OPENLANE, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and which are subject to certain risks, trends and uncertainties. In particular, statements made in this report on Form 10-Q that are not historical facts (including, but not limited to, expectations, estimates, assumptions and projections regarding the industry, business, future operating results, potential acquisitions and anticipated cash requirements) may be forward-looking statements. Words such as "should," "may," "will," "can," "of the opinion," "confident," "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "continues," "outlook," initiatives," "goals," "opportunities" and similar expressions identify forward-looking statements. Such statements, including statements regarding the potential impacts of the COVID-19 pandemic; our future growth; anticipated cost savings, revenue increases, credit losses and capital expenditures; contractual obligations; dividend declarations and payments; common stock repurchases; tax rates and assumptions; strategic initiatives, acquisitions and dispositions; 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 endedDecember 31, 2021 , filed onFebruary 23, 2022 , and those described from time to time in our future reports filed with theSecurities 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.
Sale of ADESA
InFebruary 2022 , the Company announced that it had entered into a definitive agreement with Carvana Group, LLC ("Carvana") and Carvana Co., pursuant to which Carvana would acquire the ADESAU.S. physical auction business from KAR (the "Transaction"). The Transaction was completed inMay 2022 for approximately$2.2 billion in cash and included all auction sales, operations and staff at ADESA'sU.S. vehicle logistic centers and use of the ADESA.com marketplace in theU.S. The net proceeds received in connection with the Transaction are included in "Net cash provided by investing activities - discontinued operations" in the consolidated statement of cash flow. In connection with the Transaction, the Company and Carvana entered into various agreements to provide a framework for their relationship after the Transaction, including a transition services agreement for a transitional period and a commercial agreement for a term of 7 years that provides for platform and other fees for services rendered. In addition, KAR will continue to own the ADESA tradename and the ADESAU.S. physical auctions will continue to utilize the tradename, which has an indefinite life. The financial results of the ADESAU.S. physical auction business have been accounted for as discontinued operations for all periods presented. The business was formerly included in the Company's Marketplace reportable segment (formerly referenced as ADESA Auctions).Goodwill was allocated to the ADESAU.S. physical auctions based on relative fair value. Discontinued operations included transaction costs of approximately$37.0 million for the three months endedJune 30, 2022 , in connection with the Transaction. These costs consisted of consulting and professional fees associated with the Transaction. The Transaction resulted in a pretax gain on disposal of approximately$533.7 million . The results presented in the "Results of Operations" discussion below only include continuing operations and do not include the results of the ADESAU.S. physical auction business.
Automotive Industry and Economic Impacts on our Business
The automotive industry has experienced unprecedented market conditions, caused
in part by supply chain issues, the shortage of semiconductors and associated
delays in new vehicle production. This reduction in supply of new vehicles has
caused increased new and used vehicle prices, as well as increased demand for
used vehicles. More lessees and dealers are therefore purchasing vehicles at
residual value, thus decreasing the number of off-lease vehicles coming to
auction. Further, government support and loan accommodations have resulted in
fewer repossessed vehicles coming to auction. These factors have contributed to
our commercial vehicle volumes declining in 2021 and 2022 and are expected to
continue for the foreseeable future.
In addition, macroeconomic factors, including inflationary pressures, rising
interest rates, volatility of oil and natural gas prices and declining consumer
confidence impact the affordability and demand for new and used vehicles.
Declining economic conditions present a risk to our operations and the stability
of the automotive industry. Given the nature of these factors, we cannot predict
whether or for how long certain trends will continue, nor to what degree these
trends will impact us in the future.
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Overview
We provide whole car auction services inNorth America andEurope . Our business is divided into two reportable business segments, each of which is an integral part of the vehicle remarketing industry: Marketplace (formerly referenced as ADESA Auctions) and Finance (formerly referenced as AFC). •The Marketplace segment serves a domestic and international customer base through digital marketplaces for wholesale vehicles and 14 vehicle logistics center locations acrossCanada that are developed and strategically located to draw professional sellers and buyers together and allow the buyers to inspect and compare vehicles remotely or in person. Powered with software developed byOpenlane , comprehensive private label remarketing solutions are offered to automobile manufacturers, captive finance companies and other institutions to offer vehicles via the Internet prior to arrival at on-premise marketplaces. Vehicles sold on our 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. We also provide value-added ancillary services including inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative and collateral recovery services. Our digital marketplaces include BacklotCars, an app and web-based dealer-to-dealer wholesale vehicle platform utilized inthe United States , CARWAVE, an online dealer-to-dealer marketplace inthe United States , TradeRev, an online automotive remarketing platform inCanada 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 theUnited Kingdom andADESA Europe , an online wholesale vehicle auction marketplace in Continental Europe.
•As noted above, the Marketplace segment results no longer include the 56 ADESA
•Through AFC, the Finance segment provides short-term, inventory-secured financing, known as floorplan financing, primarily to independent used vehicle dealers throughoutthe United States andCanada . In addition, AFC provides liquidity for customer trade-ins which encompasses settling lien holder payoffs. AFC also provides title services for their customers. These services are provided through AFC's digital servicing network as well as its physical locations throughoutNorth America .
