NYSE:KAR OPENLANE Q2 2024 Earnings Report $19.20 -0.14 (-0.72%) Closing price 03:59 PM EasternExtended Trading$19.77 +0.57 (+2.99%) As of 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$0.19Consensus EPS $0.21Beat/MissMissed by -$0.02One Year Ago EPS$0.25OPENLANE Revenue ResultsActual Revenue$431.80 millionExpected Revenue$426.11 millionBeat/MissBeat by +$5.69 millionYoY Revenue Growth+3.60%OPENLANE Announcement DetailsQuarterQ2 2024Date8/7/2024TimeAfter Market ClosesConference Call DateWednesday, August 7, 2024Conference Call Time5:00PM ETUpcoming EarningsOPENLANE's Q2 2025 earnings is scheduled for Wednesday, May 7, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by OPENLANE Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 7, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Good day, and welcome to the OpenLane Second Quarter 20 24 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Operator00:00:28Itanu O'Gallaru, Head of Investor Relations. Please go ahead, ma'am. Speaker 100:00:33Good afternoon, everyone. Welcome to Open Lane's Q2 2024 Earnings Call. With me today are Peter Kelly, CEO of Open Lane and Bradley Kia, EVP and CFO of Open Lane. Our remarks today include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve risks and uncertainties that may cause our actual results or performance to differ materially from such statements. Speaker 100:01:06Factors that could cause such differences include those discussed in our press release issued today and in our SEC filings. Certain non GAAP financial measures as defined under the SEC rules will be discussed on our call. Reconciliations of GAAP to non GAAP measures are provided in our earnings materials and available in the Investor Relations section of our website. With that, I'll turn the call over to Peter. Peter? Speaker 200:01:34Thank you, Atunu, and good afternoon, everyone. Before I get started, I just wanted to formally welcome Atunu to the role of Head of Investor Relations for Open Lane. We're delighted to have Atunu and her deep financial expertise on the team, and Anoche is looking forward to working with all of you as we communicate our results, our strategy and the Open Lane story. Turning to our results. Open Lane's continued focus on execution and profitable growth led to positive results in the 2nd quarter. Speaker 200:02:01We grew our volumes and on a consolidated basis we grew revenue and delivered $71,000,000 of adjusted EBITDA, which was negatively impacted by a $2,000,000 charge for the newly enacted Canada Digital Services Tax or DST, which Brad will discuss in more detail later. Year to date, we have also generated $138,000,000 in cash flow from operations. Similar to Q1, I'm very pleased that these results reflect a significantly improved performance in the open lane marketplace. On 7% volume growth, the marketplace business contributed $33,000,000 in adjusted EBITDA, which includes the $2,000,000 DST charge and represents 46% of Open Lane's total adjusted EBITDA. AFC was again a strong contributor, growing loan unit volumes and generating approximately $39,000,000 of adjusted EBITDA in the 2nd quarter. Speaker 200:02:54I believe the consistent track record of performance we delivered in the first half of twenty twenty four clearly demonstrates the power of our differentiated offering and the strong scalability characteristics of our company. We are accelerating innovation, improving the customer experience and making wholesale easy for our customers. The combination of these factors positions us very well to continue gaining share and deliver even stronger financial results in the future. So let me turn to our strategy and how we plan to build on this positive momentum. Open Lane remains highly focused on growth. Speaker 200:03:26We are a leaner, more agile company than ever before, and I believe this enables us to grow our volumes, our market share and financial results simultaneously. As I previously said, our strategy for growth is anchored in our purpose to make wholesale easy so our customers can be more successful. And guided by our vision to build the world's greatest digital marketplace for used vehicles. Our pursuit of these goals and Open Lane's acceleration of profitable growth is enabled by 3 core strategic advantages. 1st, our expanding volume and share in both the commercial and dealer segments. Speaker 200:04:012nd, the opportunities enabled by our asset light digital model. And third, our focus on the customer experience. Let me address each of these individually, and I'll start with volume growth and share. In the Q2, Open Lane grew its marketplace volumes by 7%, despite headwinds from the CDK ransomware attack that negatively impacted our volumes in the quarter by approximately 6,000 vehicles and without which our year on year volume growth would have been approximately 9%. We also increased our gross merchandise value by 6% to nearly $7,000,000,000 This marks the 5th consecutive quarter with year on year growth in the Marketplace segment. Speaker 200:04:41Similar to the Q1, this volume growth was again driven primarily by our U. S. Marketplace. Our Open Lane branded marketplace has been live for just over a year in Canada and approximately 8 months in the U. S. Speaker 200:04:53And Europe. The positive feedback we continue to receive and the results we are delivering in the months since that launch give me increased confidence in the strength of our platform. And that confidence is fueling increased investments in both technology and people that I will discuss later in my remarks. In terms of commercial off lease volumes, Open Lane remains a clear market leader, and our commercial and off lease volumes were up meaningfully in both the United States Canada during the quarter. We increased commercial vehicles offered for sale and also unique buyers who purchased that off lease inventory during the quarter. Speaker 200:05:26This is exactly the network effect we aimed for when consolidating our commercial and dealer marketplaces into Open Lane. As I mentioned last quarter, commercial off lease supply remains well below pre pandemic levels and will likely remain under pressure over the next several quarters given the low level of leases written in 2021 2022. However, we are seeing the off lease equity gap continuing to narrow. This results in a higher percentage of maturing off lease vehicles being returned by lessees and a lower percentage of those vehicles being purchased by the grounding dealer. To the extent that this trend continues, it will result in a higher percentage of off lease maturities entering the remarketing funnel and flowing deeper into the funnel, both of which are positive for Open Lane. Speaker 200:06:11Also, new vehicle sales continue to increase and the volume of new lease originations increased for the 5th straight quarter. Open end will be the primary and earliest beneficiary of these future volumes as those leases mature. And then finally, many of our commercial customers have expressed a desire to continue selling more and more of their inventory online. So we're leveraging our deep data insights and technology to design new programs that support this trend and a more digital future for our customers. Switching to dealer volumes, I'm equally optimistic about our opportunities for growth in this segment. Speaker 200:06:45There remains a large addressable market, particularly with dealers still using physical auctions or wholesalers. Our platform is faster, easier and more convenient. It has significantly lower cost of sale and generates better outcomes. And it provides buyers and sellers access to a national dealer base that we continue to expand. Similar to the Q1, total wholesale industry dealer volumes declined in the U. Speaker 200:07:09S. And to an even greater degree in Canada. Open Lane dealer volumes aligned with those trends. However, I was pleased to see that the year over year gap narrowed as the quarter progressed, and I'm optimistic for the second half of this year. Many of the market fundamentals that drive dealer volumes are also improving. Speaker 200:07:27New vehicle inventory is returning to pre pandemic levels, wholesale prices are declining and this is improving vehicle affordability for consumers. Those factors should contribute to increased trade ins and more used vehicle transactions, which would be very positive for Open Lane. So in summary, Open Lane is well positioned with both commercial and dealer customers. The market fundamentals are trending in our favor and there's growing evidence that having all of the buyers, all of the sellers and all of the cars all in one place creates a more active and vibrant marketplace. Shifting to the opportunities enabled by our asset light digital model. Speaker 200:08:04I also believe we're accelerating growth through our differentiated core technology and our deep pipeline of innovation. Let me give you a few examples. I'll start with vehicle inspections. Last quarter, we announced our Visual Boost AI technology that provides buyers access to an AI powered inspection visualization on every dealer vehicle listed in our marketplace. This quarter, we are enhancing our differentiated inspection capabilities with the release of CodeBoost IQ. Speaker 200:08:33CodeBoost IQ aggregates over 1,000,000 OBD2 scans that we've captured through our data rich service network and follows those codes through pre and post transaction. This allows us to accurately predict which codes indicate the highest probability of issues or repairs or which codes may lead to an arbitration. We did then simplify that intelligence into easy to understand alert banners at the top of each inspection report, which helps buyers make faster and better informed bidding and buying decisions. So between Visual Boost AI and CodeBoost IQ, we are providing comprehensive industry leading condition data on every dealer vehicle inside and out. Next, I'd also like to provide you with a brief update on our Absolute Sale feature in the U. Speaker 200:09:17S. Marketplace. As discussed on the last call, Absolute Sale allows sellers to easily indicate their commitment to selling a vehicle. It significantly increases buyer engagement, generates better price outcomes and increases the velocity of sale. Dealer adoption continues to grow and absolute sale represents a growing share of Openlands overall marketplace transactions in the United States. Speaker 200:09:39Building on that momentum, last week we launched automated absolute sale. This major enhancement allows sellers to set and forget absolute sale triggers right at the time of listing the vehicle and lets our technology do the rest and finalize the sale. Our absolute sales success metrics are improving week by week, and we look forward to sharing additional detail on this and our other emerging innovations over the months to come. And then finally, let me turn to our 3rd growth driver, improving the customer experience. During the quarter, we comprehensively remapped many of the customer journeys, identifying hundreds of customer touch points from awareness to registration to transaction and post sale activities. Speaker 200:10:20The opportunities identified are being prioritized and operationalized in the business. For example, with tens of thousands of dealer and off lease exclusive listings together on Open Lane, we are making it faster and easier for dealers to find the right cars for their lots. Through customer interviews, our own marketplace data and agile product development, we completely redesigned our marketplace search functionality during the Q2. And these new filters and capabilities are already receiving positive feedback from our customers. This is just one example from our broad portfolio of CX initiatives that I believe will help make Open Lane the most preferred platform for buyers and sellers. Speaker 200:10:59So together, our commercial and dealer segment