KAR - Earnings call 4 2023 | KAR Auction Services, Inc.

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

Operator

Good day, and welcome to OPENLANE's 2023 year-end earnings call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Eliason. Please go ahead.

Mike Eliason

Thanks, Ed. Good afternoon, and thank you for joining us today for the OPENLANE's Fourth Quarter 2023 Earnings Conference Call. the XX, of XXXX. discuss year for will December ended I financial OPENLANE performance the Today, After from participants. our concluding commentary, we'll take questions

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

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

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

Peter Kelly

Thank an here on you and provide today to with you, delighted be to good afternoon, everybody. Mike, OPENLANE. update I'm

key the the of Financial focus Chief our broader of me will is of few positive who on operating the will our strategy, cover of I Brad Joining OPENLANE's XXXX remarks and but most our later the areas industry outlook Officer, by our the call. a begin for company highlighting Lakhia, in majority performance metrics and financial my future. execution environment I will

in that clear of progress results, In our business it's made terms XXXX. significant

our stand Notably, simplification innovation few our see our solid impacts in for to for delivered execution at of year, growth XX% as a believe by XX% consolidated around results strategic positive quarter and OPENLANE beat revenue performance prior brand adjusted out. We investments by increased year. profit. another EBITDA well OPENLANE's throughout our year million and and volumes, in prior or We as the diligence gross of position guidance the I future I our of XXXX are costs. now gross cash beginning an technology, cash was consolidated consolidated strong strong profit work success. When the things XXXX, delivering encouraging that our grew million. compared to and OPENLANE generating We and $XXX the in had look $XX fourth from flow year. the increase flow in operations That performance, $XXX million XXXX. from

performance values backdrop Our XXXX business, higher AFC interest declining the solid in of against vehicle environment. demonstrated Finance and a rate

focus meaningful continued contribution responsibly mitigation, the bottom line. grew a the made With and business OPENLANE's to risk on

and Our to volumes fourth XXXX X% vehicles strongest for vehicles. million is sold. Marketplace volumes XX% Marketplace made XXXX, year the We any quarter grew the This over business by in And finished single note. quarters. over quarter for the year significant by grew full we volume strong year-on-year X.X for growth XX a on in progress XXX,XXX OPENLANE

significant segment expansion profit margin. gross over as gross we performance, overall, revenue the profit coupled increased disciplined segment. Marketplace The revenue, XXXX drove excluding and in the the year. vehicles notably, in and with by revenue profit EBITDA gross management at prior Looking strong EBITDA grew an in versus cost well Marketplace purchased Most adjusted from a XX% increase as

adjusted our more EBITDA over million, quarter representing $XX adjusted XXX% a year, we the representing fourth a EBITDA for million than over prior expanded million, was Marketplace For the XXXX. $XX $XXX to the full QX, increase And Marketplace of increase year.

in delivering strong are positioned we in growth right that digital realities of and strategy, is and given customer are of environment, most, investing we increased continued compelling evidence the is the this, provide for results strategy OPENLANE areas more our a year the that well full our our that executing differentiation, And are and QX these the simplified performance we I competitive better, think that I value because that well years believe experience. the customers come. to

starting believe let I me that So to why be explain industry the the with case, environment.

we return on able now based back vehicles. new impact XXXX anomaly. to and years at chain more yet mirroring once describe look more year. had which again Manufacturers this of I of resolved out industry point. good I wholesale current our wholesale would now largely in all the but The seeing have the starting starting evident increasingly on the negative First, to few new a industry, sales vehicle build Many drive XXXX, trending that as more as are particularly the beyond vehicles dealers' appeared what likely to are direction. Manufacturers market that OPENLANE, for over normal, been past and to that factors use environment constraints are that car leases, and are and not used few an the new past think for the industry of we're used incentives news what since are to in on supply it's There existed to was the lots. years

shortage new vehicle in chip over Here vehicle new pandemic experienced issues largely the on some the XX% and sources. of facts supply are third-party based have subsided increased during XXXX. production and The

used used While modestly production in levels, on dealers' also this up pre-COVID expected is amount also approximately Days increasing. and inventory. sales XX% supply new modestly lots The inventory and XXXX, XXXX. are to increase vehicle new still was in below inventory of increased of for again is and

these of last XXXX steadily in XXXX. levels have but We from their peak values pre-COVID increase midyear year than car higher been expect remain well. Used structurally declining as further in both to

written modestly leases in back of be me due next that lower low will in year XXXX, let of supply XXXX. Now and this wholesale that Most XXXX experts and year lease clear. will we the and returns know the predict half grow in to remain volume only

originations to versus XX% more than year, year, However, the the see by and year. increased very throughout the prior quarter-by-quarter also encouraged accelerated I'm that they lease XXXX in XXXX

in versus than driven use fourth increased in incentives transaction the This OEM XX% incentives lease average prior increased fact, XXXX. Increased the In the increasing price by of and OEMs close incentive are XXXX of the was more the to offered in of end almost double originations X% year-end. the of to by part originations by vehicle quarter was quarter with it lease at what year. fourth

will the in Given increased in expected off-lease written our to of position leases XXXX this OPENLANE written important segment well-positioned for in business. in XXXX our as growth strong mature, of volume start be part to and be the

