UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



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

For the quarterly period ended March 31, ~~2020~~2021



☐						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,, Indiana46032

(Address of principal executive offices, including zip code)

Registrant's telephone number, including area code: (~~800~~) (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 April 30, ~~2020, 129,175,792~~2021, 124,761,100 shares of the registrant's common stock, par value $0.01 per share, were outstanding.

Table of Contents

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 March 31,							Three Months Ended March 31,
	2020			2019				2021		2020
Operating revenues							Operating revenues
Auction fees and services revenue	$	491.5		$	541.9
Auction fees							Auction fees	$	235.5	$	255.3
Service revenue							Service revenue	187.6		236.2
Purchased vehicle sales	75.5			57.8			Purchased vehicle sales	92.7		75.5
Finance-related revenue	78.5			89.9			Finance-related revenue	65.8		78.5
Total operating revenues	645.5			689.6			Total operating revenues	581.6		645.5
Operating expenses							Operating expenses
Cost of services (exclusive of depreciation and amortization)	394.6			393.9			Cost of services (exclusive of depreciation and amortization)	330.4		394.6
Selling, general and administrative	162.4			175.2			Selling, general and administrative	149.0		162.4
Depreciation and amortization	47.7			44.3			Depreciation and amortization	47.0		47.7
Total operating expenses	604.7			613.4			Total operating expenses	526.4		604.7
Operating profit	40.8			76.2			Operating profit	55.2		40.8
Interest expense	38.0			56.5			Interest expense	30.9		38.0
Other income, net	(2.0		)	(2.1		)	Other income, net	(50.2)		(2.0)
Income from continuing operations before income taxes	4.8			21.8
Income before income taxes							Income before income taxes	74.5		4.8
Income taxes	2.0			6.5			Income taxes	23.6		2.0
Income from continuing operations	$	2.8		$	15.3
Income from discontinued operations, net of income taxes	—			62.5
Net income	$	2.8		$	77.8		Net income	$	50.9	$	2.8
Net income per share - basic
Income from continuing operations	$	0.02		$	0.11
Income from discontinued operations	—			0.47
Net income	$	0.02		$	0.58
Net income per share - diluted
Income from continuing operations	$	0.02		$	0.11
Income from discontinued operations	—			0.47
Net income	$	0.02		$	0.58
Net income per share							Net income per share
Basic							Basic	$	0.25	$	0.02
Diluted							Diluted	$	0.25	$	0.02
Dividends declared per common share	$	0.19		$	0.35		Dividends declared per common share	$	0	$	0.19

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 March 31,						Three Months Ended March 31,
	2020			2019			2021		2020
Net income	$	2.8		$	77.8	Net income	$	50.9	$	2.8
Other comprehensive income (loss), net of tax						Other comprehensive income (loss), net of tax
Foreign currency translation (loss) gain	(35.9		)	8.1
Unrealized loss on interest rate derivatives, net of tax of $(6.2)	(19.0		)	—
Foreign currency translation gain (loss)						Foreign currency translation gain (loss)	1.6		(35.9)
Unrealized gain (loss) on interest rate derivatives, net of tax						Unrealized gain (loss) on interest rate derivatives, net of tax	6.7		(19.0)
Total other comprehensive income (loss), net of tax	(54.9		)	8.1		Total other comprehensive income (loss), net of tax	8.3		(54.9)
Comprehensive income (loss)	$	(52.1	)	$	85.9	Comprehensive income (loss)	$	59.2	$	(52.1)

(In millions, except share and per share data)


	March 31, 2021		December 31, 2020
Liabilities, Temporary Equity and Stockholders' Equity
Current liabilities
Accounts payable	$	1,118.1	$	688.9
Accrued employee benefits and compensation expenses	57.4		81.3
Accrued interest	18.9		6.5
Other accrued expenses	189.4		185.2
Income taxes payable	2.7		3.2
Obligations collateralized by finance receivables	1,239.1		1,261.2
Current maturities of long-term debt	30.4		24.3
Total current liabilities	2,656.0		2,250.6
Non-current liabilities
Long-term debt	1,852.8		1,853.8
Deferred income tax liabilities	136.1		128.6
Operating lease liabilities	336.3		344.2
Other liabilities	31.7		55.4
Total non-current liabilities	2,356.9		2,382.0
Commitments and contingencies (Note 9)	0		0
Temporary equity
Series A convertible preferred stock	559.8		549.8
Stockholders' equity
Common stock, $0.01 par value:
Authorized shares: 400,000,000
Issued and outstanding shares:
March 31, 2021: 124,761,100
December 31, 2020: 129,700,156	1.3		1.3
Additional paid-in capital	969.4		1,046.5
Retained earnings	641.2		600.7
Accumulated other comprehensive loss	(24.4)		(32.7)
Total stockholders' equity	1,587.5		1,615.8
Total liabilities, temporary equity and stockholders' equity	$	7,160.2	$	6,798.2

March 31,
2020 December 31,
2019
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 354.3
$ 704.6
Accrued employee benefits and compensation expenses 56.5
72.7
Accrued interest 19.0
7.9
Other accrued expenses 186.7
216.9
Income taxes payable 0.9
1.1
Dividends payable 24.5
24.5
Obligations collateralized by finance receivables 1,349.9
1,461.2
Current maturities of long-term debt 27.0
28.8
Total current liabilities 2,018.8
2,517.7
Non-current liabilities
Long-term debt 1,860.1
1,861.3
Deferred income tax liabilities 116.9
134.5
Operating lease liabilities 353.1
358.3
Other liabilities 79.0
59.2
Total non-current liabilities 2,409.1
2,413.3
Commitments and contingencies (Note 8)

Stockholders' equity
Preferred stock, $0.01 par value:
Authorized shares: 100,000,000

Issued shares: none —
—
Common stock, $0.01 par value:
Authorized shares: 400,000,000

Issued and outstanding shares:

March 31, 2020: 129,161,707

December 31, 2019: 128,833,452 1.3
1.3
Additional paid-in capital 1,031.6
1,028.9
Retained earnings 624.8
651.0
Accumulated other comprehensive loss (85.9 ) (31.0 )
Total stockholders' equity 1,571.8
1,650.2
Total liabilities and stockholders' equity $ 5,999.7
$ 6,581.2


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

	Common Stock Shares	Common Stock Amount		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total
Balance at December 31, 2019	128.8	$	1.3	$	1,028.9	$	651.0	$	(31.0)	$	1,650.2
Cumulative effect adjustment for adoption of ASC Topic 326, net of tax						(3.8)				(3.8)
Net income						2.8				2.8
Other comprehensive loss								(54.9)		(54.9)
Issuance of common stock under stock plans	0.5			0.4						0.4
Surrender of RSUs for taxes	(0.1)			(3.4)						(3.4)
Stock-based compensation expense				5.0						5.0
Dividends earned under stock plans				0.7		(0.7)				0
Cash dividends declared to stockholders ($0.19 per share)						(24.5)				(24.5)
Balance at March 31, 2020	129.2	$	1.3	$	1,031.6	$	624.8	$	(85.9)	$	1,571.8

Common
Stock
Shares

Common
Stock
Amount

Additional
Paid-In
Capital
Retained Earnings
Accumulated
Other
Comprehensive
Loss
Total
Balance at December 31, 2019 128.8
$ 1.3
$ 1,028.9
$ 651.0
$ (31.0 ) $ 1,650.2
Cumulative effect adjustment for adoption of
ASC Topic 326, net of tax (3.8 ) (3.8 )
Net income 2.8
2.8
Other comprehensive loss (54.9 ) (54.9 )
Issuance of common stock under stock plans 0.5
0.4
0.4
Surrender of RSUs for taxes (0.1 ) (3.4 ) (3.4 )
Stock-based compensation expense 5.0
5.0
Dividends earned under stock plan 0.7
(0.7 ) —
Cash dividends declared to stockholders ($0.19 per share) (24.5 ) (24.5 )
Balance at March 31, 2020 129.2
$ 1.3
$ 1,031.6
$ 624.8
$ (85.9 ) $ 1,571.8

Common
Stock
Shares

Common
Stock
Amount

Additional
Paid-In
Capital
Retained Earnings
Accumulated
Other
Comprehensive
Loss
Total
Balance at December 31, 2018 132.9
$ 1.3
$ 1,131.9
$ 392.3
$ (61.3 ) $ 1,464.2
Cumulative effect adjustment for adoption of
ASC Topic 842, net of tax 1.1
1.1
Net income 77.8
77.8
Other comprehensive income 8.1
8.1
Issuance of common stock under stock plans 0.6
0.7
0.7
Surrender of RSUs for taxes (0.2 ) (10.2 ) (10.2 )
Stock-based compensation expense 7.4
7.4
Dividends earned under stock plan 1.7
(1.7 ) —
Cash dividends declared to stockholders ($0.35 per share) (46.6 ) (46.6 )
Balance at March 31, 2019 133.3
$ 1.3
$ 1,131.5
$ 422.9
$ (53.2 ) $ 1,502.5

See accompanying condensed notes to consolidated financial statements


	Three Months Ended March 31,
	2021		2020
Operating activities
Net income	$	50.9	$	2.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	47.0		47.7
Provision for credit losses	5.5		18.7
Deferred income taxes	5.2		(4.7)
Amortization of debt issuance costs	3.0		2.7
Stock-based compensation	5.4		5.0
Contingent consideration adjustment	11.2		0
Unrealized gain on investment securities	(43.5)		0
Other non-cash, net	1.6		1.4
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables and other assets	(297.8)		210.7
Accounts payable and accrued expenses	376.0		(333.5)
Net cash provided by (used by) operating activities	164.5		(49.2)
Investing activities
Net (increase) decrease in finance receivables held for investment	(73.3)		146.3
Purchases of property, equipment and computer software	(14.5)		(29.6)
Investments in securities	(15.3)		0
Proceeds from sale of investments	21.1		0
Proceeds from the sale of PWI	0.9		0
Proceeds from the sale of property and equipment	1.9		0
Net cash provided by (used by) investing activities	(79.2)		116.7
Financing activities
Net increase (decrease) in book overdrafts	39.8		(35.1)
Net increase (decrease) in borrowings from lines of credit	6.1		(1.8)
Net decrease in obligations collateralized by finance receivables	(25.1)		(103.7)
Payments on long-term debt	(2.4)		(2.4)
Payments on finance leases	(3.1)		(4.4)
Payments of contingent consideration and deferred acquisition costs	(21.3)		(22.3)
Issuance of common stock under stock plans	0.3		0.4
Tax withholding payments for vested RSUs	(2.2)		(3.4)
Repurchase and retirement of common stock	(80.8)		0
Dividends paid to stockholders	0		(24.5)
Net cash used by financing activities	(88.7)		(197.2)
Effect of exchange rate changes on cash	2.6		(23.7)
Net decrease in cash, cash equivalents and restricted cash	(0.8)		(153.4)
Cash, cash equivalents and restricted cash at beginning of period	812.3		560.9
Cash, cash equivalents and restricted cash at end of period	$	811.5	$	407.5
Cash paid for interest, net of proceeds from interest rate derivatives	$	15.3	$	23.4
Cash paid for taxes, net of refunds	$	11.7	$	5.6

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements

March 31, ~~2020~~2021 (Unaudited)

Note 1—Basis of Presentation and Nature of Operations

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"), Nth Gen Software Inc. ("TradeRev"), BacklotCars, Inc. ("BacklotCars"), ADESA Remarketing Limited (formerly known as GRS Remarketing Limited ("GRS" or "ADESA Remarketing Limited")) and ADESA 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(as amended, ~~on March 9, 2016, May 31, 2017~~amended and ~~September 19, 2019,~~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, including HBC Vehicle Services Limited ("HBC")~~. See Note 2;~~;

•"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 ($950 million aggregate principal was outstanding at March 31, ~~2020)~~2021); and

•"~~Term Loan B-4"~~Series A Preferred Stock" refers to the ~~senior secured term loan B-4 facility, the terms~~Series A Convertible Preferred Stock, par value $0.01 per share (581,608 and 571,606 shares of ~~which are set forth in the Credit Agreement;~~Series A Preferred Stock were outstanding at March 31, 2021 and December 31, 2020, respectively).

~~"Term Loan B-5" refers~~

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KAR Auction Services, Inc.

Condensed Notes to ~~the senior secured term loan B-5 facility, the terms of which are set forth in the Credit Agreement; and~~Consolidated Financial Statements (Continued)

~~"2017 Revolving Credit Facility" refers to the $350 million, senior secured revolving credit facility, the terms of which are set forth in the Credit Agreement.~~March 31, 2021 (Unaudited)

Business and Nature of Operations

ADESA is a leading provider of wholesale vehicle auctions and related vehicle remarketing services for the automotive industry. As of March 31, ~~2020, we have~~2021, the ADESA Auctions segment serves a domestic and international customer base through online auctions and provides services from 74 facilities in North ~~American network of 74 ADESA whole car auction sites and we also offer online auctions.~~America. ADESA also includes BacklotCars, an app and web-based dealer-to-dealer wholesale vehicle platform utilized in the United States, TradeRev, an online automotive remarketing ~~system~~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 (formerly known as CarsOnTheWeb), an online wholesale vehicle auction marketplace in Continental Europe. Our auctions facilitate the sale of used vehicles through ~~physical, online or hybrid auctions, which permit Internet buyers to participate in physical auctions.~~on-premise and off-premise marketplaces. ADESA's online service offerings include customized private label solutions powered with software developed by its wholly-owned subsidiary, Openlane, that allow our ~~institutional~~commercial consignors (automobile manufacturers, captive finance companies and other institutions) to offer vehicles via the Internet prior to arrival at ~~the physical auction.~~on-premise marketplaces. Remarketing services include a variety of activities designed to transfer used vehicles between sellers and buyers throughout the vehicle life cycle. 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.

