Earnings call transcript Q1 2023

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Operator

Good morning, and welcome to the KAR Auction Services, Inc. 2023 First Quarter Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

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

Mike Eliason

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

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

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

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

Peter Kelly

everybody. morning, good and Mike, you, Thank

KAR Global, will we as to morning night, with Inc. known as this to update here which, I'm OPENLANE, on be in you release be delighted a provide announced soon last press an

and current additional first I automotive the structuring than information market will providing factors today's by Given call the that impacting performance a usual. be our announcement, relating quarter to differently we begin will industry. little

to performance transformation in-depth our I'll to discussion brand Q&A, OPENLANE detailing before turn in walk and move we a financial strategy. platform then will quarter. a through slides And We few then the our of more consolidation

to Lakhia, new welcome get Brad Financial our company. to I Chief want Officer, the I started, call to before our and But

great in our help ago, a team. forward stockholder I'm we of And and grow few to experience to our lot with looking company a this As management excellent weeks deliver him working much value. detailed announcement to Brad brings very

OPENLANE. So, to welcome Brad,

the who our is for deliver Scott the only just job, a past served for so call portion as on quarter, Interim the of Anderson, in weeks two remarks CFO the minutes. financial few Brad the will

about me two first performance. let and And usual, turn So, to segments, marketplace speak a as our our in I'm segment. going quarter segment a business to finance

performance year, next the pleased that the the I'm over EBITDA operating in improvement growth the per the EBITDA achieved industry despite particularly and and we environment an are results earnings gross in discussed where consistent quarter's achieved with we call, profit, with XX% growth over in very expectation years. first a solid I'm first remained adjusted adjusted quarter adjusted our These these we that prior And pleased tight. to including on XX% share. last several double-digit revenue, results volumes quarter

managing initiatives, detail continued initiatives. these our and During brand solid I'll our The call costs, align our progress platforms that And help just will business. in discuss we strategic on quarter, unify that on we also simplifying make our and announced the today. this more further to integrating change later

million of for QX XX% represented results Purchased vehicle of So, in we versus increase year. a first revenue key in last the $XXX our summarize to quarter, XX% the revenue, generated total approximately quarter. revenue

an from million, vehicles. of increase gross profit XX% Gross purchased revenue, of excluding prior of $XXX the QX represented XX% total year. profit generated We of

increase of QX quarter. represented $XX an in million of last first This of And we generated adjusted versus year. XX% EBITDA the

company. million an included an automotive investment an early-stage related to $XX in charge one-time this However,

quarter the one-time this increase EBITDA Excluding charge, $XX XX% would QX in adjusted have last have of of been an year. and million versus that would

adjusted our to double This in per more EPS $X.XX, quarter year. adjusted operating of than share earnings led the performance last same operating of

I our contributed our QX and QX our marketplace improved to of was performance compared business encouraged see consolidated results to segment meaningfully last that also the to of year. led very

volume a sold dealers. first vehicles of XXX,XXX in of XX% From the we this XX% it commercial sellers from quarter. was from standpoint, Approximately and

well and a performance decline year, last While QX that out was compared decline over percentage this the XX% terms this of year. volume well for best versus it lowest the also increase of Sequentially, was was that to would volume sequential of last a point in represented year, of over I a in volume X% QX year.

vehicles delivered revenue growth growth solid by sold. auction solid in of and in strong segments was sold fees revenue, driven marketplace quarter. attach strong the revenue and in which by and vehicle growth -- tied driven per rates directly rates to service first XX% were revenues services growth not was that attach The The services

and Marketplace increasing XX% of a year-on-year last XXX-basis-point QX also compared strong, was representing gross That was performance XX% increase of profit to revenue. year.

XX% Excluding segment in the of revenue was gross margin purchased from revenue. marketplace vehicles,

efforts reflected SG&A fact Our also the year-on-year. are in cost declined management segment that marketplace

those into delivered the quarter. account, all marketplace the factors in adjusted segment million $XX taking EBITDA So, of

the $XX However, mentioned charge one-time I this would out inclusive point again million I is that that earlier. of

the $XX marketplace charge, million one-time would adjusted been EBITDA in have the quarter. that Excluding

are provide our effective fruit. and results bearing evidence the our those some businesses marketplace out company. bottoming operate for that are more clearly to that these efforts challenges efficient Both of volume believe are also positive I and very a So, demonstrates solid

in of increase in $XXX. was QX that by was and the In increase a year. driven to XX% business, X% a QX transaction our per revenue segment finance This $XXX growth volume of over transaction of last was revenue XX% million, an

levels and finance part below-normal that QX the $XX was more credit last was early compared a EBITDA million and was EBITDA last adjusted in Adjusted experienced year of sorry, year. -- This we was reflected XXXX losses down million. returning million. range $XX $X This versus down of on segment normalized to to the the

