KAR - Earnings call 3 2023 | KAR Auction Services, Inc.

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Operator

Good day, and welcome to the OPENLANE Third Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. I would now like to turn the conference over to Michael Eliason, Vice President of Investor Relations. Please go ahead, sir.

Mike Eliason

Thanks, Rocco. Good afternoon, and thank you for joining us today for the OPENLANE Third Quarter 2023 Earnings Conference Call. Today, we'll discuss the financial performance of OPENLANE for the quarter ended September 30, 2023. we questions commentary, participants. our concluding will from take After

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

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

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

Peter Kelly

Officer, begin and you quarter I positioning good provide our continued by to the segment present to Lakhia. I'm industry And here is expansion delighted are our of be the the for afternoon, today's the Finance And speak segment. Chief business I'm evolving will performance environment. to encouraged results our I'm pleased market, performance, third our of as improved believe future. me Marketplace today's meet everybody. that and compelling to call and our QX particularly Financial Mike, with our X about Marketplace on model going we while segments, on an realities I'm the today joining I with OPENLANE business QX successfully in update with growth our evidence despite challenging in OPENLANE's you, OPENLANE. usual, Brad performance. Thank business and

and gross EBITDA Finance by normalized business Finance revenue our We from the During grew both the mainly would grew our cash the adjusted and will in and strong U.S. our around has technology best profit. call physical Marketplace in in its generate our delivered third divestiture business. innovation highlight our the invested historically continue key SG&A. to provide since OPENLANE's results in more slightly, quarter I we driven of declined loan volumes We later business, few We product a Marketplace quarter. to segments. in third losses specific a the return we development, quarter, while flows And reduced total transaction but like to auctions. Brad performance OPENLANE's and detail

First, both in a to billion. in We the commercial Marketplace by contributions XX%. $XXX segments. our with total growth value with Marketplace total generated growth Auction grew fee increased transactions merchandise vehicles, of segment X% of volumes approximately gross and both million, Finance to from revenue XXX,XXX by and X% $X marketplace year-on-year dealer revenue

$XX Marketplace specifically Marketplace segment, market than quarter Gross by call revenue, of in we're increase like cornerstone to our where the time performed the and also highlight development XX% year approximately EBITDA quarter. total for is the strong from second leverage million was cash year, profit to over lines the dealers in balance is notable work, at and Finance OPENLANE. business now again QX. our a $XX Marketplace to research our million I and strategy this segment sheet, Marketplace efforts EBITDA strong with $XX liquidity X,XXX And increased cash adjusted in extensive that our ample company was committed it's support ago. and the and across with of and update $XX this stronger OPENLANE of vehicles. of an easy, XX% the and simplify rate delivered revenue, in our excluding over XX% vision customer company still third that in accelerated as operating making pleased for to an easier very innovate our of characteristics in our flows. I'd platforms. increase States generated run to of you million were experience, significantly us adjusted very flow business. XX% year X from and again, out very adjusted $XXX million I'm business segment. per United than our invest XX% the aligned results now of Also, of total from from call that to meaningful grow. million, an here And on during I the was strong the but time, customers performance business OPENLANE. Brad third I'm quarters last third to the is work EBITDA improvements already purchased capital to represented QX cost. To the last will versus was activities And adjusted product wholesale strongly to that represent year-on-year, generated profit Canada. Gross we in reductions of representing we our our and are performance than vehicles. OPENLANE XX% with easier will mentioned QX. operating later cash the I'd evident to to And discuss more purchased OPENLANE of I Marketplace higher million that quarter, pleased EBITDA innovation was improved consolidate delivering of approximately expect last year. and this last A and has want the flows flow do excluding $XXX a quarter and corresponding rebrand seeing profits a Marketplace ratio for growth, while OPENLANE significantly profit of allocation cash X% segment like gross in Over generation the year. do quarter, segment the for the

our very to is important selection customers. First, inventory

not other digital differentiated any marketplaces off-lease that Our or offer combined a is and marketplace, on age condition physical every point. OPENLANE inventory at highly will inventory dealer-to-dealer available price mix and of

multi-format pleased we hear use. buyers platforms most combined, offer customers and are bid-ask will Another trust that important the an sellers flexible, ease, live bidding and in theme Once to our sales, every was marketplace our to key time remains finally, North easy the find listings with very place OPENLANE auctions customers. from and of our that marketplaces week. And America, nearly our take including day the factor and

of on providing OPENLANE. we I most and dependable believe continue positive but So and in will areas these like condition reports, transportation. responsive the as differentiator a customer customer position invest we're from operating ensure to our inventory most reliable focused financing highly services for we're such the service most the to our supporting experience, strength a remains

believe quarter. Starting achieved milestones our some strategy in that So of third that is one aligned I'd the highly the preferences specific with our customers we I with marketplace to share like and Canada.

