UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM ~~10-Q~~10-Q/A

(Amendment No.1)


☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30,~~March 31, 2022


☐						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 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

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (800) 923-3725

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

KAR

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of ~~October 31,~~April 30, 2022, ~~108,907,844~~121,532,693 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

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Explanatory Note

KAR Auction Services, Inc. (“we,” “us,” “our,” “KAR” and “the Company”) is filing this Amendment No. 1 to the Quarterly Report on Form 10-Q/A (“Form 10-Q/A”), to amend and restate the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, as originally filed with the Securities and Exchange Commission (“SEC”) on May 4, 2022 (the “Original Form 10-Q”).

Background of Restatement

The Company has determined that there were errors in the unaudited consolidated statement of cash flows for the three months ended March 31, 2022, which led to a misclassification of cash flows related to accrued taxes and other transaction-related accruals between “Net cash provided by operating activities – continuing operations” and “Net cash used by operating activities – discontinued operations.” In addition, in the three months ended March 31, 2022 all payments of contingent consideration were previously included as cash flows from financing activities. The portion of the payment in excess of the acquisition-date fair value should have been reflected as a cash flow from operating activities. We also corrected the presentation of the net change in cash balances of discontinued operations. The Company is correcting these misclassifications by restating its unaudited consolidated statement of cash flows for the three months ended March 31, 2022 in this Form 10-Q/A.

The Company determined that the restatement did not have any impact on its consolidated statements of income.

Internal Control Considerations

As a result of this restatement, the Company’s management has re-evaluated the effectiveness of its disclosure controls and procedures as of March 31, 2022. Management has concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2022 due to a material weakness in internal control over financial reporting. Specifically, there were ineffective process level controls over the review of the statement of cash flows as it relates to operating cash flows related to discontinued operations and operating and financing cash flows related to contingent consideration paid. See additional discussion included in Part I, Item 4 “Controls and Procedures” of this Form 10-Q/A.

Items Amended in this Quarterly Report on Form 10-Q/A

For the convenience of the reader, this Form 10-Q/A presents the Original Form 10-Q in its entirety, as amended to reflect the restatement described above. The following items have been amended as a result of the restatement:

•Part I – Item 1. Financial Statements

•Part I – Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations – Summary of Cash Flows

•Part I – Item 4. Controls and Procedures

•Part II – Item 6. Exhibits

Except for the amended items noted above, this Form 10-Q/A is presented as of the date of the Original Form 10-Q and has not been updated to reflect events occurring subsequent to the filing of the Original Form 10-Q other than the amended items noted above and those associated with the restatement of our unaudited consolidated statement of cash flows. Among other things, forward-looking statements made in the Original Form 10-Q have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original Form 10-Q, other than the amended items noted above and those associated with the restatement of our unaudited consolidated statement of cash flows, and such forward-looking statements should be read in conjunction with our filings with the SEC, including those subsequent to the filing of the Original Form 10-Q. This Form 10-Q/A replaces the Form 10-Q filed with the SEC on May 4, 2022.

The Company is also including with this Form 10-Q/A currently dated certifications of the Company’s chief executive officer and chief financial officer (included in Part II, Item 6. Exhibits and attached as Exhibits 31.1, 31.2, 32.1 and 32.2).

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KAR Auction Services, Inc.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

KAR Auction Services, Inc.

Consolidated Statements of Income

(In millions, except per share data)

(Unaudited)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2022		2021
Operating revenues	Operating revenues									Operating revenues
Auction fees	Auction fees	$	88.9	$	89.6	$	289.5	$	298.4	Auction fees	$	101.4	$	102.5
Service revenue	Service revenue	159.2		128.2		444.0		415.5		Service revenue	137.5		146.3
Purchased vehicle sales	Purchased vehicle sales	45.8		53.7		137.9		169.0		Purchased vehicle sales	46.3		55.2
Finance-related revenue	Finance-related revenue	99.1		75.6		275.2		210.0		Finance-related revenue	84.2		65.8
Total operating revenues	Total operating revenues	393.0		347.1		1,146.6		1,092.9		Total operating revenues	$	369.4	$	369.8
Operating expenses	Operating expenses									Operating expenses
Cost of services (exclusive of depreciation and amortization)	Cost of services (exclusive of depreciation and amortization)	209.6		185.7		632.3		598.3		Cost of services (exclusive of depreciation and amortization)	210.8		203.8
Selling, general and administrative	Selling, general and administrative	109.1		104.8		352.1		318.5		Selling, general and administrative	118.9		107.3
Depreciation and amortization	Depreciation and amortization	24.3		27.4		76.2		81.7		Depreciation and amortization	26.0		26.9
Total operating expenses	Total operating expenses	343.0		317.9		1,060.6		998.5		Total operating expenses	355.7		338.0
Operating profit	Operating profit	50.0		29.2		86.0		94.4		Operating profit	13.7		31.8
Interest expense	Interest expense	32.3		31.9		83.8		93.7		Interest expense	25.6		30.8
Other (income) expense, net	Other (income) expense, net	1.2		13.9		6.4		(20.5)		Other (income) expense, net	1.2		(49.7)
Loss on extinguishment of debt		9.3		—		17.0		—
Income (loss) from continuing operations before income taxes	Income (loss) from continuing operations before income taxes	7.2		(16.6)		(21.2)		21.2		Income (loss) from continuing operations before income taxes	(13.1)		50.7
Income taxes	Income taxes	6.7		10.3		(7.9)		37.2		Income taxes	(4.7)		24.5
Income (loss) from continuing operations	Income (loss) from continuing operations	0.5		(26.9)		(13.3)		(16.0)		Income (loss) from continuing operations	(8.4)		26.2
Income (loss) from discontinued operations, net of income taxes		(6.3)		25.9		217.4		77.4
Income from discontinued operations, net of income taxes										Income from discontinued operations, net of income taxes	8.1		24.7
Net income (loss)	Net income (loss)	$	(5.8)	$	(1.0)	$	204.1	$	61.4	Net income (loss)	$	(0.3)	$	50.9
Net income (loss) per share - basic	Net income (loss) per share - basic									Net income (loss) per share - basic
Income (loss) from continuing operations	Income (loss) from continuing operations	$	(0.09)	$	(0.31)	$	(0.30)	$	(0.30)	Income (loss) from continuing operations	$	(0.16)	$	0.10
Income (loss) from discontinued operations		(0.06)		0.21		1.41		0.50
Income from discontinued operations										Income from discontinued operations	0.07		0.15
Net income (loss) per share - basic	Net income (loss) per share - basic	$	(0.15)	$	(0.10)	$	1.11	$	0.20	Net income (loss) per share - basic	$	(0.09)	$	0.25
Net income (loss) per share - diluted	Net income (loss) per share - diluted									Net income (loss) per share - diluted
Income (loss) from continuing operations	Income (loss) from continuing operations	$	(0.09)	$	(0.31)	$	(0.30)	$	(0.30)	Income (loss) from continuing operations	$	(0.16)	$	0.10
Income (loss) from discontinued operations		(0.06)		0.21		1.41		0.50
Income from discontinued operations										Income from discontinued operations	0.07		0.15
Net income (loss) per share - diluted	Net income (loss) per share - diluted	$	(0.15)	$	(0.10)	$	1.11	$	0.20	Net income (loss) per share - diluted	$	(0.09)	$	0.25

See accompanying condensed notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Statements of Comprehensive Income ~~(Loss)~~

(In millions)

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net income (loss) $ (5.8) $ (1.0) $ 204.1 $ 61.4
Other comprehensive income (loss), net of tax
Foreign currency translation loss (31.0) (13.4) (45.3) (4.7)
Unrealized gain on interest rate derivatives, net of tax — 2.0 5.7 9.0
Total other comprehensive income (loss), net of tax (31.0) (11.4) (39.6) 4.3
Comprehensive income (loss) $ (36.8) $ (12.4) $ 164.5 $ 65.7


	Three Months Ended March 31,
	2022		2021
Net income (loss)	$	(0.3)	$	50.9
Other comprehensive income, net of tax
Foreign currency translation gain	1.1		1.6
Unrealized gain on interest rate derivatives, net of tax	9.1		6.7
Total other comprehensive income, net of tax	10.2		8.3
Comprehensive income	$	9.9	$	59.2

See accompanying condensed notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Balance Sheets

(In millions)

(Unaudited)


		September 30, 2022		December 31, 2021			March 31, 2022		December 31, 2021
Assets	Assets					Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	148.7	$	177.6	Cash and cash equivalents	$	134.2	$	177.6
Restricted cash	Restricted cash	28.9		25.8		Restricted cash	26.3		25.8
Trade receivables, net of allowances of $14.2 and $9.5		419.9		381.3
Finance receivables, net of allowances of $21.5 and $23.0		2,533.6		2,506.0
Trade receivables, net of allowances of $10.1 and $9.5						Trade receivables, net of allowances of $10.1 and $9.5	433.3		381.3
Finance receivables, net of allowances of $23.0 and $23.0						Finance receivables, net of allowances of $23.0 and $23.0	2,734.8		2,506.0
Other current assets	Other current assets	71.8		87.9		Other current assets	117.8		87.9
Current assets of discontinued operations		—		213.2
Current assets held-for-sale						Current assets held-for-sale	2,058.6		213.2
Total current assets	Total current assets	3,202.9		3,391.8		Total current assets	5,505.0		3,391.8
Other assets	Other assets					Other assets
Goodwill	Goodwill	1,452.3		1,598.0		Goodwill	1,595.4		1,598.0
Customer relationships, net of accumulated amortization of $409.2 and $401.5		141.1		159.1
Other intangible assets, net of accumulated amortization of $390.5 and $350.0		231.3		243.3
Customer relationships, net of accumulated amortization of $407.8 and $401.5						Customer relationships, net of accumulated amortization of $407.8 and $401.5	153.4		159.1
Other intangible assets, net of accumulated amortization of $365.9 and $350.0						Other intangible assets, net of accumulated amortization of $365.9 and $350.0	236.6		243.3
Operating lease right-of-use assets	Operating lease right-of-use assets	85.9		94.7		Operating lease right-of-use assets	93.2		94.7
Property and equipment, net of accumulated depreciation of $205.2 and $201.6		131.3		143.5
Property and equipment, net of accumulated depreciation of $206.1 and $201.6						Property and equipment, net of accumulated depreciation of $206.1 and $201.6	142.2		143.5
Other assets	Other assets	56.5		53.7		Other assets	66.6		53.7
Non-current assets of discontinued operations		—		1,766.6
Non-current assets held-for-sale						Non-current assets held-for-sale	—		1,766.6
Total other assets	Total other assets	2,098.4		4,058.9		Total other assets	2,287.4		4,058.9
Total assets	Total assets	$	5,301.3	$	7,450.7	Total assets	$	7,792.4	$	7,450.7

See accompanying condensed notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Balance Sheets

(In millions, except share and per share data)

(Unaudited)

September 30,
2022 December 31, 2021
Liabilities, Temporary Equity and Stockholders' Equity
Current liabilities
Accounts payable $ 645.6 $ 785.3
Accrued employee benefits and compensation expenses 27.4 32.3
Accrued interest 10.1 6.1
Other accrued expenses 86.9 107.4
Income taxes payable 59.0 7.9
Obligations collateralized by finance receivables 1,707.8 1,692.3
Current maturities of long-term debt 283.6 16.3
Current liabilities of discontinued operations — 361.7
Total current liabilities 2,820.4 3,009.3
Non-current liabilities
Long-term debt 194.7 1,849.7
Deferred income tax liabilities 50.6 55.9
Operating lease liabilities 80.7 88.1
Other liabilities 8.0 30.0
Non-current liabilities of discontinued operations — 313.8
Total non-current liabilities 334.0 2,337.5
Commitments and contingencies (Note 9)
Temporary equity
Series A convertible preferred stock 612.5 590.9
Stockholders' equity
Common stock, $0.01 par value:
Authorized shares: 400,000,000
Issued and outstanding shares:
September 30, 2022: 112,816,976
December 31, 2021: 121,163,050 1.1 1.2
Additional paid-in capital 800.7 910.8
Retained earnings 796.9 625.7
Accumulated other comprehensive loss (64.3) (24.7)
Total stockholders' equity 1,534.4 1,513.0
Total liabilities, temporary equity and stockholders' equity $ 5,301.3 $ 7,450.7

~~See accompanying condensed notes to consolidated financial statements~~

~~Table of Contents~~

~~KAR Auction Services, Inc.~~

~~Consolidated Statements of Stockholders' Equity~~

~~(In millions)~~

~~(Unaudited)~~

Common
Stock
Shares Common
Stock
Amount Additional
Paid-In
Capital Retained Earnings Accumulated
Other
Comprehensive
Loss Total
Balance at June 30, 2022 116.1 $ 1.2 $ 847.2 $ 813.8 $ (33.3) $ 1,628.9
Net loss (5.8) (5.8)
Other comprehensive loss (31.0) (31.0)
Issuance of common stock under stock plans 0.2 0.2
Stock-based compensation expense 3.3 3.3
Repurchase and retirement of common stock (3.3) (0.1) (50.0) (50.1)
Dividends on preferred stock (11.1) (11.1)
Balance at September 30, 2022 112.8 $ 1.1 $ 800.7 $ 796.9 $ (64.3) $ 1,534.4
Common
Stock
Shares Common
Stock
Amount Additional
Paid-In
Capital Retained Earnings Accumulated
Other
Comprehensive
Loss Total
Balance at December 31, 2021 121.2 $ 1.2 $ 910.8 $ 625.7 $ (24.7) $ 1,513.0
Net income 204.1 204.1
Other comprehensive loss (39.6) (39.6)
Issuance of common stock under stock plans 0.5 1.1 1.1
Surrender of RSUs for taxes (0.2) (2.5) (2.5)
Stock-based compensation expense 23.3 23.3
Repurchase and retirement of common stock (8.7) (0.1) (132.1) (132.2)
Dividends earned under stock plans 0.1 (0.2) (0.1)
Dividends on preferred stock (32.7) (32.7)
Balance at September 30, 2022 112.8 $ 1.1 $ 800.7 $ 796.9 $ (64.3) $ 1,534.4


	March 31, 2022		December 31, 2021
Liabilities, Temporary Equity and Stockholders' Equity
Current liabilities
Accounts payable	$	833.5	$	785.3
Accrued employee benefits and compensation expenses	25.2		32.3
Accrued interest	18.6		6.1
Other accrued expenses	79.0		107.4
Income taxes payable	3.4		7.9
Obligations collateralized by finance receivables	1,866.6		1,692.3
Current maturities of long-term debt	1,034.0		16.3
Current liabilities held-for-sale	621.5		361.7
Total current liabilities	4,481.8		3,009.3
Non-current liabilities
Long-term debt	939.8		1,849.7
Deferred income tax liabilities	144.3		138.4
Operating lease liabilities	86.9		88.1
Other liabilities	22.1		30.0
Non-current liabilities held-for-sale	—		231.3
Total non-current liabilities	1,193.1		2,337.5
Commitments and contingencies (Note 9)
Temporary equity
Series A convertible preferred stock	601.6		590.9
Stockholders' equity
Common stock, $0.01 par value:
Authorized shares: 400,000,000
Issued and outstanding shares:
March 31, 2022: 121,532,564
December 31, 2021: 121,163,050	1.2		1.2
Additional paid-in capital	914.6		910.8
Retained earnings	614.6		625.7
Accumulated other comprehensive loss	(14.5)		(24.7)
Total stockholders' equity	1,515.9		1,513.0
Total liabilities, temporary equity and stockholders' equity	$	7,792.4	$	7,450.7

See accompanying condensed notes to consolidated financial statements

Table of Contents

KAR Auction Services, Inc.

Consolidated Statements of Stockholders' Equity

(In millions)

(Unaudited)


		Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total			Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at June 30, 2021		119.2	$	1.2	$	874.6	$	642.5	$	(17.0)	$	1,501.3
Balance at December 31, 2021													Balance at December 31, 2021	121.2	$	1.2	$	910.8	$	625.7	$	(24.7)	$	1,513.0
Net loss	Net loss						(1.0)				(1.0)		Net loss						(0.3)				(0.3)
Other comprehensive loss									(11.4)		(11.4)
Other comprehensive income													Other comprehensive income								10.2		10.2
Issuance of common stock under stock plans	Issuance of common stock under stock plans				0.2						0.2		Issuance of common stock under stock plans	0.5			0.6						0.6
Surrender of RSUs for taxes													Surrender of RSUs for taxes	(0.2)			(2.5)						(2.5)
Stock-based compensation expense	Stock-based compensation expense				4.0						4.0		Stock-based compensation expense				5.6						5.6
Dividends earned under stock plans													Dividends earned under stock plans				0.1		(0.1)				—
Dividends on preferred stock	Dividends on preferred stock						(10.4)				(10.4)		Dividends on preferred stock						(10.7)				(10.7)
Balance at September 30, 2021		119.2	$	1.2	$	878.8	$	631.1	$	(28.4)	$	1,482.7
Balance at March 31, 2022													Balance at March 31, 2022	121.5	$	1.2	$	914.6	$	614.6	$	(14.5)	$	1,515.9

		Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total			Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at December 31, 2020	Balance at December 31, 2020	129.7	$	1.3	$	1,046.5	$	600.7	$	(32.7)	$	1,615.8	Balance at December 31, 2020	129.7	$	1.3	$	1,046.5	$	600.7	$	(32.7)	$	1,615.8
Net income	Net income						61.4				61.4		Net income						50.9				50.9
Other comprehensive income	Other comprehensive income								4.3		4.3		Other comprehensive income								8.3		8.3
Issuance of common stock under stock plans	Issuance of common stock under stock plans	0.4			1.2						1.2		Issuance of common stock under stock plans	0.4			0.3						0.3
Surrender of RSUs for taxes	Surrender of RSUs for taxes	(0.1)			(2.2)						(2.2)		Surrender of RSUs for taxes	(0.1)			(2.2)						(2.2)
Stock-based compensation expense	Stock-based compensation expense				13.9						13.9		Stock-based compensation expense				5.4						5.4
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(10.8)	(0.1)		(180.8)						(180.9)		Repurchase and retirement of common stock	(5.2)			(80.8)						(80.8)
Dividends earned under stock plans	Dividends earned under stock plans				0.2		(0.4)				(0.2)		Dividends earned under stock plans				0.2		(0.4)				(0.2)
Dividends on preferred stock	Dividends on preferred stock						(30.6)				(30.6)		Dividends on preferred stock						(10.0)				(10.0)
Balance at September 30, 2021		119.2	$	1.2	$	878.8	$	631.1	$	(28.4)	$	1,482.7
Balance at March 31, 2021													Balance at March 31, 2021	124.8	$	1.3	$	969.4	$	641.2	$	(24.4)	$	1,587.5

See accompanying condensed notes to consolidated financial statements

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KAR Auction Services, Inc.

Consolidated Statements of Cash Flows

(In millions)

(Unaudited)


							Three Months Ended March 31,
		Nine Months Ended September 30,					2022		2021
		2022		2021			As Restated
Operating activities	Operating activities					Operating activities
Net income		$	204.1	$	61.4
Net income (loss)						Net income (loss)	$	(0.3)	$	50.9
Net income from discontinued operations	Net income from discontinued operations	(217.4)		(77.4)		Net income from discontinued operations	(8.1)		(24.7)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	76.2		81.7		Depreciation and amortization	26.0		26.9
Provision for credit losses	Provision for credit losses	9.7		6.5		Provision for credit losses	3.0		5.1
Deferred income taxes	Deferred income taxes	(4.3)		5.3		Deferred income taxes	2.6		4.4
Amortization of debt issuance costs	Amortization of debt issuance costs	8.5		9.1		Amortization of debt issuance costs	3.1		3.0
Stock-based compensation	Stock-based compensation	22.6		12.1		Stock-based compensation	5.0		4.7
Contingent consideration adjustment	Contingent consideration adjustment	—		20.1		Contingent consideration adjustment	—		11.2
Net change in unrealized (gain) loss on investment securities	Net change in unrealized (gain) loss on investment securities	6.5		(10.7)		Net change in unrealized (gain) loss on investment securities	3.0		(43.5)
Loss on extinguishment of debt		17.0		—
Other non-cash, net	Other non-cash, net	0.3		1.7		Other non-cash, net	(8.7)		0.6
Changes in operating assets and liabilities, net of acquisitions:
Changes in operating assets and liabilities:						Changes in operating assets and liabilities:
Trade receivables and other assets	Trade receivables and other assets	(23.2)		(180.5)		Trade receivables and other assets	(67.1)		(222.4)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(86.5)		283.8		Accounts payable and accrued expenses	45.0		334.0
Net cash provided by operating activities - continuing operations		13.5		213.1
Payments of contingent consideration in excess of acquisition-date fair value						Payments of contingent consideration in excess of acquisition-date fair value	(26.1)		—
Net cash (used by) provided by operating activities - continuing operations						Net cash (used by) provided by operating activities - continuing operations	(22.6)		150.2
Net cash (used by) provided by operating activities - discontinued operations	Net cash (used by) provided by operating activities - discontinued operations	(435.6)		142.4		Net cash (used by) provided by operating activities - discontinued operations	(39.2)		14.3
Investing activities	Investing activities					Investing activities
Net increase in finance receivables held for investment	Net increase in finance receivables held for investment	(34.9)		(281.4)		Net increase in finance receivables held for investment	(229.4)		(73.3)
Acquisition of businesses (net of cash acquired)		(0.4)		(79.8)
Purchases of property, equipment and computer software	Purchases of property, equipment and computer software	(45.8)		(47.6)		Purchases of property, equipment and computer software	(13.5)		(11.9)
Investments in securities	Investments in securities	(6.6)		(22.0)		Investments in securities	(4.1)		(15.3)
Proceeds from sale of investments	Proceeds from sale of investments	0.3		32.7		Proceeds from sale of investments	0.3		21.1
Proceeds from the sale of business		—		2.1
Proceeds from the sale of PWI						Proceeds from the sale of PWI	—		0.9
Net cash used by investing activities - continuing operations	Net cash used by investing activities - continuing operations	(87.4)		(396.0)		Net cash used by investing activities - continuing operations	(246.7)		(78.5)
Net cash provided by (used by) investing activities - discontinued operations		2,066.4		(19.0)
Net cash used by investing activities - discontinued operations						Net cash used by investing activities - discontinued operations	(11.8)		(0.7)
Financing activities	Financing activities					Financing activities
Net decrease in book overdrafts		(5.8)		(2.7)
Net increase (decrease) in borrowings from lines of credit		126.8		(5.2)
Net increase in obligations collateralized by finance receivables		36.6		119.6
Payments for debt issuance costs/amendments		(11.6)		—
Net increase in book overdrafts						Net increase in book overdrafts	6.5		5.1
Net increase in borrowings from lines of credit						Net increase in borrowings from lines of credit	108.8		6.1
Net increase (decrease) in obligations collateralized by finance receivables						Net increase (decrease) in obligations collateralized by finance receivables	170.5		(25.1)
Payments on long-term debt	Payments on long-term debt	(928.6)		(7.1)		Payments on long-term debt	(2.4)		(2.4)
Payment for early extinguishment of debt		(606.1)		—
Payments on finance leases	Payments on finance leases	(3.1)		(4.4)		Payments on finance leases	(1.3)		(1.5)
Payments of contingent consideration and deferred acquisition costs	Payments of contingent consideration and deferred acquisition costs	(29.6)		(21.3)		Payments of contingent consideration and deferred acquisition costs	(3.5)		(21.3)
Issuance of common stock under stock plans	Issuance of common stock under stock plans	1.1		1.2		Issuance of common stock under stock plans	0.6		0.3
Tax withholding payments for vested RSUs	Tax withholding payments for vested RSUs	(2.5)		(2.2)		Tax withholding payments for vested RSUs	(2.5)		(2.2)
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(132.2)		(180.9)		Repurchase and retirement of common stock	—		(80.8)
Dividends paid on Series A Preferred Stock		(11.1)		—
Net cash used by financing activities - continuing operations		(1,566.1)		(103.0)
Net cash provided by (used by) financing activities - continuing operations						Net cash provided by (used by) financing activities - continuing operations	276.7		(121.8)
Net cash provided by financing activities - discontinued operations	Net cash provided by financing activities - discontinued operations	10.8		40.2		Net cash provided by financing activities - discontinued operations	22.0		33.1
Net change in cash balances of discontinued operations						Net change in cash balances of discontinued operations	(24.3)		(15.9)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(27.4)		(3.0)		Effect of exchange rate changes on cash	3.0		2.6
Net decrease in cash, cash equivalents and restricted cash	Net decrease in cash, cash equivalents and restricted cash	(25.8)		(125.3)		Net decrease in cash, cash equivalents and restricted cash	(42.9)		(16.7)
Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	203.4		784.3		Cash, cash equivalents and restricted cash at beginning of period	203.4		784.3
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	177.6	$	659.0	Cash, cash equivalents and restricted cash at end of period	$	160.5	$	767.6
Cash paid for interest, net of proceeds from interest rate derivatives	Cash paid for interest, net of proceeds from interest rate derivatives	$	71.0	$	71.6	Cash paid for interest, net of proceeds from interest rate derivatives	$	18.5	$	15.3
Cash paid for taxes, net of refunds	Cash paid for taxes, net of refunds	$	325.2	$	22.1	Cash paid for taxes, net of refunds	$	12.6	$	11.7

See accompanying condensed notes to consolidated financial statements

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements

~~September 30,~~March 31, 2022 (Unaudited)

Note 1—Basis of Presentation and Nature of Operations

Defined Terms

Unless otherwise indicated or unless the context otherwise requires, the following terms used herein shall have the following meanings:

•"we," "us," "our," "KAR" and "the Company" refer, collectively, to KAR Auction Services, Inc. and all of its subsidiaries;

•"ADESA" or "ADESA Auctions" refer, collectively, to ADESA, Inc., a wholly-owned subsidiary of KAR Auction Services, and ADESA, Inc.'s subsidiaries, including Openlane, Inc. (together with Openlane, Inc.'s subsidiaries, "Openlane"), BacklotCars, Inc. ("BacklotCars"), CARWAVE Holdings LLC ("CARWAVE"), Nth Gen Software Inc. ("TradeRev"), ADESA Remarketing Limited (formerly known as GRS Remarketing Limited ("GRS" or "ADESA Remarketing Limited")) and ADESA ~~Europe;~~Europe (formerly known as CarsOnTheWeb ("COTW"));

•"AFC" refers, collectively, to Automotive Finance Corporation, a wholly-owned subsidiary of ADESA, and Automotive Finance Corporation's subsidiaries and other related entities, including PWI Holdings, Inc. (which was sold on December 1, 2020);

•"Credit Agreement" refers to the Amended and Restated Credit Agreement, dated March 11, 2014 (as amended, amended and restated, modified or supplemented from time to time), among KAR Auction Services, Inc., as the borrower, the several banks and other financial institutions or entities from time to time parties thereto and JPMorgan Chase Bank N.A., as administrative agent;

•"Credit Facility" refers to the $950 million, senior secured term loan B-6 facility due September 19, 2026 ("Term Loan B-6") and the $325 million, senior secured revolving credit facility due September 19, 2024 (the "Revolving Credit Facility"), the terms of which are set forth in the Credit Agreement;

•"IAA" refers, collectively, to Insurance Auto Auctions, Inc., formerly a wholly-owned subsidiary of KAR Auction Services, and Insurance Auto Auctions, Inc.'s subsidiaries and other related ~~entities;~~entities, including HBC Vehicle Services Limited ("HBC");

•"KAR Auction Services" refers to KAR Auction Services, Inc. and not to its subsidiaries;

•"Senior notes" refers to the 5.125% senior notes due 2025 ($~~350~~950 million aggregate principal was outstanding at ~~September 30,~~March 31, 2022); and

•"Series A Preferred Stock" refers to the Series A Convertible Preferred Stock, par value $0.01 per share ~~(634,305~~(623,397 and 612,676 shares of Series A Preferred Stock were outstanding at ~~September 30,~~March 31, 2022 and December 31, 2021, respectively).

