NYSE:KAR OPENLANE Q4 2023 Earnings Report $19.20 -0.14 (-0.72%) Closing price 05/7/2025 03:59 PM EasternExtended Trading$19.77 +0.57 (+2.99%) As of 05/7/2025 06:23 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast OPENLANE EPS ResultsActual EPS$0.16Consensus EPS $0.13Beat/MissBeat by +$0.03One Year Ago EPS$0.33OPENLANE Revenue ResultsActual Revenue$391.30 millionExpected Revenue$392.56 millionBeat/MissMissed by -$1.26 millionYoY Revenue Growth+5.00%OPENLANE Announcement DetailsQuarterQ4 2023Date2/20/2024TimeAfter Market ClosesConference Call DateTuesday, February 20, 2024Conference Call Time5:00PM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by OPENLANE Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 20, 2024 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good day, and welcome to Open Lanes 2023 Year End Earnings Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mike Eliason. Please go ahead. Speaker 100:00:36Thanks, Ed. Good afternoon and thank you for joining us today for the Open Lane Q4 2023 earnings conference call. Today, we'll discuss the financial performance of Opelane for the year ended December 31, 2023. After concluding our commentary, we'll take questions from participants. 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. Speaker 100:01:06Investors 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. In providing forward looking statements, the company expressly disclaims any obligation 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 issued this afternoon, which is also available in the Investor Relations section of our website. Now I'd like to turn this call over to Open Lane's CEO, Peter Kelly. Speaker 100:01:52Peter? Speaker 200:01:53Thank you, Mike, and good afternoon, everybody. I'm delighted to be here today to provide you with an update on Open Lane. Joining me is Open Lane's Chief Financial Officer, Brad Lakia, who will cover the majority of our financial and operating metrics later in the call. I will begin by highlighting a few key areas of our 2023 performance, but I will focus most of my remarks on the execution of our company strategy, the broader industry environment and our positive outlook for the future. In terms of results, it's clear that our business made significant progress in 2023. Speaker 200:02:24We are now beginning to see the positive impacts of our strategic investments in innovation and technology, our brand simplification work, as well as our diligence around costs. I believe our solid execution in the Q4 and throughout 2023 delivered strong and encouraging results that position Open Lane for future growth and success. When I look at Open Lane's consolidated performance for the year, a few things stand out. We grew our volumes, revenue and gross profit. Notably, consolidated gross profit increased by $92,000,000 or 13% compared to the prior year. Speaker 200:02:56We beat our 2023 guidance by delivering consolidated adjusted EBITDA of 2 $72,000,000 that was an 18% increase from the prior year. Open Lane had another strong year of cash flow performance, generating $237,000,000 in cash flow from operations in 2023. Our finance business ASC demonstrated solid performance in 2023 against the backdrop of declining vehicle values and a higher interest rate environment. With a continued focus on risk mitigation, the business grew responsibly and made a meaningful contribution to Open Lane's bottom line. Our marketplace business made significant progress in 2023 and finished the year on a strong note. Speaker 200:03:36We grew 4th quarter volumes by 10% to 318,000 vehicles. This is the strongest year on year volume growth for Open Lane in any single quarter for over 12 quarters. And for the full year 2023, we grew marketplace volumes by 3% to over 1,300,000 vehicles sold. Looking at 2023 overall, we grew revenue, revenue excluding purchased vehicles and gross profit in the marketplace segment. Most notably, gross profit increased by over 20% versus the prior year. Speaker 200:04:06The strong revenue and gross profit performance coupled with disciplined cost management drove a significant increase in adjusted EBITDA from the Marketplace segment, as well as an expansion in EBITDA margin. For Q4, Marketplace adjusted EBITDA was CAD24 million representing a more than 200% increase over the Q4 of 2022. And for the full year, we expanded our marketplace adjusted EBITDA to CAD108 1,000,000 representing a $79,000,000 increase over the prior year. I think these Q4 and full year results provide compelling evidence that our digital strategy is the right strategy, that we are executing well given the realities of our environment, that we are investing in the areas that our customers value the most, and that we are delivering a better, more simplified customer experience. And because of this, I believe Open Lane is well positioned for increased competitive differentiation, continued growth and strong performance in the years to come. Speaker 200:05:00So let me explain why I believe that to be the case, starting with the industry environment. First, based on what we're now seeing in the industry, I think it's increasingly evident that the industry environment that existed over the past few years since 2020 was likely an anomaly. Many of the factors that had a negative impact on our wholesale used vehicle industry are now starting to return back to what I would describe as more normal, not yet mirroring 2019, but trending in that direction. Manufacturers are able to build new vehicles. The supply chain constraints of the past few years appear to largely have been resolved at this point. Speaker 200:05:38There are more and more new and used vehicles on dealers' lots. Manufacturers are once again starting to use incentives to drive new car sales and leases, all of which are good news for the wholesale market and for Open Lane, particularly as we look out beyond the current year. Here are some of the facts based on third party sources. The new vehicle supply issues experienced during the pandemic and chip shortage have largely subsided and new vehicle production increased over 10% in 2023. While this is still below pre COVID levels, sales and production are expected to increase modestly again in 2024. Speaker 200:06:12The amount of new and used vehicle inventory on dealers' lots is also increasing. Day supply of new inventory was up approximately 30% in 2023 and also increased modestly for used inventory. We expect both of these to increase further in 2024 as well. Used car values remain structurally higher than pre COVID levels last year, but have been declining steadily from their peak in mid year 2022. Now let me be clear, most experts predict that wholesale supply will grow only modestly in 2024, and we know that lease returns in the back half of this year and next year will remain low due to the lower volume of leases written in 2021 2022. Speaker 200:06:52However, I'm very encouraged to see that in the 2023 year, lease originations increased by more than 20% versus the prior year, and they also accelerated quarter by quarter throughout the 2023 year. In fact, lease originations in the 4th quarter increased by more than 40% versus the Q4 of 2022. Increased lease originations are driven in part by OEMs use of incentives and OEM incentives increased in 2023 with the average incentive offered increasing to close to 5% of the vehicle transaction price by year end. This was almost double what it was at the end of the prior year. Given our strong position in the off lease segment, as the increased volume of leases written in 2023 and expected to be written in 2024 start to mature, Open Lane will be well positioned for growth in this important part of our business. Speaker 200:07:43Additionally, as we now look at an environment with more new car sales, but also with more new and used inventory on dealers lots, we believe this will tend to result in a higher volume of dealer trades being offered for sale in the wholesale market versus being retained for inventory. This should positively impact dealer consigned volumes as well. So in summary, we're seeing positive signs that the industry is trending back towards a more normal environment with far less volatility and greater predictability than we've experienced over the past few years. And I believe that over time, this will be very positive for OpenLinked. In terms of the execution of our strategy, I believe we are successfully executing our plan and advancing our purpose, which is to make wholesale easy so our customers can be more successful. Speaker 200:08:26During the Q4, we completed the integration of our dealer and off lease exclusive inventory into a single open lane branded platform in the United States. This was a significant step forward for our company. The transition was very well executed without any technology issues, customer disruption or negative impacts to sales or customer retention. So we are entering 2024 with 1 brand, 1 marketplace and 1 customer experience in our largest market, the United States. And with a marketplace offering that is highly differentiated from our competition. Speaker 200:08:57And the primary differentiation is inventory. Open Lane includes the majority of captive finance companies, whose off lease exclusive inventory is available first in Open Lane before it is offered in any other digital platform or physical auction. Open Lane also has a national selection of dealer inventory at every age, mileage, condition and price point. This means that Open Lane has an inventory selection that is unique and highly attractive to both franchise dealers and independent dealers. Each week tens of thousands of vehicles are offered for sale on our U. Speaker 200:09:26S. Open lane marketplace, with a roughly even split between commercial seller volumes and dealer volumes. We believe that the network effect one place will ultimately help us generate increased demand, increased supply, a better marketplace experience and ultimately better outcomes for our customers, commercial sellers and dealer customers alike. Just one quick example. When we did the final marketplace switchover in November, we did it after regular business hours and the very first off lease vehicle sold in our combined open lane U. Speaker 200:09:59S. Marketplace was sold via mobile app at 10:45 p. M. To an independent dealer. From a dealer perspective, the feedback on our new Open Lane marketplace has been very positive and reaffirming. Speaker 200:10:12Just over 2 weeks ago, I attended the National Auto Dealers Association Convention, and I met with many dealers ranging from large multi store groups who are highly active on Open Lane to smaller single point dealer owners. A senior manager from a large national dealer group comments to me that the results they achieve on Open Lane are the best of any remarketing channel that they use. Strong conversion rates, average days to sale of approximately one day, low remarketing expenses and strong sale proceeds all help contribute to this outcome. The CEO of another medium sized franchise leadership group described how he had been a reluctant convert to digital selling, but today has instituted Open Lane as the preferred remarketing channel across all of his stores and that he and his general managers are very pleased with the results. Having done that, this dealership group now wants to work with us to successfully purchase more highly desirable commercial inventory going forward. Speaker 200:11:04Another highlight of my weekend at the convention was a brief exchange with a dealer that owns 3 franchise dealerships. This dealer sought me out at our booth to tell me that Open Lane has completely transformed his business in a very positive way, enabling his dealerships to monetize trade in units in a way that was never possible before when they were selling to a wholesaler or through their local auction. In his words, creating profits where profits had never existed before. This is truly why we created Openland and why we are so committed to making wholesale easy for our customers so that they can be more successful. So it's clear that our customers, commercial sellers as well as franchise and independent buyers and sellers alike already experiencing the benefits of our 20 fourseven digital marketplace. Speaker 200:11:47And I believe that Openlands value proposition is very straightforward. In addition to our differentiated inventory, our digital marketplace enables faster speed to sale. In fact, our average days to sell for dealer customers in the United States approximately one day. Also, a larger always on buyer base can help drive more bidding and true market price discovery for all our sellers. And buying and selling digitally on Open Lane helps maximize financial outcomes while avoiding the unnecessary cost of transportation, reconditioning and higher fees associated with physical auctions. Speaker 200:12:20So with Open Lane delivering fast time to sell, low cost to sell and excellent price outcomes for their vehicles, it's not a surprise to me that excited about the launch of the new Open Lane marketplace. We're working collaboratively with many of them to help them rethink their marketing approach, increase conversion and explore how OpenLane's data and technology offerings can help their businesses more broadly. I'm very excited about the opportunity to extend and reinforce these already strong customer relationships. In addition to the significant United States launch, we also completed the rebrand of our European business to Open Lane in the Q4. So we start 2024 with a single marketplace brand Open Lane in all of our principal geographies, the United States, Canada and Europe. Speaker 200:13:06Shifting to innovation, one of the positive benefits of consolidating platforms process easier for our customers, accelerating search, reducing friction and increasing the velocity in our marketplace. A great example of this is our January launch of Visual Boost AI. Visual Boost AI is our new AI powered technology and it helps dealers quickly and