environment higher should with more car sales, retained impact for new for at inventory dealer offered we also of and inventory. trades being on to positively used well. consigned volumes the will being market, look lots, as but now we this with result as sale an in dealer a volume believe more in This versus tend new Additionally, dealers' wholesale

a OPENLANE. in volatility environment experienced better believe we're the positive years. far will this positive So and signs very I predictability be that And less back time, than few summary, more seeing that trending we've normal the is with for over towards industry over past

wholesale and I terms our are customers In advancing make can easy strategy, executing more we is so the our to believe execution our our be plan successful. of purpose, which of successfully

retention. a During off-lease company. in platform and well single step was a fourth exclusive impacts OPENLANE the sales or issues, customer to inventory customer of branded States. into or we any forward transition disruption executed was the quarter, dealer This for completed United very without The integration significant our the negative our technology

national United XXXX U.S. both one in and companies entering marketplace split OPENLANE at commercial exclusive competition. And better and marketplace a are franchise We dealers. before believe effect a OPENLANE the mileage, market, dealers an all and age, our selection digital dealer marketplace OPENLANE buyers inventory majority vehicle the in unique inventories of in and Each also ultimately point. This of and independent we or So supply, offering highly our ultimately sellers, seller has week, and in combining auction. dealer that finance offered will with experience has place off-lease captive one help whose increased outcomes attractive that a one of of roughly is brand, includes platform commercial of inventory vehicles offered the even experience volumes. alike. and dealer means one for and the of differentiation network condition sellers demand, increased tens OPENLANE customers, is between physical in highly that better from OPENLANE is it selection and as every States, generate customer any volumes us thousands our sale are for with to with price our primary first other available a differentiated largest marketplace inventory. our customers

hours, did new after OPENLANE example. OPENLANE first business via quick an at was final From did XX:XX November, U.S. we one mobile combined and Just sold When switchover our and the feedback has on reaffirming. we marketplace to very perspective, vehicles our dealer. a dealer app positive off-lease the it marketplace marketplace very the in independent been p.m. sold in regular

proceeds Just sale another large highly the National helped he the to outcome. The use. of who a over strong today has a that been Strong I X ranging how this leadership Dealers across and channel digital with they the that franchise of all rates, achieved channel with multi-store all remarketing dealer on inventory Auto CEO met weeks that ago, group days owners. A Managers as commercial the dealership groups any day, described to single OPENLANE more manager instituted I point to Association OPENLANE group forward. attended contribute But very senior active me results many to group expenses smaller, results. and OPENLANE selling. sale of are preferred from are highly remarketing of done approximately to reluctant us to on had pleased medium-sized his large now General lower desirable this wants one dealers stores, work from best with dealer commented Convention. that, to he they Having going are his successfully and average And purchase conversion the national remarketing convert

we when units at easy my brief monetize their that that be was in why were In OPENLANE of successful. is his X me a talked to wholesale convention highlight trade-in more or to why has existed This can at for have committed was through a making profits our truly so customers to booth we never local to way our positive before. This for owns tell completely selling and they profits his business a transformed with a so dealer that his words, weekend auction. dealerships. enabling creating before has they OPENLANE possible exchange are created me very a in wholesaler dealer never way, that franchise Another dealerships the out

franchise as of And well So it's customers, as very straightforward. clear our independent digital proposition sellers XX/X our that buyers OPENLANE's already experiencing value and that are believe benefits and the sellers commercial alike is marketplace. I

our In marketplace addition speed digital faster to enables to differentiated sale. inventory, our

average discovery our associated with physical customers maximize States and sellers. bidding to one OPENLANE day. sale price And is true help of selling can on fact, unnecessary for days always-on the outcomes In more United and in avoiding dealer costs buyer digitally auctions. market for base financial approximately Also, drive and a all larger fees transportation, buying reconditioning while helps our the higher

rethink them help these reinforce We're to price I'm their explore fast not time data approach, about offerings OPENLANE's And customers conversion to how can working delivering extend them of our surprise the help very outcomes a cost and launch more with low of technology the marketing excellent about that to and strong opportunity broadly. the marketplace. excited OPENLANE with it's me already businesses for and collaboratively their vehicles, to and their to increase relationships. many customer are excited new sell So OPENLANE sell,

quarter. In launch, fourth United completed in business addition also our to rebrand OPENLANE we of to European the significant States the the

to So XXXX principal in a brand, all with single of marketplace States, geographies, Canada OPENLANE we and the United innovation. our start Europe. Shifting

of positive those product our is innovations the deploy and customers. One the benefits development to more accelerate quickly platforms of ability to consolidating

for easier our AI-powered it the deploy marketplace. A to at of available aimed across reducing velocity And buying new dealers helps our inventory and identify January process in of this the dealer continue great vehicle AI. today, United Boost informed and search, all Boost We customers, Visual launch the making it damage in friction accelerating the and States. marketplace our better example and is is increasing quickly our Visual and assessed functionality features make is OPENLANE decisions. AI on technology, wholesale

While a quality already we are weeks of we're only impact seeing few improved in, and the consistency. inspection

time. an are likely to over lead increased more Visual to to who dealers on offer button Boost make along than -- help fact, In those conversion twice offers tag a as and the lead help vehicle,

