NYSE:KAR OPENLANE Q2 2023 Earnings Report $21.83 +2.66 (+13.88%) As of 10:09 AM Eastern Earnings HistoryForecast OPENLANE EPS ResultsActual EPS$0.25Consensus EPS $0.14Beat/MissBeat by +$0.11One Year Ago EPS-$0.04OPENLANE Revenue ResultsActual Revenue$416.90 millionExpected Revenue$419.64 millionBeat/MissMissed by -$2.74 millionYoY Revenue Growth+8.50%OPENLANE Announcement DetailsQuarterQ2 2023Date8/3/2023TimeAfter Market ClosesConference Call DateThursday, August 3, 2023Conference Call Time8:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by OPENLANE Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 3, 2023 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Good morning, and welcome to the Openlands Second Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask Please note, today's event is being recorded. I would now like like to turn the conference over to Mike Eliason, Treasurer and Vice President of Investor Relations. Please go ahead, sir. Speaker 100:00:40Thanks, Rocco. Good morning, and thank you for joining us today for the Open Lane Second Quarter 2023 Earnings Conference Call. Today, we will discuss the financial performance of the Open Lane for the quarter ended June 30, 2023. After concluding our commentary, we will take Before Peter kicks off our discussion, I would like to remind you that this conference call contains forward looking statements within the meaning of the Safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward looking statements involve risks and uncertainties that may affect Open Lane's business, prospects and results of operations and such risks are fully detailed in our SEC filings. Speaker 100:01:25In providing forward looking statements, the company expressly disclaims any will be conducting a reconciliation to update these statements. Let me also mention that throughout this conference call, we will be referencing both GAAP and non GAAP financial measures. Reconciliations of the non GAAP financial measures to the applicable GAAP financial measure can be found in the press release that we will be issued last night, which is also available in the Investor Relations section of our website. Now I'd like to turn this call over to OpenLane's CEO, are Peter Kelly. Peter? Speaker 200:01:58Thank you, Mike, and good morning, everybody. I'm delighted to be here this morning to provide you with an update on Open Lane. Joining me on today's call is our Chief Financial Officer, Brad Lakia. I'm going to begin with Open Lane's 2nd quarter performance. And as usual, I will speak about our business in 2 segments, our Marketplace segment and a Finance segment. Speaker 200:02:18I'm very pleased with our solid performance in the Q2, particularly given an industry environment where volumes remain tight. Compared to the Q2 of 2022, we increased volumes in our marketplace and finance segments growing our consolidated revenue and total gross profit. We reduced SG and A to our cost management efforts and delivered strong growth in adjusted EBITDA compared to 1 year ago. It was also another strong quarter in terms of cash flow generation by the business. To summarize some of our key results for the Q2, Volumes in our marketplace business increased to 344,000 for the quarter, a total gross merchandise value of approximately $6,400,000,000 This represented the 1st year on year volume growth since early 2021. Speaker 200:03:03Volumes also increased 4% over the are in the Q1 of 2023, making this the 1st sequential Q1 to Q2 volume increase in any year since before the pandemic. We believe that Q2 volume performance supports our view that volumes have bottomed out and are beginning to grow. We generated approximately 4 received $17,000,000 in revenue, a 9% increase versus Q2 of last year. We delivered revenue growth in both Marketplace and Finance segments. Generated total gross profit of $94,000,000 an increase of 13% from Q2 of last year. Speaker 200:03:37Gross profit represented 55 were 17% year on year and representing almost 44% of revenue, excluding purchased vehicles. And we generated adjusted EBITDA are in Speaker 300:03:58the range of $84,000,000 in Q2, dollars 44,000,000 from our Speaker 200:03:58Marketplace segment and $40,000,000 from our Finance segment. It It is important to note that the $84,000,000 in adjusted EBITDA included a $20,000,000 one time benefit associated with the termination of a contractual agreement. Excluding this consolidated adjusted EBITDA would have been $64,000,000 and that would have been an increase of 14% versus Q2 of last year. Excluding the one time benefit, Marketplace adjusted EBITDA would have been $24,000,000 That's a $19,000,000 improvement compared to Q2 of hear. So when viewed together with our Q1 performance this year, marketplace adjusted EBITDA has approved by $45,000,000 in the 1st 6 months of 2023 versus the same period last year, and that is excluding both the $20,000,000 benefit this quarter and the $11,000,000 one time charge that was will be recorded in Q1. Speaker 200:04:48I am very encouraged that net of those two items, our marketplace business is currently operating at an adjusted EBITDA run rate are in line with the expectations of the company's business. Given the scalability of our asset light digital model, I believe that Open Lane is now very well positioned to grow our business and build on that positive operational and financial performance. Brad will discuss cash flow generation and capital allocation later in this call, but I do want to highlight the strong cash flow characteristics of our business that were again evident in Q2. Open Lane generated cash flows of $47,000,000 from operating activities in Q2. The company has a strong balance sheet, have a low leverage ratio and ample liquidity to invest in innovation and growth, while still delivering profits and strong cash flows. Speaker 200:05:35In In addition to achieving these positive financial results, we also made progress advancing a number of our key strategic initiatives during the are in the quarter, initiatives that I believe will help position OpenLMi for sustained longer term growth. As I've outlined on previous call, we are highly focused on simplifying our business, making it easier for customers to do business with us and enabling our organization to move faster in terms of innovation and growth. We We made significant progress in the Q2, starting with the successful rebranding of the company to Open Lane. As we discussed when we announced the brand change, we believe that validating our marketplaces under a single brand will improve outcomes for our customers. With all of the buyers, all of the sellers and all of the vehicles all in one place, Speaker 300:06:17in our marketplace will offer Speaker 200:06:18a highly differentiated mix of inventory from off lease vehicles that are not available in any other digital platform, are in the range of older, higher mileage vehicles and all type vehicles in between. I want to thank our team for the creativity and effort they put into executing a near flawless end launch. The response from our customers has been very positive, perhaps even more positive than I had expected. And our employees are rallying around our new brand and our new One Company culture. I'm very are excited for the future of this company under the Open Lane brand. Speaker 200:06:51Following our corporate announcement, we successfully launched our Open Lane branded placed in Canada in late June. We migrated customers from the ADESA and TradeRev marketplaces over a 4 week period and we plan to retire those legacy marketplaces within the Speaker 400:07:03coming weeks. We saw strong Speaker 200:07:03customer engagement leading up are in the coming weeks. We saw strong customer engagement leading up to the launch with thousands of dealers attending our educational webinars. And while still early, we've seen sustained levels of buying and selling, with some cohorts increasing purchases over their pre migration volumes. So to be clear on what this means, we now have 1 combined digital marketplace in Canada, where all of our open sale vehicles from commercial sellers and all of the vehicles offered for sale by dealers are available and where all of our customers can interact and do business with each other. Looking ahead and consistent with the vision that I outlined on the last earnings call, we have finalized our plans to integrate our commercial and dealer open sale inventory into a single open landed branded marketplace in the United States, our largest market during the Q4 of this year. Speaker 200:07:50We also intend to rebrand our European marketplace before year end. So We intend to start 2024 with all of our marketplace platforms operating under a single unified open lane brand and all of our marketplaces having fully integrated will also allow us to get greater leverage from our engineering resources and accelerate innovation. So I'd like to highlight a few examples of innovations that we delivered in the 2nd quarter. We introduced an automated AI driven negotiation tool that eliminates the need for human intervention to close deals for sellers and buyers are within some threshold percentage on price. Instead of facilitating multiple phone calls between sellers and and our representatives, our system can digitally interact with both parties to help achieve a mutually acceptable outcome more often and more quickly. Speaker 200:08:43We believe this technology will lead to higher conversion rates and ultimately higher levels of customer satisfaction. Over time, it also has the potential to help reduce our costs as well. We also continue to invest in our leading vehicle history inspection capabilities to ensure that our in place remains fast, transparent and efficient. In the Q2, we further enhanced our inspection process in the United States to provide vehicle have specific guidance to the inspector during the inspection process based on our historical experience with similar makes and models. The enhancement also automatically supplements inspection disclosures on known high failure rate items and strategically selects the most risk prone vehicles for an independent review are posting to the marketplace. Speaker 200:09:27The objective here is to continue to increase buyer and seller confidence in the inspections themselves, will also improve our gross margins by lowering arbitration expenses and other direct costs. And finally, when we launched our new Open Lane branded marketplace in Canada, We also deployed new and enhanced market and pricing insights that will help dealers make more informed buying and selling decisions. And we have automated registration and checkout processes giving new dealers almost instant access to Canadian inventory and helping buyers take delivery of their vehicles more quickly after purchase enhancements and the pipeline of innovative products and features still to come are all aimed at accelerating growth and advancing our purpose, which is to make wholesale easy so our customers can be more successful. I also want to highlight our continued focus on cost management. Our diligence in this area is positively impacting our gross profit margins by reducing our direct costs. Speaker 200:10:21It is also helping reduce our SG and A In the Q2, total SG and A declined $13,000,000 or 10% compared to Q2 of last year. We continue to advance our global shared services model and have expanded the effort to include additional areas across our organization. Additionally, our technology teams recently completed the migration of the remaining technology of our remaining technology infrastructure across the organization to a common cloud provided. This was a significant undertaking and was accomplished with 0 disruption to our customers. The completion of this migration, coupled with the marketplace consolidations associated with our rebrand are important catalysts that will enable us to eliminate duplicative systems within our existing technology structure. Speaker 200:11:05This will be an important area of focus going forward. Over time, we will continue to make progress towards a single remarketing platform, will be in the range of $1,000,000 which will increase the efficiency of our technology development and business processes. Doing so will enable us to get greater leverage from our technology investments, reducing the are required to maintain a fragmented set of technologies, while increasing our ability to make focused investments that drive innovation and improve the customer I've always believed that digital models are inherently more scalable, and I believe this is becoming increasingly evident in Hovland's current results. As we focus on the items that I've just described and as we grow our attention volumes, I believe we'll see more evidence of this in the years to come. I'd now like to provide some updates on the macro environment and our perspectives on the remainder of this year and into 2024 and beyond. Speaker 200:11:54And I'll begin by saying that We believe there is increasing evidence that industry volumes have bottomed out and are now beginning to rebound, particularly as it relates to commercial seller volumes. I I believe this is supported by the following factors. 