assess vehicle damage and make better informed buying decisions. And today it is available in all dealer inventory across the open lane marketplace in the United States. While we are only a few weeks in, we are already seeing the impact of improved inspection quality and consistency. Speaker 200:13:51In fact, dealers who toggle on the Visual Boost button are more than twice as likely to make an offer on a vehicle, and those offers help to lead help lead to increased conversion over time. So as I look back on 2023, I believe we accomplished some very important and foundational work. We start 2024 in a much stronger position with a stronger offering and more differentiation in the eyes of our customers. As I look to the future, I'm very excited for the opportunity that lies ahead, and I believe that Open Lane remains very well positioned for growth. In the U. Speaker 200:14:23S, our unified Open Lane marketplace has an unmatched mix of inventory, a large and expanding base of commercial and dealer customers and is deploying data and technology to deliver differentiated customer experience. Our analysis suggests we are continuing to gain share, and this market will remain a key focus of our growth in 2024 and beyond. In Canada, we are a clear leader with strong volumes, profitability and cash flows. The business we acquired from Manheim is being integrated and this will make a positive contribution to results in 2024. Our European business is also performing well. Speaker 200:14:55In fact, it had a record year in 2023. And while Europe remains a smaller contributor to our overall results, we're expanding our relationships and our offerings to capture what we believe is a larger longer term opportunity to serve customers across Europe. Our Finance business, AFC, remains a consistent and strong performer. We will continue operating our conservative portfolio, while working to increase attach rates and identify new ways for AFC to help power the open land marketplace. We remain disciplined around our costs. Speaker 200:15:26We are now more asset light and more digital than ever, and this has enabled us to expand our margins and to improve the scalability of our business. This in turn provides Open Lane with the financial headroom to increase our investments in technology and innovation. Staying on innovation, with our teams aligned and unified, we are leveraging our best talent and technologies to benefit our customers. Open Lane has been a digital leader in this industry for over 20 years, and we still consider ourselves disruptors. And we look forward to bringing our deep pipeline of innovation to market to the benefit of all our customers. Speaker 200:16:01We will continue to execute our plan. The results we presented today are a direct reflection of our strategy and our ability to execute that plan. We'll retain the strong focus going forward, guided by our purpose, which is to make wholesale easy so our customers can be more successful. And finally, we're very optimistic for the future. With the industry fundamentals trending in a more positive direction for our business and our 2023 performance is a solid foundation, we believe that our talent, data, technology and the innovative spirit of the Open Lane team will enable us to deliver a compelling and highly differentiated offering to our customers, driving our growth and delivering shareholder value. Speaker 200:16:39So with that, I will now turn the conversation over to Brad for more detail on our 2023 results and our 2024 guidance. Brad? Speaker 300:16:47Thank you, Peter, and good afternoon, everyone. Before I begin, I'd like to remind everyone that all financial metrics I comment on at a consolidated level and a total marketplace segment level are on a net revenue basis, which specifically excludes the impact of purchased vehicle sales. Let me start with the Marketplace. As Peter mentioned, for the full year, we delivered 3% unit volume growth, which drove a 6% increase in marketplace net revenues. For the year, commercial volumes grew 7% and dealer volumes declined 2%. Speaker 300:17:27While our overall dealer volumes declined 2%, we continue to deliver U. S. Dealer volume growth that partially offset declines in Canada. Peter highlighted the fact industry fundamentals are normalizing and in Canada, we experienced a more rapid decline in vehicle values in the second half of twenty twenty three, which resulted in a headwind to dealer volumes in the 3rd Q4. That said, we see our geographic diversification as a clear strength. Speaker 300:17:58This is reflected in our leading Canadian market position and a growing profitable European business. Combination of these provide us a unique ability to grow profitably in varied market environments. A couple of other additional top line highlights that are important. First, as we discussed in our last call, our U. S. Speaker 300:18:22Dealer volumes are growing and our U. S. Dealer business is profitable. And second, in the Q4, overall marketplace volumes grew by 10%, which reflects improving dealer wholesale fundamentals and improved volumes and mix within our commercial channel. For the year, auction fees per unit increased 4%, driven by fee increases, which more than offset the impact of declining wholesale used vehicle values and the impact of a higher proportion of commercial vehicle volume. Speaker 300:18:59As we've discussed previously, our digital fees are lower compared to physical auctions. And therefore our pricing and value proposition position us well to capture share from the physical channel while opportunistically increasing fees over time. Services and service related fees remain a critical component our revenue mix and are an essential component to delivering a leading digital marketplace solution to our customers. For the year, service fees comprised approximately 61% of marketplace net revenues. These include transportation, repossession, data and technology related offerings. Speaker 300:19:43In 2023, service revenue was up 5% driven by higher prices, volumes and improved mix. In the 4th quarter, service revenues declined 1% in the quarter largely due to lower transportation services revenue. This was driven by changes to a key customer contract that now result in some revenue being recorded on a net commission basis instead of a gross basis historically. Looking forward, you can expect similar transportation revenue declines on a year over year basis through the 1st 3 quarters of 2024 due to this contract change. And for your modeling purposes, we estimate the impact to revenue versus 2023 to be approximately $20,000,000 per quarter in Q1 and Q2 and $13,000,000 in Q3. Speaker 300:20:37It's important to note this is not a change to the absolute transportation service volume, profitability or realized margins. The overall improvement in marketplace net revenue resulted in a 21% increase in gross profit on a full year basis or a 5 60 basis point improvement versus last year. For the quarter, gross margins improved 7 50 basis points or 24%. On both a full year and quarterly basis, these improvements resulted from the combination of improved volumes, fees, mix and cost savings initiatives. Although gross margins are dependent on our mix of services and the mix between our dealer and commercial volumes, we anticipate the margin improvements achieved in 2023 to be sustainable And we see further opportunities for improvement as we continue to execute on our cost management initiatives and we realize the value from our integrated digital marketplaces including higher volumes over time. Speaker 300:21:43As Peter highlighted, our marketplace adjusted EBITDA for the year was $108,000,000 and for the quarter it was 24,000,000 That is a full year improvement of $79,000,000 and a $16,000,000 improvement in the 4th quarter. As previously highlighted, this was driven by collective improvements in volume, price mix and cost. Intentionally repeating what has already been said, as of the end of the year, we now have an Open Lane branded fully integrated digital marketplace platform in the U. S, Canada and Europe. This unique and differentiated digital solution has the capability to further advance our dealer and commercial growth and will enhance our overall competitive advantage while better positioning us to deliver scalable profitable growth within the marketplace segment. Speaker 300:22:34Turning to our Finance segment, revenues for the year were up 5% driven by a 4% increase in loan transaction units, higher interest income and higher fee income. For the quarter, revenues decreased 4% versus prior year. Loan transaction units in the quarter were relatively flat and higher interest and fee income in the quarter were more than offset by higher credit losses. Finance segment adjusted EBITDA for the year was 164,000,000 down $38,000,000 more than explained by higher credit losses. Similarly, in the quarter, finance segment adjusted EBITDA was $38,000,000 compared to $49,000,000 last year driven primarily by an $8,000,000 increase in credit losses. Speaker 300:23:26For the full year, our credit loss rate was 2.1% and for the quarter 2.5%. This increased loss rate was due to significant used vehicle value declines, interest rate increases and tightening retail credit availability that impacted used vehicle retail sales. Going forward, we expect the first half of twenty twenty four to experience similar loss rates as the second half of twenty twenty three. As we've mentioned previously, credit loss rates in this business will fluctuate over time and like other financing businesses across many sectors, we are seeing higher loss rates compared to our 1.5% to 2% targeted range. In fact, we are encouraged by the fact our competitive assessment confirms that our loss rates remain notably lower than our key floor plan peer. Speaker 300:24:23In the meantime, to mitigate losses and to continue to deliver leading returns, we will continue to manage a conservative and disciplined portfolio. And we will leverage our leading risk management processes that are complemented by a high touch customer service model. Turning to SG and A, consolidated SG and A for the year declined $15,000,000 reflecting the successful execution of our cost savings initiatives. SG and A increased $11,000,000 compared to the Q4 of 2022, largely due to a $9,000,000 increase in non cash compensation. In the Q4 of 2022, approximately $9,000,000 of non cash compensation expense was reversed for performance awards that were no longer expected to vest. Speaker 300:25:14And as we previously mentioned, certain duplicative transitional costs will no longer reoccur in 2024 and will help offset inflationary headwinds going forward. Moving to the balance sheet and capital allocation, consistent with prior quarters we continue to generate strong cash flow. Cash flows from operating activities were $237,000,000 in 2023. This level of cash generation demonstrates the value creating combination of our asset light, digitally focused marketplace business and our leading Floor Plan Finance business. Our cash generation has notably improved our overall liquidity position and further strengthened our balance sheet. Speaker 300:26:01In the quarter, our consolidated net leverage ratio increased to approximately 1 times adjusted EBITDA, largely due to the funding of our Canadian acquisition in December. And please recall, in 2023, we repaid $140,000,000 of our 2025 senior notes and completed $22,000,000 in share repurchases. Regarding the Canadian acquisition, the purchase price for this acquisition was approximately $103,000,000 The integration work is progressing well. We are migrating our existing Montreal operations to the acquired Montreal facility and we are taking actions to sell our existing larger Montreal location. Although the sale process will take some time, we estimate the net proceeds from the sale will eventually serve to fund a meaningful portion of the acquisition. Speaker 300:26:56And as a reminder, the Montreal site is the only real estate we acquired as part of this transaction. We are migrating all other components of the acquisition to our existing vehicle logistics centers and offices throughout Canada. This includes integrating all shared support functions, business processes and systems. In January of this year, we executed a new CAD175 1,000,000 revolving credit facility. While not reflected in the year end balance sheet and liquidity position, on a pro form a basis, this facility will provide several benefits. Speaker 300:27:36It will provide flexibility to debt fund our Canadian subsidiary at a level where we can more tax effectively service interest expense. It will optimize our ability to fund seasonal working capital. And finally, it will improve Open Lane's overall liquidity position, which provides flexibility to fund investments and other future commitments. Overall, our capital allocation priorities remain unchanged and we will continue to prioritize the funding of organic investments in our 4 digitally focused business, while also ensuring flexibility for high return complementary strategic opportunities and shareholder returns. During the quarter, we did not repurchase shares, but we continue to have $125,000,000 remaining on our share repurchase authorization. Speaker 300:28:27I will wrap up by addressing a few annual guidance items. We expect 2024 adjusted EBITDA to be between $285,000,000 305,000,000 dollars driven primarily by continued improvement in our marketplace segment. This outlook reflects the industry update Peter discussed earlier, expected ongoing improvements in our margin structure and the risk outlook for our finance business, which I highlighted earlier. We continue to target and benefit from the expected dealership from physical to digital. However, I want to remind you the second half of twenty twenty four off lease volumes will begin to see pressure based on low lease originations in late 2021 and into 2022. Speaker 300:29:14In terms of profitability and margins, this top of the funnel off lease