deploy enhancements TradeRev launch, in has filter quickly of and of our single the rate growth And relationship evidence I by we develop, functionality to to our additional simplifying ability a year-on-year we been in as test QX, The and able and preferences the updates. have ADESA OPENLANE-branded the of successful. a as the volume search and our provides combination vehicle think the initiated Marketplace marketplace. I'm these business Our our to very aspects other sell second and platforms migration innovate and now between customers. were late the this respond quarter. buy complete images, quickly of Canada well And as how capabilities encouraged and Since our direct in into our and was whole. implemented to marketplace business outpaced is in growth our to

Another consolidation platforms. our products best the of features is leverage from to benefit across our ability different and

and other with to And rebates first OPENLANE's OPENLANE, Participating OPENLANE successful highly Pro, November, customers. Shifting that program now dealers launched we in increases revenue United on For this to our Canadian Canada, receive stickiness a a subscription-based pricing available nontransaction expands TradeRev dealers be and tools. and access that OPENLANE. for successful of example, digital offering also streams dealer to all will generates States. exclusive guides volume-based today,

sales away marketplaces, buyers sellers, of only backlog X align a connecting with dealer-to-dealer have even marketplace single, a to number more will simplified our will obtaining be inventory the outcomes This This off-lease cars. formats a their on to buying inventory now with the available currently vehicles. open consolidated diverse these sale on By in dealers. launching inventory are habits they're confidence more with the our experience, will online We combine will possible from access broad-based have the of commercial best that U.S. sellers from weeks OPENLANE-branded and U.S. our

then open this levels. from technology their significant with consolidation year. Through received selling portion seamlessly also wholesale Europe rebrand and buying the with our connecting have we're And be this is of finally, month. the private buyer excited sell dealers experience purchased own vehicles sale, in of the on platforms our marketplace. volume our not get the in this most to of business, while off do the this A well This lot. the will customers. And ground our unified in inventory, is experience, benefits on our off-lease OPENLANE to launch label inventory dealers believe those rebrand on their vehicles now directly U.K. through purchase open was new also by marketplace experience combined end franchise Europe our OPENLANE completed directly programs yet of to the in international that and listing same track at ease OPENLANE, who U.K. earlier promising towards of the builds can -- and the our the and vehicles One

believe our continues of an and capture base a we Europe. share differentiated has to business unique perform model in delivering to by European to OPENLANE well, Our customers opportunity growing that

summary, marketplaces, our and of under of all all all together So beginning the brand. to our OPENLANE sellers of looking I'm forward our our XXXX and inventory, with buyers, of in all

customer systems. earlier, maintaining our to outdated this and and sometimes by mentioned streamlined and It technology this experience not is reductions, also appointed the opportunity what of very and about -- platform meaningful We're a achieve associated improving focused in just terms advance cost a eliminating us customer innovation. more have optimistic accelerate efficiency back-end effort. also and we on experience. leadership accelerating to I costs consolidation older We're the consolidation can duplicative reduce affords costs avoiding As about with

Beyond our platform extend management cost across now efforts organization. to department and every consolidation, our team

performance. I'd as During continue as and It's the gross on me overall in prior work improvement now initiatives. for will ultimately, to the the culture we create longer and fourth that will positively area our improve quarter, total financial EBITDA the margins the our sequentially turn for our clear to of cost-conscious and outlook quarter, cost-saving help on overall pipeline our some like adjusted further is in XXXX And versus our focus particularly growth perspectives the we through performance, SG&A environment growth. which this headroom and well macro third provide our the accelerate our and on term. reduced year updates innovation, contributing to to overall industry

still a are results below and quarter backdrop third industry well were Our levels. that below volumes normal of delivered against pre-pandemic well

However, lots center supported volumes. I believe increasing particularly continue beginning have industry inventory sales that factors: increase. vehicle rebound, new production, we and relates following new evidence there on as this volumes and out dealership is the are commercial to believe it by New is to vehicle vehicle bottomed to

in market metric of increase used the they their individual actions the used remains late rate the see by a industry will balance In levels, while help to in continue in to referenced ago. supply demand labor part disruptions price continue that into quarter the decline improvement on quarter. And to downward vehicle we quarter, and industry third from time. Shifting I labor collective some slowed, values, pre-pandemic below prices driven vehicle the in the perhaps although just moment each over third despite fact, actions pressure