1st, new vehicle production, new vehicle sales and new vehicle inventory on dealership lots continue to grow. As I've said before, these are necessary ingredients to balancing supply and demand in the used vehicle market. As new vehicle inventory increases on dealership lots, are starting to see evidence of increased incentive spending by OEMs, and this is now once again driving increased volumes of new lease originations. Speaker 200:12:31In fact, Based on third party data, lease penetration rates in the Q2 were materially higher than in the Q2 of last year. This is a very are Speaker 400:12:41a positive indicator for our commercial seller volumes. Speaker 200:12:42As I said on prior calls, I believe leasing will remain a very important part of the way new vehicles are in the market in North America, and I think the Q2 trends around leasing origination support this point of view. Shifting to used vehicle values, the surprisingly strong run up in used vehicle prices that we saw in the Q1 has ended and prices at our Marketplace segment demonstrated in Q2. I believe it speaks to the resiliency of our asset model. And while used vehicle values are declining again, the The majority of all leased vehicles still remain in a strong equity position versus their residual values. So while we did not see any meaningful increase in off lease volume supply in the 2nd quarter, We do expect that the combination of lower used vehicle values, but also higher residual values for the cohorts of vehicles that were leased in 2021 in 2022 will cause the equity position to narrow and more off lease volumes to start to flow over time. Speaker 200:13:52I believe that all of these factors point to a steady improvement in total wholesale volumes in 2024 and beyond. Taking all of this into account, I believe that the 2 primary pieces of our growth equation remain intact. First, we believe that digital channels will continue to gain share and that we are are very well positioned to gain more of that additional share over time. We also believe there will be a recovery in commercial volume, which given our existing market share and deep commercial relationships will result in increased off lease commercial vehicles in our marketplaces. So in terms of our performance outlook for the remainder of this year. Speaker 200:14:28In our marketplace segment, I expect Open Lanes volumes in the second half of twenty twenty three to increase compared to the second half of twenty twenty two. This year on year volume growth coupled with the strong unit economics that are currently being demonstrated by our marketplace business should drive improved financial performance in this segment in in the second half of twenty twenty three when compared with the same period last year. In the Finance segment, we expect continued strong volumes and revenue. We believe the current market conditions point to a more normalized risk environment, not to similar to the industry benchmarks that we experienced pre pandemic. Our 2nd quarter loss at AFC were at the higher end of what we believe to be the normal range of 1.5% to 2% of the portfolio. Speaker 200:15:09We believe that this is still the appropriate range for the business as we look to the future. So overall, we expect a solid performance from AFC in the second half of this year, although a full year result that will be below last year's record performance. Brad will provide a more detailed update on how these factors impact various aspects of our guidance for the remainder of 2023. As As we look beyond 2023, we believe that our strategy and our outlook on the market conditions can support the 15% to 20% annual growth in adjusted EBITDA off of our are going to be looking through 2023 guidance range for the next several years. While we believe that the majority of this growth will be are driven by our Marketplace segment. Speaker 200:15:49The Finance segment will also grow over 2023 levels and will remain a strong contributor to our bring to the market a compelling business model and a sound strategy for growth. We're a pure play digital marketplace leader with deep and growing strength in both commercial sellers and in the Teeter to Theater business. We have access to a large addressable market in North America and in Europe, and we intend to grow our share while unlocking new opportunities in those markets. We have a robust pipeline of innovation that supports our growth strategy. By consolidating platforms, we will get greater are technology and product investments and we will focus our energy resources and investments on building the greatest digital marketplace for our customers. Speaker 200:16:37Will deliver strong positive cash flows. This was clearly evident again in the Q2. We can invest in our business while generating will be available for additional cash that can be used to pay down debt, return capital to shareholders and make strategic investments. So with that, I will now turn the call over to Brad, who will provide a more in-depth Speaker 500:16:56will be conducting an update on our Q2 financial performance. Brad? Thank you, Peter, and good morning, everyone. Before I comment on our operating and financial results, I'd like to take a moment to briefly share a couple of reflections based on my first 100 days with are open lane. First, I share Peter's optimism for the future. Speaker 500:17:14Not only do we have significant opportunities to create and capture value, we have an impressive, dedicated and industry leading management team. For me professionally and personally, I feel very fortunate to have assumed my position had a very unique time in the history of the company and our industry. Open Lane has undergone a tremendous transformation, 1 that created a highly valuable asset light digitally focused business model. This along with the opportunity to work alongside our leading management team is what attracted me to the organization. And my experience the 1st few months has only reinforced my confidence that Open Lane will be well positioned to grow and succeed. Speaker 500:17:55And our 2nd quarter and year to date results are the best evidence of this reflection. And with that, I'll provide more detail on our segment results. Compared to last year, although volumes were relatively flat in the Q2, marketplace revenues excluding purchased vehicle sales increased 5% to $259,000,000 and generated 73% of our consolidated net revenues. And fees per unit increased 4% driven by select fee increases and marketplace service revenues were up 6%, are in the range of $1,000,000 driven by select fee increases and higher volumes in our repossession and technology related service businesses. As we've mentioned previously, these service related businesses provide highly complementary critical solutions to our customers and allow OpenLane 17% increase in gross profit or a 2 50 basis point improvement compared to the Q2 of last year. Speaker 500:19:01This also represented 120 basis point improvement sequentially when compared to the Q1 of this year. Gross profit benefited by improvements in our service related businesses and our cost savings initiatives. Marketplace adjusted EBITDA for the quarter was 44,000,000 inclusive of the one time $20,000,000 benefit related to the early termination of a contractual remit. Marketplace adjusted EBITDA was $24,000,000 excluding this item representing a $19,000,000 increase compared with the Q2 of last year. This was driven by the improvement in revenues and gross profit highlighted earlier and also a reduction in SG and A reflecting the successful execution of our cost this quarter and the $11,000,000 one time charge in the Q1, our marketplace adjusted EBITDA was $49,000,000 in the first represented an improvement of $45,000,000 compared to the first half of last year. Speaker 500:20:06This first half result and the improvement supports the $100,000,000 adjusted EBITDA run rate that Peter highlighted earlier. It also demonstrates the potential benefits related to volume scalability, further structural cost reductions and provides a window into future margin improvements. Turning to our Finance segment, revenues in were $98,000,000 a 6% increase over prior year and accounted for approximately 27% of our consolidated net revenues excluding purchased vehicles. Finance revenues increased despite overall flat loan transaction units compared to last year. Revenue per loan transaction transaction was $2.43 per unit, an increase of $14 per unit or 6% and was driven by increased fee income and interest rate yields. Speaker 500:20:59These increases were partially offset by increased credit losses and a decline in loan values. Finance segment adjusted EBITDA in the quarter was $40,000,000 compared to $51,000,000 last year. This $11,000,000 decrease is more than are constrained by a $12,000,000 increase in our provision for credit losses. Would like to emphasize a few things we have noted in prior earnings calls and disclosures. First, our finance business has very strong service offering, which leverages a high touch customer relationship model to manage risk while enabling growth. Speaker 500:21:47Our provision for credit loss was 2% for the quarter. And as mentioned last quarter, this represents a more normalized rate when compared to the favorable fundamentals that enabled a much lower loss rate over the last 2 years. Long term, The provision for credit losses is expected to be 2% or lower annually. However, actual losses in any particular period could deviate from this expectation. Turning to SG and A. Speaker 500:22:14As Peter mentioned earlier, consolidated SG and A declined $18,000,000 compared to the Q2 of last year and is largely reflected in our marketplace segment results. Overall compensation cost and professional fees declined Speaker 400:22:31are in the range of $1,000,000 driven by our cost savings initiatives. Speaker 500:22:32In addition, non cash stock compensation expense comprised $9,000,000 have a $13,000,000 decrease. Non cash stock compensation expense was elevated in the Q2 of last year due to the gain on the sale of the U. S. Physical We also had a number of non recurring items reflected in income and expense during the quarter. Will be available on the call. Speaker 500:23:021st, as mentioned earlier, we agreed to accelerate the termination of a contractual agreement, which resulted in a cash gain of $20,000,000 This is included in the company's reported adjusted EBITDA of $84,000,000 And for modeling purposes, please note in the Q3 of last this year, we recognized approximately $5,000,000 of income related to this agreement. Therefore, this will not reoccur in the Q3 of this year will be in the range of 2nd, as a direct result of our Open Lane rebranding and the implementation of our one marketplace strategy, we assessed the intangible carrying value of our ADESA tradename. This resulted in a non cash impairment charge of $26,000,000 before tax in the quarter. In addition, this trade name now has a defined life, which will result in approximately $16,000,000 of additional annual amortization expense over the next 6 years and will begin in the second half of this year. Finally, consistent with our Q2 annual requirement, we formally evaluated our reporting units to test the carrying value of our goodwill. Speaker 500:24:14This evaluation resulted in a non cash charge of $225,000,000 before tax and was primarily driven by lower estimated fair value of our U. S. Dealer to dealer reporting unit. The combined trade name and goodwill impairment charges generated a net tax benefit of $29,000,000 which included a $30,000,000 trade name and goodwill impairment charge was approximately $221,000,000 in the quarter. The net impact of the trade name and goodwill impairments are excluded from our adjusted EBITDA and our operating adjusted net income per share. Speaker 500:25:01Turning to the balance sheet and capital allocation. First, I would like to highlight our strong cash flow. Cash flows from operating activities in the quarter were $47,000,000 and stand at $143,000,000 year to date. This level of and cash generation validates the fact that our asset light digitally focused strategy and business model are delivering meaningful results. In addition, during the quarter, We repaid $140,000,000 in senior notes and executed a new $325,000,000 revolving credit agreement that will now mature in 2028. Speaker 500:25:35Our operating cash flow performance, our debt repayment and our revolver maturity extensions, when taken together, notably improved our overall liquidity position and further strengthened our balance sheet. This is evidenced by first half net reduction of approximately $118,000,000 and a meaningful improvement in our consolidated net leverage ratio, which now stands below 1x adjusted Continued improvement in our marketplace business coupled with the strengthened capital structure provides enhanced flexibility have found our organic growth plan and improves our ability to deliver shareholder returns. As highlighted in our disclosures, we have 127 remaining on our share repurchase authorization. I'll wrap up by addressing a few annual guidance items. Are confirming our previously stated adjusted EBITDA guidance of $250,000,000 to $270,000,000 and believe we are trending to the upper range are in the upper end of that range. Speaker 500:26:39We have lowered our estimated 2023 capital expenditures from $65,000,000 to 60,000,000 and consistent with recent performance and when normalizing for seasonal changes to working capital, we expect to continue to generate have positive cash flow from operations over time. Finally, we are increasing our per share operating adjusted net income are subject to a range of $0.60 to $0.70 per share and this compares to a range of $0.37 to 0.47 With that, I'll turn the call back over to our operator for questions. Operator00:27:16Thank