volume headwind could be mitigated by improved revenue per unit or mix as we see a gradual increase in vehicles flowing to non grounding dealers and our open digital marketplace. The remaining guidance metrics are presented in our earnings release. We expect operating adjusted earnings per share to be between $0.77 $0.87 As a reminder, we add back non cash acquisition related amortization to calculate operating adjusted EPS. We believe this metric provides a more meaningful measure because of our company's acquisition history. Again, these components of the calculation are detailed in our earnings release. Speaker 300:30:03Finally, we expect CapEx to be between $55,000,000 $60,000,000 in 2024, which is a slight increase compared to 2023 CapEx of 52,000,000 dollars This incremental investment will focus on advancing and unifying our marketplace technology stacks and that translates in our ability to drive faster, more efficient innovation, which results in making wholesale easier for our customers. With that, I'll turn the call over to the operator for questions. Operator00:30:33Thank you. We'll begin the question and answer And the first question today comes from Rajat Gupta with JPMorgan. Speaker 400:30:55Great. Thanks for taking the questions. Just wanted to follow-up on the off lease commentary. What's going to be the key driver of the commercial business this year? And do you see the net impact of perhaps increased return rates on the leases versus the lower off lease returns in the second half being a net positive or a headwind for the company? Speaker 400:31:24And then where is the incremental volume growth going to come from on the commercial side? And I have a follow-up. Thanks. Speaker 200:31:32Thank you, Rajat. So I think the off lease segment obviously is a historical strength of the company. It's been really challenged the past few years because of what I call the equity gap vehicles being heavily in positive equity at the end of lease and getting bought out by the consumer, by the grounding dealer. So that's been that period has been a challenge over the past couple of years. But we've seen that equity gap really decline pretty steeply and rapidly over the course of the last 9 to 12 months. Speaker 200:32:03And it's now at the lowest it's been certainly for the last, I'd say 18 plus months. We are seeing increased volumes of off lease vehicles being returned at this point and entering the remarketing funnel. So that is a positive for us in terms of volume. We're also seeing those vehicles flowing more deeper into the remarketing funnel. They're not all getting purchased by the grounding dealer. Speaker 200:32:24So that is another positive that impacts mix and ARPU. So a little bit of that was evident in Q4. I think there's more of it probably happening in 2024. And again, we would expect over the long run, this will look much more like normal and normal would be most off lease vehicles at the end of the lease do not have any equity, they have negative equity, they get returned and they enter the marketing process. So to your question on could that trend, which we're now seeing offset the sort of top of funnel impact of fewer vehicles maturing because of lower lease originations? Speaker 200:33:05Rajat, it's possible. It's difficult to model it with precision because we don't know the exact residual value status of all those vehicles. But at the present moment, I'd say I'm encouraged by what I'm seeing and I take that as a positive. We're going to have to see how it trends in the second half of this year. Probably the most positive thing before I wrap up on off lease vehicles here is the increased lease originations. Speaker 200:33:3320% plus increase in lease originations last year and a 40% plus increase in lease originations in the 4th quarter. This really tells me that leasing is going to be an important part of the way vehicles are brought to market in the U. S. As it has always been. And it's going to be a very important part of our business going forward. Speaker 200:33:51So it's very encouraging for me to see that trend. I know we're going to have to wait a couple of years for some of those vehicles to mature, but I still think it's a significant positive for the company as we look to the future. Speaker 400:34:04Got it. That's helpful color. And just on the full year guidance, I think you mentioned that EBITDA improvement is going to be primarily driven by the marketplace. I mean, should we expect AFC to be to grow in 2024 or do you think given like the exit rate on the credit losses, should we model that business down in 2024 or flattish? Just curious if you can give us a little more color on the AFC outlook for 2024? Speaker 300:34:34Yes. Hey, Rajat. Thanks for the question. So, yes, I would say for AFC, I certainly wouldn't want you to model it down for the year to just to head that off directly. We actually see that business going forward year over year in terms of how we're kind of modeling it and planning it ourselves, but going forward modestly. Speaker 300:34:54As I said in my comments, first half losses, not only a loss rate, but in terms of dollars, we expect that to be fairly similar to the second half of twenty twenty three. And we, as you can imagine, have a pretty good line of sight to that right now. And we expect that those loss rates to moderate in the second half of 2023, which year over year should provide us a benefit. And then I would also just say, as we alluded to in our comments, we're going to continue to look to grow that business. We're going to do it in a very disciplined manner, very conservative manner. Speaker 300:35:31We have a it's a high performing business from a cash flow and an earnings contribution and we'll continue to look to grow that business. Speaker 400:35:40Got it. Great. Thanks for the color. I'll jump back in queue. Operator00:35:46And the next question comes from Craig Kennison with Baird. Speaker 100:35:51Hey, good afternoon. Thanks for taking my question. I wanted to follow-up on the prior topic. Just Peter, you're talking about off lease and the equity gap and that seems to be narrowing. I'm curious based on the work you've done, how long until we get to that normal environment where a car comes off lease and there's actually negative equity if car prices stay about where they are today? Speaker 200:36:18Craig, it's a good question. It's hard for me to predict it with precision. But I do I'd say a number of things are relevant as we think about that. One is where are used car prices trending? It's been interesting in the 1st few weeks of this year, they've continued to trend slightly downwards. Speaker 200:36:38So I still think there's, for the most part, more downward pressure on used vehicle pricing than upward at the present time, although I'm not expecting a significant decline over the course of 2024. And then the second point is where are the residual values on the leases, lease contracts written. And when I think of that, you got to think now we're now starting to lap leases that were written in early 2021, mid-twenty 21, that's gap is being compressed from both directions. So I think the equity gap is being compressed from both directions, and I expect it to normalize in the not too distant future, but I hesitate to put a specific time on that. Speaker 500:37:33If you were to look at Speaker 100:37:33the cohort of leases made in late 2022 when used car prices really peaked, is it fair to look at those that cohort in particular and say those look to be candidates for having significant negative equity? Speaker 200:37:52Craig, I can't really sort of shed more light on that than I've already shed in my answer. I think, I guess there's one possible complication, Craig, that if there's fewer off lease vehicles at the top of the funnel, there could be increased demand and the price of those vehicles could that could sort of lift the prices on those vehicles and that could cause that equity gap to not narrow as steeply as one might like. So there's just a lot of moving pieces here, Craig. And I think here's what I would say. We've seen the equity gap come down a lot. Speaker 200:38:26We're seeing more vehicles enter the remarketing funnel. And based on my conversation with our commercial customers, they expect those trends to continue and that percentage of vehicles entering the marketing to go up. And that has the potential to offset the top of the funnel that we are aware of. Speaker 100:38:47Yes. Thank you very much, Peter. And then maybe if I could, on the dealer side, I believe it was down just a little bit versus last year. I'm wondering if you're still adding dealers? And if so, are you seeing fewer transactions per dealer for any reason? Speaker 200:39:03Yes. We've seen as Brad mentioned, we saw some headwinds in the second half of last year on dealer volumes in Canada. In the very strong market of the prior year, there was a lot of export volume from Canada into the U. S. And that drove strong demand in Canada and drove liquidity in the dealer segment. Speaker 200:39:23So that kind of went away, I'd say, largely in the second half of last year. That was a little bit of a headwind. But we continue to add customers. Our customer base on D2D continues to grow. Our U. Speaker 200:39:33S. D2D volumes grew in the 4th quarter. And I'm again, as I mentioned in my remarks, very pleased with the very positive feedback that I've gotten from dealers who are active customers and using our dealer to dealer solutions both on the sell and the buy side. So I feel very encouraged about our offering, and I think it's very competitive visavis all other offerings that are out there and very sticky with its customer base as well. Speaker 300:40:02Yes, Peter, let me just I would just add, Craig, on the Canadian point, what we're seeing in Canada is not unique to us. The data, the market intelligence that we have suggests that's more broad based. So I just want to make it clear that it's not unique to our business there. Operator00:40:26The next question from John Murphy with Bank of America Merrill Lynch. Speaker 600:40:33Hey, good evening, guys. Just a first question, Peter, you guys talked about the dealer business in the U. S. Being up a lot, but I mean, total is down. So I'm just curious how much dealer business was up in the U. Speaker 600:40:46S? And then also conversely on the commercial side, where the strength is really coming from? I know we're talking about off lease, but there's rental, government and commercial commercial on the fleet side of the business. Was there any kind of particular strength there where these companies are finally getting back into auction lanes and selling as opposed to being buyers? Speaker 200:41:12Yes. So thanks, John. So on the dealer side, I said dealer volumes were up in the U. S. I didn't say up a lot. Speaker 200:41:18I just want to be clear, but they were up in Q4. And I believe based on our analysis, we gained share in the dealer segment in Q4 as well when we compare our dealer volumes versus what we saw in other data sources. In terms of commercial, we're seeing growth in commercial in both the U. S. And Canada. Speaker 200:41:44So I think it's fairly broad based. I just spoke about off lease vehicles. We're seeing increased consignment, more vehicles entering the funnel, flowing deeper in the funnel. So that's a positive for us. It was a positive in Q4 and we think that's the beginning of a trend. Speaker 200:42:05In the industry, there's also been an increase in repossession volume, John. Most of those repos are sold at physical auction, I want to be clear on that. So we don't sell a lot of repos in our digital model yet, although we are piloting with some customers and having some success in that segment as well. But the volumes there for us are still quite small. But repo volumes are up, off lease volumes are up. Speaker 200:42:29And we do sell rental cars as well for some of the major rental brands that you're aware of and those volumes have been quite strong as well. Speaker 600:42:38And just lastly, is there any potential upside in auction fees as we see the dealer business maybe strengthen in the coming years? Or is this 280 ish number kind of the upside, the upper limit? I mean, how much upside is it potentially from mix and potentially even fee increases over time? Speaker 200:42:57I think there is upside on price. We're competitively priced, I believe, vis a vis alternative channels. It's evident to me that buy fees at the physical auction side of the business have increased materially over the past few years. So I think we're well positioned there. John, I'd say I like where we're priced right now. Speaker 200:43:20I think we give our customers a great value proposition in terms of the speed of sale, the low cost of sale and also the outcomes they achieve on their vehicles. And as Brad mentioned, well, you see our consolidated results, but our D2D business in the U. S. Was profitable. We did increase price a little bit last year in that segment. Speaker 200:43:40We've got some further opportunity to do that, but we don't have anything immediately planned. Speaker 100:43:45Great. Speaker 600:43:46Thank you very much. Speaker 200:43:47Thank you, John. Operator00:43:50Our next question comes from Gary Prestopino with Barrington Research. Speaker 200:43:55Hey, good afternoon, everyone. Most of my questions have been answered. But with the provision for credit losses going up as much as it did, could you tell me was that more systemic to your Canadian business versus your U. S. Business? Speaker 200:44:10I know they're having really a challenging economic environment up there. So could you elaborate on that a little? Speaker 300:44:20Yes, Gary, it's Brad here. Thanks for the question. I would say there's nothing I would say that we're seeing from a loss perspective that's unique Canada versus the United States or vice versa. It's fairly nothing systemic or unique. I would just answer it that way. Speaker 300:44:39I would say as we think about each market and our underwriting