on lease for period and resiliency originations of that Now data labor in increased pressure the our expect the optimistic leases last strong to resolved, we lease the same model been commercial by to conversations appear that third mature. be a year. our believe is about have prices the tailwind percentages This actions of in on I future as increased double-digit the would vehicles through results, those very ability our irrespective also encouraging and we will on point levels. pre-pandemic asset-light quarter as environment. Based those of in vehicle well still third was of out year. off-lease the that volumes us the quarter customers new with the used the vehicle continued of deliver the we level that end below analyze, compared remain to originations I

today vehicles, see vehicles decline equity for in over used that So the the of we position increases price residual remain this overall are wholesale further maturing their versus expect to majority in values. strong off-lease time. Despite a still

is increase quarter, the and We this volume in this However, overall results. third in narrowing. our gap to saw contributed modest off-lease a supply

are marketplace. is in believe to set precise I carefully. In described environment here supply The Looking in this to summary, will percentage hard in but something equity are decline see consequently, slow OPENLANE this the by it I percentage OPENLANE. wholesale vehicles that points watching happen, our into that purchased vehicle but timing to an a expect flowing position. consumers and been and that has a lower for we the around improvement volume predict steady result of more in future, improving to a we a it Should over the is facts of time, positive of

believe our growth theses As remain X last I quarter, said intact. of I primary equation the that

believe we to continue gain First, digital channels will that share.

surveys dealer share customer will our this, inventory position time. and that experience over believe of we recent gain technology, support that additional more well Our to and us

in given relationships, will in also in towards vehicles commercial market volume, which in increased deep all marketplaces seller a believe future. We share our result signs and off-lease that the commercial existing point recovery commercial our

the our outlook year, OPENLANE's last So improved the volumes compared I we're year. segment, Marketplace Finance Marketplace performance to of unit in the strong volumes This that expect drive we fourth of expect in coupled in should performance for growth, this fourth our continued segment. In strong demonstrating the quarter in with and revenue. quarter financial to volume terms the economics of remainder increase the segment, currently

higher believe the experienced to loss with end range and loan the QX what normal Our of ratio the we range generally before AFC be at at the was aligned pandemic.

AFC, AFC about closely year even impact very performance XXXX. expect our very more aspects responsibly on detailed though solid have deliberate manage risk portfolio levels. business a guidance results remainder for year's Brad to will ensure AFC's the record from and take provide at that is this continue full the to stable. Overall, various factors those been we we below we be will growing We update across very last of new of on how continued

control. the As focused we look to will continue we that we and to this a actions things beyond execute control strategy can year, take

our believe of We levels, strong will We will our XXXX XXXX be performance, and will Finance growth that expect but in to Marketplace build beyond. our very on a majority and that contributor also by segment overall our our driven the results. XXXX segment grow to remain over

compelling to remarks model strategy sound to has believe that So market, unique want a a my reiterate differentiated conclude OPENLANE this offering growth. I I to business a for the and and afternoon,

in strength We with are marketplace with a digital deep and business. pure-play sellers commercial the leader dealer-to-dealer

expect an factors access grow North the intend have believe point in We addressable plus and I a continuing future for take in shift these but towards points to the will markets. recovery in that to to time an come, to macro Europe. outlook commercial improving OPENLANE. digital, We market our large this America recovery exciting off-lease the it and volumes. share for all will secular I

customers. on robust our have our and doing investments from innovation growth will and By focus consolidating digital pipeline energy, leverage We our we of greatest and supports a investments our get for strategy. will product greater resources platforms, marketplace our that technology we the

and We we flows. are profitable cash positive deliver strong

I'm volume we and have they will third our flow volumes. lower-than-normal demonstrate improve in environment. our of further improved, that results as Our characteristics that grow and year-to-date quarter clearly spite profitability confident And the cash

to investments. be allow our additional generating to to capital us capital return Our while can business make down debt, used invest and that shareholders strong flows strategic pay in cash

call provide performance. So Brad will I financial now on additional with will turn our detail that, the over to Lakhia, quarter who Brad? third

Brad Lakhia

you, everyone. Thank with afternoon, and I'll Marketplace good segment. Peter, our start

vehicle XXX-basis to quarter in payment sequentially resulted Marketplace third of point revenues, the when sales. fees XXX-basis compared largely increase mentioned, increases represents a our in royalty last the unit volume service select year. we by a Peter improvement This of the revenue channels. in excluding a year, commercial per both and and As third lower improvement delivered The X%, point in drove second growth, services. Marketplace in to and gross transportation introduction services new revenues. purchased of due purchased represents versus dealer which in the receipt this strong last XX% revenues overall of marketplace increase fee X% the X% increased had driven profit. unit a also declined of again, quarter a auction-related We've increases excluding the improvement Auction quarter year. It also volume vehicle

gross addition, businesses from our and cost-saving mix improved benefited profit in service-related In initiatives.