in number our management our and before, of a the X% $XX cost believe million model. to of cost part important I of of acceleration In initiatives profit margins mentioned QX, declined QX, global up showing work working improved pipeline we areas, to SG&A or our gross meaningful services I last here shared compared including an on have remains SG&A made business. QX In progress a total KAR. on focus is at our of And And we still As we're further expenses. management reduced streamline year. that

to a I'd few updates provide like on macro environment. the now brief

up quarter first was the production XXXX. vehicle new of in First,

used the that with an of coupled are lots new this during to market time. reports Additionally, demand was in balancing the recent vehicle suggest quarter dealer and new inventory and vehicle These over increased factors sales. on ingredients vehicle the supply increased necessary

last but quarter on the I of week-on-week have Shifting the were as expected, was of to appear second vehicle values, market. half quite pressure values used used to on as progresses. in witnessed may some vehicle strong, appreciation price level vehicle increases reverted vehicle we spring vehicle our discussed declines downward the The first that used see the start so-called used And think values in price appreciation in to last year to as we call, price year used the plateaued.

head will supply, meaningful half increase increases have year. seeing begin as are see we the customers not of some towards some volume in that yet to communicated this off-lease We second any we though optimism

from increased year they new could year originations feedback to and had the progresses. on also of compared leasing increased last incentives vehicle expect We that this as customers to lead sales, volumes see to

that carefully to continue will also. watch we So,

With all that two said, thesis growth I believe intact. our of remain that the primary equation

continue channels to over share we're share digital gain of First, well very will we time. and to that that believe gain more additional positioned

result volume, increased in volume We in be our also will believe time, will in which that over there recovery commercial marketplaces.

in a not this what environment. we would conditions finance experienced finally, conservative that generate believe results the dissimilar then continue we in portfolio we manage environment, what point current pre-pandemic. more can And And to positive as believe normalized we and a describe that we segments, to to risk

generated would portion the like terms characteristics cash call, we business. during this again In company capital evidenced highlight financial the ratio to of QX leverage discuss historically ample allocation, balance believe and sheet We again low from activities. of and we operating liquidity. the strong this strong cash was where of a but will that flows of This I further million our flow has in $XX

for to to going deeper earlier, an his our this Scott acknowledge not on I of good appreciate throughout going important to company, our of know financial now results. transition. his you work here those a Scott, turn want teams at of team forward. recent OPENLANE should Scott? quarter and I I just you, dive functions as years important finance in also the many in We're remarks. deliver be Scott, CFO I smoothly first Anderson some mentioned And but service keeping our member running and will

Scott Anderson

Thank you, Peter.

commented our of As financial on only I review. Peter many already metrics, areas couple additional a of to has have

We no Because will measure volumes are sales business. separate a vehicles digital the our success for marketplace we consolidation, indicator are separate one be now have we key Since disclosure of and no is of segment. sold our longer change. moving XXX% believe longer volume platform made digital platforms, dealer-to-dealer the providing we to of we marketplace consolidated

we to provide volume. and commercial dealer volume total However, total will continue

sales. XX% to of generated excluding revenues, our sales, and quarter, first purchased increased vehicle revenues, consolidated XX% the In excluding marketplace purchased vehicle $XXX approximately million

by lower unit other select volume fees which Peter to Auction to Offsetting due fees of X% total the largely and sold to highlighted. vehicle compared mix auction conditions X% commercial due fees in increased declines, a approximately declined earn off-premise to decline X% vehicles, $XXX, to channels. a generally increases, market lower fee due per

up services increases remarketing, was XX% to provided. repossession, transportation and revenue service in technology due Marketplace

benefited in gross resulted transportation revenues. quarter of XXXX The profit excluding marketplace execution Strong improvement and cost and growth margins, control the in first improved of business XXX-basis-point from in revenue increase also the initiatives. gross purchased margins XX% versus vehicle

Strong interest year growth. fee to Revenues consolidated grew vehicles. prior the increases for was to due revenues, XX% loan and well of growth transaction unit on finance over the as excluding purchased and segment. Moving as accounted revenue income XX%

conservative through expect the to manage a As portfolio. move year, we we

Our service offering and and opportunities. model identify strong risk growth mitigate high-touch helps

the the term, credit for This declines. losses annually. prior under to provision used a in average normalized credit versus last be losses risk AFC's due of rate for loss environment the years. to X% experienced value quarter the managed expected year X% vehicle receivables is Long represents two provision increased more low or to for

range. the However, deviate quarter any could losses that particular in from actual

let on Next, provide me SG&A. additional some color

$X consolidated First $X quarter fees quarter was of IT decreases professional This SG&A million, which in about $XX and due first about to million. the XXXX. is million costs lower than million was $XXX primarily of

XXXX. ongoing we but highlighted, initiatives be until to offset reduction further of not Peter the cost increases, will some have As effects realized inflationary

affect the did that item first the in additional early-stage was automotive an company. quarter related investment charge million to One an performance $XX