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~~KAR Auction Services, Inc.~~

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

~~March 31, 2020 (Unaudited)~~

ADESA has the second largest used vehicle auction network in North America, based upon the number of used vehicles sold through auctions annually, and also provides services such as inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. ADESA is able to serve the diverse and multi-faceted needs of 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 123 locations~~ throughout the United States and ~~Canada as of March 31, 2020.~~Canada. Floorplan financing supports independent used vehicle dealers in North America who purchase vehicles at ADESA, BacklotCars, TradeRev, other used vehicle and salvage auctions and non-auction purchases. In

Prior to December 2020, in addition to floorplan financing, AFC also ~~provides~~provided independent used vehicle dealers with ~~other related services and products, such as~~ vehicle service contracts. In October 2020, a subsidiary of ADESA signed a definitive agreement to sell all of the issued and outstanding shares of capital stock of PWI Holdings, Inc., the Company's extended vehicle service contract business ("PWI"), to certain subsidiaries of Kingsway Financial Services Inc. for a purchase price of approximately $24.3 million in cash and deferred payments of approximately $2.2 million (subject to customary adjustments). The sale was completed on December 1, 2020.

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, ~~2019,~~2020, as filed with the Securities and Exchange Commission on February ~~19, 2020.~~18, 2021. The ~~2019~~2020 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.

~~ADESA Auction Services' revenue~~ADESA's "Auction fees and services revenue" reported in the consolidated ~~statements~~statement of income for the three months ended March 31, ~~2019~~2020 has been ~~reclassified~~broken out between "Auction ~~fees~~fees" and ~~services~~"Service revenue" ~~and "Purchased vehicle sales"~~ in the consolidated ~~statements~~statement of income to conform with the presentation for the three months ended March 31, ~~2020.~~2021.

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2021 (Unaudited)

Prior to 2020, the costs and expenses of the holding company were reported separately from the reportable segments. Due to the spin-off of IAA in 2019 and the Company's transition from physical marketplaces to digital marketplaces, the Company has simplified its business and operations. Corporate expenses, previously reported as holding company expenses, are now included in the segments. Certain known expenses (e.g., information technology costs) were recorded directly to the ADESA and AFC segments. Interest expense previously reported by the holding company has been recorded in the ADESA segment. The residual shared services expenses were recorded at ADESA and allocated to AFC based on revenue and employee headcount. Holding company amounts reported in the consolidated financial statements prior to June 2019 have been reclassified to discontinued operations to reflect the spin-off of the Company's former salvage auction business. In addition, certain amounts reported for segment results in the consolidated financial statements prior to ~~June 2019~~December 31, 2020 have been reclassified to conform to ~~a discontinued operations~~the current presentation. ~~See Note 2 for a discussion of discontinued operations.~~

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 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.

New Accounting Standards

~~Acquisition-Related Deferred~~In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and ~~Contingent Consideration~~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,

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~~KAR Auction Services, Inc.~~

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

~~March 31, 2020 (Unaudited)~~

~~In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13,~~ ~~Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.~~ ~~The update changes the methodology for measuring credit losses on~~consolidated financial instruments and the timing of when such losses are recorded. We adopted Topic 326 in the first quarter of 2020 and the change in methodology for measuring credit losses resulted in an increase in the allowance for credit losses of $5.0 million. The cumulative effect of this change was recognized, net of tax, as a $3.8 million adjustment to retained earnings on January 1, 2020.statements.

~~New Accounting Standards~~

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes, eliminates certain exceptions within Topic 740 and clarifies certain aspects of the current guidance to promote consistency among reporting entities. The new guidance is effective for annual periods beginning after December 15, 2020, including interim periods within those fiscal years. ~~Early adoption is permitted.~~ The ~~Company is currently evaluating the impact the~~ adoption of ASU 2019-12 ~~will have on the consolidated financial statements.~~

~~In January 2017,~~Note 2—Acquisitions

Deferred and Contingent Payments Related to Prior Year Acquisitions

Some of the ~~FASB issued ASU 2017-04,~~ ~~Intangibles-Goodwill~~purchase agreements related to prior year acquisitions included additional payments over a specified period, including deferred and ~~Other (Topic 350): Simplifying the Test for Goodwill Impairment,~~ ~~which simplifies the test for goodwill impairment by eliminating Step 2 (implied~~contingent payments based on certain conditions and performance. At March 31, 2021, we had deferred and estimated contingent consideration with a fair value ~~measurement)~~of approximately $1.8 million and $31.1 million, respectively (based on Level 3 inputs). ~~Instead goodwill impairment would be measured as~~At March 31, 2021, the ~~amount by which a reporting unit's carrying amount exceeds its fair value, not~~aggregate maximum potential payment remaining for undiscounted deferred payments and undiscounted contingent payments related to ~~exceed~~these acquisitions could approximate $47.3 million. For the carrying amount of goodwill. The new guidance was effective for annual periods beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of ASU 2017-04 did not have a material impact on the consolidated financial statements.

~~Note 2—IAA Separation and Discontinued Operations~~

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, ~~2020~~2021 (Unaudited)

Three Months Ended March 31,
2020 2019
Operating revenues $ —
$ 357.2
Operating expenses
Cost of services (exclusive of depreciation and amortization) —
218.4
Selling, general and administrative —
32.4
Depreciation and amortization —
21.8
Total operating expenses —
272.6
Operating profit —
84.6
Interest expense —
0.3
Other expense, net —
0.1
Income from discontinued operations before income taxes —
84.2
Income taxes —
21.7
Income from discontinued operations $ —
$ 62.5

Note 3—Stock and Stock-Based Compensation Plans

The KAR Auction Services, Inc. 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 March 31,
2020 2019
PRSUs $ 1.5
$ 3.6
RSUs 3.5
2.8
Total stock-based compensation expense $ 5.0
$ 6.4


	Three Months Ended March 31,
	2021		2020
Service options	$	0.3	$	0
Market options	1.1		0
PRSUs	2.2		1.5
RSUs	1.8		3.5
Total stock-based compensation expense	$	5.4	$	5.0

In the ~~three months ended March 31, 2020,~~first quarter of 2021, we granted approximately 0.4 million service options with a weighted average exercise price of $13.81 per share to certain executive officers of the Company. The service options have a life of ten years and vest in equal annual installments on each of the first 4 anniversaries of the grant date. The weighted average fair value of the service options granted in the first quarter of 2021 was $2.53 per share. The fair value of the service options granted was estimated on the date of grant using the Black-Scholes option pricing model with an expected life of 6.25 years, an expected volatility of 35.78%, an expected dividend yield of 5.5% and a weighted average risk free interest rate of 1.04%.

In the first quarter of 2021, we granted approximately 1.8 million market options with a weighted average exercise price of $13.81 per share to certain executive officers of the Company. The market options have a life of ten years and have a service component along with an additional market component. The market options become eligible to vest and become exercisable in equal increments, each upon the later to occur of (i) the first 4 anniversaries of the grant date, respectively, and (ii) for each respective 25% increment, the attainment of KAR's closing stock price at or above $5, $10, $15 and $20 over the exercise price, for 20 consecutive trading days.

The weighted average fair value of the market options granted in the first quarter of 2021 was $2.38 per share. The fair value and requisite service period of the market options was developed with a Monte Carlo simulation using a multivariate Geometric Brownian Motion with a drift equal to the risk free rate.

In the first quarter of 2021, we granted a target amount of approximately 0.4 million PRSUs to certain executive officers ~~and management~~ of the Company. The PRSUs granted in 2021 vest if and to the extent that the Company's three-year cumulative operating adjusted net income per share attains certain specified goals. In addition, approximately ~~0.4~~0.5 million RSUs were granted to certain ~~executive officers and~~ management members of the Company. The RSUs are contingent upon continued employment and generally vest in 3 equal annual installments. The weighted average grant date fair value of the PRSUs and the RSUs was ~~$22.25~~$13.81 per share, which was determined using the closing price of the Company's common stock on the dates of grant.

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, ~~2020~~2021 (Unaudited)

Share Repurchase Program

In October 2019, the board of directors authorized a repurchase of up to $300 million of the ~~Company’s~~Company's outstanding common stock, par value $0.01 per share, through October 30, 2021. 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 months ended March 31, 2021, we repurchased and retired 5,219,800 shares of common stock in the open market at a weighted average price of $15.47 per share, under the October 2019 authorization. NaN shares of common stock were repurchased during the three months ended March 31, 2020.

Note 4—Net Income ~~from Continuing Operations~~ Per Share

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

Three Months Ended March 31,
2020 2019
Net income from continuing operations $ 2.8
$ 15.3
Weighted average common shares outstanding 129.0
133.1
Effect of dilutive stock options and restricted stock awards 1.0
0.7
Weighted average common shares outstanding and potential common shares 130.0
133.8
Net income from continuing operations per share
Basic $ 0.02
$ 0.11
Diluted $ 0.02
$ 0.11


	Three Months Ended March 31,
	2021		2020
Net income	$	50.9	$	2.8
Series A Preferred Stock dividends	(10.0)		0
Net income attributable to participating securities	(8.3)		0
Net income attributable to common stockholders	$	32.6	$	2.8
Weighted average common shares outstanding	129.0		129.0
Effect of dilutive stock options and restricted stock awards	0.7		1.0
Weighted average common shares outstanding and potential common shares	129.7		130.0
Net income per share
Basic	$	0.25	$	0.02
Diluted	$	0.25	$	0.02

~~Basic~~Prior to 2020, basic net income ~~from continuing operations~~ per share was calculated by dividing net income ~~from continuing operations~~ by the weighted average number of outstanding common shares for the period. Diluted net income ~~from continuing operations~~ per share was calculated consistent with basic net income ~~from continuing operations~~ per share including the effect of dilutive unissued common shares related to our stock-based employee compensation program. 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 an anti-dilutive effect on net income ~~from continuing operations~~ per diluted share and PRSUs subject to performance conditions which have not yet been satisfied are excluded from the calculations. NaN service options were excluded from the calculation of diluted net income ~~from continuing operations~~ per share for ~~each of~~ the three months ended March 31, 2021 and 2020, respectively. All of the market options were excluded from the calculation of diluted net income per share for the three months ended March 31, 2021. Approximately 0.8 million PRSUs and ~~2019. In addition,~~ approximately 0.4 ~~million and 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, ~~2020~~2021 and ~~2019,~~2020, respectively. Total options outstanding at March 31, 2021 and 2020 were 2.7 million and ~~2019 were~~ 0.7 million, ~~and 1.0 million,~~ respectively.

Beginning in June 2020, the Company also includes participating securities (Series A Preferred Stock) in the computation of net income per share pursuant to the two-class method. The two-class method of calculating net income 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 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.

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2021 (Unaudited)

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 ~~28, 2022.~~31, 2024. AFC Funding Corporation had committed liquidity of ~~$1.70~~$1.60 billion for U.S. finance receivables at March 31, ~~2020.~~

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~~KAR Auction Services, Inc.~~

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

~~March 31, 2020 (Unaudited)~~

2021.

We also have an agreement for the securitization of Automotive Finance Canada Inc.'s ("AFCI") receivables, which expires on January ~~28, 2022.~~31, 2024. AFCI's committed facility is provided through a third-party conduit (separate from the U.S. facility) and was C$175 million at March 31, ~~2020.~~2021. 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.


	March 31, 2021				Net Credit Losses Three Months Ended March 31, 2021
	Total Amount of:
(in millions)	Receivables		Receivables Delinquent
Floorplan receivables	$	1,975.0	$	22.6	$	1.3
Other loans	9.4		0		0
Total receivables managed	$	1,984.4	$	22.6	$	1.3

March 31, 2020
Net Credit Losses
Three Months Ended
March 31, 2020
Total Amount of:
(in millions) Receivables
Receivables
Delinquent

Floorplan receivables $ 1,939.3
$ 23.2
$ 11.9
Other loans 15.5
—
—
Total receivables managed $ 1,954.8
$ 23.2
$ 11.9

December 31, 2019
Net Credit Losses
Three Months Ended
March 31, 2019
Total Amount of:
(in millions) Receivables
Receivables
Delinquent

Floorplan receivables $ 2,099.4
$ 28.8
$ 7.9
Other loans 15.8
—
—
Total receivables managed $ 2,115.2
$ 28.8
$ 7.9


	December 31, 2020				Net Credit Losses Three Months Ended March 31, 2020
	Total Amount of:
(in millions)	Receivables		Receivables Delinquent
Floorplan receivables	$	1,892.1	$	22.9	$	11.9
Other loans	18.9		0		0
Total receivables managed	$	1,911.0	$	22.9	$	11.9

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


	March 31, 2021		March 31, 2020
Allowance for Credit Losses
Balance at beginning of period	$	22.0	$	15.0
Opening balance adjustment for adoption of ASC Topic 326	0		5.0
Provision for credit losses	4.8		16.9
Recoveries	2.5		1.9
Less charge-offs	(3.8)		(13.8)
Balance at end of period	$	25.5	$	25.0

March 31,
2020 March 31,
2019
Allowance for Credit Losses
Balance at beginning of period $ 15.0
$ 14.0
Opening balance adjustment for adoption of ASC Topic 326 5.0
—
Provision for credit losses 16.9
8.2
Recoveries 1.9
2.3
Less charge-offs (13.8 ) (10.2 )
Balance at end of period $ 25.0
$ 14.3

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2021 (Unaudited)

March 31,
2020 December 31,
2019
Obligations collateralized by finance receivables, gross $ 1,361.4
$ 1,474.4
Unamortized securitization issuance costs (11.5 ) (13.2 )
Obligations collateralized by finance receivables $ 1,349.9
$ 1,461.2

~~Table of Contents~~

~~KAR Auction Services, Inc.~~

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

~~March 31, 2020 (Unaudited)~~


	March 31, 2021		December 31, 2020
Obligations collateralized by finance receivables, gross	$	1,258.9	$	1,282.8
Unamortized securitization issuance costs	(19.8)		(21.6)
Obligations collateralized by finance receivables	$	1,239.1	$	1,261.2

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 March 31, ~~2020,~~2021, 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 March 31,
2020 December 31,
2019
Term Loan B-6 Adjusted LIBOR + 2.25% September 19, 2026 $ 945.2
$ 947.6
Revolving Credit Facility Adjusted LIBOR + 1.75% September 19, 2024 —
—
Senior notes 5.125% June 1, 2025 950.0
950.0
European lines of credit Euribor + 1.25% Repayable upon demand 17.5
19.3
Canadian line of credit CAD Prime + 0.50% Repayable upon demand —
—
Total debt 1,912.7
1,916.9
Unamortized debt issuance costs/discounts (25.6 ) (26.8 )
Current portion of long-term debt (27.0 ) (28.8 )
Long-term debt $ 1,860.1
$ 1,861.3


	Interest Rate*		Maturity	March 31, 2021		December 31, 2020
Term Loan B-6	Adjusted LIBOR	+ 2.25%	September 19, 2026	$	935.7	$	938.1
Revolving Credit Facility	Adjusted LIBOR	+ 1.75%	September 19, 2024	0		0
Senior notes		5.125%	June 1, 2025	950.0		950.0
European lines of credit	Euribor	+ 1.25%	Repayable upon demand	20.9		14.8
Total debt				1,906.6		1,902.9
Unamortized debt issuance costs/discounts				(23.4)		(24.8)
Current portion of long-term debt				(30.4)		(24.3)
Long-term debt				$	1,852.8	$	1,853.8

*The interest rates presented in the table above represent the rates in place at March 31, ~~2020.~~2021.

