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Stock and Stock-Based Compensation Plans | 12 Months Ended
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Dec. 31, 2023
Share-Based Payment Arrangement [Abstract] |
Stock and Stock-Based Compensation Plans | Stock and Stock-Based Compensation Plans Our stock-based compensation expense has included expense associated with 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 service options, market options, PRSUs and RSUs should be classified as equity awards. In addition, holders of some of these awards received an equivalent number of PRSUs, RSUs and options in IAA as they had in KAR at June 28, 2019. These awards were scheduled to vest over the period from February 2020 to March 2022. In connection with the sale of the ADESA U.S. physical auction business, the ADESA U.S. employees terminated from the Company and became employees of Carvana. For those employees with stock-based compensation awards, all unvested options were forfeited, most of the unvested RSUs were forfeited and unvested PRSUs received pro-rated vesting based on tenure over the measurement periods and achievement of performance. The stock-based compensation expense and adjustments for these awards were recorded as "Selling, general and administrative" within discontinued operations. The compensation cost that was charged against income for all stock-based compensation plans was $16.5 million, $16.6 million and $13.2 million for the years ended December 31, 2023, 2022 and 2021, respectively, and the total income tax benefit recognized in the consolidated statement of income (loss) for options, PRSUs and RSUs was approximately $2.2 million, $1.5 million and $1.6 million for the years ended December 31, 2023, 2022 and 2021, respectively. We did not capitalize any stock-based compensation cost in the years ended December 31, 2023, 2022 or 2021. The following table summarizes our stock-based compensation expense by type of award (in millions):
| Year Ended December 31,
| 2023 |  | 2022 |  | 2021
PRSUs | $ | 4.1 |  |  | $ | 3.4 |  |  | $ | 1.6 |
RSUs | 9.0 |  |  | 8.0 |  |  | 5.0 |
Service options | 0.7 |  |  | 0.9 |  |  | 1.0 |
Market options | 2.7 |  |  | 4.3 |  |  | 5.6 |
Total stock-based compensation expense | $ | 16.5 |  |  | $ | 16.6 |  |  | $ | 13.2 |
KAR Auction Services, Inc. Amended and Restated 2009 Omnibus Stock and Incentive Plan - PRSUs, RSUs, Service Options and Market Options The KAR Auction Services, Inc. Amended and Restated 2009 Omnibus Stock and Incentive Plan ("Omnibus Plan") is intended to provide equity and/or cash-based awards to our executive officers and key employees. The maximum number of shares of the Company's common stock that may be issued pursuant to awards under the Omnibus Plan is approximately 7.3 million, of which approximately 2.8 million shares remained available for future grants as of December 31, 2023. The Omnibus Plan provides for the grant of stock options, restricted stock, stock appreciation rights, other stock-based awards and cash-based awards. The grants described below were made pursuant to the Company's Policy on Granting Equity Awards. PRSUs In the years ended December 31, 2023, 2022 and 2021 we granted a target amount of approximately 0.5 million, 0.5 million and 0.7 million, respectively, PRSUs to certain executive officers of the Company. Three quarters of the PRSUs granted in 2023 vest if and to the extent that the Company's cumulative Adjusted EBITDA ("Adjusted EBITDA PRSUs") attains certain specified goals over three years. The other one quarter of the PRSUs granted in 2023 vest if and to the extent that the Company's total shareholder return over three years relative to that of companies within the S&P SmallCap 600 ("TSR PRSUs") exceeds certain levels. The PRSUs granted in 2022 were set to vest if and to the extent that the Company's cumulative operating adjusted net income per share attains certain specified goals over three years. Following the Transaction, in September 2022 the performance targets and the related award agreements for the 2022 PRSUs were amended to modify the performance metric from operating adjusted net income per share to Adjusted EBITDA. The modification of the 2022 PRSUs affected 13 participants and there was no incremental compensation cost resulting from the modification. Approximately 0.5 million of the PRSUs granted in 2021 vest if and to the extent that the Company's cumulative operating adjusted net income per share attains certain specified goals over three years. Approximately 0.2 million of the PRSUs granted in 2021 vest if and to the extent that certain operational goals are attained by year-end 2023 or 2024. In 2023, the weighted average grant date fair value of the Adjusted EBITDA PRSUs was $14.25 per share, which was determined using the closing price of the Company's common stock on the dates of grant. Additionally in 2023, the weighted average grant date fair value of the TSR PRSUs was $21.62 per share and was developed with Monte Carlo simulations using a multivariate Geometric Brownian Motion. The weighted average grant date fair value of the PRSUs was $18.46 per share and $15.37 per share in 2022 and 2021, respectively, which was determined using the closing price of the Company's common stock on the dates of grant. Dividend equivalents accrue on the PRSUs, as applicable, and are subject to the same vesting and forfeiture terms as the PRSUs. The following table summarizes PRSU activity, including dividend equivalents, under the Omnibus Plan for the year ended December 31, 2023:
Performance-Based Restricted Stock Units |  | Number |  | Weighted Average Grant Date Fair Value
PRSUs at January 1, 2023 |  | 1,456,736 |  |  | $ | 18.24 |
Granted |  | 540,752 |  |  | 16.09 |
Vested |  | — |  |  | N/A
Forfeited |  | (418,893) |  |  | 22.25 |
PRSUs at December 31, 2023 |  | 1,578,595 |  |  | $ | 16.44 |
The fair value of shares that vested during the years ended December 31, 2023, 2022 and 2021 was $0.0 million, $2.1 million and $2.7 million, respectively. As of December 31, 2023, an estimated $5.3 million of unrecognized compensation expense related to non-vested PRSUs is expected to be recognized over a weighted average term of approximately 1.6 years. RSUs In the years ended December 31, 2023, 2022 and 2021, approximately 0.6 million, 1.2 million and 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 three equal annual installments. The fair value of RSUs is the value of the Company's common stock at the date of grant and the weighted average grant date fair value of the RSUs was $14.19 per share, $14.82 per share and $13.93 per share in 2023, 2022 and 2021, respectively. Dividend equivalents accrue on the RSUs, as applicable, and are subject to the same vesting and forfeiture terms as the RSUs. The following table summarizes RSU activity, including dividend equivalents, under the Omnibus Plan for the year ended December 31, 2023:
Restricted Stock Units |  | Number |  | Weighted Average Grant Date Fair Value
RSUs at January 1, 2023 |  | 1,365,882 |  |  | $ | 14.88 |
Granted |  | 606,728 |  |  | 14.19 |
Vested |  | (544,191) |  |  | 15.56 |
Forfeited |  | (78,543) |  |  | 15.23 |
RSUs at December 31, 2023 |  | 1,349,876 |  |  | $ | 14.27 |
The fair value of shares that vested during the years ended December 31, 2023, 2022 and 2021 was $8.0 million, $5.3 million and $3.8 million, respectively. As of December 31, 2023, there was approximately $10.6 million of unrecognized compensation expense related to non-vested RSUs which is expected to be recognized over a weighted average term of 1.6 years. Service Options For the years ended December 31, 2023 and 2021, we granted approximately 0.1 million and 1.1 million service options, respectively, with a weighted average exercise price of $14.83 per share and $16.15 per share, respectively, 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 four anniversaries of the grant dates. Service options have been accounted for as equity awards and, as such, compensation expense was measured based on the fair value of the award at the date of grant and is being recognized ratably over the service periods of four years. The weighted average fair value of the service options granted was $7.14 per share and $3.98 per share for the years ended December 31, 2023 and 2021, respectively. The fair value of the service options granted in 2023 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 44.31%, an expected dividend yield of 0.0% and a weighted average risk-free interest rate of 3.38%. The fair values of the service options granted in 2021 were estimated on the dates of grant using the Black-Scholes option pricing model with an expected life of 6.25 years, a weighted average expected volatility of 36.55%, a weighted average expected dividend yield of 3.8% and a weighted average risk free interest rate of 1.06%. The expected life of the service options was calculated in accordance with Staff Accounting Bulletin No. 107, which allows for the use of a simplified method. Under the simplified method, the expected life is based on the midpoint of the average time to vest and the full contractual term of the time-vested options. The computation of expected volatility was based on historical stock volatility. The expected dividend yield is based upon an anticipated return to historical dividends during the life of the time-vested options. The risk free interest rate is based upon observed interest rates appropriate for the term of the options. The following table summarizes service option activity under the Omnibus Plan for the year ended December 31, 2023:
Service Options | Number |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2023 | 1,286,097 |  |  | $ | 14.71 |  |  |  |  |
Granted | 53,222 |  |  | 14.83 |  |  |  |  |
Exercised | (156,752) |  |  | 11.31 |  |  |  |  |
Forfeited | — |  |  | N/A |  |  |  |
Canceled | (19,293) |  |  | 14.05 |  |  |  |  |
Outstanding at December 31, 2023 | 1,163,274 |  |  | $ | 15.18 |  |  | 6.1 years |  | $ | 1.1 |
Exercisable at December 31, 2023 | 665,409 |  |  | $ | 14.64 |  |  | 5.0 years |  | $ | 0.9 |