Beginning in the first quarter of 2022, results of the ADESA
Industry Trends Whole Car We believe the North American wholesale used vehicle marketplace has a total addressable market of approximately 22 million vehicles. This wholesale used vehicle marketplace consists of the dealer-to-dealer market (franchise and independent dealers that both buy and sell vehicles) and the commercial market (commercial sellers). We believe digital applications, such as BacklotCars, CARWAVE and TradeRev, may provide an opportunity to expand our total addressable market for dealer-to-dealer transactions to 15 million units from approximately 5 million units in 2019. Commercial seller vehicles are estimated at approximately 8 million vehicles per year. BacklotCars, CARWAVE and TradeRev sold approximately 550,000 vehicles in the North American digital dealer-to-dealer marketplace for the year endedDecember 31, 2021 , compared with approximately 398,000 vehicles for the year endedDecember 31, 2020 . For the three months endedJune 30, 2022 and 2021, vehicles sold by these companies in the North American digital dealer-to-dealer marketplace were approximately 126,000 and 147,000, respectively. For the six months endedJune 30, 2022 and 2021, vehicles sold by these companies in the North American digital dealer-to-dealer marketplace were approximately 259,000 and 272,000, respectively. This volume data includes vehicles sold by CARWAVE prior to its acquisition inOctober 2021 and vehicles sold by BacklotCars prior to its acquisition inNovember 2020 . The supply chain issues and current market conditions facing the automotive industry, including the disruption of new vehicle production, have had a material impact on the whole car auction industry and we are unable to estimate future volumes. 24
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Automotive Finance
AFC works with independent used vehicle dealers to improve their results by providing a comprehensive set of business and financial solutions that leverage its local presence of branches and in-market representatives, industry experience and scale, as well as KAR affiliations. AFC's North American dealer base was comprised of approximately 14,500 dealers in 2021, and loan transactions, which includes both loans paid off and loans curtailed, were approximately 1.4 million in 2021. Key challenges for the independent used vehicle dealer include demand for used vehicles, disruptions in pricing of used vehicle inventory, access to consumer financing and increased used car retail activity of franchise and public dealerships (most of which do not utilize AFC or its competitors for floorplan financing). These same challenges, to the extent they occur, could result in a material negative impact on AFC's results of operations. A significant decline in used vehicle sales would result in a decrease in consumer auto loan originations and an increased number of dealers defaulting on their loans. In addition, volatility in wholesale vehicle pricing impacts the value of recovered collateral on defaulted loans and the resulting severity of credit losses at AFC. A decrease in wholesale used car pricing could lead to increased losses if dealers are unable to satisfy their obligations.
Seasonality
The volume of vehicles sold through our auctions generally fluctuates from quarter-to-quarter. This seasonality is caused by several factors including weather, the timing of used vehicles available for sale from selling customers, holidays, and the seasonality of the retail market for used vehicles, which affects the demand side of the auction industry. Used vehicle auction volumes tend to decline during prolonged periods of winter weather conditions. As a result, revenues and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower used vehicle auction volume as well as additional costs associated with the holidays and winter weather.
Sources of Revenues and Expenses
Our revenue is derived from auction fees and various on-premise and off-premise
services, and from dealer financing fees, interest income and other revenue at
AFC. Although auction revenues primarily include the auction services and
related fees, our related receivables and payables include the gross value of
the vehicles sold.
Our operating expenses consist of cost of services, selling, general and
administrative and depreciation and amortization. Cost of services is composed
of payroll and related costs, subcontract services, the cost of vehicles
purchased, supplies, insurance, property taxes, utilities, service contract
claims, maintenance and lease expense related to the auction sites and loan
offices. Cost of services excludes depreciation and amortization. Selling,
general and administrative expenses are composed of payroll and related costs,
sales and marketing, information technology services and professional fees.
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Results of Operations
Overview of Results of
Three Months Ended June 30,
(Dollars in millions except per share amounts) 2022 2021
Revenues from continuing operations
Auction fees $ 99.2 $ 106.3
Service revenue 147.3 141.0
Purchased vehicle sales 45.8 60.1
Finance-related revenue 91.9 68.6
Total revenues from continuing operations 384.2 376.0
Cost of services* 211.9 208.8
Gross profit* 172.3 167.2
Selling, general and administrative 124.1 106.4
Depreciation and amortization 25.9 27.4
Operating profit 22.3 33.4
Interest expense 25.9 31.0
Other (income) expense, net 4.0 15.3
Loss on extinguishment of debt 7.7 -
Income (loss) from continuing operations before income taxes (15.3) (12.9)
Income taxes (9.9) 2.4
Income (loss) from continuing operations (5.4) (15.3)
Income from discontinued operations, net of income taxes 215.6 26.8
Net income $ 210.2 $ 11.5
Income (loss) from continuing operations per share
Basic $ (0.10) $ (0.16)
Diluted $ (0.10) $ (0.16) * Exclusive of depreciation and amortization
Discontinued Operations
The financial performance of the ADESAU.S. physical auction business is presented as discontinued operations. As a result, revenue, cost of services and all costs of discontinued operations (including the gain on sale) are presented as one line item in the above table as "Income from discontinued operations."
Overview
For the three months endedJune 30, 2022 , we had revenue of$384.2 million compared with revenue of$376.0 million for the three months endedJune 30, 2021 , an increase of 2%. Businesses acquired in the last 12 months accounted for an increase in revenue of$16.6 million or 4% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased$1.5 million , or 5%, to$25.9 million for the three months endedJune 30, 2022 , compared with$27.4 million for the three months endedJune 30, 2021 . The decrease in depreciation and amortization was primarily the result of assets that have become fully depreciated and a reduction in assets placed in service. 26
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Interest Expense
Interest expense decreased$5.1 million , or 16%, to$25.9 million for the three months endedJune 30, 2022 , compared with$31.0 million for the three months endedJune 30, 2021 . The decrease was primarily attributable to an$8.0 million favorable fair value adjustment related to the termination of the interest rate swaps, as well as the prepayment of Term Loan B-6, partially offset by an increase in interest expense at AFC of$6.8 million , which resulted from an increase in the average finance receivables balance for the three months endedJune 30, 2022 , as compared with the three months endedJune 30, 2021 .
Other (Income) Expense, Net
For the three months endedJune 30, 2022 , we had other expense of$4.0 million compared with$15.3 million for the three months endedJune 30, 2021 . The decrease in other expense was primarily attributable to a decrease in unrealized losses on investment securities of approximately$8.7 million , a decrease in contingent consideration valuation adjustments of$4.5 million and a decrease in other miscellaneous items aggregating$1.0 million , partially offset by an increase in foreign currency losses of$2.9 million . The Company invests in certain early-stage automotive companies and funds that relate to the automotive industry. We believe these investments have resulted in the expansion of relationships in the vehicle remarketing industry. There were no realized gains on these investments for the three months endedJune 30, 2022 . The Company had unrealized losses of$3.2 million for the three months endedJune 30, 2022 . Any future changes in the fair value of these investment securities will be reflected as unrealized gains or losses until these securities are sold.
Income Taxes
We had an effective tax rate of 64.7% resulting in a benefit on a pre-tax loss for the three months endedJune 30, 2022 , compared with an effective tax rate of -18.6% resulting in expense on a pre-tax loss for the three months endedJune 30, 2021 . The effective tax rate for the three months endedJune 30, 2022 was favorably impacted by the state rate change impact on deferred taxes. The effective tax rate for the three months endedJune 30, 2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefit has been recorded.