Business and Nature of Operations

~~KAR~~ADESA is a leading provider of wholesale vehicle auctions and related vehicle remarketing services for the automotive industry. In February 2022, the Company announced that it had entered into a definitive agreement with Carvana Group, LLC (“Carvana”) and Carvana Co., pursuant to which Carvana will acquire the ADESA U.S. physical auction business from KAR (the “Transaction”). The Transaction includes all auction sales, operations and staff at ADESA’s U.S. vehicle logistic centers and use of the ADESA.com marketplace in the U.S. (see Note 2). As of ~~September 30,~~March 31, 2022, the ~~Marketplace~~ADESA Auctions segment ~~(formerly referenced as ADESA Auctions)~~ serves a domestic and international customer base through digital marketplaces and 14 vehicle logistics center locations across Canada. ~~Our digital marketplaces include~~ADESA includes BacklotCars, an app and web-based dealer-to-dealer wholesale vehicle platform utilized in the United States, CARWAVE, an online dealer-to-dealer marketplace in the United States, TradeRev, an online automotive remarketing platform in Canada where dealers can launch and participate in real-time vehicle auctions at any time, ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom and ADESA Europe, an online wholesale vehicle auction marketplace in Continental Europe. Our auctions facilitate the sale of used vehicles through on-premise and off-premise marketplaces. ~~Our~~ADESA's online service offerings include customized private label solutions powered with software developed by its wholly-owned subsidiary, Openlane, that allow our commercial consignors (automobile manufacturers, captive finance companies and other institutions) to offer vehicles via the Internet prior to arrival at on-premise marketplaces.

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

Remarketing services include a variety of activities designed to facilitate the transfer of used vehicles between sellers and buyers throughout the vehicle life cycle. ~~We facilitate~~ADESA facilitates the exchange of these vehicles through an auction marketplace, which aligns sellers and buyers. As an agent for customers, the Company generally does not take title to or ownership of vehicles sold at the auctions. Generally, fees are earned from the seller and buyer on each successful auction transaction in addition to fees earned for ancillary services.

~~Table of Contents~~

~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

WeADESA also ~~provide~~provides services such as inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. ~~We are~~ADESA is able to serve the diverse and multi-faceted needs of ~~our~~its customers through the wide range of services offered.

AFC is a leading provider of floorplan financing to independent used vehicle dealers and this financing is provided through approximately 100 locations throughout the United States and Canada as of ~~September 30,~~March 31, 2022. Floorplan financing supports independent used vehicle dealers in North America who purchase vehicles at ADESA, BacklotCars, CARWAVE, TradeRev, ~~and~~ other used vehicle and salvage auctions. In addition, AFC provides financing for dealer inventory purchased directly from wholesalers and other dealers ~~and directly from consumers,~~ as well as providing liquidity for customer trade-ins which encompasses settling lien holder payoffs. AFC also provides title services for their customers.

Basis of Presentation

The accompanying unaudited ~~condensed~~ consolidated financial statements have been prepared in accordance with

generally accepted accounting principles in the United States of America ("U.S. GAAP") for interim financial information and

with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information

and notes required by U.S. GAAP for annual financial statements. Operating results for interim periods are not necessarily

indicative of results that may be expected for the year as a whole. In the opinion of management, the consolidated financial

statements reflect all adjustments, generally consisting of normal recurring accruals, necessary for a fair statement of our results

of operations, cash flows and financial position for the periods presented. These consolidated financial statements and

condensed notes to consolidated financial statements are unaudited and should be read in conjunction with the audited

consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended

December 31, 2021, as filed with the Securities and Exchange Commission on February 23, 2022. The 2021 year-end

consolidated balance sheet data included in this Form 10-Q was derived from the audited financial statements referenced above

and does not include all disclosures required by U.S. GAAP for annual financial statements.

Reclassifications

~~Beginning in~~During the first quarter of 2022, the Company ~~has~~ classified the ADESA U.S. physical auctions (vehicle logistics centers) as ~~discontinued operations.~~held-for-sale based on management’s intention to sell the business. Certain amounts reported in the consolidated financial statements and related notes prior to March 2022 have been reclassified to discontinued operations to reflect the pending sale of the Company’s ADESA U.S. physical auction business. The assets and liabilities of the ADESA U.S. physical auctions have been reclassified to "Current assets ~~of discontinued operations,~~held-for-sale," "Non-current assets ~~of discontinued operations,~~held-for-sale," "Current liabilities ~~of discontinued operations"~~held-for-sale" and "Non-current liabilities ~~of discontinued operations"~~held-for-sale" in the consolidated balance sheets for all periods presented. Likewise, certain amounts reported for segment results in the consolidated financial statements prior to March 2022 have been reclassified to conform to the discontinued operations presentation. See Note 2 for a further discussion.

In addition, KAR provided transportation services of ~~$20.6~~$17.7 million and ~~$56.7~~$24.4 million to the ADESA U.S. physical auctions for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 ~~respectively,~~ and ~~$18.0 million and $63.7 million for the three and nine months ended September 30,~~ 2021, respectively. The revenue and cost of services for these transportation services provided to the ADESA U.S. physical auctions was previously eliminated in consolidation, but this revenue and the related costs are now included in the Company's consolidated statements of income.

AFC also ~~had~~has accounts payable to customers of the ADESA U.S. physical auctions related to auction proceeds financed. Previously, these accounts payables were eliminated in consolidation, but are now included in "Accounts payable" and "Current assets ~~of discontinued operations"~~held-for-sale" on the consolidated balance ~~sheet~~sheets and were $40.4 million and $33.5 million at March 31, 2022 and December 31, ~~2021.~~2021, respectively.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates based in part on assumptions about current, and for some estimates, future economic and market conditions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

statements, and the reported amounts of revenues and expenses during the period. Although the current estimates contemplate current conditions and expected future changes, as appropriate, it is reasonably possible that future conditions could differ from these estimates, which could materially affect our results of operations and financial position. Among other effects, such changes could result in future impairments of goodwill, intangible assets and long-lived assets, incremental losses on finance receivables, additional allowances on accounts receivable and deferred tax assets and changes in litigation and other loss contingencies.

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

New Accounting Standards

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible debt instruments and convertible preferred stock by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the primary contract. The update also requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share. The new guidance is effective for annual periods beginning after December 15, 2021, including interim periods within those fiscal years. This update can be adopted on either a fully retrospective or a modified retrospective basis. The adoption of ASU 2020-06 did not have a material impact on the consolidated financial statements.

Restatement of Previously Issued Consolidated Financial Statements

The Company has determined that there were errors in the original Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 related to the cash flow presentation of accrued taxes and other transaction-related accruals in connection with the sale of the ADESA U.S. physical auction business that closed in May 2022. Specifically, the Company determined that the cash flows associated with these accruals were incorrectly classified within “Net cash provided by operating activities – continuing operations” rather than “Net cash used by operating activities – discontinued operations” in its consolidated statements of cash flows for the three months ended March 31, 2022. In addition, in the three months ended March 31, 2022 all payments of contingent consideration were previously included as cash flows from financing activities. The portion of the payment in excess of the acquisition-date fair value should have been reflected as a cash flow from operating activities. We also corrected the presentation of the net change in cash balances of discontinued operations. The Company is correcting these misclassifications by restating its consolidated statement of cash flows through the amendment of its Quarterly Report on Form 10-Q. The following table summarizes the impact of these adjustments for the period presented:


	Three Months Ended March 31, 2022
	As Reported		Adjustments		As Restated
Trade receivables and other assets	$	(80.1)	$	13.0	$	(67.1)
Payments of contingent consideration in excess of acquisition-date fair value	—		(26.1)		(26.1)
Net cash used by operating activities – continuing operations	(9.5)		(13.1)		(22.6)
Net cash used by operating activities – discontinued operations	(50.5)		11.3		(39.2)
Payments of contingent consideration	(29.6)		26.1		(3.5)
Net cash provided by financing activities – continuing operations	250.6		26.1		276.7
Net change in cash balances of discontinued operations	—		(24.3)		(24.3)

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

Note 2—Pending Sale of ADESA U.S. Physical Auction Business and Discontinued Operations

In February 2022, the Company announced that it had entered into a definitive agreement with Carvana, ~~Group, LLC ("Carvana") and Carvana Co.,~~ pursuant to which Carvana ~~would~~will acquire the ADESA U.S. physical auction business from ~~KAR (the "Transaction").~~KAR. The Transaction ~~was completed in May 2022 for approximately~~is valued at $2.2 billion ~~in cash~~ and ~~included~~includes all auction sales, operations and staff at ADESA’s U.S. vehicle logistic centers and use of the ADESA.com marketplace in the U.S. The ~~net proceeds received~~Transaction is subject to customary closing conditions and is expected to close in ~~connection with the Transaction are included in "Net cash provided by investing activities - discontinued operations" in the consolidated statement of cash flow.~~May 2022. In connection with the Transaction, the Company and Carvana ~~entered~~expect to enter into various agreements to provide a framework for their relationship after the Transaction, including a transition services agreement ~~for a transitional period~~ and a commercial ~~agreement for a term of 7 years that provides for platform and other fees for services rendered.~~agreement. In addition, KAR will continue to own the ADESA tradename and the ADESA U.S. physical auctions will continue to utilize the tradename, which has an indefinite life. ~~From~~

The Company has classified the ~~completion of~~ADESA U.S. physical auctions as held-for-sale in its consolidated balance sheets, based on management’s intention to sell the ~~Transaction through September 30, 2022, KAR has received a net cash inflow from~~business. The "Goodwill" shown in the ~~commercial agreement and transition services agreement of approximately $33.5 million.~~

balance sheets below was allocated to the ADESA U.S. physical auctions based on relative fair value. The financial results of the ADESA U.S. physical auction business have been accounted for as discontinued operations for all periods presented. The business was formerly included in the Company’s ~~Marketplace~~ADESA Auctions reportable segment (formerly referenced as ADESA Auctions). The "Goodwill" shown in the balance sheet below was allocated to the ADESA U.S. physical auctions based on relative fair value. Discontinued operations included transaction costs of approximately $37.1 million for the nine months ended September 30, 2022, in connection with the Transaction. These costs consisted of consulting and professional fees associated with the Transaction. As shown below, the Transaction resulted in a pretax gain on disposal of approximately $521.8 million. The change in the pretax gain on disposal for the three months ended September 30, 2022 occurred as a result of a net working capital adjustment and additional transaction costs.

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

segment.

The following table presents the results of operations for the ADESA U.S. physical auction business that have been reclassified to discontinued operations for all periods presented (in millions):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Operating revenues $ — $ 206.2 $ 305.9 $ 673.1
Operating expenses
   Cost of services (exclusive of depreciation and amortization) — 144.2 224.9 438.3
   Selling, general and administrative — 32.1 68.8 113.2
   Depreciation and amortization — 17.3 11.2 55.3
Total operating expenses — 193.6 304.9 606.8
Operating profit (loss) — 12.6 1.0 66.3
Interest expense — 0.3 0.1 0.6
Other (income) expense, net — (2.1) (8.4) (6.0)
Income (loss) from discontinued operations before gain on disposal and income taxes — 14.4 9.3 71.7
Pretax gain on disposal of discontinued operations (11.9) — 521.8 —
Income taxes (5.6) (11.5) 313.7 (5.7)
Income from discontinued operations $ (6.3) $ 25.9 $ 217.4 $ 77.4


	Three Months Ended March 31,
	2022		2021
Operating revenues	$	220.0	$	236.2
Operating expenses
Cost of services (exclusive of depreciation and amortization)	158.6		149.7
Selling, general and administrative	43.9		44.4
Depreciation and amortization	11.2		20.1
Total operating expenses	213.7		214.2
Operating profit	6.3		22.0
Interest expense	0.1		0.1
Other (income) expense, net	(6.1)		(1.9)
Income from discontinued operations before income taxes	12.3		23.8
Income taxes	4.2		(0.9)
Income from discontinued operations	$	8.1	$	24.7

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

~~September 30,~~March 31, 2022 (Unaudited)

In preparing our 2022 annual consolidated financial statements, we identified an error in the December 31, 2021 comparative balance sheet that had been recasted and presented in the Original Form 10-Q to reflect the classification of the ADESA U.S. physical auctions as discontinued operations. In the December 31, 2021 balance sheet included in that filing, liabilities of discontinued operations were overstated by $82.5 million with a corresponding understatement of deferred income tax liabilities. Likewise, in the March 31, 2022 balance sheet included in the Original Form 10-Q, current liabilities held-for-sale were overstated by $83.8 million with a corresponding understatement of deferred income tax liabilities. The error was determined to be immaterial and has been corrected in the consolidated March 31, 2022 and December 31, 2021 balance sheets presented herein. We also corrected an immaterial error in the accompanying consolidated statement of cash flows for the three months ended March 31, 2021 to present the net change in cash balances of discontinued operations of $15.9 million as a separate line item rather than within net cash provided by operating activities – discontinued operations. There was no impact to the consolidated statements of income, statements of comprehensive income and statements of stockholders’ equity for the three months ended March 31, 2021. The following ~~table summarizes~~tables summarize the major classes of assets and liabilities of the ADESA U.S. physical auction business that have been classified as ~~discontinued operations~~held-for-sale for ~~the~~each period presented (in millions):


	March 31, 2022
Assets
Cash and cash equivalents	$	36.7
Trade receivables, net of allowances	237.8
Inventory	16.5
Other current assets	6.0
Goodwill	980.5
Customer relationships, net of accumulated amortization	81.4
Other intangible assets, net of accumulated amortization	33.5
Operating lease right-of-use assets	226.6
Property and equipment, net of accumulated depreciation	437.1
Other assets	2.5
Current assets held-for-sale	$	2,058.6

Liabilities
Accounts payable	$	323.1
Accrued employee benefits and compensation expenses	19.7
Other accrued expenses	27.0
Current portion of operating lease liabilities	27.7
Operating lease liabilities	222.0
Other liabilities	2.0
Current liabilities held-for-sale	$	621.5

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)


	December 31, 2021
Assets
Cash and cash equivalents	$	12.4
Trade receivables, net of allowances	179.3
Inventory	15.7
Other current assets	5.8
Current assets ~~of discontinued operations~~held-for-sale	213.2
Goodwill	980.5
Customer relationships, net of accumulated amortization	84.2
Other intangible assets, net of accumulated amortization	32.6
Operating lease right-of-use assets	231.0
Property and equipment, net of accumulated depreciation	435.7
Other assets	2.6
Non-current assets ~~of discontinued operations~~held-for-sale	1,766.6
Total assets ~~of discontinued operations~~held-for-sale	$	1,979.8

Liabilities
Accounts payable	$	271.7
Accrued employee benefits and compensation expenses	27.2
Other accrued expenses	35.3
Current portion of operating lease liabilities	27.5
Current liabilities ~~of discontinued operations~~held-for-sale	361.7
~~Deferred income tax liabilities~~	~~82.5~~
Operating lease liabilities	229.0
Other liabilities	2.3
Non-current liabilities ~~of discontinued operations~~held-for-sale	~~313.8~~231.3
Total liabilities ~~of discontinued operations~~held-for-sale	$	~~675.5~~593.0

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

Note 3—Stock and Stock-Based Compensation Plans

The KAR Auction Services, Inc. ~~Amended and Restated~~ 2009 Omnibus Stock and Incentive Plan ("Omnibus Plan") is intended to provide equity and/or cash-based awards to our executive officers and key employees. Our stock-based compensation expense includes expense associated with KAR Auction Services, Inc. service-based options ("service options"), market-based options ("market options"), performance-based restricted stock units ("PRSUs") and service-based restricted stock units ("RSUs"). We have determined that the KAR Auction Services, Inc. service options, market options, PRSUs and RSUs should be classified as equity awards.

The following table summarizes our stock-based compensation expense by type of award (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2022		2021
PRSUs	PRSUs	$	1.3	$	0.6	$	15.1	$	3.4	PRSUs	$	1.9	$	2.0
RSUs	RSUs	0.9		1.2		3.4		3.8		RSUs	1.4		1.4
Service options	Service options	0.2		0.2		0.6		0.8		Service options	0.2		0.3
Market options	Market options	0.9		1.4		3.5		4.1		Market options	1.5		1.0
Total stock-based compensation expense	Total stock-based compensation expense	$	3.3	$	3.4	$	22.6	$	12.1	Total stock-based compensation expense	$	5.0	$	4.7

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

PRSUs and RSUs

In the first ~~nine months~~quarter of 2022, we granted a target amount of approximately 0.5 million PRSUs to certain executive officers of the Company. The PRSUs granted in 2022 ~~were set to~~ vest if and to the extent that the Company's three-year cumulative operating adjusted net income per share attains certain specified goals. Following the Transaction, in September 2022 the performance targets and the related award agreements for the 2022 PRSUs were amended to modify the performance metric from operating adjusted net income per share to Adjusted EBITDA. The modification of the 2022 PRSUs affected 13 participants and there was no incremental compensation cost resulting from the modification. In addition, ~~in the first nine months of 2022,~~ approximately 0.3 million RSUs were granted to certain management members of the Company. The RSUs are contingent upon continued employment and generally vest in three equal annual installments. The weighted average grant date fair value of the PRSUs and the RSUs was $18.46 per share and ~~$18.39~~$18.45 per share, respectively, which was determined using the closing price of the Company's common stock on the dates of grant.

Share Repurchase Program

In October 2019, the board of directors authorized a repurchase of up to $300 million of the Company's outstanding common stock, par value $0.01 per share, through October 30, 2021. In October 2021, the board of directors authorized an extension of the ~~Company’s~~October 2019 share repurchase program through December 31, 2022. On April 27, 2022, the board of directors authorized an increase in the size of the Company’s $300 million share repurchase program by an additional $200 million and an extension of the share repurchase program through DecemberAt March 31, ~~2023. At September 30,~~ 2022, approximately ~~$176.9~~$109.0 million of the Company's outstanding common stock remained available for repurchase under the 2019 share repurchase program. Repurchases may be made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases is subject to market and other conditions. This program does not oblige the Company to repurchase any dollar amount or any number of shares under the authorization, and the program may be suspended, discontinued or modified at any time, for any reason and without notice. ~~For the three and nine months ended September 30, 2022, we repurchased and retired 3,309,527 shares and 8,740,316~~No shares of common stock ~~respectively, in~~were repurchased during the ~~open market at a weighted average price of $15.11 per share and $15.11 per share, respectively.~~three months ended March 31, 2022. For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, we repurchased and retired ~~10,847,800~~5,219,800 shares of common stock in the open market at a weighted average price of ~~$16.66~~$15.47 per ~~share. No shares of common stock were repurchased during~~share, under the ~~three months ended September 30, 2021.~~October 2019 authorization.

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

Note 4—Net Income (Loss) from Continuing Operations Per Share

The following table sets forth the computation of net income ~~(loss)~~ from continuing operations per share (in millions except per share amounts):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2022		2021
Income (loss) from continuing operations		$	0.5	$	(26.9)	$	(13.3)	$	(16.0)
Net income (loss) from continuing operations										Net income (loss) from continuing operations	$	(8.4)	$	26.2
Series A Preferred Stock dividends	Series A Preferred Stock dividends	(11.1)		(10.4)		(32.7)		(30.6)		Series A Preferred Stock dividends	(10.7)		(10.0)
Loss from continuing operations attributable to participating securities		—		—		10.6		9.9
Income (loss) from continuing operations attributable to common stockholders		$	(10.6)	$	(37.3)	$	(35.4)	$	(36.7)
Net income attributable to participating securities										Net income attributable to participating securities	—		(3.3)
Net income (loss) attributable to common stockholders										Net income (loss) attributable to common stockholders	$	(19.1)	$	12.9
Weighted average common shares outstanding	Weighted average common shares outstanding	114.6		119.3		118.5		123.7		Weighted average common shares outstanding	121.4		129.0
Effect of dilutive stock options and restricted stock awards	Effect of dilutive stock options and restricted stock awards	—		—		—		—		Effect of dilutive stock options and restricted stock awards	—		0.7
Weighted average common shares outstanding and potential common shares	Weighted average common shares outstanding and potential common shares	114.6		119.3		118.5		123.7		Weighted average common shares outstanding and potential common shares	121.4		129.7
Income (loss) from continuing operations per share
Net income (loss) from continuing operations per share										Net income (loss) from continuing operations per share
Basic	Basic	$	(0.09)	$	(0.31)	$	(0.30)	$	(0.30)	Basic	$	(0.16)	$	0.10
Diluted	Diluted	$	(0.09)	$	(0.31)	$	(0.30)	$	(0.30)	Diluted	$	(0.16)	$	0.10

The Company includes participating securities (Series A Preferred Stock) in the computation of net income from continuing operations per share pursuant to the two-class method. The two-class method of calculating net income from continuing operations per share is an allocation method that calculates earnings per share for common stock and participating securities. Under the two-class method, total dividends provided to the holders of the Series A Preferred Stock and undistributed earnings allocated to participating securities are subtracted from net income from continuing operations in determining net income attributable to common stockholders. During periods of net loss, no effect is given to the participating securities because they do not share in the losses of the Company.