and risk appetite in each one, we do look at them differently. As we said, the vehicle value declines in Canada were a little bit more severe than what we see in the U. S. So from our financing business perspective, that's a factor we look at. And not only our underwriting environment for potential new customers, but also in our risk management processes. Speaker 200:45:11In this kind of environment that we are in now, have you done anything to increase your lot checks on a weekly basis just to keep tabs on these vehicles? Speaker 300:45:22Yes. More activity there certainly have stepped that up and that's been true really throughout 2023 and will continue. I would also just add, Gary, we have really also driven a lot of advancement in our analytics over the past several years, and our analytics have better positioned us to allow us to move accounts that are signaling higher risk to move them into what we call wind down status, which allows us to significantly mitigate losses versus letting them go to a full delinquent status. So our analytics, our risk management processes are allowing us to lean into some of those cases better than they historically have. Operator00:46:11Thank you. Our next question comes from Bob Latic with CJS Securities. Speaker 100:46:21Yes. Hi. It's Pete Lukas for Bob. Most of my stuff has already been addressed here. But just I guess as it relates to just one question, as it relates to AFC, how do you see net interest income and spread and fee income per unit trending in 2024 and any color you can give there? Speaker 300:46:41Yes. Thanks for the question. I think, Bob, I'll start by just reemphasizing the point here. This business continues to be a strong performer. The portfolios that we have and our yields across the portfolio continue to be strong. Speaker 300:46:56If I go back to 2019 and through the years here, the overall yields have been, I would say, fairly consistent overall. That's both on a fee basis and in interest kind of a net interest basis. So the portfolio continues to perform well. I would expect those yields into 2024 to not change materially at this point. Speaker 100:47:23Very helpful. Thanks. Operator00:47:27Thank you. Our next question comes from Daniel Imbro with Stephens. Speaker 500:47:32Yeah. Hey, good evening guys. Thanks for taking our questions. Hey, Daniel. Maybe one I wanted to ask about maybe on the unit economic side. Speaker 500:47:40As we think about the shift back to commercial, historically, those off lease cars carry a lower revenue per unit, maybe a lower gross profit per unit if they get taken down by the grounding dealer. Curious as you think about the mix shift into next year, be a little more commercial in the first half, how do you think about that impacting revenue per unit, but really gross profit per unit, probably more importantly, given those changes in sources? Speaker 300:48:02Yes. Thanks, Daniel. So I'd say in commercial, particularly in our off lease and those off lease volumes, as those move down to what we would call the remarketing phases of the funnel, We do get more ARPU, but I would say from a gross profit perspective, it also is more accretive to our gross profits in that channel or in that line. It's a more fixed cost based business for us. And so the incremental revenue that we get from that, took away as it moves to the remarketing phase of the funnel is more accretive. Speaker 200:48:44Dan, if I could weigh in just sort of I mean every incremental vehicle is a benefit for our company. So and this part of our business has a very high gross profit as a percent of revenue, which I like a strong gross profit margin. But I guess at a high level, the opportunity here is significant because I'd say unlike the pre COVID era, we now have much more liquid online buyer base than ever before. We have more active buyers 20 fourseven in the marketplace. I talked about the days to sale for the dealer segment of on average about one day, high conversion rates in the dealer segment. Speaker 200:49:25There's an opportunity to replicate that on these vehicles that enter the open marketplace on the off lease side. Historically, the conversion rates there were lower. So that's a real opportunity for this company. Obviously, working in collaboration with our sellers, the volumes are were very, very small. A year ago, they're starting to get bigger. Speaker 200:49:43Our sellers see that. They're very focused on how can we work together with Open Lane to maximize those conversion rates. So we're exercising the playbooks there. So this is an exciting area of opportunity for us. And once cars get into that stage of the process, the open sales, those are high ARPU units, high margin units and very profitable for us as a company. Speaker 500:50:07That's great. And to follow-up quickly on that one. So their higher ARPU even without preconditioning because I feel like for pre COVID a lot of that higher ARPU when they moved down the funnel was the recon, right? So are they still higher ARPU even without since you sold the recon assets? Speaker 200:50:22Yes, they're higher sort of buy and sell fee kind of ARPU, auction fees is what I'm talking about, Dan. So yes, we don't do recon. We do obviously the auction fees, the buy and sell fee. These are typically higher value vehicles, dollars 25,000 $30,000 and up. And there's also transportation revenue. Speaker 200:50:43The other thing I would like to add here, I talked about sort of the unique offering that Open Lane represents in the marketplace. So now that we have the commercial and DITRA volumes together in 1 marketplace, and in parallel with that, we're starting to see more of the commercial volumes flowing into that marketplace. That's having a real positive impact on our buyer base in that marketplace. Those off lease vehicles are highly attractive to franchise dealers. So when I look at the sales report every day and see who's buying those cars, it's much more sort of franchise dealers buying those cars versus on our dealer to dealer segment, the buyers are typically independent dealers. Speaker 200:51:21So it's broadening the mix, it's increasing the appeal of the marketplace to a core customer constituency, franchise dealers. And then as those dealers get to experience the power of this marketplace, they in turn are more interested in, okay, how can I leverage this to benefit my think it's going to be very positive? And again, I think we've got a very, very strong offering and a very differentiated offering out there for our customers at this point. Speaker 500:51:54Appreciate that color, Peter. And then quick follow-up, did you guys say, I might have missed it, how long you expect the volume challenges to persist in Canada? Speaker 200:52:05We're seeing some I guess what I'll say in Canada, we're seeing increases in commercial volume already, Dan, quite solid increases. We saw commercial volume through much of last year and that continuing. We have the benefit of the acquisition, so those are incremental volumes. The challenges in Canada have been on the dealer consignment side of the business. And at best we could determine, some dealers are just kind of the industry term is upside down on their inventory. Speaker 200:52:34They've got vehicles in inventory. They paid a certain price for them. They're not able to attain that price, but they're hesitant to wholesale them and take the loss. They're trying to retail their way out of the vehicle. So our dealer it's really been in the dealer consignment segment. Speaker 200:52:48We started to see it improve a little bit here in the last few weeks. But Canada sometimes a little later to for the spring market to really impact up there. So we'll have to see how it plays out over the next over the remainder of this quarter and into April. Okay. I think we got time for one more question. Operator00:53:12Thank you. And our final question comes from Bret Jordan with Jefferies. Speaker 700:53:18Good morning or good afternoon, guys. Good evening. Speaker 200:53:22Hi, Bret. Speaker 700:53:222.5% loss rates, is that about as high as we expected to move? I think it was almost back to like 'nine great financial crisis levels there. And obviously, they used retail markets challenge right now. But given how short term these are and your control over your borrower, should we expect it to cap out around here? Speaker 300:53:45Yes, Brett. So listen, I'll kind of just maybe reiterate a little bit of what I said. I think the first half of twenty twenty four where we have pretty clear line of sight at this point, will be similar to second half, including that 2.5% that we reported for Q4. So you'll see something similar in the first half of the year and Q1. So I think to say that it's going to cap out, difficult to kind of commit to that or say that affirmatively. Speaker 300:54:18But if you go back to the great financial crisis, I think the loss rates were a lot higher than I wasn't with the company then. I don't know that I could quote them off the top of my head, but I think they were quite a bit higher than 2.5%. And I even think if you go to the heart of COVID, mid-twenty 20, They were probably around this level or about 3%. So we don't expect them to get back to that point, but it's difficult to predict. I say what I said earlier, the second half of twenty twenty four, we do expect it to moderate. Speaker 700:54:54Okay. And then on the physical asset, to sort of Daniel's question about, as you go down the funnel, were there commercial or particularly off lease sellers that liked having that opportunity to have a car refurbished prior to sale? I guess as you've converted to digital only, is there volume that really does require physical asset or is everybody's pretty much transferable to this platform? Speaker 200:55:21Probably different remarketers would have different opinions on that question. I guess what I would say to that Brett is, here's what I know is clear. Our sellers are focused commercial sellers and dealer sellers are really focused on a number of important metrics when it comes to sell a car. How fast can I sell the car? Because that's holding inventory cost is depreciation, cost of capital. Speaker 200:55:42Well, the digital marketplace wins on that. We sell the car within a day or 2 or 3 of it being returned. So we're a clear winner on that. 2nd of all, what does it cost me to sell the car? And again, in terms of expenses, the digital channel is the cheapest. Speaker 200:55:58There is no transportation cost. You don't pay those higher fees. You don't pay for that recon. And then the third one is, what are the proceeds that I get from the vehicle? And again, I think, we look at our dealer segments and we look at frankly my discussions with commercial sellers. Speaker 200:56:12Open Lane typically was the highest grossing channel that those commercial customers had. So I think we're a strong performer on the 3 core dimensions that customers are concerned about on the sell side. Now in the past, yes, vehicles went to physical auction because that's where the market was. And when they're at physical auction, it made sense to recondition them because you spend $1 you get $1.50 that type of equation. But the question right now is if there's a liquid demand base online today that will buy this car today, is it really worth your while to send that car to a physical auction to sell it 21 days from now and potentially get some benefit from recon. Speaker 200:56:54I don't know, it feels like a risk that, that customer will take. So I think different customers will have different points of view. But what I know is many of our customers are keenly interested in how can I drive up conversion in the online channel because that's my highest performing channel? So we're going to work with our customers on that and we're going to work with them on not just this quarter, but every quarter and for years to come to maximize these conversion rates and gain share in this industry. Speaker 700:57:21Great. Thank you. Speaker 200:57:24Great. Okay. So I think that's it. Closing remarks here. Okay. Speaker 200:57:29So again, thanks everybody. I appreciate your time today. I appreciate all the questions as well. As I said at the beginning, I'm pleased with our Q4 and full year performance. We delivered volume growth, revenue growth, dollars 272,000,000 of consolidated adjusted EBITDA and more than $237,000,000 in cash flow from operations in 2023. Speaker 200:57:50The improvement was driven by the marketplace business, which increased adjusted EBITDA contribution by $79,000,000 last year to $108,000,000 for the full year. We intend to build on this strong marketplace performance in 2024, and we also expect our Finance business to be a meaningful contributor to our overall results in 2024. In addition to the financial performance, I'm pleased with the brand and platform consolidation work to be accomplished in 2023. Open Lane enters 2024 with a highly differentiated offering, 1 brand, 1 platform with dealer inventory and exclusive commercial inventory integrated into 1 marketplace. This benefits all of our customers, differentiates us versus our competition and strengthens our offering going forward. Speaker 200:58:33I'm also pleased with the trends we're seeing in the industry. While we believe that the 2024 industry recovery in wholesale volume will be modest, We see that dealer inventory is increasing, prices are stabilizing and lease originations are increasing once again. All of this is good news for the future of Open Lane. We're focused on continued strong execution in 2024, advancing our strategy, making wholesale easy for our customers and growing the business this year and for many years to come. Thank you all for joining today's call. Speaker 200:59:03I look forward to updating you on our continued progress on our next call.