So believe a accomplished work. and a and eyes some stronger with our of as We XXXX we stronger differentiation on important offering back I very the XXXX, in position customers. I in foundational much look start more

look I very of that of believe to positioned As I customers and unified a and large the customer mix expanding technology data and U.S., very I'm is inventory, for deploying opportunity excited dealer well ahead, deliver base Marketplace for growth. In is the future, and a the commercial unmatched differentiated OPENLANE lies experience. that our an and remains to OPENLANE

acquired strong from continuing and share, focus remain will our being beyond. In and to we Canada, will market profitability gain of The results contribution leader Our is a XXXX. a this this to in make analysis volumes, XXXX a and in flows. positive integrated, we're growth and Manheim key cash clear are we with suggests business our

performing business Our also European is well.

had record in overall while we and opportunity our our it remains larger year is across offerings a serve we to XXXX. Europe. smaller And a our capture contributor a longer-term fact, what believe are customers In relationships to expanding results, Europe to

consistent business, and remains a Our AFC, performer. Finance strong

power portfolio continue around and rates to help costs. attach while will increase the our new for AFC identify disciplined operating We remain ways our OPENLANE conservative marketplace. We working to

innovation. and to in improve the still our technologies unified, we now on to all and digital provides talent with ourselves and disruptors. And financial expand than the a our deep we and this This, turn, are and our investments digital of We technology innovation ever, our with more business. in of consider to our innovation industry has been in this enabled look leveraging benefit to customers. over OPENLANE for to teams to more Staying best are our years, customers. pipeline to of OPENLANE us scalability our aligned headroom and the we bringing increase leader asset-light market XX forward has our benefit and margins

and We to direct will results we strategy today a ability execute reflection execute to our plan. our are The continue our plan. presented that of

will retain purpose, more future, the business, can our our so the we're wholesales positive forward going our shareholder and focus trending which to the of is performance and talent, optimistic fundamentals finally, foundation. highly differentiated to technology solid will to innovative enable We make the believe growth the customers with in a driving by us and compelling successful. And our deliver easy offering value. We strong be is direction very our a guided data, that spirit more industry XXXX our OPENLANE our a team customers, delivering for and for

I detail our turn Brad the results over and XXXX conversation for our guidance. to with now on So that, XXXX more will Brad?

Brad Lakhia

everyone. you, afternoon, Thank and good Peter,

which or sales. comment begin, I a basis all excludes specifically total remind purchased I like revenue vehicle at impact and level consolidated Before I'd that to segment financial the a everyone level Marketplace metrics a on of net on

Marketplace. Let me with the start

we year, a which Marketplace in drove X% net increase X% revenues. full for unit mentioned, the Peter delivered growth As volume

X% commercial declined and For grew dealer volumes volumes X%. the year,

in ability This overall resulted a growing important. business. quarter. That leading deliver the diversification additional that of highlights reflected in dealer volumes industry profitably environments. A European of offset line varied which in fourth our second continue are us clear U.S. Canada, declined more and couple volume to and grow While growth Peter top our unique partially third volumes to declines see market we values in the experienced as headwind is the that decline Combination in are these of dealer said, geographic to vehicle a position fundamentals other profitable our in rapid XXXX, in strength. a dealer we a highlighted fact And normalizing. Canada. we half provide Canadian X%, in market a

improving growing, discussed First, mix XX% the which and call, quarter, dealer last commercial within as are And and fundamentals U.S. grew reflects wholesale dealer in U.S. and and business our second, marketplace our in by is we improved our channel. our volumes fourth profitable. overall dealer volumes volumes

impact year, wholesale proportion which declining vehicle volume. the X% fee offset a increases, vehicle unit impact of of the values of more the used driven auction than commercial For fees increased higher per by and

digital therefore, component fees to us and marketplace physical opportunistically discussed fees channel our to a we've solution well auctions, value our share our physical a to to component of customers. As over fees time. capture proposition mix increasing our previously, leading critical pricing are essential the from lower digital position compared an while delivering and Services service-related and are remain and revenue

quarter, net repossession, technology-related X%, higher improved a For to instead quarter, transportation revenue customer prices, transportation, XX% In revenues to up now historically. the and of was being service driven XXXX, contract fourth gross basis the X% due include changes service year, and result mix. that comprised These a net service in was volumes services in largely approximately revenue. data, some lower marketplace key by of the revenue offerings. In fees a driven by revenues. This basis declined on commission recorded

full can declines QX, this a XXXX Looking the first estimate million impact and purposes, versus on contract of and we QX change. due per be quarter forward, you transportation expect basis the in through to And approximately for similar to $XX year. your X XXXX quarters a profitability net to revenue year-over-year revenue revenue modeling important the note, change margins. QX. It's is overall a or improvement absolute last versus this realized a not in in or XXX-basis-point million service resulted year improvement a profit to gross $XX increase in basis to The volume, XX% transportation in marketplace on

improved volumes, savings points quarter, the XX%, XXX both and fees, resulted these year basis, mix full basis of improved margins quarterly gross initiatives. cost on For and a the combination or from improvements

mix achieved between margin anticipate including in we the for dealer opportunities further commercial marketplaces, sustainable. execute be our improvement mix are we realize time. And continue on cost higher digital the initiatives our XXXX the margins and our value of to from improvements we management gross on to and over dependent our volumes, volumes as Although we and see services, integrated

