Earnings call transcript Q3 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, and welcome to the KAR Auction Services Third Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Mr. Mike Eliason, Treasurer and Vice President Investor Relations. sir. ahead, go Please

Mike Eliason

KAR morning. will KAR you earnings Global will concluding performance Today, Good September quarter today XXXX. questions XX, conference joining from for we After of financial the the third commentary, discuss for And Matt. the for ended we thank our us call. Global take Thanks quarter XXXX participants.

forward-looking provisions I'd forward-looking of that this the contains company statements forward and statements Before business, Reform the such uncertainties XXXX. disclaims you update to Safe expressly providing our Private may operations, prospects fully Act Peter conference are affect In Investors detailed that the remind in Harbor kicks-off Securities Litigation any obligation involve are like KAR's to risks statements. our and risks such SEC of these of within discussion, meaning the and statements, of results filings. that call cautioned forward-looking

this the and of be that in will is conference available the be mention we also found financial non-GAAP section press financial the financial our me non-GAAP applicable of measures measures to can in that night, issued throughout which Let Relations site. last GAAP call, also we the GAAP Investor measures. release Web both referencing Reconciliations

turn to Peter Kelly. to this Peter? like I'd KAR Now, over call Global's CEO,

Peter Kelly

with Thank update on everybody. good here I'm you morning, to you, provide an and this KAR Mike, delighted to morning be Global.

an for two summary information and the to which the formally and call, to impact completed segment, we factors of the going our relating since true and of call the US ADESA continue beginning It May full Physical history To following; was what divestiture in speak market in additional will first capital the important called given light today's Auction I'm third in you segments, the future Marketplace our segment, very industry segment, KAR industry, company. to we especially results our pleased I'm we segment. QX formally across detail activities. the believe the organization, what that bright of fact, with a and a marketplace automotive economic Finance more our a our business which begin, that continues digital be quarter ADESA quarter we I with view the current During was a the quarter I'll challenging be AFC about environment. company. as of our provide in allocation business our the and performance, of produced the to asset

last gross vehicle We we quarter, increased gross $XXX. reduction profit total EBITDA. increased profit performance of finance continues During increase to over cost and core to met third In Difficulty] the AFC adjusted revenue, another This and our business. we our [Technical solid Finance experienced as quarter year. we XX% its per segment, targets quarter an the also of grow to $XXX was of

revenue interest higher also XX% demonstrates of we for be of per QX is million a in Our by increased the QX XX% the of quarter. positive last increase from represented rate year. the year for Interest transaction, Finance AFC. quarter, that for over basis of that can $XXX points XX% driven with an which an number consistent today. transactions This of is see of in increase generated environment AFC was This revenue revenue XXX segment last XX% the the and rate increase quarter, that $XX of and growth interest to income in higher environment

clear, that environment. to reduce operating taken proactive structure cost model, be a a The there's be think our pleased has steps I we quarter third the about overall, light lot of what to in performance, to in our challenging have So particularly transform continued absolutely take is capable to beginning To company the that results be believe that this do reflect confident I the of and advance vision, in performance level third digital I'm high our within of not delivering shape quarter our results. future. our

However, even continue on provide of performance fundamentals demonstrating as a I the believe business. an digital And I our advance as believe results ability our the outline whole, turbulence and stronger our do to we execute industry settles our are of as to we strategy.

where like advancing are believe our in areas will from a future. benefit I So few I'd progress now highlight strategy, the we and to of that the performance quarter

consolidation. The first is platform

marketplaces objectives auction customer BacklotCars format engagement primary builds venue. the BacklotCars one In experience CARWAVE complements we within the within upon format the United our increase we and previous platform, the of the CARWAVE existing into marketplace successfully marketplaces. and is deployed the One and simplify In combined across which our digital October, BacklotCars. now to States, new have formats a

they're groups now States. are is where where which where marketplace format day offer can all expect are scheduled in deploying markets the every set loaded auction a national begin format we to CARWAVE complete, auction markets an buyers of first and we two focused for sellers a format So vehicles remaining the existed. this We're already flexibility rollout offered on twice and for of of as distinct the currently time our to choice the in week. and Once United format this purchased and the formats, throughout sales, vehicles immediately be

and additional of has dealers progress significant TradeRev of limited consolidate number we beta base a customers, the made added. on marketplace began and launched version features with to a expanding also capabilities broader combined July positive. our In feedback of we've in the effort new marketplace. We ADESA beta October, to that that been Canada, and In to a

from consolidation As marketplace and development our our we and results dealers, improved engagement across efforts increased technology operations, our expect increased efficiency business. progress, these within

The cover second to strategic like area focus I'd is pricing.