The effect of stock options and restricted stock on net income from continuing operations per share-diluted is determined through the application of the treasury stock method, whereby net proceeds received by the Company based on assumed exercises are hypothetically used to repurchase our common stock at the average market price during the period. As a result of the spin-off, there are IAA employees who hold KAR equity awards included in the calculation. Stock options that would have

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

an anti-dilutive effect on net income from continuing operations per diluted share, unexercisable market options and PRSUs subject to performance conditions which have not yet been satisfied are excluded from the calculations. No service options were excluded from the calculation of diluted net income from continuing operations per share for the three months ended March 31, 2021. All of the market options were excluded from the calculation of diluted net income from continuing operations per share for the three months ended March 31, 2021. Approximately 0.8 million PRSUs were excluded from the calculation of diluted net income from continuing operations per share for the three months ended March 31, 2021. Total options outstanding at March 31, 2022 and 2021 were 5.7 million and 2.7 million, respectively. In accordance with U.S. GAAP, no potential common shares were included in the computation of diluted net income from continuing operations per share for the three ~~or nine~~ months ended ~~September 30,~~March 31, 2022 ~~and 2021~~ because to do so would have been anti-dilutive based on the period ~~undistributed~~net loss from continuing operations. ~~Total options outstanding at September 30, 2022 and 2021 were 5.0 million and 5.4 million, respectively.~~

Note 5—Finance Receivables and Obligations Collateralized by Finance Receivables

AFC sells the majority of its U.S. dollar denominated finance receivables on a revolving basis and without recourse to a wholly-owned, bankruptcy remote, consolidated, special purpose subsidiary ("AFC Funding Corporation"), established for the purpose of purchasing AFC's finance receivables. A securitization agreement allows for the revolving sale by AFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. The agreement expires on January 31, 2024. AFC Funding Corporation had committed liquidity of ~~$2.0~~$1.70 billion for U.S. finance receivables at ~~September 30,~~March 31, 2022.

In September 2022, AFC and AFC Funding Corporation entered into the Tenth Amended and Restated Receivables Purchase Agreement (the "Receivables Purchase Agreement"). The Receivables Purchase Agreement increased AFC Funding's U.S. committed liquidity from $1.70 billion to $2.0 billion and extended the facility's maturity date from January 31, 2024 to January 31, 2026. In addition, the discount rate is now based on the SOFR reference rate, provisions designed to provide additional lending and operational flexibility were modified or added and provisions providing for a mechanism for determining an

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

~~alternative rate of interest were modified. We capitalized approximately $10.5 million of costs in connection with the Receivables Purchase Agreement.~~

We also have an agreement for the securitization of Automotive Finance Canada Inc.'s ("AFCI") ~~receivables.~~receivables, which expires on January 31, 2024. AFCI's committed facility is provided through a third-party conduit (separate from the U.S. facility) and was C$225 million at ~~September 30,~~March 31, 2022. In September 2022, AFCI entered into the Sixth Amended and Restated Receivables Purchase Agreement (the "Canadian Receivables Purchase Agreement"). The Canadian Receivables Purchase Agreement extended the facility's maturity date from January 31, 2024 to January 31, 2026. In addition, provisions designed to provide additional lending and operational flexibility were modified or added. We capitalized approximately $1.1 million of costs in connection with the Canadian Receivables Purchase Agreement. The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.

The following tables present quantitative information about delinquencies, credit loss charge-offs less recoveries ("net credit losses") and components of securitized financial assets and other related assets managed. For purposes of this illustration, delinquent receivables are defined as receivables 31 days or more past due.


		September 30, 2022				Net Credit Losses Three Months Ended September 30, 2022					Net Credit Losses Nine Months Ended September 30, 2022			March 31, 2022									Net Credit Losses Three Months Ended March 31, 2022
		Total Amount of:								Total Amount of:
(in millions)	(in millions)	Receivables		Receivables Delinquent				(in millions)		Receivables					Receivables Delinquent
Floorplan receivables	Floorplan receivables	$	2,548.4	$	11.1			$	1.2						$	4.0		Floorplan receivables		$	2,750.9		$	8.4		$	1.4
Other loans	Other loans	6.7		—				—						—			Other loans		6.9			—			—
Total receivables managed	Total receivables managed	$	2,555.1	$	11.1	$	1.2				$	4.0	Total receivables managed	$	2,757.8					$	8.4		$	1.4


		December 31, 2021				Net Credit Losses (Recoveries) Three Months Ended September 30, 2021					Net Credit Losses Nine Months Ended September 30, 2021			December 31, 2021									Net Credit Losses Three Months Ended March 31, 2021
		Total Amount of:								Total Amount of:
(in millions)	(in millions)	Receivables		Receivables Delinquent				(in millions)		Receivables					Receivables Delinquent
Floorplan receivables	Floorplan receivables	$	2,519.7	$	7.3			$	(2.2)						$	2.4		Floorplan receivables		$	2,519.7		$	7.3		$	1.3
Other loans	Other loans	9.3		—				—						—			Other loans		9.3			—			—
Total receivables managed	Total receivables managed	$	2,529.0	$	7.3	$	(2.2)				$	2.4	Total receivables managed	$	2,529.0					$	7.3		$	1.3

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

The following is a summary of the changes in the allowance for credit losses related to finance receivables (in millions):

September 30,
2022 September 30,
2021
Allowance for Credit Losses
Balance at December 31 $ 23.0 $ 22.0
Provision for credit losses 2.8 4.4
Recoveries 7.2 10.3
Less charge-offs (11.2) (12.7)
Other (0.3) —
Balance at end of period $ 21.5 $ 24.0

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~


	March 31, 2022		March 31, 2021
Allowance for Credit Losses
Balance at December 31	$	23.0	$	22.0
Provision for credit losses	1.4		4.8
Recoveries	1.9		2.5
Less charge-offs	(3.3)		(3.8)
Balance at end of period	$	23.0	$	25.5


		September 30, 2022		December 31, 2021			March 31, 2022		December 31, 2021
Obligations collateralized by finance receivables, gross	Obligations collateralized by finance receivables, gross	$	1,728.7	$	1,707.4	Obligations collateralized by finance receivables, gross	$	1,879.9	$	1,707.4
Unamortized securitization issuance costs	Unamortized securitization issuance costs	(20.9)		(15.1)		Unamortized securitization issuance costs	(13.3)		(15.1)
Obligations collateralized by finance receivables	Obligations collateralized by finance receivables	$	1,707.8	$	1,692.3	Obligations collateralized by finance receivables	$	1,866.6	$	1,692.3

Proceeds from the revolving sale of receivables to the bank facilities are used to fund new loans to customers. AFC, AFC Funding Corporation and AFCI must maintain certain financial covenants including, among others, limits on the amount of debt AFC and AFCI can incur, minimum levels of tangible net worth, and other covenants tied to the performance of the finance receivables portfolio. The securitization agreements also incorporate the financial covenants of our Credit Facility. At ~~September 30,~~March 31, 2022, we were in compliance with the covenants in the securitization agreements.

Note 6—Long-Term Debt

Long-term debt consisted of the following (in millions):


		Interest Rate*		Maturity	September 30, 2022		December 31, 2021			Interest Rate*		Maturity	March 31, 2022		December 31, 2021
Term Loan B-6	Term Loan B-6	Adjusted LIBOR	+ 2.25%	September 19, 2026	$	—	$	928.6	Term Loan B-6	Adjusted LIBOR	+ 2.25%	September 19, 2026	$	926.2	$	928.6
Revolving Credit Facility	Revolving Credit Facility	Adjusted LIBOR	+ 1.75%	September 19, 2024	116.0		—		Revolving Credit Facility	Adjusted LIBOR	+ 1.75%	September 19, 2024	101.0		—
Senior notes	Senior notes		5.125%	June 1, 2025	350.0		950.0		Senior notes		5.125%	June 1, 2025	950.0		950.0
European lines of credit	European lines of credit	Euribor	+ 1.25%	Repayable upon demand	17.6		6.8		European lines of credit	Euribor	+ 1.25%	Repayable upon demand	14.6		6.8
Total debt	Total debt				483.6		1,885.4		Total debt				1,991.8		1,885.4
Unamortized debt issuance costs/discounts	Unamortized debt issuance costs/discounts				(5.3)		(19.4)		Unamortized debt issuance costs/discounts				(18.0)		(19.4)
Current portion of long-term debt	Current portion of long-term debt				(283.6)		(16.3)		Current portion of long-term debt				(1,034.0)		(16.3)
Long-term debt	Long-term debt				$	194.7	$	1,849.7	Long-term debt				$	939.8	$	1,849.7

*The interest rates presented in the table above represent the rates in place at ~~September 30,~~March 31, 2022.

Credit Facilities

On September 19, 2019, we entered into the seven-year, $950 million Term Loan B-6 and the $325 million, five-year Revolving Credit Facility. ~~In May 2022, the Company prepaid the $926.2 million~~The outstanding balance on Term Loan B-6 ~~with proceeds from the Transaction. As a result of the prepayment, we incurred a non-cash loss on the extinguishment of~~is classified as current debt ~~of $7.7 million in the second quarter of 2022. The loss was primarily a result of the write-off~~at March 31, 2022, net of unamortized debt issuance costs/discounts ~~associated~~of approximately $7.8 million, as the Company expects to repay the debt with the net

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

proceeds from the closing of the Transaction. Under the Credit Agreement, net cash proceeds from the Transaction must be used to repay Term Loan ~~B-6.~~B-6 shortly after closing.

The ~~Revolving~~ Credit Facility is available for letters of credit, working capital, permitted acquisitions and general corporate purposes. The Revolving Credit Facility also includes a $50 million sub-limit for issuance of letters of credit and a $60 million sub-limit for swingline loans. The Company also pays a commitment fee between 25 to 35 basis points, payable quarterly, on the average daily unused amount of the Revolving Credit Facility based on the Company’s Consolidated Senior Secured Net Leverage Ratio, from time to time. The interest rate applicable to Term Loan B-6 was 2.75% at March 31, 2022.

The obligations of the Company under the Credit ~~Facilities~~Facility are guaranteed by certain of our domestic subsidiaries (the "Subsidiary Guarantors") and are secured by substantially all of the assets of the Company and the Subsidiary Guarantors, including but not limited to: (a) pledges of and first priority security interests in 100% of the equity interests of certain of the Company's and the Subsidiary Guarantors' domestic subsidiaries and 65% of the equity interests of certain of the Company's and the Subsidiary Guarantors' first tier foreign subsidiaries and (b) first priority security interests in substantially all other tangible and intangible assets of the Company and each Subsidiary Guarantor, subject to certain exceptions. The Credit

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

Agreement contains affirmative and negative covenants that we believe are usual and customary for a senior secured credit agreement. The negative covenants include, among other things, limitations on asset sales, mergers and acquisitions, indebtedness, liens, dividends, investments and transactions with our affiliates. The Credit Agreement also requires us to maintain a Consolidated Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), not to exceed 3.5 as of the last day of each fiscal quarter, if there are revolving loans outstanding. We were in compliance with the applicable covenants in the Credit Agreement at ~~September 30,~~March 31, 2022.

As of ~~September 30,~~March 31, 2022, ~~$116.0~~$101.0 million was drawn on the Revolving Credit Facility and there were no borrowings outstanding on the Revolving Credit Facility at December 31, 2021. We had related outstanding letters of credit in the aggregate amount of ~~$19.0~~$27.3 million and $27.6 million at ~~September 30,~~March 31, 2022 and December 31, 2021, respectively, which reduce the amount available for borrowings under the Revolving Credit Facility.

Senior Notes

On May 31, 2017, we issued $950 million of 5.125% senior notes due June 1, 2025. The Company pays interest on the senior notes semi-annually in arrears on June 1 and December 1 of each year. In August 2022, we conducted a cash tender offer to purchase up to $600 million principal amount of the senior notes. The tender offer was oversubscribed and as such, $600 million of the senior notes were accepted for prepayment and were prepaid in August 2022 with proceeds from the Transaction. We incurred a loss on the extinguishment of the senior notes of $9.3 million in the third quarter of 2022 primarily representative of the early repayment premium and the write-off of unamortized debt issuance costs associated with the portion of the senior notes repaid.

The Company expects to use ~~the~~any remaining proceeds from the Transaction after the repayment of Term Loan B-6 to redeem ~~or repay a portion of~~ the senior notes within 365 days of the close of the Transaction. The terms of the senior notes specify that excess proceeds must be reinvested or used to pay down a portion of the senior notes. ~~Therefore, at September 30,~~At March 31, 2022, ~~$150.0 million of~~ the ~~remaining~~ senior notes are classified as ~~current debt.~~non-current debt as the Company is not obligated to repay within the next year.

European Lines of Credit

ADESA Europe has lines of credit aggregating ~~$29.4~~$33.2 million (€30 million). The lines of credit had an aggregate ~~$17.6~~$14.6 million and $6.8 million of borrowings outstanding at ~~September 30,~~March 31, 2022 and December 31, 2021, respectively. The lines of credit are secured by certain inventory and receivables at ADESA Europe subsidiaries.

Fair Value of Debt

As of ~~September 30,~~March 31, 2022, the estimated fair value of our long-term debt amounted to ~~$470.5~~$1,994.8 million. The estimates of fair value were based on broker-dealer quotes (Level 2 inputs) for our debt as of ~~September 30,~~March 31, 2022. The estimates presented on long-term financial instruments are not necessarily indicative of the amounts that would be realized in a current market exchange.

Note 7—Derivatives

We are exposed to interest rate risk on our variable rate borrowings. Accordingly, interest rate fluctuations affect the amount of interest expense we are obligated to pay. We have used interest rate derivatives with the objective of managing exposure to interest rate movements, thereby reducing the effect of interest rate changes and the effect they could have on future cash flows. Currently, interest rate swap agreements are used to accomplish this objective.

In January 2020, we entered into three pay-fixed interest rate swaps with an aggregate notional amount of $500 million to swap variable rate interest payments under our term loan for fixed interest payments bearing a weighted average interest rate of 1.44%, for a total interest rate of 3.69%. The interest rate swaps ~~had~~have a five-year term, each maturing on January 23, 2025.

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

We originally designated the interest rate swaps as cash flow hedges. The changes in the fair value of the interest rate swaps that are included in the assessment of hedge effectiveness are recorded as a component of "Accumulated other comprehensive income." For the ~~nine~~three months ended ~~September 30,~~March 31, 2022, the Company recorded an unrealized gain on the interest rate swaps of ~~$5.7~~$9.1 million, net of tax of ~~$1.8~~$3.0 million, in "Accumulated other comprehensive income." For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021, the Company recorded an unrealized gain on the interest rate swaps of ~~$2.0~~$6.7 million, net of tax of ~~$0.6~~$2.2 million, ~~and $9.0 million, net of tax of $2.9 million, respectively,~~ in "Accumulated other comprehensive income." The earnings impact of the interest rate derivatives designated as cash flow hedges is recorded upon the recognition of the interest related to the hedged debt. In February 2022, we discontinued hedge accounting as we concluded that the forecasted interest rate payments were no longer probable of occurring in consideration of the Transaction and expected repayment of Term Loan B-6. As a result, the increase in the fair value of the swaps from the time of hedge accounting discontinuance to March 31, 2022 was recognized as an $8.7 million unrealized gain in "Interest expense" in the consolidated statement of ~~income for the three months ended March 31, 2022. In connection with the repayment of Term Loan B-6 in May 2022, we entered into swap~~

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

termination agreements. We received $16.7 million to settle and terminate the swaps, which was recognized as a realized gain in "Interest expense" in the consolidated statement of income for the three months ended June 30, 2022.income.

When derivatives are used, we are exposed to credit loss in the event of non-performance by the counterparties; however, non-performance is not anticipated and was considered immaterial to the fair value estimates. ASC 815, Derivatives and Hedging, requires companies to recognize all derivative instruments as either assets or liabilities at fair value in the balance sheet. The fair values of the interest rate derivatives are based on quoted market prices for similar instruments from commercial banks (based on significant observable inputs - Level 2 inputs). The following table presents the fair value of our interest rate derivatives included in the consolidated balance sheets for the periods presented (in millions):

Asset/Liability Derivatives

~~September 30,~~March 31, 2022

December 31, 2021

Derivatives Designated as Hedging Instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

2020 Interest rate swaps

Other assets

N/A

Other liabilities

7.5

Derivatives Not Designated as Hedging Instruments

2020 Interest rate swaps

Other assets

~~N/A~~$

13.3

Other liabilities

N/A

Note 8—Other (Income) Expense, Net

Other (income) expense, net consisted of the following (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2022		2021
Change in realized and unrealized (gains) losses on investment securities, net	Change in realized and unrealized (gains) losses on investment securities, net	$	0.3	$	10.9	$	6.5	$	(37.9)	Change in realized and unrealized (gains) losses on investment securities, net	$	3.0	$	(60.5)
Contingent consideration valuation	Contingent consideration valuation	—		4.4		—		20.1		Contingent consideration valuation	—		11.2
Foreign currency (gains) losses	Foreign currency (gains) losses	4.1		0.1		8.6		2.7		Foreign currency (gains) losses	1.2		2.2
Other	Other	(3.2)		(1.5)		(8.7)		(5.4)		Other	(3.0)		(2.6)
Other (income) expense, net	Other (income) expense, net	$	1.2	$	13.9	$	6.4	$	(20.5)	Other (income) expense, net	$	1.2	$	(49.7)

Fair Value Measurement of Investments

The Company invests in certain early-stage automotive companies and funds that relate to the automotive industry. We believe these investments have resulted in the expansion of relationships in the vehicle remarketing industry. ~~There were no realized gains on these investments for the three and nine months ended September 30, 2022.~~ Realized gains on these investments were ~~$10.0~~$0.0 million and ~~$27.2~~$17.0 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021, respectively. The Company had unrealized losses of ~~$0.3 million and $6.5 million for the three and nine months ended September 30, 2022, respectively. The Company had unrealized losses of $20.9~~$3.0 million for the three months ended ~~September 30, 2021,~~March 31, 2022 and unrealized gains of ~~$10.7~~$43.5 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021.

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2022 (Unaudited)

ASC 820, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A small portion of finance receivables for one entity were converted to investment securities during the first quarter of 2021. This entity became publicly traded during the first quarter of 2021 and now has a readily determinable fair value. As of ~~September 30,~~March 31, 2022, the fair value of investment securities are based on quoted market prices for identical assets (Level 1 of the fair value hierarchy) and approximated ~~$1.0~~$4.5 million. The net unrealized loss on these investment securities was ~~$6.5~~$3.0 million ~~for the nine months ended September 30,~~at March 31, 2022. The remaining investments held of ~~$28.6~~$26.2 million do not have readily determinable fair values and the Company has elected to apply the measurement alternative to these investments and present them at cost. Investments are reported in "Other assets" in the accompanying consolidated balance sheets. Realized and unrealized gains and losses are reported in "Other (income) expense, net" in the consolidated statements of income.

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30, 2022 (Unaudited)~~

Note 9—Commitments and Contingencies

We are involved in litigation and disputes arising in the ordinary course of business, such as actions related to injuries; property damage; handling, storage or disposal of vehicles; environmental laws and regulations; and other litigation incidental to the business such as employment matters and dealer disputes. Management considers the likelihood of loss or the incurrence of a liability, as well as the ability to reasonably estimate the amount of loss, in determining loss contingencies. We accrue an estimated loss contingency when it is probable that a liability has been incurred and the amount of loss (or range of possible losses) can be reasonably estimated. Management regularly evaluates current information available to determine whether accrual amounts should be adjusted. Accruals for contingencies including litigation and environmental matters are included in "Other accrued expenses" at undiscounted amounts and exclude claims for recoveries from insurance or other third parties. These accruals are adjusted periodically as assessment and remediation efforts progress, or as additional technical or legal information becomes available. If the amount of an actual loss is greater than the amount accrued, this could have an adverse impact on our operating results in that period. Such matters are generally not, in the opinion of management, likely to have a material adverse effect on our financial condition, results of operations or cash flows. Legal fees are expensed as incurred. There has been no significant change in the legal and regulatory proceedings which were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

Note 10—Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss consisted of the following (in millions):


		September 30, 2022		December 31, 2021			March 31, 2022		December 31, 2021
Foreign currency translation loss	Foreign currency translation loss	$	(64.3)	$	(19.0)	Foreign currency translation loss	$	(17.9)	$	(19.0)
Unrealized gain (loss) on interest rate derivatives, net of tax	Unrealized gain (loss) on interest rate derivatives, net of tax	—		(5.7)		Unrealized gain (loss) on interest rate derivatives, net of tax	3.4		(5.7)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	$	(64.3)	$	(24.7)	Accumulated other comprehensive loss	$	(14.5)	$	(24.7)

Note 11—Segment Information

ASC 280, Segment Reporting, requires reporting of segment information that is consistent with the manner in which the chief operating decision maker operates and views the Company. Our operations are grouped into two operating segments: ~~Marketplace (formerly referenced as~~ ADESA ~~Auctions)~~Auctions and ~~Finance (formerly referenced as AFC),~~AFC, which also serve as our reportable business segments. These reportable business segments offer different services and have fundamental differences in their operations. Beginning in the first quarter of 2022, results of the ADESA ~~U.S.~~U.S physical auctions are now reported as discontinued operations (see Note 2). Segment results for prior periods have been reclassified to conform with the new presentation.