$XXX As improvement the quarter. $XX was quarter, the adjusted it year That Peter a was fourth for marketplace EBITDA a $XX for improvement in million and $XX And the year highlighted, of million our million. is million. full

and an integrated As repeating year, by and price improvements OPENLANE as driven in said, collective mix branded digital commercial the and the of will of dealer Marketplace previously now to capability and our us was fully Canada cost. Intentionally differentiated been highlighted, solution overall end the further segment. scalable, the in Europe. our unique platform what better U.S., already have has volume, advantage this digital marketplace deliver we advance enhance has within positioning to This the profitable growth and growth, while competitive

Turning to higher transaction driven interest year loan X% up a increase segment. higher in the income were for Revenues and income. Finance by our units, fee X% and

was adjusted the the increase an For adjusted segment in prior down $XXX higher by was Loan flat EBITDA versus income were the by quarter, quarter million and for EBITDA revenues losses. $XX last by credit $X Finance than segment credit compared million quarter, higher the quarter year in million, in Similarly, in the transaction relatively year, explained losses. more credit X% driven fee decreased more offset were million, primarily $XX units and higher $XX year. losses. Finance to million interest than

credit significant declines, value year, and and vehicle rate loss increased the tightening for retail loss used credit sales. to For quarter, that This availability impacted due used was full was interest the our rate vehicle X.X%. retail rate X.X% increases

Going first XXXX, to forward, similar half experience rates XXXX. second of the half the as loss we of expect

this our other and business businesses many targeted higher seeing loss are loss mentioned X.X% to like we've compared in will rates previously, X% to credit across we As time range. financing over sectors fluctuate rates

conservative the are our we notably by floorplan confirms than processes by to high-touch And the our deliver loss leverage encouraged remain that risk lower mitigate leading rates returns, that complemented and model. and customer service assessment we fact, we our a competitive to our losses manage to peer. continue In key In portfolio. fact meantime, management are will continue a to will leading disciplined

initiatives. million, to reflecting SG&A the noncash Consolidated for the $X due XXXX a execution our declined the $XX in quarter fourth SG&A. the to compared transitional of $X year Turning for fourth of compensation. we longer of million of to $XX In quarter successful cost million increased certain SG&A largely longer million costs headwinds reoccur will that increase expense approximately no XXXX, no forward. was XXXX expected help will as performance awards offset compensation to going were in previously reversed And vest. and noncash savings inflationary mentioned, duplicative

to in Marketplace asset-light Moving from cash prior combination allocation. capital to floorplan $XXX Consistent activities we our flows leading quarters, XXXX. business. digitally business and This value-creating sheet generation operating continue level were strong demonstrates flow. cash generate our the of focused and million Cash with balance Finance of the

further completed the leverage of our EBITDA, sheet. strengthened cash December. Our improved share Xx position XXXX, we increased approximately repurchases. and our largely net And recall, balance our million consolidated quarter, in generation senior notably funding has to due liquidity overall repaid In ratio XXXX our and our notes in to adjusted in $XX please $XXX the million of acquisition Canadian

Canadian price XXX work Regarding acquisition this was USD well. progressing for the The approximately the million. purchase is integration acquisition,

and Montreal operations We facility, our existing existing are to acquired Montreal are to location. we our sell migrating actions larger taking the Montreal

net the will estate the serve process as we Montreal eventually real will portion some as of estimate the transaction. sale site only we time, meaningful reminder, a proceeds the this of to acquired Although take is the the acquisition. from sale And a fund part

the a year, functions, logistics integrating existing processes and January of our all we offices are business This to acquisition Credit includes of components executed this migrating new XXX all and throughout We other Facility. million support centers CAD Revolving Canada. vehicle systems. In shared

which provides and prioritize allocation investments tax flexibility optimize liquidity our focused more overall forma digitally ability a Canadian to capital position, several at seasonal we -- finally, It where unchanged, will this remain will provide Facility fund will our provide future position, a and shareholder also continue liquidity commitments. Overall, benefits. organic and flexibility And X subsidiary working other to the basis, return, improve to fund it It more flexibility While ensuring for of opportunities capital. can will high we balance in expense. priorities while not on the and strategic in year-end reflected investments to sheet affect complementary level pro funding will returns. our service our fund effectively OPENLANE's debt interest business

During not the few share we continue but on did by a our million up shares, authorization. I have repurchase quarter, we $XXX guidance to will annual items. wrap repurchase remaining addressing

expect $XXX I EBITDA We improvements million $XXX and business, ongoing million, which update segment. adjusted to Marketplace structure be our highlighted primarily and driven Peter discussed between margin XXXX a earlier. outlook This earlier, by the risk in continued in the industry improvement reflects outlook Finance for our expected

benefit expected from We continue physical digital. to and target to from dealer shift the