earlier, was adjusted in for third higher last cost volume, $XX discussed quarter SG&A. mix improvements As Marketplace million savings sequential lower year. of price, driven And the Peter our including quarter also year-over-year EBITDA the $X highlighted as and initiatives, than million, was and this by earlier,

the earlier highlighted at adjusted our contributed materializing a year. profitable, Looking the dealer-to-dealer EBITDA we improvement supports the and It cost pricing volume $XXX $XX are EBITDA Peter was a and is call compared also added comments. quarter million, business adjusted provides run and million and also management this And improvement our to rate million in the actions to segment. mentioned Marketplace our $XX reflects last year-to-date, context, his improvement. year-to-date meaningfully for second scalability window in of into This

over a quarter. This rate were X% much represents compared to as equates compared This by increase a for over lower per Finance in million very in unit when a in and management, the $XXX fundamentals prior enabled to disclosures. last favorable Finance is rate yields. that in a losses, and increase million, discussed credit fee calls, quarter million transactions, normalized more and I'd have this $XX credit X couple $XX calls Turning the emphasize EBITDA improved rate by a prior loss rate noted a year. million year. last explained loss we driven things the of was interest decrease which adjusted the years. And And $XX segment to regard loan with income X% loss to like quarter X% segment. to a our highlight was increase the Revenues in in to prior

the customer industry very is prudently This believe First, as high-touch combination our leverages allows a risk model Finance the has move second, that leading. through that faced car offering year and management data-driven and deliver portfolio. Over while strong loss continue we we process fundamentals, business of the with next or changed of will this a business a therefore, service will combination growth we a to remainder continue managing relationship be and used -- expect the year, we into annually. time, rate to lower X% manage risk. And changing to to we conservative be

However, any period range. actual this losses deviate in could from

compensation year. we fourth will last inflationary to of quarter due course or XXXX, quarter declined SG&A of reduction Consolidated pressures. implementation throughout occurred a quarter in million also mentioned, of successful and ongoing of our these Turning to highlight execution to previously will to to that cost SG&A. And the SG&A X% that than expense compared I of would savings ongoing XXXX, higher initiatives the help expect the be XXXX we've million some as that noncash duplicative $X like third again, $XX initiatives. of off reflecting costs the the roll offset fourth us include

generate cash digitally-focused first Turning $XXX model. This and operating business from of now continue capital potential to demonstrates of the at with year, cash we value-creating activities million and stand the flow. generation flows our the strategy asset-light, of allocation. to the balance Consistent Cash level sheet year-to-date. strong half

a which improved X.X Our net consolidated in further since our by our now liquidity generation our stands $XXX in overall the balance turn million at a net strengthen sheet. has improvement and approximately end adjusted position evidenced XXXX cash leverage notably This ratio, is and EBITDA. reduction of debt of meaningful

our environment, and macro maintaining while we on continue industry prudent sheet, Given will focus and a the liquidity improving balance position. managing to current

in will complementary continue ensuring have also capital to returns. to for we investments business, digitally-focused investments our prioritize shareholder core fund and We high-return, while strategic flexibility organic

wrap with the annual During extended to trending the $X.XX. this million. With quarter, as $XX and repurchases, end $XXX we our repurchase increased said guidance by and to of our net comes of $X.XX of up share between to the per $XX questions.[Operator share call to authorization share the And our addressing completed $XX items. million, million believe We're Baird. prior we program expected be guidance finally, now XXXX. I'll end income million through $XXX and of in to million compared range. EBITDA that, my a continue from we I'll Today's capital few also last expected over comments We're our Rocco $XXX are to quarter, confirming confirming operating first expenditures we we are back million and for higher expectation adjusted Craig of turn previous Instructions] question Kennison adjusted to

Craig Kennison

The first the one market. is on repo

business. Just you comment your impact could the wondering commercial if on on

Peter Kelly

for you to, in the very close So increase question. point. thank sure, would this is a volume an Craig, for okay? repo, levels say industry in segment to at back as -- repo I say, pre-pandemic I'd We've seen that

services our repossessed lower. fact in repo some volumes not We in is, in Now while Canada, in exposure sell businesses our have to repos many the in digital do simple are U.S. our and relatively vehicles the marketplaces we Canada

We XXXX. in we benefit numbers of say don't but our from I'd to see vehicles say, volumes businesses benefit have terms any marketplace repo that sold So our digital sure. is today. is services increased That for since significant in extent in U.S. materially, we of

Craig Kennison

equity positive platform? But that very back, exists of And off-lease I about that your confident percentage through you market when respect capture then high market today. same you are will your comes with your the business, that point Peter, that the take to