Credit Facilities

On September 19, 2019, we entered into the Third Amendment Agreement (the "Third Amendment") to the Credit Agreement. The Third Amendment provided for, among other things, (i) the refinancing of the existing Term Loan B-4 and Term Loan B-5 with the new seven-year, $950 million Term Loan B-6 ~~(ii) repayment of the 2017 Revolving Credit Facility~~ and ~~(iii)~~ the $325 million, five-year Revolving Credit Facility.

The 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 ~~3.19%~~2.38% at March 31, ~~2020.~~2021.

The obligations of the Company under the Credit 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 perfected 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) perfected 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 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

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2021 (Unaudited)

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, ~~provided~~if there are revolving loans outstanding. We were in compliance with the applicable covenants in the Credit Agreement at March 31, ~~2020.~~

~~Table of Contents~~

~~KAR Auction Services, Inc.~~

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

~~March 31, 2020 (Unaudited)~~

2021.

There were 0 borrowings outstanding on the Revolving Credit Facility at March 31, ~~2020 and~~2021 or December 31, ~~2019. In addition, we~~2020. We had related outstanding letters of credit in the aggregate amount of ~~$29.7~~$29.8 million and ~~$27.4~~$28.5 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, which reduce the amount available for borrowings under the Revolving Credit Facility.

European Lines of Credit

COTW has lines of credit aggregating ~~$33.1~~$35.2 million (€30 million). The lines of credit had an aggregate ~~$17.5~~$20.9 million and $14.8 million of borrowings outstanding at March 31, ~~2020.~~2021 and December 31, 2020, respectively. The lines of credit are ~~guaranteed~~secured by certain inventory and receivables at COTW subsidiaries.

Fair Value of Debt

As of March 31, ~~2020,~~2021, the estimated fair value of our long-term debt amounted to ~~$1,794.4~~$1,900.9 million. The estimates of fair value were based on broker-dealer quotes (Level 2 inputs) for our debt as of March 31, ~~2020.~~2021. 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 ~~use~~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 3 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 have a five-year term, each maturing on January 23, 2025.

We have designated the interest rate swaps as cash flow hedges. The ~~effective portion of~~ changes in the fair value of the interest rate swaps ~~(unrealized gains/losses)~~that are included in the assessment of hedge effectiveness are recorded as a component of "Accumulated other comprehensive income." For the three months ended March 31, 2021, the Company recorded an unrealized gain on the interest rate swaps of $6.7 million, net of tax of $2.2 million in "Accumulated other comprehensive income." For the three months ended March 31, 2020, the Company recorded an unrealized loss on the interest rate swaps of $19.0 million, net of ~~tax. The Company does not expect any gains/losses currently recorded~~tax of $6.2 million in ~~accumulated~~"Accumulated other comprehensive ~~income to be recognized in earnings over the next 12 months.~~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. ~~NaN amount of ineffectiveness was included in net income for the three months ended March 31, 2020.~~

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. 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):

Liability Derivatives
March 31, 2020 December 31, 2019
Derivatives Designated as Hedging Instruments Balance Sheet Location Fair Value Balance Sheet Location Fair Value
2020 Interest rate swaps Other liabilities $ 25.2
N/A N/A

Liability Derivatives

March 31, 2021

December 31, 2020

Derivatives Designated as Hedging Instruments

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

2020 Interest rate swaps

Other liabilities

17.0

Other liabilities

25.9

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, ~~2020~~2021 (Unaudited)

Note 8—Other Income, Net

~~We did not designate any~~Other income, net consisted of the 2017 interest rate caps as hedges for accounting purposes. Accordingly, changes in the fair value of the interest rate caps were recognized as "Interest expense" in the consolidated statement of income. The following ~~table presents the effect of the interest rate derivatives on our consolidated statements of income for the periods presented~~ (in millions):


	Three Months Ended March 31,
	2021		2020
Realized and unrealized gains on investment securities	$	60.5	$	0
Contingent consideration valuation (Note 2)	(11.2)		0
Foreign currency gains (losses)	(2.2)		(0.4)
Other	3.1		2.4
Other income, net	$	50.2	$	2.0

Location of Gain / (Loss) Recognized in Income on Derivatives
Amount of Gain / (Loss)
Recognized in Income on Derivatives
Three Months Ended March 31,
2020 2019
Derivatives Designated as Hedging Instruments
2020 Interest rate swaps Interest expense $ —
N/A
Derivatives Not Designated as Hedging Instruments
2017 Interest rate caps Interest expense N/A
$ (0.5 )
Fair Value Measurement of Investments

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 March 31, 2021, the fair value of investment securities are based on quoted market prices for identical assets (Level 1 of the fair value hierarchy) and approximated $51.0 million. The unrealized gain on these investment securities was $43.5 million at March 31, 2021. The remaining investments held of $16.2 million are recorded at cost as they do not have readily determinable fair values. Investments are reported in "Other assets" in the accompanying consolidated balance sheets. Realized and unrealized gains and losses are reported in "Other income, net" in the consolidated statements of income.

Note 8—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 0 significant change in the legal and regulatory proceedings ~~related to continuing operations~~ which were disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, 2021 (Unaudited)

Note 9—10—Accumulated Other Comprehensive Loss

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


	March 31, 2021		December 31, 2020
Foreign currency translation loss	$	(11.6)	$	(13.2)
Unrealized loss on interest rate derivatives, net of tax	(12.8)		(19.5)
Accumulated other comprehensive loss	$	(24.4)	$	(32.7)

March 31,
2020 December 31,
2019
Foreign currency translation loss $ (66.9 ) $ (31.0 )
Unrealized loss on interest rate derivatives, net of tax (19.0 ) —
Accumulated other comprehensive loss $ (85.9 ) $ (31.0 )

Note ~~10—~~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 2 operating segments: ADESA Auctions and AFC, which also serve as our reportable business segments. These reportable business segments offer different services and have fundamental differences in their operations. ~~Results~~

Prior to 2020, the costs and expenses of the ~~former~~holding company were reported separately from the reportable segments. Due to the spin-off of IAA ~~segment~~in 2019 and ~~spin-related costs~~the Company's transition from physical marketplaces to digital marketplaces, the Company has simplified its business and operations. Corporate expenses, previously reported as holding company expenses, are now included in the segments. Certain known expenses (e.g., information technology costs) were recorded directly to the ADESA and AFC segments. Interest expense previously reported by the holding company has been recorded in the ADESA segment. The residual shared services expenses were recorded at ADESA and allocated to AFC based on revenue and employee headcount. Holding company amounts reported in the segment results in the consolidated financial statements prior to December 31, 2020 have been reclassified to conform to the current presentation.

Financial information regarding our reportable segments is set forth below as ~~discontinued operations (see Note 2). Segment results~~of and for the three months ended March 31, ~~2019 have been reclassified to conform with the new presentation of segments.~~2021 (in millions):


	ADESA Auctions		AFC		Consolidated
Operating revenues	$	515.8	$	65.8	$	581.6
Operating expenses
Cost of services (exclusive of depreciation and amortization)	316.9		13.5		330.4
Selling, general and administrative	140.2		8.8		149.0
Depreciation and amortization	44.6		2.4		47.0
Total operating expenses	501.7		24.7		526.4
Operating profit	14.1		41.1		55.2
Interest expense	21.6		9.3		30.9
Other income, net	(5.9)		(44.3)		(50.2)
Intercompany expense (income)	0.1		(0.1)		0
Income (loss) before income taxes	(1.7)		76.2		74.5
Income taxes	4.1		19.5		23.6
Net income (loss)	$	(5.8)	$	56.7	$	50.9
Total assets	$	4,783.4	$	2,376.8	$	7,160.2

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KAR Auction Services, Inc.

Condensed Notes to Consolidated Financial Statements (Continued)

March 31, ~~2020~~2021 (Unaudited)

The holding company is maintained separately from the reportable segments and includes expenses associated with the corporate offices, such as salaries, benefits and travel costs for the corporate management team, certain human resources, information technology and accounting costs, and certain insurance, treasury, legal and risk management costs. Holding company interest expense includes the interest expense incurred on finance leases and the corporate debt structure. Intercompany charges relate primarily to interest on intercompany debt or receivables and certain administrative costs allocated by the holding company.

Financial information regarding our reportable segments is set forth below as of and for the three months ended March 31, 2020 (in millions):

ADESA
Auctions AFC Holding
Company Consolidated
Operating revenues $ 567.0
$ 78.5
$ —
$ 645.5
Operating expenses
Cost of services (exclusive of depreciation and amortization) 370.7
23.9
—
394.6
Selling, general and administrative 122.8
6.5
33.1
162.4
Depreciation and amortization 39.1
2.7
5.9
47.7
Total operating expenses 532.6
33.1
39.0
604.7
Operating profit (loss) 34.4
45.4
(39.0 ) 40.8
Interest expense 0.8
13.6
23.6
38.0
Other (income) expense, net —
(0.1 ) (1.9 ) (2.0 )
Intercompany expense (income) 0.7
(0.8 ) 0.1
—
Income (loss) from continuing operations before income taxes 32.9
32.7
(60.8 ) 4.8
Income taxes 8.8
8.1
(14.9 ) 2.0
Net income (loss) from continuing operations $ 24.1
$ 24.6
$ (45.9 ) $ 2.8
Total assets $ 3,279.5
$ 2,445.3
$ 274.9
$ 5,999.7

~~Financial information regarding our reportable segments is set forth below as of and for the three months ended March 31, 2019~~ ~~(in millions)~~:

ADESA
Auctions
AFC
Holding
Company
Consolidated
Operating revenues $ 599.7
$ 89.9
$ —
$ 689.6
Operating expenses
Cost of services (exclusive of depreciation and amortization) 370.7
23.2
—
393.9
Selling, general and administrative 126.6
7.2
41.4
175.2
Depreciation and amortization 35.0
2.4
6.9
44.3
Total operating expenses 532.3
32.8
48.3
613.4
Operating profit (loss) 67.4
57.1
(48.3 ) 76.2
Interest expense 0.7
17.1
38.7
56.5
Other (income) expense, net (1.9 ) (0.1 ) (0.1 ) (2.1 )
Intercompany expense (income) 10.3
(1.2 ) (9.1 ) —
Income (loss) from continuing operations before income taxes 58.3
41.3
(77.8 ) 21.8
Income taxes 15.9
10.8
(20.2 ) 6.5
Net income (loss) from continuing operations $ 42.4
$ 30.5
$ (57.6 ) $ 15.3
Total assets $ 3,797.0
$ 2,406.1
$ 98.5
$ 6,301.6

~~Table of Contents~~

~~KAR Auction Services, Inc.~~

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

~~March 31, 2020 (Unaudited)~~


	ADESA Auctions		AFC		Consolidated
Operating revenues	$	567.0	$	78.5	$	645.5
Operating expenses
Cost of services (exclusive of depreciation and amortization)	370.7		23.9		394.6
Selling, general and administrative	152.4		10.0		162.4
Depreciation and amortization	44.4		3.3		47.7
Total operating expenses	567.5		37.2		604.7
Operating profit (loss)	(0.5)		41.3		40.8
Interest expense	24.4		13.6		38.0
Other income, net	(1.9)		(0.1)		(2.0)
Intercompany expense (income)	0.8		(0.8)		0
Income (loss) before income taxes	(23.8)		28.6		4.8
Income taxes	(5.2)		7.2		2.0
Net income (loss)	$	(18.6)	$	21.4	$	2.8
Total assets	$	3,553.2	$	2,446.5	$	5,999.7

Geographic Information

Our foreign operations include Canada, Mexico, Continental Europe and the U.K. ~~Most of our operations outside the U.S. are in Canada.~~ Approximately ~~57%~~52% and ~~70%~~57% of our foreign operating revenues were from Canada for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively. ~~The 2019 acquisition~~Most of ~~COTW has increased~~ the ~~percentage of~~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 March 31,
	2021		2020
Operating revenues
U.S.	$	439.6	$	523.3
Foreign	142.0		122.2
	$	581.6	$	645.5

Three Months Ended March 31,
2020 2019
Operating revenues
U.S. $ 523.3
$ 579.9
Foreign 122.2
109.7
$ 645.5
$ 689.6

Note 12—Subsequent Event

In May 2021, ADESA acquired Auction Frontier, LLC (“Auction Frontier”) for $80 million in cash and up to an additional $15 million contingent on certain terms. Auction Frontier is the owner and operator of the cloud-based auction simulcast solution Velocicast®. The acquisition is aligned with KAR’s strategy, as Velocicast powers ADESA Simulcast and Simulcast+ technologies, as well as other wholesale and retail auctions across North America and Australia.