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallOPENLANE Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) OPENLANE Earnings HeadlinesOPENLANE (NYSE:KAR) Beats Q1 Sales TargetsMay 7 at 9:36 PM | msn.comOPENLANE, Inc. Reports First Quarter 2025 Financial ResultsMay 7 at 4:15 PM | prnewswire.com270x more lucrative than NVIDIA???270x more lucrative than NVIDIA??? If you've missed out on NVIDIA's recent 1,600% run... Don't worry. Because there's one AI stock that could be a lot more lucrative. It's currently trading for only $20.May 8, 2025 | Behind the Markets (Ad)OPENLANE Earnings: What To Look For From KARMay 6 at 4:21 AM | finance.yahoo.comOPENLANE (KAR) Projected to Post Quarterly Earnings on WednesdayMay 6 at 3:47 AM | americanbankingnews.comOPENLANE, Inc.: OPENLANE Names Brad Herring Chief Financial OfficerApril 26, 2025 | finanznachrichten.deSee 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 Disney Stock Jumps on Earnings—Is the Magic Sustainable?Archer 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 BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release? 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There are 8 speakers on the call. Operator00:00:00Good day, and welcome to Open Lanes 2023 Year End Earnings Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Mike Eliason. Please go ahead. Speaker 100:00:36Thanks, Ed. Good afternoon and thank you for joining us today for the Open Lane Q4 2023 earnings conference call. Today, we'll discuss the financial performance of Opelane for the year ended December 31, 2023. After concluding our commentary, we'll take questions from participants. 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. Speaker 100:01:06Investors 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. In providing forward looking statements, the company expressly disclaims any obligation 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 issued this afternoon, which is also available in the Investor Relations section of our website. Now I'd like to turn this call over to Open Lane's CEO, Peter Kelly. Speaker 100:01:52Peter? Speaker 200:01:53Thank you, Mike, and good afternoon, everybody. I'm delighted to be here today to provide you with an update on Open Lane. Joining me is Open Lane's Chief Financial Officer, Brad Lakia, who will cover the majority of our financial and operating metrics later in the call. I will begin by highlighting a few key areas of our 2023 performance, but I will focus most of my remarks on the execution of our company strategy, the broader industry environment and our positive outlook for the future. In terms of results, it's clear that our business made significant progress in 2023. Speaker 200:02:24We are now beginning to see the positive impacts of our strategic investments in innovation and technology, our brand simplification work, as well as our diligence around costs. I believe our solid execution in the Q4 and throughout 2023 delivered strong and encouraging results that position Open Lane for future growth and success. When I look at Open Lane's consolidated performance for the year, a few things stand out. We grew our volumes, revenue and gross profit. Notably, consolidated gross profit increased by $92,000,000 or 13% compared to the prior year. Speaker 200:02:56We beat our 2023 guidance by delivering consolidated adjusted EBITDA of 2 $72,000,000 that was an 18% increase from the prior year. Open Lane had another strong year of cash flow performance, generating $237,000,000 in cash flow from operations in 2023. Our finance business ASC demonstrated solid performance in 2023 against the backdrop of declining vehicle values and a higher interest rate environment. With a continued focus on risk mitigation, the business grew responsibly and made a meaningful contribution to Open Lane's bottom line. Our marketplace business made significant progress in 2023 and finished the year on a strong note. Speaker 200:03:36We grew 4th quarter volumes by 10% to 318,000 vehicles. This is the strongest year on year volume growth for Open Lane in any single quarter for over 12 quarters. And for the full year 2023, we grew marketplace volumes by 3% to over 1,300,000 vehicles sold. Looking at 2023 overall, we grew revenue, revenue excluding purchased vehicles and gross profit in the marketplace segment. Most notably, gross profit increased by over 20% versus the prior year. Speaker 200:04:06The strong revenue and gross profit performance coupled with disciplined cost management drove a significant increase in adjusted EBITDA from the Marketplace segment, as well as an expansion in EBITDA margin. For Q4, Marketplace adjusted EBITDA was CAD24 million representing a more than 200% increase over the Q4 of 2022. And for the full year, we expanded our marketplace adjusted EBITDA to CAD108 1,000,000 representing a $79,000,000 increase over the prior year. I think these Q4 and full year results provide compelling evidence that our digital strategy is the right strategy, that we are executing well given the realities of our environment, that we are investing in the areas that our customers value the most, and that we are delivering a better, more simplified customer experience. And because of this, I believe Open Lane is well positioned for increased competitive differentiation, continued growth and strong performance in the years to come. Speaker 200:05:00So let me explain why I believe that to be the case, starting with the industry environment. First, based on what we're now seeing in the industry, I think it's increasingly evident that the industry environment that existed over the past few years since 2020 was likely an anomaly. Many of the factors that had a negative impact on our wholesale used vehicle industry are now starting to return back to what I would describe as more normal, not yet mirroring 2019, but trending in that direction. Manufacturers are able to build new vehicles. The supply chain constraints of the past few years appear to largely have been resolved at this point. Speaker 200:05:38There are more and more new and used vehicles on dealers' lots. Manufacturers are once again starting to use incentives to drive new car sales and leases, all of which are good news for the wholesale market and for Open Lane, particularly as we look out beyond the current year. Here are some of the facts based on third party sources. The new vehicle supply issues experienced during the pandemic and chip shortage have largely subsided and new vehicle production increased over 10% in 2023. While this is still below pre COVID levels, sales and production are expected to increase modestly again in 2024. Speaker 200:06:12The amount of new and used vehicle inventory on dealers' lots is also increasing. Day supply of new inventory was up approximately 30% in 2023 and also increased modestly for used inventory. We expect both of these to increase further in 2024 as well. Used car values remain structurally higher than pre COVID levels last year, but have been declining steadily from their peak in mid year 2022. Now let me be clear, most experts predict that wholesale supply will grow only modestly in 2024, and we know that lease returns in the back half of this year and next year will remain low due to the lower volume of leases written in 2021 2022. Speaker 200:06:52However, I'm very encouraged to see that in the 2023 year, lease originations increased by more than 20% versus the prior year, and they also accelerated quarter by quarter throughout the 2023 year. In fact, lease originations in the 4th quarter increased by more than 40% versus the Q4 of 2022. Increased lease originations are driven in part by OEMs use of incentives and OEM incentives increased in 2023 with the average incentive offered increasing to close to 5% of the vehicle transaction price by year end. This was almost double what it was at the end of the prior year. Given our strong position in the off lease segment, as the increased volume of leases written in 2023 and expected to be written in 2024 start to mature, Open Lane will be well positioned for growth in this important part of our business. Speaker 200:07:43Additionally, as we now look at an environment with more new car sales, but also with more new and used inventory on dealers lots, we believe this will tend to result in a higher volume of dealer trades being offered for sale in the wholesale market versus being retained for inventory. This should positively impact dealer consigned volumes as well. So in summary, we're seeing positive signs that the industry is trending back towards a more normal environment with far less volatility and greater predictability than we've experienced over the past few years. And I believe that over time, this will be very positive for OpenLinked. In terms of the execution of our strategy, I believe we are successfully executing our plan and advancing our purpose, which is to make wholesale easy so our customers can be more successful. Speaker 200:08:26During the Q4, we completed the integration of our dealer and off lease exclusive inventory into a single open lane branded platform in the United States. This was a significant step forward for our company. The transition was very well executed without any technology issues, customer disruption or negative impacts to sales or customer retention. So we are entering 2024 with 1 brand, 1 marketplace and 1 customer experience in our largest market, the United States. And with a marketplace offering that is highly differentiated from our competition. Speaker 200:08:57And the primary differentiation is inventory. Open Lane includes the majority of captive finance companies, whose off lease exclusive inventory is available first in Open Lane before it is offered in any other digital platform or physical auction. Open Lane also has a national selection of dealer inventory at every age, mileage, condition and price point. This means that Open Lane has an inventory selection that is unique and highly attractive to both franchise dealers and independent dealers. Each week tens of thousands of vehicles are offered for sale on our U. Speaker 200:09:26S. Open lane marketplace, with a roughly even split between commercial seller volumes and dealer volumes. We believe that the network effect one place will ultimately help us generate increased demand, increased supply, a better marketplace experience and ultimately better outcomes for our customers, commercial sellers and dealer customers alike. Just one quick example. When we did the final marketplace switchover in November, we did it after regular business hours and the very first off lease vehicle sold in our combined open lane U. Speaker 200:09:59S. Marketplace was sold via mobile app at 10:45 p. M. To an independent dealer. From a dealer perspective, the feedback on our new Open Lane marketplace has been very positive and reaffirming. Speaker 200:10:12Just over 2 weeks ago, I attended the National Auto Dealers Association Convention, and I met with many dealers ranging from large multi store groups who are highly active on Open Lane to smaller single point dealer owners. A senior manager from a large national dealer group comments to me that the results they achieve on Open Lane are the best of any remarketing channel that they use. Strong conversion rates, average days to sale of approximately one day, low remarketing expenses and strong sale proceeds all help contribute to this outcome. The CEO of another medium sized franchise leadership group described how he had been a reluctant convert to digital selling, but today has instituted Open Lane as the preferred remarketing channel across all of his stores and that he and his general managers are very pleased with the results. Having done that, this dealership group now wants to work with us to successfully purchase more highly desirable commercial inventory going forward. Speaker 200:11:04Another highlight of my weekend at the convention was a brief exchange with a dealer that owns 3 franchise dealerships. This dealer sought me out at our booth to tell me that Open Lane has completely transformed his business in a very positive way, enabling his dealerships to monetize trade in units in a way that was never possible before when they were selling to a wholesaler or through their local auction. In his words, creating profits where profits had never existed before. This is truly why we created Openland and why we are so committed to making wholesale easy for our customers so that they can be more successful. So it's clear that our customers, commercial sellers as well as franchise and independent buyers and sellers alike already experiencing the benefits of our 20 fourseven digital marketplace. Speaker 200:11:47And I believe that Openlands value proposition is very straightforward. In addition to our differentiated inventory, our digital marketplace enables faster speed to sale. In fact, our average days to sell for dealer customers in the United States approximately one day. Also, a larger always on buyer base can help drive more bidding and true market price discovery for all our sellers. And buying and selling digitally on Open Lane helps maximize financial outcomes while avoiding the unnecessary cost of transportation, reconditioning and higher fees associated with physical auctions. Speaker 200:12:20So with Open Lane delivering fast time to sell, low cost to sell and excellent price outcomes for their vehicles, it's not a surprise to me that excited about the launch of the new Open Lane marketplace. We're working collaboratively with many of them to help them rethink their marketing approach, increase conversion and explore how OpenLane's data and technology offerings can help their businesses more broadly. I'm very excited about the opportunity to extend and reinforce these already strong customer relationships. In addition to the significant United States launch, we also completed the rebrand of our European business to Open Lane in the Q4. So we start 2024 with a single marketplace brand Open Lane in all of our principal geographies, the United States, Canada and Europe. Speaker 200:13:06Shifting to innovation, one of the positive benefits of consolidating platforms process easier for our customers, accelerating search, reducing