quarter, to in some and successful make revenue and to our new in third both getting dealer we commercial business. and fee place continue We of number streams were in the adjustments a pricing increases put in

impact a and our positive had these in in economics. reflected of are QX Some unit

price QX. regular a component clear, in not our key to We increases be for To of strategy become growth. are expect others effective

of fact offerings our and the price that the able strength customer to the of make demonstrates strength our However, relationships. we've longstanding been these increases

a The area speak positions current catalyst The operating reduce more focus I'd cost restructure the business our some and as certain cost We million quarter an schedule. digital initiatives a help savings fluctuation terms to reflect realities savings respond forward. was goal $XX point. is We to million also cost of quarter last management track starting over are a asset It's that on only to to below a achieve for our may market. to in run annual will our our commitment light to achieving year made to ADESA the run a model, of this $XXX exit note expect help to by cost important created This transaction us and ahead to business Disciplined priority of management. target to rate rate. and SG&A a like XXXX investment short to reduction term annual focused sustained going require thereafter. cost achieve SG&A that do remain strategy increases we

savings in term and into and vision in will in efficiency and effectiveness, continued XXXX. reductions continue necessary should talents investments We Those strategy. help further the and our KAR’s deliver improvements for and focus place QX us to cost technology, have resources long these into a to roadmap our PAR

outlook, macro new future as as as assessment supply, And commercial well of provide particularly my reported largest areas publicly the production, vehicle now outlook for and I'd based recent details on well the some data, the towards some pricing, look as around the environment, to our with our used the in volumes. wholesale vehicle like vehicle of comments use industry of are customers. discussions

My a New than In sales, but of to to their production viewed vehicle side than assessment QX, appear increased number and new some sales a chain OEMs issues. challenge, fewer a still remains supply bottomed and show the taking be OEMs issues basis. production had and vehicle to supply have longer when solve continues them supply on did expected it's an ago. that significant industrywide out year

new experts vehicle had will production production higher predicted. on Increased new environment gradual with I coupled the pressure However, be put more will used interest and economy also weakening a than recovery downward think vehicle and pricing. likely most and rate a

observed the in industry, a in rate above steady is and that normal QX, we decline the used at for course year. of vehicle values a of Over time this

believe vehicle in evident through used wide vehicle declining channel. to values I year a at the near conversion it lack I the allow wholesale the believe our flow can into business. near supply a as vehicles will continue is also expect vehicle in and remained An QX. for headwind more to positive term used characterized Ultimately decline decline market a In used this term, least long be industry be this term lower end. pricing We business, in wholesale to that however, rates of by often will

volumes, good XX% the a which proxy and For were industry of example, pre-COVID remain were physical for third X% of the year levels down XXXX. below below last quarter QX auction volumes,

quarter In auction volume pandemic was the lowest the fact, second for physical XXXX QX of began. since

faster on our in focus the anticipated expect by encouraged although, normal the in our not step longer increase to marketplace still I be a I the will off that And being a over where digital be increase well will A think grow industry the situation will to those by offered that that are particularly being I volume fact we very performance term below as volumes driver us of commercial prudent gradual deliver do relating strong a to the I'm industry. So volume lease levels. in in recover expect time, environment to this segment. vehicles sellers, can this enable key volumes believe it's increase and of the volumes a supply function.

equity vehicles to is that continue third to market declined the the the lease residual ago, in has the year the We of From value value difference decline off of our fewer own which see analysis, returned meaningfully and quarter. gap, contracts, has one level the between maturing lease in but the lease compared lessened. being

wholesale for vehicles decline into further of in is start a needed more likely However, to flow to those order the channel.

larger an they that remain the percentage OEM impacts discussions Through our believe digitally how company our their sales vehicles will in for important element that lease with the with pre-pandemic. of on portfolios an a will significant customers positive that this to to my come. AFC. want dealer off than comment in sell even the of footprint years leasing will I'm ongoing I current strategies, did and seek strong I and also confident our to future environment customers, be

as As continue rates used this within to tend to decline our increase finance increase, vehicle risk interest business. and prices may

and dealers we capture within in under that of data best business. processes has flag class However, place stress AFC to the maybe in safeguards all utilize that that their

as risk next levels. AFC not enter increased while of year end to And return believe results XXXX, we we it we produce to do strong year. So to into anticipate continue and pre-COVID do we some level expect through that will

my like to quarter QX. now for provide some insight on expectations relative the to I'd fourth

a we took impact cost the expect side, the On benefit in QX. positive full that and of we our actions quarter pricing from

We become also actions have additional cost and QX. effective in will pricing that

capital QX that QX, momentum am positioning and provide foreign the highly QX to like I volumes been Also, allocation and have a more XXXX than a company our even focused the side, currency of On negative our positive outcome, recap of in industry in in the of strategy, the on now and be volumes. growth quarter activities. to is the QX. on was I'd third beyond. Irrespective QX expected historically evident weaker for negative executing building

utilized on fees. the million of itself transaction to well $XXX taxes ADESA generated B amounts on outstanding repay over In Term the billion $X.X at of mentioned and the I that Loan second last cash our net revolver we quarter, call, time. as as As our approximately

I show $XXX notes. repurchased of quarter, since a outstanding. shares stock want million million transaction, closing notes approximately a price senior an should leaves $XXX with light macro and environment. us is Also, of for asset at a $XXX we KAR million need less going to to emphasize facilities lower This CapEx With physical our for considerably This that During repurchased through the us third to that positive offer that of cash have to use our still XX.X have forward. the current tied that are total debt. tender or will million. cash our of servicing be senior our given we the KAR ADESA projections of the generate continue debt, model for we

and with this In key QX my messages performance generally of increased compared improved what to also compared marketplace that summarize to we segments, year. capable to in delivered and this QX today, profit for begins of and year revenue So year one a believe ago. compared to I as ago our this recover. was performance QX, pleased I and company it gross we is delivering to volumes outline an

our We solid per revenue per segment, We AFC with our quarter per gross revenue in growing performance also unit of and profit meaningfully sold. unit. experienced increased Finance and revenue unit our another