you. We will now begin the question and answer session. Today's first question comes from Rajat Gupta with JPMorgan. Please go ahead. Speaker 600:27:40Are great. Good morning and thanks for taking the question. Just had a first one related to the marketplace business. If you look at the 2nd quarter trajectory relative to the Q1, volumes were up sequentially roughly 5%, but the adjusted EBITDA excluding the one timers was flat to down likely, how should we think about that cadence? And the reason I add that is With volumes expected to recover here in the second half and into twenty twenty four, what sort of rule of thumb should we will buy in terms of incremental EBITDA per unit as those volumes recover. Speaker 600:28:28So, if you're getting any helpful clarity on the second quarter in the Q1 can maybe help us like understand like how we should think about modeling the EBITDA going forward? And I have a follow-up. Speaker 200:28:40Thanks, Rajat. I appreciate that. This is Peter here. Listen, I guess, I'm certainly are pleased with the performance of the marketplace business over the entire first half of the year, dollars 45,000,000 EBITDA improvement versus the same period last year. And approximately $25,000,000 adjusted EBITDA in both quarters. Speaker 200:29:02So I think we're seeing Some of the things actually your question gets to, which is what is the scalability of this model? That improvement was delivered with, I would say, flattish volumes relative to prior years. So it's really focus on how do we optimize the gross profit structure, direct cost, SG and A, etcetera. I think the digital business model is inherently more scalable. That's been my experience since I got in this industry with a digital model at Open Lane. Speaker 200:29:26These businesses are extraordinarily scalable and I'm seeing that in our results. I'd say one of the differences between Q1 and Q2 is conversion rates were in general lower in Q2. That's not unusual. We have As we said on prior calls, the spring market in this industry conversion rates tend to be their strongest in Q1. So high conversion rates also translate into higher gross profits and overall improvements in results. Speaker 200:29:53But I think notwithstanding that, I think the Q2 results are very strong and give me increased confidence in the scalability of this model. Confidence already had, but they sort of reinforce that. So the other thing I'd say Rajat is, while we've spoken about our cost efforts, Some of those costs will not be fully realized in evidence until 2024. So for example, the cloud migration of remaining infrastructure to the cloud, That actually cost us additional money in the first half of the year because not only were we maintaining our infrastructure in one location, we had Contractors and employees focused on a big migration effort. Now that it's done, those costs can be reduced. Speaker 200:30:38So and that's just one example of a number that I could make. So I guess, Rajat, I'm confident that in the quarters years to come, this business will demonstrate excellent scalability. I think digital business models operate on a more fixed cost kind of basis and that the marginal cost per incremental are sold is actually relatively small. Now it varies a little bit depending on if it's a dealer car or commercial car, etcetera, but I'm confident we have great scalability here. Speaker 600:31:09Got it. That's helpful color. And then maybe as a follow-up, just in terms of the price increases or will be the ARPU trajectory going forward, particularly as used car prices start to move lower here in the second half. How should we think about The ARPU or the auction ARPU, any way to think about modeling that, maybe layering in said some of just the headline decline in used car prices. How should we be thinking about that going forward? Speaker 200:31:54Yes. Some fraction of the ARPU is tied to vehicle values because the higher value of the vehicle, as you know, Rajat, the buy fees are often sort of stair stepped in value and other brands are not going to be able to see the market demand. So if used vehicle prices decline, there could be some downward pressure on that. Prices on the sell side of the marketplace are more are fixed less dependent upon vehicle value. I guess, we're seeing competitors increase their prices are in this industry, so we think we have room if we needed to. Speaker 200:32:28I think we're being cautious about that, But we have certainly tried to optimize pricing in various parts of the business over the last 12 months, and that's been reflected in the numbers. I would say, they should increase at a minimum at the rate of inflation. And then, Rajat, as you know, there is a mix components to the extent off lease volumes do come back in considerably greater numbers and sell in that upstream channel, those have a lower ARPU, but But obviously a higher gross profit percentage than other types of transactions in our marketplaces. Speaker 600:33:05Got it. So from a gross profit per unit perspective, like should we expect any meaningful change here with that mix shift or Speaker 200:33:21I've been very pleased with how that metric has trended. I mean, we've done a really good job of gross profit per unit. But Rajat, I will say that we do generate Gross profits that are not directly tied to transaction volumes. So as transaction volumes increase, not all those components will increase at the same rate. The number I focus on more candidly is gross profit as a percent of net revenue in the marketplace. Speaker 200:33:46I think that's really sort of insulates the risk that not the risk, the mix shift. So there is a mix aspect to this, But from a management perspective, can we optimize and maximize gross profit as a percent of net revenue? That to me is the key sort of KPI that I look at each month. Speaker 600:34:08Got it. Got it. Speaker 200:34:09And I think we've been doing a good job with that. Thanks, Rajan. Thank you. Yes. Thank Operator00:34:16you. And our next question today comes from John Murphy of Bank of America. Please go ahead. Speaker 700:34:22Good morning, guys. Peter, just three quick ones. First, you mentioned the migration of customers to a single And you were doing some training for those customers. I'm just curious if you could talk about that process a little bit are making some gains of new customers as you consolidate. Speaker 200:34:51Great. Well, so I was speaking specifically, John, to our Canadian migration and the launch of Open Lane Canada, which really happened at the very end of quarter, so it was the last, I think, 2 weeks in June, but there obviously was a lot of planning work and execution work done in the earlier part of the quarter. Listen, I think it went really well. We were delivering a brand new marketplace in terms of feature and function to market. So we put a lot of effort into training, webinars, are in the same store as all sorts of activities to help our customers sort of understand how the new site works. Speaker 200:35:26Obviously, we tried to make it as simple as we as well, we migrated the customers in cohorts. We actually started with the TradeRev dealers first because we felt those were probably the more digitally adept. And then once that was done, we then focused on migrating the ADESA customers. But John, it went really well. No measurable leakage. Speaker 200:35:49I think that was the phrase you used. Our Canadian royalty have remained strong throughout And customers are getting the benefit of all the vehicles in one place. So we've had dealers that in the past just weren't TradeRev buyers and now they're looking at those cars and saying, hey, I can buy that car and you'll deliver it to me and that's great. So we're very excited about that, excited about what it does for our good position in that market. What we planned in the U. Speaker 200:36:18S. Is a little bit different, John. It's really going to be a rebranding of the Backlot Cars market placed to an Open Lane brand and then the integration of the commercial inventory into that marketplace. So I thought actually derisks our U. S. Speaker 200:36:31Migration a Because from a user experience perspective, the thousands of dealers that are logging on to that marketplace every day, The feature function is not going to change. All that's going to change is the logo on the top left is going to change, some of the color palette is going to change, but the technology The business process will be the same, but in addition, they'll now have access to all these, what we believe will be a growing volume of Off lease vehicles that are going to start to flow through that marketplace in 2024 and beyond. So I think that sort of derisks that one. But obviously, we still have a lot execution between now and the end of Q4 when we plan to get that done. Speaker 700:37:11And that was to my second question, your expectation is that volumes are bottoming are out here and will recover, it sounds like somewhat meaningfully in 'twenty four and beyond. What are the key channels That you're expecting to recover. It sounds like repo is actually recovering right now. Is there kind of a tape delay on lease And other dealer lease returns and then ultimately dealer side. I mean, how do you kind of see the progression of this bottoming out, are recovering by segment or by channel coming back. Speaker 200:37:43Yes. I guess, John, thank you. Specifically, what What I feel confident of is the volumes in the second half of this year will be higher than the volumes in the second half of last year. And then as we look to 2025 2024 and 2025, we expect further volume growth perhaps accelerating over time as we get into the sort of 'twenty five, 'twenty Time frame would be my view, but to go sort of segment by segment, let me start with dealer. With more cars on dealers lots, Dealers are more likely to put a car into wholesale than they were, say, a year ago. Speaker 200:38:21Because a year ago, they had empty lots, They get these cars on trade in and they'd say, you know what, maybe I'll retail this car. So what we're seeing is we're seeing Growth in the volume being posted by dealers. We're seeing cars posted per dealer starting to increase are very meaningfully in the Q2, I'd say, and that's consistent with more new cars on their lot, greater inventory on their lot, etcetera. So I think we see are positive driver in the D2D space, but it's that segment was never too badly impacted by the compression, are still positive. Repo obviously has been up. Speaker 200:38:57Now our business services the repo segment that benefits us, but we don't sell repos in our are Speaker 400:39:05in the marketplace for the most Speaker 200:39:05part because they typically sell in a physical model. Now that may have changed over time, but today, John, in the United States, most We're seeing more sales rental sellers, and I spoke at some length about lease. We didn't see an increase in lease have returned, if you like, in the Q2. Some of our customers are telling us that their models show lease volumes increasing later this year and into here, but what I pointed out is that what I thought very positive news in the Q2 was just to see an increase in lease originations. Have been down, but we're seeing that start to increase again in a meaningful way. Speaker 200:39:46I think that reinforces, John, my view that leasing going to take some time for those vehicles to reach maturity, but it passes quickly and I'm excited to see leasing on a rebound in the retail environment. Speaker 700:40:08And then just one last housekeeping, the $20,000,000 early termination payments, can you guys just tell us Exactly what that's for in the quarter and is it kind of one time or is it something should be spread over periods that we shouldn't be backing out? Just want understand what's going on there. Speaker 200:40:24Yes, a little bit nuance on that. John, it's a one time early termination of a associated with 2019 transaction. And over the past number of years, that contract has generated, I would say about $5,000,000 a year all pay the Q3 of the year. So That was a fact and that contract was going to continue through say the Q3 of next year. So there's a if you like, we're trading a $20,000,000 one time payment for $2,000,000 $5 ish million payments Q3 of this year, Q3 of next year. Speaker 200:41:08That's how I would think about that. Obviously, that was done through mutual agreements and both parties happy with that upcoming. Speaker 700:41:17Okay, very helpful. Thank you very Speaker 200:41:20Thank you, John. Thank you, John. Operator00:41:22And our next question today comes from Bob Labick with CJS Securities. Please go ahead. Speaker 800:41:28Good morning and thanks for all the comprehensive answers. I just have a couple of nuance questions here too. Now, Obviously, we made great progress with the platform consolidation and that's very exciting. But given the kind of the weak industry volumes, how are you going to gauge success? Are there new metrics you can share with us, your traffic on the news side or How are you internally gauging the success of the platform consolidation given that as we said the bottom and the bottom of a cycle? Speaker 200:42:02Thank you, Bob. Good question. Obviously, one of the things I like about the digital business in addition to being very scalable is get tremendous data because every customer action leaves a recordable footprint. So we look at a tremendous amount of data across this company. I I would say the 5 metrics I look at the most in terms of a