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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," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" 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; dividend declarations and payments; common stock repurchases; tax rates and assumptions; strategic initiatives, greenfields and 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, ~~2019,~~2020, filed on February ~~19, 2020. Some of these factors include:~~

~~the evolving impact of the COVID-19 pandemic on our business~~18, 2021, and ~~the economy generally;~~

~~our ability to effectively maintain or update information and technology systems;~~

~~our ability to implement and maintain measures to protect against cyber-attacks;~~

~~significant current competition and the introduction of new competitors;~~

~~competitive pricing pressures;~~

~~our ability to successfully implement our business strategies or realize expected cost savings and revenue enhancements;~~

~~our ability to meet or exceed customers' expectations, as well as develop and implement information systems responsive to customer needs;~~

~~business development activities, including greenfields, acquisitions and integration of acquired businesses;~~

~~costs associated with the acquisition of businesses or technologies;~~

~~fluctuations in consumer demand for and in the supply of used, leased and salvage vehicles and the resulting impact on auction sales volumes, conversion rates and loan transaction volumes;~~

~~any losses of key personnel;~~

~~our ability to obtain land or renew/enter into new leases at commercially reasonable rates;~~

~~decreases in the number of used vehicles sold at physical auctions;~~

~~changes in the market value of vehicles auctioned;~~

~~trends in new and used vehicle sales and incentives, including wholesale used vehicle pricing;~~

~~the ability of consumers to lease or finance the purchase of new and/or used vehicles;~~

~~the ability to recover or collect from delinquent or bankrupt customers;~~

~~economic conditions including fuel prices, commodity prices, foreign exchange rates and interest rate fluctuations;~~

~~trends in the vehicle remarketing industry;~~

~~trends in the number of commercial vehicles being brought to auction, in particular off-lease volumes;~~

~~changes in the volume of vehicle production, including capacity reductions at the major original equipment manufacturers;~~

~~laws, regulations and industry standards, including changes in regulations governing the sale of used vehicles and commercial lending activities;~~

~~our ability to maintain our brand and protect our intellectual property;~~

~~the costs of environmental compliance and/or the imposition of liabilities under environmental laws and regulations;~~

~~weather, including increased expenses as a result of catastrophic events;~~

~~general business conditions;~~

~~our substantial amount of debt;~~

~~restrictive covenants in our debt agreements;~~

~~our assumption of the settlement risk for vehicles sold;~~

~~litigation developments;~~

~~our self-insurance for certain risks;~~

~~interruptions to service from our workforce;~~

~~any impairment to our goodwill or other intangible assets;~~

~~changes in effective tax rates;~~

~~the taxable nature of the spin-off of our former salvage auction business;~~

~~changes to accounting standards; and~~

~~other risks~~those described from time to time in our ~~filings~~future reports filed with the ~~SEC.~~

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.

Our future growth depends on a variety of factors, including our ability to increase vehicle sold volumes and loan transaction volumes, expand our product and service offerings, including information systems development, acquire and integrate additional business entities, manage expansion, control costs in our operations, introduce fee increases, and retain our executive officers and key employees. We cannot predict whether our growth strategy will be successful. In addition, we cannot predict what portion of overall sales will be conducted through online auctions or other remarketing methods in the future and what impact this may have on our auction business.

Impact of COVID-19

On March 11, 2020, the World Health Organization ("WHO") designated COVID-19 as a pandemic. Governments ~~around the world~~in various jurisdictions we operate have mandated, and continue to introduce, ~~orders~~numerous and varying measures to slow the ~~transmission~~spread of ~~the virus,~~COVID-19, including travel bans and restrictions, quarantines, curfews, shelter-in-place and safer-at-home orders, ~~quarantines, significant~~business shutdowns and closures. Certain jurisdictions began easing restrictions ~~on travel and business curtailments. Uncertainty with respect~~only to ~~the economic effects of the pandemic has introduced significant volatility~~return to tighter restrictions in the ~~financial markets.~~

~~Soon after the WHO designated~~face of increases in new COVID-19 as a pandemic, we decided to hold all sales in a Simulcast-only format to protect the health and well-being of our workforce and customers. All vehicles were offered online, cars did not run across the block and we limited access to our physical locations to promote social distancing measures and help prevent the spread of COVID-19. We experienced a decline in demand for wholesale vehicles as a result of thecases. The COVID-19 pandemic and the related ~~conditions. On~~preventative measures taken to help slow the spread have caused, and may continue to cause, significant volatility, uncertainty and economic disruption.

In response to these measures and for the protection of our employees and customers, we have implemented several measures to help secure our business, including but not limited to furloughs, prohibiting non-essential business travel, suspending non-essential services provided by certain third parties at our locations, delaying or canceling capital projects at our on-premise marketplace locations and temporarily suspending the Company's quarterly dividend.

In addition, on March 20, 2020, we ~~announced the temporary suspension of physical~~temporarily suspended on-premise sale operations, including Simulcast-only sales, across North America. ~~Although we experienced a reduction~~We resumed operation of Simulcast-only sales in ~~volumes during March~~select markets on April 6, 2020 ~~we did have some positive news~~and continued to expand the Simulcast-only sales each week thereafter as ~~a result of the disruption to our marketplaces.~~permitted by government directives. We ~~have enrolled thousands of dealers who had previously bought in-lane only onto our Simulcast network and had a record number of dealers participate~~began operating Simulcast+ auctions in ~~our Simulcast auctions. We also held our first ever Simulcast+ auction,~~select markets, a fully digital auction operated remotely with an automated auctioneer, sequential sales, audio and visual cues to simulate the live auction experience ~~and~~with all buyers and sellers interacting virtually through the Simulcast platform.

~~On April 6, 2020,~~All ADESA auction locations in the ~~Company reopened Simulcast-only sales in select markets~~U.S. and ~~has continued to expand the Simulcast-only sales each week,~~Canada are offering vehicles for sale via ADESA Simulcast, DealerBlock and Simulcast+. Auction locations have resumed offering ancillary and related services, where possible and as ~~permitted. As of April 20, 2020, more than 60 ADESA Simulcast auctions, including Simulcast+ auctions, are scheduled to be held across the U.S. and Canada.~~permitted by government directives. However, ~~volumes have been significantly less than normal operations. This could continue for an extended period of time. As a result, we have materially reduced our cost structure, as further discussed below.~~

~~Given~~given the evolving health, economic, social and governmental environments, the ~~potential~~continuing impact that COVID-19 could have on our business remains uncertain. ~~As a result, we have taken certain measures to help protect the business and our liquidity while our operations are negatively impacted. Some of these measures include the following:~~

We have ~~reduced compensation expense:~~


▪	~~KAR’s CEO, CFO and President have voluntarily elected to forgo 100% of their respective base salaries effective April 5, 2020 through at least June 27, 2020.~~


▪	~~The remainder of KAR’s executive officers have voluntarily elected to reduce their base salaries by 50% during this period.~~


▪	~~Base salaries across many levels of the organization have been temporarily reduced.~~


▪	~~We furloughed approximately 11,000 employees in April 2020.~~


▪	~~KAR’s board of directors voluntarily elected to forgo their cash compensation for the second quarter of 2020.~~

~~Business travel for any reason has been prohibited.~~

~~Non-essential services provided by third parties at our locations have generally been suspended.~~

~~All capital projects at our physical auction locations have been delayed or canceled.~~

~~The Company has temporarily suspended its quarterly dividend in light of the impact of the COVID-19 pandemic on its operations.~~

~~We have negotiated the deferral of rent payments with certain landlords.~~

~~The ADESA Assurance program was temporarily suspended.~~

~~AFC has reduced the unused portion of certain floorplan lines with its customers.~~

~~In addition, we intend to take~~also taken advantage of legislation introduced to assist companies during this time. In the ~~Employee Retention Credit~~first quarter of 2021, we recorded a total of approximately $3.4 million claimed under the Canada Emergency Wage Subsidy. These credits partially offset salaries recorded in Canada. We will continue to monitor and assess the ~~Federal Employer Social Security Tax Deferment provided under~~impact the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

~~The extent to which the COVID-19 outbreak impacts~~ and similar legislation in other countries may have on our business ~~results of operations~~ and financial ~~condition~~results.

While we have developed and implemented and continue to develop and implement health and safety 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 ~~which~~that are ~~highly~~ uncertain and ~~cannot be predicted,~~unpredictable, including ~~but not limited to,~~new information that may emerge concerning the ~~duration~~severity and ~~spread~~duration of the ~~outbreak, its severity,~~COVID-19 pandemic and the effectiveness of actions taken to contain the ~~virus~~COVID-19 outbreak or treat its ~~impact,~~impact.

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The broader implications for our business and ~~how quickly~~results of operations remain uncertain and will depend on many factors outside our control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, the imposition of protective public safety measures, the timing and number of people receiving vaccinations and effectiveness, and the timing to ~~what extent~~which normal economic and operating conditions ~~can resume.~~resumes. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our ~~business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future.~~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: ADESA Auctions and AFC.

•The ADESA Auctions segment serves a domestic and international customer base through ~~physical and~~ online auctions and ~~through~~it provides services from 74 ~~whole car auction~~ facilities in North America 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. Through ADESA.com, ADESA offers comprehensive private label remarketing solutions to automobile manufacturers, captive finance companies and other institutions to offer vehicles via the Internet prior to arrival at ~~the physical auction.~~on-premise marketplaces. Vehicles atsold on ADESA's ~~auctions~~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. ADESA also provides value-added ancillary services including inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. ADESA also includes BacklotCars, an app and web-based dealer-to-dealer wholesale vehicle platform utilized in the United States, TradeRev, an online automotive remarketing ~~system~~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 (formerly known as CarsOnTheWeb), an online wholesale vehicle auction marketplace in Continental Europe.

•The AFC segment provides short-term, inventory-secured financing, known as floorplan financing, primarily to independent used vehicle ~~dealers. At March 31, 2020, AFC conducted business at 123 locations in~~dealers throughout the United States and Canada. ~~The~~Prior to December 2020, the Company also ~~sells~~sold vehicle service contracts through Preferred Warranties, Inc. ("PWI").

~~The~~Prior to 2020, the costs and expenses of the holding company ~~is maintained~~were reported separately from the reportable ~~segments~~segments. Due to the spin-off of IAA in 2019 and ~~includes~~the Company's transition from physical marketplaces to digital marketplaces, the Company has simplified its business and operations. Corporate expenses, ~~associated with~~previously reported as holding company expenses, are now included in the ~~corporate offices, such as salaries, benefits and travel costs for our management team, certain human resources,~~segments. Certain known expenses (e.g., information technology costs) were recorded directly to the ADESA and ~~accounting costs, and certain insurance, treasury, legal and risk management costs. Holding company interest~~AFC segments. Interest expense includes the interest expense incurred on finance leases and the corporate debt structure. Intercompany charges relate primarily to interest on intercompany debt or receivables and certain administrative costs allocatedpreviously reported by the holding ~~company.~~

~~Recent Developments~~

~~On March 16,~~company has been recorded in the ADESA segment. The residual shared services expenses were recorded at ADESA and allocated to AFC based on revenue and employee headcount. Holding company amounts reported in the segment results in the consolidated financial statements prior to December 31, 2020 ~~in response~~have been reclassified to conform to the COVID-19 pandemic, the Company announced that it was modifying its North American auction processes and would be holding auctions online only via Simulcast to protect the health and well-being of its workforce and customers. On March 20, 2020, the Company announced that it was suspending physical sale operations across North America at all ADESA auction locations, including Simulcast-only sales, for at least two weeks. All non-essential auction employees were sent home and were paid during the two week closure. On April 6, 2020, the Company reopened Simulcast-only sales in select markets and has continued to expand the Simulcast-only sales each week, where possible and as permitted. The Company has altered its processes to comply with all local, state and provincial directives, including social distancing guidelines, which have materially limited ADESA's ability to provide its full scope of services until the guidelines are eased or terminated. As a result, the Company has furloughed employees, other than those essential to support the reduced level of current ~~operations, and has temporarily reduced base salaries of other employees across many levels of the organization.~~

Recent restrictions on retail automobile sales and operations have reduced floorings and payoffs at AFC. As a result, AFC launched a Customer Relief Program in March 2020. Under the Customer Relief Program, eligible customers may choose to defer curtailment payments (principal, fees and interest) due through May 31, 2020, on eligible units. AFC has also reduced/restricted the unused portion of certain floorplan lines with its customers.presentation.

Industry Trends

Whole Car

Used vehicles sold in North America through whole car auctions, including ~~online only~~off-premise volumes and mobile application volumes, were approximately 12.0 million and 11.5 million in ~~2018.~~2019 and 2018, respectively. Data for the whole car auction industry is collected by the NAAA through an annual survey. NAAA industry volumes for ~~2019~~2020 have not yet been ~~released.~~released, but we expect that volumes in 2020 were substantially lower than in 2019. The NAAA industry volumes collected by the annual survey do not include ~~online only~~off-premise volumes or mobile application volumes (e.g., Openlane, TradeRev, BacklotCars and ~~TradeRev)~~their respective competitors), but we have included these volumes in our totals. ~~We estimate that used vehicle auction volumes in North America in 2019 were approximately 12 million vehicles, including online only volumes and mobile application volumes.~~ In addition to the traditional whole car auction market and ~~online only~~off-premise venues described above, we believe mobile applications, such as TradeRev and BacklotCars, may provide an opportunity to expand our total addressable market for ~~whole car by~~dealer-to-dealer transactions to as much as 15 million units from approximately 5 million ~~units.~~units in 2019. TradeRev and BacklotCars sold approximately 316,000 vehicles in the digital dealer-to-dealer marketplace for the year ended December 31, 2020, compared with approximately 210,000 vehicles for the year ended December 31, 2019. TradeRev and BacklotCars sold approximately 100,000 vehicles in the digital dealer-to-dealer marketplace for the three months ended March 31, 2021, compared with approximately 55,000 vehicles for the three months ended March 31, 2020. This volume data includes vehicles sold by BacklotCars prior to its acquisition in November 2020. The COVID-19 pandemic has had a material impact on the whole car auction industry and we are unable to estimate future ~~volumes, but expect volumes in 2020 to be significantly lower than in 2019.~~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 leverages 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 ~~16,100~~13,600 dealers in ~~2019,~~2020, and loan transactions, which includes both loans ~~paid off~~floorplanned and loans curtailed, were approximately ~~1.8~~1.5 million in ~~2019. The COVID-19 pandemic has had a significant impact on AFC and we are unable to estimate future loan transaction volumes, but expect volumes in 2020 to be significantly lower than in 2019.~~2020.