positioning, our speed to innovation and our focus on the customer experience are differentiating Open Lane from our competition and driving meaningful scalable growth. In the Q2, our marketplace volume increased by 24,000 vehicles versus the prior year or 7% and this helped drive the meaningful marketplace adjusted EBITDA contribution. As I mentioned earlier, these results give me a lot of optimism and confidence in our future And with that confidence, we are doubling down on our strategy and our investments. During the quarter, we began executing a multi channel plan to further accelerate growth. We are funneling additional SG and A savings into technology investments across our platform, new products and features and greater ease of use for our customers. Speaker 200:11:44And because we know this remains a relationship business, we're also investing in our customer facing team. During the quarter, we made significant investments in staffing and resources, hiring new sales leaders into underserved markets and supplementing teams in existing markets where we see opportunity to gain share. We've already started to see some early wins in here in the Q3. Before I hand it over to Brad, I want to reinforce that Open Lane is gaining positive momentum. I believe we have only scratched the surface of what this company is capable of delivering and our key strengths in terms of our value proposition for investors and our ability to deliver stockholder value remain compelling. Speaker 200:12:22Open Lane is an asset light digital marketplace leader for wholesale used vehicles. There is a large addressable market in North America and Europe, and we're well positioned to capture the opportunities to grow both dealer and commercial volumes. Our brand and platform consolidation efforts are enabling us to accelerate innovation and product development. Our focus on operational efficiency, which I now believe to be part of the fabric and culture of this company, gives us the financial headroom to invest in innovation without sacrificing financial results. We are cash flow positive with a strong balance sheet. Speaker 200:12:55And we believe our business has the capability to generate meaningful earnings growth over the next several years. With that, I'll hand it over to Brad for a deeper discussion into our operational and financial metrics for the quarter. Brad? Speaker 300:13:08Thank you, Peter. We are certainly very pleased with our 2nd quarter results, especially the continued improvement in our marketplace segment. As usual, certain comments I make related to consolidated Open Lane and the Marketplace segment are on a net revenue basis, which excludes the impact of purchased vehicles. In addition, my comments will be on a second quarter year over year basis unless I state otherwise. Our consolidated revenue was $432,000,000 up 4% mainly driven by the 7% unit volume growth in our marketplace segment. Speaker 300:13:45In our results, you'll see our net revenue was down 1% as we continue to realize the impact from the transportation accounting change we made in the Q4 of last year. This change impacted net revenue by $21,000,000 in the quarter. Total cost of services was $246,000,000 up 10% and gross profit was $186,000,000 down 4%. Higher auction and service volumes as well as higher pricing were more than offset by a charge of $12,000,000 related to the newly enacted Canadian Digital Services Tax. Excluding this tax, gross profit would have been up approximately 2%. Speaker 300:14:29As further background, at the end of the quarter, the Canadian government implemented a 3% DST, which applies to digital based revenues. This became effective at the end of the second quarter and is applied retroactively to January 1, 2022. As a result of this new tax, we recorded a charge of $12,000,000 in the quarter. Of this $12,000,000 approximately $10,000,000 relates to 20222023 and approximately $2,000,000 relates to 2024. Assuming no changes to this legislation, including the scope of its application, we estimate the ongoing annual costs related to this tax will be $5,000,000 per year. Speaker 300:15:14However, we are planning to implement actions to mitigate this impact and therefore we do not expect a significant impact on future years earnings and cash flow. Consolidated SG and A in the quarter was $106,000,000 which was down 5%, reflecting the successful execution of our cost savings initiatives. The decline in SG and A was primarily a result of decreases in compensation and compensation related expenses. Our relatively flat SG and A for the last several quarters not only reflects the impact of our cost savings initiatives, but also illustrates the fixed cost nature of our SG and A. This is an important scalability feature of our asset light digital model. Speaker 300:16:02For the balance of 2024, we expect our SG and A spend to remain at similar levels. As you will note in our earnings release, adjusted EBITDA was $71,000,000 which was negatively impacted by the $2,000,000 current year portion of the DST charge. Turning to the Marketplace segment, revenue increased 5% to $336,000,000 Our total volumes were up 7%, primarily driven by our U. S. Business. Speaker 300:16:34Our dealer volumes declined primarily driven by our Canadian business for similar reasons discussed during our Q1 call. Auction fee revenue increased by 5%, driven primarily by the volume growth. Reported services revenue was down 6%, once again primarily due to the transportation accounting change mentioned in my earlier remarks and also highlighted in our last two calls. Excluding this accounting change, services revenue was up 9% driven by inspection, repossession and reconditioning services. This is the result of our ongoing focus to drive greater attachment of our services to our marketplace offering. Speaker 300:17:18Marketplace adjusted EBITDA was $33,000,000 and would be $35,000,000 excluding the impact of the $2,000,000 current year portion of the Canadian DST charge. This represents an increase of approximately 48% year over year when we exclude the impact of this tax item and the prior year $20,000,000 gain that arose from early contract termination. Marketplace SG and A was down 5% driven by the factors mentioned earlier. Once again, we are very pleased with the overall performance of our marketplace business. We are committed to prioritizing investment in our 1 marketplace solution, including key investments in industry leading product innovations and go to market initiatives. Speaker 300:18:06These investments will make wholesale easier for our customers, which enables us to capture volume growth and enhance the scalability of our margins. Turning to our finance segment, loan transaction units in the quarter were up 3%. Revenues for the quarter were down 2%, primarily driven by lower interest income resulting from lower vehicle values within the portfolio. These two factors were also the primary driver of our finance segment adjusted EBITDA result of $39,000,000 down 4%. The provision for credit losses was 2.1%, which was improved versus last quarter. Speaker 300:18:50As I've indicated previously, we are encouraged by ongoing improvements we are seeing in the severity of losses. This is the combined result of stabilizing fundamentals and our disciplined risk management actions. We expect the loan loss rate for the second half of the year to be in line with the first half of the year. To reiterate, we continue to target a long term loss rate of 1.5% to 2%. And overall, we remain pleased with AFC's financial performance and cash flow generation. Speaker 300:19:23Moving to the balance sheet and capital allocation. Consistent with prior quarters, we continue to generate strong cash flow. Year to date, we have generated $138,000,000 of cash flow from operations and our consolidated leverage stands at approximately 1x adjusted EBITDA. This level of cash generation demonstrates the value of our asset light digitally focused marketplace business working in combination with our leading floor plan finance business. Overall, our capital allocation priorities remain unchanged. Speaker 300:19:58We continue to prioritize the funding of organic investments, while ensuring flexibility for high return, complementary strategic opportunities and shareholder returns. At the end of the quarter, we continue to have $125,000,000 remaining on our share repurchase authorization. As discussed in the last call, we have a $210,000,000 senior note maturing in June of 2025, and we intend to use cash flow from operations along with our strong liquidity position to fund this maturity. Wrapping up on guidance, there's no change to our adjusted EBITDA guidance of $285,000,000 to $305,000,000 and no change to our operating adjusted EPS of $0.77 to $0.87 per share. We have updated our 2024 GAAP EPS and income from continuing operations guidance to reflect the impact of the Canadian DST discussed earlier. Speaker 300:20:59These updates are reflected in our earnings release issued earlier today. To summarize, we remain pleased with the business and financial performance. We generated $138,000,000 of cash flow from operations through 6 months. Our marketplace volumes grew 7%. Our marketplace adjusted EBITDA would have grown by approximately 48% if we exclude the current year DST charge and the prior year contract early termination gain discussed earlier. Speaker 300:21:32Our credit loss rate is gradually beginning to moderate. And finally, the actions we have taken to consolidate our digital marketplace offerings to unify our brand Open Lane and to successfully launch new product innovations gives us strong confidence in the future. With that, I will turn the call over to the operator for questions. Operator00:21:54Thank you. We will now begin the question and answer session. And the first question will come from Craig Kennison with Baird. Please go ahead. Speaker 400:22:27Hey, good afternoon. Thanks for taking my questions. I wanted to start with the dealer volume. If I add the CDK volume that you mentioned, 6,000 units, it looks like that business would have been closer to flat. Is that keeping pace with your digital competitors in that market and the broader wholesale dealer channel? Speaker 200:22:54Yes. Thanks, Craig. Appreciate the question. So as I mentioned, dealer volumes were down in the quarter, but most of that was Canada. So if you first of all, I'd say the 6,000 units wasn't all dealer, it was a mix of commercial and dealer. Speaker 200:23:08So I would assume a similar mix to our sales overall because volumes on the commercial side were also impacted by dealers that couldn't turn in cars and couldn't purchase cars. So maybe a fifty-fifty split on that volume. If we look at the decline, the decline was principally in Canada. We obviously check other sources to see what volumes are. Our understanding based on the data I'm looking at is that dealer volumes dealer volumes at physical auction in the United States were down in the 1st and second quarters of the year. Speaker 200:23:42And that in comparison, our volumes slightly outperformed the physical auction volumes. So I don't think it's a loss of share. I think we had a slight gain of share even though our volumes in the quarter were down. But you're right, Craig, CDK had an impact, a small impact. And then I mentioned in the quarter, we saw an improving trend as the quarter went on. Speaker 200:24:02So I feel more optimistic about the trend line in the second half of the year that this will be back in sort of year over year growth territory. So anyway, we will watch and see that. I guess beyond that, Craig, I'll say, we obviously spend a lot of time talking to our dealer customers. I'm very pleased by the feedback we're getting from our selling their cars quickly, selling their cars at excellent price outcomes. You'll see our GMV in the quarter was up 6%. Speaker 200:24:34So values are strong in our