As enterprises. a reminder, we auto-related occasionally invest early-stage certain in

We reported those several prior instances have in from of investments gains years.

a operation in XXXX, bankruptcy companies this and $XX of and item million was been was clarify, impairment one the $XX to late this through non-operating filed from of the results, have March would In as reorganize statement, exclude million we recorded approximately those $XX if quarter. process. impact adjusted EBITDA million in non-operating income included other its EBITDA. reduction for impairment income in the The adjusted To expense our or higher

from of highlights will I composed quarter million characteristics cash over credit. million We generation. $XXX the and our activities and which $XXX conversion million, flow flows of of ended structure cash business with highlight line available million cash $XX $XXX of quarter our were Cash in capital model. the in Next, the available strong liquidity, in operating revolving strong

are a today, to of plus an capital our unpaid interest. senior and of terms issued announced separate release offer price activities, press notes, we of million purchase up terms in The $XXX the of principal of offer amount, In XXX% at detailed to morning. a outstanding the this purchase accrued allocation included

As repurchase. to we I liquidity the mentioned, sufficient fund have available

quarter-end, are as debt. $XXX As to physical our notes classified sale. ADESA last current required outstanding offer business due senior make U.S. this terms the million a year's notes are Therefore, of reminder, to senior denture the under auction of and we at asset disposition

in also markets windows extend to our put We permanent for a continue and the look of opportunity more revolving debt to -- structure. in revolver debt date place maturity

Finally, let guidance. some me annual comments close on on

$X.XX this guidance $XXX diluted EBITDA generate changed to operating our We stated million of adjusted have adjusted not believe to will earnings of million. We from $XXX earnings level per $X.XX. share previously

of dividends our and at range, to no preferred payments changes. by capital As expect discussed allocation a last we $XX working million other taking into and capital on debt million activity taxes, debt, business cash our capital generated in call, guidance on corporate reduction could net result account after expenditures, this approximately estimated interest by assuming $XX

now my back call and I Peter. remarks, will concludes over That the turn to

Peter Kelly

Thank you, Scott.

additional announcement will to go part of like Global referencing we OPENLANE. the and section slides Q&A, KAR these our context we and And the we webcast. be call, around also Investors Before to slides that as section, provide rebrand a this some during of detail I'd post this to to from today's yesterday At website. of I evening's will conclusion show will

In interact our First, a excited invest the a at to our business, we Shifting about It taken physical auction this customers under brand. vehicles. transformation company. from with offer legacy believe channel of industry we in year more a and most next we for a will most sell how than many represents company our that source and asset-light, used how culmination we digital is that we're trusted OPENLANE fastest, very change and has much logo. the our business operate, available and is to we of easiest, it advanced new our advance customers think that already to our just I the how name future. the the believe marketplace ways, place more change the how and

about But that changing, a few me will talk not things what's change. I before cover let

so will investor And to to will to in as our symbol, floorplan press continue base. confusion First, not will rebrand this no under be business, we release, the apply ticker our KAR, mentioned trade AFC. our there

customers also change no purpose, wholesale to be that is successful. which to our make easy is our can so more There

and marketplace center as on want will at Our of as us the transacting OPENLANE. to do easy at be customers we everything working our possible. We make with

most And is at world's in used OPENLANE, at also for the the of And build the a technologically-advanced greatest and doing for they've all the inventory digital all same give selling is best it's one time, our buying vision vision, the experience access vehicles. place. with platform marketplace single of simplified buyers, give to that of and selection largest about achieved This all available confidence we'll vehicles. for vehicles, data-driven price continue the possible sellers to pursuing their sellers of vehicles. the and about all which creating used By OPENLANE will the buyers this, market

OPENLANE can greater, company a far think an far and you And compelling far view more through as when disconnected lens, you I our as more powerful this integrated clearly that than parts. see is whole series of

strength and First, leader pure industry, deep a the is of segments both we're play this marketplace important differentiator. commercial dealer with an digital our in and

clear and our America, of leader platforms. to America's We majority we market. a in in And North in the in share off-lease volume North are grow significant commercial supporting our off-lease vehicles the continue dealer-to-dealer industry

and can the higher-mileage Combining vehicles in everything all buy OPENLANE where older, CPO-eligible customers only off-lease marketplace of vehicles this and provide under play will anything pure from frontline-ready, sell to digital between.