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

~~September 30,~~March 31, 2022 (Unaudited)

Financial information regarding our reportable segments is set forth below as of and for the three months ended ~~September 30,~~March 31, 2022 (in millions):


		Marketplace		Finance		Consolidated			ADESA Auctions		AFC		Consolidated
Operating revenues	Operating revenues	$	293.9	$	99.1	$	393.0	Operating revenues	$	285.2	$	84.2	$	369.4
Operating expenses	Operating expenses							Operating expenses
Cost of services (exclusive of depreciation and amortization)	Cost of services (exclusive of depreciation and amortization)	193.4		16.2		209.6		Cost of services (exclusive of depreciation and amortization)	195.8		15.0		210.8
Selling, general and administrative	Selling, general and administrative	96.9		12.2		109.1		Selling, general and administrative	108.4		10.5		118.9
Depreciation and amortization	Depreciation and amortization	22.4		1.9		24.3		Depreciation and amortization	23.9		2.1		26.0
Total operating expenses	Total operating expenses	312.7		30.3		343.0		Total operating expenses	328.1		27.6		355.7
Operating profit (loss)	Operating profit (loss)	(18.8)		68.8		50.0		Operating profit (loss)	(42.9)		56.6		13.7
Interest expense	Interest expense	10.0		22.3		32.3		Interest expense	13.3		12.3		25.6
Other (income) expense, net	Other (income) expense, net	0.9		0.3		1.2		Other (income) expense, net	(1.8)		3.0		1.2
Loss on extinguishment of debt		9.3		—		9.3
Intercompany expense (income)	Intercompany expense (income)	2.4		(2.4)		—		Intercompany expense (income)	0.1		(0.1)		—
Income (loss) from continuing operations before income taxes	Income (loss) from continuing operations before income taxes	(41.4)		48.6		7.2		Income (loss) from continuing operations before income taxes	(54.5)		41.4		(13.1)
Income taxes	Income taxes	(5.6)		12.3		6.7		Income taxes	(15.1)		10.4		(4.7)
Income (loss) from continuing operations		$	(35.8)	$	36.3	$	0.5
Net income (loss) from continuing operations								Net income (loss) from continuing operations	$	(39.4)	$	31.0	$	(8.4)
Total assets	Total assets	$	2,381.8	$	2,919.5	$	5,301.3	Total assets	$	2,630.3	$	3,103.5	$	5,733.8

Financial information regarding our reportable segments is set forth below as of and for the three months ended ~~September 30,~~March 31, 2021 (in millions):

Marketplace Finance Consolidated
Operating revenues $ 271.5 $ 75.6 $ 347.1
Operating expenses
Cost of services (exclusive of depreciation and amortization) 171.9 13.8 185.7
Selling, general and administrative 96.3 8.5 104.8
Depreciation and amortization 25.2 2.2 27.4
Total operating expenses 293.4 24.5 317.9
Operating profit (loss) (21.9) 51.1 29.2
Interest expense 21.6 10.3 31.9
Other (income) expense, net 3.0 10.9 13.9
Intercompany expense (income) — — —
Income (loss) from continuing operations before income taxes (46.5) 29.9 (16.6)
Income taxes 3.4 6.9 10.3
Income (loss) from continuing operations $ (49.9) $ 23.0 $ (26.9)
Total assets $ 2,603.4 $ 2,565.6 $ 5,169.0


	ADESA Auctions		AFC		Consolidated
Operating revenues	$	304.0	$	65.8	$	369.8
Operating expenses
Cost of services (exclusive of depreciation and amortization)	190.3		13.5		203.8
Selling, general and administrative	98.5		8.8		107.3
Depreciation and amortization	24.5		2.4		26.9
Total operating expenses	313.3		24.7		338.0
Operating profit (loss)	(9.3)		41.1		31.8
Interest expense	21.5		9.3		30.8
Other (income) expense, net	(5.4)		(44.3)		(49.7)
Intercompany expense (income)	0.1		(0.1)		—
Income (loss) from continuing operations before income taxes	(25.5)		76.2		50.7
Income taxes	5.0		19.5		24.5
Net income (loss) from continuing operations	$	(30.5)	$	56.7	$	26.2
Total assets	$	2,710.6	$	2,376.8	$	5,087.4

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

~~September 30, 2022 (Unaudited)~~

~~Financial information regarding our reportable segments is set forth below for the nine months ended September 30, 2022~~ ~~(in millions)~~:

Marketplace Finance Consolidated
Operating revenues $ 871.4 $ 275.2 $ 1,146.6
Operating expenses
Cost of services (exclusive of depreciation and amortization) 584.9 47.4 632.3
Selling, general and administrative 315.8 36.3 352.1
Depreciation and amortization 70.1 6.1 76.2
Total operating expenses 970.8 89.8 1,060.6
Operating profit (loss) (99.4) 185.4 86.0
Interest expense 33.0 50.8 83.8
Other (income) expense, net (0.1) 6.5 6.4
Loss on extinguishment of debt 17.0 — 17.0
Intercompany expense (income) 3.1 (3.1) —
Income (loss) from continuing operations before income taxes (152.4) 131.2 (21.2)
Income taxes (40.9) 33.0 (7.9)
Income (loss) from continuing operations $ (111.5) $ 98.2 $ (13.3)

~~Financial information regarding our reportable segments is set forth below for the nine months ended September 30, 2021~~ ~~(in millions)~~:

Marketplace Finance Consolidated
Operating revenues $ 882.9 $ 210.0 $ 1,092.9
Operating expenses
Cost of services (exclusive of depreciation and amortization) 557.3 41.0 598.3
Selling, general and administrative 292.4 26.1 318.5
Depreciation and amortization 74.6 7.1 81.7
Total operating expenses 924.3 74.2 998.5
Operating profit (loss) (41.4) 135.8 94.4
Interest expense 64.7 29.0 93.7
Other (income) expense, net 1.0 (21.5) (20.5)
Intercompany expense (income) 0.2 (0.2) —
Income (loss) from continuing operations before income taxes (107.3) 128.5 21.2
Income taxes 5.1 32.1 37.2
Income (loss) from continuing operations $ (112.4) $ 96.4 $ (16.0)

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~~KAR Auction Services, Inc.~~

~~Condensed Notes to Consolidated Financial Statements (Continued)~~

~~September 30,~~March 31, 2022 (Unaudited)

Geographic Information

Our foreign operations include Canada, Mexico, Continental Europe and the U.K. Approximately ~~60%~~64% and ~~63%~~52% of our foreign operating revenues were from Canada for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 ~~respectively,~~ and ~~approximately 56% and 55% of our foreign operating revenues were from Canada for the three and nine months ended September 30,~~ 2021, respectively. Most of the remaining foreign operating revenues were generated from Continental Europe. Information regarding the geographic areas of our operations is set forth below (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2022		2021
Operating revenues	Operating revenues									Operating revenues
U.S.	U.S.	$	264.3	$	199.6	$	744.1	$	638.4	U.S.	$	231.1	$	227.8
Foreign	Foreign	128.7		147.5		402.5		454.5		Foreign	138.3		142.0
		$	393.0	$	347.1	$	1,146.6	$	1,092.9		$	369.4	$	369.8

Note 12—Subsequent Event

InOn April 27, 2022, the board of directors authorized an increase in the size of the Company’s $300 million share repurchase program by an additional $200 million and an extension of the share repurchase program through December 31, 2023. The share repurchase program was originally approved by the board of directors in October ~~2022, we repurchased~~2019. With the increase, and ~~retired 3,909,406 shares~~giving effect to the Company’s previous repurchases, approximately $309.0 million of the Company’s outstanding common stock, par value $0.01 per share, remains available for repurchases under the share repurchase program. Repurchases may be made in the open market ~~at a weighted average price of $12.79 per share, aggregating $50 million,~~or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 of the ~~2019 share~~Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases is subject to market and other conditions. This program does not oblige the Company to repurchase any dollar amount or any number of shares under the authorization, and the program ~~described in Note 3.~~may be suspended, discontinued or modified at any time, for any reason and without notice.

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made in this report on Form 10-Q that are not historical facts (including, but not limited to, expectations, estimates, assumptions and projections regarding the industry, business, future operating results, potential acquisitions and anticipated cash requirements) may be forward-looking statements. Words such as "should," "may," "will," "can," "of the opinion," "confident," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "continues," "outlook," initiatives," "goals," "opportunities" and similar expressions identify forward-looking statements. Such statements, including statements regarding the potential impacts of the COVID-19 pandemic; our future growth; anticipated cost savings, revenue increases, credit losses and capital expenditures; contractual obligations; dividend declarations and payments; common stock repurchases; tax rates and assumptions; strategic initiatives, ~~acquisitions~~greenfields and ~~dispositions;~~acquisitions; our competitive position and retention of customers; and our continued investment in information technology, are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and Item 1A "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021, filed on February 23, 2022, and those described from time to time in our future reports filed with the Securities and Exchange Commission. Many of these risk factors are outside of our control, and as such, they involve risks which are not currently known that could cause actual results to differ materially from those discussed or implied herein. The forward-looking statements in this document are made as of the date on which they are made and we do not undertake to update our forward-looking statements.

Pending Sale of ADESA U.S. Physical Auction Business and Discontinued Operations

In February 2022, the Company announced that it had entered into a definitive agreement with Carvana Group, LLC (“Carvana”) and Carvana Co., pursuant to which Carvana ~~would~~will acquire the ADESA U.S. physical auction business from KAR (the “Transaction”). The Transaction ~~was completed in May 2022 for approximately~~is valued at $2.2 billion ~~in cash~~ and ~~included~~includes all auction sales, operations and staff at ADESA’s U.S. vehicle logistic centers and use of the ADESA.com marketplace in the U.S. The ~~net proceeds received~~Transaction is subject to customary closing conditions and is expected to close in ~~connection with the Transaction are included in "Net cash provided by investing activities - discontinued operations" in the consolidated statement of cash flow.~~May 2022. In connection with the Transaction, the Company and Carvana ~~entered~~expect to enter into various agreements to provide a framework for their relationship after the Transaction, including a transition services agreement ~~for a transitional period~~ and a commercial ~~agreement for a term of 7 years that provides for platform and other fees for services rendered.~~agreement. In addition, KAR will continue to own the ADESA tradename and the ADESA U.S. physical auctions will continue to utilize the tradename, which has an indefinite life.

The Company has classified the ADESA U.S. physical auctions as held-for-sale in its consolidated balance sheets, based on management’s intention to sell the business. Goodwill was allocated to the ADESA U.S. physical auctions based on relative fair value. The financial results of the ADESA U.S. physical auction business have been accounted for as discontinued operations for all periods presented. The business was formerly included in the Company’s ~~Marketplace~~ADESA Auctions reportable segment (formerly referenced as ADESA Auctions). Goodwill was allocated to the ADESA U.S. physical auctions based on relative fair value. Discontinued operations included transaction costs of approximately $37.1 million for the nine months ended September 30, 2022, in connection with the Transaction. These costs consisted of consulting and professional fees associated with the Transaction. The Transaction resulted in a pretax gain on disposal of approximately $521.8 million. The change in the pretax gain on disposal for the three months ended September 30, 2022 occurred as a result of a net working capital adjustment and additional transaction costs.segment. The results presented in the "Results of Operations" discussion below only include continuing operations and do not include the results of the ADESA U.S. physical auction business.

~~Automotive Industry~~Impact of COVID-19

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Although governmental restrictions that were imposed at the outset of the pandemic to reduce the spread of COVID-19 have since been lifted or scaled back in many jurisdictions, increases in new COVID-19 cases, including new variants, have resulted in the reimposition of restrictions in certain jurisdictions, and ~~Economic Impacts on our Business~~may lead to other restrictions being imposed. The COVID-19 pandemic and the related preventative measures taken to help slow the spread have caused, and may continue to cause, significant volatility, uncertainty and economic disruption.

The automotive industry has experienced unprecedented market conditions ~~caused~~during the pandemic, including a decline in ~~part by supply chain issues,~~new vehicle production resulting from the shortage of ~~semiconductors and associated delays in new vehicle production.~~semiconductors. This reduction in supply of new vehicles has caused increased new and used vehicle prices, as well as increased demand for used vehicles. More lessees and dealers are therefore purchasing vehicles at residual value, thus decreasing the number of off-lease vehicles coming to auction. Further, government support and loan accommodations have resulted in fewer repossessed vehicles coming to auction. These factors have contributed to our commercial vehicle volumes declining in 2021 and 2022 and are expected to continue for the foreseeable future.

In addition, macroeconomic factors, including inflationary pressures, rising interest rates, volatility of oil and natural gas prices and declining consumer confidence impact the affordability and demand for new and used vehicles. Declining economic conditions present a risk to our operations and the stability of the automotive industry. Given the nature of these factors, we cannot predict whether or for how long certain trends will continue, nor to what degree these trends will impact us in the future.

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While we continue to develop and implement health and safety and return-to-workplace protocols, business continuity plans and crisis management protocols in an effort to try to mitigate the negative impact of COVID-19 on our employees, customers and our business, the extent of the impact of the pandemic on our business and financial results will continue to depend on future developments that are uncertain and unpredictable.

The broader implications for our business and results of operations remain uncertain and will depend on many factors outside our control, including, without limitation, the duration and severity of the COVID-19 pandemic, the degree to which governmental restrictions are relaxed or reimposed, the length of time it takes for normal economic and operating conditions to resume, the impact of vaccines and numerous other uncertainties. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business.

Overview

We provide whole car auction services in North America and Europe. Our business is divided into two reportable business segments, each of which is an integral part of the vehicle remarketing industry: ~~Marketplace (formerly referenced as~~ ADESA ~~Auctions)~~Auctions and ~~Finance (formerly referenced as AFC).~~AFC.

•The ~~Marketplace~~ADESA Auctions segment serves a domestic and international customer base through digital marketplaces for wholesale vehicles and 14 vehicle logistics center locations across Canada that are developed and strategically located to draw professional sellers and buyers together and allow the buyers to inspect and compare vehicles remotely or in person. Powered with software developed by Openlane, comprehensive private label remarketing solutions are offered to automobile manufacturers, captive finance companies and other institutions to offer vehicles via the Internet prior to arrival at on-premise marketplaces. Vehicles sold on ~~our~~ADESA's digital platforms are typically sold by commercial fleet operators, financial institutions, rental car companies, new and used vehicle dealers and vehicle manufacturers and their captive finance companies to franchise and independent used vehicle dealers. WeADESA also ~~provide~~provides value-added ancillary services including inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. ~~Our digital marketplaces include~~ADESA also includes BacklotCars, an app and web-based dealer-to-dealer wholesale vehicle platform utilized in the United States, CARWAVE, an online dealer-to-dealer marketplace in the United States, TradeRev, an online automotive remarketing platform in Canada where dealers can launch and participate in real-time vehicle auctions at any time, ADESA Remarketing Limited, an online whole car vehicle remarketing business in the United Kingdom and ADESA Europe, an online wholesale vehicle auction marketplace in Continental Europe.

•As noted above, the ~~Marketplace~~ADESA segment results no longer include the 56 ADESA U.S. physical auction locations. These locations sold approximately 212,000 and 295,000 vehicles in the three months ended March 31, 2022 and 2021, respectively.

•~~Through~~The AFC ~~the Finance~~ segment provides short-term, inventory-secured financing, known as floorplan financing, primarily to independent used vehicle dealers throughout the United States and Canada. In addition, AFC provides liquidity for customer trade-ins which encompasses settling lien holder payoffs. AFC also provides title services for their customers. These services are provided through AFC's digital servicing network as well as its physical locations throughout North America.

Beginning in the first quarter of 2022, results of the ADESA ~~U.S.~~U.S physical auctions are now reported as discontinued operations (see Note 2). Segment results for prior periods have been reclassified to conform with the new presentation.

Industry Trends

Whole Car

We believe the North American wholesale used vehicle marketplace has a total addressable market of approximately 22 million vehicles. This wholesale used vehicle marketplace consists of the dealer-to-dealer market (franchise and independent dealers that both buy and sell vehicles) and the commercial market (commercial sellers). We believe digital applications, such as BacklotCars, CARWAVE and TradeRev, may provide an opportunity to expand our total addressable market for dealer-to-dealer transactions to 15 million units from approximately 5 million units in 2019. Commercial seller vehicles are estimated at approximately 8 million vehicles per year.

BacklotCars, CARWAVE and TradeRev sold approximately 550,000 vehicles in the North American digital dealer-to-dealer marketplace for the year ended December 31, 2021, compared with approximately 398,000 vehicles for the year ended December 31, 2020. For the three months ended ~~September 30,~~March 31, 2022 and 2021, vehicles sold by these companies in the North American digital dealer-to-dealer marketplace were approximately ~~121,000~~133,000 and 143,000, respectively. For the nine months ended September 30, 2022 and 2021, vehicles sold by these companies in the North American digital dealer-to-dealer marketplace were approximately 380,000 and 415,000,125,000, respectively. This volume data includes vehicles sold by CARWAVE prior to its acquisition in October 2021 and vehicles sold by BacklotCars prior to its acquisition in November 2020. The supply chain issues and current market conditions facing the automotive industry, including the disruption of new vehicle production, have had a material impact on the whole car auction industry and we are unable to estimate future volumes.

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Automotive Finance

AFC works with independent used vehicle dealers to improve their results by providing a comprehensive set of business and financial solutions that leverage its local presence of branches and in-market representatives, industry experience and scale, as well as KAR affiliations. AFC's North American dealer base was comprised of approximately 14,500 dealers in 2021, and loan transactions, which includes both loans paid off and loans curtailed, were approximately 1.4 million in 2021.

Key challenges for the independent used vehicle dealer include demand for used vehicles, disruptions in pricing of used vehicle inventory, access to consumer financing and increased used car retail activity of franchise and public dealerships (most of which do not utilize AFC or its competitors for floorplan financing). These same challenges, to the extent they occur, could result in a material negative impact on AFC's results of operations. A significant decline in used vehicle sales would result in a decrease in consumer auto loan originations and an increased number of dealers defaulting on their loans. In addition, volatility in wholesale vehicle pricing impacts the value of recovered collateral on defaulted loans and the resulting severity of credit losses at AFC. A decrease in wholesale used car pricing could lead to increased losses if dealers are unable to satisfy their obligations.

Seasonality

The volume of vehicles sold through our auctions generally fluctuates from quarter-to-quarter. This seasonality is caused by several factors including weather, the timing of used vehicles available for sale from selling customers, holidays, and the seasonality of the retail market for used vehicles, which affects the demand side of the auction industry. Used vehicle auction volumes tend to decline during prolonged periods of winter weather conditions. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower used vehicle auction volume as well as additional costs associated with the holidays and winter weather.

Sources of Revenues and Expenses

Our revenue is derived from auction fees and various on-premise and off-premise services, and from dealer financing fees, interest income and other revenue at AFC. Although auction revenues primarily include the auction services and related fees, our related receivables and payables include the gross value of the vehicles sold.

Our operating expenses consist of cost of services, selling, general and administrative and depreciation and amortization. Cost of services is composed of payroll and related costs, subcontract services, the cost of vehicles purchased, supplies, insurance, property taxes, utilities, service contract claims, maintenance and lease expense related to the auction sites and loan offices. Cost of services excludes depreciation and amortization. Selling, general and administrative expenses are composed of payroll and related costs, sales and marketing, information technology services and professional fees.

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Results of Operations

Overview of Results of KAR Auction Services, Inc. for the Three Months Ended ~~September 30,~~March 31, 2022 and 2021:


		Three Months Ended September 30,					Three Months Ended March 31,
(Dollars in millions except per share amounts)	(Dollars in millions except per share amounts)	2022		2021		(Dollars in millions except per share amounts)	2022		2021
Revenues from continuing operations	Revenues from continuing operations					Revenues from continuing operations
Auction fees	Auction fees	$	88.9	$	89.6	Auction fees	$	101.4	$	102.5
Service revenue	Service revenue	159.2		128.2		Service revenue	137.5		146.3
Purchased vehicle sales	Purchased vehicle sales	45.8		53.7		Purchased vehicle sales	46.3		55.2
Finance-related revenue	Finance-related revenue	99.1		75.6		Finance-related revenue	84.2		65.8
Total revenues from continuing operations	Total revenues from continuing operations	393.0		347.1		Total revenues from continuing operations	369.4		369.8
Cost of services*	Cost of services*	209.6		185.7		Cost of services*	210.8		203.8
Gross profit*	Gross profit*	183.4		161.4		Gross profit*	158.6		166.0
Selling, general and administrative	Selling, general and administrative	109.1		104.8		Selling, general and administrative	118.9		107.3
Depreciation and amortization	Depreciation and amortization	24.3		27.4		Depreciation and amortization	26.0		26.9
Operating profit	Operating profit	50.0		29.2		Operating profit	13.7		31.8
Interest expense	Interest expense	32.3		31.9		Interest expense	25.6		30.8
Other (income) expense, net	Other (income) expense, net	1.2		13.9		Other (income) expense, net	1.2		(49.7)
Loss on extinguishment of debt		9.3		—
Income (loss) from continuing operations before income taxes	Income (loss) from continuing operations before income taxes	7.2		(16.6)		Income (loss) from continuing operations before income taxes	(13.1)		50.7
Income taxes	Income taxes	6.7		10.3		Income taxes	(4.7)		24.5
Income (loss) from continuing operations		0.5		(26.9)
Income (loss) from discontinued operations, net of income taxes		(6.3)		25.9
Net income (loss) from continuing operations						Net income (loss) from continuing operations	(8.4)		26.2
Net income from discontinued operations						Net income from discontinued operations	8.1		24.7
Net income (loss)	Net income (loss)	$	(5.8)	$	(1.0)	Net income (loss)	$	(0.3)	$	50.9
Income (loss) from continuing operations per share
Net income (loss) from continuing operations per share						Net income (loss) from continuing operations per share
Basic	Basic	$	(0.09)	$	(0.31)	Basic	$	(0.16)	$	0.10
Diluted	Diluted	$	(0.09)	$	(0.31)	Diluted	$	(0.16)	$	0.10

* Exclusive of depreciation and amortization

Discontinued Operations

The financial performance of the ADESA U.S. physical auction business is presented as discontinued operations. As a result, revenue, cost of services and all costs of discontinued operations ~~(including the gain on sale)~~ are presented as one line item in the above table as ~~"Income (loss)~~"Net income from discontinued ~~operations, net of income taxes.~~operations."

Overview

For the three months ended ~~September 30,~~March 31, 2022, we had revenue of ~~$393.0~~$369.4 million compared with revenue of ~~$347.1~~$369.8 million for the three months ended ~~September 30,~~March 31, 2021, ~~an increase~~a decrease of ~~13%~~less than 1%. Businesses acquired in the last 12 months accounted for an increase in revenue of ~~$15.2~~$18.0 million or 4%5% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.

Depreciation and Amortization

Depreciation and amortization decreased ~~$3.1~~$0.9 million, or ~~11%~~3%, to ~~$24.3~~$26.0 million for the three months ended ~~September 30,~~March 31, 2022, compared with ~~$27.4~~$26.9 million for the three months ended ~~September 30,~~March 31, 2021. The decrease in depreciation and amortization was primarily the result of fixed assets that have become fully depreciated and a reduction in assets placed in service.

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Interest Expense

Interest expense ~~increased $0.4~~decreased $5.2 million, or 1%17%, to ~~$32.3~~$25.6 million for the three months ended ~~September 30,~~March 31, 2022, compared with ~~$31.9~~$30.8 million for the three months ended ~~September 30,~~March 31, 2021. The ~~increase~~decrease was primarily attributable to an unrealized gain of $8.7 million related to the discontinuance of hedge accounting for the interest rate swaps, partially offset by an increase in interest expense at AFC of $3.0 million, which resulted from an increase in the average finance receivables balance ~~on the AFC securitization obligations and an increase in the average interest rate on the AFC securitization obligations to approximately 4.7%~~ for the three months ended ~~September 30,~~March 31, 2022, as compared with ~~approximately 2.5% for~~ the three months ended ~~September 30,~~March 31, 2021. ~~This was partially offset by a decrease in interest expense resulting from the prepayment of Term Loan B-6 and $600 million of the senior notes.~~

Other (Income) Expense, Net

For the three months ended ~~September 30,~~March 31, 2022, we had other expense of $1.2 million compared with ~~$13.9~~other income of $49.7 million for the three months ended ~~September 30,~~March 31, 2021. The ~~decrease~~increase in other expense was primarily attributable to ~~a decrease in~~ unrealized losses on investment securities of approximately ~~$20.6~~$3.0 million for the three months ended March 31, 2022, compared with unrealized gains on investment securities of approximately $43.5 million for the three months ended March 31, 2021, as well as a reduction in realized gains of approximately $17.0 million, partially offset by a decrease in contingent consideration valuation adjustments of ~~$4.4~~$11.2 million, ~~and an increase in other miscellaneous income aggregating $1.7 million, partially offset by~~ a ~~reduction in realized gains of approximately $10.0 million and an increase~~decrease in foreign currency losses of ~~$4.0~~$1.0 million and other miscellaneous items aggregating $0.4 million.

Income Taxes

We had an effective tax rate of ~~93.1% for the three months ended September 30, 2022, compared with an effective tax rate of -62.0% resulting in expense~~35.9% on a pre-tax loss for the three months ended ~~September 30,~~March 31, 2022, compared with an effective tax rate of 48.3% for the three months ended March 31, 2021. The effective tax rate for the three months ended ~~September 30,~~March 31, 2022 was ~~unfavorably~~favorably impacted by ~~the change in the effective tax rate estimate~~deductions for ~~the year, driven by an anticipated land sale that drove a decrease in the tax rate applicable to our international tax operations.~~stock-based compensation. The effective tax rate for the three months ended ~~September 30,~~March 31, 2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefit has been recorded.

Net Income from Discontinued Operations

In ~~May~~February 2022, the Company announced that it had entered into a definitive agreement with Carvana, ~~acquired~~pursuant to which Carvana will acquire the ADESA U.S. physical auction business from KAR. As such, the financial results of the ADESA U.S. physical auction business have been accounted for as discontinued operations for all periods presented. For the three months ended ~~September 30,~~March 31, 2022 ~~the Company's financial statements included a loss from discontinued operations of $6.3 million. For the three months ended September 30,~~and 2021, the Company's financial statements included income from discontinued operations of ~~$25.9 million.~~$8.1 million and $24.7 million, respectively. For further discussion, reference the condensed notes to the consolidated financial statements.

Impact of Foreign Currency

For the three months ended ~~September 30,~~March 31, 2022, ~~compared with the three months ended September 30, 2021, the change~~fluctuations in the euro exchange rate decreased revenue by ~~$8.4~~$3.1 million and had no impact on operating profit ~~by $0.3 million and~~or net ~~income by $0.3 million.~~income. For the three months ended ~~September 30,~~March 31, 2022, ~~compared with the three months ended September 30, 2021, the change~~fluctuations in the Canadian exchange rate ~~decreased~~did not have a material impact on revenue, ~~by $2.8 million,~~ operating profit ~~by $0.7 million and~~or net ~~income by $0.5 million.~~income.