In addressing industry. be the made our areas continue results, progress a and of challenge to pricing financial in Volumes significant platform to consolidation, addition we our cost structure. in

as for term that I'm ahead faster in many and environment. However, we type to of have volume wholesale to a pricing believe significant production increase, vehicle long and we we opportunity vehicle digital opportunities enable look and our I future, overtime. that focus to growth. that used believe vehicle new I the will in expect gradual decline the growth increase by used excited energized a

differentiated addressable market a base which innovate a We invest. have expanding and large to a and diverse in and offering, customer

Eric So with now financial for third will more detailed of with a that, you quarter. provide the results the review Eric?

Eric Loughmiller

Peter. you, Thank

$X.X First, reduced negatively by reduced point I SG&A would was was million structure $X million in improvement year. obvious the $XX adjusted income approximately the statements. like that million, our to quarter reduced on by like give the color third that I a out quarter is by and negative also on in as our in to compared cost more impact our and currency of third financial Revenue evidence the prior third not would had results. quarter EBITDA foreign was net to

on are We SG&A a that SG&A and noncash was impact are for and This $XX due as that of EBITDA. EBITDA. not are for backs SG&A our additional we adjusted SG&A, reported add by quarter All schedule have in of detail by backs adjusted do adjusted added million eliminating acquisition the segment, in focused schedule XXXX. what SG&A. adjusted recorded provided SG&A When annual computing the over add computing SG&A provides to other in the we costs for same speak

SG&A our We posted for adjusted slides in were continuing that have provided a operations of schedule earnings QX the yesterday.

$XXX million in result adjusted run quarter we headline SG&A QX. the reduced have from million million to per $XXX QX is $XX QX The in in rate and

are compensation We excluding analysis noncash of SG&A. this in

in recognition the in As QX. the equity noncash on expected the the noncash There the impact slide, have This Auction see earnings the you of can grant was there Physical XXXX relates to value. in the award gain of no in US an increase total on XXXX of of increases compensation PRSU the annual employees. business sale and grants to been

However, the of impacted timing financial statements by performance. in timing financial the of recognizing was our expense our

organization the significant as sale We our of the certain the the US with the also of realignment of have auction employees of associated result termination business and severance physical to match forward adjustments KAR. severance asset going well. as light included that the additional expect other This we in digital will marketplace in at business is remains SG&A severance reconciliation. I the have recognized a

the rate. will you the severance be QX cost in related to not see savings actions and additional run impact that However,

adjusted severance, fees in SG&A reorganization SG&A have addition incurred costs related and In to them reconciliation to Auction adjustments These US activities earning as of in the and consulting the second separation also are sale termination contract and the third Physical other in following we our of the included business. we slides. but and fees expenses included quarter in

announced and services major is to to a in that global employees establishing initiative our organization. provide quarters additional been will One SG&A future adjusted has savings related and shared

Canada. provide XXX will Global. the with office two over impact support recently back positions agreed This to firms in have terms for US to functions resources offshore We and KAR our to

affected Services upon of provided the We are and transition Global the payable roles appropriate packages notified that severance their have to employees Shared Organization.

generally of We of us a digital to The roles included to impacting not to a of next allows customer and in the offshore are impact experience. for expect this these in begin three the not realized move marketplaces our initiative the that tied fact over migration savings number our quarters. specific is functions without The location support SG&A XXXX.

services a of efficiency use customer shared the believe global the will we organization ultimately of experience. transactions and improve consistency fact, improve and handling In

is $XX million Shared our program Global savings initial from expected annual current Our Services structure. generate in over cost to

to realized the XXXX. this to expect migrate model we as be in We offshore

Another the facilities. cover I more topic is the detail amendment the to in securitization securitization would like In extension of Canadian September, our US and we at and of AFC. completed facilities amendment

securitization XX, facilities remains capacity the million. the The The Canadian $XXX the of January increased US to million part a extend securitization As to of CADXXX XXXX. facility amendment, total we $X the at amendments of by billion.