marketplaces as well. And obviously, having a strong differentiated offering in the marketplace. So I'm very pleased by the feedback we're getting from our customers. And this is an area we're very focused on investing into. And again, I mentioned in my remarks how we have put some increased go to market resources in the field late in the second quarter, feeling good about that. Speaker 200:25:01We're already seeing some traction there too. Speaker 400:25:04Thanks, Peter. And then, I mean, you have a good message with some of the technology innovations. I'm curious if you feel like you're getting that message out to dealers or if you need to target more marketing dollars to that effort so they see what you're doing with Visual Boost or Code Boost? IQ? Speaker 200:25:25Yes, good question. I think, Craig, I think there is sometimes I think we're sort of misunderstood in terms of So that is something So that is something we are investing in. When we roll out these launches, we're training our sales team. We're obviously preparing the go to market materials to support this. And if you spend any time on openlane.com, you'll see a bunch of dealer testimonials that speak to the power of these offerings and what they do for those dealers. Speaker 200:25:57So it's an area we're focused on. You may have seen we ran a dealer appreciation event in the month of July, a DealerFest. And again, that was kind of our way of saying thank you to our customers, appreciation of their business, but also educate them on some of the great new things that we brought to market over the last 6 months that we plan to bring to market between now and the end of the year. So it's an area we're very focused on. And I think it's going to be an area of increasing strength for our business, Craig, as we consolidate platforms, speed innovation, etcetera. Speaker 200:26:28I think you'll see more to come from us in this dimension. Speaker 500:26:33Great. Thank you. Speaker 200:26:35Thanks, Craig. Operator00:26:37The next question will come from Bob Labick with CJS Securities. Please go ahead. Speaker 600:26:44Good afternoon. Thanks for taking our questions. Speaker 200:26:46Hi, Bob. Hi, Bob. Speaker 600:26:48Hi. I wanted to start on the off lease side. And Peter, you alluded to this in your remarks, but maybe I was hoping you go a little deeper. Could you give us a sense of the mix of off lease right now in terms of where it's going in term owner retained, dealer retained, closed open auction? And really, just where are we in the kind of normalization process? Speaker 600:27:12And how do you see it progressing? Speaker 200:27:15Yes, great. Good question, Bob. Thanks. Thank you for that. First of all, I'm very pleased with commercial volume growth. Speaker 200:27:20I don't know if I spoke to it directly, but our commercial volumes were up 21% in the quarter on a year on year basis. So again, I think that's very strong volume trends there on commercial. I feel good about that. I believe that's now 5 consecutive quarters of commercial volume growth. So I think clearly indicates we've come off the bottom and commercial volume growth have been a source of strength here over the past 5 quarters or more. Speaker 200:27:44So in terms of what we're seeing, we're seeing a higher percentage of off lease vehicles, a higher percentage of the portfolio that's maturing being returned. So a lower percentage being purchased by the consumer, okay. So that equity gap, the extent to which these off lease vehicles are in equity at the end of the lease, that is declining, although it's been a slow decline, Bob, but it's a continued erosion of that. And as that erodes, I think 2 things happen. 1, the consumer fewer consumers buy out their lease, so more of them get returned. Speaker 200:28:19That's positive for us. And secondly, fewer grounding dealers purchase the vehicles because a lot of these grounding dealers have the same sort of equity opportunity that the consumer has. So that percentage declines and these cars then flow deeper into our funnel. So we're seeing that continue to play out. It's fairly gradual, I'd say, over the last few quarters, but it continues. Speaker 200:28:43A number of customers are predicting that it could accelerate in the coming quarters based on residual values in their portfolio, etcetera. But I think I'm taking a wait and see approach to see how that trends. But it's something that gives me confidence that even though there's fewer off lease maturities at the top of the funnel, our commercial volumes will that decline will be offset by an increased percentage of those vehicles that get returned. And I think our business will continue to perform through the period. So that's the expectation. Speaker 200:29:16We obviously have to take each month as it comes. But so far, we're now in that period where there's lower off lease maturities, but we're still seeing year on year commercial volume growth. So I feel good about that. Speaker 600:29:29Okay, super. Very helpful color. And then just, I mean, you talked about the Canadian dealer market a little bit before. I think, is it back in December you made an acquisition of Manheim Canada? Can you talk about the progress on that integration? Speaker 600:29:42I thought there was potentially an opportunity for a sale of a facility or something like that. I don't know if that's still in the works or how that integration is progressing? Speaker 200:29:52Yes, of course. Before I go there, let me just add one more comment on your last question, which I think is really important. We're also seeing significant increases in new vehicle lease originations. I know I've talked about that on prior calls, but lease originations dropped in 2021 and 2002, but they've been increasing in 20 2024, I think 5 consecutive quarters of lease origination increases. That again is very positive. Speaker 200:30:18Again, we're going to have to look out maybe another 18 months till that starts to really flow through our business, but that will be very positive for us and very confident of that. So going to Canada, very pleased with the acquisition. So we've made the acquisition. We've consolidated the operations in all 5 metro areas. So in the City of Toronto, for example, there had been 2 auction properties, 1 owned by us, 1 owned by our competitor. Speaker 200:30:46Now that volume is consolidated into 1. So we're getting greater scalability, greater leverage out of these facilities. We're still running the auctions digitally for the most part in Canada. Customer retention has been strong, particularly strong on the commercial side. So we had very good customer retention through the acquisition. Speaker 200:31:08And we're seeing, obviously, in addition to that sort of retention of acquired customers, we're seeing some organic growth in commercial volumes in Canada as well. So overall, it's, I think, a good story. We've had some challenges, as I've mentioned, on the dealer side in Canada. Again, that improved over the course of the second quarter. I feel like we're entering the second half of the year much better positioned than we were in January. Speaker 200:31:33So I'm optimistic for a more positive trend line on the dealer side in Canada as well in the second half. Speaker 300:31:40Yes. And Bob, this is Brad here. Just to address the second part of your question regarding the real estate. We do continue to have an opportunity there to monetize some real estate that we acquired as part of the transaction and it's really harmonizing our real estate play in a key market. And we have an active project underway to do that. Speaker 300:32:02Difficult for me to be able to provide any specifics on the timing and the amount of that, just given the process and where we're at in it, but it is an active project for us. Speaker 600:32:16Okay, super. Thanks so much. Speaker 200:32:18Thank you, Bob. Operator00:32:20Your next question will come from John Murphy with Bank of America. Please go ahead. Speaker 500:32:25Good afternoon, guys. This is Billy Healy on for John. Speaker 200:32:29Hey, Billy. Speaker 500:32:32So thanks for taking the questions. I just want to ask again a little bit more on the supply dynamic in the market right now. At least the dealers we talked to are still calling out a challenge sourcing environment for used vehicles. I mean you guys were doing well in volumes up 7%, another large player is up 33% year over year. So would you chalk this up to market share gains or you see more vehicles flowing into the auction channel or how do you think about that? Speaker 200:33:02Well, Billy, good question. Even though volumes have been strong, I do agree that volumes in the industry are still below pre pandemic levels or below what I would consider to be normal for industry. And I think that's part of our growth equation as those volumes return towards normal. I guess, when I look at that, divide the industry roughly into dealer and commercial from a supply standpoint, Dealer volumes, I'd say are still below normal, but not massively below normal, maybe 15%, 20% below normal would be how I characterize it. I think those volumes will improve as the extent dealers have more vehicles on their lot, more new and used vehicle inventory. Speaker 200:33:42We've seen those trends generally heading upwards over the last 12 months. To the extent the consumer affordability problem improves, I think that will increase vehicle trade ins and wholesale volumes on the dealer side as well. So there's some positive opportunities there. I would expect them to sort of readjust gradually. Billy, it'd be my view on that. Speaker 200:34:03On the commercial side, it's a bit of a mixed bag. Repo volumes are quite strong relative to pre pandemic. That's not a huge segment for us. What is a big segment for us is off lease. And as I've said on prior calls, off lease volumes are still about 50% below pre pandemic level. Speaker 200:34:19So I do see significant opportunity for commercial volume growth on the off lease segment. I do think we'll be really well positioned there. But again, Billy, as I've been very clear about in prior calls, we should be modest in our expectations over the next 18 months for when we look at the cycle, the 3 year cycle of a leased vehicle. I think I've been very open on that. But I do then see again, I think those volumes will be quite strong for us. Speaker 200:34:47And then I see acceleration coming after the end of 2025 and in the years to follow after that. Speaker 500:34:55Okay, super helpful. And then just one more on the margins for the marketplace segment in the quarter. I mean, I know there's a lot of noise going on with the accounting change and tax in Canada and maybe some impact from CDK. But can you just talk to maybe your expectations on the trend going to the back half of the year? Because I mean, if just looking at the numbers down a bit sequentially and year over year on the gross margin ex purchased vehicles. Speaker 500:35:22So I want to get your thoughts on the back half of the year. Speaker 300:35:26Yes, Billy, Brad here. Thanks for the question. I think just to provide some added clarity on our margins in the quarter, certainly when you look at the gross profit margin in the quarter that reflects the full impact of the $12,000,000 charge that I highlighted in our early remarks. So, would want to just highlight that to you. I think if you normalize for that, we would see fairly consistent margin performance, especially in the marketplace business sequentially and really kind of looking back over the last few quarters. Speaker 300:36:05So highlight that. On an adjusted EBITDA margin basis, you'll see in our adjusted EBITDA reconciliation that we did adjust out the out of period component of the $12,000,000 charge, which was 10,000,000 dollars So if you look at our adjusted EBITDA margins and then adjust for that smaller amount of $2,000,000 in the current period, you would see