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~~Marketplace~~ADESA Results


		Three Months Ended September 30,					Three Months Ended March 31,
(Dollars in millions, except per vehicle amounts)	(Dollars in millions, except per vehicle amounts)	2022		2021		(Dollars in millions, except per vehicle amounts)	2022		2021
Auction fees	Auction fees	$	88.9	$	89.6	Auction fees	$	101.4	$	102.5
Service revenue	Service revenue	159.2		128.2		Service revenue	137.5		146.3
Purchased vehicle sales	Purchased vehicle sales	45.8		53.7		Purchased vehicle sales	46.3		55.2
Total Marketplace revenue from continuing operations		293.9		271.5
Total ADESA revenue from continuing operations						Total ADESA revenue from continuing operations	285.2		304.0
Cost of services*	Cost of services*	193.4		171.9		Cost of services*	195.8		190.3
Gross profit*	Gross profit*	100.5		99.6		Gross profit*	89.4		113.7
Selling, general and administrative	Selling, general and administrative	96.9		96.3		Selling, general and administrative	108.4		98.5
Depreciation and amortization	Depreciation and amortization	22.4		25.2		Depreciation and amortization	23.9		24.5
Operating profit (loss)	Operating profit (loss)	$	(18.8)	$	(21.9)	Operating profit (loss)	$	(42.9)	$	(9.3)
Commercial vehicles sold	Commercial vehicles sold	159,000		192,000		Commercial vehicles sold	174,000		320,000
Dealer consignment vehicles sold	Dealer consignment vehicles sold	155,000		165,000		Dealer consignment vehicles sold	177,000		138,000
Total vehicles sold	Total vehicles sold	314,000		357,000		Total vehicles sold	351,000		458,000
Auction fees per vehicle sold	Auction fees per vehicle sold	$	283	$	252	Auction fees per vehicle sold	$	289	$	224
Gross profit per vehicle sold*	Gross profit per vehicle sold*	$	320	$	280	Gross profit per vehicle sold*	$	255	$	248
Gross profit percentage, excluding purchased vehicles*	Gross profit percentage, excluding purchased vehicles*	40.5%		45.7%		Gross profit percentage, excluding purchased vehicles*	37.4%		45.7%
On-premise mix	On-premise mix	13%		16%		On-premise mix	14%		12%
Off-premise mix	Off-premise mix	87%		84%		Off-premise mix	86%		88%

* Exclusive of depreciation and amortization

Revenue

Revenue from ~~the Marketplace segment increased $22.4~~ADESA decreased $18.8 million, or 8%6%, to ~~$293.9~~$285.2 million for the three months ended ~~September 30,~~March 31, 2022, compared with ~~$271.5~~$304.0 million for the three months ended September 30, 2021. The increase in revenue was the result of an increase in average revenue per vehicle sold, partially offset by a decrease in the number of vehicles sold. Businesses acquired in the last 12 months accounted for an increase in revenue of $15.2 million. The change in revenue included the impact of decreases in revenue of $8.4 million and $2.4 million due to fluctuations in the euro exchange rate and the Canadian exchange rate, respectively.

Auction fees per vehicle sold for the three months ended September 30, 2022 increased $31, or 12%, reflecting higher vehicle values, the introduction of new dealer off-premise auction fees and a smaller mix of lower-fee commercial off-premise vehicles.

Service revenue for the three months ended September 30, 2022 increased $31.0 million, or 24%, primarily as a result of an increase in transportation revenue, repossession fees and platform fees provided by third-parties, partially offset by a decrease in inspection service revenue resulting from the decrease in commercial vehicles sold.

~~Gross Profit~~

For the three months ended September 30, 2022, gross profit for the Marketplace segment increased $0.9 million, or 1%, to $100.5 million, compared with $99.6 million for the three months ended September 30, 2021. Gross profit for the Marketplace segment was 34.2% of revenue for the three months ended September 30, 2022, compared with 36.7% of revenue for the three months ended September 30, 2021. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 40.5% and 45.7% for the three months ended September 30, 2022 and 2021, respectively. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicles sold. Businesses acquired in the last 12 months accounted for an increase in cost of services of $9.7 million for the three months ended September 30, 2022.

~~Table of Contents~~

Gross profit as a percentage of revenue decreased for the three months ended September 30, 2022 as compared with the three months ended September 30, 2021, primarily due to an increase in lower margin transportation revenue and an increase in arbitration costs for vehicles sold on dealer-to-dealer platforms, as well as a decrease in on-premise auction revenue in Canada without a corresponding decrease in direct costs.

~~Selling, General and Administrative~~

Selling, general and administrative expenses for the Marketplace segment increased $0.6 million, or 1%, to $96.9 million for the three months ended September 30, 2022, compared with $96.3 million for the three months ended September 30, 2021, primarily as a result of increases in selling, general and administrative expenses associated with acquisitions of $4.1 million, information technology costs of $2.0 million, professional fees of $1.9 million and incentive-based compensation of $1.7 million, partially offset by decreases in compensation expense of $2.4 million, medical expenses of $1.9 million, fluctuations in the Canadian exchange rate of $0.7 million and reductions in other miscellaneous expenses aggregating $4.1 million.

~~Finance Results~~

Three Months Ended September 30,
(Dollars in millions except volumes and per loan amounts) 2022 2021
Finance-related revenue
Interest income $ 53.4 $ 35.4
Fee income 44.3 35.8
Other revenue 2.9 2.2
Net recovery (provision) for credit losses (1.5) 2.2
Total Finance revenue 99.1 75.6
Cost of services* 16.2 13.8
Gross profit* 82.9 61.8
Selling, general and administrative 12.2 8.5
Depreciation and amortization 1.9 2.2
Operating profit $ 68.8 $ 51.1
Loan transactions 397,000 351,000
Revenue per loan transaction $ 250 $ 215

* Exclusive of depreciation and amortization

~~Revenue~~

For the three months ended September 30, 2022, the Finance segment revenue increased $23.5 million, or 31%, to $99.1 million, compared with $75.6 million for the three months ended September 30, 2021. The increase in revenue was primarily the result of a 16% increase in revenue per loan transaction and a 13% increase in loan transactions.

Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased $35, or 16%, primarily as a result of an increase in interest yields driven by an increase in prime rates (Federal Reserve raised interest rates 150 basis points in the third quarter), an increase in average portfolio duration, an increase in floorplan fees and other fee income per unit and an increase in loan values, partially offset by an increase in net credit losses.

~~The provision for credit losses increased to 0.2% of the average managed receivables for the three months ended September 30, 2022 from (0.4%) for the three months ended September 30, 2021.~~

~~Gross Profit~~

For the three months ended September 30, 2022, gross profit for the Finance segment increased $21.1 million, or 34%, to $82.9 million, or 83.7% of revenue, compared with $61.8 million, or 81.7% of revenue, for the three months ended September 30, 2021. The increase in gross profit as a percent of revenue was primarily the result of a 31% increase in revenue, partially offset by an 17% increase in cost of services. The increase in cost of services was primarily the result of increases in compensation expense of $1.1 million, incentive-based compensation of $0.7 million and lot check expenses of $0.6 million.

March 31,

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~~Selling, General and Administrative~~

Selling, general and administrative expenses for the Finance segment increased $3.7 million, or 44%, to $12.2 million for the three months ended September 30, 2022, compared with $8.5 million for the three months ended September 30, 2021 primarily as a result of increases in incentive-based compensation of $0.8 million, information technology costs of $0.6 million, professional fees of $0.4 million, compensation expense of $0.4 million and other miscellaneous expenses aggregating $1.5 million.

~~Overview of Results of KAR Auction Services, Inc. for the Nine Months Ended September 30, 2022 and 2021:~~

Nine Months Ended September 30,
(Dollars in millions except per share amounts) 2022 2021
Revenues from continuing operations
Auction fees $ 289.5 $ 298.4
Service revenue 444.0 415.5
Purchased vehicle sales 137.9 169.0
Finance-related revenue 275.2 210.0
Total revenues from continuing operations 1,146.6 1,092.9
Cost of services* 632.3 598.3
Gross profit* 514.3 494.6
Selling, general and administrative 352.1 318.5
Depreciation and amortization 76.2 81.7
Operating profit 86.0 94.4
Interest expense 83.8 93.7
Other (income) expense, net 6.4 (20.5)
Loss on extinguishment of debt 17.0 —
Income (loss) from continuing operations before income taxes (21.2) 21.2
Income taxes (7.9) 37.2
Income (loss) from continuing operations (13.3) (16.0)
Income from discontinued operations, net of income taxes 217.4 77.4
Net income $ 204.1 $ 61.4
Income (loss) from continuing operations per share
Basic $ (0.30) $ (0.30)
Diluted $ (0.30) $ (0.30)

* Exclusive of depreciation and amortization

~~Discontinued Operations~~

The financial performance of the ADESA U.S. physical auction business is presented as discontinued operations. As a result, revenue, cost of services and all costs of discontinued operations (including the gain on sale) are presented as one line item in the above table as "Income from discontinued operations, net of income taxes."

~~Overview~~

For the nine months ended September 30, 2022, we had revenue of $1,146.6 million compared with revenue of $1,092.9 million for the nine months ended September 30, 2021, an increase of 5%. Businesses acquired in the last 12 months accounted for an increase in revenue of $49.8 million or 4% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.

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~~Depreciation and Amortization~~

Depreciation and amortization decreased $5.5 million, or 7%, to $76.2 million for the nine months ended September 30, 2022, compared with $81.7 million for the nine months ended September 30, 2021. The decrease in depreciation and amortization was primarily the result of assets that have become fully depreciated and a reduction in assets placed in service.

~~Interest Expense~~

Interest expense decreased $9.9 million, or 11%, to $83.8 million for the nine months ended September 30, 2022, compared with $93.7 million for the nine months ended September 30, 2021. The decrease was primarily attributable to a realized gain of $16.7 million related to the discontinuance of hedge accounting and termination of the interest rate swaps, as well as the prepayment of Term Loan B-6 and prepayment of $600 million of senior notes, partially offset by an increase in AFC interest. The average balance on the AFC securitization obligations increased and the average interest rate on the AFC securitization obligations increased to approximately 3.4% for the nine months ended September 30, 2022, as compared with approximately 2.4% for the nine months ended September 30, 2021.

~~Other (Income) Expense, Net~~

For the nine months ended September 30, 2022, we had other expense of $6.4 million compared with other income of $20.5 million for the nine months ended September 30, 2021. The increase in other expense was primarily attributable to unrealized losses on investment securities of approximately $6.5 million for the nine months ended September 30, 2022, compared with unrealized gains on investment securities of approximately $10.7 million for the nine months ended September 30, 2021, as well as a reduction in realized gains of approximately $27.2 million and an increase in foreign currency losses of $5.9 million, partially offset by a decrease in contingent consideration valuation adjustments of $20.1 million and a decrease in other miscellaneous items aggregating $3.3 million.

~~Income Taxes~~

We had an effective tax rate of 37.3% resulting in a benefit on a pre-tax loss for the nine months ended September 30, 2022, compared with an effective tax rate of 175.5% for the nine months ended September 30, 2021. The effective tax rate for the nine months ended September 30, 2022 was favorably impacted by the state rate change impact on deferred taxes. The effective tax rate for the nine months ended September 30, 2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefit has been recorded.

~~Income from Discontinued Operations~~

In May 2022, Carvana acquired the ADESA U.S. physical auction business from KAR. As such, the financial results of the ADESA U.S. physical auction business have been accounted for as discontinued operations for all periods presented. For the nine months ended September 30, 2022 and 2021, the Company's financial statements included income from discontinued operations of $217.4 million and $77.4 million, respectively. For further discussion, reference the condensed notes to the consolidated financial statements.

~~Impact of Foreign Currency~~

For the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, the change in the euro exchange rate decreased revenue by $18.1 million, operating profit by $0.6 million and net income by $0.3 million. For the nine months ended September 30, 2022 compared with the nine months ended September 30, 2021, the change in the Canadian exchange rate decreased revenue by $6.3 million, operating profit by $1.6 million and net income by $1.1 million.

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~~Marketplace Results~~

Nine Months Ended September 30,
(Dollars in millions, except per vehicle amounts) 2022 2021
Auction fees $ 289.5 $ 298.4
Service revenue 444.0 415.5
Purchased vehicle sales 137.9 169.0
Total Marketplace revenue from continuing operations 871.4 882.9
Cost of services* 584.9 557.3
Gross profit* 286.5 325.6
Selling, general and administrative 315.8 292.4
Depreciation and amortization 70.1 74.6
Operating profit (loss) $ (99.4) $ (41.4)
Commercial vehicles sold 510,000 786,000
Dealer consignment vehicles sold 498,000 471,000
Total vehicles sold 1,008,000 1,257,000
Auction fees per vehicle sold $ 287 $ 237
Gross profit per vehicle sold* $ 284 $ 259
Gross profit percentage, excluding purchased vehicles* 39.1% 45.6%
On-premise mix 13% 14%
Off-premise mix 87% 86%

* Exclusive of depreciation and amortization

~~Revenue~~

Revenue from the Marketplace segment decreased $11.5 million, or 1%, to $871.4 million for the nine months ended September 30, 2022, compared with $882.9 million for the nine months ended September 30, 2021. The decrease in revenue was the result of a decrease in the number of vehicles sold, partially offset by an increase in average revenue per vehicle sold. Businesses acquired in the last 12 months accounted for an increase in revenue of ~~$49.8~~$18.0 million. The change in revenue included the impact of ~~decreases~~a decrease in revenue of ~~$18.1 million and $5.6~~$3.1 million due to fluctuations in the euro exchange ~~rate and the Canadian exchange rate, respectively.~~rate.

On-premise marketplace sales are initiated online for vehicles at any of our locations across Canada and include ADESA Simulcast, Simulcast+ and DealerBlock sales. Off-premise marketplace sales are initiated online and include Openlane, BacklotCars, CARWAVE, TradeRev and ADESA Europe sales. The ~~20%~~23% decrease in the number of vehicles sold was comprised of a ~~35%~~ decline in both on-premise and off-premise commercial volumes aggregating 46%, partially offset by ~~a 6%~~an increase in both on-premise and off-premise dealer consignment ~~volumes.~~volumes aggregating 28%. The decrease in the number of vehicles sold was driven by a lack of supply caused by high vehicle values.

Auction fees per vehicle sold for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 increased ~~$50,~~$65, or ~~21%~~29%, reflecting higher vehicle values ~~the introduction of new dealer off-premise auction fees~~ and a smaller mix of lower-fee commercial off-premise vehicles.

Service revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 ~~increased $28.5~~decreased $8.8 million, or 7%6%, primarily as a result of ~~an increase in repossession fees, platform fees provided by third-parties and transportation revenue, partially offset by~~ a decrease in inspection service revenue and transportation revenue resulting from the decrease in ~~commercial~~ vehicles ~~sold.~~sold, partially offset by an increase in repossession fees and reconditioning revenue. Typically consigned vehicles located at our facilities utilize our service offerings at a higher rate than off-premise vehicles.

Gross Profit

For the ~~nine~~three months ended ~~September 30,~~March 31, 2022, gross profit for ~~the Marketplace segment~~ADESA decreased ~~$39.1~~$24.3 million, or ~~12%~~21%, to ~~$286.5~~$89.4 million, compared with ~~$325.6~~$113.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. Cost of services increased 5%3% for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, while revenue decreased 1%6% during the same period. Gross profit for ~~the Marketplace segment~~ADESA was ~~32.9%~~31.3% of revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, compared with ~~36.9%~~37.4% of revenue for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. Excluding purchased vehicle sales, gross profit as a percentage of revenue was ~~39.1%~~37.4% and ~~45.6%~~45.7% for the ~~nine~~three months ended ~~September 30,~~

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March 31, 2022 and 2021, respectively. The entire selling and purchase price

~~Table of Contents~~

of the vehicle is recorded as revenue and cost of services for purchased vehicles sold. Businesses acquired in the last 12 months accounted for an increase in cost of services of ~~$28.8~~$9.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022.

Gross profit as a percentage of revenue decreased for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 as compared with the ~~nine~~three months ended ~~September 30,~~March 31, 2021, primarily due to ~~an increase~~the 23% decrease in ~~arbitration costs for~~vehicles sold. A decline in the mix of off-premise commercial vehicles sold ~~on dealer-to-dealer platforms, an increase~~also resulted in ~~lower margin transportation revenue, as well~~a reduction of gross profit as a ~~decrease in on-premise auction revenue in Canada without a corresponding decrease in direct costs.~~percentage of revenue. In addition, the net gross profit on purchased vehicles was lower and there were no benefits taken under the Canada Emergency Wage Subsidy in the first ~~nine months~~quarter of 2022, resulting in a reduction to gross profit as a percentage of revenue.

Selling, General and Administrative

Selling, general and administrative expenses for the ~~Marketplace~~ADESA segment increased ~~$23.4~~$9.9 million, or 8%10%, to ~~$315.8~~$108.4 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, compared with ~~$292.4~~$98.5 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021, primarily as a result of an increase in professional fees of $6.3 million, increases in selling, general and administrative expenses associated with acquisitions of ~~$12.3~~$4.2 million, ~~professional fees~~severance of ~~$8.8~~$2.2 million ~~stock-based compensation of $7.9 million,~~and bad debt expense of ~~$4.1 million, severance of $3.3 million and travel expenses of $1.6~~$1.3 million, partially offset by decreases in ~~medical expenses of $2.6 million,~~ incentive-based compensation of ~~$1.8~~$3.8 million, ~~fluctuations in the Canadian exchange rate of $1.5 million, compensation expense of $1.3 million, telecom expenses~~information technology costs of $1.0 million and ~~reductions in other~~ miscellaneous expenses aggregating ~~$8.5~~$0.5 million. In addition, ~~the~~there was no Employee Retention Credit provided under the Canada Emergency Wage Subsidy ~~was $2.1 million less~~ for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, compared with a credit of $1.2 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021.

~~Finance~~AFC Results


		Nine Months Ended September 30,					Three Months Ended March 31,
(Dollars in millions except volumes and per loan amounts)	(Dollars in millions except volumes and per loan amounts)	2022		2021		(Dollars in millions except volumes and per loan amounts)	2022		2021
Finance-related revenue	Finance-related revenue					Finance-related revenue
Interest income		$	143.1	$	100.0
Fee income		127.2		108.0
Interest and fee income						Interest and fee income	$	83.4	$	68.6
Other revenue	Other revenue	7.7		6.4		Other revenue	2.2		2.0
Provision for credit losses	Provision for credit losses	(2.8)		(4.4)		Provision for credit losses	(1.4)		(4.8)
Total Finance revenue		275.2		210.0
Total AFC revenue						Total AFC revenue	84.2		65.8
Cost of services*	Cost of services*	47.4		41.0		Cost of services*	15.0		13.5
Gross profit*	Gross profit*	227.8		169.0		Gross profit*	69.2		52.3
Selling, general and administrative	Selling, general and administrative	36.3		26.1		Selling, general and administrative	10.5		8.8
Depreciation and amortization	Depreciation and amortization	6.1		7.1		Depreciation and amortization	2.1		2.4
Operating profit	Operating profit	$	185.4	$	135.8	Operating profit	$	56.6	$	41.1
Loan transactions	Loan transactions	1,170,000		1,079,000		Loan transactions	372,000		372,000
Revenue per loan transaction	Revenue per loan transaction	$	235	$	195	Revenue per loan transaction	$	226	$	177

* Exclusive of depreciation and amortization

Revenue

For the ~~nine~~three months ended ~~September 30,~~March 31, 2022, ~~the Finance segment~~AFC revenue increased ~~$65.2~~$18.4 million, or ~~31%~~28%, to ~~$275.2~~$84.2 million, compared with ~~$210.0~~$65.8 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. The increase in revenue was primarily the result of a ~~21%~~28% increase in revenue per loan ~~transaction and an 8% increase in loan transactions.~~transaction.

Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased ~~$40,~~$49, or ~~21%~~28%, primarily as a result of an increase in loan values, a decrease in provision for credit losses for the three months ended March 31, 2022, an increase in interest yields ~~driven by an increase in prime rates (Federal Reserve raised interest rates 300 basis points in the first nine months of 2022),~~and an increase in floorplan fees and other fee income per ~~unit and a decrease in provision for credit losses for the nine months ended September 30, 2022.~~unit.

The provision for credit losses decreased to ~~0.1%~~0.2% of the average managed receivables for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 from ~~0.3%~~1.0% for the ~~nine~~three months ended ~~September 30,~~March 31, 2021.

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Gross Profit

For the ~~nine~~three months ended ~~September 30,~~March 31, 2022, gross profit for the ~~Finance~~AFC segment increased ~~$58.8~~$16.9 million, or ~~35%~~32%, to ~~$227.8~~$69.2 million, or ~~82.8%~~82.2% of revenue, compared with ~~$169.0~~$52.3 million, or ~~80.5%~~79.5% of revenue, for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. The increase in gross profit as a percent of revenue was primarily the result of a ~~31%~~28% increase in revenue, partially offset by ~~a 16%~~an 11% increase in cost of services. The increase in cost of services was primarily the result of increases in compensation expense of ~~$2.6~~$0.5 million, incentive-based compensation of ~~$2.0~~$0.4 million, lot check expenses of ~~$1.3~~$0.3 million and credit check expenses of ~~$0.5~~$0.3 million.

Selling, General and Administrative

Selling, general and administrative expenses ~~for the Finance segment~~at AFC increased ~~$10.2~~$1.7 million, or ~~39%~~19%, to ~~$36.3~~$10.5 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, compared with ~~$26.1~~$8.8 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 primarily as a result of increases in ~~stock-based compensation~~professional fees of ~~$2.5~~$1.1 million, compensation expense of ~~$1.8 million, professional fees of $1.7 million, incentive-based compensation of $1.3 million, information technology costs of $0.9~~$0.4 million and other miscellaneous expenses aggregating ~~$2.0~~$0.2 million.

LIQUIDITY AND CAPITAL RESOURCES

We believe that the significant indicators of liquidity for our business are cash on hand, cash flow from operations, working capital and amounts available under our Credit Facility. Our principal sources of liquidity consist of cash generated by operations and borrowings under our Revolving Credit Facility.


		September 30,		December 31,		September 30,			March 31,		December 31,		March 31,
(Dollars in millions)	(Dollars in millions)	2022		2021		2021		(Dollars in millions)	2022		2021		2021
Cash and cash equivalents	Cash and cash equivalents	$	148.7	$	177.6	$	606.6	Cash and cash equivalents	$	134.2	$	177.6	$	715.1
Restricted cash	Restricted cash	28.9		25.8		52.4		Restricted cash	26.3		25.8		52.5
Working capital	Working capital	382.5		382.5		771.5		Working capital	1,023.2		382.5		869.5
Amounts available under the Revolving Credit Facility*	Amounts available under the Revolving Credit Facility*	209.0		325.0		325.0		Amounts available under the Revolving Credit Facility*	224.0		325.0		325.0
Cash provided by operating activities for the nine months ended		13.5				213.1
Cash (used by) provided by operating activities for the three months ended								Cash (used by) provided by operating activities for the three months ended	(22.6)				150.2

* There were related outstanding letters of credit totaling approximately ~~$19.0~~$27.3 million, $27.6 million and ~~$27.6~~$29.8 million at ~~September 30,~~March 31, 2022, December 31, 2021 and ~~September 30,~~March 31, 2021, respectively, which reduced the amount available for borrowings under the Revolving Credit Facility.

We regularly evaluate alternatives for our capital structure and liquidity given our expected cash flows, growth and operating capital requirements as well as capital market conditions.

Working Capital

A substantial amount of our working capital is generated from the payments received for services provided. The majority of our working capital needs are short-term in nature, usually less than a week in duration. Most of the financial institutions place a temporary hold on the availability of the funds deposited that generally can range up to two business days, resulting in cash in our accounts and on our balance sheet that is unavailable for use until it is made available by the various financial institutions. There are outstanding checks (book overdrafts) to sellers and vendors included in current liabilities. Because a portion of these outstanding checks for operations in the U.S. are drawn upon bank accounts at financial institutions other than the financial institutions that hold the cash, we cannot offset all the cash and the outstanding checks on our balance sheet. Changes in working capital vary from quarter-to-quarter as a result of the timing of collections and disbursements of funds to consignors from auctions held near period end.

Approximately ~~$121.8~~$86.9 million of available cash was held by our foreign subsidiaries at ~~September 30,~~March 31, 2022. If funds held by our foreign subsidiaries were to be repatriated, we expect any applicable taxes to be minimal.

AFC offers short-term inventory-secured financing, also known as floorplan financing, to independent used vehicle dealers. Financing is primarily provided for terms of 30 to 90 days. AFC principally generates its funding through the sale of its receivables. The receivables sold pursuant to the securitization agreements are accounted for as secured borrowings. For further discussion of AFC's securitization arrangements, see "Securitization Facilities."

~~Table of Contents~~

Credit Facilities

Table of the prepayment, we incurred a non-cash loss on the extinguishment of debt of $7.7 million in the second quarter of 2022. The loss was primarily a result of the write-off of unamortized debt issuance costs/discounts associated with Term Loan B-6.Contents

The ~~Revolving~~ Credit Facility ~~with a maturity date of September 19, 2024,~~ is available for letters of credit, working capital, permitted acquisitions and general corporate purposes. The Revolving Credit Facility also includes a $50 million sub-limit for issuance of letters of credit and a $60 million sub-limit for swingline loans.