last also forward. here's stacks That's sold that but commercial was of to OPENLANE number, intend one and About half up. number's dealers. vehicles sellers was a perspective, it's X.X From grow from significant million half year. We the from going a we how other volume

discussed know also ongoing below we've pricing volume normal, that the and We that was challenges center commercial calls. supply owing prior the to on its well historical

to used we measure merchandise metric is on will value digital the GMV was marketplaces operational $XX commonly report going other Our this industries, in forward. and of gross to billion. health continue

active dealers. average, than each On of more has year, most participants OPENLANE XX,XXX them

level sellers activity the And our you breadth stress and is here, available. of of one list, these purchase because the because buyers of primary -- marketplace. of to in it reasons and of to logged see breadth is the vehicles sell unique important who've As this in bid, are inventory

vehicles During any our for sellers more their given trust than offer month, marketplace our sale. XXX,XXX of

opportunity year, our that's retail addressable our while just According out [XX analysis, already (ph) So, market transactions more there strong our statistics believe industry, vehicle large and important million] still and company. wholesale of there represent are position for each it's in to note used a these is than America. in to there we North leadership a

there buy buyers are and XXX,XXX there, to help for and looking best the sell. sellers than bid, Additionally, out solutions more them

large to a digital be over well share time, increasingly that if this have and are believe addressable a we will gain where we So, market, market we positioned happens.

So, with answer let making the why that as background, we're this why OPENLANE, me change questions to on, further, now? and

one efficiency will brand, experience company and one sign-in our marketplace, effects. one interact First, for marketplace OPENLANE the with enhance the with will experience It and network also streamline one user employees. our transition and things will It for the Having will each to the other. simplify way simplify customers improve customers.

it accelerating I will unified and create our an aligned think purpose and even more team, vision.

consolidating technology. help accomplish To this, much of our us we're

across the platforms. also and This sunset the control best platforms, expenses will leverage costs as of associated but will will functionality We and shed with our all features from costs help other we legacy maintenance we those older us platforms.

efficiencies and in will field. platforms engineering into will that that's focus we advance efforts in focus core how customers the marketing we resource services our sales will the our One our and up and brand our reinvest also the value These help most. marketplace core free financial strategy. can that And

entire of we with focused aligned all accelerate across can and under our business. And this employees OPENLANE, innovation

for We of the have desire stockholders. entrepreneurial be their I'm the under very energy this our our and will customers for and this I brand for focusing powerful team customers. our company, a products and great great build value at creativity and company nature here to believe in one and our team confident create

and will this believe of lower services will, operation. we growth our one right, confident things can in the we to we do that at I stockholder And deliver a of provide share for will our of meaningful cost be value. Ultimately, customers solid formula a expand that and these I'm if scope all we

idea consolidation what and well a brand is already the customer that work and simplified marketplace me consolidation looks example the the create of let give to So, marketplace to share just market this U.S. underway you of an and experience. like, OPENLANE

last technology. essentially vehicles, our BacklotCars, open This running for are four that sites year, what then which different label CARWAVE, the mean OPENLANE I call the by had iQ in sale off-lease private time and OPENLANE, the we platforms we on running U.S.,

we CARWAVE been In the know, national is underway. and of now auction single completed into has of format marketplace. BacklotCars retired well the and as rollout a you CARWAVE fourth quarter, BacklotCars consolidation the live

In parallel on with inventory our with this integrated before branded year. to inventory U.S. of the end into marketplace and plan other that role, marketplace combining working OPENLANE now a we're commercial single the off-lease, open experience in this dealer the deliver We rental

there's on private course, space label be our change sending digitally continue the a through position our sell do differentiator believe to flexibility we will to business. will while opportunities inventory overall in the strong buyers auction. of it this the mass OPENLANE and no And business, critical to integrated of additional provide physical marketplace formats a for versus this off-lease And of that

The to States. brand limited OPENLANE not is to the United change

intend of a in and first In the application TradeRev the Canada, few single marketplace. months, branded we where marketplace the over Canada be fact, OPENLANE into to ADESA commercial next the will combine brand

strategy a be We're platform. Moving ADESA executing single which OPENLANE. focused Europe slide, recently our consolidated marketplace to true in right onto side ADESA launching and a Europe and single the will our in now of offerings technology UK go-to-market branded again Europe, we this on

unique business. for growing compelling strategy the and marketplace, digital of to OPENLANE, play strength We're and have we a as sound pure a profile with commercial differentiated a and look dealer-to-deader growth. marketplace believe deep both and leader the we in the financial So, for offering I future a

to We to America intend have the North Europe unlocking share market grow a large in our and in while digital access in opportunities addressable we and new market.

digital By robust and resources our a platforms, have -- greatest customers. energy, strategy. innovation supports our marketplace our that consolidating we of building innovation focus investments pipeline We the on for growth

the in We was positive profitable strong quarter. clearly evident Again, deliver flows, this first and are cash

generating We down to used return pay additional cash investments. capital ability that and have to be invest business strategic to in make can the while shareholders our debt,

spoke in And business on next then finally, that believe years several as OPENLANE strategy, our XX% adjusted capable XX% the are still and we've about discussed brand the CAGR to call. the of we that delivering last the EBITDA our over previously, we

I over your will the take that, Andrew call with turn to questions. So to now

Operator

J.P. We comes ahead. will [Operator now begin from go the session. Instructions] The first question-and-answer Morgan. with question Please Brinkman Ryan

Rajat Gupta

us Great. for you question And for the go sense This impact exercise. do we related lay or on is any through you Ryan. Rajat have should rebranding Should mind? any transition cost any the are any And keeping the on Thanks. a one-time of I through thanks we cash taking Why I questions. other the transitory this one-time And be or just transition the to first to impacts the for like maybe had that volumes? be a of able out on accounting give in course year? follow-up.