Income from Discontinued Operations
InMay 2022 , Carvana acquired the ADESAU.S. physical auction business from KAR. As such, the financial results of the ADESAU.S. physical auction business have been accounted for as discontinued operations for all periods presented. For the three months endedJune 30, 2022 and 2021, the Company's financial statements included income from discontinued operations of$215.6 million and$26.8 million , respectively. For further discussion, reference the condensed notes to the consolidated financial statements.
Impact of Foreign Currency
For the three months endedJune 30, 2022 , fluctuations in the euro exchange rate decreased revenue by$6.4 million , operating profit by$0.2 million and net income by$0.1 million . For the three months endedJune 30, 2022 , fluctuations in the Canadian exchange rate decreased revenue by$3.3 million , operating profit by$0.8 million and net income by$0.5 million . 27
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Marketplace Results
Three Months Ended June 30,
(Dollars in millions, except per vehicle amounts) 2022 2021
Auction fees $ 99.2 $ 106.3
Service revenue 147.3 141.0
Purchased vehicle sales 45.8 60.1
Total Marketplace revenue from continuing operations 292.3 307.4
Cost of services* 195.7 195.1
Gross profit* 96.6 112.3
Selling, general and administrative 110.5 97.6
Depreciation and amortization 23.8 24.9
Operating profit (loss) $ (37.7) $ (10.2)
Commercial vehicles sold 177,000 274,000
Dealer consignment vehicles sold 166,000 168,000
Total vehicles sold 343,000 442,000
Auction fees per vehicle sold $ 289 $ 240
Gross profit per vehicle sold* $ 282 $ 254
Gross profit percentage, excluding purchased vehicles* 39.2% 45.4%
On-premise mix 13% 14%
Off-premise mix 87% 86%
* Exclusive of depreciation and amortization
Revenue
Revenue from the Marketplace segment decreased$15.1 million , or 5%, to$292.3 million for the three months endedJune 30, 2022 , compared with$307.4 million for the three months endedJune 30, 2021 . The decrease in revenue was the result of a decrease in the number of vehicles sold, partially offset by an increase in average revenue per vehicle sold. Businesses acquired in the last 12 months accounted for an increase in revenue of$16.6 million . The change in revenue included the impact of decreases in revenue of$6.4 million and$2.9 million due to fluctuations in the euro exchange rate and the Canadian exchange rate, respectively. On-premise marketplace sales are initiated online for vehicles at any of our locations acrossCanada and include ADESA Simulcast, Simulcast+ and DealerBlock sales. Off-premise marketplace sales are initiated online and includeOpenlane , BacklotCars, CARWAVE, TradeRev andADESA Europe sales. The 22% decrease in the number of vehicles sold was comprised of a 35% decline in commercial volumes and a 1% decrease in dealer consignment volumes. For the three months endedJune 30, 2022 , our marketplaces had a conversion rate of 36% of vehicles offered, as compared with 48% for the three months endedJune 30, 2021 . Auction fees per vehicle sold for the three months endedJune 30, 2022 increased$49 , or 20%, reflecting higher vehicle values, the introduction of new dealer off-premise auction fees and a smaller mix of lower-fee commercial off-premise vehicles. Service revenue for the three months endedJune 30, 2022 increased$6.3 million , or 4%, primarily as a result of an increase in repossession fees and platform fees provided by third-parties, partially offset by a decrease in inspection service revenue and transportation revenue resulting from the decrease in vehicles sold. Typically consigned vehicles located at our facilities utilize our service offerings at a higher rate than off-premise vehicles.
Gross Profit
For the three months endedJune 30, 2022 , gross profit for the Marketplace segment decreased$15.7 million , or 14%, to$96.6 million , compared with$112.3 million for the three months endedJune 30, 2021 . Cost of services increased less than 1% for the three months endedJune 30, 2022 , while revenue decreased 5% during the same period. Gross profit for the Marketplace segment was 33.0% of revenue for the three months endedJune 30, 2022 , compared with 36.5% of revenue for the three 28
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months endedJune 30, 2021 . Excluding purchased vehicle sales, gross profit as a percentage of revenue was 39.2% and 45.4% for the three months endedJune 30, 2022 and 2021, respectively. The entire selling and purchase price of the vehicle is recorded as revenue and cost of services for purchased vehicles sold. Businesses acquired in the last 12 months accounted for an increase in cost of services of$9.5 million for the three months endedJune 30, 2022 . Gross profit as a percentage of revenue decreased for the three months endedJune 30, 2022 as compared with the three months endedJune 30, 2021 , primarily due to the 22% decrease in vehicles sold. A decline in the mix of off-premise commercial vehicles sold also resulted in a reduction of gross profit as a percentage of revenue. In addition, the net gross profit on purchased vehicles was lower as a result of declining used vehicle prices during the second quarter of 2022, transportation costs increased and there were no benefits taken under theCanada Emergency Wage Subsidy in the second quarter of 2022, resulting in a reduction to gross profit as a percentage of revenue.
Selling, General and Administrative
Selling, general and administrative expenses for the Marketplace segment increased$12.9 million , or 13%, to$110.5 million for the three months endedJune 30, 2022 , compared with$97.6 million for the three months endedJune 30, 2021 , primarily as a result of increases in stock-based compensation of$8.1 million , selling, general and administrative expenses associated with acquisitions of$4.0 million , bad debt expense of$2.2 million , severance of$1.4 million , professional fees of$0.6 million and travel expenses of$0.5 million , partially offset by decreases in information technology costs of$1.8 million , fluctuations in the Canadian exchange rate of$0.9 million and miscellaneous expenses aggregating$2.1 million . In addition, the Employee Retention Credit provided under theCanada Emergency Wage Subsidy was$0.9 million less for the three months endedJune 30, 2022 , compared with the three months endedJune 30, 2021 . Finance Results Three Months Ended June 30, (Dollars in millions except volumes and per loan amounts) 2022 2021 Finance-related revenue Interest income $ 46.5$ 33.1 Fee income 42.7 35.1 Other revenue 2.6 2.2 Net recovery (provision) for credit losses 0.1 (1.8) Total Finance revenue 91.9 68.6 Cost of services* 16.2 13.7 Gross profit* 75.7 54.9 Selling, general and administrative 13.6 8.8 Depreciation and amortization 2.1 2.5 Operating profit $ 60.0$ 43.6 Loan transactions 401,000 356,000 Revenue per loan transaction $ 229$ 193
* Exclusive of depreciation and amortization
Revenue
For the three months endedJune 30, 2022 , the Finance segment revenue increased$23.3 million , or 34%, to$91.9 million , compared with$68.6 million for the three months endedJune 30, 2021 . The increase in revenue was primarily the result of a 19% increase in revenue per loan transaction and a 13% increase in loan transactions. Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased$36 , or 19%, primarily as a result of an increase in loan values, an increase in interest yields driven by an increase in prime rates, an increase in floorplan fees and other fee income per unit, a decrease in net credit losses and an increase in average portfolio duration.
