OPENLANE Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2025
Skip to Participants
Operator

Good day, and welcome to the OpenLanes First Quarter twenty twenty five 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 that this event is being recorded. I would now like to turn the conference over to Jared Harnish. Please go ahead.

Jared Harnish
Jared Harnish
Head of Financial Planning and Analysis at OPENLANE

Thank you, operator. Good afternoon, everyone. Welcome to OpenLane's first quarter twenty twenty five earnings call. With me today are Peter Kelly, CEO of OpenLane and Ryan Miller, OpenLane's Vice President of Finance for the Marketplace business. Our remarks today include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Jared Harnish
Jared Harnish
Head of Financial Planning and Analysis at OPENLANE

Such forward looking statements involve risks and other uncertainties that may cause actual results or performance to differ materially from such statements. Factors 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 this call. Reconciliations of GAAP to non GAAP measures are provided in our earnings material and available in the Investor Relations section of our website. With that, I'll turn the call over to Peter. Peter?

Peter Kelly
CEO at OPENLANE

Thank you, Jared, and good afternoon, everyone. I'm pleased to be here today to share OpenLane's strong results from the first quarter. I'll start with a few highlights, but spend the majority of my time discussing our strategy and our perspectives on the overall market environment including tariffs. But first, I hope you saw our recent announcement naming Brad Herring as our new Executive Vice President and Chief Financial Officer. I look forward to welcoming Brad to our team later this month.

Peter Kelly
CEO at OPENLANE

Today, the financial portion of our call will be led by Ryan Miller, OpenLane's Vice President of Finance for the Marketplace business. Turning to the quarter, OpenLane delivered a very strong start to 2025, building on our positive momentum and delivering record performance in many areas, particularly within the Marketplace business. It's clear that the OpenLane brand is becoming more differentiated and valued in the eyes of our expanding customer base. And the strong scalability characteristics of our asset light digital operating model are increasingly apparent in our financial results. During the first quarter, we grew consolidated revenue by 7% and delivered $83,000,000 in adjusted EBITDA, both achieved against the prior year that included contributions from the automotive keys business that we divested during the fourth quarter of last year.

Peter Kelly
CEO at OPENLANE

Also generated $123,000,000 in cash flow from operations. In the marketplace segment, while commercial vehicle volumes were down as expected, we increased our dealer to dealer volumes by 15% year over year, the second straight quarter of double digit growth. This resulted in solid growth in auction fee revenue and adjusted EBITDA. Our finance segment also had a great quarter, growing total transaction units, holding the loan loss rate to 1.5%, which is the lowest since Q4 of twenty twenty two and increasing adjusted EBITDA by 15% over the prior year. So in summary, Openlane is advancing our strategy with focus and with precision and producing positive consistent results.

Peter Kelly
CEO at OPENLANE

And despite the current noise in the market, I remain confident in Openlane's positioning for long term growth and our ability to deliver sustained shareholder value. As a signal of that confidence, the OpenLane Board of Directors has replaced our prior $100,000,000 share repurchase authorization with a new larger $250,000,000 authorization that will extend through the end of twenty twenty six. With that, let me turn to our strategy and how we are positioning OpenLand for the future. As a reminder, our strategy for growth purpose, which is to make wholesale easy so our customers can be more successful. And we're making wholesale easy by focusing on three enabling priorities.

Peter Kelly
CEO at OPENLANE

First, by delivering the best marketplace, expanding to more buyers and more sellers and offering the most diverse commercial and dealer inventory available. Second, by delivering the best technology, innovative products and services that help our customers make informed decisions and achieve better outcomes. And third, by delivering the best customer experience, keeping our marketplace fast, fair and transparent, making it easy for customers to transact and making OpenLane the most preferred marketplace. So let's start with more detail on the marketplace. While overall volumes were slightly down, this was entirely attributed to the decline in commercial off lease volume that we've discussed during previous calls.

Peter Kelly
CEO at OPENLANE

The Q1 decline in off lease volume was in line with our expectations and we still anticipate those volumes to recover beginning in 2026. I won't repeat all of my commentary from prior calls other than to reinforce that Openlane remains a clear market leader in the commercial off lease space, representing the majority of OEM and financial institution programs across North America. When the commercial volumes return in 2026 and beyond, Openlane is best positioned to capture that opportunity given our long standing customer relationships, our deep system integrations and the tailwinds generated from continued migration from physical digital channels. And with new lease originations up for the eighth straight quarter in Q1, this will be another positive tailwind for OpenLane's longer term growth opportunity. In dealer to dealer, I was very encouraged by our strong results, which were broad based and included volume growth contributions from The United States, Canada and Europe.

Peter Kelly
CEO at OPENLANE

This growth was primarily driven by solid gains in new buyer and new seller participation in the marketplace. The investments we've made over the last several years to promote the OpenLane brand attract new buyers and sellers, increase our share and bring a differentiated offering to the market are clearly delivering results. This was particularly true in The U. S. Marketplace where we had the best dealer to dealer quarter since the divestiture of The U.

Peter Kelly
CEO at OPENLANE

S. Physical auction business. We beat all previous daily, weekly, monthly and quarterly sales records, recorded the highest number of unique visitors to openlane.com and achieved double digit growth in dealer inspections and listings, total new dealer registrations and total active buyers and sellers. We also drove double digit sales growth from several of the top major public dealer groups, a testament to our focus and success growing wallet share with the country's largest franchise dealers. We did see some increased dealer volumes and demand in late March carrying into early Q2 after the tariffs were announced.