However, begin off-lease XXXX based to and to into you will low second lease XXXX. of volumes, originations pressure in I remind the late half XXXX see on want

unit in In to as or top flowing marketplace. by terms of revenue gradual volume and profitability off-lease and dealers a guidance vehicles of see could increase be per earnings mix presented mitigated our remaining metrics The release. improved non-grounding our we margins, this are digital headwind funnel in open the

be earnings and adjusted operating $X.XX expect We share per to $X.XX. between

the reminder, because Again, calculation components of release. company's to believe this of adjusted measure operating history. a metric earnings calculate a back acquisition-related We more our are amortization detailed we add noncash in these provides As meaningful EPS. our acquisition

ability marketplace for stacks, innovation, translates more the to million. focus that, incremental unifying is which technology operator expect and will faster, to slight our which compared results turn our call we of in a to CapEx for on that to advancing $XX and over drive customers. With CapEx easier investment million in in XXXX million our be and increase questions. I'll wholesale Finally, This $XX XXXX, making between $XX efficient the

Operator

And Instructions] today with question the [Operator from JPMorgan. Rajat Gupta first comes

Rajat Gupta

of headwind wanted then be company? returns second year? on impact side? Great. commercial do then where a going to I this the business positive And off-lease leases growth being the commercial a just see key driver the the from I incremental going the or perhaps the the increased of to a lower have follow off-lease you is half come the the volume rates commentary. follow-up. the net for And And to versus return on on up What's in net

Peter Kelly

Rajat.

So the really being bought past the segment, end a getting historical at I years obviously, by the the of dealer. challenged lease by few heavily of the of in off-lease out the I call strength in and been what the It's positive vehicles company. think equity consumer, is because equity grounding gap

So that the last months. a the -- certainly of lowest of at over for couple been we've and months. course the that challenge to gap been But say, clearly the it's steeply years. equity has it's pretty that last, been past decline seen really rapidly over XX And X now XX-plus I'd the

vehicles entering being seeing are volumes at point of We funnel. this off-lease returned increased and the remarketing

They're the not vehicles So into the deeper funnel. purchased by that grounding all is a those flowing positive getting seeing for us in terms remarketing also of volume. more dealer. We're

That mix is impacts another that ARPU. So and positive.

bit that in little evident a was of So QX.

the positive They much get the of They run, I would the not in do equity. expect, of more end and the at probably normal think look this be off-lease there's it have negative equity. any XXXX. and happening lease long we And over would more vehicles returned again, normal like they most enter have remarketing will process.

been. to last trend, XX-plus how really And present possible. going at to to half lease most part of a see the moment, an way status part important because vehicles trends say, lower the residual take encouraged I'm in to vehicles. by of a going top-of-funnel your offset here, it's impact the lease the we originations Rajat, a to sort originations. lease I'd We're positive on seeing the This and as the But with don't it of to business all our maturing of increase of it value to lease on, quarter. year I very we're now up those this market because fewer know vehicles vehicles exact and in off-lease are I it's wrap going percent So year. Probably have second has be is me seeing, the that of percent what which I'm originations, before the -- of important is question as I in positive. precision thing, leasing a increased XX-plus difficult the in could model U.S., always tells of originations that forward. that brought be it going fourth it's

still that it's encouraging years company have a to positive for know some So we see of as but very significant to for vehicles wait future. couple to I to we're think the the mature, for going those it's look me to I of trend a

Rajat Gupta

it. EBITDA do outlook on in I driven helpful full to or rate primarily grow expect think That's 'XX? on down guidance, I mean, we can like AFC that going improvement the Got little the more be to in think we should the the 'XX mentioned And Or marketplace. give us the the for losses you you just a is business curious flattish? that model credit color. given exit you by AFC color on Just if should year the 'XX.

Brad Lakhia

Rajat, thanks the for question.

I I in loss said in of we're expect actually second to of good as we head line to sight us the XXXX. want imagine, then would I it kind provide can year-over-year but it which moderate very that in off grow it would for rates in going ourselves. fairly not how you should modeling modestly, of you model forward that manner, see in to it a second rate, expect be And But only to we that continue as my look I going to similar a business. of now. comments, going first just that wouldn't losses, that manner. to benefit. And just planning loss directly. yes, and we, our half a to right pretty as -- we to very the say comments, going terms dollars, to a half business We half in And also XXXX, AFC, forward year-over-year, those So to we're conservative of We're have terms that do to to of certainly alluded down say, disciplined here

flow cash a that a high-performing it's -- we'll and from business. look grow contribution, to an a have and continue earnings We business to

Operator

comes question Craig from next Kennison the Baird. with And

Craig Kennison

the on up follow to prior topic. wanted I

you've off-lease you're that narrowing. on seems get long environment comes how where to there's curious, off equity if car car until negative I'm prices where Peter, and normal that a Just, the lease about gap actually and today? are equity to work and about based they talking the done, stay we be

Peter Kelly

been for it's are say interesting hard One But we things prices as continued where weeks predict this to to in me trend is of precision. that. they've relevant Craig, the I trending. good do first a year, think it I'd question. a downwards. -- number used of few It's car about It's with slightly

pricing So upward I think most still there the at part, present pressure the more vehicle for on than used downward is, time.

the period early where Although expecting I mid-XXXX. are to point And second over values XXXX, leases that, when the I'm course you think then contracts of vehicle in That's think decline lap written is a not where the leases transaction on run-up a XXXX. And a in of rapid were starting significant we new the saw residual that got written. these we're prices. -- now to

with So residual correlate values on higher that those tend to would contracts.

future, So the normalize I put I gap from on directions, not-too-distant time in a to hesitate I being the compressed it to that. and specific equity think is expect but both