that our margins again on an adjusted EBITDA basis are fairly consistent sequentially. And then as you know, you highlighted it yourselves, we have this impact to transportation revenue. And so the comparability there, that item in particular does give us a little bit of favorability in terms of our margin, but not is not a significant driver of the ongoing improvements that we're delivering. Speaker 500:36:59Great. Thanks. Super helpful. Speaker 700:37:01Thank you, Billy. Operator00:37:07Our next question will come from Bret Jordan with Jefferies. Please go ahead. Speaker 700:37:11Hey, good morning. Good afternoon, guys. Speaker 200:37:14Hey, Brett. Good afternoon. Speaker 700:37:16On the market share question, I think you said you're outperforming the physical auction volume. I guess, if you looked at all auction channels and looked at market share, are you and obviously there are lots of cars traded in various places. Are you outperforming the broader market? Or are you Speaker 300:37:35performing the physical? Speaker 200:37:40I would say our market share, Brett, over the past period has been fairly steady. There's a little bit of ebb and flow in some quarters. We've seen strong growth on commercial, our dealer volumes have been more flattish over the past say 12 month period. So but again, I think that's against the backdrop of a commercial off lease volume environment that has been challenged, and I think that's particularly impactful on us. So I feel good about our market share. Speaker 200:38:11We have you have to kind of look at it in the dealer category and then in the commercial category and then in aggregate because the mix shift can flex from 1 quarter to another or one period to another. So I think we're I would say, we've held our market share. It might be slightly up over the period. If we look at it in aggregate and then we look at it in commercial and dealer, I also feel pretty good about where we stand. Speaker 700:38:37Okay. And then within AFC, is your borrower is your customer base changed at all? Are you taking out some of the lower credit customers? And I guess if you sort of thought about the number of active clients at AFC right now, has that changed much year over year? Speaker 300:38:54Yes. Hey, Brett here. Thanks for the question. So I would say just a couple of things here. We have been intentional around our risk management processes here and been pretty diligent, particularly over the last 12 to 18 months around the customer portfolio. Speaker 300:39:11So there's been some proactive takeout of customers that were flagging risk for us. So that and that's ordinary, but I would say certainly in the last 12 to 18 months, it's been more of a priority for us. In this business, in the independent floor planning financing business, there is some normal churn. So there are normal churn. But as we've demonstrated historically, we're able to maintain a pretty consistent base of customers with that churn. Speaker 300:39:42So as we lose some, we gain some and on the net we're able to grow unit volumes over time. So that's just my comments there. But I would say this business continues to perform very, very well. Obviously, our credit loss rates have been a little bit higher than where we would like them to be on a target basis, but we feel our relative performance there based on what we know are some of our peers in this space and their performance, our relative performance there is very strong. The margin structure of this business not only from a fee basis, but also from a net interest margin perspective and the returns that yields is very, very attractive and like this business. Speaker 700:40:24A quick housekeeping question. You also commented you increase your go to market resources late in Q2. Is that something that is obviously you've maintained your guide. Is there any timing that that expense is going to generate a return later in the year? Or is it just not that significant? Speaker 200:40:42Yes, I guess, Brett, I'd say, 1st of all, it's not that significant in the context of overall SG and A structure. So I'd say it's more on the margin. But obviously, the business case associated with these investments is, yes, you increase some staffing and you expect to see volume impacts to happen in fairly near term, but not immediately. So yes, we've got a business case that envisions some incremental volume here in the second half of the year and continuing into 2025. Some of the investments also are in technology and product development. Speaker 200:41:17Those probably have a little bit of a longer lead time, but not massively. And again, I would characterize that as we feel really good about the offering we have. We feel really good about the feedback we're getting from our dealers, many of whom are very sophisticated, do a lot of analysis on how we're performing versus other channels. And there's an opportunity here to sort of increase share in certain markets where frankly we don't have a presence in terms of a sales person or in certain markets where we've got more opportunities than the person on the ground can reasonably handle. So it's a situation like that. Speaker 700:41:55Okay, great. Thank you. Operator00:41:59The next question will come from Rajat Gupta with JPMorgan. Please go ahead. Speaker 800:42:05Great. Thanks for taking the questions. Apologies, I joined the call a little late. I was curious like if you commented around your U. S. Speaker 800:42:14D2D growth and what your share gains were in the quarter? And I have a couple of very quick follow ups. Speaker 200:42:25Yes, Rajat. Well, we commented that the story was similar to Q1 in so far as there were some declines in total dealer volume, but most of those were located in our Canadian business. Our U. S. Volumes were stronger in relative terms based on the information we have, our U. Speaker 200:42:43S. Volume growth in dealer was stronger than U. S. Volume growth at physical auction. Actually, it was a decline at physical auction, I believe, over the first half of the year. Speaker 200:42:53So yes, so I think our U. S. Dealer to dealer trends are stronger than the overall aggregate trends that we talked about. A couple of other things worth mentioning, commercial volume growth of 21% in the quarter, similar to Q1, when you have strong commercial volume growth, there is a little bit of, I suppose, cannibalization on the buy side where a buyer might previously might have bought dealer cars switches over and buys a commercial vehicle and that's just part of the normal network effect in our business. So I think that's to be understood. Speaker 200:43:29I guess the other thing I said, Rajat, is we saw an improving trend over the course of the quarter, both in U. S. And Canada. So to the extent there were declines, we saw those declines sort of diminish as the quarter went on and I feel good about the trend line that's set up for the second half of the year. Speaker 800:43:47Got it. And we saw we noticed like one of our competitors like wage prices on the dividend side in the month of June. I was curious, did you follow through with that or you're going to be a little more cautious about that and maybe use that as an opportunity to take some share? Just curious around the thought process around that. Thanks. Speaker 200:44:10Yes. Thanks, Rajat. We noticed the same thing. Obviously, pricing is something we keep under review just at all times in our business, in all the marketplaces, commercial and dealer. So that's something we observed and something we will react to appropriately. Speaker 200:44:27I guess what I'd say to this, first of all, listen, our dealer to dealer business is an important part of our offering. It is profitable, significantly more profitable than it was 2 years ago. So I feel really good about that. I believe we've got a very efficient marketplace by which I mean the cost to put a vehicle through our marketplace, I believe is lower than the cost to put vehicle through a physical auction and probably lower than the cost to put it through some competing channels. So I think we've got a very efficient marketplace and that has enabled us to have attractive pricing in the market, a growing business and a profitable business. Speaker 200:45:03So listen, we're going to keep that under review. It's something we're actively looking at. We also had in Canada, the digital services tax that Brad alluded to, Brad spoke about. So that's a function in Canada that we obviously need to find a way to address as well. So looking at pricing in that regard as well. Speaker 200:45:21So, Rajat, I don't have anything to say on this particular call in terms of timing, but these are things we look at all the time. Speaker 800:45:29Understood. Just one last one on the CDK outage and the experience that the dealers went through with this. You're obviously very much integrated with your dealer network. There are systems in a way getting deeper and deeper in terms of partnerships. I was curious, does this experience open up an opportunity for you to maybe participate more in those kind of systems and products, given you already have the platform and you're already like well connected. Speaker 800:46:02So I was just curious about how you think about that opportunity. Thanks. Speaker 200:46:06Yes. Thanks, Rajat. First of all, I want to be very clear, our information systems are not in any way compromised in the quarter. The volume impact was sort of a knock on impact. Our dealers' operations were impacted by the outage. Speaker 200:46:20That meant they couldn't take trade ins and they couldn't wholesale cars and that sort of by implication impacted our volumes late in the second quarter. But our systems are robust and were unaffected through the whole process. Listen, Rajat, it brings it home that information security is really important. I feel really good about what we've got. Our systems are a little different. Speaker 200:46:43We don't we're not as sort of tied into the core operations of the dealership like a dealer management system is. But we have opportunities as part of our product innovation is to make the wholesale process easy for dealers. So as part of that, we are expanding our product offering beyond just the purchase and sale of a vehicle, but helping dealers with pricing guidance and vehicle stocking decisions and things like that, both in U. S. And Canada. Speaker 200:47:14So we've got some exciting initiatives in the works. I think we'll have more to talk about in future calls as we bring these products to market. You're welcome. Operator00:47:30This concludes our question and answer session. I would like to turn the conference back over to Mr. Peter Kelly for any closing remarks. Please go ahead. Speaker 200:47:40Thank you very much. Listen, I'd just like to reinforce a few key themes that support my optimism for Open Lane's future. As I mentioned earlier, our performance in the first half of this year clearly demonstrates the power of our offering and the strong scalability characteristics of our company. We're leaning into that strategy and our investments to further accelerate the growth that we're already seeing. AFC continues to be a strategic asset, delivering meaningful adjusted EBITDA and enabling the open lane marketplace more than ever before. Speaker 200:48:08Our marketplace business is profitable and growing, and we're well positioned to capture the opportunities inherent in the improving industry fundamentals. We remain the clear leader in commercial off lease remarketing and are best positioned to benefit from the current leasing recovery. And we're investing in our dealer business to accelerate our innovation pipeline, grow our volumes and our market share and continue delivering the profitable growth that you're seeing. When viewed together, I think the combination of these factors provides a very compelling vision for Openlands' future. Thank you all for joining us on today's call. Speaker 200:48:40I look forward to speaking to you all again soon.