Term Loan B-6 was issued at a discount of $2.4 million and the discount is being amortized using the effective interest method to interest expense over the term of the loan. Term Loan B-6 is payable in quarterly installments equal to 0.25% of the original aggregate principal amount, with the balance payable at the maturity date.

As set forth in the Credit Agreement, ~~loans~~Term Loan B-6 bears interest at an adjusted LIBOR rate plus 2.25% or at the Company’s election, Base Rate (as defined in the Credit Agreement) plus 1.25%. Loans under the Revolving Credit Facility will bear interest at a rate calculated based on the type of borrowing (either adjusted LIBOR or Base Rate) and the Company’s Consolidated Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), with such rate ranging from 2.25% to 1.75% for adjusted LIBOR loans and from 1.25% to 0.75% for Base Rate loans. The Company also pays a commitment fee between 25 to 35 basis points, payable quarterly, on the average daily unused amount of the Revolving Credit Facility based on the Company’s Consolidated Senior Secured Net Leverage Ratio, from time to time. The interest rate applicable to Term Loan B-6 was 2.75% at March 31, 2022.

~~As of~~On ~~September 30,~~March 31, 2022, ~~$116.0~~$926.2 million was outstanding on Term Loan B-6 and $101.0 million was drawn on the Revolving Credit Facility. We had related outstanding letters of credit in the aggregate ~~amount~~amount of ~~$19.0~~$27.3 million and $27.6 million at ~~September 30,~~March 31, 2022 and December 31, 2021 ~~respectively,~~, respectively, which reduce the amount available for borrowings under the Revolving Credit Facility. Our European operations have lines of credit aggregating ~~$29.4~~$33.2 million (€30 million) of which ~~$17.6~~$14.6 million was drawn at ~~September 30,~~March 31, 2022.

Certain covenants contained within the Credit Agreement are critical to an investor’s understanding of our financial liquidity, as the failure to maintain compliance with these covenants could result in a default and allow the lenders under the Credit Agreement to declare all amounts borrowed immediately due and payable. The Credit Agreement contains a financial covenant requiring compliance with a Consolidated Senior Secured Net Leverage Ratio not to exceed 3.5 as of the last day of each fiscal quarter if revolving loans are outstanding. The Consolidated Senior Secured Net Leverage Ratio is calculated as consolidated total debt (as defined in the Credit Agreement) divided by the last four quarters consolidated Adjusted EBITDA. Consolidated total debt includes term loan borrowings, revolving loans, finance lease liabilities and other obligations for borrowed money less unrestricted cash as defined in the Credit Agreement. Consolidated Adjusted EBITDA is EBITDA (earnings before interest expense, income taxes, depreciation and amortization) adjusted to exclude among other things (a) gains and losses from asset sales; (b) unrealized foreign currency translation gains and losses in respect of indebtedness; (c) certain non-recurring gains and losses; (d) stock-based compensation expense; (e) certain other non-cash amounts included in the determination of net income; (f) charges and revenue reductions resulting from purchase accounting; (g) minority interest; (h) consulting expenses incurred for cost reduction, operating restructuring and business improvement efforts; (i) expenses realized upon the termination of employees and the termination or cancellation of leases, software licenses or other contracts in connection with the operational restructuring and business improvement efforts; (j) expenses incurred in connection with permitted acquisitions; (k) any impairment charges or write-offs of intangibles; and (l) any extraordinary, unusual or non-recurring charges, expenses or losses. Our Consolidated Senior Secured Net Leverage Ratio was ~~negative~~2.1 at ~~September 30,~~March 31, 2022.

In addition, the Credit Agreement and the indenture governing our senior notes (see Note 6, "Long-Term Debt" for additional information) contain certain limitations on our ability to pay dividends and other distributions, make certain acquisitions or investments, grant liens and sell assets, and the Credit Agreement contains certain limitations on our ability to incur indebtedness. The applicable covenants in the Credit Agreement affect our operating flexibility by, among other things, restricting our ability to incur expenses and indebtedness that could be used to grow the business, as well as to fund general corporate purposes. We were in compliance with the covenants in the Credit Agreement and the indenture governing our senior notes at ~~September 30,~~March 31, 2022.

~~Table of Contents~~

~~Senior Notes~~

On May 31, 2017, we issued $950 million of 5.125% senior notes due June 1, 2025. The Company pays interest on the senior notes semi-annually in arrears on June 1 and December 1 of each year. The senior notes may be redeemed at 101.281% currently and at par as of June 1, 2023. The senior notes are guaranteed by the Subsidiary Guarantors. In August 2022, we conducted a cash tender offer to purchase up to $600 million principal amount of the senior notes. The tender offer was oversubscribed and as such, $600 million of the senior notes were accepted for prepayment and were prepaid in August 2022 with proceeds from the Transaction. We incurred a loss on the extinguishment of the senior notes of $9.3 million in the third quarter of 2022 primarily representative of the early repayment premium and the write-off of unamortized debt issuance costs associated with the portion of the senior notes repaid.

~~Expected Use of Proceeds from the Transaction~~

The Company generated gross proceeds from the sale of the U.S. physical auction business of approximately $2.2 billion. The Transaction closed in May 2022. Under terms of the Credit Agreement, net cash proceeds from the Transaction were used to repay Term Loan B-6 within three days of the Transaction. The Company also prepaid $600 million of the senior notes in August 2022. The terms of the senior notes specify that excess proceeds must be reinvested or used to pay down a portion of the senior notes. Therefore, at September 30, 2022, $150.0 million of the remaining senior notes are classified as current debt. The Company is required to redeem or repay the current portion of senior notes by May 9, 2023, subject to the terms of the indenture governing our senior notes.

~~Liquidity~~

At September 30, 2022, $150.0 million of the remaining senior notes are classified as current debt, as the terms of the senior notes specify that excess proceeds must be reinvested or used to pay down a portion of the senior notes. As of September 30, 2022, $116.0 million was drawn on the Revolving Credit Facility and is classified as current debt based on the Company’s past practice of using the Revolving Credit Facility for short term borrowings. However, the terms of the Revolving Credit Facility do not require repayment until maturity at September 19, 2024.

At September 30, 2022, cash totaled $148.7 million and there was an additional $190.0 million available for borrowing under the Revolving Credit Facility (net of $19.0 million in outstanding letters of credit). Funds held by our foreign subsidiaries could be repatriated without significant taxes or penalties.

We believe our sources of liquidity from our cash and cash equivalents on hand, working capital, cash provided by operating activities, and availability under our Credit Facility are sufficient to meet our operating needs for the foreseeable future. In addition, we believe the previously mentioned sources of liquidity will be sufficient to fund our capital requirements and debt service payments for the foreseeable future. A lack of recovery in market conditions, or further deterioration in market conditions, could materially affect the Company's liquidity.

Table of Contents

Senior Notes

On May 31, 2017, we issued $950 million of 5.125% senior notes due June 1, 2025. The Company pays interest on the senior notes semi-annually in arrears on June 1 and December 1 of each year, which commenced on December 1, 2017. The senior notes may be redeemed at 102.563% currently, at 101.281% as of June 1, 2022 and at par as of June 1, 2023. The senior notes are guaranteed by the Subsidiary Guarantors.

Expected Use of Proceeds from the Transaction

The Company expects to generate gross proceeds from the sale of the U.S. physical auction business of $2.2 billion, $1.65 billion net of income taxes and transaction costs. The Transaction is expected to close in May 2022. Under terms of the Credit Agreement, unless reinvested, net cash proceeds from the Transaction must be used to repay Term Loan B-6 within three days of the Transaction. Accordingly, the net proceeds will be used to repay the outstanding amount on Term Loan B-6 and any outstanding amount on the Revolving Credit Facility within three days of the close of the Transaction. The terms of the senior notes specify that excess proceeds must be reinvested or used to pay down a portion of the senior notes. The Company expects to use any remaining proceeds to redeem, repay or otherwise retire the senior notes within 365 days of the close of the Transaction. The Company may issue additional debt and utilize such proceeds to redeem all senior notes at the time of the required redemption.

Securitization Facilities

AFC sells the majority of its U.S. dollar denominated finance receivables on a revolving basis and without recourse to AFC Funding Corporation. A securitization agreement allows for the revolving sale by AFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. The agreement expires on January 31, ~~2026.~~2024. AFC Funding Corporation had committed liquidity of ~~$2.0~~$1.70 billion for U.S. finance receivables at ~~September 30,~~March 31, 2022.

We also have an agreement for the securitization of AFCI's receivables, which expires on January 31, ~~2026.~~2024. AFCI's committed facility is provided through a third-party conduit (separate from the U.S. facility) and was C$225 million at ~~September 30,~~March 31, 2022. In September 2022, AFCI entered into the Sixth Amended and Restated Receivables Purchase Agreement (the "Canadian Receivables Purchase Agreement"). The Canadian Receivables Purchase Agreement extended the facility's maturity date from January 31, 2024 to January 31, 2026. In addition, provisions designed to provide additional lending and operational flexibility were modified or added. We capitalized approximately $1.1 million of costs in connection with the Canadian Receivables Purchase Agreement. The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.

~~Table of Contents~~

AFC managed total finance receivables of ~~$2,555.1~~$2,757.8 million and $2,529.0 million at ~~September 30,~~March 31, 2022 and December 31, 2021, respectively. AFC's allowance for losses was ~~$21.5~~$23.0 million and $23.0 million at ~~September 30,~~March 31, 2022 and December 31, 2021, respectively.

As of ~~September 30,~~March 31, 2022 and December 31, 2021, ~~$2,529.1~~$2,710.9 million and $2,482.2 million, respectively, of finance receivables and a cash reserve of 1 or 3 percent of the obligations collateralized by finance receivables served as security for the ~~$1,707.8~~$1,866.6 million and $1,692.3 million of obligations collateralized by finance receivables at ~~September 30,~~March 31, 2022 and December 31, 2021, respectively. The amount of the cash reserve depends on circumstances which are set forth in the securitization agreements. There were unamortized securitization issuance costs of approximately ~~$20.9~~$13.3 million and $15.1 million at ~~September 30,~~March 31, 2022 and December 31, 2021, respectively. After the occurrence of a termination event, as defined in the U.S. securitization agreement, the banks may, and could, cause the stock of AFC Funding Corporation to be transferred to the bank facility, though as a practical matter the bank facility would look to the liquidation of the receivables under the transaction documents as their primary remedy.

Table of Contents

EBITDA and Adjusted EBITDA

EBITDA and Adjusted EBITDA, as presented herein, are supplemental measures of our performance that are not required by, or presented in accordance with, generally accepted accounting principles in the United States, or GAAP. They are not measurements of our financial performance under GAAP and should not be considered substitutes for net income (loss) or any other performance measures derived in accordance with GAAP.

EBITDA is defined as net income (loss), plus interest expense net of interest income, income tax provision (benefit), depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for the items of income and expense and expected incremental revenue and cost savings, as described above in the discussion of certain restrictive loan covenants under "Credit Facilities."

Management believes that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA is appropriate to provide additional information to investors about one of the principal measures of performance used by our creditors. In addition, management uses EBITDA and Adjusted EBITDA to evaluate our performance. EBITDA and Adjusted EBITDA have limitations as analytical tools, and should not be considered in isolation or as a substitute for analysis of the results as reported under GAAP. These measures may not be comparable to similarly titled measures reported by other companies.

~~Table of Contents~~

The following tables reconcile EBITDA and Adjusted EBITDA to net income (loss) from continuing operations for the periods presented:


		Three Months Ended September 30, 2022							Three Months Ended March 31, 2022
(Dollars in millions)	(Dollars in millions)	Marketplace		Finance		Consolidated		(Dollars in millions)	ADESA		AFC		Consolidated
Income (loss) from continuing operations		$	(35.8)	$	36.3	$	0.5
Net income (loss) from continuing operations								Net income (loss) from continuing operations	$	(39.4)	$	31.0	$	(8.4)
Add back:	Add back:							Add back:
Income taxes	Income taxes	(5.6)		12.3		6.7		Income taxes	(15.1)		10.4		(4.7)
Interest expense, net of interest income	Interest expense, net of interest income	8.6		22.3		30.9		Interest expense, net of interest income	13.2		12.3		25.5
Depreciation and amortization	Depreciation and amortization	22.4		1.9		24.3		Depreciation and amortization	23.9		2.1		26.0
Intercompany interest	Intercompany interest	2.4		(2.4)		—		Intercompany interest	0.1		(0.1)		—
EBITDA	EBITDA	(8.0)		70.4		62.4		EBITDA	(17.3)		55.7		38.4
Non-cash stock-based compensation	Non-cash stock-based compensation	2.8		0.7		3.5		Non-cash stock-based compensation	4.4		0.8		5.2
Loss on extinguishment of debt		9.3		—		9.3
Acquisition related costs	Acquisition related costs	0.3		—		0.3		Acquisition related costs	0.3		—		0.3
Securitization interest	Securitization interest	—		(20.2)		(20.2)		Securitization interest	—		(10.4)		(10.4)
(Gain)/Loss on asset sales								(Gain)/Loss on asset sales	(0.1)		—		(0.1)
Severance	Severance	1.4		0.1		1.5		Severance	3.2		0.2		3.4
Foreign currency (gains)/losses	Foreign currency (gains)/losses	4.1		—		4.1		Foreign currency (gains)/losses	1.2		—		1.2
Net change in unrealized (gains) losses on investment securities	Net change in unrealized (gains) losses on investment securities	—		0.3		0.3		Net change in unrealized (gains) losses on investment securities	—		3.0		3.0
Professional fees related to business improvement efforts	Professional fees related to business improvement efforts	2.7		0.5		3.2		Professional fees related to business improvement efforts	7.3		0.8		8.1
Other		5.1		—		5.1
Total addbacks/(deductions)	Total addbacks/(deductions)	25.7		(18.6)		7.1		Total addbacks/(deductions)	16.3		(5.6)		10.7
Adjusted EBITDA	Adjusted EBITDA	$	17.7	$	51.8	$	69.5	Adjusted EBITDA	$	(1.0)	$	50.1	$	49.1

Three Months Ended September 30, 2021
(Dollars in millions) Marketplace Finance Consolidated
Income (loss) from continuing operations $ (49.9) $ 23.0 $ (26.9)
Add back:
Income taxes 3.4 6.9 10.3
Interest expense, net of interest income 21.4 10.3 31.7
Depreciation and amortization 25.2 2.2 27.4
Intercompany interest — — —
EBITDA 0.1 42.4 42.5
Non-cash stock-based compensation 3.0 0.6 3.6
Acquisition related costs 2.1 — 2.1
Securitization interest — (7.9) (7.9)
Severance 0.8 — 0.8
Foreign currency (gains)/losses 0.1 — 0.1
Contingent consideration adjustment 4.4 — 4.4
Net change in unrealized (gains) losses on investment securities — 20.9 20.9
Other 0.1 — 0.1
Total addbacks/(deductions) 10.5 13.6 24.1
Adjusted EBITDA $ 10.6 $ 56.0 $ 66.6

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Nine Months Ended September 30, 2022
(Dollars in millions) Marketplace Finance Consolidated
Income (loss) from continuing operations $ (111.5) $ 98.2 $ (13.3)
Add back:
Income taxes (40.9) 33.0 (7.9)
Interest expense, net of interest income 30.8 50.8 81.6
Depreciation and amortization 70.1 6.1 76.2
Intercompany interest 3.1 (3.1) —
EBITDA (48.4) 185.0 136.6
Non-cash stock-based compensation 18.9 4.3 23.2
Loss on extinguishment of debt 17.0 — 17.0
Acquisition related costs 0.9 — 0.9
Securitization interest — (44.9) (44.9)
(Gain)/Loss on asset sales (0.1) — (0.1)
Severance 7.7 0.5 8.2
Foreign currency (gains)/losses 8.6 — 8.6
Net change in unrealized (gains) losses on investment securities — 6.5 6.5
Professional fees related to business improvement efforts 10.7 1.4 12.1
Other 6.4 0.2 6.6
Total addbacks/(deductions) 70.1 (32.0) 38.1
Adjusted EBITDA $ 21.7 $ 153.0 $ 174.7

Nine Months Ended September 30, 2021
(Dollars in millions) Marketplace Finance Consolidated
Income (loss) from continuing operations $ (112.4) $ 96.4 $ (16.0)
Add back:
Income taxes 5.1 32.1 37.2
Interest expense, net of interest income 64.1 29.0 93.1
Depreciation and amortization 74.6 7.1 81.7
Intercompany interest 0.2 (0.2) —
EBITDA 31.6 164.4 196.0
Non-cash stock-based compensation 11.1 1.9 13.0
Acquisition related costs 5.0 — 5.0
Securitization interest — (21.5) (21.5)
(Gain)/Loss on asset sales — (0.8) (0.8)
Severance 1.6 0.2 1.8
Foreign currency (gains)/losses 2.7 — 2.7
Contingent consideration adjustment 20.1 — 20.1
Net change in unrealized (gains) losses on investment securities — (10.7) (10.7)
Other 0.5 (0.2) 0.3
Total addbacks/(deductions) 41.0 (31.1) 9.9
Adjusted EBITDA $ 72.6 $ 133.3 $ 205.9


	Three Months Ended March 31, 2021
(Dollars in millions)	ADESA		AFC		Consolidated
Net income (loss) from continuing operations	$	(30.5)	$	56.7	$	26.2
Add back:
Income taxes	5.0		19.5		24.5
Interest expense, net of interest income	21.3		9.3		30.6
Depreciation and amortization	24.5		2.4		26.9
Intercompany interest	0.1		(0.1)		—
EBITDA	20.4		87.8		108.2
Non-cash stock-based compensation	4.4		0.7		5.1
Acquisition related costs	1.3		—		1.3
Securitization interest	—		(6.8)		(6.8)
(Gain)/Loss on asset sales	—		(0.8)		(0.8)
Severance	0.2		0.2		0.4
Foreign currency (gains)/losses	2.2		—		2.2
Contingent consideration adjustment	11.2		—		11.2
Net change in unrealized (gains) losses on investment securities	—		(43.5)		(43.5)
Other	0.2		(0.3)		(0.1)
Total addbacks/(deductions)	19.5		(50.5)		(31.0)
Adjusted EBITDA	$	39.9	$	37.3	$	77.2

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Certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters (total KAR results, including the ADESA U.S. physical auctions shown as discontinued operations). The following table reconciles EBITDA and Adjusted EBITDA to net income (loss) for the periods presented:


		Three Months Ended								Twelve Months Ended			Three Months Ended								Twelve Months Ended
(Dollars in millions)	(Dollars in millions)	December 31, 2021		March 31, 2022		June 30, 2022		September 30, 2022		September 30, 2022		(Dollars in millions)	June 30, 2021		September 30, 2021		December 31, 2021		March 31, 2022		March 31, 2022
Net income (loss)	Net income (loss)	$	5.1	$	(0.3)	$	210.2	$	(5.8)	$	209.2	Net income (loss)	$	11.5	$	(1.0)	$	5.1	$	(0.3)	$	15.3
Less: Income from discontinued operations	Less: Income from discontinued operations	(10.1)		8.1		215.6		(6.3)		207.3		Less: Income from discontinued operations	26.8		25.9		(10.1)		8.1		50.7
Income (loss) from continuing operations	Income (loss) from continuing operations	15.2		(8.4)		(5.4)		0.5		1.9		Income (loss) from continuing operations	(15.3)		(26.9)		15.2		(8.4)		(35.4)
Add back:	Add back:											Add back:
Income taxes	Income taxes	(22.1)		(4.7)		(9.9)		6.7		(30.0)		Income taxes	2.4		10.3		(22.1)		(4.7)		(14.1)
Interest expense, net of interest income	Interest expense, net of interest income	31.7		25.5		25.2		30.9		113.3		Interest expense, net of interest income	30.8		31.7		31.7		25.5		119.7
Depreciation and amortization	Depreciation and amortization	28.2		26.0		25.9		24.3		104.4		Depreciation and amortization	27.4		27.4		28.2		26.0		109.0
EBITDA	EBITDA	53.0		38.4		35.8		62.4		189.6		EBITDA	45.3		42.5		53.0		38.4		179.2
Non-cash stock-based compensation	Non-cash stock-based compensation	1.3		5.2		14.5		3.5		24.5		Non-cash stock-based compensation	4.3		3.6		1.3		5.2		14.4
Loss on extinguishment of debt		—		—		7.7		9.3		17.0
Acquisition related costs	Acquisition related costs	2.1		0.3		0.3		0.3		3.0		Acquisition related costs	1.6		2.1		2.1		0.3		6.1
Securitization interest	Securitization interest	(8.3)		(10.4)		(14.3)		(20.2)		(53.2)		Securitization interest	(6.8)		(7.9)		(8.3)		(10.4)		(33.4)
(Gain)/Loss on asset sales	(Gain)/Loss on asset sales	0.1		(0.1)		—		—		—		(Gain)/Loss on asset sales	—		—		0.1		(0.1)		—
Severance	Severance	1.5		3.4		3.3		1.5		9.7		Severance	0.6		0.8		1.5		3.4		6.3
Foreign currency (gains)/losses	Foreign currency (gains)/losses	1.1		1.2		3.3		4.1		9.7		Foreign currency (gains)/losses	0.4		0.1		1.1		1.2		2.8
Contingent consideration adjustment	Contingent consideration adjustment	4.2		—		—		—		4.2		Contingent consideration adjustment	4.5		4.4		4.2		—		13.1
Net change in unrealized (gains) losses on investment securities	Net change in unrealized (gains) losses on investment securities	9.3		3.0		3.2		0.3		15.8		Net change in unrealized (gains) losses on investment securities	11.9		20.9		9.3		3.0		45.1
Professional fees related to business improvement efforts	Professional fees related to business improvement efforts	—		8.1		0.8		3.2		12.1		Professional fees related to business improvement efforts	—		—		—		8.1		8.1
Other	Other	—		—		1.5		5.1		6.6		Other	0.3		0.1		—		—		0.4
Total addbacks/(deductions)	Total addbacks/(deductions)	11.3		10.7		20.3		7.1		49.4		Total addbacks/(deductions)	16.8		24.1		11.3		10.7		62.9
Adjusted EBITDA from continuing ops	Adjusted EBITDA from continuing ops	$	64.3	$	49.1	$	56.1	$	69.5	$	239.0	Adjusted EBITDA from continuing ops	$	62.1	$	66.6	$	64.3	$	49.1	$	242.1
Adjusted EBITDA from discontinued ops	Adjusted EBITDA from discontinued ops	33.6		22.6		2.2		—		58.4		Adjusted EBITDA from discontinued ops	54.4		30.0		33.6		22.6		140.6
Adjusted EBITDA	Adjusted EBITDA	$	97.9	$	71.7	$	58.3	$	69.5	$	297.4	Adjusted EBITDA	$	116.5	$	96.6	$	97.9	$	71.7	$	382.7

Summary of Cash Flows


	Three Months Ended March 31,
(Dollars in millions)	2022		2021
	As Restated
Net cash provided by (used by):
Operating activities - continuing operations	$	(22.6)	$	150.2
Operating activities - discontinued operations	(39.2)		14.3
Investing activities - continuing operations	(246.7)		(78.5)
Investing activities - discontinued operations	(11.8)		(0.7)
Financing activities - continuing operations	276.7		(121.8)
Financing activities - discontinued operations	22.0		33.1
Net change in cash balances of discontinued operations	(24.3)		(15.9)
Effect of exchange rate on cash	3.0		2.6
Net decrease in cash, cash equivalents and restricted cash	$	(42.9)	$	(16.7)

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~~Summary of Cash Flows~~

Nine Months Ended September 30,
(Dollars in millions) 2022 2021
Net cash provided by (used by):
Operating activities - continuing operations $ 13.5 $ 213.1
Operating activities - discontinued operations (435.6) 142.4
Investing activities - continuing operations (87.4) (396.0)
Investing activities - discontinued operations 2,066.4 (19.0)
Financing activities - continuing operations (1,566.1) (103.0)
Financing activities - discontinued operations 10.8 40.2
Effect of exchange rate on cash (27.4) (3.0)
Net increase (decrease) in cash, cash equivalents and restricted cash $ (25.8) $ (125.3)

Cash flow ~~provided~~used by operating activities (continuing operations) was ~~$13.5~~$22.6 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, compared with ~~$213.1~~cash flow provided by operating activities of $150.2 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. The decrease in operating cash flow was primarily attributable to changes in operating assets and liabilities as a result of the timing of collections and the disbursement of funds to consignors for auctions held near period-ends ~~partially offset by a net~~and an increase in ~~non-cash item adjustments.~~payments of contingent consideration in excess of acquisition-date fair value.