marketplace would be volume sold, volume posted from that obviously drive conversion rate, participating sellers, participating buyers and then retention rates of your customer base. Speaker 200:42:36And So those are the metrics we look at. Obviously, our results correlate the closest with volume sold in any given period of time because that's what drives revenue, but the other ones are all inputs into that. So we look at all of those. Listen, I'm pleased with a lot of the metrics we're seeing. We're seeing increased customer participation. Speaker 200:42:58As I mentioned earlier, were seeing increased volume of vehicles posted per selling dealer, that's starting to trend up again. Conversion rates have been strong. Used vehicle prices have been Pressure in Q2, they declined pretty much for the entire quarter. We did see conversion rates drop a bit relative to Q1, but they were quite are resilient. I take some comfort from that. Speaker 200:43:19And then sort of the retention rates of customers within our platforms is very strong. These are platforms that build a habit with customers who come in daily, weekly, smaller customers might come in monthly. Sometimes the customer might skip a month, not buy any cars, maybe they've got too much inventory or maybe not sell cars because they've got too little inventory, are typically they're back a month later. So there's a lot of good fundamentals in these marketplaces, a great customer and a repeat have very repeatable customer interaction, which I think is the strength of the business. Speaker 800:43:59Okay, great. Thank you. That's Speaker 400:44:03are very helpful and appreciated. Speaker 800:44:03And then just real quick, I think in the auction fee section of the one of the releases, You mentioned a slight increase in occupancy fees from a smaller mix of lower fee commercial off premise vehicles. And I think that's probably at a grounding dealer buying it or whatnot. Can you just give us a sense of kind of what drives Speaker 200:44:37Listen, I'm very much looking forward to an improvement in off lease maturity volume because What we've really sort of had to sort of work our way through over the last couple of years is not just reduce volume at the top of the funnel, reduce number of are sort of flowing in and that was substantial reduction down 50 plus percent, but also essentially the transactions all kind of migrating up into that top of the funnel grounding dealer transactions, which is our lowest revenue transaction in this entire business, Right. So we have volume compression with revenue compression, you multiply those together and you got severe compression on that business. And As I look to the future, I see both of those things starting to unwind and reverse. Now, I'm not promising that it's going to happen immediately. I think it's going to play out over time, But I'm confident it will happen. Speaker 200:45:29And I think that will be a double positive as we see not only volumes increase, but the mix shift. And I will say, we started to see a mix shift in reversed in Q1, used vehicle prices appreciated, right? And that was a little unexpected how strong used vehicle pricing was in Q1. I wouldn't say in the last month or 2, we're starting to see the mix shift more positively again. It was not material in the Q2, but we're starting to see have a more favorable mix in that upstream channel for us as well, which drives ARPU. Speaker 800:46:06Super. All right. Thanks bear much. Operator00:46:10Thank you. And our next question today comes from Bret Jordan of Jefferies. Please go ahead. Speaker 500:46:15Hey, good morning, guys. Speaker 800:46:17Good morning, Brett. Speaker 900:46:19Could you give us maybe as we look forward 2 or 3 years, how you The lease returns, obviously, what's going to get bought out, you can't predict. But I guess leasing probably troughed in the Q2 of 2020 when dealerships were closed, but how do you sort of see on an annual volume the cadence of lease returns in 2024, 2020 5, when is the cyclical growth year? Speaker 200:46:46Thanks, Brett. If you look at lease originations, The lease origination percentage declined from 2020 to 2022. And that what that means is there are view or off lease vehicles in those portfolios. And you can again think of the lease rule of thumb, 3 year maturity. So released in 2022, maturing in 2025. Speaker 200:47:08So that's the very, very top of the funnel. How many vehicles are in the portfolio? And I think What we're going to see there is that number is reduces to 25 and then increases post 2025 would be my view. The second question, Which is probably more important right now is of those leases, what percentage actually get returned? And that's driven by the equity position of the vehicle. Speaker 200:47:35For the last 18 months, the equity position of all fleets vehicles has been extremely strong, so consumers have been hanging on to them and not returning them. And then if the return the grounding dealer buy them. So what I so I think over the next 2 years, you're going to see the intersection of 2 kind of contradictory forces. On the one hand, there's fewer off lease vehicles are at the top of the funnel, but on the other hand, consumers are going to buy a declining percentage of those and an increasing percentage are going to be earned. And the reason I think that is we're going to see downward pressure on used vehicle values, but also the residual values of those leases was written at higher levels because they were sold at hiring SRP. Speaker 200:48:12So I guess in that, I'm expecting a small increase in lease volumes in the coming 2 years, put a more favorable mix within our market and an accelerating volume and mix picture kicking in towards the end of 2025 and beyond. And I guess I'd say long term, I believe leasing will be a very important are part of the way vehicles are brought to market. I think it will be back in the 3000000, 4000000 units a year leased. Will see high consumer return rates and we'll have a very, very good business in the off lease space, I believe. Speaker 900:48:48Okay. And then a quick question. On the Dealer to dealer impairment charge, I think you noted lower long term revenue growth associated with the cycle. Is the size of that market different than you were projecting back in 2019 when the business was when IEA was spun out and rate rent was sort of a focus or is it really just the lack of dealer consignment cars that's impacting that longer term view? Speaker 200:49:18I I don't think the size of the market is different on any long term view. I think in the last couple of years, it's been a little compressed for some of the factors I mentioned. Industry data sources have that dealer to dealer market at a low end 6,000,000 units, but that does not include vehicles that are transacted sort of informally between dealers, so high end estimates run 10 or above 10,000,000 units in that market. So it's a big segment, a big opportunity for us. I like like how we're positioned in the market. Speaker 200:49:49I think we're on the right side of a physical to digital secular shift, Which I think will be positive long term for the company. I can also say that I spoke about our improved EBITDA performance in the first half of this year. Without question, our digital D2D model was a strong contributor to that improvement, and we had our best ever sort of financial performance from that segment in the Q2. So I'm really pleased about that. Seeing strong customer adoption, Strong numbers around volumes posted, etcetera, strong conversion rate. Speaker 200:50:22So I kind of look at the goodwill thing as somewhat a technical accounting driven And does not in any way impact my view of the long term opportunity in this space. Speaker 700:50:32Okay, great. Thank you. Speaker 400:50:36I think we Speaker 200:50:36have time for one more question, Rocco. Operator00:50:39Yes, sir. And our final question today comes from Daniel Imbro with Stephens. Please go ahead. Speaker 1000:50:45Thanks. Appreciate you guys squeezing me in here at the end. Just a couple of questions. Maybe one, Brad, on the SG and A side, follow-up on Margot's question earlier. Marketplace SG and A has been pretty consistent kind of low 30%. Speaker 1000:50:56But as we add back volume, would you expect to have to add back expenses To handle the volume, Peter said it's scalable. So should we expect further SG and A leverage into the high 20s? How would you think about SG Marketplace margin going forward. Speaker 500:51:11Yes, I think thanks for the question. And I think the way to think about it is essentially what Peter referred to earlier. I mean, we see the marketplace business as being very scalable, very fixed cost based in terms of its structure. So in terms of the incremental SG and A dollars that we need to support incremental volume, are fairly modest. Speaker 1000:51:32Got it. And then a quick follow-up on AFC. Peter, last few quarters loan origination outpaced marketplace volume growth. This quarter, they were closer to parity. How do you feel about the loan origination outlook for AFC? Speaker 1000:51:44Any change in the health of your core independent used auto dealer? And how do you feel about 2% charge offs going forward as you project more used price pressure and maybe more pressure on that independent used dealer out there? Speaker 200:51:58Good question. First of all, listen, I think independent dealers are an important part of this retail ecosystem and will be as far as the future as I can see, they serve a they provide unique offering in the market and I think there's a strong demand for that are in the business and we'll be in business to serve them. In the 1st and second quarter, loan loss ratio was at the high end, the 2% end of our 1% to 1.5% to 2% range. So I guess given that fact, we've just been a little bit more are focused on managing risk and running the more conservative business that we've talked about on these calls. Obviously, signing up new customers and generating new loans is important too. Speaker 200:52:46So we're focused on that. But in this business, it is a balancing act and we've been we've We've just been focused on making sure we've got a good handle on the risk environment. We believe we do. I think it was clear in my remarks, we expect solid performance from AFC. But There's no question with the benefit of hindsight last year and then probably the prior year, AFC was a beneficiary of historically low Risk loss ratios that we should not expect to recur in the foreseeable future. Speaker 1000:53:15And anything on the loan origination Speaker 200:53:20We expect to continue to grow the business, but I mean, expect AFC to continue to be a contributor, but We expect most of the growth in the pro form a to come from the marketplace side of the business. Again, we love the AFC business, but we take a conservative view on the market and we're growing it, we want to keep growing it, but we also want to make sure we have the right sort of portfolio Operator00:53:51And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for any final remarks. Speaker 200:53:58Thank Thank you, Rocco. I appreciate that. And to the participants, thank you all for your time today for your questions. Before we close, I'd like to leave you with 4 takeaways from the quarter. I believe our Q2 results demonstrate a significant improvement of the business, and I believe they provide me and hopefully all of will be able to provide a brief update on our digital asset light model as we look to the future. Speaker 200:54:20Again, I'd like to highlight our company has strong cash flow characteristics. It has improved its overall liquidity position in the quarter and now has increased flexibility in terms of capital deployment. I believe our one brand, one marketplace strategy will increase our differentiation in the marketplace and will also enable us to continue to increase our efficiency and reduce our Finally, the macro factors that I see point to an improving outlook for commercial off lease volumes. I believe that the headwinds of the last 3 years look set to become tailwinds in the years to come. So thank you all for joining today's call. Speaker 200:54:55I look forward to updating you on our progress in our next call 3 months from now. Thank you very much. Operator00:55:01Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallOPENLANE Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) OPENLANE Earnings HeadlinesOPENLANE, Inc. (KAR) Q1 2025 Earnings Call TranscriptMay 8 at 6:35 AM | seekingalpha.comOPENLANE (NYSE:KAR) Beats Q1 Sales TargetsMay 7 at 9:36 PM | msn.comFeds Just Admitted It—They Can Take Your CashThe Government Just Said Your Money Isn't Yours That's right—According to the DOJ, YOUR hard-earned money isn't legally yours. Now, think your savings are safe? Think again.May 8, 2025 | Priority Gold (Ad)OPENLANE, Inc. 2025 Q1 - Results - Earnings Call PresentationMay 7 at 8:18 PM | seekingalpha.comOPENLANE, Inc. Reports First Quarter 2025 Financial ResultsMay 7 at 4:15 PM | prnewswire.comOPENLANE Earnings: What To Look For From KARMay 6 at 4:21 AM | finance.yahoo.comSee More OPENLANE Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like OPENLANE? Sign up for Earnings360's daily newsletter to receive timely earnings updates on OPENLANE and other key companies, straight to your email. Email Address About OPENLANEOPENLANE (NYSE:KAR), together with its subsidiaries, operates as a digital marketplace for used vehicles, which connects sellers and buyers in North America, Europe, the