Peter Kelly

not guidance impact does to two platform brand Thanks, We The the there's work here from does additional been to -- I've and don't of is part change that doing, this that Scott impact the which relatively call on calls; material transition. reiterated consolidation our we've not and either projections. are spoken expect do our there's work, not our guidance elements candidly, this impact about ongoing costs, Rajat. the volume it: And modest and I on prior branding impacts morning.

Rajat Gupta

the depressed one-time We're on excluding higher was still maybe an level prices. meaning $XX it. million. from guidance itself of volume perspective, Got just close EBITDA admittedly And a charge, to industrial the at

much seems midpoint, volumes. with started in run million than to that level you from like mean rate like million Going at that -- at a $XX seems $XXX quarterly lower depressed the XQ more the that I of

you Or any is could think conservatism? through you that half? us What's more guide second help course also, that again the you sense with driving seasonality like in AFC if trajectory If might prices within the if bridge are? the of of curious might in year? Thanks. normal throw could us it as that? the that you the So could impacting come anything be well And into it EBITDA it? where Is just give play given

Peter Kelly

Rajat, Again, was QX listen, a quarter. good questions. strong

$XX think marketplace good that we're I I EBITDA charge, also about million good about to feel make starting the one-time I the a segments contribution it. see fact adjusted once again. show changes mean, business. think I under on our been it is been to I core QX, in positive But of pressure. is It very that feel excluding impact up. the starting we've has working

So, good about I really feel that.

fairly still taking We're the year. a conservative view on

While just some show increased that. half there projections. positive years. have if We're view it's may that will be projecting And up, the taking the that. signaled on to been off-lease predict a does vehicles year, difficult not that We're cautious the last of our two second customers be in to so over

I'd to cautious AFC. I we're on about also say, continuing be more could comment that.

than year. we to I the here slightly as did -- move losses credit actually last we but losses see think losses into expect year, certainly risk we decline to higher

we about So, the it's the to this we as for year what expect thinking plays reasonable I bit into last think that think total might our be performance as well guidance. little year. full And below for year a saw AFC's

Rajat Gupta

Maybe like That's helpful. clarification. Understood. just one

year. flattish to the last for you you quarter expect full mentioned I So, volumes be think marketplace that

Assuming midpoint like that's right? the at of the the guide, still expectation

Peter Kelly

is flat year Rajat, the this start the volume of overall. year Yes, to before year-on-year get in in I the Marketplace for seeing that's implied we expectation. expect flattish. end to volume do still us increases is some to that, And a guess

a couple a where that's flux predictions think I lot our So expectation. But difficult. of listen, years have of there's It's been in reasonable been been industry.

a around we have more would So again, taken, projections. what outlook I characterize, think cautious I

Rajat Gupta

Great. for color, all in Thanks it. the queue. I'll back jump Got and

Peter Kelly

Thank Rajat. you,

Operator

comes with question Please next The from Baird. Craig ahead. Kennison go

Craig Kennison

worth, good for brain question. OPENLANE. morning. appreciates taking simplicity of one what my Thanks it's for my the under platform I think And Hey,

my cents. two that's So

selling of geographically control volume of success but tell So volume. market in the still to had OPENLANE history there's West dealers in platform you the BacklotCars way and of recruitment that or Coast? on you've whatnot, dealer the impact share any you of can just a terms I'm the number and on lot the efforts? And what your can don't what you wondering us about any about extent given it's with the based history of

Peter Kelly

mind. our Ryan, as Craig, -- did sorry. simplify the we very business -- in appreciate us. with did investors for I the We're we well for well, well to customers as our comments. our Yes. change you as as trying change as Craig, sorry. and the

we You're right, there's lot control. a don't

I think things that think doing I important I focus control. are and our can on And we that's what are in that those it's performance. up to again we think showing

been, certainly spoke active volumes on back, well. increase terms broad come over expect about participants customer, I stable in we number as to I'd time. Obviously, basis, marketplace, in it active our number of that's an has XX,XXX we're annual And say, the customers a number as proud of. That

in And improved materially consistent We rates. into rates improved first in strong demand, I we QX Conversion supply, think absolute I'd buyer activity. just QX. say also limited what strong saw saw conversion terms. buyer the We growth was saw quarter. versus that with

