross profit for Q4 was $171 million, a 4% increase from the prior year, with gross profit representing 62.1% of revenue excluding purchase vehicles [30][99] Business Line Data and Key Metrics Changes - The marketplace segment revenues excluding purchase vehicle sales were flat at $227.1 million, accounting for approximately 69% of consolidated revenues, while marketplace vehicles sold declined by 15% to 289,000 units [38][90] - Service revenues increased by 16% due to growth in repossession, transportation, and technology services, highlighting diversified revenue streams [38] - The finance segment accounted for 31% of consolidated revenues, with a significant increase in volume fee and interest income [95] Market Data and Key Metrics Changes - Used vehicle values experienced significant declines in the second half of 2022, with expectations for some downward pressure on conversion rates in 2023 [7][9] - The wholesale marketplace volumes are expected to remain below normal in 2023, with new vehicle production still below typical levels [9][102] - The company anticipates a gradual recovery in commercial volumes, with expectations of increased new vehicle production and inventory on dealer lots [102][103] Company Strategy and Development Direction - The company is focused on cost management, having achieved a $30 million cost reduction target by the end of 2022, with ongoing initiatives to continue this trend [5][37] - A strategic focus on digital transformation is evident, with plans to consolidate platforms and enhance customer experience through a single digital marketplace [6][31][109] - The company aims to roll out auction formats across all U.S. markets and integrate commercial and dealer-owned vehicles into one digital marketplace [6][111] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the operating environment, noting that while challenges remain, there are signs of recovery in commercial volumes and vehicle production [9][102] - The company expects adjusted EBITDA for 2023 to be between $250 million and $270 million, with a commitment to achieving this goal [14][114] - Management believes that the secular shift towards digital will continue to benefit the company, with a focus on expanding customer relationships and unlocking new revenue streams [86][101] Other Important Information - The company completed a major divestiture in 2022, simplifying its business and allowing for debt repayment and share repurchases [10][118] - The company ended 2022 with $180 million in available cash and $161 million in available revolving credit, providing ample liquidity for strategic initiatives [118] - The company plans to continue investing in its digital strategy, with capital expenditures expected to be approximately $65 million in 2023 [14][115] Q&A Session Summary Question: What drove the decline in gross profit per unit in Q4? - Management indicated that the decline in used vehicle values and lower conversion rates were the principal factors affecting gross profit per unit [16][146] Question: How does the company view the growth opportunities in the AFC business? - Management expressed confidence in the growth opportunities for AFC, emphasizing a disciplined approach to growth while managing risks [26][35] Question: What are the expectations for conversion rates moving forward? - Management noted that conversion rates were down across the industry but have shown signs of recovery as 2023 began, with expectations for improved performance [134]

Forward-Looking Statements | --- | --- | |-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------| | | | | * The company uses the two-class method of calculating income from continuing operations per dilu ...

KAR Auction Services, Inc. (NYSE:KAR) Q3 2022 Results Conference Call November 2, 2022 8:30 AM ET Company Participants Mike Eliason - IR Peter Kelly - CEO Eric Loughmiller - EVP and CFO Conference Call Participants John Murphy - Bank of America Rajat Gupta - JP Morgan Gary Prestopino - Barrington Research Bob Labick - CJS Securities Ali Faghri - Guggenheim Operator Good day, and welcome to the KAR Auction Services Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode [O ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-34568 KAR Auction Services, Inc. (Exact name of Re ...

Second Quarter 2022 Earnings Slides August 2, 2022 Forward-Looking Statements This presentation includes forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on management's current expectations, are not guarantees of future performance and are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected, expressed or implied by such forward-lookin ...

Financial Data and Key Metrics Changes - The company generated $384 million in revenue, a 2% increase compared to the same quarter last year [17] - Gross profit reached $172 million, up 3% from Q2 of last year, representing 50.9% of revenue excluding purchased vehicles [18] - Adjusted EBITDA was $56.1 million, a decrease of 10% from Q2 of last year but a sequential increase of 14% over Q1 [18] Business Line Data and Key Metrics Changes - In the Marketplace segment, approximately 343,000 vehicles were sold in Q2, with a decline in conversion rates due to weaker buyer demand [19][20] - Auction fee revenue per unit sold increased by 20% to $289 per vehicle, and gross profit per vehicle sold rose by 11% to $282 [21] - The Finance segment generated $92 million in revenue, a 34% increase over the same quarter last year, with revenue per transaction increasing by 19% to $229 [22] Market Data and Key Metrics Changes - Supply side issues affecting new vehicle production appear to have stabilized, with expectations for increased production in the second half of the year [14][15] - The company anticipates a gradual recovery in new vehicle inventory and wholesale market volumes as production increases [15][16] Company Strategy and Development Direction - The company is focused on capital allocation following the divestiture of the ADESA U.S. physical auction business, which generated approximately $1.65 billion in cash [9][10] - There is a commitment to invest in digital marketplace businesses to expand market share and improve customer experience [11] - The company aims to reduce SG&A run rate by $30 million annually by the end of 2022, with progress already underway [27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about gradual recovery in production and vehicle prices, indicating that current market challenges are temporary [16][35] - The company expects better performance in the second half of the year, driven by revenue improvements and cost management actions [31][33] - Adjusted EBITDA guidance has been updated to a range of $245 million to $265 million due to conversion rate pressures [34] Other Important Information - The company has a strong cash position with over $800 million available at the end of Q2, allowing for continued investments and share repurchases [10][12] - The integration of BacklotCars and CARWAVE is progressing well, with the first combined sale successfully hosted [29][100] Q&A Session Summary Question: How is the company managing the transition to a digital marketplace amidst current market challenges? - Management acknowledged the difficulties but noted that supply side issues have stabilized and they are focusing on key metrics such as total volume sold and conversion rates to gauge progress [60][62] Question: What is the receptivity to pricing adjustments made for customers? - Management reported that customers have been understanding of the need for pricing adjustments due to current market realities, with a shift to a tiered pricing structure based on volume [67][70] Question: What is the impact of lower conversion rates on the business? - Management indicated that the decline in conversion rates is primarily due to market factors, with efforts underway to align seller expectations with market realities [75][78] Question: How is the integration of CARWAVE progressing? - The integration is on track, with CARWAVE remaining profitable despite market pressures, and the company is focused on leveraging the combined platform for better customer experience [99][101]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 KAR Auction Services, Inc. (Exact name of Registrant as specified in its charter) Delaware 20-8744739 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 11299 N. Illinois Street, Carmel, Indiana 46032 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 OR ☐ TRANSITION REPORT PURS ...

First Quarter 2022 Earnings Slides May 3, 2022 Forward-Looking Statements This presentation includes forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on management's current expectations, are not guarantees of future performance and are subject to certain risks, trends, and uncertainties that could cause actual results to differ materially from those projected, expressed or implied by such forward-looking st ...