friction and increasing the velocity in our marketplace. A great example of this is our January launch of Visual Boost AI. Visual Boost AI is our new AI powered technology and it helps dealers quickly and assess vehicle damage and make better informed buying decisions. And today it is available in all dealer inventory across the open lane marketplace in the United States. While we are only a few weeks in, we are already seeing the impact of improved inspection quality and consistency. Speaker 200:13:51In fact, dealers who toggle on the Visual Boost button are more than twice as likely to make an offer on a vehicle, and those offers help to lead help lead to increased conversion over time. So as I look back on 2023, I believe we accomplished some very important and foundational work. We start 2024 in a much stronger position with a stronger offering and more differentiation in the eyes of our customers. As I look to the future, I'm very excited for the opportunity that lies ahead, and I believe that Open Lane remains very well positioned for growth. In the U. Speaker 200:14:23S, our unified Open Lane marketplace has an unmatched mix of inventory, a large and expanding base of commercial and dealer customers and is deploying data and technology to deliver differentiated customer experience. Our analysis suggests we are continuing to gain share, and this market will remain a key focus of our growth in 2024 and beyond. In Canada, we are a clear leader with strong volumes, profitability and cash flows. The business we acquired from Manheim is being integrated and this will make a positive contribution to results in 2024. Our European business is also performing well. Speaker 200:14:55In fact, it had a record year in 2023. And while Europe remains a smaller contributor to our overall results, we're expanding our relationships and our offerings to capture what we believe is a larger longer term opportunity to serve customers across Europe. Our Finance business, AFC, remains a consistent and strong performer. We will continue operating our conservative portfolio, while working to increase attach rates and identify new ways for AFC to help power the open land marketplace. We remain disciplined around our costs. Speaker 200:15:26We are now more asset light and more digital than ever, and this has enabled us to expand our margins and to improve the scalability of our business. This in turn provides Open Lane with the financial headroom to increase our investments in technology and innovation. Staying on innovation, with our teams aligned and unified, we are leveraging our best talent and technologies to benefit our customers. Open Lane has been a digital leader in this industry for over 20 years, and we still consider ourselves disruptors. And we look forward to bringing our deep pipeline of innovation to market to the benefit of all our customers. Speaker 200:16:01We will continue to execute our plan. The results we presented today are a direct reflection of our strategy and our ability to execute that plan. We'll retain the strong focus going forward, guided by our purpose, which is to make wholesale easy so our customers can be more successful. And finally, we're very optimistic for the future. With the industry fundamentals trending in a more positive direction for our business and our 2023 performance is a solid foundation, we believe that our talent, data, technology and the innovative spirit of the Open Lane team will enable us to deliver a compelling and highly differentiated offering to our customers, driving our growth and delivering shareholder value. Speaker 200:16:39So with that, I will now turn the conversation over to Brad for more detail on our 2023 results and our 2024 guidance. Brad? Speaker 300:16:47Thank you, Peter, and good afternoon, everyone. Before I begin, I'd like to remind everyone that all financial metrics I comment on at a consolidated level and a total marketplace segment level are on a net revenue basis, which specifically excludes the impact of purchased vehicle sales. Let me start with the Marketplace. As Peter mentioned, for the full year, we delivered 3% unit volume growth, which drove a 6% increase in marketplace net revenues. For the year, commercial volumes grew 7% and dealer volumes declined 2%. Speaker 300:17:27While our overall dealer volumes declined 2%, we continue to deliver U. S. Dealer volume growth that partially offset declines in Canada. Peter highlighted the fact industry fundamentals are normalizing and in Canada, we experienced a more rapid decline in vehicle values in the second half of twenty twenty three, which resulted in a headwind to dealer volumes in the 3rd Q4. That said, we see our geographic diversification as a clear strength. Speaker 300:17:58This is reflected in our leading Canadian market position and a growing profitable European business. Combination of these provide us a unique ability to grow profitably in varied market environments. A couple of other additional top line highlights that are important. First, as we discussed in our last call, our U. S. Speaker 300:18:22Dealer volumes are growing and our U. S. Dealer business is profitable. And second, in the Q4, overall marketplace volumes grew by 10%, which reflects improving dealer wholesale fundamentals and improved volumes and mix within our commercial channel. For the year, auction fees per unit increased 4%, driven by fee increases, which more than offset the impact of declining wholesale used vehicle values and the impact of a higher proportion of commercial vehicle volume. Speaker 300:18:59As we've discussed previously, our digital fees are lower compared to physical auctions. And therefore our pricing and value proposition position us well to capture share from the physical channel while opportunistically increasing fees over time. Services and service related fees remain a critical component our revenue mix and are an essential component to delivering a leading digital marketplace solution to our customers. For the year, service fees comprised approximately 61% of marketplace net revenues. These include transportation, repossession, data and technology related offerings. Speaker 300:19:43In 2023, service revenue was up 5% driven by higher prices, volumes and improved mix. In the 4th quarter, service revenues declined 1% in the quarter largely due to lower transportation services revenue. This was driven by changes to a key customer contract that now result in some revenue being recorded on a net commission basis instead of a gross basis historically. Looking forward, you can expect similar transportation revenue declines on a year over year basis through the 1st 3 quarters of 2024 due to this contract change. And for your modeling purposes, we estimate the impact to revenue versus 2023 to be approximately $20,000,000 per quarter in Q1 and Q2 and $13,000,000 in Q3. Speaker 300:20:37It's important to note this is not a change to the absolute transportation service volume, profitability or realized margins. The overall improvement in marketplace net revenue resulted in a 21% increase in gross profit on a full year basis or a 5 60 basis point improvement versus last year. For the quarter, gross margins improved 7 50 basis points or 24%. On both a full year and quarterly basis, these improvements resulted from the combination of improved volumes, fees, mix and cost savings initiatives. Although gross margins are dependent on our mix of services and the mix between our dealer and commercial volumes, we anticipate the margin improvements achieved in 2023 to be sustainable And we see further opportunities for improvement as we continue to execute on our cost management initiatives and we realize the value from our integrated digital marketplaces including higher volumes over time. Speaker 300:21:43As Peter highlighted, our marketplace adjusted EBITDA for the year was $108,000,000 and for the quarter it was 24,000,000 That is a full year improvement of $79,000,000 and a $16,000,000 improvement in the 4th quarter. As previously highlighted, this was driven by collective improvements in volume, price mix and cost. Intentionally repeating what has already been said, as of the end of the year, we now have an Open Lane branded fully integrated digital marketplace platform in the U. S, Canada and Europe. This unique and differentiated digital solution has the capability to further advance our dealer and commercial growth and will enhance our overall competitive advantage while better positioning us to deliver scalable profitable growth within the marketplace segment. Speaker 300:22:34Turning to our Finance segment, revenues for the year were up 5% driven by a 4% increase in loan transaction units, higher interest income and higher fee income. For the quarter, revenues decreased 4% versus prior year. Loan transaction units in the quarter were relatively flat and higher interest and fee income in the quarter were more than offset by higher credit losses. Finance segment adjusted EBITDA for the year was 164,000,000 down $38,000,000 more than explained by higher credit losses. Similarly, in the quarter, finance segment adjusted EBITDA was $38,000,000 compared to $49,000,000 last year driven primarily by an $8,000,000 increase in credit losses. Speaker 300:23:26For the full year, our credit loss rate was 2.1% and for the quarter 2.5%. This increased loss rate was due to significant used vehicle value declines, interest rate increases and tightening retail credit availability that impacted used vehicle retail sales. Going forward, we expect the first half of twenty twenty four to experience similar loss rates as the second half of twenty twenty three. As we've mentioned previously, credit loss rates in this business will fluctuate over time and like other financing businesses across many sectors, we are seeing higher loss rates compared to our 1.5% to 2% targeted range. In fact, we are encouraged by the fact our competitive assessment confirms that our loss rates remain notably lower than our key floor plan peer. Speaker 300:24:23In the meantime, to mitigate losses and to continue to deliver leading returns, we will continue to manage a conservative and disciplined portfolio. And we will leverage our leading risk management processes that are complemented by a high touch customer service model. Turning to SG and A, consolidated SG and A for the year declined $15,000,000 reflecting the successful execution of our cost savings initiatives. SG and A increased $11,000,000 compared to the Q4 of 2022, largely due to a $9,000,000 increase in non cash compensation. In the Q4 of 2022, approximately $9,000,000 of non cash compensation expense was reversed for performance awards that were no longer expected to vest. Speaker 300:25:14And as we previously mentioned, certain duplicative transitional costs will no longer reoccur in 2024 and will help offset inflationary headwinds going forward. Moving to the balance sheet and capital allocation, consistent with prior quarters we continue to generate strong cash flow. Cash flows from operating activities were $237,000,000 in 2023. This level of cash generation demonstrates the value creating combination of our asset light, digitally focused marketplace business and our leading Floor Plan Finance business. Our cash generation has notably improved our overall liquidity position and further strengthened our balance sheet. Speaker 300:26:01In the quarter, our consolidated net leverage ratio increased to approximately 1 times adjusted EBITDA, largely due to the funding of our Canadian acquisition in December. And please recall, in 2023, we repaid $140,000,000 of our 2025 senior notes and completed $22,000,000 in share repurchases. Regarding the Canadian acquisition, the purchase price for this acquisition was approximately $103,000,000 The integration work is progressing well. We are migrating our existing Montreal operations to the acquired Montreal facility and we are taking actions to sell our existing larger Montreal location. Although the sale process will take some time, we estimate the net proceeds from the sale will eventually serve to fund a meaningful portion of the acquisition. Speaker 300:26:56And as a reminder, the Montreal site is the only real estate we acquired as part of this transaction. We are migrating all other components of the acquisition to our existing vehicle logistics centers and offices throughout Canada. This includes integrating all shared support functions, business processes and systems. In January of this year, we executed a new CAD175 1,000,000 revolving credit facility. While not reflected in the year end balance sheet and liquidity position, on a pro form a basis, this facility will provide several benefits. Speaker 300:27:36It will provide flexibility to debt fund our Canadian subsidiary at a level where we can more tax effectively service interest expense. It will optimize our ability to fund seasonal working capital. And finally, it will improve Open Lane's overall liquidity position, which provides flexibility to fund investments and other future commitments. Overall, our capital allocation priorities remain unchanged and we will continue to prioritize the funding of organic investments in our 4 digitally focused business, while also ensuring flexibility for high return complementary strategic opportunities and shareholder returns. During the quarter, we did not repurchase shares, but we continue to have $125,000,000 remaining on our share repurchase authorization. Speaker 300:28:27I will wrap up by addressing a few annual guidance items. We expect 2024 adjusted EBITDA to be between $285,000,000 305,000,000 dollars driven primarily by continued improvement in our marketplace segment. This outlook reflects the industry update Peter discussed earlier, expected ongoing improvements in our margin structure and the risk outlook for our finance business, which I highlighted earlier. We continue to target and benefit from the expected dealership from physical to digital. However, I want to remind you the second half of twenty