Craig Kennison

when at those it is in equity? were look really of If late leases to prices the particular look in cohort peaked, negative be you used candidates XXXX cohort fair that those car significant for to at to and look say, having made

Peter Kelly

more sort shed already shed light I Craig, really on my than I've in can't of answer. that

possible prices off-lease top vehicles those and the demand of vehicles -- cause prices could not sort I complication, of one that fewer increased steeply the that gap could might could like. lift at to as one I And that think there as the funnel, if could there's in on guess Craig, -- equity the vehicles. narrow be there's that those

those the vehicles And percentage remarketing potential to and expect a think the offset lot. here, the more seeing So that based We've vehicles there's what moving And commercial trends a We're that lot aware to my with funnel. we just of. that customers, top of funnel are pieces go has enter of our to seen come remarketing of And conversation down Craig. I would equity they entering continue the here's say. gap the up. on I

Craig Kennison

And then maybe if I could.

I I'm bit fewer wondering dealer the for so, last On you're reason? side, per versus if if adding down believe any seeing it dealer you a year. And little still just are dealers. was transactions

Peter Kelly

of the -- the segment. demand seen that volumes year, We've on Canada export and Yes. drove strong in the the saw Canada lot in prior U.S. as in Brad some dealer drove In into Canada. a very headwinds mentioned, we from second dealer there liquidity was volume and of the market year half in of strong last

of So second that little headwind. a we add went say, bit kind customers. was last of year. Well, the of continue in largely I'd That away, half to a

DXD on Our base to grow. continues customer

Our positive volumes customers gotten are very I again, dealers grew the our feedback sell using in fourth in U.S. that and who both mentioned I've my pleased the from side. the as on very quarter. And buy DXD and remarks, active dealer-to-dealer I'm solutions, the with

very very So with And offerings I encouraged there customer competitive as sticky vis-a-vis very all I offering. base it's are out our its feel think well. and that about other

Brad Lakhia

Peter, data just market point, me that we're is would Canada us. the unique not the what in that's to Craig, on just have intelligence broad-based. Canadian Yes. The let we add, seeing more suggest I --

our So clear I unique it just make to that it's want not to there. business

Operator

with Lynch. The Bank America Merrill next John question from Murphy of

John Murphy

in down. being the was you but guys U.S. mean business I dealer-to-dealer total Just lot, the -- about first talked a Peter, up question,

there particular coming strength companies lease, where selling fleet up rental So into buyers? from? about in finally off and kind also, any was auction Was U.S.? And on the talking business. conversely these of the of I'm curious commercial government is and getting where commercial really how commercial, but side, strength much the I know we're being just business on to lanes are there's the side back there the opposed dealer then as

Peter Kelly

Yes.

John. thanks, So

in based I to QX segment analysis, I well want versus lot. on say just gained didn't side, we other up compare when dealer data in I a dealer the share in dealer saw sources. our said And believe as were we our were in we up what volumes in on the I the volumes U.S. up So QX. dealer be clear, they but

in In terms of commercial, in both we're commercial U.S. growth Canada. seeing the and

We're the it's broad-based. increased fairly off-lease seeing consignment, funnel, just vehicles. spoke flowing more think vehicles deeper entering So I about I in funnel. the

a are been that's was of John. volume, increase clear want QX, at in those a So also that's the there's It that. us. on think Most we for auction. to I positive industry, of physical a repossession positive beginning sold repos an trend. In the in and be

don't But are cars small. some us we in a customers our there quite rental repo quite do of. volumes having sell with and as some segment sell up, of the model brands So for we in have although you're success volumes lot that volumes And yet, are us well off-lease but the major well, are piloting we volumes still for well. repos as some digital of are and up, aware rental strong for been as that those

John Murphy

-- $XXX-ish upside business upside we years? number fees I how from upside does and And dealer Or upper limit? in see just mix there the any auction maybe your fee in time? this as the the even potential ], potentially it mean, is of [ kind coming much the lastly, is over increases is strengthen

Peter Kelly

that at business the price. side believe, over there physical the auction channels. priced, on years. alternative upside vis-a-vis it's evident the have competitively past few fees think I is materially I We're increased buy to me of

where So like I'd I now. priced John, right say I there. we're think well we're positioned

the a in but you results, achieved little We I terms the consolidated our they've our customers year U.S. their bit vehicles. And give think low price cost the in in on was outcomes also and profitable. as a of increase segment. the value last that mentioned, Brad speed our business of proposition of great we did sale, sale see well, DXD

we've So we to got but do don't opportunity that, have immediately further planned. anything some

Operator

question Research. Prestopino next from Gary comes Our with Barrington

Gary Prestopino

it my I you questions tell much have they're Canadian your challenging provision going been your up me -- more answered, of up systemic environment credit a Most know economic having U.S. to for business as losses versus the there. as but was Could business? that with really did.

that little? on elaborate you a could So

Brad Lakhia

bit I each There's I here. Brad Thanks say see seeing management it's do and what new value a perspective, the there's versa. that as underwriting or fairly risk And just at it's We our I differently Gary, we're States we vehicle more little we say way. each we Canada, only value not unique. that in our market, the -- a business our them -- about look or saw potential would but we than systemic would in as unique financing said, we're as the question. the one. vice answer underwriting we it factor customers, U.S., would so a that's Canada also -- versus -- nothing think declines from for environment from I to that's Yes, severe and at. our perspective appetite look processes. nothing United risk for say in in loss would