Peter Kelly

Well, yes, short Craig. I a guess answer, in

confident. am I think I

vehicles anything, is If have digital percentage that We pre-pandemic. seller higher are -- are than the that today those relationships I'd the servicing those selling say of We're customers. intact.

the vehicles. is sellers, And of higher. the for those discussions rate with is very, off-lease very to top focused selling funnel based the online those my but on they're I maximize trying lower, on conversion the think percentage So

all seen obviously, increased could Now share but say to an argument think remains there's capture it I versus to an pre-pandemic. be we even

Operator

question Prestopino with next our And Gary Barrington comes Research. from

Gary Prestopino

of higher of UAW of in not because Couple did Peter, impact abnormally the we're the questions. quarter? strike come -- rates the somewhat play? conversion Or that into

Peter Kelly

It late thanks question the all. didn't come Gary The didn't labor in didn't until into quarter. really really -- first the start for It of action really play.

had So if guess the a supply, that really didn't of Pricing, the rate it end impact fast what rates. the pricing by conversion saw et assigned July declining to started. or clip I'd August I to UAW and we quarter, of declining same And all. rate. less pricing at fallen at fairly I look the say, really we off. the decline sort at quarter got time cetera. the of the of And wasn't It action, we as

it what conversion, in generally in I'd but late in saw first call what half for the in reason. with conversion were I'd material. wasn't bump say in line quarter the rates of the the the year. But quarter third probably little also I say, same a We we saw And

Gary Prestopino

now? vehicle market still good. vehicles. commercial is terms thing That's growth the what is -- pretty And that strong. segments have could I of other in some mean, good And maybe with you in lease penetration, were really the you highlight where Okay. commercial

Peter Kelly

Yes.

Okay.

too. lease second the I penetration, maybe part so know the of vehicles, commercial So question,

ascribe that growth commercial are We did saw Obviously, there or commercial right, commercial those companies, less in in to bit things vehicles, of are in strength fleet on in in operators, some kind saw So inventory whether the to Europe rental the growth like but operate as quite us see in. you're a it well. volumes more car of growth. OEMs to and we that. actually impactful volume U.S. of commercial commercial Canada, Europe. all We saw able accounts, growth markets volume the it's of -- I we provide to

because -- last weren't some for commercial there of supply years. of badly there's accelerated couple a of And -- that lot that a getting kind defleeting -- sort a customers of of the needed has out that's So was was business. those

repossession But gap the talked So a some in of see We majority obviously before of being is decline volume are while still on into did did bit narrow get see equity question. we about off-lease then properly. space, the marketing they That's the vehicles a a commercial sort we our of it that. bit. and in And in, the business. And business well. more percentage off-lease cars process U.S. that the flow bought out as last

I'd year. on were at, numbers leases in I the terms is to the that compared written the up last volume quarter then the lease quarter of about in penetration, So as based in broad looking volume say front. And of Gary, probably XX% was I that, of best can determine, third leases written the third

higher. that. commercial low means a would some the in of it's know What XX%, XXs little is vehicle that to talking but brand are leasing. should how from but kind stitch say. I also sales of can't absolutely I our around think -- about of tends in lease I that guess, I've together I of at in leasing incentivizing of different I told number what commercial accounts, they're all data bit them. get say significantly more a because some of of vehicles. originating than them drive That's them a of have leases accounts depends some They're sort least penetration, Now that the year say of clearly significantly is terms are It to that sources much got on I'd me recall not more some customers, -- with I ago. true to flattish

Gary Prestopino

quickly. lastly, then real And Okay. just

some to fees for new of vehicles. some, cited introduction the drive You services auction increase helped in auction-related that

discuss So could you're generating are maybe on. of these services some that new just you fees what very briefly

Brad Lakhia

you Give I And be service the focused with some new of we've general Yes, Gary. our business, in question. on the it's sure. us our -- offerings. guess, also working channel, introduced customers has some as U.S. different helped to how really and from capital a a Brad. dealer option that is a for really, where has This where is. It's want for give Thanks pay, they these can perspective is I little some largely in our of well. us helped in drive for volume improvements

to efficiency really to are a we're it's flexible our of option. a our benefit. capital where from And two-pronged So able then structure. payment drive more buyers some perspective, more kind able have also, in One,

Operator

from Securities. next with our comes Bob today And question Labick CJS

Lee Jagoda

Lee Jagoda actually for It's Bob.

going and kind terms in part funnel it volumes the where then just physical? already open bit today little on what dealer, a you talking the think little or closed more down of lease bit off-lease I are the the or volumes you down lease break lessee, grounding of between going. can and of breaking that commented to about a cars they're But the general auctions, and in