Key challenges for the independent used vehicle dealer include demand for used vehicles, disruptions in pricing of used vehicle inventory, ~~lack of~~ access to consumer financing and increased ~~competition resulting from consolidation in the~~ used ~~vehicle dealer industry,~~car retail activity of franchise and public dealerships (most of which do not utilize AFC or its competitors for floorplan financing), as well as the ability to operate in locations experiencing pandemic shelter-in-place orders. 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. ~~As a result of reduced retail activity,~~A decrease in wholesale used car pricing ~~has declined in April 2020. This~~ 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 ~~related~~various on-premise and off-premise services, ~~associated with our whole car auctions,~~ and from dealer financing fees, interest income and other ~~service~~ 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 March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,
(Dollars in millions except per share amounts)	2021		2020
Revenues
Auction fees	$	235.5	$	255.3
Service revenue	187.6		236.2
Purchased vehicle sales	92.7		75.5
Finance-related revenue	65.8		78.5
Total revenues	581.6		645.5
Cost of services*	330.4		394.6
Gross profit*	251.2		250.9
Selling, general and administrative	149.0		162.4
Depreciation and amortization	47.0		47.7
Operating profit	55.2		40.8
Interest expense	30.9		38.0
Other income, net	(50.2)		(2.0)
Income before income taxes	74.5		4.8
Income taxes	23.6		2.0
Net income	$	50.9	$	2.8
Net income per share
Basic	$	0.25	$	0.02
Diluted	$	0.25	$	0.02

Three Months Ended March 31,
(Dollars in millions except per share amounts) 2020 2019
Revenues
Auction fees and services revenue $ 491.5
$ 541.9
Purchased vehicle sales 75.5
57.8
Finance-related revenue 78.5
89.9
Total revenues 645.5
689.6
Cost of services* 394.6
393.9
Gross profit* 250.9
295.7
Selling, general and administrative 162.4
175.2
Depreciation and amortization 47.7
44.3
Operating profit 40.8
76.2
Interest expense 38.0
56.5
Other income, net (2.0 ) (2.1 )
Income from continuing operations before income taxes 4.8
21.8
Income taxes 2.0
6.5
Net income from continuing operations 2.8
15.3
Net income from discontinued operations —
62.5
Net income $ 2.8
$ 77.8
Net income from continuing operations per share
Basic $ 0.02
$ 0.11
Diluted $ 0.02
$ 0.11

* Exclusive of depreciation and amortization

Overview

For the three months ended March 31, ~~2020,~~2021, we had revenue of ~~$645.5~~$581.6 million compared with revenue of ~~$689.6~~$645.5 million for the three months ended March 31, ~~2019,~~2020, a decrease of 6%10%. Businesses acquired in 2020 accounted for an increase in revenue of ~~$18.3~~$25.2 million or 3%4% 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 ~~increased $3.4~~decreased $0.7 million, or 8%1%, to $47.0 million for the three months ended March 31, 2021, compared with $47.7 million for the three months ended March 31, ~~2020, compared with $44.3 million for the three months ended March 31, 2019.~~2020. The ~~increase~~decrease in depreciation and amortization was primarily the result of ~~certain~~a reduction in assets placed in service, ~~over the last twelve months and depreciation and amortization for the assets of businesses acquired~~resulting from a reduction in ~~2019.~~capital spending.

Interest Expense

Interest expense decreased ~~$18.5~~$7.1 million, or ~~33%~~19%, to $30.9 million for the three months ended March 31, 2021, compared with $38.0 million for the three months ended March 31, ~~2020, compared with $56.5 million for the three months ended March 31, 2019.~~2020. The decrease was primarily attributable to a decrease in the weighted average interest rate of approximately ~~0.7%~~1% and a decrease of ~~$939.0~~$9.5 million in the average outstanding balance of corporate debt for the three months ended March 31, ~~2020~~2021, compared with the three months ended March 31, 2019, resulting from the pay down of debt of approximately $1.3 billion in connection with the spin-off of IAA on June 28, 2019 and a net increase in term loan debt of approximately $0.5 billion in connection with the debt refinancing on September 19, 2019.2020. In addition, there was a decrease in interest expense at AFC of ~~$3.5~~$4.3 million, which resulted from a decrease in ~~incremental interest rates~~the average finance receivables balance for the three months ~~ended~~ March 31, ~~2020,~~2021, as compared with the three months ended March 31, ~~2019.~~2020.

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Other Income, Net

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. Realized gains on these investments were $17.0 million for the three months ended March 31, 2021. The Company had unrealized gains of $43.5 million at March 31, 2021, as a result of a recent public offering for one of these investment securities. Any future changes in the fair value of these investment securities will be reflected as unrealized gains or losses until these securities are sold.

For the three months ended March 31, 2021, we had other income of $50.2 million compared with $2.0 million for the three months ended March 31, 2020. The increase in other income was primarily attributable to an increase in realized and unrealized gains on investment securities of approximately $60.5 million and other miscellaneous items aggregating $0.7 million, partially offset by an increase in contingent consideration valuation of $11.2 million and an increase in foreign currency losses of $1.8 million.

Income Taxes

We had an effective tax rate of 31.7% for the three months ended March 31, 2021, compared with an effective tax rate of 41.7% for the three months ended March 31, ~~2020, compared with an~~2020. The effective tax rate ~~of 29.8%~~ for the three months ended March 31, ~~2019.~~2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefits have been recorded. The ~~increase~~decrease in the effective tax rate was primarily attributable to lower ~~pre-tax~~pretax earnings for the three months ended March 31, 2020. Our effective tax rate for the three months ended March 31, 2020 was calculated using the discrete-period computation method by applying the actual effective tax rate as of March 31, 2020 to our pre-tax income.

~~Net Income from Discontinued Operations~~

On June 28, 2019, the Company completed the separation of its salvage auction business, IAA, through a spin-off, creating a new independent publicly traded salvage auction company. As such, the financial results of IAA have been accounted for as discontinued operations in the comparable 2019 results presented. For the three months ended March 31, 2020 and 2019, the Company's financial statements included income from discontinued operations of $0.0 million and $62.5 million, respectively. For a further discussion, reference Note 2 of the condensed notes to the consolidated financial statements.

Impact of Foreign Currency

For the three months ended March 31, ~~2020,~~2021, fluctuations in the ~~euro~~European exchange rate ~~decreased~~increased revenue by ~~$1.4~~$5.6 million, increased operating profit by $0.2 million, decreased net income by $0.3 million and had no impact on ~~operating profit, net income and~~ net income per diluted share. For the three months ended March 31, ~~2020,~~2021, fluctuations in the Canadian exchange rate ~~decreased~~increased revenue by ~~$0.4~~$3.8 million, operating profit by $1.2 million, net income by $0.3 million and had no impact on ~~operating profit, net income and~~ net income per diluted share.

Impact of COVID-19 on Our Operations

The Company has been subject to numerous orders and directives that have impacted our ability to operate our business throughout North America and in Europe. As a result of these COVID-19 related restrictions on our operations, we have adjusted our business processes so that we can continue to meet the needs of our customers while complying with the various laws, regulations, mandates and directives in each of the markets in which we operate. In many cases, we have had to limit the number of employees and customers at our physical locations at any given time and modify the delivery of services to our customers. However, these adjustments in our operations have also resulted in improvements in our performance.

During this challenging time, the Company has worked to meet the needs of the wholesale used car marketplace with its technology-based auction platforms throughout North America and in Europe. The Company believes that certain changes to its business processes that were necessitated by the COVID-19 outbreak are sustainable going forward. For example, the Company has reduced the labor required to process wholesale auction transactions and reduced its selling, general and administrative expenses.

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ADESA Results


	Three Months Ended March 31,
(Dollars in millions, except per vehicle amounts)	2021		2020
Auction fees	$	235.5	$	255.3
Service revenue	187.6		236.2
Purchased vehicle sales	92.7		75.5
Total ADESA revenue	515.8		567.0
Cost of services*	316.9		370.7
Gross profit*	198.9		196.3
Selling, general and administrative	140.2		152.4
Depreciation and amortization	44.6		44.4
Operating profit (loss)	$	14.1	$	(0.5)
On-premise vehicles sold	349,000		468,000
Off-premise vehicles sold	404,000		394,000
Total vehicles sold	753,000		862,000
Auction fees per vehicle sold	$	313	$	296
Gross profit per vehicle sold*	$	264	$	228
Gross profit percentage, excluding purchased vehicles*	47.0%		39.9%
Dealer consignment mix	33%		26%
Commercial mix	67%		74%

Three Months Ended March 31,
(Dollars in millions, except per vehicle amounts) 2020 2019
Auction fees and services revenue $ 491.5
$ 541.9
Purchased vehicle sales 75.5
57.8
Total ADESA revenue 567.0
599.7
Cost of services* 370.7
370.7
Gross profit* 196.3
229.0
Selling, general and administrative 122.8
126.6
Depreciation and amortization 39.1
35.0
Operating profit $ 34.4
$ 67.4
Vehicles sold 862,000
945,000
   Institutional vehicles sold in North America 622,000
681,000
   Dealer consignment vehicles sold in North America 212,000
241,000
   Vehicles sold in Europe 28,000
23,000
   Percentage of vehicles sold online 63 % 57 %
   Conversion rate at North American physical auctions 63.3 % 63.8 %
Physical auction revenue per vehicle sold, excluding purchased vehicles $ 914
$ 875
Online only revenue per vehicle sold, excluding purchased vehicles $ 163
$ 144

* Exclusive of depreciation and amortization

Revenue

Revenue from ADESA decreased ~~$32.7~~$51.2 million, or 5%9%, to $515.8 million for the three months ended March 31, 2021, compared with $567.0 million for the three months ended March 31, ~~2020, compared with $599.7 million for the three months ended March 31, 2019.~~2020. 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, excluding purchased vehicle sales and increased proceeds from purchased vehicle sales.~~sold. Businesses acquired in ~~the last 12 months~~2020 accounted for an increase in revenue of ~~$18.3 million, of which approximately $12.7 million was included in "Purchased vehicle sales."~~$25.2 million. The ~~decrease~~change in revenue included the impact of ~~decreases~~an increase in revenue of ~~$1.4~~$5.6 million due to fluctuations in the ~~euro~~European exchange rate and ~~$0.3~~an increase of $3.5 million due to fluctuations in the Canadian exchange rate.

On-premise marketplace sales are initiated online for vehicles at one of our locations across North America and include Simulcast, Simulcast+ and DealerBlock sales. Off-premise marketplace sales are initiated online and include Openlane, TradeRev, BacklotCars and ADESA Europe sales. The 13% decrease in the number of vehicles sold was ~~primarily attributable to~~comprised of a 9%25% decrease in ~~institutional volume, including~~on-premise vehicles sold onand a 3% increase in off-premise vehicles sold. For the quarter ended March 31, 2021, we conducted all sales through digital marketplaces to protect the health and well-being of our workforce and customers. All vehicles were offered online, ~~only platform, as well as a 9% decrease in dealer consignment units~~cars were not driven through the auction lanes and we limited access to our physical locations to promote social distancing measures and help prevent the spread of COVID-19.

Auction fees per vehicle sold for the three months ended March 31, 2020 compared with the three months ended March 31, 2019. Online sales volume for ADESA represented approximately 63% of the total vehicles sold in the first quarter of 2020, compared with approximately 57% in the first quarter of 2019. "Online sales" includes the following: (i) selling vehicles directly from a dealership2021 increased $17, or other interim storage location; (ii) online solutions that offer vehicles for sale while in transit to auction locations; (iii) vehicles sold on the TradeRev platform; (iv) vehicle sales in Europe, including units sold by COTW; (v) simultaneously broadcasting video and audio during the physical auctions to online bidders (ADESA Simulcast); and (vi) bulletin-board or real-time online auctions (DealerBlock^®). Online only sales, which do not include vehicles sold on ADESA Simulcast or DealerBlock, accounted for approximately 72% of ADESA's North American online sales volume. ADESA sold approximately 367,000 (including approximately 33,000 from TradeRev) and 367,000 (including approximately 31,000 from TradeRev) vehicles through its North American online only offerings in the first quarter of 2020 and 2019, respectively. For the three months ended March 31, 2020 and 2019, dealer consignment vehicles represented approximately 38% of used vehicles sold at ADESA physical auction locations. The volume of vehicles sold at physical auction locations in the first quarter of 2020 decreased approximately 16% compared with the first quarter of 2019. The used vehicle conversion percentage at North American physical auction locations, calculated as the number of vehicles sold6%, primarily as a ~~percentage~~result of ~~the number of vehicles entered for sale at our ADESA auctions, decreased~~revenues related to ~~63.3%~~higher vehicle values.

Service revenue for the three months ended March 31, ~~2020, compared with 63.8% for the three months ended March 31, 2019.~~

Volumes sold for the three months ended March 31, 2020 were materially impacted by the restrictions placed on businesses throughout the world. Beginning the week of March 16, we experienced a significant decline in volumes, as customers began to cease operations in response to local, state and provincial directives. Year-to-date through February 29, 2020, North American volumes, excluding TradeRev, were up approximately 7% in comparison to 2019. For the first week of March 2020, North American volumes, excluding TradeRev, were up approximately 1% in comparison to 2019. In the second, third and fourth weeks of March 2020, North American volumes, excluding TradeRev, were down approximately 12%2021 decreased $48.6 million, or 21%, ~~45% and 87%, respectively, in comparison to 2019.~~

Physical auction revenue per vehicle sold increased $39, or 4%, to $914 for the three months ended March 31, 2020, compared with $875 for the three months ended March 31, 2019. Physical auction revenue per vehicle sold includes revenue from seller and buyer auction fees and ancillary and other related services, which includes non-auction services and excludes the sale of purchased vehicles. The increase in physical auction revenue per vehicle sold was primarily ~~attributable to an increase in lower margin ancillary services revenue and auction fees related to higher average transaction prices, as well~~ as a result of the decrease in ~~the number of~~ vehicles ~~sold~~sold. Typically consigned vehicles located at ~~physical auctions.~~

Online only auction revenue per vehicle sold increased $53 to $259 for the three months ended March 31, 2020, compared with $206 for the three months ended March 31, 2019. The increase in online only auction revenue per vehicle sold was attributable to an increase in purchased vehicle sales associated with the ADESA Assurance Program, the increase in TradeRev revenue and the inclusion of ADESA Europe sales. The entire selling price of the purchased vehicles soldour facilities utilize our service offerings at auction is recorded as revenue ("Purchased vehicle sales"). Excluding purchased vehicle sales, online only revenue per vehicle would have been $163 and $144 for the three months ended March 31, 2020 and 2019, respectively. The $19 increase in online only revenue per vehicle was attributable to increased revenue per vehicle for units sold on the TradeRev platform and the addition of ADESA Europe.a higher rate than off-premise vehicles.