Net cash used by investing activities (continuing operations) was ~~$87.4~~$246.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, compared with ~~$396.0~~$78.5 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. The ~~decrease~~increase in net cash used by investing activities was primarily attributable to:

•~~a decrease~~an increase in the additional finance receivables held for investment of approximately ~~$246.5 million;~~

•~~a decrease in cash used for acquisitions of $79.4~~$156.1 million; and

•~~a decrease in investments in securities of approximately $15.4 million;~~

~~partially offset by:~~

•a decrease in the proceeds from sale of investments of approximately ~~$32.4~~$20.8 million;

partially offset by:

•a decrease in investments in securities of approximately $11.2 million.

Net cash ~~used~~provided by financing activities (continuing operations) was ~~$1,566.1~~$276.7 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, compared with ~~$103.0~~net cash used by financing activities of $121.8 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021. The increase in net cash ~~used~~provided by financing activities was primarily attributable to:

•~~the prepayment of Term Loan B-6 in May 2022, which resulted in~~ an increase ~~in Term Loan B-6 debt payments of $921.5 million;~~

•~~the prepayment of a portion of the senior notes and the related costs in August 2022, which resulted in an increase in senior notes payments of $606.1 million; and~~

•~~a decrease~~ in the additional obligations collateralized by finance receivables of approximately ~~$83.0~~$195.6 million;

~~partially offset by:~~

•~~a net~~an increase in the additional borrowings ~~from~~on lines of credit of approximately ~~$132.0~~$102.7 million; and

•a decrease in the repurchase of common stock of approximately ~~$48.7~~$80.8 million.

Net cash used by operating activities (discontinued operations) was $39.2 million for the three months ended March 31, 2022, compared with net cash provided by operating activities of $14.3 million for the three months ended March 31, 2021. The cash used by operating activities for the three months ended March 31, 2022 is primarily attributable to an increase in accounts receivable and other assets, partially offset by cash earnings and a decrease in accounts payable and accrued expenses. The cash provided by operating activities for the three months ended March 31, 2021 primarily consisted of cash earnings and an increase in accounts payable and accrued expenses, partially offset by an increase in accounts receivable and other assets.

Net cash used by investing activities (discontinued operations) was $11.8 million for the three months ended March 31, 2022, compared with $0.7 million for the three months ended March 31, 2021. The cash used by investing activities for the three months ended March 31, 2022 is primarily attributable to purchases of property and equipment. The cash used by investing activities for the three months ended March 31, 2021 is primarily attributable to purchases of property and equipment, partially offset by proceeds from the sale of property and equipment.

Net cash provided by financing activities (discontinued operations) was $22.0 million for the three months ended March 31, 2022, compared with $33.1 million for the three months ended March 31, 2021. The cash provided by financing activities in both periods is primarily attributable to a net increase in book overdrafts.

Capital Expenditures

Capital expenditures for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 approximated ~~$45.8~~$13.5 million and ~~$47.6~~$11.9 million, respectively. Capital expenditures were funded from internally generated funds. We continue to invest in our core information technology capabilities and our service locations. Capital expenditures related to continuing operations are expected to be approximately $75 - $80 million for fiscal year 2022. Future capital expenditures could vary substantially based on capital project timing, capital expenditures related to acquired businesses and the initiation of new information systems projects to support our business strategies.

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Dividends

The Series A Preferred Stock ranks senior to the shares of the Company’s common stock, par value $0.01 per share, with respect to dividend rights and rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company. The holders of the Series A Preferred Stock are entitled to a cumulative dividend at the rate of 7% per annum, payable quarterly in arrears. Dividends are payable in kind through the issuance of additional shares of Series A Preferred Stock for the first eight dividend payments, ~~(through June 30, 2022),~~ and thereafter, in cash or in kind, or in any combination of both, at the option of the Company. For the three months ended ~~September 30, 2022, the holders of the Series A Preferred Stock received a cash dividend aggregating $11.1 million and for the nine months ended September 30,~~March 31, 2022, the holders of the Series A Preferred Stock received dividends in kind with a value in the aggregate of approximately ~~$21.6~~$10.7 million. The holders of the Series A Preferred Stock are also entitled to participate in dividends declared or paid on our common stock on an as-converted basis.

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The Company has temporarily suspended its quarterly common stock ~~dividend.~~dividend in light of the impact of the COVID-19 pandemic on its operations. Future dividend decisions will be based on and affected by a variety of factors, including our financial condition and results of operations, contractual restrictions, including restrictive covenants contained in our Credit Agreement and AFC's securitization facilities and the indenture governing our senior notes, capital requirements and other factors that our board of directors deems relevant. No assurance can be given as to whether any future dividends may be declared by our board of directors or the amount thereof.

~~Recent Development~~

~~On October 31, 2022, the Company closed on the sale of excess land in Montreal. This transaction will result in a gain of approximately $32 million.~~

Contractual Obligations

The Company's contractual cash obligations for long-term debt, interest payments related to long-term debt, finance lease obligations, operating leases and contingent consideration related to acquisitions are summarized in the table of contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2021. Since December 31, 2021, there have been no material changes to the contractual obligations of the Company, ~~have changed as follows:~~

•~~The outstanding balance on Term Loan B-6 was repaid~~ with ~~proceeds from~~ the ~~Transaction. As such, there will be no further principal or interest payments related to Term Loan B-6.~~

•~~$600 million principal amount~~exception of the ~~senior notes were prepaid with proceeds from the Transaction.~~

•~~The operating and finance lease obligations of the ADESA U.S. physical auction business are no longer obligations of the Company.~~

•~~Approximately $29.6 million of the contingent consideration related to acquisitions has been paid.~~following:

•Operating lease obligations change in the ordinary course of business. We lease most of our facilities, as well as other property and equipment under operating leases. Future operating lease obligations will continue to change if renewal options are exercised and/or if we enter into additional operating lease agreements.

Upon and following the close of the Transaction, the contractual cash obligations of the Company are expected to be reduced. See Note 2, Note 6 and Note 7 to the Consolidated Financial Statements, included elsewhere in this Quarterly Report on Form 10-Q, for additional information about the items described above. Our contractual cash obligations as of December 31, 2021, are discussed in the "Contractual Obligations" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (the "SEC").

Critical Accounting Estimates

Our critical accounting estimates are discussed in the "Critical Accounting Estimates" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC. A summary of significant accounting policies is discussed in Note 2 and elsewhere in the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, which includes audited financial statements.

Off-Balance Sheet Arrangements

As of ~~September 30,~~March 31, 2022, we had no off-balance sheet arrangements pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that we believe are reasonably likely to have a current or future effect on our financial condition, results of operations, or cash flows.

~~Table of Contents~~

New Accounting Standards

For a description of new accounting standards that could affect the Company, reference the "New Accounting Standards" section of Note 1 to the Unaudited Consolidated Financial Statements, included elsewhere in this Quarterly Report on Form 10-Q.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency

Our foreign currency exposure is limited and arises from transactions denominated in foreign currencies, particularly intercompany loans, as well as from translation of the results of operations from our Canadian and, to a much lesser extent, United Kingdom, Continental Europe and Mexican subsidiaries. However, fluctuations between U.S. and non-U.S. currency values may adversely affect our results of operations and financial position. We have not entered into any foreign exchange contracts to hedge changes in the Canadian dollar, British pound, euro or Mexican peso. Foreign currency losses on intercompany loans were approximately ~~$4.1~~$1.2 million and ~~$8.6~~$2.2 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 ~~respectively,~~ and ~~approximately $0.1 million and $2.7 million~~2021, respectively. Canadian currency translation had no impact on net income for the three ~~and nine~~ months ended ~~September 30, 2021. Canadian currency translation negatively affected net income by approximately $0.5 million and $1.1 million for the three and nine months ended September 30,~~March 31, 2022 and positively affected net income by approximately ~~$0.8 million and $2.8~~$0.3 million for the three ~~and nine~~ months ended ~~September 30, 2021, respectively.~~March 31, 2021. A 1% change in the month-end Canadian exchange rate for ~~September 30,~~the three months ended March 31, 2022 would have impacted foreign currency losses on intercompany loans by ~~$0.2 million and net income by $0.1 million. A 1% change in the month-end euro exchange rate for September 30, 2022 would have impacted foreign currency losses on intercompany loans by $0.7~~$0.6 million and net income by $0.4 million. A 1% change in the average Canadian exchange rate for the three ~~and nine months~~ ended ~~September 30,~~March 31, 2022 would have impacted net income by approximately $0.2 ~~million and $0.5~~ million. Currency exposure of our U.K., Continental Europe and Mexican operations is not material to the results of operations.

Interest Rates

We are exposed to interest rate risk on our variable rate borrowings. Accordingly, interest rate fluctuations affect the amount of interest expense we are obligated to pay. We ~~most recently used~~currently use interest rate swap agreements to manage our exposure to interest rate changes. We originally designated the interest rate swaps as cash flow hedges for accounting purposes. Accordingly, the earnings impact of the derivatives designated as cash flow hedges are recorded upon the recognition of the interest related to the hedged debt.

In January 2020, we entered into three pay-fixed interest rate swaps with an aggregate notional amount of $500 million to swap variable rate interest payments under our term loan for fixed interest payments bearing a weighted average interest rate of 1.44%. The interest rate swaps ~~had~~have a five-year term, each maturing on January 23, 2025.

Taking our interest rate swaps into account, a sensitivity analysis of the impact on our variable rate corporate debt instruments to a hypothetical 100 basis point increase in short-term rates (LIBOR) for the three months ended March 31, 2022 would have resulted in an increase in interest expense of approximately $1.3 million.

In February 2022, we discontinued hedge accounting as we concluded that the forecasted interest rate payments were no longer probable of occurring in consideration of the Transaction and expected repayment of Term Loan B-6. ~~In connection with~~The Company intends to terminate the interest rate swaps upon the repayment of Term Loan ~~B-6~~B-6. The termination of the interest rate swaps is expected to result in ~~May 2022, we entered into swap termination agreements. We received $16.7 million to settle and terminate the swaps, which was recognized as~~ a realized gain ~~in "Interest expense" in the consolidated statement of income.~~

A sensitivity analysis of the impact on our variable rate corporate debt instruments to a hypothetical 100 basis point increase in short-term rates (LIBOR) for the three and nine months ended September 30, 2022 would have resulted in an increase in interest expense of approximately ~~$0.1~~$10 million ~~and $1.9 million, respectively.~~to $15 million.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form ~~10-Q,~~10-Q/A, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were ~~effective.~~not effective due to the material weakness in our internal control over financial reporting described below. In light of the material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. GAAP. Accordingly, management concluded that the financial statements included in this Quarterly Report on Form 10-Q/A present fairly in all material respects our financial position, results of operations and cash flows for each of the periods presented.

Management concluded that we did not maintain effective internal control over financial reporting as of March 31, 2022 due to a material weakness related to ineffective process level controls over the review of the statement of cash flows as it relates to operating cash flows related to discontinued operations and operating and financing cash flows related to contingent consideration paid resulting from ineffective risk assessment associated with changes in our business operations related to the acquisition and disposition of businesses.

Remediation Plan for the Material Weakness

In order to remediate the material weakness, management has implemented a remediation plan to perform appropriate risk assessment over cash flow presentation, which includes assessment of controls designed to identify all accounts and transactions impacting the classification of cash flows related to the acquisition and disposition of businesses to ensure that the presentation in the statement of cash flows of transactions that do not relate to normal operations are complete and accurate. Management may determine to take additional measures to address the material weakness or modify the remediation efforts described above. The material weakness will be considered remediated after the applicable controls operate for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), during the quarter ended ~~September 30,~~March 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Certain legal proceedings in which the Company is involved are discussed in Note 19 to the consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2021 and Part I, Item 3 of the same Annual Report. Unless otherwise indicated therein, all proceedings discussed in the Annual Report remain outstanding.

Item 1A. Risk Factors

~~Before deciding to invest in our Company, in~~In addition to the ~~other information contained in our Annual Report on Form 10-K and other information~~risks set forth ~~in this report,~~below, you should carefully consider the factors discussed in Part I, ~~"Item~~“Item 1A. Risk ~~Factors"~~Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as well as all of the other information contained in such Annual Report on Form 10-K and ~~the factors discussed~~ in ~~Part II, "Item 1A. Risk Factors" in the Company's~~this Quarterly ~~Reports~~Report on Form 10-Q, ~~for~~before deciding to invest in our Company. The occurrence of any of the ~~quarters ended March 31, 2022 and June 30, 2022, which~~following risks could materially and adversely affect our business, financial condition, prospects, results of operations and cash flows. In such case, the trading price of our common stock could decline and you could lose all or part of your investment. ~~The~~These risks described in our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022, including our ability to access capital and macroeconomic conditions and geopolitical events, are not the only ~~risks~~ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially affect our business, financial condition, results of operations and prospects.

Risks Related to the Pending Sale of ADESA U.S. Physical Auction Business

Unsuccessful implementation of business initiatives to reduce costs and align our business to our digital operating model, or unintended consequences of the implementation of such initiatives, may adversely affect our business.

We have taken certain steps, including reductions in force, internal reorganizations and reallocation of resources from physical to digital channels to reduce the cost of our operations, improve efficiencies, and realign our organization and staffing to better match our market opportunities and digital initiatives. We have shifted and continue to shift resources from our physical channels to efforts focused on digital channels and technologies, and we continue our efforts to reduce overhead and manage our variable and fixed-cost structure. We expect to continue to take similar steps in the future as we seek to realize operating synergies, achieve our target operating model and profitability objectives, and more closely reflect changes in the strategic direction of our business. For example, during the third quarter of 2021, we initiated a multi-year cost management project focused on making permanent changes in our operating model and our cost structure, reengineering the way we do business and ultimately reducing our costs to provide services. In addition, in February 2022, we entered into a definitive agreement with Carvana, pursuant to which Carvana will acquire the ADESA U.S. physical auction business from us, which agreement is closely aligned with our digital strategy and will allow us to focus on our portfolio of digital marketplaces. We can provide no assurance that the sale of the ADESA U.S. physical business will be completed in a timely manner or at all, which may materially and adversely affect our business and the price of our common stock. Even if the sale is completed, we may not realize the strategic, financial, operational or other benefits from the transaction and our strategy.

These changes could be disruptive to our business, and we may experience a loss of accumulated knowledge, loss of continuity and inefficiency, loss of key personnel, and increased difficulties in attracting, retaining and motivating employees. These initiatives can require a significant amount of time and focus, which may divert attention from operating and growing our business. In addition, certain of our competitors continue to offer a traditional physical channel auction environment. If our efforts to focus on digital channels and technologies do not engage customers at the same level as in the past, or if we fail to achieve some or all of the expected benefits of our cost reduction and business alignment initiatives, it could have an adverse effect on our competitive position and market share, business, financial condition and results of operations.

The ADESA U.S. physical auction business sale transaction may result in disruptions to, and negatively impact our relationships with, our customers and other business partners.

The sale of the ADESA U.S. physical auction business to Carvana, including the commercial services agreement pursuant to which we will provide marketplace operation services to Carvana to operate digital auctions for a seven-year term, may lead customers and other parties with which we currently do business or with which we may seek to do business in the future to terminate or attempt to negotiate changes in existing business relationships, or consider entering into business relationships with parties other than us. These disruptions could have a material and adverse effect on our business, financial condition, results of operations and prospects.

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The ADESA U.S. physical auction business sale transaction may result in increased costs.

On the closing date of the sale of the ADESA U.S. physical auction business, we will enter into a transition services agreement whereby we will provide various services to Carvana following the closing. The transition services agreement may result in additional costs to us, which may make more difficult our ability to achieve the transaction’s objective of a more asset-light and lower overhead operating model.

The transaction may also require us to split, or otherwise amend, existing contracts with customers and business relationships to separate the U.S. physical auction business, which may lead to additional costs for us.

Certain systems sold to Carvana as part of the ADESA U.S. physical auction business may also be integral to our ADESA Canada operations and other parts of our business not being sold. Continued access to such systems or their replacement or substitution may lead to additional costs and disruptions.

Any such additional costs and disruptions may materially adversely affect our business, financial condition and results of operations.

Our ability to access capital in the future may be challenging.

The pending sale of the ADESA U.S. physical auction business, if completed, will result in our being a smaller enterprise focused on our digital marketplaces. While we believe our transition to a more asset-light and lower overhead operating model will better position us going forward, we may face additional challenges to the extent we need to raise additional capital or restructure or refinance our indebtedness.

Macroeconomic conditions and geopolitical events may adversely affect our business, sources of liquidity and related costs of capital.

Global financial markets experience from time to time volatility, disruption and credit contraction. Significant volatility or disruption of global financial markets, supply chains or commercial activity due to Russia’s invasion of Ukraine, inflation, the ongoing COVID-19 pandemic or other factors could negatively affect our industry and business and our ability to refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all. Proceeds of the sale of the ADESA U.S. physical auction business will be used to reduce our indebtedness. A disruption in the financial markets may adversely affect our ability to raise, restructure or refinance indebtedness.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

The information required by Item 701 of Regulation S-K was previously disclosed (for the sale of Series A Preferred Stock) in the Company's Current Reports on Form 8-K, filed with the SEC on June 10, 2020 and June 30, 2020.

On November 12, 2020, we issued 857,630 shares of our common stock to three individuals and one trust in connection with the BacklotCars acquisition in the fourth quarter of 2020. We received $15 million as consideration for the sale of such securities. On October 14, 2021, we issued 1,953,124 shares of our common stock to two individuals and one trust in connection with the CARWAVE acquisition in the fourth quarter of 2021. We received $30 million as consideration for the sale of such securities. The issuance of these securities was exempt from registration under the Securities Act, in reliance upon Section 4(a)(2) of the Securities Act as transactions by an issuer not involving any public offering and/or the private offering safe harbor provision of Rule 506 of Regulation D promulgated under the Securities Act.

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Issuer Purchases of Equity Securities

The following table provides information about purchases by KAR Auction Services of its shares of common stock during the quarter ended ~~September 30,~~March 31, 2022:

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 (1)
(Dollars in millions)
July 1 - July 31 288,108 $ 15.73 288,108 $ 222.4
August 1 - August 31 2,617,336 15.14 2,617,336 182.8
September 1 - September 30 404,083 14.45 404,083 176.9
Total 3,309,527 $ 15.11 3,309,527


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 (1) (Dollars in millions)
January 1 - January 31	—	$	—	—	$	109.0
February 1 - February 28	—	—		—	109.0
March 1 - March 31	—	—		—	109.0
Total	—	$	—	—

(1) In October 2019, the board of directors authorized a repurchase of up to $300 million of the Company’s outstanding common stock, par value $0.01 per share, through October 30, 2021. In October 2021, the board of directors authorized an extension of the Company’s share repurchase program through December 31, 2022. On April 27, 2022, the board of

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directors authorized an increase in the size of the Company’s $300 million share repurchase program by an additional $200 million and an extension of the share repurchase program through December 31, 2023. Repurchases may be made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended. The timing and amount of any repurchases is subject to market and other conditions.

Item 6. Exhibits, Financial Statement Schedules

a) Exhibits—the exhibit index below is incorporated herein by reference as the list of exhibits required as part of this report.

In reviewing the agreements included as exhibits to this Form 10-Q, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about KAR Auction Services, ADESA, AFC or other parties to the agreements.

The agreements included or incorporated by reference as exhibits to this Quarterly Report on Form 10-Q contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of "materiality" that are different from "materiality" under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement.

The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Quarterly Report on Form 10-Q not misleading. Additional information about the Company may be found elsewhere in this Quarterly Report on Form 10-Q and KAR Auction Services, Inc.'s other public filings, which are available without charge through the SEC's website at http://www.sec.gov.

EXHIBIT INDEX

Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit Filing
Date Filed
Herewith
2.1 +
Separation and Distribution Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.
8-K 001-34568 2.1 6/28/2019
2.2
Agreement and Plan of Merger dated as of September 4, 2020 by and among ADESA, Inc., Showroom Merger Sub, Inc., KAR Auction Services, Inc., BacklotCars, Inc. and Shareholder Representative Services LLC, as the securityholders representative
8-K 001-34568 2.1 9/8/2020
2.3
Securities Purchase Agreement, by and among ADESA, Inc., Carwave Holdings LLC, KKR Chevy Aggregator L.P., John Lauer, William Lauer, Joseph Lauer, Lauer Holdings Inc., KKR Chevy Blocker, LLC, KKR-Milton Strategic Partners L.P., KKR DAF Private Assets Fund Designated Activity Company, KKR NGT II (Chevy) Blocker L.P. and KKR NGT II (Chevy) Blocker Parent L.P.
8-K 001-34568 2.1 8/23/2021
2.4
Securities and Asset Purchase Agreement, dated as of February 24, 2022, by and among KAR Auction Services, Inc., Carvana Group, LLC and Carvana Co. solely for purposes of Section 10.15 thereof as guarantor
8-K 001-34568 2.1 2/24/2022
3.1
Amended and Restated Certificate of Incorporation of KAR Auction Services, Inc.
10-Q 001-34568 3.1 8/3/2016
3.2
Second Amended and Restated By-Laws of KAR Auction Services, Inc.
8-K 001-34568 3.1 11/4/2014
3.3
Certificate of Designations Designating the Series A Convertible Preferred Stock
8-K 001-34568 3.1 6/10/2020

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

2.1

Separation and Distribution Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.

8-K

001-34568

2.1

6/28/2019

2.2

Agreement and Plan of Merger dated as of September 4, 2020 by and among ADESA, Inc., Showroom Merger Sub, Inc., KAR Auction Services, Inc., BacklotCars, Inc. and Shareholder Representative Services LLC, as the securityholders representative

8-K

001-34568

2.1

9/8/2020

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Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit Filing
Date Filed
Herewith
4.1
Indenture, dated as of May 31, 2017, among KAR Auction Services, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee, including the form of the Notes
8-K 001-34568 4.1 5/31/2017
4.2
Form of common stock certificate
S-1/A 333-161907 4.15 12/10/2009
4.3
Description of the Company's securities
10-K 001-34568 4.3 2/19/2020
10.1a
Amendment and Restatement Agreement, dated March 11, 2014, among KAR Auction Services, Inc. and certain of its subsidiaries and JPMorgan Chase Bank, N.A., as administrative agent, swingline lender and issuing lender (the Amended and Restated Credit Agreement and the Amended and Restated Guarantee and Collateral Agreement are included as Exhibits A and B thereto, respectively)
8-K 001-34568 10.1 3/12/2014
10.1b
Incremental Commitment Agreement and First Amendment, dated as of March 9, 2016, among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of the Company party thereto and the several lenders party thereto
8-K 001-34568 10.1 3/9/2016
10.1c
Incremental Commitment Agreement and Second Amendment, dated as of May 31, 2017, among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, the guarantors party thereto and the several lenders party thereto
8-K 001-34568 10.1 5/31/2017
10.1d
Third Amendment Agreement, dated as of September 19, 2019, by and among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of KAR Auction Services, Inc. party thereto and the several lenders party thereto
8-K 001-34568 10.1 9/20/2019
10.1e
Technical Amendment, dated as of May 28, 2020, by and between KAR Auction Services, Inc., and JPMorgan Chase Bank, N.A., as administrative agent
10-K 001-34568 10.1e 2/18/2021
10.1f
Fourth Amendment Agreement, dated as of May 29, 2020, by and among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of the Company party thereto and the certain revolving lenders party thereto
8-K 001-34568 10.1 6/1/2020
10.1g
Fifth Amendment Agreement, dated September 2, 2020, by and among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of KAR Auction Services, Inc. party thereto and the certain revolving lenders party thereto
8-K 001-34568 10.1 9/8/2020
10.2 *
Employment Agreement, dated March 1, 2021, between KAR Auction Services, Inc. and James P. Hallett
8-K 001-34568 10.1 3/2/2021
10.3 *
Employment Agreement, dated March 9, 2020, between KAR Auction Services, Inc. and Eric M. Loughmiller
8-K 001-34568 10.2 3/13/2020
10.4 *
Employment Agreement, dated March 9, 2020, between KAR Auction Services, Inc. and John C. Hammer
8-K 001-34568 10.1 3/13/2020
10.5a *
Employment Agreement, dated March 9, 2020, between KAR Auction Services, Inc. and Peter J. Kelly
10-Q 001-34568 10.9 5/7/2020

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

2.3

Securities Purchase Agreement, by and among ADESA, Inc., Carwave Holdings LLC, KKR Chevy Aggregator L.P., John Lauer, William Lauer, Joseph Lauer, Lauer Holdings Inc., KKR Chevy Blocker, LLC, KKR-Milton Strategic Partners L.P., KKR DAF Private Assets Fund Designated Activity Company, KKR NGT II (Chevy) Blocker L.P. and KKR NGT II (Chevy) Blocker Parent L.P.