As negotiated reduce allowed certain terms us part receivables. of of company's that to to funding we the successfully this process, changes

Although, the up by $XX October. million, week first that the working funding balance of This at did not freeing portion reduced occur up the additional of sheet loans until capital locked on AFC. was

of are credit overall the financial the portfolio of fairly by and to next the the process AFC to the of the easy. to growth years. now, made prior The demonstrated agreement the the the terms AFC remain the facility sizing terms Most is amendment the three the markets sufficient consistent team challenging While performance discipline quite over amendment. the right fund importantly, two expected with portfolio in the

stock October, an mentioned have Peter in part place put XXbX-X in release, the we $XXX under purchases repurchase year, of In approved program. of purchased Earlier we that over open disclosed share this four and months. As plan. a existing in market our earnings as KAR’s the we we remaining XXbX-X plan completed the million past

XXXX. we expires of our December repurchase on share million $XXX.X have remaining As XX, on today, that authorization

shares repurchase expect At this two. and we bonds, additional our additional balances or markets time, conserving the capital next do $XXX quarter an million over our capital. are to previously or building debt the intent in we KAR redeem focused on not challenges and cash to the in acquire Given disclosed

our debt net date We looking debt and Most for light permanent on put structure in that to more asset KAR. minimal in we business focus continue place the company for more markets extend the debt maturity an forward. maintaining will be like going appropriate importantly, to revolver opportunistic windows a is for

light gain Montreal. to taxed am the that transaction will excess of gain and today, about XX% we acres a in be announce our operating or proceeds is result on net to financial will approximately of in The business approximately in This taxes. pleased on of Monday that million. of continue marketplace asset week, this million a sale rate with land closed align XX%. of statements we will gain separate $XX line item in at fourth I KAR the As in as XX rightsize be in the This transaction will after This the of expenses statutory $XX Canada cash generate reflected income quarter. realized business our

a in net Also, be the to will expenses. operating reduce transaction is clarity, proceeds from For debt. not this reduction a that this requirement used there be

me I transformation being of operations focus on strong As light, are we faced situation as our cash rightsizing marketplace its a digital reiterate focus businesses. comments, generating challenging industry is focused my with period a for and wrap a our supply our in with let up KAR company. asset

have we ADESA away As overhead our the cost US we structure. further reduce continue to opportunities physical auction to will transition from business,

$XX a year, year changing transforming our timely asset increasing we This million. B our interest spot, interest prepared the particularly these increase support and great as at over are focus environment period payments reducing to million. facing. to rates. Loan entirety, for reducing am our we we is in ahead. is given KAR expense sheet been SG&A its digital Having our of the debt of an the approximately billion light we business economic businesses We marketplaces in I nearly repaid a confident balance by next on in interest paid Had road this in not would've cash cash Term looking is have annual $XX $X.X face down important

before That cover concludes has go item my prepared to more Q&A. remarks. Peter one to we

Peter Kelly

and XXXX, Eric Eric call operator shareholders. led has that that Thank great making and tireless to XX leader divestitures, the the leader through positive get for also many cultural shareholder has a strategy more KAR, Eric. financial we opportunities be as Financial here company formally his the investment and and Global. always value. capture the incredible navigate announce KAR create I before Eric Officer earnings at Chief Q&A, retiring and been a want acquisitions interests will last years. has CFO and And at complex and for He helped investors advanced our you, of been than capital this of end KAR to skilled advocate has a the an meaningful change, transparent of

timelines hope are strength a for not If replacement permanent search We function bench to prior the KAR we strong the internal basis have Eric's a Eric’s conducting align, at and on do national a to lead until an to role fill these named. interim retirement. is CFO

and provide just will now, to I to company Eric details updates and wish in incredible me investors. additional But due the let for this all your for our We thank you best retirement. enjoyable relaxing for course. and service you

it. certainly You've earned

to And let's with you. for that, group questions. Thank the turn

Operator

Murphy Instructions] come first question [Operator our America. John with Bank of from And will

John Murphy

hard so And know congratulations. for guys. rest, I to morning, a working you you hope have because time, been Eric, congratulations. I long get Good

Eric Loughmiller

John. you, Thank

John Murphy

A the on lot first the in is and in transition the here here, industry on question lot company. there there a is of a going going

of So pieces. lot there is a moving

industry going get in So going you get are work exactly of XXXX? sort there for think is industry and specific to is to to kind some something constant this not about communicate the as that, going guideposts to outlook the a the you to parts. it's company focal or of do a people the lot ways structurally I off try understanding answers, for for of you of points you look at bit sort as looking moving XXXX do communicate forward think things and we what but I major this of a looking how going company, are people variable an mean, to as for and plus. this, think when think are are for a And tough to looking be you of sort

So we will that when that? think and do about how you get

Eric Loughmiller

I is you lot a are guess And correct, going there on.

to of production. that which a terms it We from vehicle in pandemic got recover industry new issues, have production to struggling led seems be the to

I We vehicle have our prospects on detail declining for that’s I got our and if used view underlying are next XXXX in they call, an about performance provide view, on I so February. off challenging kind to I earnings for more at XXXX. we it. call, we've demonstrate which so results, our expectations talk that Again, level optimistic is on build to a go values, of how early got everything with don't future. environment QX efforts the going plan in but look specific forth. the for at we planning on would that in I think point. for this of in remain Obviously, That's and I think for lease deep the business. I We’ll expect I into think my detail can

challenges to performing a significant will XXXX volume those Marketplace finance We faced we've well I to in will quarter we and that we platform got I I actions, -- volume building after overtime quarter a gradual change. and has it have through actions, look expect business cost at we got future. we after us I that be benefit where of sort pricing are a that taking got expect in have the ease, in midst consolidation, but all as of are we And obviously actions then business to perform well. think expect future have that got that, the quarter challenges. that's the obviously continue of

kind perspective, this step think a think not would the see the endeavoring impacts, changes and of, I say, wholesale new when be, I vehicle will But to I those least recovery changes, at growing the production obviously in function. I upon that volumes, gradual look build the sustainably macro So overtimse. to business I