The provision for credit losses decreased to 0.0% of the average managed
receivables for the three months ended
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Gross Profit
For the three months endedJune 30, 2022 , gross profit for the Finance segment increased$20.8 million , or 38%, to$75.7 million , or 82.4% of revenue, compared with$54.9 million , or 80.0% of revenue, for the three months endedJune 30, 2021 . The increase in gross profit as a percent of revenue was primarily the result of a 34% increase in revenue, partially offset by an 18% increase in cost of services. The increase in cost of services was primarily the result of increases in compensation expense of$1.2 million , incentive-based compensation of$0.8 million , lot check expenses of$0.4 million and other miscellaneous expenses aggregating$0.1 million .
Selling, General and Administrative
Selling, general and administrative expenses for the Finance segment increased$4.8 million , or 55%, to$13.6 million for the three months endedJune 30, 2022 , compared with$8.8 million for the three months endedJune 30, 2021 primarily as a result of increases in stock-based compensation of$2.2 million , compensation expense of$1.0 million , incentive-based compensation of$0.5 million and other miscellaneous expenses aggregating$1.1 million . 30
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Overview of Results of
Six Months Ended June 30,
(Dollars in millions except per share amounts) 2022 2021
Revenues from continuing operations
Auction fees $ 200.6 $ 208.8
Service revenue 284.8 287.3
Purchased vehicle sales 92.1 115.3
Finance-related revenue 176.1 134.4
Total revenues from continuing operations 753.6 745.8
Cost of services* 422.7 412.6
Gross profit* 330.9 333.2
Selling, general and administrative 243.0 213.7
Depreciation and amortization 51.9 54.3
Operating profit 36.0 65.2
Interest expense 51.5 61.8
Other (income) expense, net 5.2 (34.4)
Loss on extinguishment of debt 7.7 -
Income (loss) from continuing operations before income taxes (28.4) 37.8
Income taxes (14.6) 26.9
Income (loss) from continuing operations (13.8) 10.9
Income from discontinued operations, net of income taxes 223.7 51.5
Net income $ 209.9 $ 62.4
Income (loss) from continuing operations per share
Basic $ (0.23) $ (0.06)
Diluted $ (0.23) $ (0.06) * Exclusive of depreciation and amortization
Discontinued Operations
The financial performance of the ADESAU.S. physical auction business is presented as discontinued operations. As a result, revenue, cost of services and all costs of discontinued operations (including the gain on sale) are presented as one line item in the above table as "Income from discontinued operations."
Overview
For the six months endedJune 30, 2022 , we had revenue of$753.6 million compared with revenue of$745.8 million for the six months endedJune 30, 2021 , an increase of 1%. Businesses acquired in the last 12 months accounted for an increase in revenue of$34.6 million or 5% of revenue. For a further discussion of revenues, gross profit and selling, general and administrative expenses, see the segment results discussions below.
Depreciation and Amortization
Depreciation and amortization decreased$2.4 million , or 4%, to$51.9 million for the six months endedJune 30, 2022 , compared with$54.3 million for the six months endedJune 30, 2021 . The decrease in depreciation and amortization was primarily the result of assets that have become fully depreciated and a reduction in assets placed in service. 31
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Interest Expense
Interest expense decreased$10.3 million , or 17%, to$51.5 million for the six months endedJune 30, 2022 , compared with$61.8 million for the six months endedJune 30, 2021 . The decrease was primarily attributable to a realized gain of$16.7 million related to the discontinuance of hedge accounting and termination of the interest rate swaps, as well as the prepayment of Term Loan B-6, partially offset by an increase in interest expense at AFC of$9.8 million , which resulted from an increase in the average finance receivables balance for the six months endedJune 30, 2022 , as compared with the six months endedJune 30, 2021 .
Other (Income) Expense, Net
For the six months endedJune 30, 2022 , we had other expense of$5.2 million compared with other income of$34.4 million for the six months endedJune 30, 2021 . The increase in other expense was primarily attributable to unrealized losses on investment securities of approximately$6.2 million for the six months endedJune 30, 2022 , compared with unrealized gains on investment securities of approximately$31.6 million for the six months endedJune 30, 2021 , as well as a reduction in realized gains of approximately$17.2 million and an increase in foreign currency losses of$1.9 million , partially offset by a decrease in contingent consideration valuation adjustments of$15.7 million and a decrease in other miscellaneous items aggregating$1.6 million . The Company invests in certain early-stage automotive companies and funds that relate to the automotive industry. We believe these investments have resulted in the expansion of relationships in the vehicle remarketing industry. There were no realized gains on these investments for the six months endedJune 30, 2022 . The Company had unrealized losses of$6.2 million for the six months endedJune 30, 2022 . Any future changes in the fair value of these investment securities will be reflected as unrealized gains or losses until these securities are sold.
Income Taxes
We had an effective tax rate of 51.4% resulting in a benefit on a pre-tax loss for the six months endedJune 30, 2022 , compared with an effective tax rate of 71.2% for the six months endedJune 30, 2021 . The effective tax rate for the six months endedJune 30, 2022 was favorably impacted by the state rate change impact on deferred taxes. The effective tax rate for the six months endedJune 30, 2021 was unfavorably impacted by the expense for the increase in the estimated value of contingent consideration for which no tax benefit has been recorded.
Income from Discontinued Operations
InMay 2022 , Carvana acquired the ADESAU.S. physical auction business from KAR. As such, the financial results of the ADESAU.S. physical auction business have been accounted for as discontinued operations for all periods presented. For the six months endedJune 30, 2022 and 2021, the Company's financial statements included income from discontinued operations of$223.7 million and$51.5 million , respectively. For further discussion, reference the condensed notes to the consolidated financial statements.