The intrinsic value presented in the table above represents the amount by which the market value of the underlying stock exceeds the exercise price of the option at December 31, 2023. The intrinsic value changes continuously based on the fair value of our stock. The market value is based on the Company's closing stock price of $14.81 on December 31, 2023. The total intrinsic value of service options exercised during the years ended December 31, 2023, 2022 and 2021 was $0.5 million, $0.5 million and $0.5 million, respectively. The fair market value of all vested and exercisable service options at December 31, 2023 and 2022 was $9.9 million and $8.1 million, respectively. As of December 31, 2023, there was approximately $1.3 million of unrecognized compensation expense related to non-vested service options which is expected to be recognized over a weighted average term of 2.0 years. Market Options For the years ended December 31, 2023 and 2021, we granted approximately 0.2 million and 4.3 million market options, respectively, with a weighted average exercise price of $14.83 per share and $16.15 per share, respectively, 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 four anniversaries of the grant dates, respectively, and (ii) for each respective 25% increment, the attainment of the Company's closing stock price at or above $5, $10, $15 and $20 over each respective exercise price, for 20 consecutive trading days. The weighted average fair value of the market options granted for the years ended December 31, 2023 and 2021 was $6.91 per share and $3.91 per share, respectively. 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. The following table summarizes market option activity under the Omnibus Plan for the year ended December 31, 2023:
Market Options | Number |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  | Aggregate Intrinsic Value (in millions)
Outstanding at January 1, 2023 | 3,557,134 |  |  | $ | 16.09 |  |  |  |  |
Granted | 212,886 |  |  | 14.83 |  |  |  |
Exercised | — |  |  | N/A |  |  |  |
Forfeited | — |  |  | N/A |  |  |  |
Canceled | — |  |  | N/A |  |  |  |
Outstanding at December 31, 2023 | 3,770,020 |  |  | $ | 16.02 |  |  | 7.5 years |  | $ | 1.5 |
Exercisable at December 31, 2023 | — |  |  | N/A |  | N/A |  | N/A
The intrinsic value presented in the table above represents the amount by which the market value of the underlying stock exceeds the exercise price of the option at December 31, 2023. The intrinsic value changes continuously based on the fair value of our stock. The market value is based on the Company's closing stock price of $14.81 on December 31, 2023. As of December 31, 2023, there was approximately $2.7 million of unrecognized compensation expense related to non-vested market options which is expected to be recognized over a weighted average term of 2.5 years. KAR Auction Services, Inc. Employee Stock Purchase Plan We adopted the KAR Auction Services, Inc. Employee Stock Purchase Plan ("ESPP") in December 2009. The ESPP, which was approved by our stockholders, is designed to provide an incentive to attract, retain and reward eligible employees and is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended. A maximum of 2,500,000 shares of our common stock have been reserved for issuance under the ESPP, of which 933,673 shares remained available for future ESPP purchases as of December 31, 2023. The ESPP provides for one month offering periods with a 15% discount from the fair market value of a share on the date of purchase. A participant's annual contribution to the ESPP may not exceed $25,000 per year. Unless terminated earlier, the ESPP will terminate on December 31, 2028. In accordance with ASC 718, Compensation—Stock Compensation, the entire 15% purchase discount is recorded as compensation expense. Share Repurchase Program In October 2019, the board of directors authorized a repurchase of up to $300 million of the Company's outstanding common stock, par value $0.01 per share. Since October 2019, the share repurchase program has been amended from time-to-time through subsequent approvals by the board of directors. These amendments have served to increase the size of the share repurchase program and extend its maturity date through December 31, 2024. At December 31, 2023, approximately $125.0 million of the Company's outstanding common stock remained available for repurchase under the 2019 share repurchase program. Repurchases may be made in the open market or through privately negotiated transactions, in accordance with applicable securities laws and regulations, including pursuant to repurchase plans designed to comply with Rule 10b5-1 under 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. In 2023, 2022 and 2021, we repurchased and retired 1,438,859 shares, 12,649,722 shares and 10,847,800 shares of common stock, respectively, in the open market at a weighted average price of $15.43 per share, $14.39 per share and $16.66 per share, respectively.

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