John Murphy

clearly your able backdrop comment follow-up up of the a on wholesale the with on to kinds constraints vehicle for just months we next as ago, even fleet those on volumes ramp being shrink a automakers then And pricing, production much three and and have or year new on we'll of to one the six thought might the car four couple side remain constrained see old probably will the years. not supply

So do to there's you backdrop, like go per your as I'm curious at maybe if as it set how pricing, it as think incremental that unit because share? first, gain seems in that and supply look opportunity of just down well environment then kind of revenue you about gain shouldn't second, that kind constraint market

Peter Kelly

you I for of not think, used vehicles? John, by pricing pricing mean the our services, the value

John Murphy

Actually both other pricing vehicle on revenue and and drive the opportunity your first mean opportunities. to I pricing actions. second through then

Peter Kelly

much I to level, every the -- up show week in in quarter. the pricing in QX. Prices decline So believe in pretty accelerated wholesale now substantial single of to we've vehicle show to And terms in at vehicle values the the of in in later of values, the used seeing vehicle new seen fairly declined in rate If continues a decline here pricing decline vehicle used up pricing anything, in level. used quarter, now it's retail at and beginning decline first show started QX. that retail we're I up the market

that. constraints of happens they'll year end to at after of decline do been the I a But will production about. expect in you of rates but downward fall has vehicle that continue. and least the don't also think I because down see putting increased this pre-pandemic continue values to slight talked till pressure to So what think used the vehicle I on I interest think levels, then increase combination values, we'll

that this the decline, vehicles values Again, and those the our residual which As flow more value market into vehicle. between to value got of the channels. particularly gap, opportunity equity off you've where start lease creates an for to difference the is

As those incrementally I expect more together, I be closer numbers start think again, gradual. to that can And very come vehicles to flow.

the at I decline prices to continue this vehicle think, of again, least So gradually end through used year.

services, obviously, our we've taken In actions the pricing there. for terms of some

have of dealer commercial mix We a business. and

I requires conversation the with of volumes types -- for that John, look do of this with for, was current generally, to we years more in negotiation what it some different the So and some of might there were say customer exchange greater and just first, to Some I'd of look potentially we given when customers. it us for opportunity, customers right? is what think what some or and appropriate three an higher. that those at reflects ago volumes, opportunity it at we be pricing look opportunities some a for a revenue is

we discussion. that So have

So strategic around but again, with we've we've and I pleased disciplined the been, that, been progress made. have think,

Operator

Our Ryan will with from next come Morgan. JP Brinkman question

Rajat Gupta

This wishes for to best well. wanted Ryan. on my is Rajat Eric, as I convey And

So where volume to looks the growing just John's with tough down on comments, start Cox expect Automotive like OPENLANE. again. following-up some before off -- for a they maybe be outlook while. like there likely the for volume like volumes step lease Looks estimates put out is to in another

and follow Any curious of that thoughts that's is on up. opportunity to well, has further rightsize even business as already that going restructure or case a happened? the and you So an would think like be helpful, some I there have if that or forward,

Peter Kelly

remarks, but decline I all. commercial my And was Rajat, in than I rate prior mentioned quarter. first declined in quarter third less of thanks guess, as volumes of the the

talked on bottom at of other -- the and we've some I'd purely about OPENLANE cost out of expectation. expect organization. those parts the that my that to taken the are in businesses cost here action, looked is so businesses, like we've actions we've I So say

and to to an conversations customers with look services. where So on pricing that's had at. respect that's also something area we've continue we with Obviously

small, values that's off XXXX start to that, of vehicle we're values in but releases attach And lease of greater written XXXX that of the and beginning And some and marketing few XXXX, So their as vehicles, fewer do to started One is that, will to feeling there -- two will has not with that performance the determinant lease material, volumes. there down. One of are key obviously, Rajat. second yet originations situation new of rate don't have drive I'd is produced very I vehicles that. need releases decline say there prior I'd is that it returning seeing the were that and say very certainly incentives in the direction they come one trend be there be the I the put but say often in new I'd reflects, years. manufacturers evidence would which it's the things, into funnel it's lease respect vehicle on future vehicles than think two business, fewer user in say rate. the of factors.

their start point at time. to vehicles I manufacturers economic have an increased think, well. environment, have drive over attach as also will Again, challenging more And some production rate to both well. I that experts things a as new I to change of start those incentive start than will to to slowly start to predicted. on expect albeit of more vehicles in I increase, increasing spend lease expect likely, expect that

leasing think important again, a for business. will area our I very So remain

I But will very, that one like I competition when it with our close bottom, I it's where and performance segment. financial volumes over we stronger. very we're think not given that think agree that's were strong differentiated time. would are at significantly improve the or footprint today was of sort impacting to vis-a-vis our it the think our I

Rajat Gupta

from think trends about some you on the were year, us the more price factor color increase just based next other the into price And on maybe Could quarter, GPU and that on you some that, actions changes also the you that cited factors actions. the there of cited that also as the well any give we mix in early the and mix have the to XQ And on quarter GPU fourth how should all XQ GPU? drove happened? maybe uptick but