Impact of Foreign Currency
For the six months endedJune 30, 2022 , fluctuations in the euro exchange rate decreased revenue by$9.5 million , operating profit by$0.2 million and net income by$0.1 million . For the six months endedJune 30, 2022 , fluctuations in the Canadian exchange rate decreased revenue by$3.7 million , operating profit by$0.9 million and net income by$0.6 million . 32
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Marketplace Results
Six Months Ended June 30,
(Dollars in millions, except per vehicle amounts) 2022 2021
Auction fees $ 200.6 $ 208.8
Service revenue 284.8 287.3
Purchased vehicle sales 92.1 115.3
Total Marketplace revenue from continuing operations 577.5 611.4
Cost of services* 391.5 385.4
Gross profit* 186.0 226.0
Selling, general and administrative 218.9 196.1
Depreciation and amortization 47.7 49.4
Operating profit (loss) $ (80.6) $ (19.5)
Commercial vehicles sold 351,000 594,000
Dealer consignment vehicles sold 343,000 306,000
Total vehicles sold 694,000 900,000
Auction fees per vehicle sold $ 289 $ 232
Gross profit per vehicle sold* $ 268 $ 251
Gross profit percentage, excluding purchased vehicles* 38.3% 45.6%
On-premise mix 14% 13%
Off-premise mix 86% 87%
* Exclusive of depreciation and amortization
Revenue
Revenue from the Marketplace segment decreased$33.9 million , or 6%, to$577.5 million for the six months endedJune 30, 2022 , compared with$611.4 million for the six months endedJune 30, 2021 . The decrease in revenue was the result of a decrease in the number of vehicles sold, partially offset by an increase in average revenue per vehicle sold. Businesses acquired in the last 12 months accounted for an increase in revenue of$34.6 million . The change in revenue included the impact of decreases in revenue of$9.5 million and$3.3 million due to fluctuations in the euro exchange rate and the Canadian exchange rate, respectively. On-premise marketplace sales are initiated online for vehicles at any of our locations acrossCanada and include ADESA Simulcast, Simulcast+ and DealerBlock sales. Off-premise marketplace sales are initiated online and includeOpenlane , BacklotCars, CARWAVE, TradeRev andADESA Europe sales. The 23% decrease in the number of vehicles sold was comprised of a 41% decline in commercial volumes, partially offset by a 12% increase in dealer consignment volumes. Auction fees per vehicle sold for the six months endedJune 30, 2022 increased$57 , or 25%, reflecting higher vehicle values, the introduction of new dealer off-premise auction fees and a smaller mix of lower-fee commercial off-premise vehicles. Service revenue for the six months endedJune 30, 2022 decreased$2.5 million , or 1%, primarily as a result of a decrease in inspection service revenue and transportation revenue resulting from the decrease in vehicles sold, partially offset by an increase in repossession fees, reconditioning revenue and platform fees provided by third-parties. Typically consigned vehicles located at our facilities utilize our service offerings at a higher rate than off-premise vehicles.
Gross Profit
For the six months endedJune 30, 2022 , gross profit for the Marketplace segment decreased$40.0 million , or 18%, to$186.0 million , compared with$226.0 million for the six months endedJune 30, 2021 . Cost of services increased 2% for the six months endedJune 30, 2022 , while revenue decreased 6% during the same period. Gross profit for the Marketplace segment was 32.2% of revenue for the six months endedJune 30, 2022 , compared with 37.0% of revenue for the six months endedJune 30, 2021 . Excluding purchased vehicle sales, gross profit as a percentage of revenue was 38.3% and 45.6% for the six months endedJune 30, 2022 and 2021, respectively. The entire selling and purchase price of the vehicle is recorded as revenue 33
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and cost of services for purchased vehicles sold. Businesses acquired in the last 12 months accounted for an increase in cost of services of$19.1 million for the six months endedJune 30, 2022 . Gross profit as a percentage of revenue decreased for the six months endedJune 30, 2022 as compared with the six months endedJune 30, 2021 , primarily due to the 23% decrease in vehicles sold. A decline in the mix of off-premise commercial vehicles sold also resulted in a reduction of gross profit as a percentage of revenue. In addition, the net gross profit on purchased vehicles was lower, transportation costs increased and there were no benefits taken under theCanada Emergency Wage Subsidy in the first six months of 2022, resulting in a reduction to gross profit as a percentage of revenue.
Selling, General and Administrative
Selling, general and administrative expenses for the Marketplace segment increased$22.8 million , or 12%, to$218.9 million for the six months endedJune 30, 2022 , compared with$196.1 million for the six months endedJune 30, 2021 , primarily as a result of increases in selling, general and administrative expenses associated with acquisitions of$8.2 million , stock-based compensation of$8.1 million , professional fees of$6.8 million , severance of$3.6 million , bad debt expense of$3.5 million , compensation expense of$1.1 million and travel expenses of$1.1 million , partially offset by decreases in incentive-based compensation of$3.4 million , information technology costs of$2.7 million , fluctuations in the Canadian exchange rate of$0.9 million and miscellaneous expenses aggregating$4.7 million . In addition, the Employee Retention Credit provided under theCanada Emergency Wage Subsidy was$2.1 million less for the six months endedJune 30, 2022 , compared with the six months endedJune 30, 2021 . Finance Results Six Months Ended June 30, (Dollars in millions except volumes and per loan amounts) 2022 2021 Finance-related revenue Interest income$ 89.7 $ 64.6 Fee income 82.9 72.2 Other revenue 4.8 4.2 Provision for credit losses (1.3) (6.6) Total Finance revenue 176.1 134.4 Cost of services* 31.2 27.2 Gross profit* 144.9 107.2 Selling, general and administrative 24.1 17.6 Depreciation and amortization 4.2 4.9 Operating profit$ 116.6 $ 84.7 Loan transactions 773,000 728,000 Revenue per loan transaction
* Exclusive of depreciation and amortization
Revenue
For the six months endedJune 30, 2022 , the Finance segment revenue increased$41.7 million , or 31%, to$176.1 million , compared with$134.4 million for the six months endedJune 30, 2021 . The increase in revenue was primarily the result of a 23% increase in revenue per loan transaction and a 6% increase in loan transactions. Revenue per loan transaction, which includes both loans paid off and loans curtailed, increased$43 , or 23%, primarily as a result of an increase in loan values, an increase in interest yields driven by an increase in prime rates, an increase in floorplan fees and other fee income per unit and a decrease in provision for credit losses for the six months endedJune 30, 2022 .