Philippines, and Uruguay. The company operates through two segments, Marketplace and Finance. The Marketplace segment offers digital marketplace services for buying and selling used vehicles. Its digital marketplaces include OPENLANE, a mobile-app enabled solutions that allows dealers to sell and source inventory in the United States. This segment also provides value-added ancillary services, including inbound and outbound transportation logistics, reconditioning, vehicle inspection and certification, titling, administrative, and collateral recovery services. This segment sells its products and services through vehicle manufacturers, fleet companies, rental car companies, finance companies, and others. The Finance segment offers floorplan financing, a short-term inventory-secured financing to independent used vehicle dealers. The company serves commercial customers and dealer customers. The company was formerly known as KAR Auction Services, Inc. and changed its name to OPENLANE, Inc. in May 2023. OPENLANE, Inc. was incorporated in 2006 and is headquartered in Carmel, Indiana.View OPENLANE ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Upwork's Earnings Beat Fuels Stock Rally—Is Freelancing Booming?DexCom Stock: Earnings Beat and New Market Access Drive Bull CaseDisney Stock Jumps on Earnings—Is the Magic Sustainable?Uber’s Earnings Offer Clues on the Stock and Broader EconomyArcher Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx Boost Upcoming Earnings Enbridge (5/9/2025)Petróleo Brasileiro S.A. - Petrobras (5/12/2025)Simon Property Group (5/12/2025)JD.com (5/13/2025)NU (5/13/2025)Sony Group (5/13/2025)SEA (5/13/2025)Cisco Systems (5/14/2025)Toyota Motor (5/14/2025)NetEase (5/15/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 11 speakers on the call. Operator00:00:00Good morning, and welcome to the Openlands Second Quarter 2023 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask Please note, today's event is being recorded. I would now like like to turn the conference over to Mike Eliason, Treasurer and Vice President of Investor Relations. Please go ahead, sir. Speaker 100:00:40Thanks, Rocco. Good morning, and thank you for joining us today for the Open Lane Second Quarter 2023 Earnings Conference Call. Today, we will discuss the financial performance of the Open Lane for the quarter ended June 30, 2023. After concluding our commentary, we will take Before Peter kicks off our discussion, I would like to remind you that this conference call contains forward looking statements within the meaning of the Safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward looking statements involve risks and uncertainties that may affect Open Lane's business, prospects and results of operations and such risks are fully detailed in our SEC filings. Speaker 100:01:25In providing forward looking statements, the company expressly disclaims any will be conducting a reconciliation to update these statements. Let me also mention that throughout this conference call, we will be referencing both GAAP and non GAAP financial measures. Reconciliations of the non GAAP financial measures to the applicable GAAP financial measure can be found in the press release that we will be issued last night, which is also available in the Investor Relations section of our website. Now I'd like to turn this call over to OpenLane's CEO, are Peter Kelly. Peter? Speaker 200:01:58Thank you, Mike, and good morning, everybody. I'm delighted to be here this morning to provide you with an update on Open Lane. Joining me on today's call is our Chief Financial Officer, Brad Lakia. I'm going to begin with Open Lane's 2nd quarter performance. And as usual, I will speak about our business in 2 segments, our Marketplace segment and a Finance segment. Speaker 200:02:18I'm very pleased with our solid performance in the Q2, particularly given an industry environment where volumes remain tight. Compared to the Q2 of 2022, we increased volumes in our marketplace and finance segments growing our consolidated revenue and total gross profit. We reduced SG and A to our cost management efforts and delivered strong growth in adjusted EBITDA compared to 1 year ago. It was also another strong quarter in terms of cash flow generation by the business. To summarize some of our key results for the Q2, Volumes in our marketplace business increased to 344,000 for the quarter, a total gross merchandise value of approximately $6,400,000,000 This represented the 1st year on year volume growth since early 2021. Speaker 200:03:03Volumes also increased 4% over the are in the Q1 of 2023, making this the 1st sequential Q1 to Q2 volume increase in any year since before the pandemic. We believe that Q2 volume performance supports our view that volumes have bottomed out and are beginning to grow. We generated approximately 4 received $17,000,000 in revenue, a 9% increase versus Q2 of last year. We delivered revenue growth in both Marketplace and Finance segments. Generated total gross profit of $94,000,000 an increase of 13% from Q2 of last year. Speaker 200:03:37Gross profit represented 55 were 17% year on year and representing almost 44% of revenue, excluding purchased vehicles. And we generated adjusted EBITDA are in Speaker 300:03:58the range of $84,000,000 in Q2, dollars 44,000,000 from our Speaker 200:03:58Marketplace segment and $40,000,000 from our Finance segment. It It is important to note that the $84,000,000 in adjusted EBITDA included a $20,000,000 one time benefit associated with the termination of a contractual agreement. Excluding this consolidated adjusted EBITDA would have been $64,000,000 and that would have been an increase of 14% versus Q2 of last year. Excluding the one time benefit, Marketplace adjusted EBITDA would have been $24,000,000 That's a $19,000,000 improvement compared to Q2 of hear. So when viewed together with our Q1 performance this year, marketplace adjusted EBITDA has approved by $45,000,000 in the 1st 6 months of 2023 versus the same period last year, and that is excluding both the $20,000,000 benefit this quarter and the $11,000,000 one time charge that was will be recorded in Q1. Speaker 200:04:48I am very encouraged that net of those two items, our marketplace business is currently operating at an adjusted EBITDA run rate are in line with the expectations of the company's business. Given the scalability of our asset light digital model, I believe that Open Lane is now very well positioned to grow our business and build on that positive operational and financial performance. Brad will discuss cash flow generation and capital allocation later in this call, but I do want to highlight the strong cash flow characteristics of our business that were again evident in Q2. Open Lane generated cash flows of $47,000,000 from operating activities in Q2. The company has a strong balance sheet, have a low leverage ratio and ample liquidity to invest in innovation and growth, while still delivering profits and strong cash flows. Speaker 200:05:35In In addition to achieving these positive financial results, we also made progress advancing a number of our key strategic initiatives during the are in the quarter, initiatives that I believe will help position OpenLMi for sustained longer term growth. As I've outlined on previous call, we are highly focused on simplifying our business, making it easier for customers to do business with us and enabling our organization to move faster in terms of innovation and growth. We We made significant progress in the Q2, starting with the successful rebranding of the company to Open Lane. As we discussed when we announced the brand change, we believe that validating our marketplaces under a single brand will improve outcomes for our customers. With all of the buyers, all of the sellers and all of the vehicles all in one place, Speaker 300:06:17in our marketplace will offer Speaker 200:06:18a highly differentiated mix of inventory from off lease vehicles that are not available in any other digital platform, are in the range of older, higher mileage vehicles and all type vehicles in between. I want to thank our team for the creativity and effort they put into executing a near flawless end launch. The response from our customers has been very positive, perhaps even more positive than I had expected. And our employees are rallying around our new brand and our new One Company culture. I'm very are excited for the future of this company under the Open Lane brand. Speaker 200:06:51Following our corporate announcement, we successfully launched our Open Lane branded placed in Canada in late June. We migrated customers from the ADESA and TradeRev marketplaces over a 4 week period and we plan to retire those legacy marketplaces within the Speaker 400:07:03coming weeks. We saw strong Speaker 200:07:03customer engagement leading up are in the coming weeks. We saw strong customer engagement leading up to the launch with thousands of dealers attending our educational webinars. And while still early, we've seen sustained levels of buying and selling, with some cohorts increasing purchases over their pre migration volumes. So to be clear on what this means, we now have 1 combined digital marketplace in Canada, where all of our open sale vehicles from commercial sellers and all of the vehicles offered for sale by dealers are available and where all of our customers can interact and do business with each other. Looking ahead and consistent with the vision that I outlined on the last earnings call, we have finalized our plans to integrate our commercial and dealer open sale inventory into a single open landed branded marketplace in the United States, our largest market during the Q4 of this year. Speaker 200:07:50We also intend to rebrand our European marketplace before year end. So We intend to start 2024 with all of our marketplace platforms operating under a single unified open lane brand and all of our marketplaces having fully integrated will also allow us to get greater leverage from our engineering resources and accelerate innovation. So I'd like to highlight a few examples of innovations that we delivered in the 2nd quarter. We introduced an automated AI driven negotiation tool that eliminates the need for human intervention to close deals for sellers and buyers are within some threshold percentage on price. Instead of facilitating multiple phone calls between sellers and and our representatives, our system can digitally interact with both parties to help achieve a mutually acceptable outcome more often and more quickly. Speaker 200:08:43We believe this technology will lead to higher conversion rates and ultimately higher levels of customer satisfaction. Over time, it also has the potential to help reduce our costs as well. We also continue to invest in our leading vehicle history inspection capabilities to ensure that our in place remains fast, transparent and efficient. In the Q2, we further enhanced our inspection process in the United States to provide vehicle have specific guidance to the inspector during the inspection process based on our historical experience with similar makes and models. The enhancement also automatically supplements inspection disclosures on known high failure rate items and strategically selects the most risk prone vehicles for an independent review are posting to the marketplace. Speaker 200:09:27The objective here is to continue to increase buyer and seller confidence in the inspections themselves, will also improve our gross margins by lowering arbitration expenses and other direct costs. And finally, when we launched our new Open Lane branded marketplace in Canada, We also deployed new and enhanced market and pricing insights that will help dealers make more informed buying and selling decisions. And we have automated registration and checkout processes giving new dealers almost instant access to Canadian inventory and helping buyers take delivery of their vehicles more quickly after purchase enhancements and the pipeline of innovative products and features still to come are all aimed at accelerating growth and advancing our purpose, which is to make wholesale easy so our customers can be more successful. I also want to highlight our continued focus on cost management. Our diligence in this area is positively impacting our gross profit margins by reducing our direct costs. Speaker 200:10:21It is also helping reduce our SG and A In the Q2, total SG and A declined $13,000,000 or 10% compared to Q2 of last year. We continue to advance our global shared services model and have expanded the effort to include additional areas across our organization. Additionally, our technology teams recently completed the migration of the remaining technology of our remaining technology infrastructure across the organization to a common cloud provided. This was a significant undertaking and was accomplished with 0 disruption to our customers. The completion of this migration, coupled with the marketplace consolidations associated with our rebrand are important catalysts that will enable us to eliminate duplicative systems within our existing technology structure. Speaker 200:11:05This will be an important area of focus going forward. Over time, we will continue to make progress towards a single remarketing platform, will be in the range of $1,000,000 which will increase the efficiency of our technology development and business processes. Doing so will enable us to get greater leverage from our technology investments, reducing the are required to maintain a fragmented set of technologies, while increasing our ability to make focused investments that drive innovation and improve the customer I've always believed that digital models are inherently more scalable, and I believe this is becoming increasingly evident in Hovland's current results. As we focus on the items that I've just described and as we grow our attention volumes, I believe we'll see more evidence of this in the years to come. I'd now like to provide some updates on the macro environment and our perspectives on the remainder of this year and into 2024 and beyond. Speaker 200:11:54And I'll begin by saying that We believe there is increasing evidence that industry volumes have bottomed out and are now beginning to rebound, particularly as it relates to commercial seller volumes. I I believe this is supported by the following factors. 