Gary Prestopino

environment on keep checks we weekly just lot to your tabs that of in on in this kind to these So a are vehicles? you anything increase now, have done basis

Brad Lakhia

stepped allow add a lot us which our certainly mitigate status. a up, driven Yes. I More versus true continue. really to signaling risk several call letting have analytics what to accounts past to we'll also wind-down losses would us also move have them we Gary, are higher analytics that status, to significantly over been into a go and that better positioned them us there delinquent and have full move we to advancement allows XXXX, and our really in that's just of activity years, the throughout

have. better lean of analytics, some our cases allowing those historically they to our into risk So processes are management than us

Operator

Our next Bob Securities. with comes CJS question from Labick

Unknown Analyst

for Pete spread ] relate you and per just AFC, I to in and give -- one And [ my relates how any income stuff has unit to 'XX? guess, as been already it it income just, fee interest do ] It's net as there? color you here. [ of can Lukas Most Bob. addressed trending question see But

Brad Lakhia

Yes. Thanks question. for the

to continue through on Bob, portfolio The years yields say, net overall the an think, both interest overall. and XXXX -- I strong. a been, kind fee to our of and performer. interest by here, be a here, basis If the just consistent back the have business strong to the fairly yields across I'll go and this have reemphasizing point portfolios be we would basis. that I a start That's I continues

would to yields the well. I at continues those perform not into XXXX this point. expect materially to change So portfolio

Operator

comes from question next Our Daniel with Imbro Stephens.

Daniel Imbro

one, wanted to economics ask Maybe on maybe unit the side. I about

profit off-lease per historically, those per As first year, given maybe maybe dealer. think in as commercial down lower we think gross how unit, the if you revenue half, the that really a importantly, to the unit profit more grounding into about do per impacting commercial, but cars gross next a think changes more Curious back about unit, they little revenue carry unit, you the lower about shift taken mix those per in a get with sources? shift probably

Brad Lakhia

more more perspective, us. a phases gross of also I'd in in in But from cost-based the down line. I a our what say business ARPU. for to more is that and off-lease particularly would call our as profits gross move or in It's it funnel, fixed we profit do that commercial, channel So those to remarketing accretive the get say off-lease volumes, those would we

And it funnel we that from that, to is as particularly of get incremental moves so the accretive. remarketing revenue phase the the more

Peter Kelly

sort just vehicle weigh of benefit company. -- a our mean, could I incremental in, is for I every if Dan,

like we a base has this because more online profit guess I'd say and pre-COVID margin. But significant have here liquid strong of a level, before. at of revenue, I buyer our a which era, very opportunity high percent ever part as profit gross high the -- the a than unlike is So much now business gross I

that average rates the that in the XX/X about for the one more conversion on enter to dealer rates vehicles on There's talked these open day. segment. to on days marketplace. about the the the lower. segment in High have marketplace sale were an replicate active buyers, off-lease I conversion -- of side. Historically, the We opportunity dealer there

volumes a this starting A our sellers. ago, in bigger. working with small. they're collaboration to very are for Obviously, -- very, that's The So get company. year real were opportunity

very how They're on that. sellers see maximize can OPENLANE conversion to Our those with focused we rates. together work

So we're playbooks exercising the there.

once for as process, get of an into are ARPU company. us. So very units, high-margin a open sale, area this stage opportunity units for us And and is exciting of that those high the profitable cars the

Daniel Imbro

And on a quickly that one. follow-up great. That's

are higher of So ARPU So the that recon, was still ARPU pre-COVID are the reconditioning a even there because the I ARPU for sold you when recon since they they higher assets? right? without lot down funnel like feel without moved even higher

Peter Kelly

buy of sell what I'm and Yes. of Dan. higher sort They're auction fee about, kind ARPU, is talking fees

auction do, and recon. are don't yes, $XX,XXX, So do $XX,XXX also fees, And up. the we transportation revenue. typically obviously, sell higher-value vehicles, buy the We and fee. These there's

The I here, of other add thing I in would talked the like to about OPENLANE represents unique sort marketplace. that the offering

the in of real are on together base that, and commercial we that in attractive our buyer more starting Those the marketplace, a that's flowing see to we're volumes dealer parallel off-lease now have vehicles to in marketplace. positive franchise with and marketplace, having impact that one dealers. volumes into highly commercial So that

versus those sales our dealer-to-dealer are cars see buying day much buying report -- dudes. look more of cars, I typically on it's the buyers every sort when So segment, those and franchise the dealers at independent who's

they dealership marketplace, are And benefit power So experience sell interested it's constituency, broadening the appeal of this franchise leverage then the how okay, side. more mix. I core on my to to dealers. the It's this as can customer the those the turn marketplace increasing to a in, dealers get of in

But I of seeing So we're evidence this. think again, here. to execute trying this of the what goes we're the to strategy

going very I customers be a for there strong positive. we've got offering think very very, at offering point. and out very differentiated our again, to And think I it's this a

Daniel Imbro

how a have might Canada? long Appreciate to you say, expect that color, quick persist Peter. challenges follow-up. I And the volume guys did it, But then you missed do in

Peter Kelly

last commercial what increases. Dan, in saw volumes that guess in I seeing much commercial say quite solid continuing. -- some Canada, we're seeing through of year and already, volume We I'll increases We're

the We have benefit of the acquisition.