Peter Kelly

Thanks, Lee. Yes.

sort last over in such the than higher these is consumer And buying the the part, same the the the been the than some years grounding the and guess and Let vehicles percentage would that I there's some would used XX%, extent a vehicle sell like in considerably buyout lot and component the doesn't vehicles runup examples enter the captive what an buy sale the maturing is really that call franchise to XX% a position the out that have a continuing something XX into I'd physical attempt the I network, which lease go typical be environment, the volume; and remarketing the then would -- today, It's that cases, a auction. What X I'll to see process; some consumer to maybe the XX%, -- to to me of pre-pandemic Consumers XX% of. rest more consumer we've of do is open of in on before. to give that strongly normal and XX% are dealer sort then buy in percent. through most would following: of say dealer dealer, the equity of of some you more, that. values to XX% the and would would seen out first finance or out consumer has. We OEMs say, for of typically grounding option the companies all, years car,

it grounding because car So consumer is they in to that the exercise equity. buy doesn't again car, if the gets and the dealer returned out the

that channel has stuff say, been for the to decline XX% play for deeper needs And of last out. that we to have called sort normal. down, of versus of flowing that the couple meant what I'd all that has years, the So into would the has gap vehicles equity by amount get and addressed, to obviously,

brand, by and right? But happening. prices, car -- that what of higher transaction of I vehicles, happening vehicle sale of So into written higher. that the XXXX, move varies were was the right depends Because we price all, now. first okay? see see we portfolio, by much sort beginnings XXXX those new as see against the considerably It it We of leases the

vehicle, we're actual So value of they that. residual tend the to into trended residual have side downward line values the of higher value And up. on written then the seeing right? the contract, the that, other pressure has on So

back production predict leasing being So We're going obviously well get lines seeing will positive it again converge second OEMs the to demand, that's happens. And somewhat it it originations. I of to sort increase normal when that happen part of with the then consumer an and will into believe new seeing happen, back us going X weaker. are be future. volume environment. points as more exactly the and think it to And in for a lease and I We're some to hesitate of type off-lease a but to is I with getting these incentives. increase to in strong and full

Lee Jagoda

there that's is secular Great. And physical. transition. digital out volumes secular in maybe a speak should that dealer-to-dealer online that XXXX? best a shift fairly -- Can the we And the from and there you then versus forward estimate to year-to-date? of growth the how it's market is clear think their the going to about Presumably, into going consensus think I that be to lumpy your physical

Peter Kelly

percent model transacting today. I public, and sort I what also our obviously, digital based the has Lee, is, that hybrid U.S. at I'd some and guess, Yes. data to XX-ish more the we fully public the look we're digital physical XX% model to in report of on volumes. is competitors assessment approximately say look off-site transitioned our volume a is at of or of market, that If

dealer-to-dealer of of other also that Now place wholesalers place types take there's and sort don't in take through those either that transactions informally models, of channels.

So I'm really just talking formal channels. about the

little of period I towards surveys think a physical rebound steady was COVID, little sort consumers the support you'll for the I bit fairly that time, there we franchise consumers believe, in-store over kind year the -- if you in fact, customers customers, more back But went thing. bit last a because see interviews see to of talking particularly of it's a our in eased industries think there's that with for of kind out steady a X, So coming digital to that of dealers. and digital. And at I of look longer To of that been XX%. level I shift many physical a be a, or still at correct pandemic and really and type of secular our think honest,

independent still at curve. anymore. all a well. as probably dealers, look there's from when not gaining auctions those time that they're dealers preference think the no online. in is They question on I'd majority there think, person there's attending dealers. The along established a preference I is, digital and well to going But physical put not we that do far And I there of purchase say very vehicles clear priority prefer

Operator

today Jordan question from with comes next Bret our Jefferies. And

Bret Jordan

it in I because above the and loss can pull Or to sort short pressure of exposure plan environment that loss there the obviously, go floor -- about dealers guess? margin term? rates that I X% and you and the Is the credit car On the risk today short your reduce we their a see the expenses. independent higher used would rate AFC that as in with enough, term AFC, pressures, back kind think of are for we the guess, loans

Brad Lakhia

the question. for Thanks Yes.

I think you are nailed it short with your latter part of your question. I they mean term. our --

to it's we more would with those of on on into hand, I the risk last independent XX a options dealers, profile on other would and hand. average our have over monitoring them And pull extent to the that levers, risk lot more to management that As our do with tuned the as then credit been in tenor. lot we've continue you we able exposure. one processes risk back. well those recently, more a off have know, higher about been, say, year, emphasize I also be have terms portfolio of to of And days

over immediate -- as answer could that chance let's to with here we're So term, said, pretty comfortable is, X% near but your we the there move that. But question, feeling say that the more we above periodically range.