Eric Loughmiller

profit to things. have vehicles. of vehicles increase is low, the the GPU to services QX I'd aren't of range. actually in tends attached volume -- gross is a very revenue sort was sold we well the on were is marketplace the target service say GPU very strong because in Day XXXish $XXX, transacted that that's not, of business kind Analyst of above that in of our presentation, the other couple sort unit in which When is selling per established we

increase. GPU So drive that of some can the

pricing positive the actions have a as I think well, obviously, impact there.

at of third I range Analyst significant we that strong GPU we level stay we put we our we that the are a $XXX expect in So are is have in for QX of in sure. Day. me and quarter. sort in would cushion think very, discussed although, I that performance I the what But Day confidence would Analyst per -- overtime, above the our gives the don't say they that's in that unit sustainable guess numbers place very the saw necessarily sort achievable I

Operator

Barrington Our Prestopino from next question with will Gary Research. come

Gary Prestopino

in the of you have the couple last vehicles conversion to the A conversion lift what Can would us how if were your And in here. same give rates decline done sold? questions level year, that quarter? in some the -- rates of as

Peter Kelly

lower. below. rates, the continued I part I earnings for But which the spoke most through think of a all the vary something say last it about has that in rates bump below I on see did essence like But conversion channel, rate XX% I'd call most were conversion in for say but say We conversion year. our of situation I August. QX. last in part, would by would little been

on I've low physical is looked lower say had certainly, there at year, it. been quarter, low a that of than conversion I've channel of a of the for of have sort auction all would consistent as data, normal. pretty when if with well to order what think So year, rough XX% seen, much last it's also rates I this XX% sort a of something like XX% is is that you declined and to something like commercial may was XX% rates points. channel of related. would also conversion XX typically say conversion volume, Gary, that some it so XX% be a versus But you may sales we dealer, that. roughly know, rate has -- mix headwind I see that higher And if where of as magnitude very and

So it's pretty significant.

vehicle hindsight, rates characterized would a supply say, the appreciation. market very with of conversion I used benefit used for last Now significant by were also tight and vehicle candidly, year's

say, I'd were are somewhere below say, rates year's normal halfway this I guess. rate and best somewhat my year's rates between is So conversion conversion conversion the and close normal last be and would in a would two above between to normal

Gary Prestopino

Then just a couple of more.

You talked about what BacklotCars you CARWAVE. with are and doing

one you on You've pre-auction getting of and through how to listing determined? cars the opportunity a formats, said price and you then a these Could auction. wrote just buy an to marketplace elaborate a which that? as I Are buyers you that two maybe go service so, if down is

Peter Kelly

week important were works. capability well. It how that. opens format on great they or detail results then them window. we That's their them, to I So business, essentially sold ran but dealers felt sort them, two Dealers two It very, replicate research our cars an auction for then The at got format. platform. of customers. It sale bidding And okay? where are the auction the guess and that liked it buy a of vehicles a of a the three it. bit and couldn't the that format a window end preloaded into on CARWAVE And little provide was could and their hour Monday was in a advanced and to for actually Thursday, the really very more place bids, sort view days works

bid that complements marketplace. the BacklotCars what So done we've ask and that's existing

to loads obviously, it they into essentially right works. And And it migration that's Arizona consolidating where the that's is auction, in or how But which as existed, they immediately format in we choice the want markets scheduled again, at it a it's can that's any into that auction, available the load XXXX. if bought we Texas. XX car format California CARWAVE unsold look of marketplace. the into. principally So now And make. that said, and roll it do they at next marketplace want our now is states also remaining it load over if want where the when end they car, They then time choose the in they a put to the to I across already dealer the the focus push but to

excited and business about we're think So we'll positive for an this the enable will bigger address We of market. that. even the segment to a us be

Gary Prestopino

what's range? And impact on how the good going towards before make then for that had I one will you want and in sure, low question discussed, of tended do more what and last that you EBITDA XXX still you terms just of QX? given XXX, the just range to of guided end here. to think Is impacts

Peter Kelly

on not see just but to I guidance, remarks I is guess, the all, provide say I’d Gary, just some quarterly of how policy our provide here situation. first I will

I is responding more QX overall, little is from that's the but say, common than So happen always a and the it again, if perspective about in to volume weaker some years year. seasonality QX, environment's well would overall, there QX challenge that doesn't for It often purely the not most unusual. is the case. a a And that's our think I XXXX entire we're I year environment also challenges. results been show believe those

we QX. foreign reported, in currency also Eric have As headwinds

continue honest. QX they more those to be bit even in QX, us be to in were expect material may than QX. They We a little to in

QX. that of some gain land a and those, estate become as mentioned, the pricing million. further offset as helping our And And there well our $XX us also quarter actions and effective full impact the say the actions the has savings cost strategy Montreal from take cost, will of pricing excess have also finally, with in QX, taken cost taken I'd Now in we'll Eric advantage ex-real digital benefit quarter fourth some up enabled in as to QX. in divest of

the So I year look and numbers I with I'm final on with issued that previously do reporting comfortable finishing new the we included, very and the year gain. guess strong in guidance. the gain will we'll with to I without this obviously, our are focused forward say and