was that activity. market it lot strong and reflected was a So, spring of by buyer a

that. demand weakening get I'd say seller point. recognized say, strong at say quarter, a a was They I'd of was for on the are and little of some a equally as where Prices kind were this more sellers plateauing, seeing we things seller of we're is It But market advantage take well. bit. wanted possible the holding saw QX, a growth, buyer are and I'd balanced normalize they the and as to we activity bit. their to look best those little into say, price I'd vehicles. good

in have guess that. go that recruitment, sales marketing of terms with obviously, and I efforts buyer we

calls, auction markets. our number on I now format in limited the model, mentioned BacklotCars This operating an auction have platform. of of the former on rollout the of prior been as CARWAVE on, is One we a focused the of format things sort was

to now I and or with, is rolling it more in all say, to at signing in XX in participate So still point. Mississippi well that, and states, underway that I'd rollout now out. we of that, started more up to generally this I participate QX, and we're west believe But there think that more out more too. we've results buyers rolled dealers the good XX

Craig Kennison

you. it. Got Thank

Peter Kelly

Craig. Thanks,

Operator

comes next go ahead. Please question Gary Research. with The from Prestopino Barrington

Gary Prestopino

that and Peter. quarter improved for morning, you numbers could I this you please? conversion Hey, year? QX What good year versus rates of last conversion some on know just put were maybe us but the mentioned in Hey, materially, last that QX rates

Peter Kelly

don't conversion they different do channels rates We different provide of, precise we've vary and sort had these, the marketplaces. by when

plateau kind of higher a Still seen where level since market, of say longer QX then going So market over improvement to QX they're evolve I saw course of year, and guess in Gary, and is would and that's last higher year intensively no peak consistent anything that's quarter, what depending would And sort of of kind it I year. over versus we probably a little March QX we qualitatively saw little on say, material I'd with of than the that marketplace. of a a QX Yes, that of of the the last or if continued. conversion say scenario rates, than of then, descriptively, has a pricing we've be strong I'd time. last but materially and sort areas, maybe something couple increasing. a higher early

Gary Prestopino

through you conversion were lower actually it up that selling conversion pretty But -- the just -- entering season, for of there's there coming cars the a cars of actually was improve the function dramatically. a amount were as improve, auction, or say did pipe? it Would -- because usually rates spring ratios the

Peter Kelly

I'd a both. little bit say it's of

was know you spring year Perhaps there's the of the As weak. more one it a Gary, reasons this market. part last latter typically of is was evident year particularly

see. So, comparison more it might separation the -- maybe November-December typically than to just more was January-February from was we there

I remain of think Off-lease to very, was very volumes function continue that some of a scarce. supply.

a off-lease see the So in in we quarter. uptick first didn't material volume

scarcity probably that. to So contributes

at market do And look we share. then

and one various it data increased looked data quarter data of of report terms that share after sources us have at, our the of share, think we Some a on that we positive market doesn't until based But industry the market hours. where was overall. the in get we

Gary Prestopino

very you much. Thank Okay.

Peter Kelly

Gary. welcome, You're

Operator

Securities. The next ahead. with Bob Please from comes go CJS question Labick

Pete Lucas

morning. good It's Pete Hi, Bob. Lucas for

if us one off-lease home in the And five next you potential OPENLANE?" of tell mind where could online now? back what one sales is it the you to going run that Wondering in pre-COVID were going do Where see to OPENLANE, the platform, for brand. opportunity to strategy percentage "open sell brand years? of not is meaning just part our Just auctions," for in the it cars "open three franchise's

Peter Kelly

a I longer great that's important I the very here question. hit Pete, business. term And at we have over think a this you've strategic lever on, think,

function to in As I cars of playing kind the just as do off-lease my that a isn't strength there're deep few residual. a got particularly this market and instrument so commercial in off-lease right mentioned It's segments. in in value as that's this versus market. the I the and remarks, now with industry we've of pricing just characterize that musical because

worked all we'll the some confident even that. If a confident the commercial cars I'm are that normalizes. Certainly Canada, in see North going more and that of our America. gets transitions big remain particularly the time I'm EVs, all of anything, to out, customers retailed, as way leasing. that United leasing tell of States industry us part over that is maybe

vehicle equation residual be but I So to this take I value is leasing industry. some going time. part versus And think normalize, value this to a to is going of ultimately big think going it's all

to maybe open. environment. And then, will numbers, cars go to sort off-lease the private those of to your sell sell XX% And the but another what was would of are that overall means looked that that auction. conversion rate or the in pre-COVID, vehicles And and physical the directionally so XX% channel the what is like. question, indicative rough label specifics of about So of we'd of the XX% about typically, we'd happen in XX% get

label few a to bit Today not dealer to of selling vehicles, the make that is revenue that's right? quite business. a private We -- driver XX%-plus different, the it's in first gets dealers, because of the them in that the strong money, but grounding so car, buy there's off-lease our are little chance

there's cars XX% so getting into today deeper not and off-lease more situation of very where have them few the are a them purchased, we of So, a than lot getting are of returned flowing marketplace.