1st, new vehicle production, new vehicle sales and new vehicle inventory on dealership lots continue to grow. As I've said before, these are necessary ingredients to balancing supply and demand in the used vehicle market. As new vehicle inventory increases on dealership lots, are starting to see evidence of increased incentive spending by OEMs, and this is now once again driving increased volumes of new lease originations. Speaker 200:12:31In fact, Based on third party data, lease penetration rates in the Q2 were materially higher than in the Q2 of last year. This is a very are Speaker 400:12:41a positive indicator for our commercial seller volumes. Speaker 200:12:42As I said on prior calls, I believe leasing will remain a very important part of the way new vehicles are in the market in North America, and I think the Q2 trends around leasing origination support this point of view. Shifting to used vehicle values, the surprisingly strong run up in used vehicle prices that we saw in the Q1 has ended and prices at our Marketplace segment demonstrated in Q2. I believe it speaks to the resiliency of our asset model. And while used vehicle values are declining again, the The majority of all leased vehicles still remain in a strong equity position versus their residual values. So while we did not see any meaningful increase in off lease volume supply in the 2nd quarter, We do expect that the combination of lower used vehicle values, but also higher residual values for the cohorts of vehicles that were leased in 2021 in 2022 will cause the equity position to narrow and more off lease volumes to start to flow over time. Speaker 200:13:52I believe that all of these factors point to a steady improvement in total wholesale volumes in 2024 and beyond. Taking all of this into account, I believe that the 2 primary pieces of our growth equation remain intact. First, we believe that digital channels will continue to gain share and that we are are very well positioned to gain more of that additional share over time. We also believe there will be a recovery in commercial volume, which given our existing market share and deep commercial relationships will result in increased off lease commercial vehicles in our marketplaces. So in terms of our performance outlook for the remainder of this year. Speaker 200:14:28In our marketplace segment, I expect Open Lanes volumes in the second half of twenty twenty three to increase compared to the second half of twenty twenty two. This year on year volume growth coupled with the strong unit economics that are currently being demonstrated by our marketplace business should drive improved financial performance in this segment in in the second half of twenty twenty three when compared with the same period last year. In the Finance segment, we expect continued strong volumes and revenue. We believe the current market conditions point to a more normalized risk environment, not to similar to the industry benchmarks that we experienced pre pandemic. Our 2nd quarter loss at AFC were at the higher end of what we believe to be the normal range of 1.5% to 2% of the portfolio. Speaker 200:15:09We believe that this is still the appropriate range for the business as we look to the future. So overall, we expect a solid performance from AFC in the second half of this year, although a full year result that will be below last year's record performance. Brad will provide a more detailed update on how these factors impact various aspects of our guidance for the remainder of 2023. As As we look beyond 2023, we believe that our strategy and our outlook on the market conditions can support the 15% to 20% annual growth in adjusted EBITDA off of our are going to be looking through 2023 guidance range for the next several years. While we believe that the majority of this growth will be are driven by our Marketplace segment. Speaker 200:15:49The Finance segment will also grow over 2023 levels and will remain a strong contributor to our bring to the market a compelling business model and a sound strategy for growth. We're a pure play digital marketplace leader with deep and growing strength in both commercial sellers and in the Teeter to Theater business. We have access to a large addressable market in North America and in Europe, and we intend to grow our share while unlocking new opportunities in those markets. We have a robust pipeline of innovation that supports our growth strategy. By consolidating platforms, we will get greater are technology and product investments and we will focus our energy resources and investments on building the greatest digital marketplace for our customers. Speaker 200:16:37Will deliver strong positive cash flows. This was clearly evident again in the Q2. We can invest in our business while generating will be available for additional cash that can be used to pay down debt, return capital to shareholders and make strategic investments. So with that, I will now turn the call over to Brad, who will provide a more in-depth Speaker 500:16:56will be conducting an update on our Q2 financial performance. Brad? Thank you, Peter, and good morning, everyone. Before I comment on our operating and financial results, I'd like to take a moment to briefly share a couple of reflections based on my first 100 days with are open lane. First, I share Peter's optimism for the future. Speaker 500:17:14Not only do we have significant opportunities to create and capture value, we have an impressive, dedicated and industry leading management team. For me professionally and personally, I feel very fortunate to have assumed my position had a very unique time in the history of the company and our industry. Open Lane has undergone a tremendous transformation, 1 that created a highly valuable asset light digitally focused business model. This along with the opportunity to work alongside our leading management team is what attracted me to the organization. And my experience the 1st few months has only reinforced my confidence that Open Lane will be well positioned to grow and succeed. Speaker 500:17:55And our 2nd quarter and year to date results are the best evidence of this reflection. And with that, I'll provide more detail on our segment results. Compared to last year, although volumes were relatively flat in the Q2, marketplace revenues excluding purchased vehicle sales increased 5% to $259,000,000 and generated 73% of our consolidated net revenues. And fees per unit increased 4% driven by select fee increases and marketplace service revenues were up 6%, are in the range of $1,000,000 driven by select fee increases and higher volumes in our repossession and technology related service businesses. As we've mentioned previously, these service related businesses provide highly complementary critical solutions to our customers and allow OpenLane 17% increase in gross profit or a 2 50 basis point improvement compared to the Q2 of last year. Speaker 500:19:01This also represented 120 basis point improvement sequentially when compared to the Q1 of this year. Gross profit benefited by improvements in our service related businesses and our cost savings initiatives. Marketplace adjusted EBITDA for the quarter was 44,000,000 inclusive of the one time $20,000,000 benefit related to the early termination of a contractual remit. Marketplace adjusted EBITDA was $24,000,000 excluding this item representing a $19,000,000 increase compared with the Q2 of last year. This was driven by the improvement in revenues and gross profit highlighted earlier and also a reduction in SG and A reflecting the successful execution of our cost this quarter and the $11,000,000 one time charge in the Q1, our marketplace adjusted EBITDA was $49,000,000 in the first represented an improvement of $45,000,000 compared to the first half of last year. Speaker 500:20:06This first half result and the improvement supports the $100,000,000 adjusted EBITDA run rate that Peter highlighted earlier. It also demonstrates the potential benefits related to volume scalability, further structural cost reductions and provides a window into future margin improvements. Turning to our Finance segment, revenues in were $98,000,000 a 6% increase over prior year and accounted for approximately 27% of our consolidated net revenues excluding purchased vehicles. Finance revenues increased despite overall flat loan transaction units compared to last year. Revenue per loan transaction transaction was $2.43 per unit, an increase of $14 per unit or 6% and was driven by increased fee income and interest rate yields. Speaker 500:20:59These increases were partially offset by increased credit losses and a decline in loan values. Finance segment adjusted EBITDA in the quarter was $40,000,000 compared to $51,000,000 last year. This $11,000,000 decrease is more than are constrained by a $12,000,000 increase in our provision for credit losses. Would like to emphasize a few things we have noted in prior earnings calls and disclosures. First, our finance business has very strong service offering, which leverages a high touch customer relationship model to manage risk while enabling growth. Speaker 500:21:47Our provision for credit loss was 2% for the quarter. And as mentioned last quarter, this represents a more normalized rate when compared to the favorable fundamentals that enabled a much lower loss rate over the last 2 years. Long term, The provision for credit losses is expected to be 2% or lower annually. However, actual losses in any particular period could deviate from this expectation. Turning to SG and A. Speaker 500:22:14As Peter mentioned earlier, consolidated SG and A declined $18,000,000 compared to the Q2 of last year and is largely reflected in our marketplace segment results. Overall compensation cost and professional fees declined Speaker 400:22:31are in the range of $1,000,000 driven by our cost savings initiatives. Speaker 500:22:32In addition, non cash stock compensation expense comprised $9,000,000 have a $13,000,000 decrease. Non cash stock compensation expense was elevated in the Q2 of last year due to the gain on the sale of the U. S. Physical We also had a number of non recurring items reflected in income and expense during the quarter. Will be available on the call. Speaker 500:23:021st, as mentioned earlier, we agreed to accelerate the termination of a contractual agreement, which resulted in a cash gain of $20,000,000 This is included in the company's reported adjusted EBITDA of $84,000,000 And for modeling purposes, please note in the Q3 of last this year, we recognized approximately $5,000,000 of income related to this agreement. Therefore, this will not reoccur in the Q3 of this year will be in the range of 2nd, as a direct result of our Open Lane rebranding and the implementation of our one marketplace strategy, we assessed the intangible carrying value of our ADESA tradename. This resulted in a non cash impairment charge of $26,000,000 before tax in the quarter. In addition, this trade name now has a defined life, which will result in approximately $16,000,000 of additional annual amortization expense over the next 6 years and will begin in the second half of this year. Finally, consistent with our Q2 annual requirement, we formally evaluated our reporting units to test the carrying value of our goodwill. Speaker 500:24:14This evaluation resulted in a non cash charge of $225,000,000 before tax and was primarily driven by lower estimated fair value of our U. S. Dealer to dealer reporting unit. The combined trade name and goodwill impairment charges generated a net tax benefit of $29,000,000 which included a $30,000,000 trade name and goodwill impairment charge was approximately $221,000,000 in the quarter. The net impact of the trade name and goodwill impairments are excluded from our adjusted EBITDA and our operating adjusted net income per share. Speaker 500:25:01Turning to the balance sheet and capital allocation. First, I would like to highlight our strong cash flow. Cash flows from operating activities in the quarter were $47,000,000 and stand at $143,000,000 year to date. This level of and cash generation validates the fact that our asset light digitally focused strategy and business model are delivering meaningful results. In addition, during the quarter, We repaid $140,000,000 in senior notes and executed a new $325,000,000 revolving credit agreement that will now mature in 2028. Speaker 500:25:35Our operating cash flow performance, our debt repayment and our revolver maturity extensions, when taken together, notably improved our overall liquidity position and further strengthened our balance sheet. This is evidenced by first half net reduction of approximately $118,000,000 and a meaningful improvement in our consolidated