Gross Profit

For the three months ended March 31, ~~2020,~~2021, gross profit for ADESA ~~decreased $32.7~~increased $2.6 million, or ~~14%~~1%, to ~~$196.3~~$198.9 million, compared with ~~$229.0~~$196.3 million for the three months ended March 31, ~~2019.~~2020. Gross profit for ADESA was 38.6% of revenue for the three months ended March 31, 2021, compared with 34.6% of revenue for the three months ended March 31, ~~2020, compared with 38.2%~~2020. Gross profit as a percentage of revenue increased for the three months ended March 31, ~~2019. Gross~~2021 as compared with the three months

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ended March 31, 2020, as we have taken measures to reduce expenses to help protect our business while our operations have been impacted by COVID-19 and vehicles sold online require less labor. In the first quarter of 2021 we also recorded a benefit of $2.2 million taken under the Canada Emergency Wage Subsidy. On March 20, 2020 our on-premise auctions were shut down in response to the COVID-19 pandemic. While revenue decreased during the closure, cost of services remained consistent, as all non-essential auction employees were paid during the closure. In addition, our gross profit as a percentage of revenue ~~decreased~~is impacted by purchased vehicles. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 47.0% and 39.9% for the three months ended March 31, 2021 and 2020, ~~as compared with the three months ended March 31, 2019 as a result of an increase in purchased vehicle sales primarily related to the acquisition of COTW and increased activity under ADESA Assurance.~~respectively. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased ~~vehicle~~vehicles sold. Excluding purchased vehicle sales, gross profit as a percentage of revenue was 39.9% and 42.2% for the three months ended March 31, 2020 and 2019, respectively. The remaining decrease in gross profit as a percentage of revenue relates to growth in lower margin ancillary services and the shut down of the physical auctions on March 20, 2020 in response to the COVID-19 pandemic. While revenue decreased for the three months ended March 31, 2020, cost of services remained consistent, as all non-essential auction employees were paid during the 2 week closure. Businesses acquired in the last 12 months accounted for an increase in cost of services of ~~$15.6~~$13.8 million for the three months ended March 31, ~~2020.~~

2021.

Selling, General and Administrative

Selling, general and administrative expenses for the ADESA segment decreased ~~$3.8~~$12.2 million, or 3%8%, to ~~$122.8~~$140.2 million for the three months ended March 31, 2021, compared with $152.4 million for the three months ended March 31, 2020, ~~compared with $126.6 million for the three months ended March 31, 2019,~~ primarily due to decreases in ~~incentive-based~~ compensation expense of ~~$5.4~~$21.4 million, professional fees of $3.6 million, marketing costs of ~~$2.3~~$3.4 million, travel expenses of $2.8 million, supplies expense of $2.0 million, telecom expenses of $2.0 million, medical expenses of $1.8 million, severance of $1.7 million, bad debt expense of $1.5 million and ~~travel expenses~~the recording of ~~$0.9~~a benefit under the Canada Emergency Wage Subsidy of $1.2 million, ~~(as a result of travel restrictions put in place on February 28),~~ partially offset by ~~increases in costs~~selling, general and administrative expenses associated with acquisitions of ~~$1.9~~$19.0 million, ~~information technology costs~~an increase in incentive-based compensation of ~~$1.6 million, compensation expense of $0.9 million, professional fees of $0.8~~$8.9 million and other miscellaneous expenses aggregating ~~$1.1~~$1.3 million.

AFC Results


	Three Months Ended March 31,
(Dollars in millions except volumes and per loan amounts)	2021		2020
Finance-related revenue
Interest and fee income	$	68.6	$	83.8
Other revenue	2.0		2.7
Provision for credit losses	(4.8)		(16.9)
Warranty contract revenue	—		8.9
Total AFC revenue	65.8		78.5
Cost of services*	13.5		23.9
Gross profit*	52.3		54.6
Selling, general and administrative	8.8		10.0
Depreciation and amortization	2.4		3.3
Operating profit	$	41.1	$	41.3
Loan transactions	372,000		448,000
Revenue per loan transaction, excluding Warranty contract revenue	$	177	$	155

Three Months Ended March 31,
(Dollars in millions except volumes and per loan amounts) 2020 2019
Finance-related revenue
Interest and fee income $ 83.8
$ 86.9
Other revenue 2.7
2.8
Provision for credit losses (16.9 ) (8.2 )
Warranty contract revenue 8.9
8.4
Total AFC revenue 78.5
89.9
Cost of services* 23.9
23.2
Gross profit* 54.6
66.7
Selling, general and administrative 6.5
7.2
Depreciation and amortization 2.7
2.4
Operating profit $ 45.4
$ 57.1
Loan transactions 448,000
461,000
Revenue per loan transaction, excluding "Warranty contract revenue" $ 155
$ 177

* Exclusive of depreciation and amortization

Revenue

For the three months ended March 31, ~~2020,~~2021, AFC revenue decreased ~~$11.4~~$12.7 million, or ~~13%~~16%, to ~~$78.5~~$65.8 million, compared with ~~$89.9~~$78.5 million for the three months ended March 31, ~~2019.~~2020. The decrease in revenue was primarily the result of a 3%17% decrease in loan transactions and the loss of Warranty contract revenue resulting from the sale of PWI in December 2020, partially offset by a ~~12% decrease~~14% increase in revenue per loan transaction.

Revenue per loan transaction, which includes both loans ~~paid off~~floorplanned and loans curtailed, ~~decreased~~increased $22, or ~~12%~~14%, primarily as a result of ~~an increase~~a decrease in provision for credit losses for the three months ended March 31, ~~2020.~~2021 and an increase in loan values, partially offset by decreases in interest yield and average portfolio duration. Revenue per loan transaction excludes ~~"Warranty~~Warranty contract revenue."

The provision for credit losses ~~increased~~decreased to ~~3.3%~~1.0% of the average managed receivables for the three months ended March 31, ~~2020~~2021 from ~~1.6%~~3.3% for the three months ended March 31, ~~2019.~~2020.

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Gross Profit

For the three months ended March 31, ~~2020,~~2021, gross profit for the AFC segment decreased ~~$12.1~~$2.3 million, or 4%, to $52.3 million, or 79.5% of revenue, compared with $54.6 million, or 69.6% ~~of revenue, compared with $66.7 million, or 74.2%~~ of revenue, for the three months ended March 31, ~~2019.~~2020. Excluding PWI for the three months ended March 31, 2020, AFC's gross profit as a percent of revenue was 75.5%. The ~~decrease~~increase in gross profit as a percent of revenue was primarily the result of a ~~13%~~16% decrease in revenue and ~~a 3% increase~~an 44% decrease in cost of services. The ~~increase~~decrease in cost of services was primarily the result of ~~increases~~decreases in PWI expenses of $6.9 million, compensation expense of ~~$0.5~~$2.6 million, lot audits of $0.8 million and other miscellaneous expenses aggregating ~~$0.2~~$0.1 million.

Selling, General and Administrative

Selling, general and administrative expenses at AFC decreased ~~$0.7~~$1.2 million, or ~~10%~~12%, to ~~$6.5~~$8.8 million for the three months ended March 31, 2021, compared with $10.0 million for the three months ended March 31, 2020 ~~compared with $7.2 million for the three months ended March 31, 2019,~~ primarily as a result of decreases in ~~incentive-based compensation~~PWI expenses of ~~$0.4 million and stock-based compensation of $0.3 million.~~

~~Holding Company Results~~

Three Months Ended March 31,
(Dollars in millions) 2020 2019
Selling, general and administrative $ 33.1
$ 41.4
Depreciation and amortization 5.9
6.9
Operating loss $ (39.0 ) $ (48.3 )

~~Selling, General and Administrative~~

For the three months ended March 31, 2020, selling, general and administrative expenses at the holding company decreased $8.3 million, or 20%, to $33.1 million, compared with $41.4 million for the three months ended March 31, 2019, primarily as a result of decreases in incentive-based compensation of $3.6 million, professional fees of $2.5$0.8 million, compensation expense of ~~$1.6 million, stock-based compensation of $0.9~~$0.5 million and other miscellaneous expenses ofaggregating $0.8 million, partially offset by ~~increases~~an increase in ~~information technology costs~~incentive-based compensation of ~~$1.1~~$0.9 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.


	March 31,		December 31,		March 31,
(Dollars in millions)	2021		2020		2020
Cash and cash equivalents	$	759.0	$	752.1	$	293.1
Restricted cash	52.5		60.2		114.4
Working capital	869.5		924.6		694.1
Amounts available under the Revolving Credit Facility*	325.0		325.0		325.0
Cash flow from operations for the three months ended	164.5				(49.2)

(Dollars in millions) March 31,
2020 December 31,
2019 March 31,
2019
Cash and cash equivalents $ 293.1
$ 507.6
$ 199.4
Restricted cash 114.4
53.3
24.3
Working capital 694.1
726.8
277.5
Amounts available under the Revolving Credit Facility* 325.0
325.0
256.5
Cash flow from operations for the three months ended (49.2 ) 50.0
* There were related outstanding letters of credit totaling approximately $29.8 million, $28.5 million and $29.7 million at March 31, 2021, December 31, 2020 and March 31, 2020 respectively, which reduced the amount available for borrowings under the Revolving Credit Facility.


*	There were related outstanding letters of credit totaling approximately $29.7 million, $27.4 million and $32.9 million at March 31, 2020, December 31, 2019 and March 31, 2019, 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. The COVID-19 pandemic has had, and is ~~having a significant~~continuing to have, an adverse impact on our business. As a result, we have implemented several measures that we believe will enhance liquidity for the foreseeable future. Some of these measures ~~include the following:~~

~~We have reduced compensation expense:~~


▪	~~KAR’s CEO, CFO and President have voluntarily elected to forgo 100% of their respective base salaries effective April 5, 2020 through at least June 27, 2020.~~


▪	~~The remainder of KAR’s executive officers have voluntarily elected to reduce their base salaries by 50% during this period.~~


▪	~~Base salaries across many levels of the organization have been temporarily reduced.~~


▪	~~We furloughed approximately 11,000 employees in April 2020.~~


▪	~~KAR’s board of directors voluntarily elected to forgo their cash compensation for the second quarter of 2020.~~

~~Business~~included furloughs, prohibiting non-essential business travel, ~~for any reason has been prohibited.~~

~~Non-essential~~suspending non-essential services provided by certain third parties at our locations, ~~have generally been suspended.~~

~~All~~delaying or canceling capital projects at our ~~physical auction~~on-premise marketplace locations ~~have been delayed or canceled.~~

~~The Company has~~and temporarily ~~suspended its~~suspending the Company's quarterly ~~dividend in light of the impact of the COVID-19 pandemic on its operations.~~dividend.

We have ~~negotiated the deferral of rent payments with certain landlords.~~

~~The ADESA Assurance program was temporarily suspended.~~

~~AFC has reduced the unused portion of certain floorplan lines with its customers.~~

~~In addition, we intend to take~~also taken advantage of legislation introduced to assist companies during this time. In the ~~Employee Retention Credit and the Federal Employer Social Security Tax Deferment provided~~first quarter of 2021, we recorded a total of approximately $3.4 million claimed under the Canada Emergency Wage Subsidy. These credits partially offset salaries recorded in Canada. We will continue to monitor and assess the impact the CARES ~~Act.~~Act and similar legislation in other countries may have on our business and financial results. As the impact of the COVID-19 pandemic on the economy and our operations evolves, we will continue to assess our liquidity needs. A continued ~~worldwide~~ disruption could materially affect our liquidity.

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. ~~Due to the decentralized nature of the business, payments for most vehicles purchased are received at each auction and branch.~~ 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.

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Approximately ~~$123.3~~$180.4 million of available cash was held by our foreign subsidiaries at March 31, ~~2020.~~2021. If funds held by our foreign subsidiaries were to be repatriated, ~~state and local income tax expense and foreign withholding tax expense would need to be recognized, net of any applicable foreign tax credits. We~~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. In response to the COVID-19 pandemic and the related economic downturn, AFC launched a Customer Relief Program in March 2020. Under the Customer Relief Program, eligible customers may choose to defer curtailment payments (principal, fees and interest) due through May 31, 2020, on eligible units. For further discussion of AFC's securitization arrangements, see "Securitization Facilities."

Credit Facilities

On September 19, 2019, we entered into the Third Amendment Agreement (the "Third Amendment") to the Credit Agreement. The Third Amendment provided for, among other things, (i) the refinancing of the existing Term Loan B-4 and Term Loan B-5 with the newseven-year, $950 million Term Loan B-6 ~~(ii) repayment of the 2017 Revolving Credit Facility~~ and ~~(iii)~~ the $325 million, five-year Revolving Credit Facility.

The 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.

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, ~~the Tranche~~Term Loan B-6 ~~Term Loans bear~~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 CreditFacility 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 ~~pay~~spays 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 ~~3.19%~~2.38% at March 31, ~~2020.~~2021.

OnMarch 31, ~~2020, $945.2~~2021, $935.7 million was outstanding on Term LoanB-6 and there were no borrowings outstanding on the Revolving Credit Facility. ~~In addition, we~~We had related outstanding letters of credit in the aggregate amountof $29.8 million ~~of $29.7 million~~and ~~and~~ ~~$27.4~~$28.5 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively, which reduce the amount available for borrowings under the Revolving Credit Facility. Our C~~anadian operations also have~~European ~~a C$8 million line of credit which was undrawn at~~ ~~March 31, 2020. However, there were related letters of credit outstanding totaling approximately C$0.3 million at March 31, 2020, which reduce amounts available under the Canadian line of credit. In addition, our European~~ operations havelines of credit aggregating ~~$33.1~~$35.2 million (€30 million) of which ~~$17.5~~$20.9 million was drawn at March 31, ~~2020~~2021..

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 ~~certain restrictive loan covenants, including, among others,~~ a financial covenant requiring ~~that~~compliance with a Consolidated Senior Secured Net Leverage Ratio ~~be satisfied~~not to exceed 3.5 as of the last day of each fiscal quarter if revolving loans are outstanding, and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, consummate change of control transactions, dispose of assets, pay dividends, make investments and engage in certain transactions with affiliates.outstanding. The Consolidated Senior Secured Net Leverage Ratio is calculated as consolidated total ~~consolidated~~ debt ~~(net of unrestricted cash)~~(as defined in the Credit Agreement) divided by the last four quarters consolidated Adjusted EBITDA. ~~Total consolidated~~Consolidated total debt includes term loan borrowings, revolving loans, finance lease liabilities and ~~finance~~ ~~lease~~ ~~liabilities~~other obligations for borrowed money less ~~available~~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.