They consignment of dealers have are business. the on of the those upside as Canada to could got industry volumes. retail that for are their been a trying term we some The vehicle. them. the paid inventory. wholesale in kind determine not attain incremental They're take of They've inventory. loss. able certain challenges in So and price on down they're vehicles And way side best them out but is the just hesitant their to the dealer to They're price,

little to to improve to So the in our the up a a dealer bit later for consignment really We really in But there. see -- Canada -- started last here little market few the sometimes impact segment. dealer spring weeks. it's been it

to over of next how plays the the it April. So and remainder we'll out have see this -- over quarter into

Operator

comes question with Bret final our Jordan Jefferies. And from

Bret Jordan

back about rates, these we are as obviously, right used in great I levels as But around loss it it is almost X.X% to like financial we now. high was they your here? challenged there. that 'XX term And borrower, out crisis move? expect expected retail to control given cap how should markets think your short over

Brad Lakhia

Yes, Brett.

listen, little a I of said. of So reiterate bit kind what I'll just maybe

including of that second the half line half, similar point sight will reported think to pretty 'XX, first I QX. for of we be where that X.X% we have at clear this

year. something So half of you'll in the first see the similar

loss them I about higher financial a of X.X%. think the they're rates my you They were level to wasn't this if that you if great say out, And I head, to to go the back to were it's COVID, off think go the heart that top kind don't than. to So mid-XXXX. I I higher know or then. of that say of quite going than I quote that to lot I affirmatively. I cap or think bit around difficult think commit But but could company crisis, a the with X%. the probably

don't we we But that I to predict. point. get it's XXXX, say to of expect to -- moderate. second what half can do back we're said the it earlier, difficult them So to I expect

Bret Jordan

converted liked the as opportunity to particularly have asset the Daniel's to a And question sort there you've as physical off-lease really sellers down then commercial physical asset? about that transferable that go is on pretty to were everybody a require volume to there much that is is to this guess, Or does I of having sale? to prior platform? you digital-only, refurbished a funnel, car

Peter Kelly

that, Probably what have on different guess is to would question. what I know is opinions different say I clear. would Bret, remarketers that here's I

Our that's a Because on can a sell sellers holding the digital being wins the cost marketplace of car inventory or dealer returned. sellers X How it the metrics capital. are a focused car. sellers of depreciation are number Well, sell X of car? and cost that. when is on We really -- to day sell I it within comes fast or commercial important

on So we're winner clear that. a

all, cost is terms again, of of car? it is what no does me sell digital expenses, There to cost. in transportation the the channel Second And the cheapest.

pay don't You fees. higher those

my frankly, commercial think again, commercial our with at, OPENLANE grossing third I then don't typically pay You dealer highest look at from one the that that And what discussions had. get is, vehicle? and proceeds recon. for the customers look are the sellers. And segment was those we channel I we that the

a we're on the the that X side. dimensions customers think performer sell I So strong about core on concerned are

from buy right at recondition based market auction to physical car Now to the auction while now customer get I It online in you physical because know. recon. you if get $X.XX, don't today, that is demand risk a it was, $X, today, this of question XX that's that car to auction, potentially that, the like But send equation. they're from to because type will there's yes, sense a worth take. that it now physical your benefit when a and will it sell really feels days where is that vehicles liquid some and went past, spend to the made them

different drive So I points online different our highest customers think what are is customers of in channel. up I interested many in can the because channel have view. But of conversion that's will performing I know my keenly how

years but to customers So we're every gain these for maximize quarter conversion share not and on this our going going that, and this with to work we're just them in industry. Great. to come to rates quarter, with and on work

Okay.

I here. So remarks it. think that's Closing

Okay.

appreciate So questions your everybody. I today. time as the thanks, all I again, well. appreciate

XXXX. growth, said the from I'm cash I performance. in We EBITDA As with volume full improvement consolidated the million pleased and $XXX more our $XX this to on intend quarter by performance contribution full XXXX. The of $XXX million and in last than revenue expect Finance EBITDA a be year at XXXX, build adjusted contributor growth, increased which adjusted by we Marketplace to in was flow marketplace our delivered also $XXX driven results meaningful and year. We to our the operations to beginning, year million for business, in strong overall fourth million business

the differentiates commercial This us we're pleased of our exclusive inventory with and strengthens going addition offering brand benefits XXXX pleased the dealer brand, marketplace. into the a and in our be XXXX. to OPENLANE competition the In financial forward. I'm with platform platform, consolidation seeing industry. inventory all customers and versus integrated with one highly also enters performance, to I'm offering, trends one work one differentiated our accomplished with in

modest, lease prices once recovery industry be inventory volume While stabilizing we again. the increasing, that will that believe are are dealer and originations increasing wholesale XXXX we in is see

good news future of OPENLANE. for the is this of All

in wholesale on continued you look We growing business are strategy, and you continued to and on for next execution easy for strong many come. forward to today's Thank I all focused our our for customers call. our this making updating years joining on progress XXXX, year our call. advancing the

Operator

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

disconnect. may You

KAR Auction Services (KAR) 20 Feb 242023 Q4 Earnings call transcript