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallOPENLANE Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) 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.comGold Hits New Highs as Global Markets SpiralWhen Trump took office in 2017, gold was just $1,100 an ounce. By the time he left, it had soared to $1,839. Now… as new tariffs take effect, gold is breaking records again. You've hopefully already seen this in action… but gold is surpassing $3,000 per ounce for the first time EVER.May 7, 2025 | Premier Gold Co (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 9 speakers on the call. Operator00:00:00Good day, and welcome to the OpenLane Second Quarter 20 24 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Operator00:00:28Itanu O'Gallaru, Head of Investor Relations. Please go ahead, ma'am. Speaker 100:00:33Good afternoon, everyone. Welcome to Open Lane's Q2 2024 Earnings Call. With me today are Peter Kelly, CEO of Open Lane and Bradley Kia, EVP and CFO of Open Lane. Our remarks today include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve risks and uncertainties that may cause our actual results or performance to differ materially from such statements. Speaker 100:01:06Factors that could cause such differences include those discussed in our press release issued today and in our SEC filings. Certain non GAAP financial measures as defined under the SEC rules will be discussed on our call. Reconciliations of GAAP to non GAAP measures are provided in our earnings materials and available in the Investor Relations section of our website. With that, I'll turn the call over to Peter. Peter? Speaker 200:01:34Thank you, Atunu, and good afternoon, everyone. Before I get started, I just wanted to formally welcome Atunu to the role of Head of Investor Relations for Open Lane. We're delighted to have Atunu and her deep financial expertise on the team, and Anoche is looking forward to working with all of you as we communicate our results, our strategy and the Open Lane story. Turning to our results. Open Lane's continued focus on execution and profitable growth led to positive results in the 2nd quarter. Speaker 200:02:01We grew our volumes and on a consolidated basis we grew revenue and delivered $71,000,000 of adjusted EBITDA, which was negatively impacted by a $2,000,000 charge for the newly enacted Canada Digital Services Tax or DST, which Brad will discuss in more detail later. Year to date, we have also generated $138,000,000 in cash flow from operations. Similar to Q1, I'm very pleased that these results reflect a significantly improved performance in the open lane marketplace. On 7% volume growth, the marketplace business contributed $33,000,000 in adjusted EBITDA, which includes the $2,000,000 DST charge and represents 46% of Open Lane's total adjusted EBITDA. AFC was again a strong contributor, growing loan unit volumes and generating approximately $39,000,000 of adjusted EBITDA in the 2nd quarter. Speaker 200:02:54I believe the consistent track record of performance we delivered in the first half of twenty twenty four clearly demonstrates the power of our differentiated offering and the strong scalability characteristics of our company. We are accelerating innovation, improving the customer experience and making wholesale easy for our customers. The combination of these factors positions us very well to continue gaining share and deliver even stronger financial results in the future. So let me turn to our strategy and how we plan to build on this positive momentum. Open Lane remains highly focused on growth. Speaker 200:03:26We are a leaner, more agile company than ever before, and I believe this enables us to grow our volumes, our market share and financial results simultaneously. As I previously said, our strategy for growth is anchored in our purpose to make wholesale easy so our customers can be more successful. And guided by our vision to build the world's greatest digital marketplace for used vehicles. Our pursuit of these goals and Open Lane's acceleration of profitable growth is enabled by 3 core strategic advantages. 1st, our expanding volume and share in both the commercial and dealer segments. Speaker 200:04:012nd, the opportunities enabled by our asset light digital model. And third, our focus on the customer experience. Let me address each of these individually, and I'll start with volume growth and share. In the Q2, Open Lane grew its marketplace volumes by 7%, despite headwinds from the CDK ransomware attack that negatively impacted our volumes in the quarter by approximately 6,000 vehicles and without which our year on year volume growth would have been approximately 9%. We also increased our gross merchandise value by 6% to nearly $7,000,000,000 This marks the 5th consecutive quarter with year on year growth in the Marketplace segment. Speaker 200:04:41Similar to the Q1, this volume growth was again driven primarily by our U. S. Marketplace. Our Open Lane branded marketplace has been live for just over a year in Canada and approximately 8 months in the U. S. Speaker 200:04:53And Europe. The positive feedback we continue to receive and the results we are delivering in the months since that launch give me increased confidence in the strength of our platform. And that confidence is fueling increased investments in both technology and people that I will discuss later in my remarks. In terms of commercial off lease volumes, Open Lane remains a clear market leader, and our commercial and off lease volumes were up meaningfully in both the United States Canada during the quarter. We increased commercial vehicles offered for sale and also unique buyers who purchased that off lease inventory during the quarter. Speaker 200:05:26This is exactly the network effect we aimed for when consolidating our commercial and dealer marketplaces into Open Lane. As I mentioned last quarter, commercial off lease supply remains well below pre pandemic levels and will likely remain under pressure over the next several quarters given the low level of leases written in 2021 2022. However, we are seeing the off lease equity gap continuing to narrow. This results in a higher percentage of maturing off lease vehicles being returned by lessees and a lower percentage of those vehicles being purchased by the grounding dealer. To the extent that this trend continues, it will result in a higher percentage of off lease maturities entering the remarketing funnel and flowing deeper into the funnel, both of which are positive for Open Lane. Speaker 200:06:11Also, new vehicle sales continue to increase and the volume of new lease originations increased for the 5th straight quarter. Open end will be the primary and earliest beneficiary of these future volumes as those leases mature. And then finally, many of our commercial customers have expressed a desire to continue selling more and more of their inventory online. So we're leveraging our deep data insights and technology to design new programs that support this trend and a more digital future for our customers. Switching to dealer volumes, I'm equally optimistic about our opportunities for growth in this segment. Speaker 200:06:45There remains a large addressable market, particularly with dealers still using physical auctions or wholesalers. Our platform is faster, easier and more convenient. It has significantly lower cost of sale and generates better outcomes. And it provides buyers and sellers access to a national dealer base that we continue to expand. Similar to the Q1, total wholesale industry dealer volumes declined in the U. Speaker 200:07:09S. And to an even greater degree in Canada. Open Lane dealer volumes aligned with those trends. However, I was pleased to see that the year over year gap narrowed as the quarter progressed, and I'm optimistic for the second half of this year. Many of the market fundamentals that drive dealer volumes are also improving. Speaker 200:07:27New vehicle inventory is returning to pre pandemic levels, wholesale prices are declining and this is improving vehicle affordability for consumers. Those factors should contribute to increased trade ins and more used vehicle transactions, which would be very positive for Open Lane. So in summary, Open Lane is well positioned with both commercial and dealer customers. The market fundamentals are trending in our favor and there's growing evidence that having all of the buyers, all of the sellers and all of the cars all in one place creates a more active and vibrant marketplace. Shifting to the opportunities enabled by our asset light digital model. Speaker 200:08:04I also believe we're accelerating growth through our differentiated core technology and our deep pipeline of innovation. Let me give you a few examples. I'll start with vehicle inspections. Last quarter, we announced our Visual Boost AI technology that provides buyers access to an AI powered inspection visualization on every dealer vehicle listed in our marketplace. This quarter, we are enhancing our differentiated inspection capabilities with the release of CodeBoost IQ. Speaker 200:08:33CodeBoost IQ aggregates over 1,000,000 OBD2 scans that we've captured through our data rich service network and follows those codes through pre and post transaction. This allows us to accurately predict which codes indicate the highest probability of issues or repairs or which codes may lead to an arbitration. We did then simplify that intelligence into easy to understand alert banners at the top of each inspection report, which helps buyers make faster and better informed bidding and buying decisions. So between Visual Boost AI and CodeBoost IQ, we are providing comprehensive industry leading condition data on every dealer vehicle inside and out. Next, I'd also like to provide you with a brief update on our Absolute Sale feature in the U. Speaker 200:09:17S. Marketplace. As discussed on the last call, Absolute Sale allows sellers to easily indicate their commitment to selling a vehicle. It significantly increases buyer engagement, generates better price outcomes and increases the velocity of sale. Dealer adoption continues to grow and absolute sale represents a growing share of Openlands overall marketplace transactions in the United States. Speaker 200:09:39Building on that momentum, last week we launched automated absolute sale. This major enhancement allows sellers to set and forget absolute sale triggers right at the time of listing the vehicle and lets our technology do the rest and finalize the sale. Our absolute sales success metrics are improving week by week, and we look forward to sharing additional detail on this and our other emerging innovations over the months to come. And then finally, let me turn to our 3rd growth driver, improving the customer experience. During the quarter, we comprehensively remapped many of the customer journeys, identifying hundreds of customer touch points from awareness to registration to transaction and post sale activities. Speaker 200:10:20The opportunities identified are being prioritized and operationalized in the business. For example, with tens of thousands of dealer and off lease exclusive listings together on Open Lane, we are making it faster and easier for dealers to find the right cars for their lots. Through customer interviews, our own marketplace data and agile product development, we completely redesigned our marketplace search functionality during the Q2. And these new filters and capabilities are already receiving positive feedback from our customers. This is just one example from our broad portfolio of CX initiatives that I believe will help make Open Lane the most preferred platform for buyers and sellers. Speaker 200:10:59So together, our commercial and dealer segment positioning, our speed to innovation and our focus on the customer experience are differentiating Open