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 our lenders to declare all amounts borrowed immediately due and payable. The Consolidated Senior Secured Net Leverage Ratio is required to be met when there are revolving loans outstanding under our Credit Agreement. For the quarter ended March 31, 2020, the Consolidated Senior Secured Net Leverage Ratio could not exceed 3.5. Our Consolidated Senior Secured Net Leverage Ratio ~~including finance lease obligations of $23.7 million,~~ was ~~1.8~~0.6 at March 31, ~~2020.~~2021.

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In addition, the Credit Agreement and the indenture governing our senior notes (see Note 6, ~~"Long-Term~~"Long-Term Debt" for additional information) contain certain ~~financial and operational restrictions that limit~~limitations on our ability to pay dividends and other distributions, make certain acquisitions or investments, ~~incur indebtedness,~~ grant liens and sell ~~assets.~~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 thethe covenants in the Credit Agreement and the indenture governing our senior notes at March 31, ~~2020.~~2021.

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.

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. We may redeem the senior notes, in whole or in part, at ~~any time prior to June 1, 2020 at a redemption price equal to 100% of the principal amount plus a make-whole premium and thereafter at~~ a premium that declines ratably to par in 2023. The senior notes are guaranteed by the Subsidiary Guarantors.

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 ~~28, 2022.~~31, 2024. AFC Funding Corporation had committed liquidity of ~~$1.70~~$1.60 billion for U.S. finance receivables at March 31, ~~2020.~~2021.

We also have an agreement for the securitization of AFCI's receivables, which expires on January ~~28, 2022.~~31, 2024. AFCI's committed facility is provided through a third-party conduit (separate from the U.S. facility) and was C$175 million at March 31, ~~2020~~.2021. The receivables sold pursuant to both the U.S. and Canadian securitization agreements are accounted for as secured borrowings.

AFC managed total finance ~~receivables~~receivables of ~~$1,954.8 million~~ ~~and~~ ~~$2,115.2~~$1,984.4 million atand $1,911.0 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. AFC's allowance for losses was ~~$25.0~~$25.5 million and ~~$15.0~~and $22.0 millionat at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively.

As of March 31, ~~2020~~2021 and December 31, ~~2019, $1,929.9~~2020, $1,930.7 million and ~~$2,061.6~~$1,865.3 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 ~~$1,349.9~~$1,239.1 million and ~~$1,461.2~~$1,261.2 million of obligations collateralized by finance receivables atMarch 31, ~~2020~~2021 and December 31, ~~2019,~~2020, respectively. The amount of the cash reserve depends on circumstances which are set forth in the securitization ~~agreement.~~agreements. There were unamortized securitization issuance costs of ~~approximately~~ approximate~~$11.5~~ly $19.8 million and ~~$13.2~~$21.6 million at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, 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.

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 March 31, ~~2020,~~2021, we w~~ere~~were in compliance with the covenants in the securitization agreements.

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In response to the COVID-19 pandemic and the related economic downturn, AFC amended its U.S. and Canadian securitization agreements in March 2020, in order to provide temporary cash relief to its customers by launching a Customer Relief Program. Under this program, eligible customers may choose to defer curtailment payments (principal, fees and interest) due through May 31, 2020, on eligible units. These transactions are permitted as eligible loans under the amended securitization agreements.

On April 30, 2020, AFC amended its U.S. and Canadian securitization agreements to modify certain definitions and to reduce the minimum net spread for April, May and June 2020. In addition, the one-month minimum payment rate test decreased for April, May and June 2020.

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.

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


	Three Months Ended March 31, 2020													Three Months Ended March 31, 2021
(Dollars in millions)	ADESA			AFC			Corporate			Consolidated			(Dollars in millions)	ADESA		AFC		Consolidated
Net income (loss) from continuing operations	$	24.1		$	24.6		$	(45.9	)	$	2.8
Net income (loss)													Net income (loss)	$	(5.8)	$	56.7	$	50.9
Add back:													Add back:
Income taxes	8.8			8.1			(14.9		)	2.0			Income taxes	4.1		19.5		23.6
Interest expense, net of interest income	0.6			13.5			23.1			37.2			Interest expense, net of interest income	21.4		9.3		30.7
Depreciation and amortization	39.1			2.7			5.9			47.7			Depreciation and amortization	44.6		2.4		47.0
Intercompany interest	(1.0		)	(0.8		)	1.8			—			Intercompany interest	0.1		(0.1)		—
EBITDA	71.6			48.1			(30.0		)	89.7			EBITDA	64.4		87.8		152.2
Intercompany charges	1.7			—			(1.7		)	—
Non-cash stock-based compensation	2.1			0.4			2.8			5.3			Non-cash stock-based compensation	4.9		0.7		5.6
Acquisition related costs	1.2			—			0.2			1.4			Acquisition related costs	1.5		—		1.5
Securitization interest	—			(11.4		)	—			(11.4		)	Securitization interest	—		(6.8)		(6.8)
Loss on asset sales	0.5			—			—			0.5
(Gain)/Loss on asset sales													(Gain)/Loss on asset sales	1.0		(0.8)		0.2
Severance	1.3			—			0.5			1.8			Severance	0.5		0.2		0.7
Foreign currency (gains)/losses	1.8			—			(1.4		)	0.4			Foreign currency (gains)/losses	2.2		—		2.2
Contingent consideration adjustment													Contingent consideration adjustment	11.2		—		11.2
Unrealized gains on investment securities													Unrealized gains on investment securities	—		(43.5)		(43.5)
Other	0.2			—			0.7			0.9			Other	0.2		(0.3)		(0.1)
Total addbacks	8.8			(11.0		)	1.1			(1.1		)
Total addbacks/(deductions)													Total addbacks/(deductions)	21.5		(50.5)		(29.0)
Adjusted EBITDA	$	80.4		$	37.1		$	(28.9	)	$	88.6		Adjusted EBITDA	$	85.9	$	37.3	$	123.2

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	Three Months Ended March 31, 2019													Three Months Ended March 31, 2020
(Dollars in millions)	ADESA			AFC			Corporate			Consolidated			(Dollars in millions)	ADESA		AFC		Consolidated
Net income (loss) from continuing operations	$	42.4		$	30.5		$	(57.6	)	$	15.3
Net income (loss)													Net income (loss)	$	(18.6)	$	21.4	$	2.8
Add back:													Add back:
Income taxes	15.9			10.8			(20.2		)	6.5			Income taxes	(5.2)		7.2		2.0
Interest expense, net of interest income	0.4			16.9			38.6			55.9			Interest expense, net of interest income	23.7		13.5		37.2
Depreciation and amortization	35.0			2.4			6.9			44.3			Depreciation and amortization	44.4		3.3		47.7
Intercompany interest	7.1			(1.2		)	(5.9		)	—			Intercompany interest	0.8		(0.8)		—
EBITDA	100.8			59.4			(38.2		)	122.0			EBITDA	45.1		44.6		89.7
Intercompany charges	3.2			—			(3.2		)	—
Non-cash stock-based compensation	2.4			0.5			3.7			6.6			Non-cash stock-based compensation	4.6		0.7		5.3
Acquisition related costs	1.6			—			2.3			3.9			Acquisition related costs	1.4		—		1.4
Securitization interest	—			(14.8		)	—			(14.8		)	Securitization interest	—		(11.4)		(11.4)
Loss on asset sales	0.5			—			—			0.5			Loss on asset sales	0.5		—		0.5
Severance	2.7			—			1.0			3.7			Severance	1.8		—		1.8
Foreign currency (gains)/losses	(0.6		)	—			—			(0.6		)	Foreign currency (gains)/losses	0.4		—		0.4
IAA allocated costs	—			—			1.4			1.4
Other	0.2			—			—			0.2			Other	0.8		0.1		0.9
Total addbacks	10.0			(14.3		)	5.2			0.9
Total addbacks/(deductions)													Total addbacks/(deductions)	9.5		(10.6)		(1.1)
Adjusted EBITDA	$	110.8		$	45.1		$	(33.0	)	$	122.9		Adjusted EBITDA	$	54.6	$	34.0	$	88.6

Certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters. The following table reconciles EBITDA and Adjusted EBITDA to net income (loss) for the periods presented:


	Three Months Ended								Twelve Months Ended
(Dollars in millions)	June 30, 2020		September 30, 2020		December 31, 2020		March 31, 2021		March 31, 2021
Net income (loss)	$	(32.3)	$	47.1	$	(17.1)	$	50.9	$	48.6
Add back:
Income taxes	(4.6)		10.9		(3.4)		23.6		26.5
Interest expense, net of interest income	30.6		29.2		30.3		30.7		120.8
Depreciation and amortization	46.5		46.5		50.6		47.0		190.6
EBITDA	40.2		133.7		60.4		152.2		386.5
Non-cash stock-based compensation	2.9		3.9		3.0		5.6		15.4
Acquisition related costs	0.9		2.4		4.1		1.5		8.9
Securitization interest	(6.0)		(3.7)		(6.2)		(6.8)		(22.7)
Loss on asset sales	0.5		0.1		0.2		0.2		1.0
Severance	6.5		2.3		0.9		0.7		10.4
Foreign currency (gains)/losses	2.7		0.1		1.7		2.2		6.7
Goodwill and other intangibles impairment	29.8		—		—		—		29.8
Contingent consideration adjustment	—		—		4.7		11.2		15.9
Unrealized gains on investment securities	—		—		—		(43.5)		(43.5)
Other	2.5		0.4		(1.3)		(0.1)		1.5
Total addbacks/(deductions)	39.8		5.5		7.1		(29.0)		23.4
Adjusted EBITDA	$	80.0	$	139.2	$	67.5	$	123.2	$	409.9

Three Months Ended
Twelve
Months
Ended
(Dollars in millions)
June 30,
2019

September 30,
2019
December 31,
2019 March 31,
2020 March 31,
2020
Net income (loss) $ 55.6
$ 35.3
$ 19.8
$ 2.8
$ 113.5
Less: Income from discontinued operations 28.2
0.9
4.5
—
33.6
Income from continuing operations 27.4
34.4
15.3
2.8
79.9
Add back:
Income taxes 8.7
13.2
9.3
2.0
33.2
Interest expense, net of interest income 55.0
37.2
38.3
37.2
167.7
Depreciation and amortization 47.9
46.4
50.1
47.7
192.1
EBITDA 139.0
131.2
113.0
89.7
472.9
Non-cash stock-based compensation 4.0
4.5
5.2
5.3
19.0
Loss on extinguishment of debt —
2.2
—
—
2.2
Acquisition related costs 3.7
2.7
1.9
1.4
9.7
Securitization interest (13.8 ) (13.3 ) (13.0 ) (11.4 ) (51.5 )
Loss on asset sales 0.4
0.8
0.4
0.5
2.1
Severance 1.1
0.9
9.6
1.8
13.4
Foreign currency (gains)/losses —
(0.4 ) 0.3
0.4
0.3
IAA allocated costs 0.9
—
—
—
0.9
Other 0.6
0.6
4.6
0.9
6.7
Total addbacks (3.1 ) (2.0 ) 9.0
(1.1 ) 2.8
Adjusted EBITDA $ 135.9
$ 129.2
$ 122.0
$ 88.6
$ 475.7

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Summary of Cash Flows

Three Months Ended March 31,
(Dollars in millions) 2020 2019
Net cash provided by (used by):
Operating activities - continuing operations $ (49.2 ) $ 50.0
Operating activities - discontinued operations —
37.5
Investing activities - continuing operations 116.7
(134.4 )
Investing activities - discontinued operations —
(21.6 )
Financing activities - continuing operations (197.2 ) (13.7 )
Financing activities - discontinued operations —
(4.6 )
Effect of exchange rate on cash (23.7 ) 5.8
Net decrease in cash, cash equivalents and restricted cash $ (153.4 ) $ (81.0 )


	Three Months Ended March 31,
(Dollars in millions)	2021		2020
Net cash provided by (used by):
Operating activities	$	164.5	$	(49.2)
Investing activities	(79.2)		116.7
Financing activities	(88.7)		(197.2)
Effect of exchange rate on cash	2.6		(23.7)
Net decrease in cash, cash equivalents and restricted cash	$	(0.8)	$	(153.4)

Cash flow ~~used~~provided by operating activities ~~(continuing operations)~~ was ~~$49.2~~$164.5 million for the three months ended March 31, ~~2020,~~2021, compared with cash flow ~~provided~~used by operating activities of ~~$50.0~~$49.2 million for the three months ended March 31, ~~2019.~~2020. The ~~decrease~~increase 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, as well as ~~decreased~~increased profitability, ~~attributable to~~partially offset by a net decrease in non-cash item adjustments. We had reduced operations beginning March 20, 2020, resulting from COVID-19 restrictions on our ~~business, partially offset~~business.

Net cash used by ainvesting activities was $79.2 million for the three months ended March 31, 2021, compared with net ~~increase in non-cash item adjustments.~~

~~Net~~ cash provided by investing activities ~~(continuing operations) was~~of $116.7 million for the three months ended March 31, ~~2020, compared with~~2020. The increase in net cash used by investing activities ~~of $134.4 million for the three months ended~~ ~~March 31, 2019. The increase in net cash from investing activities~~ was primarily attributable to:

~~a net decrease~~•an increase in the additional finance receivables held for investment of approximately ~~$127.7~~$219.6 million; and

~~a decrease~~•an increase in ~~cash used for acquisitions~~investment in securities of approximately ~~$120.7 million.~~$15.3 million;

partially offset by:

•proceeds from sale of investments of approximately $21.1 million; and

•a reduction in capital expenditures of approximately $15.1 million.

Net cash used by financing activities ~~(continuing operations)~~ was $88.7 million for the three months ended March 31, 2021, compared with $197.2 million for the three months ended March 31, ~~2020, compared with $13.7 million for the three months ended~~ ~~March 31, 2019~~.2020. The ~~increase~~decrease in net cash used by financing activities was primarily attributable to:

•a ~~net decrease in borrowings on lines of credit of approximately $110.6 million;~~

~~a net decrease in book overdrafts of approximately $72.5 million;~~

~~an increase in cash used for payments of contingent consideration of approximately $22.3 million; and~~

~~a net decrease~~smaller reduction in the obligations collateralized by finance receivables of approximately ~~$15.2~~$78.6 million;

~~partially offset by:~~•a net increase in book overdrafts for the three months ended March 31, 2021 compared with a net decrease in book overdrafts for the three months ended March 31, 2020, resulting in a change of approximately $74.9 million; and

•a decrease in dividends paid to stockholders of approximately ~~$22.0~~$24.5 million;

partially offset by:

•an increase in the repurchase of common stock of approximately $80.8 million.