net leverage ratio, which now stands below 1x adjusted Continued improvement in our marketplace business coupled with the strengthened capital structure provides enhanced flexibility have found our organic growth plan and improves our ability to deliver shareholder returns. As highlighted in our disclosures, we have 127 remaining on our share repurchase authorization. I'll wrap up by addressing a few annual guidance items. Are confirming our previously stated adjusted EBITDA guidance of $250,000,000 to $270,000,000 and believe we are trending to the upper range are in the upper end of that range. Speaker 500:26:39We have lowered our estimated 2023 capital expenditures from $65,000,000 to 60,000,000 and consistent with recent performance and when normalizing for seasonal changes to working capital, we expect to continue to generate have positive cash flow from operations over time. Finally, we are increasing our per share operating adjusted net income are subject to a range of $0.60 to $0.70 per share and this compares to a range of $0.37 to 0.47 With that, I'll turn the call back over to our operator for questions. Operator00:27:16Thank you. We will now begin the question and answer session. Today's first question comes from Rajat Gupta with JPMorgan. Please go ahead. Speaker 600:27:40Are great. Good morning and thanks for taking the question. Just had a first one related to the marketplace business. If you look at the 2nd quarter trajectory relative to the Q1, volumes were up sequentially roughly 5%, but the adjusted EBITDA excluding the one timers was flat to down likely, how should we think about that cadence? And the reason I add that is With volumes expected to recover here in the second half and into twenty twenty four, what sort of rule of thumb should we will buy in terms of incremental EBITDA per unit as those volumes recover. Speaker 600:28:28So, if you're getting any helpful clarity on the second quarter in the Q1 can maybe help us like understand like how we should think about modeling the EBITDA going forward? And I have a follow-up. Speaker 200:28:40Thanks, Rajat. I appreciate that. This is Peter here. Listen, I guess, I'm certainly are pleased with the performance of the marketplace business over the entire first half of the year, dollars 45,000,000 EBITDA improvement versus the same period last year. And approximately $25,000,000 adjusted EBITDA in both quarters. Speaker 200:29:02So I think we're seeing Some of the things actually your question gets to, which is what is the scalability of this model? That improvement was delivered with, I would say, flattish volumes relative to prior years. So it's really focus on how do we optimize the gross profit structure, direct cost, SG and A, etcetera. I think the digital business model is inherently more scalable. That's been my experience since I got in this industry with a digital model at Open Lane. Speaker 200:29:26These businesses are extraordinarily scalable and I'm seeing that in our results. I'd say one of the differences between Q1 and Q2 is conversion rates were in general lower in Q2. That's not unusual. We have As we said on prior calls, the spring market in this industry conversion rates tend to be their strongest in Q1. So high conversion rates also translate into higher gross profits and overall improvements in results. Speaker 200:29:53But I think notwithstanding that, I think the Q2 results are very strong and give me increased confidence in the scalability of this model. Confidence already had, but they sort of reinforce that. So the other thing I'd say Rajat is, while we've spoken about our cost efforts, Some of those costs will not be fully realized in evidence until 2024. So for example, the cloud migration of remaining infrastructure to the cloud, That actually cost us additional money in the first half of the year because not only were we maintaining our infrastructure in one location, we had Contractors and employees focused on a big migration effort. Now that it's done, those costs can be reduced. Speaker 200:30:38So and that's just one example of a number that I could make. So I guess, Rajat, I'm confident that in the quarters years to come, this business will demonstrate excellent scalability. I think digital business models operate on a more fixed cost kind of basis and that the marginal cost per incremental are sold is actually relatively small. Now it varies a little bit depending on if it's a dealer car or commercial car, etcetera, but I'm confident we have great scalability here. Speaker 600:31:09Got it. That's helpful color. And then maybe as a follow-up, just in terms of the price increases or will be the ARPU trajectory going forward, particularly as used car prices start to move lower here in the second half. How should we think about The ARPU or the auction ARPU, any way to think about modeling that, maybe layering in said some of just the headline decline in used car prices. How should we be thinking about that going forward? Speaker 200:31:54Yes. Some fraction of the ARPU is tied to vehicle values because the higher value of the vehicle, as you know, Rajat, the buy fees are often sort of stair stepped in value and other brands are not going to be able to see the market demand. So if used vehicle prices decline, there could be some downward pressure on that. Prices on the sell side of the marketplace are more are fixed less dependent upon vehicle value. I guess, we're seeing competitors increase their prices are in this industry, so we think we have room if we needed to. Speaker 200:32:28I think we're being cautious about that, But we have certainly tried to optimize pricing in various parts of the business over the last 12 months, and that's been reflected in the numbers. I would say, they should increase at a minimum at the rate of inflation. And then, Rajat, as you know, there is a mix components to the extent off lease volumes do come back in considerably greater numbers and sell in that upstream channel, those have a lower ARPU, but But obviously a higher gross profit percentage than other types of transactions in our marketplaces. Speaker 600:33:05Got it. So from a gross profit per unit perspective, like should we expect any meaningful change here with that mix shift or Speaker 200:33:21I've been very pleased with how that metric has trended. I mean, we've done a really good job of gross profit per unit. But Rajat, I will say that we do generate Gross profits that are not directly tied to transaction volumes. So as transaction volumes increase, not all those components will increase at the same rate. The number I focus on more candidly is gross profit as a percent of net revenue in the marketplace. Speaker 200:33:46I think that's really sort of insulates the risk that not the risk, the mix shift. So there is a mix aspect to this, But from a management perspective, can we optimize and maximize gross profit as a percent of net revenue? That to me is the key sort of KPI that I look at each month. Speaker 600:34:08Got it. Got it. Speaker 200:34:09And I think we've been doing a good job with that. Thanks, Rajan. Thank you. Yes. Thank Operator00:34:16you. And our next question today comes from John Murphy of Bank of America. Please go ahead. Speaker 700:34:22Good morning, guys. Peter, just three quick ones. First, you mentioned the migration of customers to a single And you were doing some training for those customers. I'm just curious if you could talk about that process a little bit are making some gains of new customers as you consolidate. Speaker 200:34:51Great. Well, so I was speaking specifically, John, to our Canadian migration and the launch of Open Lane Canada, which really happened at the very end of quarter, so it was the last, I think, 2 weeks in June, but there obviously was a lot of planning work and execution work done in the earlier part of the quarter. Listen, I think it went really well. We were delivering a brand new marketplace in terms of feature and function to market. So we put a lot of effort into training, webinars, are in the same store as all sorts of activities to help our customers sort of understand how the new site works. Speaker 200:35:26Obviously, we tried to make it as simple as we as well, we migrated the customers in cohorts. We actually started with the TradeRev dealers first because we felt those were probably the more digitally adept. And then once that was done, we then focused on migrating the ADESA customers. But John, it went really well. No measurable leakage. Speaker 200:35:49I think that was the phrase you used. Our Canadian royalty have remained strong throughout And customers are getting the benefit of all the vehicles in one place. So we've had dealers that in the past just weren't TradeRev buyers and now they're looking at those cars and saying, hey, I can buy that car and you'll deliver it to me and that's great. So we're very excited about that, excited about what it does for our good position in that market. What we planned in the U. Speaker 200:36:18S. Is a little bit different, John. It's really going to be a rebranding of the Backlot Cars market placed to an Open Lane brand and then the integration of the commercial inventory into that marketplace. So I thought actually derisks our U. S. Speaker 200:36:31Migration a Because from a user experience perspective, the thousands of dealers that are logging on to that marketplace every day, The feature function is not going to change. All that's going to change is the logo on the top left is going to change, some of the color palette is going to change, but the technology The business process will be the same, but in addition, they'll now have access to all these, what we believe will be a growing volume of Off lease vehicles that are going to start to flow through that marketplace in 2024 and beyond. So I think that sort of derisks that one. But obviously, we still have a lot execution between now and the end of Q4 when we plan to get that done. Speaker 700:37:11And that was to my second question, your expectation is that volumes are bottoming are out here and will recover, it sounds like somewhat meaningfully in 'twenty four and beyond. What are the key channels That you're expecting to recover. It sounds like repo is actually recovering right now. Is there kind of a tape delay on lease And other dealer lease returns and then ultimately dealer side. I mean, how do you kind of see the progression of this bottoming out, are recovering by segment or by channel coming back. Speaker 200:37:43Yes. I guess, John, thank you. Specifically, what What I feel confident of is the volumes in the second half of this year will be higher than the volumes in the second half of last year. And then as we look to 2025 2024 and 2025, we expect further volume growth perhaps accelerating over time as we get into the sort of 'twenty five, 'twenty Time frame would be my view, but to go sort of segment by segment, let me start with dealer. With more cars on dealers lots, Dealers are more likely to put a car into wholesale than they were, say, a year ago. Speaker 200:38:21Because a year ago, they had empty lots, They get these cars on trade in and they'd say, you know what, maybe I'll retail this car. So what we're seeing is we're seeing Growth in the volume being posted by dealers. We're seeing cars posted per dealer starting to increase are very meaningfully in the Q2, I'd say, and that's consistent with more new cars on their lot, greater inventory on their lot, etcetera. So I think we see are positive driver in the D2D space, but it's that segment was never too badly impacted by the compression, are still positive. Repo obviously has been up. Speaker 200:38:57Now our business services the repo segment that benefits us, but we don't sell repos in our are Speaker 400:39:05in the marketplace for the most Speaker 200:39:05part because they typically sell in a physical model. Now that may have changed over time, but today, John, in the United States, most We're seeing more sales rental sellers, and I spoke at some length about lease. We didn't see an increase in lease have returned, if you like, in the Q2. Some of our customers are telling us that their models show lease volumes increasing later this year and into here, but what I pointed out is that what I thought very positive news in the Q2 was just to see an increase in lease originations. Have been down, but we're seeing that start to increase again in a meaningful way. Speaker 200:39:46I think that reinforces, John, my view that leasing going to take some time for those vehicles to reach maturity, but it passes quickly and I'm excited to see leasing on a rebound in the retail environment. Speaker 700:40:08And then just one last housekeeping, the $20,000,000 early termination payments, can you guys just tell us Exactly what that's for in the quarter and is it kind of one time or is it something should be spread over periods that we shouldn't be backing out? Just want understand what's going on there. Speaker 200:40:24Yes, a little bit nuance on that. John, it's a one time early termination of a associated with 2019 transaction. And over the past number of years, that contract has generated, I would say about $5,000,000 a year all pay the Q3 of the year. So That was a fact and that contract was going to continue through say the Q3 of next year. So there's a if you like, we're trading a $20,000,000 one time payment for $2,000,000 $5 ish million payments Q3 of this year, Q3 of next year. Speaker 200:41:08That's how I would think about that. Obviously, that was done