Lane from our competition and driving meaningful scalable growth. In the Q2, our marketplace volume increased by 24,000 vehicles versus the prior year or 7% and this helped drive the meaningful marketplace adjusted EBITDA contribution. As I mentioned earlier, these results give me a lot of optimism and confidence in our future And with that confidence, we are doubling down on our strategy and our investments. During the quarter, we began executing a multi channel plan to further accelerate growth. We are funneling additional SG and A savings into technology investments across our platform, new products and features and greater ease of use for our customers. Speaker 200:11:44And because we know this remains a relationship business, we're also investing in our customer facing team. During the quarter, we made significant investments in staffing and resources, hiring new sales leaders into underserved markets and supplementing teams in existing markets where we see opportunity to gain share. We've already started to see some early wins in here in the Q3. Before I hand it over to Brad, I want to reinforce that Open Lane is gaining positive momentum. I believe we have only scratched the surface of what this company is capable of delivering and our key strengths in terms of our value proposition for investors and our ability to deliver stockholder value remain compelling. Speaker 200:12:22Open Lane is an asset light digital marketplace leader for wholesale used vehicles. There is a large addressable market in North America and Europe, and we're well positioned to capture the opportunities to grow both dealer and commercial volumes. Our brand and platform consolidation efforts are enabling us to accelerate innovation and product development. Our focus on operational efficiency, which I now believe to be part of the fabric and culture of this company, gives us the financial headroom to invest in innovation without sacrificing financial results. We are cash flow positive with a strong balance sheet. Speaker 200:12:55And we believe our business has the capability to generate meaningful earnings growth over the next several years. With that, I'll hand it over to Brad for a deeper discussion into our operational and financial metrics for the quarter. Brad? Speaker 300:13:08Thank you, Peter. We are certainly very pleased with our 2nd quarter results, especially the continued improvement in our marketplace segment. As usual, certain comments I make related to consolidated Open Lane and the Marketplace segment are on a net revenue basis, which excludes the impact of purchased vehicles. In addition, my comments will be on a second quarter year over year basis unless I state otherwise. Our consolidated revenue was $432,000,000 up 4% mainly driven by the 7% unit volume growth in our marketplace segment. Speaker 300:13:45In our results, you'll see our net revenue was down 1% as we continue to realize the impact from the transportation accounting change we made in the Q4 of last year. This change impacted net revenue by $21,000,000 in the quarter. Total cost of services was $246,000,000 up 10% and gross profit was $186,000,000 down 4%. Higher auction and service volumes as well as higher pricing were more than offset by a charge of $12,000,000 related to the newly enacted Canadian Digital Services Tax. Excluding this tax, gross profit would have been up approximately 2%. Speaker 300:14:29As further background, at the end of the quarter, the Canadian government implemented a 3% DST, which applies to digital based revenues. This became effective at the end of the second quarter and is applied retroactively to January 1, 2022. As a result of this new tax, we recorded a charge of $12,000,000 in the quarter. Of this $12,000,000 approximately $10,000,000 relates to 20222023 and approximately $2,000,000 relates to 2024. Assuming no changes to this legislation, including the scope of its application, we estimate the ongoing annual costs related to this tax will be $5,000,000 per year. Speaker 300:15:14However, we are planning to implement actions to mitigate this impact and therefore we do not expect a significant impact on future years earnings and cash flow. Consolidated SG and A in the quarter was $106,000,000 which was down 5%, reflecting the successful execution of our cost savings initiatives. The decline in SG and A was primarily a result of decreases in compensation and compensation related expenses. Our relatively flat SG and A for the last several quarters not only reflects the impact of our cost savings initiatives, but also illustrates the fixed cost nature of our SG and A. This is an important scalability feature of our asset light digital model. Speaker 300:16:02For the balance of 2024, we expect our SG and A spend to remain at similar levels. As you will note in our earnings release, adjusted EBITDA was $71,000,000 which was negatively impacted by the $2,000,000 current year portion of the DST charge. Turning to the Marketplace segment, revenue increased 5% to $336,000,000 Our total volumes were up 7%, primarily driven by our U. S. Business. Speaker 300:16:34Our dealer volumes declined primarily driven by our Canadian business for similar reasons discussed during our Q1 call. Auction fee revenue increased by 5%, driven primarily by the volume growth. Reported services revenue was down 6%, once again primarily due to the transportation accounting change mentioned in my earlier remarks and also highlighted in our last two calls. Excluding this accounting change, services revenue was up 9% driven by inspection, repossession and reconditioning services. This is the result of our ongoing focus to drive greater attachment of our services to our marketplace offering. Speaker 300:17:18Marketplace adjusted EBITDA was $33,000,000 and would be $35,000,000 excluding the impact of the $2,000,000 current year portion of the Canadian DST charge. This represents an increase of approximately 48% year over year when we exclude the impact of this tax item and the prior year $20,000,000 gain that arose from early contract termination. Marketplace SG and A was down 5% driven by the factors mentioned earlier. Once again, we are very pleased with the overall performance of our marketplace business. We are committed to prioritizing investment in our 1 marketplace solution, including key investments in industry leading product innovations and go to market initiatives. Speaker 300:18:06These investments will make wholesale easier for our customers, which enables us to capture volume growth and enhance the scalability of our margins. Turning to our finance segment, loan transaction units in the quarter were up 3%. Revenues for the quarter were down 2%, primarily driven by lower interest income resulting from lower vehicle values within the portfolio. These two factors were also the primary driver of our finance segment adjusted EBITDA result of $39,000,000 down 4%. The provision for credit losses was 2.1%, which was improved versus last quarter. Speaker 300:18:50As I've indicated previously, we are encouraged by ongoing improvements we are seeing in the severity of losses. This is the combined result of stabilizing fundamentals and our disciplined risk management actions. We expect the loan loss rate for the second half of the year to be in line with the first half of the year. To reiterate, we continue to target a long term loss rate of 1.5% to 2%. And overall, we remain pleased with AFC's financial performance and cash flow generation. Speaker 300:19:23Moving to the balance sheet and capital allocation. Consistent with prior quarters, we continue to generate strong cash flow. Year to date, we have generated $138,000,000 of cash flow from operations and our consolidated leverage stands at approximately 1x adjusted EBITDA. This level of cash generation demonstrates the value of our asset light digitally focused marketplace business working in combination with our leading floor plan finance business. Overall, our capital allocation priorities remain unchanged. Speaker 300:19:58We continue to prioritize the funding of organic investments, while ensuring flexibility for high return, complementary strategic opportunities and shareholder returns. At the end of the quarter, we continue to have $125,000,000 remaining on our share repurchase authorization. As discussed in the last call, we have a $210,000,000 senior note maturing in June of 2025, and we intend to use cash flow from operations along with our strong liquidity position to fund this maturity. Wrapping up on guidance, there's no change to our adjusted EBITDA guidance of $285,000,000 to $305,000,000 and no change to our operating adjusted EPS of $0.77 to $0.87 per share. We have updated our 2024 GAAP EPS and income from continuing operations guidance to reflect the impact of the Canadian DST discussed earlier. Speaker 300:20:59These updates are reflected in our earnings release issued earlier today. To summarize, we remain pleased with the business and financial performance. We generated $138,000,000 of cash flow from operations through 6 months. Our marketplace volumes grew 7%. Our marketplace adjusted EBITDA would have grown by approximately 48% if we exclude the current year DST charge and the prior year contract early termination gain discussed earlier. Speaker 300:21:32Our credit loss rate is gradually beginning to moderate. And finally, the actions we have taken to consolidate our digital marketplace offerings to unify our brand Open Lane and to successfully launch new product innovations gives us strong confidence in the future. With that, I will turn the call over to the operator for questions. Operator00:21:54Thank you. We will now begin the question and answer session. And the first question will come from Craig Kennison with Baird. Please go ahead. Speaker 400:22:27Hey, good afternoon. Thanks for taking my questions. I wanted to start with the dealer volume. If I add the CDK volume that you mentioned, 6,000 units, it looks like that business would have been closer to flat. Is that keeping pace with your digital competitors in that market and the broader wholesale dealer channel? Speaker 200:22:54Yes. Thanks, Craig. Appreciate the question. So as I mentioned, dealer volumes were down in the quarter, but most of that was Canada. So if you first of all, I'd say the 6,000 units wasn't all dealer, it was a mix of commercial and dealer. Speaker 200:23:08So I would assume a similar mix to our sales overall because volumes on the commercial side were also impacted by dealers that couldn't turn in cars and couldn't purchase cars. So maybe a fifty-fifty split on that volume. If we look at the decline, the decline was principally in Canada. We obviously check other sources to see what volumes are. Our understanding based on the data I'm looking at is that dealer volumes dealer volumes at physical auction in the United States were down in the 1st and second quarters of the year. Speaker 200:23:42And that in comparison, our volumes slightly outperformed the physical auction volumes. So I don't think it's a loss of share. I think we had a slight gain of share even though our volumes in the quarter were down. But you're right, Craig, CDK had an impact, a small impact. And then I mentioned in the quarter, we saw an improving trend as the quarter went on. Speaker 200:24:02So I feel more optimistic about the trend line in the second half of the year that this will be back in sort of year over year growth territory. So anyway, we will watch and see that. I guess beyond that, Craig, I'll say, we obviously spend a lot of time talking to our dealer customers. I'm very pleased by the feedback we're getting from our selling their cars quickly, selling their cars at excellent price outcomes. You'll see our GMV in the quarter was up 6%. Speaker 200:24:34So values are strong in our marketplaces as well. And obviously, having a strong differentiated offering in the marketplace. So