of [truly format national] of over out reasons talked large vehicles open. real put will all business digital auction, will I us, the is, then where these rollout is true from really all the I all digital important (ph) volumes Again, those cars off-lease into will think opportunity dealer retailers what so car play forth. into more the networks, our with a important. power. time independent about number And flow will think of Frankly, auction it's you the is think a decline, the dealers, franchised will ability to putting XX% The That the one and used have I increase. which types of buyers into off-lease means marketplace be

And are I about, I Because too. years. sending think all excited of to any without really think for hardly them they've cars selling this our gotten physical is customers few last something about that but these the certainly used excited auctions we're to

these think selling very to percentage way portfolios a I find they're digital the maximize well So the to of future. into motivated

So out big one time. us, opportunity play will for over that

Pete Lucas

helpful. Very Thank you.

Peter Kelly

Peter. Thanks,

Operator

Bret comes The from next with Jefferies. go question ahead. Please Jordan

Bret Jordan

morning, good Hey, guys.

Peter Kelly

Good morning, Bret.

Bret Jordan

bucket kind in I as you repo the of service [You in think and in contributor contributors of within to cadence quarter. maybe service service Could told that] you're (ph) seeing and what the environment? repo current the a the

Peter Kelly

give us profit. them. the And that's sell often generally for of service are be of got a example -- Yes, I the thanks, vehicle. we that types for attached We certain sell. the about to the vehicles vehicle that services dealer we they Brett. deliver services, the choose services, Under that would opportunity an Examples revenue We we've that hope opportunity logistics. have the as easiest us, and of to think the way will, -- we they if

like we that's an be call So well. what will attached attached as service, certain services activities reconditioning

that then that sort And services we of of from are are sort sell. separate there vehicles

We have inspect vehicles. inspection an that business

to a give just examples. we a business. have have businesses, few key obviously, repossession servicing We And

year I'm than to better say, a businesses, ago. those happy performing all So are

were a that's results. addressed challenged. showing Some volume up and pressure We've them and the under was in that, our of lot profitability of

industry to we've more because specific provider repossession of RDN, the called repo servicing segment, serve two growth, seen repo significant at that volume those look Both activity the we businesses in and a a there have digital got we is If have segment. PAR. platform today. the We've got repossession

are the prior businesses pretty auction. of pretty not model. calls, industry a growth digital-only segment in in all those yet will growth of physical much at that has much revenue I It's this been business. driving say -- our So and some really vehicles profit for today, But one those repossessed sell all that our disrupted I've by said on

at we're an not any on business the this to really area volumes repo some up, in it way to too start a volumes focused point. flow It's our of certainly early in on We're physical. to to for opportunity sell meaningful currently. digital marketplaces. although that our to So, about are to that. vehicles But that is It's working those got some format We've initiatives of those continue more in future. talk

Bret Jordan

I question. guess my leads second that to

went some and some guess have digital's it is off-lease off-lease digital, volumes Your requirement -- of physical availability But had all or think comment that divested just there to you I physical, of they put all XX% normal available? since physical commercial is assets. from to that your have because you that there will I a sellers pre-COVID environment we not is

Peter Kelly

don't from sellers, I requirement think any no. there's

marketplace chance our a a in -- speak detail sellers space, our in very about leader off-lease leader I think a think with vehicles. digital us are to see our sellers strategy. a I as business, the And we've had

very a with I this strategy. at marketplace can't they're most chance point, had strategy think in think the large to become preview our see very, it. consolidation say and sellers, to happen of I our most supportive and of reality. with, wait cases, I've a aligned Frankly, would very I it

on So will can very I for them, our for very the and for outcome vehicles be positive it think their very, deliver business. we positive

Bret Jordan

Okay, you. great. Thank

Peter Kelly

Thank you.

Operator

ahead. Please The Inc. next Stephens question from with go Imbro comes Daniel

Daniel Imbro

questions. Thanks guys. morning, good for our taking Hey,

Peter Kelly

Good morning, Dan.