twenty four off lease volumes will begin to see pressure based on low lease originations in late 2021 and into 2022. Speaker 300:29:14In terms of profitability and margins, this top of the funnel off lease volume headwind could be mitigated by improved revenue per unit or mix as we see a gradual increase in vehicles flowing to non grounding dealers and our open digital marketplace. The remaining guidance metrics are presented in our earnings release. We expect operating adjusted earnings per share to be between $0.77 $0.87 As a reminder, we add back non cash acquisition related amortization to calculate operating adjusted EPS. We believe this metric provides a more meaningful measure because of our company's acquisition history. Again, these components of the calculation are detailed in our earnings release. Speaker 300:30:03Finally, we expect CapEx to be between $55,000,000 $60,000,000 in 2024, which is a slight increase compared to 2023 CapEx of 52,000,000 dollars This incremental investment will focus on advancing and unifying our marketplace technology stacks and that translates in our ability to drive faster, more efficient innovation, which results in making wholesale easier for our customers. With that, I'll turn the call over to the operator for questions. Operator00:30:33Thank you. We'll begin the question and answer And the first question today comes from Rajat Gupta with JPMorgan. Speaker 400:30:55Great. Thanks for taking the questions. Just wanted to follow-up on the off lease commentary. What's going to be the key driver of the commercial business this year? And do you see the net impact of perhaps increased return rates on the leases versus the lower off lease returns in the second half being a net positive or a headwind for the company? Speaker 400:31:24And then where is the incremental volume growth going to come from on the commercial side? And I have a follow-up. Thanks. Speaker 200:31:32Thank you, Rajat. So I think the off lease segment obviously is a historical strength of the company. It's been really challenged the past few years because of what I call the equity gap vehicles being heavily in positive equity at the end of lease and getting bought out by the consumer, by the grounding dealer. So that's been that period has been a challenge over the past couple of years. But we've seen that equity gap really decline pretty steeply and rapidly over the course of the last 9 to 12 months. Speaker 200:32:03And it's now at the lowest it's been certainly for the last, I'd say 18 plus months. We are seeing increased volumes of off lease vehicles being returned at this point and entering the remarketing funnel. So that is a positive for us in terms of volume. We're also seeing those vehicles flowing more deeper into the remarketing funnel. They're not all getting purchased by the grounding dealer. Speaker 200:32:24So that is another positive that impacts mix and ARPU. So a little bit of that was evident in Q4. I think there's more of it probably happening in 2024. And again, we would expect over the long run, this will look much more like normal and normal would be most off lease vehicles at the end of the lease do not have any equity, they have negative equity, they get returned and they enter the marketing process. So to your question on could that trend, which we're now seeing offset the sort of top of funnel impact of fewer vehicles maturing because of lower lease originations? Speaker 200:33:05Rajat, it's possible. It's difficult to model it with precision because we don't know the exact residual value status of all those vehicles. But at the present moment, I'd say I'm encouraged by what I'm seeing and I take that as a positive. We're going to have to see how it trends in the second half of this year. Probably the most positive thing before I wrap up on off lease vehicles here is the increased lease originations. Speaker 200:33:3320% plus increase in lease originations last year and a 40% plus increase in lease originations in the 4th quarter. This really tells me that leasing is going to be an important part of the way vehicles are brought to market in the U. S. As it has always been. And it's going to be a very important part of our business going forward. Speaker 200:33:51So it's very encouraging for me to see that trend. I know we're going to have to wait a couple of years for some of those vehicles to mature, but I still think it's a significant positive for the company as we look to the future. Speaker 400:34:04Got it. That's helpful color. And just on the full year guidance, I think you mentioned that EBITDA improvement is going to be primarily driven by the marketplace. I mean, should we expect AFC to be to grow in 2024 or do you think given like the exit rate on the credit losses, should we model that business down in 2024 or flattish? Just curious if you can give us a little more color on the AFC outlook for 2024? Speaker 300:34:34Yes. Hey, Rajat. Thanks for the question. So, yes, I would say for AFC, I certainly wouldn't want you to model it down for the year to just to head that off directly. We actually see that business going forward year over year in terms of how we're kind of modeling it and planning it ourselves, but going forward modestly. Speaker 300:34:54As I said in my comments, first half losses, not only a loss rate, but in terms of dollars, we expect that to be fairly similar to the second half of twenty twenty three. And we, as you can imagine, have a pretty good line of sight to that right now. And we expect that those loss rates to moderate in the second half of 2023, which year over year should provide us a benefit. And then I would also just say, as we alluded to in our comments, we're going to continue to look to grow that business. We're going to do it in a very disciplined manner, very conservative manner. Speaker 300:35:31We have a it's a high performing business from a cash flow and an earnings contribution and we'll continue to look to grow that business. Speaker 400:35:40Got it. Great. Thanks for the color. I'll jump back in queue. Operator00:35:46And the next question comes from Craig Kennison with Baird. Speaker 100:35:51Hey, good afternoon. Thanks for taking my question. I wanted to follow-up on the prior topic. Just Peter, you're talking about off lease and the equity gap and that seems to be narrowing. I'm curious based on the work you've done, how long until we get to that normal environment where a car comes off lease and there's actually negative equity if car prices stay about where they are today? Speaker 200:36:18Craig, it's a good question. It's hard for me to predict it with precision. But I do I'd say a number of things are relevant as we think about that. One is where are used car prices trending? It's been interesting in the 1st few weeks of this year, they've continued to trend slightly downwards. Speaker 200:36:38So I still think there's, for the most part, more downward pressure on used vehicle pricing than upward at the present time, although I'm not expecting a significant decline over the course of 2024. And then the second point is where are the residual values on the leases, lease contracts written. And when I think of that, you got to think now we're now starting to lap leases that were written in early 2021, mid-twenty 21, that's gap is being compressed from both directions. So I think the equity gap is being compressed from both directions, and I expect it to normalize in the not too distant future, but I hesitate to put a specific time on that. Speaker 500:37:33If you were to look at Speaker 100:37:33the cohort of leases made in late 2022 when used car prices really peaked, is it fair to look at those that cohort in particular and say those look to be candidates for having significant negative equity? Speaker 200:37:52Craig, I can't really sort of shed more light on that than I've already shed in my answer. I think, I guess there's one possible complication, Craig, that if there's fewer off lease vehicles at the top of the funnel, there could be increased demand and the price of those vehicles could that could sort of lift the prices on those vehicles and that could cause that equity gap to not narrow as steeply as one might like. So there's just a lot of moving pieces here, Craig. And I think here's what I would say. We've seen the equity gap come down a lot. Speaker 200:38:26We're seeing more vehicles enter the remarketing funnel. And based on my conversation with our commercial customers, they expect those trends to continue and that percentage of vehicles entering the marketing to go up. And that has the potential to offset the top of the funnel that we are aware of. Speaker 100:38:47Yes. Thank you very much, Peter. And then maybe if I could, on the dealer side, I believe it was down just a little bit versus last year. I'm wondering if you're still adding dealers? And if so, are you seeing fewer transactions per dealer for any reason? Speaker 200:39:03Yes. We've seen as Brad mentioned, we saw some headwinds in the second half of last year on dealer volumes in Canada. In the very strong market of the prior year, there was a lot of export volume from Canada into the U. S. And that drove strong demand in Canada and drove liquidity in the dealer segment. Speaker 200:39:23So that kind of went away, I'd say, largely in the second half of last year. That was a little bit of a headwind. But we continue to add customers. Our customer base on D2D continues to grow. Our U. Speaker 200:39:33S. D2D volumes grew in the 4th quarter. And I'm again, as I mentioned in my remarks, very pleased with the very positive feedback that I've gotten from dealers who are active customers and using our dealer to dealer solutions both on the sell and the buy side. So I feel very encouraged about our offering, and I think it's very competitive visavis all other offerings that are out there and very sticky with its customer base as well. Speaker 300:40:02Yes, Peter, let me just I would just add, Craig, on the Canadian point, what we're seeing in Canada is not unique to us. The data, the market intelligence that we have suggests that's more broad based. So I just want to make it clear that it's not unique to our business there. Operator00:40:26The next question from John Murphy with Bank of America Merrill Lynch. Speaker 600:40:33Hey, good evening, guys. Just a first question, Peter, you guys talked about the dealer business in the U. S. Being up a lot, but I mean, total is down. So I'm just curious how much dealer business was up in the U. Speaker 600:40:46S? And then also conversely on the commercial side, where the strength is really coming from? I know we're talking about off lease, but there's rental, government and commercial commercial on the fleet side of the business. Was there any kind of particular strength there where these companies are finally getting back into auction lanes and selling as opposed to being buyers? Speaker 200:41:12Yes. So thanks, John. So on the dealer side, I said dealer volumes were up in the U. S. I didn't say up a lot. Speaker 200:41:18I just want to be clear, but they were up in Q4. And I believe based on our analysis, we gained share in the dealer segment in Q4 as well when we compare our dealer volumes versus what we saw in other data sources. In terms of commercial, we're seeing growth in commercial in both the U. S. And Canada. Speaker 200:41:44So I think it's fairly broad based. I just spoke about off lease vehicles. We're seeing increased consignment, more vehicles entering the funnel, flowing deeper in the funnel. So that's a positive for us. It was a positive in Q4 and we think that's the beginning of a trend. Speaker 200:42:05In the industry, there's also been an increase in repossession volume, John. Most of those repos are sold at physical auction, I want to be clear on that. So we don't sell a lot of repos in our digital model yet, although we are piloting with some customers and having some success in that segment as well. But the volumes there for us are still quite small. But repo volumes are up, off lease volumes are up. Speaker 200:42:29And we do sell rental cars as well for some of the major rental brands that you're aware of and those volumes have been quite strong as well. Speaker 600:42:38And just lastly, is there any potential upside in auction fees as we see the dealer business maybe strengthen in the coming years? Or is this 280 ish number kind of the upside, the upper limit? I mean, how much upside is it potentially from mix and potentially even fee increases over time? Speaker 200:42:57I think there is upside on price. We're competitively priced, I believe, vis a vis alternative channels. It's evident to me that buy fees at the physical auction side of the business have increased materially over the past few years. So I think we're well positioned there. John, I'd say I like where we're priced right now. Speaker 200:43:20I think we give our customers a great value proposition in terms of the speed of sale, the low cost of sale and also the outcomes they achieve on their vehicles. And as Brad mentioned, well, you see our consolidated results, but our D2D business in the U. S. Was profitable. We did increase price a little bit last year in that segment. Speaker 200:43:40We've got some further opportunity to do that, but we don't have anything immediately planned. Speaker 100:43:45Great. Speaker 600:43:46Thank you very much. Speaker 200:43:47Thank you, John. Operator00:43:50Our next question comes from Gary Prestopino with Barrington Research. Speaker 200:43:55Hey, good afternoon, everyone. Most of my questions have been answered. But with the provision for credit losses going up as much as it did, could you tell me was that more systemic to your Canadian business versus your U. S. Business? Speaker 200:44:10I know they're having really a challenging economic environment up there. So could you elaborate on that a little? Speaker 300:44:20Yes, Gary, it's Brad here. Thanks for the question. I would say there's nothing I would say that we're seeing from a loss perspective that's