I'm very pleased by the feedback we're getting from our customers. And this is an area we're very focused on investing into. And again, I mentioned in my remarks how we have put some increased go to market resources in the field late in the second quarter, feeling good about that. Speaker 200:25:01We're already seeing some traction there too. Speaker 400:25:04Thanks, Peter. And then, I mean, you have a good message with some of the technology innovations. I'm curious if you feel like you're getting that message out to dealers or if you need to target more marketing dollars to that effort so they see what you're doing with Visual Boost or Code Boost? IQ? Speaker 200:25:25Yes, good question. I think, Craig, I think there is sometimes I think we're sort of misunderstood in terms of So that is something So that is something we are investing in. When we roll out these launches, we're training our sales team. We're obviously preparing the go to market materials to support this. And if you spend any time on openlane.com, you'll see a bunch of dealer testimonials that speak to the power of these offerings and what they do for those dealers. Speaker 200:25:57So it's an area we're focused on. You may have seen we ran a dealer appreciation event in the month of July, a DealerFest. And again, that was kind of our way of saying thank you to our customers, appreciation of their business, but also educate them on some of the great new things that we brought to market over the last 6 months that we plan to bring to market between now and the end of the year. So it's an area we're very focused on. And I think it's going to be an area of increasing strength for our business, Craig, as we consolidate platforms, speed innovation, etcetera. Speaker 200:26:28I think you'll see more to come from us in this dimension. Speaker 500:26:33Great. Thank you. Speaker 200:26:35Thanks, Craig. Operator00:26:37The next question will come from Bob Labick with CJS Securities. Please go ahead. Speaker 600:26:44Good afternoon. Thanks for taking our questions. Speaker 200:26:46Hi, Bob. Hi, Bob. Speaker 600:26:48Hi. I wanted to start on the off lease side. And Peter, you alluded to this in your remarks, but maybe I was hoping you go a little deeper. Could you give us a sense of the mix of off lease right now in terms of where it's going in term owner retained, dealer retained, closed open auction? And really, just where are we in the kind of normalization process? Speaker 600:27:12And how do you see it progressing? Speaker 200:27:15Yes, great. Good question, Bob. Thanks. Thank you for that. First of all, I'm very pleased with commercial volume growth. Speaker 200:27:20I don't know if I spoke to it directly, but our commercial volumes were up 21% in the quarter on a year on year basis. So again, I think that's very strong volume trends there on commercial. I feel good about that. I believe that's now 5 consecutive quarters of commercial volume growth. So I think clearly indicates we've come off the bottom and commercial volume growth have been a source of strength here over the past 5 quarters or more. Speaker 200:27:44So in terms of what we're seeing, we're seeing a higher percentage of off lease vehicles, a higher percentage of the portfolio that's maturing being returned. So a lower percentage being purchased by the consumer, okay. So that equity gap, the extent to which these off lease vehicles are in equity at the end of the lease, that is declining, although it's been a slow decline, Bob, but it's a continued erosion of that. And as that erodes, I think 2 things happen. 1, the consumer fewer consumers buy out their lease, so more of them get returned. Speaker 200:28:19That's positive for us. And secondly, fewer grounding dealers purchase the vehicles because a lot of these grounding dealers have the same sort of equity opportunity that the consumer has. So that percentage declines and these cars then flow deeper into our funnel. So we're seeing that continue to play out. It's fairly gradual, I'd say, over the last few quarters, but it continues. Speaker 200:28:43A number of customers are predicting that it could accelerate in the coming quarters based on residual values in their portfolio, etcetera. But I think I'm taking a wait and see approach to see how that trends. But it's something that gives me confidence that even though there's fewer off lease maturities at the top of the funnel, our commercial volumes will that decline will be offset by an increased percentage of those vehicles that get returned. And I think our business will continue to perform through the period. So that's the expectation. Speaker 200:29:16We obviously have to take each month as it comes. But so far, we're now in that period where there's lower off lease maturities, but we're still seeing year on year commercial volume growth. So I feel good about that. Speaker 600:29:29Okay, super. Very helpful color. And then just, I mean, you talked about the Canadian dealer market a little bit before. I think, is it back in December you made an acquisition of Manheim Canada? Can you talk about the progress on that integration? Speaker 600:29:42I thought there was potentially an opportunity for a sale of a facility or something like that. I don't know if that's still in the works or how that integration is progressing? Speaker 200:29:52Yes, of course. Before I go there, let me just add one more comment on your last question, which I think is really important. We're also seeing significant increases in new vehicle lease originations. I know I've talked about that on prior calls, but lease originations dropped in 2021 and 2002, but they've been increasing in 20 2024, I think 5 consecutive quarters of lease origination increases. That again is very positive. Speaker 200:30:18Again, we're going to have to look out maybe another 18 months till that starts to really flow through our business, but that will be very positive for us and very confident of that. So going to Canada, very pleased with the acquisition. So we've made the acquisition. We've consolidated the operations in all 5 metro areas. So in the City of Toronto, for example, there had been 2 auction properties, 1 owned by us, 1 owned by our competitor. Speaker 200:30:46Now that volume is consolidated into 1. So we're getting greater scalability, greater leverage out of these facilities. We're still running the auctions digitally for the most part in Canada. Customer retention has been strong, particularly strong on the commercial side. So we had very good customer retention through the acquisition. Speaker 200:31:08And we're seeing, obviously, in addition to that sort of retention of acquired customers, we're seeing some organic growth in commercial volumes in Canada as well. So overall, it's, I think, a good story. We've had some challenges, as I've mentioned, on the dealer side in Canada. Again, that improved over the course of the second quarter. I feel like we're entering the second half of the year much better positioned than we were in January. Speaker 200:31:33So I'm optimistic for a more positive trend line on the dealer side in Canada as well in the second half. Speaker 300:31:40Yes. And Bob, this is Brad here. Just to address the second part of your question regarding the real estate. We do continue to have an opportunity there to monetize some real estate that we acquired as part of the transaction and it's really harmonizing our real estate play in a key market. And we have an active project underway to do that. Speaker 300:32:02Difficult for me to be able to provide any specifics on the timing and the amount of that, just given the process and where we're at in it, but it is an active project for us. Speaker 600:32:16Okay, super. Thanks so much. Speaker 200:32:18Thank you, Bob. Operator00:32:20Your next question will come from John Murphy with Bank of America. Please go ahead. Speaker 500:32:25Good afternoon, guys. This is Billy Healy on for John. Speaker 200:32:29Hey, Billy. Speaker 500:32:32So thanks for taking the questions. I just want to ask again a little bit more on the supply dynamic in the market right now. At least the dealers we talked to are still calling out a challenge sourcing environment for used vehicles. I mean you guys were doing well in volumes up 7%, another large player is up 33% year over year. So would you chalk this up to market share gains or you see more vehicles flowing into the auction channel or how do you think about that? Speaker 200:33:02Well, Billy, good question. Even though volumes have been strong, I do agree that volumes in the industry are still below pre pandemic levels or below what I would consider to be normal for industry. And I think that's part of our growth equation as those volumes return towards normal. I guess, when I look at that, divide the industry roughly into dealer and commercial from a supply standpoint, Dealer volumes, I'd say are still below normal, but not massively below normal, maybe 15%, 20% below normal would be how I characterize it. I think those volumes will improve as the extent dealers have more vehicles on their lot, more new and used vehicle inventory. Speaker 200:33:42We've seen those trends generally heading upwards over the last 12 months. To the extent the consumer affordability problem improves, I think that will increase vehicle trade ins and wholesale volumes on the dealer side as well. So there's some positive opportunities there. I would expect them to sort of readjust gradually. Billy, it'd be my view on that. Speaker 200:34:03On the commercial side, it's a bit of a mixed bag. Repo volumes are quite strong relative to pre pandemic. That's not a huge segment for us. What is a big segment for us is off lease. And as I've said on prior calls, off lease volumes are still about 50% below pre pandemic level. Speaker 200:34:19So I do see significant opportunity for commercial volume growth on the off lease segment. I do think we'll be really well positioned there. But again, Billy, as I've been very clear about in prior calls, we should be modest in our expectations over the next 18 months for when we look at the cycle, the 3 year cycle of a leased vehicle. I think I've been very open on that. But I do then see again, I think those volumes will be quite strong for us. Speaker 200:34:47And then I see acceleration coming after the end of 2025 and in the years to follow after that. Speaker 500:34:55Okay, super helpful. And then just one more on the margins for the marketplace segment in the quarter. I mean, I know there's a lot of noise going on with the accounting change and tax in Canada and maybe some impact from CDK. But can you just talk to maybe your expectations on the trend going to the back half of the year? Because I mean, if just looking at the numbers down a bit sequentially and year over year on the gross margin ex purchased vehicles. Speaker 500:35:22So I want to get your thoughts on the back half of the year. Speaker 300:35:26Yes, Billy, Brad here. Thanks for the question. I think just to provide some added clarity on our margins in the quarter, certainly when you look at the gross profit margin in the quarter that reflects the full impact of the $12,000,000 charge that I highlighted in our early remarks. So, would want to just highlight that to you. I think if you normalize for that, we would see fairly consistent margin performance, especially in the marketplace business sequentially and really kind of looking back over the last few quarters. Speaker 300:36:05So highlight that. On an adjusted EBITDA margin basis, you'll see in our adjusted EBITDA reconciliation that we did adjust out the out of period component of the $12,000,000 charge, which was 10,000,000 dollars So if you look at our adjusted EBITDA margins and then adjust for that smaller amount of $2,000,000 in the current period, you would see that our margins again on an adjusted EBITDA basis are fairly consistent sequentially. And then as