Bret Jordan

about say question of on And Okay. to model. a comment And lot in the that earlier is then gain again, off-lease. I still the followed then hybrid volume your share a guess serving potential you to

the seller Given that Is you have What the share anymore, they're a cheaper? physical you not Do getting the it what it when getting don't is have you that the economic? physical really off-lease drive proposition auction to gain? is alternative?

Peter Kelly

Yes.

rate Even on U.S. think, benefit XX-ish effects. think efficiency vehicles pandemic, market the before of efficiency average, I our the upstream among of lot a the channel network the speed, goes I off-lease model of in as customers. our to well was, conversion and as percent digital

already volume of in was selling more was a fully half it So the than digital model.

XX% XX% been many years, to and to had many, it and up over from -- trending So then XX% XX%.

upward a on already was it long-term trend. So

for are vehicles. vehicles you the I X-year-old, most lower-mileage, what is, part, single-owner fundamentally, seller these good quality think the hey, offer

deliver the and quickly franchise accurately, then a network dealer as a the that short a to a You buyers, of days, very get seller well. to of car and you do get inspect very digital the of perhaps very network price marketplace. immediately X you purchased, a once lot effects, opportunity but in the been days that And a low buyer. car that's digital us And to put transact space in process you efficient sell few max, like few the marketplace discovery network of day, a and you a a up a you buyers buyers true through and a car has time, them network to the where gets very cost, of nationwide car broader to enables at benefit that

our anything, lot in because we honestly, has online or if capability got, So just today we've than up XXXX XXXX. a had more buyers gone there

of to the years last say And they physical -- whole many over So making cars process. in kind marketplace. that these also sending we've because far the vehicles sellers got to X a accustomed much then I had more got not haven't have I'd liquid say, auctions lot of a the

Obviously, think So volumes be online upstream here. have And remains be some will this preference I to these a to digital I advantages unique think rate. of the very I they possible evident a channel seen strongest conversion maintain lot has as think the but those recover.

Operator

Rajat And JPMorgan. our next comes Gupta from question with

Rajat Gupta

up volumes. year-over-year. Great. dealer I X% just one the question consignment It had on was

industry you U.S. number. give the growth your might in I any what the have that the did on color share outperformed some been think you way in characterize to mentioned have And able be side? third what I like in U.S. follow-up. Would Canada to on And one us the market DXD DXD quarter?

Peter Kelly

that. Thanks, Rajat. appreciate I

Canada I dealer in growth about spoke all, very rate third Canadian speaking about commercial So when the think I was in I first Canada, year-on-year our and aggregate, similar. actually quarter, U.S. our were the of in dealer-to-dealer

have In fact, the I U.S. higher than slightly might think been Canada.

is clear, so the to the U.S. better be Just if been have that. average, think might slightly I than X%

dealer-to-dealer But for U.S. is of So aggregate the specific number the break and sure. dealer. And out was numbers Rajat. geography, by about I the majority commercial the volume our don't the talked we then

Rajat Gupta

what to just there overall -- much in like for been, share like the And -- Like the characterize Got X% the it. how would might what have quarter? U.S. the any like third industry? in way DXD market industry growth your to what overall compare the versus

Peter Kelly

track can of a on share I share We number ways. versus call. I in different do lots vis-a-vis. isn't XX-XX We digital. market there this market mentioned the physical share track Rajat,

competitors think the total, So And haven't just our at we also component we yet. that. and our for our digital reported the look I numbers piece. at quarter that look share also of of In

a share So the segment the have time. part digital to past positioned will been obviously, it's are say over of facts the has as that stable as think as gain I we segment, well period set we well. very don't would I our dealer-to-dealer QX. for that We -- full of share fairly And believe grow. that of

Rajat Gupta

that from EBITDA. to Got it. guidance, Got seasonal versus much dissect expecting that just like Marketplace quarter? that it. I wasn't from That's of drop And And implied AFC then in it implies the coming quarter how on fourth is million the just quarter? sure in you're fourth if the way $XX the over helpful. is any third

Brad Lakhia

Yes, Rajat, for the question. thanks

yes, so side. $XX million you have think, imply million -- it on would I $XX low the

earlier, As we're believing side. that the more I high mentioned feeling to would -- we trend

million it, $XX seasonality $XX There QX. call million. in So to is

And certainly part it So that. or second your of the was, what reflect third sorry, does question? I'm

Rajat Gupta

that similar ADESA, Just was if than lower the and sequentially? trends the third Marketplace it's that -- assume the we $XX million, should are not that? ADESA sorry, quarter one Or AFC