8-K

001-34568

2.1

8/23/2021

2.4

Securities and Asset Purchase Agreement, dated as of February 24, 2022, by and among KAR Auction Services, Inc., Carvana Group, LLC and Carvana Co. solely for purposes of Section 10.15 thereof as guarantor

8-K

001-34568

2.1

2/24/2022

3.1

Amended and Restated Certificate of Incorporation of KAR Auction Services, Inc.

10-Q

001-34568

3.1

8/3/2016

3.2

Second Amended and Restated By-Laws of KAR Auction Services, Inc.

8-K

001-34568

3.1

11/4/2014

3.3

Certificate of Designations Designating the Series A Convertible Preferred Stock

8-K

001-34568

3.1

6/10/2020

4.1

Indenture, dated as of May 31, 2017, among KAR Auction Services, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee, including the form of the Notes

8-K

001-34568

4.1

5/31/2017

4.2

Form of common stock certificate

S-1/A

333-161907

4.15

12/10/2009

4.3

Description of the Company's securities

10-K

001-34568

4.3

2/19/2020

10.1a

Amendment and Restatement Agreement, dated March 11, 2014, among KAR Auction Services, Inc. and certain of its subsidiaries and JPMorgan Chase Bank, N.A., as administrative agent, swingline lender and issuing lender (the Amended and Restated Credit Agreement and the Amended and Restated Guarantee and Collateral Agreement are included as Exhibits A and B thereto, respectively)

8-K

001-34568

10.1

3/12/2014

10.1b

Incremental Commitment Agreement and First Amendment, dated as of March 9, 2016, among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of the Company party thereto and the several lenders party thereto

8-K

001-34568

10.1

3/9/2016

10.1c

Incremental Commitment Agreement and Second Amendment, dated as of May 31, 2017, among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, the guarantors party thereto and the several lenders party thereto

8-K

001-34568

10.1

5/31/2017

10.1d

Third Amendment Agreement, dated as of September 19, 2019, by and among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of KAR Auction Services, Inc. party thereto and the several lenders party thereto

8-K

001-34568

10.1

9/20/2019

10.1e

Technical Amendment, dated as of May 28, 2020, by and between KAR Auction Services, Inc., and JPMorgan Chase Bank, N.A., as administrative agent

10-K

001-34568

10.1e

2/18/2021

4944

Table of Contents

Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit Filing
Date Filed
Herewith
10.5b *
Amendment No. 1 to Employment Agreement, dated March 1, 2021, between KAR Auction Services Inc. and Peter J. Kelly
8-K 001-34568 10.2 3/2/2021
10.6 *
Employment Agreement, dated October 26, 2021, between KAR Auction Services, Inc. and James Coyle
10-K 001-34568 10.6 2/23/2022
10.7 *
Employment Agreement dated September 4, 2020, between KAR Auction Services, Inc. and Justin Davis
10-Q 001-34568 10.7 5/4/2022
10.8 *
KAR Auction Services, Inc. Annual Incentive Program Summary of Terms 2021
10-K 001-34568 10.8 2/18/2021
10.9 *
KAR Auction Services, Inc. Annual Incentive Program Summary of Terms 2022
10-K 001-34568 10.8 2/23/2022
10.10a ^
Amended and Restated Purchase and Sale Agreement, dated May 31, 2002, between AFC Funding Corporation and Automotive Finance Corporation
S-4 333-148847 10.32 1/25/2008
10.10b
Amendment No. 1 to Amended and Restated Purchase and Sale Agreement, dated June 15, 2004
S-4 333-148847 10.33 1/25/2008
10.10c
Amendment No. 2 to Amended and Restated Purchase and Sale Agreement, dated January 18, 2007
S-4 333-148847 10.34 1/25/2008
10.10d ^
Amendment No. 3 to Amended and Restated Purchase and Sale Agreement, dated April 20, 2007
S-4 333-148847 10.35 1/25/2008
10.10e
Amendment No. 4 to Amended and Restated Purchase and Sale Agreement, dated January 30, 2009
10-K 001-34568 10.19e 2/28/2012
10.10f
Amendment No. 5 to Amended and Restated Purchase and Sale Agreement, dated April 25, 2011
10-K 001-34568 10.19f 2/28/2012
10.11 +
Tenth Amended and Restated Receivables Purchase Agreement, dated September 28, 2022, by and among Automotive Finance Corporation, AFC Funding Corporation, Fairway Finance Company, LLC, Fifth Third Bank, National Association, Chariot Funding LLC, PNC Bank, National Association, Thunder Bay Funding, LLC, Truist Bank, BMO Capital Markets Corp., JPMorgan Chase Bank, N.A., Royal Bank of Canada and Bank of Montreal
X
10.12 +
Sixth Amended and Restated Receivables Purchase Agreement, dated September 28, 2022, between Automotive Finance Canada Inc., KAR Auction Services, Inc. and BNY Trust Company of Canada
X
10.13
Form of Indemnification Agreement
8-K 001-34568 10.1 12/17/2013
10.14a *
KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as Amended June 10, 2014
DEF 14A 001-34568 Appendix A 4/29/2014
10.14b *
First Amendment to the KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan
10-K 001-34568 10.24b 2/18/2016
10.14c *
KAR Auction Services, Inc. Amended and Restated 2009 Omnibus Stock and Incentive Plan, as Amended and Restated June 4, 2021
DEF 14A 001-34568 Annex 1 4/23/2021
10.15 *
KAR Auction Services, Inc. Amended and Restated Employee Stock Purchase Plan
10-Q 001-34568 10.27 8/5/2020
10.16a *
KAR Auction Services, Inc. Directors Deferred Compensation Plan, effective December 10, 2009
10-Q 001-34568 10.62 8/4/2010

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

10.1f

Fourth Amendment Agreement, dated as of May 29, 2020, by and among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of the Company party thereto and the certain revolving lenders party thereto

8-K

001-34568

10.1

6/1/2020

10.1g

Fifth Amendment Agreement, dated September 2, 2020, by and among KAR Auction Services, Inc., JPMorgan Chase Bank, N.A., as administrative agent, certain subsidiaries of KAR Auction Services, Inc. party thereto and the certain revolving lenders party thereto

8-K

001-34568

10.1

9/8/2020

10.2

Employment Agreement, dated March 1, 2021, between KAR Auction Services, Inc. and James P. Hallett

8-K

001-34568

10.1

3/2/2021

10.3

Employment Agreement, dated March 9, 2020, between KAR Auction Services, Inc. and Eric M. Loughmiller

8-K

001-34568

10.2

3/13/2020

10.4

Employment Agreement, dated March 9, 2020, between KAR Auction Services, Inc. and John C. Hammer

8-K

001-34568

10.1

3/13/2020

10.5a

Employment Agreement, dated March 9, 2020, between KAR Auction Services, Inc. and Peter J. Kelly

10-Q

001-34568

10.9

5/7/2020

10.5b

Amendment No. 1 to Employment Agreement, dated March 1, 2021, between KAR Auction Services Inc. and Peter J. Kelly

8-K

001-34568

10.2

3/2/2021

10.6

Employment Agreement, dated October 26, 2021, between KAR Auction Services, Inc. and James Coyle

10-K

001-34568

10.6

2/23/2022

10.7

Employment Agreement dated September 4, 2020, between KAR Auction Services, Inc. and Justin Davis

10-Q

001-34568

10.7

5/4/2022

10.8

KAR Auction Services, Inc. Annual Incentive Program Summary of Terms 2021

10-K

001-34568

10.7

2/18/2021

10.9

KAR Auction Services, Inc. Annual Incentive Program Summary of Terms 2022

10-K

001-34568

10.8

2/23/2022

10.10a

Amended and Restated Purchase and Sale Agreement, dated May 31, 2002, between AFC Funding Corporation and Automotive Finance Corporation

S-4

333-148847

10.32

1/25/2008

10.10b

Amendment No. 1 to Amended and Restated Purchase and Sale Agreement, dated June 15, 2004

S-4

333-148847

10.33

1/25/2008

10.10c

Amendment No. 2 to Amended and Restated Purchase and Sale Agreement, dated January 18, 2007

S-4

333-148847

10.34

1/25/2008

10.10d

Amendment No. 3 to Amended and Restated Purchase and Sale Agreement, dated April 20, 2007

S-4

333-148847

10.35

1/25/2008

10.10e

Amendment No. 4 to Amended and Restated Purchase and Sale Agreement, dated January 30, 2009

10-K

001-34568

10.19e

2/28/2012

10.10f

Amendment No. 5 to Amended and Restated Purchase and Sale Agreement, dated April 25, 2011

10-K

001-34568

10.19f

2/28/2012

~~Table of Contents~~

Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit Filing
Date Filed
Herewith
10.16b *
Amendment No. 1 to the KAR Auction Services, Inc. Directors Deferred Compensation Plan, dated as of June 28, 2019
10-Q 001-34568 10.28b 11/6/2019
10.17 *
Director Restricted Share Agreement
10-Q 001-34568 10.29 8/7/2019
10.18 *
Form of Nonqualified Stock Option Agreement
S-1/A 333-161907 10.65 12/4/2009
10.19 *
Form of 2018 Restricted Stock Unit Award Agreement for Section 16 Officers
10-K 001-34568 10.33 2/21/2018
10.20 *
Form of 2019 Restricted Stock Unit Award Agreement for Section 16 Officers
10-K 001-34568 10.35 2/21/2019
10.21 *
Form of 2020 Restricted Stock Unit Award Agreement for Section 16 Officers
10-K 001-34568 10.35 2/19/2020
10.22 *
Form of Non-Qualified Stock Option Award Agreement
10-K 001-34568 10.30 2/18/2021
10.23 *
Form of 2018 and 2019 Performance-Based Restricted Stock Unit Agreement (Cumulative Operating Adjusted Net Income Per Share)
10-K 001-34568 10.38 2/24/2017
10.24 *
Form of 2020, 2021 and 2022 Performance-Based Restricted Stock Unit Agreement (Cumulative Operating Adjusted Net Income Per Share)
10-K 001-34568 10.38 2/19/2020
10.25 *
Form of 2022 Amended and Restated Performance-Based Restricted Stock Unit Agreement (Cumulative Adjusted EBITDA)
X
10.26
Transition Services Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.
8-K 001-34568 10.1 6/28/2019
10.27
Tax Matters Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.
8-K 001-34568 10.2 6/28/2019
10.28
Employee Matters Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.
8-K 001-34568 10.3 6/28/2019
10.29
Investment Agreement, dated as of May 26, 2020, by and between KAR Auction Services, Inc. and Ignition Parent LP
8-K 001-34568 10.1 5/27/2020
10.30a
Investment Agreement, dated as of May 26, 2020, by and between KAR Auction Services, Inc. and Periphas Capital GP, LLC
8-K 001-34568 10.2 5/27/2020
10.30b
Assignment and Assumption Agreement, dated as of June 9, 2020, by and between Periphas Capital GP, LLC and Periphas Kanga Holdings, L.P.
10-K 001-34568 10.37b 2/18/2021
10.31
Registration Rights Agreement, dated as of June 10, 2020, by and among KAR Auction Services, Inc. and Ignition Parent LP
8-K 001-34568 10.1 6/10/2020
10.32
Registration Rights Agreement, dated as of June 29, 2020, by and between KAR Auction Services, Inc. and Periphas Kanga Holdings, LP
8-K 001-34568 10.1 6/29/2020
31.1
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X
31.2
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
X

5145

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

~~32.1~~ 10.11a

~~Certification~~Ninth Amended and Restated Receivables Purchase Agreement, dated September 29, 2020, by and among Automotive Finance Corporation, AFC Funding Corporation, Fairway Finance Company, LLC, Fifth Third Bank, National Association, Chariot Funding LLC, PNC Bank, National Association, Thunder Bay Funding, LLC, Truist Bank, BMO Capital Markets Corp., JPMorgan Chase Bank, N.A., Royal Bank of ~~Chief Executive Officer Pursuant to Section 906~~Canada and Bank of ~~the Sarbanes-Oxley Act of 2002~~Montreal

10-Q

001-34568

10.15

11/4/2020

10.11b

Amendment No. 1 to Ninth Amended and Restated Receivables Purchase Agreement, dated November 5, 2021

10-K

001-34568

10.10b

2/23/2022

10.12a

Fifth Amended and Restated Receivables Purchase Agreement, dated September 30, 2020, between Automotive Finance Canada Inc., KAR Auction Services, Inc. and BNY Trust Company of Canada

10-Q

001-34568

10.16

11/4/2020

10.12b

Amendment No. 1 to Fifth Amended and Restated Receivables Purchase Agreement, dated November 5, 2021

10-K

001-34568

10.11b

2/23/2022

10.12c

Amendment No. 2 to Fifth Amended and Restated Receivables Purchase Agreement, dated December 31, 2021

10-K

001-34568

10.11c

2/23/2022

10.12d

Amendment No. 3 to Fifth Amended and Restated Receivables Purchase Agreement, dated February 17, 2022

10-K

001-34568

10.11d

2/23/2022

10.13a

Ground Lease, dated September 4, 2008, between ADESA San Diego, LLC and First Industrial L.P. (East 39 Acres at Otay Mesa, California)

8-K

333-148847

10.3

9/9/2008

~~32.2~~ 10.13b

~~Certification~~Guaranty of ~~Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial L.P. (East 39 Acres at Otay Mesa, California)

8-K

333-148847

10.11

9/9/2008

10.14a

Ground Lease, dated September 4, 2008, between ADESA San Diego, LLC and First Industrial L.P. (West 39 Acres at Otay Mesa, California)

8-K

333-148847

10.4

9/9/2008

10.14b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial L.P. (West 39 Acres at Otay Mesa, California)

8-K

333-148847

10.12

9/9/2008

10.15a

Ground Lease, dated September 4, 2008, between ADESA California, LLC and ADESA San Diego, LLC and First Industrial Pennsylvania, L.P. (Sacramento, California)

8-K

333-148847

10.5

9/9/2008

10.15b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial Pennsylvania, L.P. (Sacramento, California)

8-K

333-148847

10.13

9/9/2008

10.16a

Ground Lease, dated September 4, 2008, between ADESA California, LLC and First Industrial Pennsylvania, L.P. (Tracy, California)

8-K

333-148847

10.6

9/9/2008

10.16b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial Pennsylvania, L.P. (Tracy, California)

8-K

333-148847

10.14

9/9/2008

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

10.17a

Ground Lease, dated September 4, 2008, between ADESA Washington, LLC and First Industrial, L.P. (Auburn, Washington)

8-K

333-148847

10.7

9/9/2008

10.17b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial, L.P. (Auburn, Washington)

8-K

333-148847

10.15

9/9/2008

10.18a

Ground Lease, dated September 4, 2008, between ADESA Texas, Inc. and First Industrial, L.P. (Houston, Texas)

8-K

333-148847

10.8

9/9/2008

10.18b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial, L.P. (Houston, Texas)

8-K

333-148847

10.16

9/9/2008

10.19a

Ground Lease, dated September 4, 2008, between ADESA Florida, LLC and First Industrial Financing Partnership, L.P. (Bradenton, Florida)

8-K

333-148847

10.10

9/9/2008

10.19b

Guaranty of Lease, dated September 4, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial Financing Partnership, L.P. (Bradenton, Florida)

8-K

333-148847

10.18

9/9/2008

10.20a

Ground Sublease, dated October 3, 2008, between ADESA Atlanta, LLC and First Industrial, L.P. (Fairburn, Georgia)

10-Q

333-148847

10.21

11/13/2008

10.20b

Guaranty of Lease, dated October 3, 2008, between KAR Auction Services, Inc. (formerly KAR Holdings, Inc.) and First Industrial, L.P. (Fairburn, Georgia)

10-Q

333-148847

10.22

11/13/2008

10.21

Form of Indemnification Agreement

8-K

001-34568

10.1

12/17/2013

10.22a

KAR Auction Services, Inc. 2009 Omnibus Stock and Incentive Plan, as Amended June 10, 2014

DEF 14A

001-34568

Appendix A

4/29/2014

10.22b

First Amendment to the KAR Auction Services,��Inc. 2009 Omnibus Stock and Incentive Plan

10-K

001-34568

10.24b

2/18/2016

10.22c

KAR Auction Services, Inc. Amended and Restated 2009 Omnibus Stock and Incentive Plan, as Amended and Restated June 4, 2021

DEF 14A

001-34568

Annex 1

4/23/2021

10.23

KAR Auction Services, Inc. Amended and Restated Employee Stock Purchase Plan

10-Q

001-34568

10.27

8/5/2020

10.24a

KAR Auction Services, Inc. Directors Deferred Compensation Plan, effective December 10, 2009

10-Q

001-34568

10.62

8/4/2010

10.24b

Amendment No. 1 to the KAR Auction Services, Inc. Directors Deferred Compensation Plan, dated as of June 28, 2019

10-Q

001-34568

10.28b

11/6/2019

10.25

Director Restricted Share Agreement

10-Q

001-34568

10.29

8/7/2019

10.26

Form of Nonqualified Stock Option Agreement

S-1/A

333-161907

10.65

12/4/2009

10.27

Form of 2018 Restricted Stock Unit Award Agreement for Section 16 Officers

10-K

001-34568

10.33

2/21/2018

10.28

Form of 2019 Restricted Stock Unit Award Agreement for Section 16 Officers

10-K

001-34568

10.35

2/21/2019

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

10.29

Form of 2020 Restricted Stock Unit Award Agreement for Section 16 Officers

10-K

001-34568

10.35

2/19/2020

10.30

Form of Non-Qualified Stock Option Award Agreement

10-K

001-34568

10.30

2/18/2021

10.31

Form of 2018 and 2019 Performance-Based Restricted Stock Unit Agreement (Cumulative Operating Adjusted Net Income Per Share)

10-K

001-34568

10.38

2/24/2017

10.32

Form of 2020, 2021 and 2022 Performance-Based Restricted Stock Unit Agreement (Cumulative Operating Adjusted Net Income Per Share)

10-K

001-34568

10.38

2/19/2020

10.33

Transition Services Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.

8-K

001-34568

10.1

6/28/2019

10.34

Tax Matters Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.

8-K

001-34568

10.2

6/28/2019

10.35

Employee Matters Agreement, dated as of June 27, 2019, by and between KAR Auction Services, Inc. and IAA, Inc.

8-K

001-34568

10.3

6/28/2019

10.36

Investment Agreement, dated as of May 26, 2020, by and between KAR Auction Services, Inc. and Ignition Parent LP

8-K

001-34568

10.1

5/27/2020

10.37a

Investment Agreement, dated as of May 26, 2020, by and between KAR Auction Services, Inc. and Periphas Capital GP, LLC

8-K

001-34568

10.2

5/27/2020

10.37b

Assignment and Assumption Agreement, dated as of June 9, 2020, by and between Periphas Capital GP, LLC and Periphas Kanga Holdings, L.P.

10-K

001-34568

10.37b

2/18/2021

10.38

Registration Rights Agreement, dated as of June 10, 2020, by and among KAR Auction Services, Inc. and Ignition Parent LP

8-K

001-34568

10.1

6/10/2020

10.39

Registration Rights Agreement, dated as of June 29, 2020, by and between KAR Auction Services, Inc. and Periphas Kanga Holdings, LP

8-K

001-34568

10.1

6/29/2020

31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Table of Contents

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

101

The following materials from KAR Auction Services, Inc.'s Quarterly Report on Form ~~10-Q~~10-Q/A for the quarter ended ~~September 30,~~March 31, 2022 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021; (ii) the Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021 (iii) the Consolidated Balance Sheets as of ~~September 30,~~March 31, 2022 and December 31, 2021; (iv) the Consolidated Statements of Stockholders' Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022 and 2021; (v) the Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021; and (vi) the Condensed Notes to Consolidated Financial Statements.

104

Cover page Interactive Data File, formatted in iXBRL (contained in Exhibit 101).


+			Certain information has been excluded from this exhibit because it is not material and would likely cause competitive harm to the registrant if publicly disclosed.

^			Portions of this exhibit have been redacted pursuant to a request for confidential treatment filed separately with the Secretary of the Securities and Exchange Commission pursuant to Rule 406 under the Securities Act of 1933, as amended.

*			Denotes management contract or compensation plan, contract or arrangement.

5249

Table of Contents

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		KAR Auction Services, Inc.
		(Registrant)

Date:	~~November 2, 2022~~March 22, 2023	/s/ ~~ERIC M. LOUGHMILLER~~SCOTT A. ANDERSON
		~~Eric M. Loughmiller~~Scott A. Anderson ~~Executive Vice President~~Interim Chief Financial Officer and Chief ~~Financial~~Accounting Officer (Duly Authorized Officer and Principal Financial and Accounting Officer)

5350


		Page
PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Income	34

	Consolidated Statements of Comprehensive Income	45

	Consolidated Balance Sheets	56

	Consolidated Statements of Stockholders' Equity	78

	Consolidated Statements of Cash Flows	9

	Condensed Notes to Consolidated Financial Statements	10

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2524

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4639

Item 4.	Controls and Procedures	4640

PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	4741

Item 1A.	Risk Factors	4741

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4742

Item 6.	Exhibits	4843

~~Signature~~Signatures		5350


	Three Months Ended September 30, 2021
(Dollars in millions)	Marketplace		Finance		Consolidated
Income (loss) from continuing operations	$	(49.9)	$	23.0	$	(26.9)
Add back:
Income taxes	3.4		6.9		10.3
Interest expense, net of interest income	21.4		10.3		31.7
Depreciation and amortization	25.2		2.2		27.4
Intercompany interest	—		—		—
EBITDA	0.1		42.4		42.5
Non-cash stock-based compensation	3.0		0.6		3.6
Acquisition related costs	2.1		—		2.1
Securitization interest	—		(7.9)		(7.9)
Severance	0.8		—		0.8
Foreign currency (gains)/losses	0.1		—		0.1
Contingent consideration adjustment	4.4		—		4.4
Net change in unrealized (gains) losses on investment securities	—		20.9		20.9
Other	0.1		—		0.1
Total addbacks/(deductions)	10.5		13.6		24.1
Adjusted EBITDA	$	10.6	$	56.0	$	66.6


	Nine Months Ended September 30, 2022
(Dollars in millions)	Marketplace		Finance		Consolidated
Income (loss) from continuing operations	$	(111.5)	$	98.2	$	(13.3)
Add back:
Income taxes	(40.9)		33.0		(7.9)
Interest expense, net of interest income	30.8		50.8		81.6
Depreciation and amortization	70.1		6.1		76.2
Intercompany interest	3.1		(3.1)		—
EBITDA	(48.4)		185.0		136.6
Non-cash stock-based compensation	18.9		4.3		23.2
Loss on extinguishment of debt	17.0		—		17.0
Acquisition related costs	0.9		—		0.9
Securitization interest	—		(44.9)		(44.9)
(Gain)/Loss on asset sales	(0.1)		—		(0.1)
Severance	7.7		0.5		8.2
Foreign currency (gains)/losses	8.6		—		8.6
Net change in unrealized (gains) losses on investment securities	—		6.5		6.5
Professional fees related to business improvement efforts	10.7		1.4		12.1
Other	6.4		0.2		6.6
Total addbacks/(deductions)	70.1		(32.0)		38.1
Adjusted EBITDA	$	21.7	$	153.0	$	174.7


	Nine Months Ended September 30, 2021
(Dollars in millions)	Marketplace		Finance		Consolidated
Income (loss) from continuing operations	$	(112.4)	$	96.4	$	(16.0)
Add back:
Income taxes	5.1		32.1		37.2
Interest expense, net of interest income	64.1		29.0		93.1
Depreciation and amortization	74.6		7.1		81.7
Intercompany interest	0.2		(0.2)		—
EBITDA	31.6		164.4		196.0
Non-cash stock-based compensation	11.1		1.9		13.0
Acquisition related costs	5.0		—		5.0
Securitization interest	—		(21.5)		(21.5)
(Gain)/Loss on asset sales	—		(0.8)		(0.8)
Severance	1.6		0.2		1.8
Foreign currency (gains)/losses	2.7		—		2.7
Contingent consideration adjustment	20.1		—		20.1
Net change in unrealized (gains) losses on investment securities	—		(10.7)		(10.7)
Other	0.5		(0.2)		0.3
Total addbacks/(deductions)	41.0		(31.1)		9.9
Adjusted EBITDA	$	72.6	$	133.3	$	205.9