The provision for credit losses decreased to 0.1% of the average managed
receivables for the six months ended
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Gross Profit
For the six months endedJune 30, 2022 , gross profit for the Finance segment increased$37.7 million , or 35%, to$144.9 million , or 82.3% of revenue, compared with$107.2 million , or 79.8% of revenue, for the six months endedJune 30, 2021 . The increase in gross profit as a percent of revenue was primarily the result of a 31% increase in revenue, partially offset by a 15% increase in cost of services. The increase in cost of services was primarily the result of increases in compensation expense of$1.7 million , incentive-based compensation of$1.2 million , lot check expenses of$0.8 million and credit check expenses of$0.5 million , partially offset by a decrease in other miscellaneous expenses aggregating$0.2 million .
Selling, General and Administrative
Selling, general and administrative expenses for the Finance segment increased$6.5 million , or 37%, to$24.1 million for the six months endedJune 30, 2022 , compared with$17.6 million for the six months endedJune 30, 2021 primarily as a result of increases in stock-based compensation of$2.3 million , compensation expense of$1.5 million , professional fees of$1.3 million , incentive-based compensation of$0.5 million and other miscellaneous expenses aggregating$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.
June 30, December 31, June 30,
(Dollars in millions) 2022 2021 2021
Cash and cash equivalents $ 804.4 $ 177.6 $ 583.5
Restricted cash 28.1 25.8 53.8
Working capital 448.6 382.5 731.3Amounts available under the Revolving Credit Facility* 325.0
325.0 325.0
Cash provided by operating activities for the six months ended
128.5 188.7
* There were related outstanding letters of credit totaling approximately $27.3
million , $27.6 million and $29.7 million at June 30, 2022 , December 31, 2021 and
June 30, 2021 , respectively, which reduced the amount available for borrowings
under the Revolving Credit Facility.
The increase in cash and cash equivalents is the result of net proceeds received
from the sale of the ADESA U.S. physical auction business in May 2022 , partially
offset by the use of such proceeds to repay a portion of the Company's debt. We
regularly evaluate alternatives for our capital structure and liquidity given
our expected cash flows, growth and operating capital requirements as well as
capital market conditions.
Working Capital
A substantial amount of our working capital is generated from the payments
received for services provided. The majority of our working capital needs are
short-term in nature, usually less than a week in duration. Most of the
financial institutions place a temporary hold on the availability of the funds
deposited that generally can range up to two business days, resulting in cash in
our accounts and on our balance sheet that is unavailable for use until it is
made available by the various financial institutions. There are outstanding
checks (book overdrafts) to sellers and vendors included in current liabilities.
Because a portion of these outstanding checks for operations in the U.S. are
drawn upon bank accounts at financial institutions other than the financial
institutions that hold the cash, we cannot offset all the cash and the
outstanding checks on our balance sheet. Changes in working capital vary from
quarter-to-quarter as a result of the timing of collections and disbursements of
funds to consignors from auctions held near period end.
Approximately
AFC offers short-term inventory-secured financing, also known as floorplan
financing, to independent used vehicle dealers. Financing is primarily provided
for terms of 30 to 90 days. AFC principally generates its funding through the
sale of its receivables. The receivables sold pursuant to the securitization
agreements are accounted for as secured borrowings. For further discussion of
AFC's securitization arrangements, see "Securitization Facilities."
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Credit Facilities
OnSeptember 19, 2019 , we entered into the seven-year,$950 million Term Loan B-6 and the$325 million , five-year Revolving Credit Facility. InMay 2022 , the Company prepaid the$926.2 million outstanding balance on Term Loan B-6 with proceeds from the Transaction. As a result of the prepayment, we incurred a non-cash loss on the extinguishment of debt of$7.7 million in the second quarter of 2022. The loss was primarily a result of the write-off of unamortized debt issuance costs/discounts associated with Term Loan B-6. The Revolving Credit Facility is available for letters of credit, working capital, permitted acquisitions and general corporate purposes. The Revolving Credit Facility also includes a$50 million sub-limit for issuance of letters of credit and a$60 million sub-limit for swingline loans. As set forth in the Credit Agreement, loans under the Revolving Credit Facility will bear interest at a rate calculated based on the type of borrowing (either adjusted LIBOR or Base Rate) and the Company's Consolidated Senior Secured Net Leverage Ratio (as defined in the Credit Agreement), with such rate ranging from 2.25% to 1.75% for adjusted LIBOR loans and from 1.25% to 0.75% for Base Rate loans. The Company also pays a commitment fee between 25 to 35 basis points, payable quarterly, on the average daily unused amount of the Revolving Credit Facility based on the Company's Consolidated Senior Secured Net Leverage Ratio, from time to time. OnJune 30, 2022 , there were no borrowings on the Revolving Credit Facility. We had related outstanding letters of credit in the aggregate amount of$27.3 million and$27.6 million atJune 30, 2022 andDecember 31, 2021 , respectively, which reduce the amount available for borrowings under the Revolving Credit Facility. Our European operations have lines of credit aggregating$31.5 million (€30 million) of which$10.9 million was drawn atJune 30, 2022 . The obligations of the Company under the Credit Facilities are guaranteed by certain of our domestic subsidiaries (the "Subsidiary Guarantors") and are secured by substantially all of the assets of the Company and the Subsidiary Guarantors, including but not limited to: (a) pledges of and first priority security interests in 100% of the equity interests of certain of the Company's and the Subsidiary Guarantors' domestic subsidiaries and 65% of the equity interests of certain of the Company's and the Subsidiary Guarantors' first tier foreign subsidiaries and (b) first priority security interests in substantially all other tangible and intangible assets of the Company and each Subsidiary Guarantor, subject to certain exceptions. Certain covenants contained within the Credit Agreement are critical to an investor's understanding of our financial liquidity, as the failure to maintain compliance with these covenants could result in a default and allow the lenders under the Credit Agreement to declare all amounts borrowed immediately due and payable. The Credit Agreement contains a financial covenant requiring compliance with a Consolidated Senior Secured Net Leverage Ratio not to exceed 