Brad Lakhia

similar could Yes. represented you QX. I adjusted I and mean, Peter And think assume total XX% for of result, highlighted the our something EBITDA. model Marketplace in QX

Operator

next Daniel with from Imbro today our comes question Stephens. And

Daniel Imbro

Peter, the benefits you Canada, in to grow. consolidation the innovate ability of and some of mentioned maybe

once that of U.S., some examples the some you be innovate maybe in consolidation U.S., before couldn't actually integration you you gave in to some what of, the U.S.? those OPENLANE? And maybe examples. exported the if You you tools Canada could see occurred you could introduced are other has the Are the in able do actually to give to opportunities that that

Peter Kelly

question. Good Daniel. Thanks,

platform consolidated do more one the OPENLANE so right we one my part unified consolidated what spoke Canada are TradeRev of have in really remarks. And first what we're transferable to U.S.? would extent. platform. I we've that our done are to now. back-end a in and still the So to It's about to of to doing would getting say, characterize more I too. We and of obviously sort I get ADESA the to an doing your question, your migrated to there, in -- to platform, U.S., -- those We've consolidation yes,

I'm technology We've very for fairly focused some there's candidly, that. We're confident will our company. -- working lot and happen. we'll that significant there's there on lifts got teams benefits So have to that, on and of get a make that

today, say are to them of I'd easy some So transfer.

will Some U.S., is about all This would it work. our over think characterize the mentioned I take time, of transferable. more how become I But them will work. more dealer I that. When survey

platforms. on OPENLANE that gratifying to business understand. it private scenes about it say customer, we'll front the positive do How found how think backlog thought that make and technology I were of put encouraging label complexity, -- in very that's it of And is behind easy try those of easy the systems, easy car our the to is One lot really our not should we I of is How because I to system, how a also dealers the and things a in and the our very system system easy easy is sure for our customer. about navigate. keep lot there's but effort making to that

channel. and more excited has a car call, marketplace. on So we the that more buyers to private of like established, operate our more formats, of I'll sales more also one auction-type upstream that -- much high this there by has because of wasn't type do you discovery to but by true But used capability have a, sort to buy as that a buyers auction of have the price, a we we also it certain it widely are more that we The label click-and-buy and business kind historically, kind opportunity situation. not? sellers. or kind new or formats the to liquid that. I'm It put off-lease I take a got it. was leave into cars migrate has here's price, able marks platform, be But One price really want we've and think

sort conversion start rate, a to of of format. auction-type more rate know price and in trying experimenting commercial through drive, that higher conversion of I this that some customers excited again, to get are So discovery our very sort

be that be for time. There So us but one numerous over that's would example. that one impactful others, are I could think

Daniel Imbro

we I return question. ARPU were about And helpful. these longer-term historically, today. of That's financial know a then down upside accretive. maybe Okay. just But as a market's think the off-lease,

the just $XXX years? you $X,XXX, commercial off-lease You volume maybe revenue accretion? the we I back in Or Without including to the shifts the help dealer-to-dealer as ARPU expect on frame less versus coming guess, in open unit maybe can an back more recon recon out got your of maybe between end, and online should auction. economics in

Peter Kelly

those tend higher would call. that vehicles profit. hard Daniel. to It's in lower Thanks, ARPU commercial general I say what this on me on to go is off-lease that into be probably but gross terms for detail But will

the also per we touch tends So less the less. be our revenue car on points is -- car but to

is that have don't was that. What we business of beyond So profitable, level as direct against historically current well very profitability. cost also I say its much can

change So improve I'm Daniel. it volumes absolutely you, profit the margin overall those sure. Thank good return, profitability unquestionably think, I our percentage terms? Will Will for confident metrics in of improve But it's a that thing a the as for gross will ARPU business. our yes. bit? Yes. it that. Appreciate it the company

we've ] that's So got all I [ for the questions, time Rocco. think --

Operator

that's Yes, proceed. correct. sir, Please

Peter Kelly

Thank Great. you. Okay.

good I again, I time appreciate the So all questions. everybody's appreciate today.

speak our say will the it year out for focused this strong, executing the of believe that at pleased with as quarter said and outset on strategy, we're all XXXX the described year. closing early I've call I much. this our call, call, results themselves. As I'm our performance, and this in third this on all today's I I others, business Thank and continued beyond. I call you in next you you very and to joining progress the updating and forward really on growing look in I new appreciate

Operator

call. Thank concludes This today's you.

and now day. disconnect lines, your may a You wonderful have

KAR Auction Services (KAR) 1 Nov 232023 Q3 Earnings call transcript