through mutual agreements and both parties happy with that upcoming. Speaker 700:41:17Okay, very helpful. Thank you very Speaker 200:41:20Thank you, John. Thank you, John. Operator00:41:22And our next question today comes from Bob Labick with CJS Securities. Please go ahead. Speaker 800:41:28Good morning and thanks for all the comprehensive answers. I just have a couple of nuance questions here too. Now, Obviously, we made great progress with the platform consolidation and that's very exciting. But given the kind of the weak industry volumes, how are you going to gauge success? Are there new metrics you can share with us, your traffic on the news side or How are you internally gauging the success of the platform consolidation given that as we said the bottom and the bottom of a cycle? Speaker 200:42:02Thank you, Bob. Good question. Obviously, one of the things I like about the digital business in addition to being very scalable is get tremendous data because every customer action leaves a recordable footprint. So we look at a tremendous amount of data across this company. I I would say the 5 metrics I look at the most in terms of a marketplace would be volume sold, volume posted from that obviously drive conversion rate, participating sellers, participating buyers and then retention rates of your customer base. Speaker 200:42:36And So those are the metrics we look at. Obviously, our results correlate the closest with volume sold in any given period of time because that's what drives revenue, but the other ones are all inputs into that. So we look at all of those. Listen, I'm pleased with a lot of the metrics we're seeing. We're seeing increased customer participation. Speaker 200:42:58As I mentioned earlier, were seeing increased volume of vehicles posted per selling dealer, that's starting to trend up again. Conversion rates have been strong. Used vehicle prices have been Pressure in Q2, they declined pretty much for the entire quarter. We did see conversion rates drop a bit relative to Q1, but they were quite are resilient. I take some comfort from that. Speaker 200:43:19And then sort of the retention rates of customers within our platforms is very strong. These are platforms that build a habit with customers who come in daily, weekly, smaller customers might come in monthly. Sometimes the customer might skip a month, not buy any cars, maybe they've got too much inventory or maybe not sell cars because they've got too little inventory, are typically they're back a month later. So there's a lot of good fundamentals in these marketplaces, a great customer and a repeat have very repeatable customer interaction, which I think is the strength of the business. Speaker 800:43:59Okay, great. Thank you. That's Speaker 400:44:03are very helpful and appreciated. Speaker 800:44:03And then just real quick, I think in the auction fee section of the one of the releases, You mentioned a slight increase in occupancy fees from a smaller mix of lower fee commercial off premise vehicles. And I think that's probably at a grounding dealer buying it or whatnot. Can you just give us a sense of kind of what drives Speaker 200:44:37Listen, I'm very much looking forward to an improvement in off lease maturity volume because What we've really sort of had to sort of work our way through over the last couple of years is not just reduce volume at the top of the funnel, reduce number of are sort of flowing in and that was substantial reduction down 50 plus percent, but also essentially the transactions all kind of migrating up into that top of the funnel grounding dealer transactions, which is our lowest revenue transaction in this entire business, Right. So we have volume compression with revenue compression, you multiply those together and you got severe compression on that business. And As I look to the future, I see both of those things starting to unwind and reverse. Now, I'm not promising that it's going to happen immediately. I think it's going to play out over time, But I'm confident it will happen. Speaker 200:45:29And I think that will be a double positive as we see not only volumes increase, but the mix shift. And I will say, we started to see a mix shift in reversed in Q1, used vehicle prices appreciated, right? And that was a little unexpected how strong used vehicle pricing was in Q1. I wouldn't say in the last month or 2, we're starting to see the mix shift more positively again. It was not material in the Q2, but we're starting to see have a more favorable mix in that upstream channel for us as well, which drives ARPU. Speaker 800:46:06Super. All right. Thanks bear much. Operator00:46:10Thank you. And our next question today comes from Bret Jordan of Jefferies. Please go ahead. Speaker 500:46:15Hey, good morning, guys. Speaker 800:46:17Good morning, Brett. Speaker 900:46:19Could you give us maybe as we look forward 2 or 3 years, how you The lease returns, obviously, what's going to get bought out, you can't predict. But I guess leasing probably troughed in the Q2 of 2020 when dealerships were closed, but how do you sort of see on an annual volume the cadence of lease returns in 2024, 2020 5, when is the cyclical growth year? Speaker 200:46:46Thanks, Brett. If you look at lease originations, The lease origination percentage declined from 2020 to 2022. And that what that means is there are view or off lease vehicles in those portfolios. And you can again think of the lease rule of thumb, 3 year maturity. So released in 2022, maturing in 2025. Speaker 200:47:08So that's the very, very top of the funnel. How many vehicles are in the portfolio? And I think What we're going to see there is that number is reduces to 25 and then increases post 2025 would be my view. The second question, Which is probably more important right now is of those leases, what percentage actually get returned? And that's driven by the equity position of the vehicle. Speaker 200:47:35For the last 18 months, the equity position of all fleets vehicles has been extremely strong, so consumers have been hanging on to them and not returning them. And then if the return the grounding dealer buy them. So what I so I think over the next 2 years, you're going to see the intersection of 2 kind of contradictory forces. On the one hand, there's fewer off lease vehicles are at the top of the funnel, but on the other hand, consumers are going to buy a declining percentage of those and an increasing percentage are going to be earned. And the reason I think that is we're going to see downward pressure on used vehicle values, but also the residual values of those leases was written at higher levels because they were sold at hiring SRP. Speaker 200:48:12So I guess in that, I'm expecting a small increase in lease volumes in the coming 2 years, put a more favorable mix within our market and an accelerating volume and mix picture kicking in towards the end of 2025 and beyond. And I guess I'd say long term, I believe leasing will be a very important are part of the way vehicles are brought to market. I think it will be back in the 3000000, 4000000 units a year leased. Will see high consumer return rates and we'll have a very, very good business in the off lease space, I believe. Speaker 900:48:48Okay. And then a quick question. On the Dealer to dealer impairment charge, I think you noted lower long term revenue growth associated with the cycle. Is the size of that market different than you were projecting back in 2019 when the business was when IEA was spun out and rate rent was sort of a focus or is it really just the lack of dealer consignment cars that's impacting that longer term view? Speaker 200:49:18I I don't think the size of the market is different on any long term view. I think in the last couple of years, it's been a little compressed for some of the factors I mentioned. Industry data sources have that dealer to dealer market at a low end 6,000,000 units, but that does not include vehicles that are transacted sort of informally between dealers, so high end estimates run 10 or above 10,000,000 units in that market. So it's a big segment, a big opportunity for us. I like like how we're positioned in the market. Speaker 200:49:49I think we're on the right side of a physical to digital secular shift, Which I think will be positive long term for the company. I can also say that I spoke about our improved EBITDA performance in the first half of this year. Without question, our digital D2D model was a strong contributor to that improvement, and we had our best ever sort of financial performance from that segment in the Q2. So I'm really pleased about that. Seeing strong customer adoption, Strong numbers around volumes posted, etcetera, strong conversion rate. Speaker 200:50:22So I kind of look at the goodwill thing as somewhat a technical accounting driven And does not in any way impact my view of the long term opportunity in this space. Speaker 700:50:32Okay, great. Thank you. Speaker 400:50:36I think we Speaker 200:50:36have time for one more question, Rocco. Operator00:50:39Yes, sir. And our final question today comes from Daniel Imbro with Stephens. Please go ahead. Speaker 1000:50:45Thanks. Appreciate you guys squeezing me in here at the end. Just a couple of questions. Maybe one, Brad, on the SG and A side, follow-up on Margot's question earlier. Marketplace SG and A has been pretty consistent kind of low 30%. Speaker 1000:50:56But as we add back volume, would you expect to have to add back expenses To handle the volume, Peter said it's scalable. So should we expect further SG and A leverage into the high 20s? How would you think about SG Marketplace margin going forward. Speaker 500:51:11Yes, I think thanks for the question. And I think the way to think about it is essentially what Peter referred to earlier. I mean, we see the marketplace business as being very scalable, very fixed cost based in terms of its structure. So in terms of the incremental SG and A dollars that we need to support incremental volume, are fairly modest. Speaker 1000:51:32Got it. And then a quick follow-up on AFC. Peter, last few quarters loan origination outpaced marketplace volume growth. This quarter, they were closer to parity. How do you feel about the loan origination outlook for AFC? Speaker 1000:51:44Any change in the health of your core independent used auto dealer? And how do you feel about 2% charge offs going forward as you project more used price pressure and maybe more pressure on that independent used dealer out there? Speaker 200:51:58Good question. First of all, listen, I think independent dealers are an important part of this retail ecosystem and will be as far as the future as I can see, they serve a they provide unique offering in the market and I think there's a strong demand for that are in the business and we'll be in business to serve them. In the 1st and second quarter, loan loss ratio was at the high end, the 2% end of our 1% to 1.5% to 2% range. So I guess given that fact, we've just been a little bit more are focused on managing risk and running the more conservative business that we've talked about on these calls. Obviously, signing up new customers and generating new loans is important too. Speaker 200:52:46So we're focused on that. But in this business, it is a balancing act and we've been we've We've just been focused on making sure we've got a good handle on the risk environment. We believe we do. I think it was clear in my remarks, we expect solid performance from AFC. But There's no question with the benefit of hindsight last year and then probably the prior year, AFC was a beneficiary of historically low Risk loss ratios that we should not expect to recur in the foreseeable future. Speaker 1000:53:15And anything on the loan origination Speaker 200:53:20We expect to continue to grow the business, but I mean, expect AFC to continue to be a contributor, but We expect most of the growth in the pro form a to come from the marketplace side of the business. Again, we love the AFC business, but we take a conservative view on the market and we're growing it, we want to keep growing it, but we also want to make sure we have the right sort of portfolio Operator00:53:51And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to the management team for any final remarks. Speaker 200:53:58Thank Thank you, Rocco. I appreciate that. And to the participants, thank you all for your time today for your questions. Before we close, I'd like to leave you with 4 takeaways from the quarter. I believe our Q2 results demonstrate a significant improvement of the business, and I believe they provide me and hopefully all of will be able to provide a brief update on our digital asset light model as we look to the future. Speaker 200:54:20Again, I'd like to highlight our company has strong cash flow characteristics. It has improved its overall liquidity position in the quarter and now has increased flexibility in terms of capital deployment. I believe our one brand, one marketplace strategy will increase our differentiation in the marketplace and will also enable us to continue to increase our efficiency and reduce our Finally, the macro factors that I see point to an improving outlook for commercial off lease volumes. I believe that the headwinds of the last 3 years look set to become tailwinds in the years to come. So thank you all for joining today's call. Speaker 200:54:55I look forward to updating you on our progress in our next call 3 months from now. Thank you very much. Operator00:55:01Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.Read morePowered by