3.5 as of the last day of each fiscal quarter if revolving loans are outstanding. The Consolidated Senior Secured Net Leverage Ratio is calculated as consolidated total debt (as defined in the Credit Agreement) divided by the last four quarters consolidated Adjusted EBITDA. Consolidated total debt includes term loan borrowings, revolving loans, finance lease liabilities and other obligations for borrowed money less unrestricted cash as defined in the Credit Agreement. Consolidated Adjusted EBITDA is EBITDA (earnings before interest expense, income taxes, depreciation and amortization) adjusted to exclude among other things (a) gains and losses from asset sales; (b) unrealized foreign currency translation gains and losses in respect of indebtedness; (c) certain non-recurring gains and losses; (d) stock-based compensation expense; (e) certain other non-cash amounts included in the determination of net income; (f) charges and revenue reductions resulting from purchase accounting; (g) minority interest; (h) consulting expenses incurred for cost reduction, operating restructuring and business improvement efforts; (i) expenses realized upon the termination of employees and the termination or cancellation of leases, software licenses or other contracts in connection with the operational restructuring and business improvement efforts; (j) expenses incurred in connection with permitted acquisitions; (k) any impairment charges or write-offs of intangibles; and (l) any extraordinary, unusual or non-recurring charges, expenses or losses. Our Consolidated Senior Secured Net Leverage Ratio was negative atJune 30, 2022 . In addition, the Credit Agreement and the indenture governing our senior notes (see Note 6, "Long-Term Debt" for additional information) contain certain limitations on our ability to pay dividends and other distributions, make certain acquisitions or investments, grant liens and sell assets, and the Credit Agreement contains certain limitations on our ability to incur indebtedness. The applicable covenants in the Credit Agreement affect our operating flexibility by, among other things, restricting our ability to incur expenses and indebtedness that could be used to grow the business, as well as to fund general corporate purposes. We were in compliance with the covenants in the Credit Agreement and the indenture governing our senior notes atJune 30, 2022 . 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. 36
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Table of Contents Senior Notes OnMay 31, 2017 , we issued$950 million of 5.125% senior notes dueJune 1, 2025 . The Company pays interest on the senior notes semi-annually in arrears onJune 1 andDecember 1 of each year, which commenced onDecember 1, 2017 . The senior notes may be redeemed at 101.281% currently and at par as ofJune 1, 2023 . The senior notes are guaranteed by the Subsidiary Guarantors. OnAugust 2, 2022 , the Company commenced an offer to purchase for cash (the "Tender Offer") up to$600 million principal amount of its 5.125% Senior Notes due 2025 (the "Notes"), exclusive of any applicable premiums paid in connection with the Tender Offer and accrued and unpaid interest. The Tender Offer is being made only by and pursuant to the terms set forth in the offer to purchase, datedAugust 2, 2022 (as it may be amended from time to time, the "Offer to Purchase"), and is subject to a number of conditions set forth therein that may be waived or changed. Holders of Notes must validly tender and not validly withdraw their Notes on or before5:00 p.m. ,New York City time, onAugust 15, 2022 , unless extended, in order to be eligible to receive the Total Consideration (as defined in the Offer to Purchase). Holders of Notes who validly tender their Notes after such early tender date and on or before the Expiration Date (as defined below) will be eligible to receive only the applicable Base Consideration (as defined in the Offer to Purchase). In addition to the applicable consideration, Holders whose Notes are accepted for purchase in the Tender Offer will receive accrued and unpaid interest to, but excluding, the date on which the Tender Offer is settled. The Tender Offer is scheduled to expire at11:59 p.m. ,New York City time, onAugust 29, 2022 , unless extended (the "Expiration Date"). Any Notes purchased in the Tender Offer will be retired and canceled.
Expected Use of Proceeds from the Transaction
The Company generated gross proceeds from the sale of theU.S. physical auction business of approximately$2.2 billion . The Transaction closed inMay 2022 . Under terms of the Credit Agreement, net cash proceeds from the Transaction were used to repay Term Loan B-6 within three days of the Transaction. The Company also repaid the outstanding balance on the Revolving Credit Facility. The terms of the senior notes specify that excess proceeds must be reinvested or used to pay down a portion of the senior notes. Therefore, atJune 30, 2022 ,$750.0 million of the senior notes are classified as current debt.
Securitization Facilities
AFC sells the majority of itsU.S. dollar denominated finance receivables on a revolving basis and without recourse toAFC Funding Corporation . A securitization agreement allows for the revolving sale byAFC Funding Corporation to a group of bank purchasers of undivided interests in certain finance receivables subject to committed liquidity. The agreement expires onJanuary 31, 2024 .AFC Funding Corporation had committed liquidity of$1.70 billion forU.S. finance receivables atJune 30, 2022 . We also have an agreement for the securitization of AFCI's receivables, which expires onJanuary 31, 2024 . AFCI's committed facility is provided through a third-party conduit (separate from theU.S. facility) and wasC$225 million atJune 30, 2022 . The receivables sold pursuant to both theU.S. and Canadian securitization agreements are accounted for as secured borrowings. AFC managed total finance receivables of$2,681.6 million and$2,529.0 million atJune 30, 2022 andDecember 31, 2021 , respectively. AFC's allowance for losses was$21.5 million and$23.0 million atJune 30, 2022 andDecember 31, 2021 , respectively. As ofJune 30, 2022 andDecember 31, 2021 ,$2,647.8 million and$2,482.2 million , respectively, of finance receivables and a cash reserve of 1 or 3 percent of the obligations collateralized by finance receivables served as security for the$1,781.3 million and$1,692.3 million of obligations collateralized by finance receivables atJune 30, 2022 andDecember 31, 2021 , respectively. The amount of the cash reserve depends on circumstances which are set forth in the securitization agreements. There were unamortized securitization issuance costs of approximately$11.5 million and$15.1 million atJune 30, 2022 andDecember 31, 2021 , respectively. After the occurrence of a termination event, as defined in theU.S. securitization agreement, the banks may, and could, cause the stock ofAFC 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. 37
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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. AtJune 30, 2022 , we were in compliance with the covenants in the securitization agreements.