you know, you highlighted it yourselves, we have this impact to transportation revenue. And so the comparability there, that item in particular does give us a little bit of favorability in terms of our margin, but not is not a significant driver of the ongoing improvements that we're delivering. Speaker 500:36:59Great. Thanks. Super helpful. Speaker 700:37:01Thank you, Billy. Operator00:37:07Our next question will come from Bret Jordan with Jefferies. Please go ahead. Speaker 700:37:11Hey, good morning. Good afternoon, guys. Speaker 200:37:14Hey, Brett. Good afternoon. Speaker 700:37:16On the market share question, I think you said you're outperforming the physical auction volume. I guess, if you looked at all auction channels and looked at market share, are you and obviously there are lots of cars traded in various places. Are you outperforming the broader market? Or are you Speaker 300:37:35performing the physical? Speaker 200:37:40I would say our market share, Brett, over the past period has been fairly steady. There's a little bit of ebb and flow in some quarters. We've seen strong growth on commercial, our dealer volumes have been more flattish over the past say 12 month period. So but again, I think that's against the backdrop of a commercial off lease volume environment that has been challenged, and I think that's particularly impactful on us. So I feel good about our market share. Speaker 200:38:11We have you have to kind of look at it in the dealer category and then in the commercial category and then in aggregate because the mix shift can flex from 1 quarter to another or one period to another. So I think we're I would say, we've held our market share. It might be slightly up over the period. If we look at it in aggregate and then we look at it in commercial and dealer, I also feel pretty good about where we stand. Speaker 700:38:37Okay. And then within AFC, is your borrower is your customer base changed at all? Are you taking out some of the lower credit customers? And I guess if you sort of thought about the number of active clients at AFC right now, has that changed much year over year? Speaker 300:38:54Yes. Hey, Brett here. Thanks for the question. So I would say just a couple of things here. We have been intentional around our risk management processes here and been pretty diligent, particularly over the last 12 to 18 months around the customer portfolio. Speaker 300:39:11So there's been some proactive takeout of customers that were flagging risk for us. So that and that's ordinary, but I would say certainly in the last 12 to 18 months, it's been more of a priority for us. In this business, in the independent floor planning financing business, there is some normal churn. So there are normal churn. But as we've demonstrated historically, we're able to maintain a pretty consistent base of customers with that churn. Speaker 300:39:42So as we lose some, we gain some and on the net we're able to grow unit volumes over time. So that's just my comments there. But I would say this business continues to perform very, very well. Obviously, our credit loss rates have been a little bit higher than where we would like them to be on a target basis, but we feel our relative performance there based on what we know are some of our peers in this space and their performance, our relative performance there is very strong. The margin structure of this business not only from a fee basis, but also from a net interest margin perspective and the returns that yields is very, very attractive and like this business. Speaker 700:40:24A quick housekeeping question. You also commented you increase your go to market resources late in Q2. Is that something that is obviously you've maintained your guide. Is there any timing that that expense is going to generate a return later in the year? Or is it just not that significant? Speaker 200:40:42Yes, I guess, Brett, I'd say, 1st of all, it's not that significant in the context of overall SG and A structure. So I'd say it's more on the margin. But obviously, the business case associated with these investments is, yes, you increase some staffing and you expect to see volume impacts to happen in fairly near term, but not immediately. So yes, we've got a business case that envisions some incremental volume here in the second half of the year and continuing into 2025. Some of the investments also are in technology and product development. Speaker 200:41:17Those probably have a little bit of a longer lead time, but not massively. And again, I would characterize that as we feel really good about the offering we have. We feel really good about the feedback we're getting from our dealers, many of whom are very sophisticated, do a lot of analysis on how we're performing versus other channels. And there's an opportunity here to sort of increase share in certain markets where frankly we don't have a presence in terms of a sales person or in certain markets where we've got more opportunities than the person on the ground can reasonably handle. So it's a situation like that. Speaker 700:41:55Okay, great. Thank you. Operator00:41:59The next question will come from Rajat Gupta with JPMorgan. Please go ahead. Speaker 800:42:05Great. Thanks for taking the questions. Apologies, I joined the call a little late. I was curious like if you commented around your U. S. Speaker 800:42:14D2D growth and what your share gains were in the quarter? And I have a couple of very quick follow ups. Speaker 200:42:25Yes, Rajat. Well, we commented that the story was similar to Q1 in so far as there were some declines in total dealer volume, but most of those were located in our Canadian business. Our U. S. Volumes were stronger in relative terms based on the information we have, our U. Speaker 200:42:43S. Volume growth in dealer was stronger than U. S. Volume growth at physical auction. Actually, it was a decline at physical auction, I believe, over the first half of the year. Speaker 200:42:53So yes, so I think our U. S. Dealer to dealer trends are stronger than the overall aggregate trends that we talked about. A couple of other things worth mentioning, commercial volume growth of 21% in the quarter, similar to Q1, when you have strong commercial volume growth, there is a little bit of, I suppose, cannibalization on the buy side where a buyer might previously might have bought dealer cars switches over and buys a commercial vehicle and that's just part of the normal network effect in our business. So I think that's to be understood. Speaker 200:43:29I guess the other thing I said, Rajat, is we saw an improving trend over the course of the quarter, both in U. S. And Canada. So to the extent there were declines, we saw those declines sort of diminish as the quarter went on and I feel good about the trend line that's set up for the second half of the year. Speaker 800:43:47Got it. And we saw we noticed like one of our competitors like wage prices on the dividend side in the month of June. I was curious, did you follow through with that or you're going to be a little more cautious about that and maybe use that as an opportunity to take some share? Just curious around the thought process around that. Thanks. Speaker 200:44:10Yes. Thanks, Rajat. We noticed the same thing. Obviously, pricing is something we keep under review just at all times in our business, in all the marketplaces, commercial and dealer. So that's something we observed and something we will react to appropriately. Speaker 200:44:27I guess what I'd say to this, first of all, listen, our dealer to dealer business is an important part of our offering. It is profitable, significantly more profitable than it was 2 years ago. So I feel really good about that. I believe we've got a very efficient marketplace by which I mean the cost to put a vehicle through our marketplace, I believe is lower than the cost to put vehicle through a physical auction and probably lower than the cost to put it through some competing channels. So I think we've got a very efficient marketplace and that has enabled us to have attractive pricing in the market, a growing business and a profitable business. Speaker 200:45:03So listen, we're going to keep that under review. It's something we're actively looking at. We also had in Canada, the digital services tax that Brad alluded to, Brad spoke about. So that's a function in Canada that we obviously need to find a way to address as well. So looking at pricing in that regard as well. Speaker 200:45:21So, Rajat, I don't have anything to say on this particular call in terms of timing, but these are things we look at all the time. Speaker 800:45:29Understood. Just one last one on the CDK outage and the experience that the dealers went through with this. You're obviously very much integrated with your dealer network. There are systems in a way getting deeper and deeper in terms of partnerships. I was curious, does this experience open up an opportunity for you to maybe participate more in those kind of systems and products, given you already have the platform and you're already like well connected. Speaker 800:46:02So I was just curious about how you think about that opportunity. Thanks. Speaker 200:46:06Yes. Thanks, Rajat. First of all, I want to be very clear, our information systems are not in any way compromised in the quarter. The volume impact was sort of a knock on impact. Our dealers' operations were impacted by the outage. Speaker 200:46:20That meant they couldn't take trade ins and they couldn't wholesale cars and that sort of by implication impacted our volumes late in the second quarter. But our systems are robust and were unaffected through the whole process. Listen, Rajat, it brings it home that information security is really important. I feel really good about what we've got. Our systems are a little different. Speaker 200:46:43We don't we're not as sort of tied into the core operations of the dealership like a dealer management system is. But we have opportunities as part of our product innovation is to make the wholesale process easy for dealers. So as part of that, we are expanding our product offering beyond just the purchase and sale of a vehicle, but helping dealers with pricing guidance and vehicle stocking decisions and things like that, both in U. S. And Canada. Speaker 200:47:14So we've got some exciting initiatives in the works. I think we'll have more to talk about in future calls as we bring these products to market. You're welcome. Operator00:47:30This concludes our question and answer session. I would like to turn the conference back over to Mr. Peter Kelly for any closing remarks. Please go ahead. Speaker 200:47:40Thank you very much. Listen, I'd just like to reinforce a few key themes that support my optimism for Open Lane's future. As I mentioned earlier, our performance in the first half of this year clearly demonstrates the power of our offering and the strong scalability characteristics of our company. We're leaning into that strategy and our investments to further accelerate the growth that we're already seeing. AFC continues to be a strategic asset, delivering meaningful adjusted EBITDA and enabling the open lane marketplace more than ever before. Speaker 200:48:08Our marketplace business is profitable and growing, and we're well positioned to capture the opportunities inherent in the improving industry fundamentals. We remain the clear leader in commercial off lease remarketing and are best positioned to benefit from the current leasing recovery. And we're investing in our dealer business to accelerate our innovation pipeline, grow our volumes and our market share and continue delivering the profitable growth that you're seeing. When viewed together, I think the combination of these factors provides a very compelling vision for Openlands' future. Thank you all for joining us on today's call. Speaker 200:48:40I look forward to speaking to you all again soon.Read morePowered by