unique Canada versus the United States or vice versa. It's fairly nothing systemic or unique. I would just answer it that way. Speaker 300:44:39I would say as we think about each market and our underwriting and risk appetite in each one, we do look at them differently. As we said, the vehicle value declines in Canada were a little bit more severe than what we see in the U. S. So from our financing business perspective, that's a factor we look at. And not only our underwriting environment for potential new customers, but also in our risk management processes. Speaker 200:45:11In this kind of environment that we are in now, have you done anything to increase your lot checks on a weekly basis just to keep tabs on these vehicles? Speaker 300:45:22Yes. More activity there certainly have stepped that up and that's been true really throughout 2023 and will continue. I would also just add, Gary, we have really also driven a lot of advancement in our analytics over the past several years, and our analytics have better positioned us to allow us to move accounts that are signaling higher risk to move them into what we call wind down status, which allows us to significantly mitigate losses versus letting them go to a full delinquent status. So our analytics, our risk management processes are allowing us to lean into some of those cases better than they historically have. Operator00:46:11Thank you. Our next question comes from Bob Latic with CJS Securities. Speaker 100:46:21Yes. Hi. It's Pete Lukas for Bob. Most of my stuff has already been addressed here. But just I guess as it relates to just one question, as it relates to AFC, how do you see net interest income and spread and fee income per unit trending in 2024 and any color you can give there? Speaker 300:46:41Yes. Thanks for the question. I think, Bob, I'll start by just reemphasizing the point here. This business continues to be a strong performer. The portfolios that we have and our yields across the portfolio continue to be strong. Speaker 300:46:56If I go back to 2019 and through the years here, the overall yields have been, I would say, fairly consistent overall. That's both on a fee basis and in interest kind of a net interest basis. So the portfolio continues to perform well. I would expect those yields into 2024 to not change materially at this point. Speaker 100:47:23Very helpful. Thanks. Operator00:47:27Thank you. Our next question comes from Daniel Imbro with Stephens. Speaker 500:47:32Yeah. Hey, good evening guys. Thanks for taking our questions. Hey, Daniel. Maybe one I wanted to ask about maybe on the unit economic side. Speaker 500:47:40As we think about the shift back to commercial, historically, those off lease cars carry a lower revenue per unit, maybe a lower gross profit per unit if they get taken down by the grounding dealer. Curious as you think about the mix shift into next year, be a little more commercial in the first half, how do you think about that impacting revenue per unit, but really gross profit per unit, probably more importantly, given those changes in sources? Speaker 300:48:02Yes. Thanks, Daniel. So I'd say in commercial, particularly in our off lease and those off lease volumes, as those move down to what we would call the remarketing phases of the funnel, We do get more ARPU, but I would say from a gross profit perspective, it also is more accretive to our gross profits in that channel or in that line. It's a more fixed cost based business for us. And so the incremental revenue that we get from that, took away as it moves to the remarketing phase of the funnel is more accretive. Speaker 200:48:44Dan, if I could weigh in just sort of I mean every incremental vehicle is a benefit for our company. So and this part of our business has a very high gross profit as a percent of revenue, which I like a strong gross profit margin. But I guess at a high level, the opportunity here is significant because I'd say unlike the pre COVID era, we now have much more liquid online buyer base than ever before. We have more active buyers 20 fourseven in the marketplace. I talked about the days to sale for the dealer segment of on average about one day, high conversion rates in the dealer segment. Speaker 200:49:25There's an opportunity to replicate that on these vehicles that enter the open marketplace on the off lease side. Historically, the conversion rates there were lower. So that's a real opportunity for this company. Obviously, working in collaboration with our sellers, the volumes are were very, very small. A year ago, they're starting to get bigger. Speaker 200:49:43Our sellers see that. They're very focused on how can we work together with Open Lane to maximize those conversion rates. So we're exercising the playbooks there. So this is an exciting area of opportunity for us. And once cars get into that stage of the process, the open sales, those are high ARPU units, high margin units and very profitable for us as a company. Speaker 500:50:07That's great. And to follow-up quickly on that one. So their higher ARPU even without preconditioning because I feel like for pre COVID a lot of that higher ARPU when they moved down the funnel was the recon, right? So are they still higher ARPU even without since you sold the recon assets? Speaker 200:50:22Yes, they're higher sort of buy and sell fee kind of ARPU, auction fees is what I'm talking about, Dan. So yes, we don't do recon. We do obviously the auction fees, the buy and sell fee. These are typically higher value vehicles, dollars 25,000 $30,000 and up. And there's also transportation revenue. Speaker 200:50:43The other thing I would like to add here, I talked about sort of the unique offering that Open Lane represents in the marketplace. So now that we have the commercial and DITRA volumes together in 1 marketplace, and in parallel with that, we're starting to see more of the commercial volumes flowing into that marketplace. That's having a real positive impact on our buyer base in that marketplace. Those off lease vehicles are highly attractive to franchise dealers. So when I look at the sales report every day and see who's buying those cars, it's much more sort of franchise dealers buying those cars versus on our dealer to dealer segment, the buyers are typically independent dealers. Speaker 200:51:21So it's broadening the mix, it's increasing the appeal of the marketplace to a core customer constituency, franchise dealers. And then as those dealers get to experience the power of this marketplace, they in turn are more interested in, okay, how can I leverage this to benefit my think it's going to be very positive? And again, I think we've got a very, very strong offering and a very differentiated offering out there for our customers at this point. Speaker 500:51:54Appreciate that color, Peter. And then quick follow-up, did you guys say, I might have missed it, how long you expect the volume challenges to persist in Canada? Speaker 200:52:05We're seeing some I guess what I'll say in Canada, we're seeing increases in commercial volume already, Dan, quite solid increases. We saw commercial volume through much of last year and that continuing. We have the benefit of the acquisition, so those are incremental volumes. The challenges in Canada have been on the dealer consignment side of the business. And at best we could determine, some dealers are just kind of the industry term is upside down on their inventory. Speaker 200:52:34They've got vehicles in inventory. They paid a certain price for them. They're not able to attain that price, but they're hesitant to wholesale them and take the loss. They're trying to retail their way out of the vehicle. So our dealer it's really been in the dealer consignment segment. Speaker 200:52:48We started to see it improve a little bit here in the last few weeks. But Canada sometimes a little later to for the spring market to really impact up there. So we'll have to see how it plays out over the next over the remainder of this quarter and into April. Okay. I think we got time for one more question. Operator00:53:12Thank you. And our final question comes from Bret Jordan with Jefferies. Speaker 700:53:18Good morning or good afternoon, guys. Good evening. Speaker 200:53:22Hi, Bret. Speaker 700:53:222.5% loss rates, is that about as high as we expected to move? I think it was almost back to like 'nine great financial crisis levels there. And obviously, they used retail markets challenge right now. But given how short term these are and your control over your borrower, should we expect it to cap out around here? Speaker 300:53:45Yes, Brett. So listen, I'll kind of just maybe reiterate a little bit of what I said. I think the first half of twenty twenty four where we have pretty clear line of sight at this point, will be similar to second half, including that 2.5% that we reported for Q4. So you'll see something similar in the first half of the year and Q1. So I think to say that it's going to cap out, difficult to kind of commit to that or say that affirmatively. Speaker 300:54:18But if you go back to the great financial crisis, I think the loss rates were a lot higher than I wasn't with the company then. I don't know that I could quote them off the top of my head, but I think they were quite a bit higher than 2.5%. And I even think if you go to the heart of COVID, mid-twenty 20, They were probably around this level or about 3%. So we don't expect them to get back to that point, but it's difficult to predict. I say what I said earlier, the second half of twenty twenty four, we do expect it to moderate. Speaker 700:54:54Okay. And then on the physical asset, to sort of Daniel's question about, as you go down the funnel, were there commercial or particularly off lease sellers that liked having that opportunity to have a car refurbished prior to sale? I guess as you've converted to digital only, is there volume that really does require physical asset or is everybody's pretty much transferable to this platform? Speaker 200:55:21Probably different remarketers would have different opinions on that question. I guess what I would say to that Brett is, here's what I know is clear. Our sellers are focused commercial sellers and dealer sellers are really focused on a number of important metrics when it comes to sell a car. How fast can I sell the car? Because that's holding inventory cost is depreciation, cost of capital. Speaker 200:55:42Well, the digital marketplace wins on that. We sell the car within a day or 2 or 3 of it being returned. So we're a clear winner on that. 2nd of all, what does it cost me to sell the car? And again, in terms of expenses, the digital channel is the cheapest. Speaker 200:55:58There is no transportation cost. You don't pay those higher fees. You don't pay for that recon. And then the third one is, what are the proceeds that I get from the vehicle? And again, I think, we look at our dealer segments and we look at frankly my discussions with commercial sellers. Speaker 200:56:12Open Lane typically was the highest grossing channel that those commercial customers had. So I think we're a strong performer on the 3 core dimensions that customers are concerned about on the sell side. Now in the past, yes, vehicles went to physical auction because that's where the market was. And when they're at physical auction, it made sense to recondition them because you spend $1 you get $1.50 that type of equation. But the question right now is if there's a liquid demand base online today that will buy this car today, is it really worth your while to send that car to a physical auction to sell it 21 days from now and potentially get some benefit from recon. Speaker 200:56:54I don't know, it feels like a risk that, that customer will take. So I think different customers will have different points of view. But what I know is many of our customers are keenly interested in how can I drive up conversion in the online channel because that's my highest performing channel? So we're going to work with our customers on that and we're going to work with them on not just this quarter, but every quarter and for years to come to maximize these conversion rates and gain share in this industry. Speaker 700:57:21Great. Thank you. Speaker 200:57:24Great. Okay. So I think that's it. Closing remarks here. Okay. Speaker 200:57:29So again, thanks everybody. I appreciate your time today. I appreciate all the questions as well. As I said at the beginning, I'm pleased with our Q4 and full year performance. We delivered volume growth, revenue growth, dollars 272,000,000 of consolidated adjusted EBITDA and more than $237,000,000 in cash flow from operations in 2023. Speaker 200:57:50The improvement was driven by the marketplace business, which increased adjusted EBITDA contribution by $79,000,000 last year to $108,000,000 for the full year. We intend to build on this strong marketplace performance in 2024, and we also expect our Finance business to be a meaningful contributor to our overall results in 2024. In addition to the financial performance, I'm pleased with the brand and platform consolidation work to be accomplished in 2023. Open Lane enters 2024 with a highly differentiated offering, 1 brand, 1 platform with dealer inventory and exclusive commercial inventory integrated into 1 marketplace. This benefits all of our customers, differentiates us versus our competition and strengthens our offering going forward. Speaker 200:58:33I'm also pleased with the trends we're seeing in the industry. While we believe that the 2024 industry recovery in wholesale volume will be modest, We see that dealer inventory is increasing, prices are stabilizing and lease originations are increasing once again. All of this is good news for the future of Open Lane. We're focused on continued strong execution in 2024, advancing our strategy, making wholesale easy for our customers and growing the business this year and for many years to come. Thank you all for joining today's call. Speaker 200:59:03I look forward to updating you on our continued progress on our next call.Read morePowered by