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 inthe 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 income (loss) from continuing operations for the periods presented:
Three Months Ended June 30, 2022
(Dollars in millions) Marketplace Finance Consolidated
Income (loss) from continuing operations $ (36.3) $ 30.9 $ (5.4)
Add back:
Income taxes (20.2) 10.3 (9.9)
Interest expense, net of interest income 9.0 16.2 25.2
Depreciation and amortization 23.8 2.1 25.9
Intercompany interest 0.6 (0.6) -
EBITDA (23.1) 58.9 35.8
Non-cash stock-based compensation 11.7 2.8 14.5
Loss on extinguishment of debt 7.7 - 7.7
Acquisition related costs 0.3 - 0.3
Securitization interest - (14.3) (14.3)
Severance 3.1 0.2 3.3
Foreign currency (gains)/losses 3.3 - 3.3
Net change in unrealized (gains) losses on investment securities - 3.2 3.2
Professional fees related to business improvement efforts 0.7 0.1 0.8
Other 1.3 0.2 1.5
Total addbacks/(deductions) 28.1 (7.8) 20.3
Adjusted EBITDA $ 5.0 $ 51.1 $ 56.1
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Three Months Ended June 30, 2021
(Dollars in millions) Marketplace Finance Consolidated
Income (loss) from continuing operations $ (32.0) $ 16.7 $ (15.3)
Add back:
Income taxes (3.3) 5.7 2.4
Interest expense, net of interest income 21.4 9.4 30.8
Depreciation and amortization 24.9 2.5 27.4
Intercompany interest 0.1 (0.1) -
EBITDA 11.1 34.2 45.3
Non-cash stock-based compensation 3.7 0.6 4.3
Acquisition related costs 1.6 - 1.6
Securitization interest - (6.8) (6.8)
Severance 0.6 - 0.6
Foreign currency (gains)/losses 0.4 - 0.4
Contingent consideration adjustment 4.5 - 4.5
Net change in unrealized (gains) losses on investment securities - 11.9 11.9
Other 0.2 0.1 0.3
Total addbacks/(deductions) 11.0 5.8 16.8
Adjusted EBITDA $ 22.1 $ 40.0 $ 62.1
Six Months Ended June 30, 2022
(Dollars in millions) Marketplace Finance Consolidated
Income (loss) from continuing operations $ (75.7) $ 61.9 $ (13.8)
Add back:
Income taxes (35.3) 20.7 (14.6)
Interest expense, net of interest income 22.2 28.5 50.7
Depreciation and amortization 47.7 4.2 51.9
Intercompany interest 0.7 (0.7) -
EBITDA (40.4) 114.6 74.2
Non-cash stock-based compensation 16.1 3.6 19.7
Loss on extinguishment of debt 7.7 - 7.7
Acquisition related costs 0.6 - 0.6
Securitization interest - (24.7) (24.7)
(Gain)/Loss on asset sales (0.1) - (0.1)
Severance 6.3 0.4 6.7
Foreign currency (gains)/losses 4.5 - 4.5
Net change in unrealized (gains) losses on investment securities
- 6.2 6.2
Professional fees related to business improvement efforts 8.0
0.9 8.9
Other 1.3 0.2 1.5
Total addbacks/(deductions) 44.4 (13.4) 31.0
Adjusted EBITDA $ 4.0 $ 101.2 $ 105.2
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Six Months Ended June 30, 2021
(Dollars in millions) Marketplace Finance Consolidated
Income (loss) from continuing operations $ (62.5) $ 73.4 $ 10.9
Add back:
Income taxes 1.7 25.2 26.9
Interest expense, net of interest income 42.7 18.7 61.4
Depreciation and amortization 49.4 4.9 54.3
Intercompany interest 0.2 (0.2) -
EBITDA 31.5 122.0 153.5
Non-cash stock-based compensation 8.1 1.3 9.4
Acquisition related costs 2.9 - 2.9
Securitization interest - (13.6) (13.6)
(Gain)/Loss on asset sales - (0.8) (0.8)
Severance 0.8 0.2 1.0
Foreign currency (gains)/losses 2.6 - 2.6
Contingent consideration adjustment 15.7 - 15.7
Net change in unrealized (gains) losses on investment
securities - (31.6) (31.6)
Other 0.4 (0.2) 0.2
Total addbacks/(deductions) 30.5 (44.7) (14.2)
Adjusted EBITDA $ 62.0 $ 77.3 $ 139.3
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Certain of our loan covenant calculations utilize financial results for the most recent four consecutive fiscal quarters (total KAR results, including the ADESAU.S. physical auctions shown as discontinued operations). The following table reconciles EBITDA and Adjusted EBITDA to net income (loss) for the periods presented: Twelve Months Three Months Ended Ended September 30, December 31, March 31, June 30, (Dollars in millions) 2021 2021 2022 2022 June 30, 2022 Net income (loss) $ (1.0)
25.9 (10.1) 8.1 215.6 239.5
Income (loss) from continuing operations (26.9) 15.2 (8.4) (5.4) (25.5)
Add back:
Income taxes 10.3 (22.1) (4.7) (9.9) (26.4)
Interest expense, net of interest income 31.7 31.7 25.5 25.2 114.1
Depreciation and amortization 27.4 28.2 26.0 25.9 107.5
EBITDA 42.5 53.0 38.4 35.8 169.7
Non-cash stock-based compensation 3.6 1.3 5.2 14.5 24.6
Loss on extinguishment of debt - - - 7.7 7.7
Acquisition related costs 2.1 2.1 0.3 0.3 4.8
Securitization interest (7.9) (8.3) (10.4) (14.3) (40.9)
(Gain)/Loss on asset sales - 0.1 (0.1) - -
Severance 0.8 1.5 3.4 3.3 9.0
Foreign currency (gains)/losses 0.1 1.1 1.2 3.3 5.7
Contingent consideration adjustment 4.4 4.2 - - 8.6
Net change in unrealized (gains) losses on
investment securities 20.9 9.3 3.0 3.2 36.4
Professional fees related to business improvement
efforts - - 8.1 0.8 8.9
Other 0.1 - - 1.5 1.6
Total addbacks/(deductions) 24.1 11.3 10.7 20.3 66.4
Adjusted EBITDA from continuing ops $ 66.6
30.0 33.6 22.6 2.2 88.4
Adjusted EBITDA $ 96.6 $ 97.9 $ 71.7 $ 58.3 $ 324.5
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