Operator

question next Bob with Securities. Labick will Our come from CJS

Bob Labick

everything. and credit And AFCs us and a back and I Thanks, trending low typical to next see been guess, and of or the there? Maybe level. you expect, wanted as what I X.X% to to mentioned you about sense you congratulations you provisions it's drivers term from two where morning. over of are may Good it seeing pandemic expectation. to us that Eric long X% throughout those the the at dealer The the get kind losses what not to expect has year for low, remained what you're well. at give provision talk for the

Peter Kelly

terms that of environment, the both will risk that and environment And higher numbers context relatively will question, shared moderate in expectations We've prudent rates there. to to But say be previously. vehicle that in no specifically I AFC below manageable was year. are X% the been than something loan used And the as seen that severity we've historical the somewhere in I of AFC the past range that the historical values, you risk of and strong mentioned projections historically that levels very -- and say think balance. X.X% given the business. of say frequency and increase in I'd this some that's expect a well There's outstanding in our of say has years, risk, performer. of we couple it's also I'd have interest in macro declining changing been I'd lower the

the I plays time will new greater below see that possible digital and think how range. out more I'd it will data exactly. I I normal say with model guess controls, access that historical have to tell, we'll think to a it's be and with I stronger think

the a in think we be preliminary growth XXXX manageable, modest modeling also just offset our are business. We think underlying by very we increase risk the it'll in in projections and be but it'll

Bob Labick

car of a normalized sense, if used for the trying a you used a kind are moving there's of for How to then car GMV. in units sweet spot on so macro. can on index, impact just how mix a second, lot kind And value are the of the excluding, to of and know But relative trending, parts CARWAVE index? I to pre-COVID units where's speak, value [Backlot], those get

Eric Loughmiller

dealer or I your you vehicle our values are volume in talking the the talking you about mix Are about between just clarify themselves and want commercial? question. to

Bob Labick

at The vehicle dealer. values

a then of in was, with added say pre-COVID vehicles increased -- pre-COVID If the you're we you mix dealer that numbers the before mix car vehicle [Backlot]. And that both of you've the up used then prices still the had the car $X,XXX and know, marketplace. moved you've going value $X,XXX to GMV think as I

massive trying get the vehicles within marketplace So of change how values. and dealer the adjusting used of for trending car mix in the to a sense the that's

Eric Loughmiller

vehicle And what and of level. still year decline themselves from XXish guess really present. appreciation the flat probably to It this peaked May I been pre-COVID their vehicle above So about the the I'd in out has have thumb, we and today, last lined values of ultimately are sort I'd in probably say started say maybe little rule our to in an percent, a of more March all off marketplaces generally value seen of kicked year. early

all our that vehicles. had different in has GMV increased different mix of have From of generally a marketplaces. marketplaces a mix sort So perspective,

probably vehicles, probably it probably focus CARWAVE way had BacklotCars I or $XX,XXX, with GMV around, that's broader of a have would of its real mix $XX,XXX. $X,XXX also don’t and median vehicles a and today the point sub sort on, Rev that I'd started I Whereas GMV a okay, of specific to $XX,XXX format Trade a higher, know, $XX,XXX. and median $XX,XXX, know, don't say, So

that we're CARWAVE, Trade merging the will as up BacklotCars now with and well. of GMV So Rev median there bring those, the -- combining

facts of marketplaces. are vehicles dealer is sub where most of a sort business, in of the spot When sold the the vast that the maybe that between are one interesting our would of these you majority sweet is that look dealers So $XX,XXX I of sense dealer of volume at That give category. is. to

channel exceptional So GMV we we vehicles in the value as in time to But value very really high outcomes customers the well. deliver that and and more segment. in say, think positioned I that in also that are into increasing and well marketplace are those focused I bringing exceptional will -- to

Operator

from Stephens. question next with Imbro Our come will Daniel

Unidentified Analyst

question. This our Daniel. on is Thanks taking for for Joe

saw was wondering if there I was color $XX revenue Carvana line, So provide the this you was the increase million this and services by I wondering any quarter. agreement? in about services could the sequential strength a driven if

Peter Kelly

I'll you. Eric that take let question. thank Joe,

Eric Loughmiller

revenue a services has couple the yes, Joe, driven things. of

First, point I would repo to volumes.

the auto more and and digital to, we have to banks on they revenue, are helped that's level our capital aren't finance at begun repos growth selling have RDN contributors used we While there more loans. processing the the we as in key the through delinquencies, really as US same PAR begun the and the marketplace -- and defaults us companies in

transportation I Second, rates agreement, Carvana of we of to a it revenue we some related would dealer-to-dealer see space Those the quarter it was on a to increases in that the strong transportation. how have during to attach the the able the compared more have probably were penetrate drivers. year most been ago. some And to was growth and two commercial little related and big argue in did

Unidentified Analyst

then take of And in whether the for headcount you as out it's need that recover some next or support was any functions staff that office a should of if have at to I back offshoring the this? follow-up, of as back have reduced, volumes you AFC, year, bring wondering temporarily or

Peter Kelly

you one of from great think get scalability platform. model digital a the the of is more I a digital advantages

the I industry. So that foresee the don't about making context we're the of certainly in assumption

incredibly businesses well. I think these will scale

that downside have the evidence got volumes past. couple over the we been And of on of from last that of have declined unfortunately, years. as the hurt have We

business model come think been more that through scalable it ever before. is has I as and flow they'll than efficient volumes back, more those a

the as So current savings happening. view I foresee of sort run initiative, GSS incremental that And Eric don't versus our would I said, rate.