Daniel Imbro

I market commercial want to -- share. start comment earlier of there's industry years. I a it's headlines actually the around last couple been I'm around curious, on guess follow-up

progressed still, like to the kind XX% rental stands these something kind share commercial of your the slide curious, how Manheim, year-to-date. I and guys segments commercial of versus with off-lease today X%. You you XX%, within as three noted market in their those your have volume think was changes noted I'm deck, you've down off-lease main was business? made pre-COVID? sellers conversations strategic where about up And just and can talk repo, of

Peter Kelly

I for operate Yes, it. on thanks, I'd guess to vast comment what the finance I because familiar that with Daniel. data we not captive don't America. want programs North say point, But companies of in off-lease I'm remarking is majority

QX same of to It's XX%-plus XX%. can volumes the down last physical. that. selling auction of line, are slightly they vein, about be with up in these physical through see broadly we to flowing all vehicles before is off-lease clear their year. So I vehicle volume in not upstream It's us. very of going The go

has was volume at think auction repossession So, commercial absolutely been I that now, volume up physical because it's possible up.

on As repo all to last I auction. volume that of just mentioned sell today question, the physical

number. is from So it's also Manheim know conquest a moved finance possible that that the I number Manheim of a captive to number after volume ADESA companies from divesture.

possible some volume at well let's historical but So selling norm, it's below that, that. just it physical auction the say was is of the off-lease

Daniel Imbro

Great. And...

Peter Kelly

In terms of our...

Daniel Imbro

helpful. data -- ask by that would I about there, had a maybe to segment going by share be a follow-up Sorry, just on market just any if you was

Peter Kelly

Yes.

strong positive. platforms. terms Their In on majority relationships, customer we pre-COVID. mentioned think of commercials OEMs have the I were the our they names of I same are

those we in customers. are continue and relationships very to those good place think with I So close stay

don't not question I've I ahead. addressed now, -- Dan, sorry, your if So, go please

Daniel Imbro

lending broader impact I talk floorplan maybe you going banks provide step to how the that pretty a at more That's AFC? for was an pulling strategy just it look to ask opportunity control curious and then a to and in stepping Are like at your others a dealer We've And seen regional dealers. follow-up. risk back given growth to appetite. some I'm your Just to floorplan customers? profitability also maybe about back just as on does fine. that AFC. to doing ROI losses? high Would seems you

So growth use if in pull a that back? capital this floorplan other kind you're almost of of curious as viewing providers how environment

Peter Kelly

Daniel. Thanks, Yes.

of We're Again, year. first pre-COVID. think, I conservatively I'd environment to risk risk, all, different mentioned, what saw a compared as little experienced managing characterize of watching it I'd competition. We're say, consistent our we're we as our we a last seeing than to normal, bit carefully. I it

into is space of number number at looked and the said, years opportunity. a a of ago hey, this the interesting though, Got right an sort space. of banks You're

I space. of, a think competency they may probably learned. specific this Listen, of a lot bank. of, a That deeper to deep this requires not be core expertise sort --

were away from we've line. akin -- banking probably seen them us cases, opportunity a or That out. those conquested felt of for and they some in bank our customers deal create more best to credit and one of So largest a could better us quality offer does some customers the those pull because number a two because entities were they some

business it So the also We're an does at look a growth But AFC sort it that's we will be to drive a it modest but business. come to grow, XX% looking a business. business. about opportunity I'd contributor for CAGR at I've I'd cautious be and the to a marketplace to that the say, will to single-digit strong focused to it. talked of The of growth, having expect has We're do going level conservative us. a from growth from through, it that AFC say larger XX% continue create lens. We on

Daniel Imbro

going of Great. and the best luck color, forward. all Appreciate

Peter Kelly

Well, done? Can everybody take Okay. questions. thank appreciate you thanks, I today Daniel. and And or time we more your we're that. one question for your

my today. to like for summarize messages Before I'd we close, key just

QX, environment. well in EBITDA a performed profit, operating EPS. revenue, all, delivered adjusted we growth what of of challenging industry against a and First digit is in gross We still backdrop double

improvement a also another strong solid versus segment. last in Importantly, we performance our finance delivered and marketplace business quarter year, demonstrated our

showing our is in work cost management track. performance remain on Our initiatives up and cost our

platforms We simplify and our are executing on our our to consolidating plan business.

OPENLANE. which brand, marketplace one have will is we forward, Going

And I future the as drive believe our growth. our about OPENLANE, strong I future that differentiation will help of think

a play leader. in strong marketplace knowledge strong technology, pure strong and industry data. in We We're are digital in

cars We we million last to sold that scaled X.X and this grow is with intend number have over time. year, a

continues volume have categories categories. is our deep we with and both We XX-XX industry with as our grow strength and to both between both in commercial roughly to divided dealers, sellers believe volume We the digital. will shift

their We also volumes believe that seller historical the grow from recover volumes current lows. as will commercial

with strong profitable cash characteristics, are We evident flow again in QX.

We return and to sufficient in capital low further cap addressable stockholders. We have ample sheet, market support our invest. which large a to finally, investments, balance a reduce and to have debt liquidity. generate and innovate our debt strong we our And

excited of about future In OPENLANE. very are summary, we the

to updating for forward call today's you. you look early I on August. thank next in Thank on call. our joining our continued you So, us progress

Operator

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

may disconnect. You now

KAR Auction Services (KAR) 3 May 232023 Q1 Earnings call transcript