Capital Expenditures

Capital expenditures for the three months ended March 31, 2021 and 2020 ~~and 2019~~ approximated ~~$29.6~~$14.5 million and ~~$32.3~~$29.6 million, respectively. Capital expenditures were funded primarily from internally generated funds. We continue to invest in our core information technology capabilities and ~~capacity expansion.~~our service locations. Capital expenditures are expected to be approximately $125 million for fiscal year 2021. Future capital expenditures could vary substantially based on capital project timing, the opening of new ~~auction~~ facilities, capital expenditures related to acquired businesses and the initiation of new information systems projects to support our business strategies. The Company's capital expenditures for 2020 are dependent on when access to our facilities is available to employees and others. As a result, we are unable to estimate capital expenditures for 2020 at this time.

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Dividends

The ~~following dividend information has been released for 2020:~~

~~On February 18, 2020,~~Series A Preferred Stock ranks senior to the ~~Company announced a cash dividend~~shares of ~~$0.19~~the Company’s common stock, par value $0.01 per share, ~~that was~~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, and thereafter, in cash or in kind, or in any combination of both, at the option of the Company. For the three months ended March 31, 2021, the holders of the Series A Preferred Stock received dividends in kind with a value in the aggregate of approximately $10.0 million. The holders of the Series A Preferred Stock are also entitled to participate in dividends declared or paid on ~~April 3, 2020, to stockholders of record at the close of business~~our common stock on ~~March 20, 2020.~~

~~On November 5, 2019, the Company announced a cash dividend of $0.19 per share that was paid on January 3, 2020, to stockholders of record at the close of business on December 20, 2019.~~an as-converted basis.

The Company has temporarily suspended its quarterly common stock 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

Contractual Obligations

The Company's contractual cash obligations for long-term debt, interest payments related to long-term debt, finance lease obligations and operating leases are summarized in the table of contractual obligations in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Since December 31, ~~2019,~~2020, there have been no material changes to the contractual obligations of the Company, with the exception of the following:

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 have a five-year term, each maturing on January 23, 2025.

•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.

See 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, ~~2019,~~2020, 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, ~~2019,~~2020, 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, ~~2019,~~2020, 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, ~~2019,~~2020, which includes audited financial statements.

Off-Balance Sheet Arrangements

As of March 31, ~~2020,~~2021, we had no off-balance sheet arrangements pursuant to Item 303(a)(4) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act").

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.

Table of Contents

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 $2.2 million and $0.4 million for the three months ended March 31, 2021 and 2020, respectively. Canadian currency translation positively affected net income by approximately $0.3 million for the three months ended March 31, 2021 and had no effect on net income for the three months ended March 31, 2020. A 1% ~~decrease~~change in the month-end Canadian exchange rate for the three months ended March 31, 2021 would have impacted foreign currency losses on intercompany loans by $0.9 million and net income by $0.6 million. A 1% change in the average Canadian exchange rate for the three months ended March 31, ~~2020~~2021 would have ~~had no impact on~~impacted net ~~income.~~income by approximately $0.1 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 currently use interest rate swap agreements to manage our exposure to interest rate changes. We have 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. ~~There was no significant ineffectiveness in the three months ended March 31, 2020.~~

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 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, ~~2020~~2021 would have resulted in an increase in interest expense of approximately $1.1 million.

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, 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.

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 March 31, ~~2020,~~2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Certain legal proceedings in which the Company is involved are discussed in Note 1718 to the consolidated financial statements in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 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

In addition to the ~~risks~~other information set forth ~~below,~~in this report, readers 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, ~~2019,~~2020 which could materially affect our business, financial condition or future results. ~~Other than as set forth below, there were no material changes during the three months ended March 31, 2020 to the risk factors reported in our most recent Annual Report on Form 10-K.~~ The risks described ~~below and~~ in our most recent Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

The COVID-19 pandemic has had, and is expected to continue to have, an adverse impact on our business, results of operations and financial condition, and other pandemics, epidemics or disease outbreaks could have a similar impact. The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted.

The recent outbreak of COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and is impacting worldwide economic activity. The outbreak has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, social distancing guidelines, quarantines, shelter in place orders and business shutdowns. These measures have not only negatively impacted consumer spending and business spending habits, they have also adversely impacted and may further impact our workforce and operations and the operations of our customers, suppliers and business partners. The duration of these measures is unknown, may be extended and additional measures may be imposed, and they are likely to continue to adversely affect our business, results of operations and financial condition.

The spread of COVID-19 has caused us to modify our business practices, including restricting employee travel, modifying employee work locations, increasing reliance on remote access to our information systems, implementing social distancing and enhanced sanitary measures in our facilities, suspending physical sale operations and reducing operations at our facilities, and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus or otherwise be satisfactory to government authorities. Further, our enhanced reliance on remote access to our information systems increases our exposure to cybersecurity attacks or data security incidents.

COVID-19 has had, and is expected to continue to have, an adverse impact on our business, results of operations and financial condition. The extent to which the COVID-19 outbreak impacts our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 outbreak has subsided, we may continue to experience materially adverse impacts to our business as a result of its global economic impact, including any economic downturn or recession that has occurred or may occur in the future. The impact of COVID-19 may ~~also~~implicate and exacerbate other risks discussed in Part I, ~~"Item~~“Item 1A. Risk ~~Factors"~~Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019, any of which could have a material effect on us.~~2020, including but not limited to risks relating to general economic conditions. This situation ~~is changing rapidly~~continues to evolve and additional impacts may arise that we are not aware of currently. Due to the unprecedented nature of the COVID-19 pandemic and responses thereto, we cannot identify all of the risks we face from the pandemic and its aftermath.

Table of Contents

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 also 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. The issuance of these securities was exempt from registration under the Securities Act of 1933, as amended (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.

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 March 31, ~~2020:~~2021:


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)		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	—	$	—	—	$	300.0	January 1 - January 31	—	$	—	—	$	289.8
February 1 - February 29	—	—		—	300.0
February 1 - February 28							February 1 - February 28	—	—		—	289.8
March 1 - March 31	—	—		—	300.0		March 1 - March 31	5,219,800	15.47		5,219,800	209.0
Total	—	$	—	—			Total	5,219,800	$	15.47	5,219,800

(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. 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.

Incorporated by Reference

Exhibit No.

Exhibit Description

Form

File No.

Exhibit

Filing
Date

Filed
Herewith

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

101

The following materials from KAR Auction Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Income for the three months ended March 31, 2021 and 2020; (ii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021 and 2020 (iii) the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020; (iv) the Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2021 and 2020; (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020; and (vi) the Condensed Notes to Consolidated Financial Statements.

104

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

Incorporated by Reference
Exhibit No. Exhibit Description Form File No. Exhibit
Filing
Date

Filed
Herewith
10.38

Form of 2020 Performance-Based Restricted Stock Unit Agreement (Cumulative Operating Adjusted Net Income Per Share)
10-K 001-34568 10.38 2/19/2020

10.39

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

10.40

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

10.41

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

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

32.1

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

32.2

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

101
The following materials from KAR Auction Services, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Consolidated Statements of Income for the three months ended March 31, 2020 and 2019; (ii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019 (iii) the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019; (iv) the Consolidated Statements of Stockholders' Equity for the three months ended March 31, 2020 and 2019; (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019; and (vi) the Condensed Notes to Consolidated Financial Statements. X

104
Cover page Interactive Data File, formatted in iXBRL (contained in Exhibit 101). X



+	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.

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:			May 5, 2021	~~KAR Auction Services, Inc.~~
		~~(Registrant)~~

~~Date:~~	~~May 7, 2020~~	/s/ ERIC M. LOUGHMILLER
				Eric M. Loughmiller Executive Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial ~~and~~ ~~Accounting~~ Officer)


	March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Assets					Assets
Current assets					Current assets
Cash and cash equivalents	$	293.1	$	507.6	Cash and cash equivalents	$	759.0	$	752.1
Restricted cash	114.4		53.3		Restricted cash	52.5		60.2
Trade receivables, net of allowances of $10.8 and $9.5	244.1		457.5
Finance receivables, net of allowances of $25.0 and $15.0	1,929.8		2,100.2
Trade receivables, net of allowances of $12.1 and $12.1					Trade receivables, net of allowances of $12.1 and $12.1	659.3		367.2
Finance receivables, net of allowances of $25.5 and $22.0					Finance receivables, net of allowances of $25.5 and $22.0	1,958.9		1,889.0
Other current assets	131.5		125.9		Other current assets	95.8		106.7
Total current assets	2,712.9		3,244.5		Total current assets	3,525.5		3,175.2
Other assets					Other assets
Goodwill	1,810.7		1,821.7		Goodwill	2,135.9		2,140.2
Customer relationships, net of accumulated amortization of $642.9 and $637.4	194.5		207.9
Other intangible assets, net of accumulated amortization of $301.7 and $292.4	295.2		298.5
Customer relationships, net of accumulated amortization of $681.7 and $668.6					Customer relationships, net of accumulated amortization of $681.7 and $668.6	198.9		211.3
Other intangible assets, net of accumulated amortization of $383.2 and $362.0					Other intangible assets, net of accumulated amortization of $383.2 and $362.0	283.0		290.2
Operating lease right-of-use assets	358.7		364.1		Operating lease right-of-use assets	343.0		350.6
Property and equipment, net of accumulated depreciation of $544.0 and $534.3	594.0		609.0
Property and equipment, net of accumulated depreciation of $606.8 and $596.4					Property and equipment, net of accumulated depreciation of $606.8 and $596.4	578.2		589.9
Other assets	33.7		35.5		Other assets	95.7		40.8
Total other assets	3,286.8		3,336.7		Total other assets	3,634.7		3,623.0
Total assets	$	5,999.7	$	6,581.2	Total assets	$	7,160.2	$	6,798.2


				Page
PART I—FINANCIAL INFORMATION

			~~Page~~
~~PART I—FINANCIAL INFORMATION~~

Item 1.	Financial Statements (Unaudited)

		Consolidated Statements of Income		3

		Consolidated Statements of Comprehensive Income (Loss)		4

		Consolidated Balance Sheets		5

		Consolidated Statements of Stockholders' Equity		7

		Consolidated Statements of Cash Flows		8

		Condensed Notes to Consolidated Financial Statements		9

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations		20

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		3734

Item 4.		Controls and Procedures		3734

PART II—OTHER INFORMATION

Item 1.		Legal Proceedings		3835

Item 1A.		Risk Factors		3835

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		3936

Item 6.		Exhibits		4036

Signatures				4642



	March 31, 2020			December 31, 2019
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$	354.3		$	704.6
Accrued employee benefits and compensation expenses	56.5			72.7
Accrued interest	19.0			7.9
Other accrued expenses	186.7			216.9
Income taxes payable	0.9			1.1
Dividends payable	24.5			24.5
Obligations collateralized by finance receivables	1,349.9			1,461.2
Current maturities of long-term debt	27.0			28.8
Total current liabilities	2,018.8			2,517.7
Non-current liabilities
Long-term debt	1,860.1			1,861.3
Deferred income tax liabilities	116.9			134.5
Operating lease liabilities	353.1			358.3
Other liabilities	79.0			59.2
Total non-current liabilities	2,409.1			2,413.3
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock, $0.01 par value:
Authorized shares: 100,000,000
Issued shares: none	—			—
Common stock, $0.01 par value:
Authorized shares: 400,000,000
Issued and outstanding shares:
March 31, 2020: 129,161,707
December 31, 2019: 128,833,452	1.3			1.3
Additional paid-in capital	1,031.6			1,028.9
Retained earnings	624.8			651.0
Accumulated other comprehensive loss	(85.9		)	(31.0		)
Total stockholders' equity	1,571.8			1,650.2
Total liabilities and stockholders' equity	$	5,999.7		$	6,581.2



	March 31, 2020				Net Credit Losses Three Months Ended March 31, 2020
	Total Amount of:
(in millions)	Receivables		Receivables Delinquent
Floorplan receivables	$	1,939.3	$	23.2	$	11.9
Other loans	15.5		—		—
Total receivables managed	$	1,954.8	$	23.2	$	11.9



	December 31, 2019				Net Credit Losses Three Months Ended March 31, 2019
	Total Amount of:
(in millions)	Receivables		Receivables Delinquent
Floorplan receivables	$	2,099.4	$	28.8	$	7.9
Other loans	15.8		—		—
Total receivables managed	$	2,115.2	$	28.8	$	7.9



	March 31, 2020			March 31, 2019
Allowance for Credit Losses
Balance at beginning of period	$	15.0		$	14.0
Opening balance adjustment for adoption of ASC Topic 326	5.0			—
Provision for credit losses	16.9			8.2
Recoveries	1.9			2.3
Less charge-offs	(13.8		)	(10.2		)
Balance at end of period	$	25.0		$	14.3



	Location of Gain / (Loss) Recognized in Income on Derivatives	Amount of Gain / (Loss) Recognized in Income on Derivatives
		Three Months Ended March 31,
		2020		2019
Derivatives Designated as Hedging Instruments
2020 Interest rate swaps	Interest expense	$	—	N/A
Derivatives Not Designated as Hedging Instruments
2017 Interest rate caps	Interest expense	N/A		$	(0.5	)



	ADESA Auctions		AFC			Holding Company			Consolidated
Operating revenues	$	567.0	$	78.5		$	—		$	645.5
Operating expenses
Cost of services (exclusive of depreciation and amortization)	370.7		23.9			—			394.6
Selling, general and administrative	122.8		6.5			33.1			162.4
Depreciation and amortization	39.1		2.7			5.9			47.7
Total operating expenses	532.6		33.1			39.0			604.7
Operating profit (loss)	34.4		45.4			(39.0		)	40.8
Interest expense	0.8		13.6			23.6			38.0
Other (income) expense, net	—		(0.1		)	(1.9		)	(2.0		)
Intercompany expense (income)	0.7		(0.8		)	0.1			—
Income (loss) from continuing operations before income taxes	32.9		32.7			(60.8		)	4.8
Income taxes	8.8		8.1			(14.9		)	2.0
Net income (loss) from continuing operations	$	24.1	$	24.6		$	(45.9	)	$	2.8
Total assets	$	3,279.5	$	2,445.3		$	274.9		$	5,999.7


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