Operator

Faghri will next from Instructions] [Operator Our Ali question come Guggenheim. with

Ali Faghri

was and miles deserved. on lot retirement. of a Carmel, Chicago first, That congrats so well Eric, And the between

have I a AFC. few questions on actually So

your up down volumes XX% So XX%. an were where in volumes marketplace loan environment were

volumes your what that ASC more they versus broader well I directionally and recently industry? think we historically, auction auction Why loan pretty have the have volumes. in correlated outperformance seeing least decoupled wholesale at driving with what's are

Peter Kelly

historically, also of KAR past transactions looked the footprint, it number within It's I about doing we doing very even I their a the was platforms when disciplined with market of dealer that small the amount was been relatively true I'd essentially more AFC say at at or they've generated AFC total system. auction and think dealers that focused effective that less. it were it’s always correlated on that from say would it's volume. share. XX% in through transactions it the But came of using been the They've that. in been has expanding a even KAR way amount,

of So what -- then channel purchases level. we kind commit at business the fund of win the that those them dealer the dealership And on. buys we dealer's to dealers irrespective

I'd the that's say So focus. principally

results. also significant we have within and as not our focused that focused well on attach put positive been BacklotCars, driving I and alluded that's to. bearing marketplaces. on are change TradeRev existing increasing Now that digital the But initiatives with say We've rates will those you with what's

segment. just and ultimately So customer I increased a the think on share it's the focus market really within

Ali Faghri

can refresh on remind loans a rates follow-up a you interest how your you It was obviously a quarter. Maybe just this how AFC. maybe benefit helpful. Maybe then us sizeable tailwind be price on business? And would the

Peter Kelly

you speak want that? to do Eric, to

Eric Loughmiller

improved corresponding is prime is it's to the you total -- And with because securitization in the of Well, rate we're XXX slide above only the increase and prime our be, loans the balance points been typically quote moving up. funding a cost to has speak about spread. we when the Ali, look that XX% of funds the is use plus a is pricing prime sheet. we through first at there to basis Typically performance reason going a XXX

we of and the Equally a very where performance is important to cost. equity structure So we is that is business that have increased other cost the In no about cost get funds it for though funds. in XX% than AFC It efficient more in rate of is It's the of corresponding our that's to funds. a has financing. customers. cost lower actually words, charges a prime is grown the than of that our

So a that. bit on gotten enhancement of little we've spread

will the two mentioned, things. of the today's the are puts of term. the in interest forward going dealer. And tailwind that we for at it expectation the look a Fed year, probably Peter So increased on that rest as But a becomes be bit short rates the stress by as those

balance side with to to it anything So risk you've does add? of what got to the that out the Peter, portfolio.

Peter Kelly

got you've think Eric. I No, there,

some I there pros, some are are there think, cons.

that in contributor and the generally and think we're beyond. AFC business a it'll be I confident strong model XXXX in

Ali Faghri

my taking thanks Great, for questions.

Peter Kelly

at I pretty think time. we're much

Matt, to So I'll just questions, unless move remarks. there's closing other

Operator

I'll the our this go concludes question session. for No, to back answer management any ahead conference and over closing and remarks. turn

Peter Kelly

your from today. QX Thank performance. questions. this with remarks we improved segment, challenging want one In year time gross you, and We year ago delivered compared Matt. for to a in versus also key and everybody for performance by Thank profit also those messages QX close I environment. increased of the I'm year and of just this morning to a you our pleased QX ago. reinforcing marketplace to and revenue Again, my the some compared

sold. we profit growth and increased volume of our quarter our In our gross revenue performance unit solid per and finance per another also unit segment, unit. We both with revenue delivered in meaningful per

in in cost terms results, we addressing continue of volumes pricing progress our challenge to addition In significant industry. consolidation, and made a this be to platform financial those Obviously, structure.

However, as production future, the we gradually. new to we expect look increase at vehicle

wholesale in grow digital in opportunity time. I'm this volume believe vehicle company. that used that a the in excited to by believe we've pricing environment. expect vehicle of decline and over us ahead. got gradual expect growth and significant type will long a our many focus opportunities faster used I we And for to I We energized increase term enable

offering, and addressable market a differentiated a innovate large expanding which customer in to and diverse have and We to invest. base a

you So a Thank all with happy much. very, Eric, in look the year. wishes I you new with very very end again, we'll very, to that, best forward call. successful and all And retirement. for today's reconnecting

Operator

Thank concluded. now presentation. is attending you today's conference for The

may You now disconnect.

KAR Auction Services (KAR) 2 Nov 222022 Q3 Earnings call transcript