Peter Kelly
CEO at OPENLANE

And I'll speak more to that in a few minutes. But I want to stress that Openlane's strong first quarter performance was defined well before those announcements and included monthly year over year dealer growth throughout the entire quarter. And based on our analysis of industry data for dealer to dealer, we outperformed the physical auction industry during this heightened period as well as for the full quarter. In fact, our year over year dealer volumes grew at nearly double the rate of the broader industry and we gained market share. I think this is very compelling evidence that OpenLane's advantages in terms of speed, ease and better outcomes are resonating with customers and gaining traction across our markets.

Peter Kelly
CEO at OPENLANE

Also, our data indicates that in Q1, approximately 30% of The U. S. Dealer to dealer market was digital with 70% still physical, meaning there is potential for significant share gains as more and more of this volume moves to digital where OpenLane is a leader. So from a marketplace perspective, the TAM and thereby OpenLane's opportunity remains very large. We are driving the secular shift from physical to digital in dealer to dealer and we are well prepared for the commercial off lease return in 2026 and beyond.

Peter Kelly
CEO at OPENLANE

Ultimately, the scale and diversity of inventory of buyers and sellers will power the future of our marketplace and serve as a core differentiator for Openlane. Another core differentiator is our technology, where we focused on making the buying and selling experience faster, smarter, easier and more transparent for our customers. We are self funding our innovation agenda and our platform consolidation efforts have enabled a rapid acceleration of new products, features and functionality across all of Openlane. On the last call, I spoke to the launch of our one app in The U. S.

Peter Kelly
CEO at OPENLANE

And I'm pleased to say it is achieving all of its intended goals. We are already enrolling crossover private label franchise buyers through a process that formerly took five to eight days, but can now be completed in just minutes. At the same time, our independent buyer base is increasingly purchasing commercial vehicles that flow from the private label sites directly into the open marketplace. We are also very active on the innovation front in Canada. Our Canadian OpenLane Pro subscription programs are gaining momentum as we enhance them with additional data insights and new exclusive Pro only features.

Peter Kelly
CEO at OPENLANE

These programs increase the stickiness of our marketplace with customers and also expand our revenue streams. And just last week, we launched our tariff filter technology that allows Canadian dealers to quickly and easily search, filter and bid on tariff exempt automobiles. And then finally, all of these things combined are helping us deliver an improved customer experience. As I've said before, OpenLane is a digital marketplace in a relationship business and the relationships that our customers have with our people and our products are critical to our long term success. And I was very pleased to see that in Q1, all OpenLane transactional NPS scores improved compared to one year ago and now sits squarely in the grace to excellent range across all geographies.

Peter Kelly
CEO at OPENLANE

Based on these results and on the positive feedback we're getting from dealers, we are continuing to invest in our sales, marketing, call center, logistics, arbitrations and title teams to keep making wholesale easy for our customers. I'd also like to spend a few moments on AFC, where we posted another very solid quarter, growing total loan transaction volumes, reducing SG and A costs, controlling the loan loss raise and contributing double digit year on year growth in adjusted EBITDA. AFC is a high performing business with a leading market position. It is a broad loyal customer base, a healthy mix of both fee and interest revenue and best in class risk management program. And it continues to deliver superior performance on core specialty finance metrics of net interest margin, return on assets and return on equity.

Peter Kelly
CEO at OPENLANE

But one of AFC's greatest contributions to OpenLane is its synergistic connection with the marketplace, strategies we've been advancing over the past several quarters. AFC's local presence and trusted reputation with dealers makes it an easy introduction point into the OpenLane marketplace and well positioned to cross pollinate dealer registrations. Additionally, every time an independent dealer pays off an AFC loan, we have an opportunity to offer them another vehicle for their inventory via the OpenLane marketplace. So we continue to integrate these two business units and our expanding customer bases to help further accelerate our growth. So in summary, our Q1 results build on OpenLane's consistent pattern of growth and financial performance.

Peter Kelly
CEO at OPENLANE

They set new records for our overall performance and clearly demonstrate the strong scalability characteristics of our asset light digital model. We are executing well on our strategy and investing in solutions that delight our customers and make wholesale easy. All of this fuels my optimism for our long term growth in volume, market share and profitability. I'd now like to discuss tariffs and their potential impact on the automotive wholesale market. I won't detail the tariffs specifically as they have been covered extensively in the press.

Peter Kelly
CEO at OPENLANE

And I'm not going to speculate too much on the what ifs given the many outstanding questions and unknowns. But I am confident in OpenLane's ability to navigate this uncertainty. And at this point, there is nothing we have heard or analyzed that causes us to adjust our 2025 guidance. We were pleased with last week's announcement regarding some degree of tariff relief for automotive manufacturers. We're also mindful that these or other new tariffs could be announced, increased, decreased, paused or rescinded at any time.

Peter Kelly
CEO at OPENLANE

So we continue to operate under the assumption that some tariffs will remain in effect and we're actively planning for multiple scenarios to ensure that we are prepared for a range of possible outcomes. Overall, we view the potential impacts of tariffs as a mix of both positives and negatives. On the near term positive side, if demand stays high and prices increase, this could benefit OpenLane through higher volumes and fees in the marketplace and more revenue and interest with lower loan losses at AFC. However, if North American new car supply is meaningfully disrupted, the longer term impact on vehicles traded in, new lease originations and the volatility of used vehicle values could create headwinds for the entire industry. To be clear, these are things that could happen, but for the most part they have not yet happened.

Peter Kelly
CEO at OPENLANE

So we are monitoring all of this very closely and in close communication with our customers to understand their approach and to stay true to our purpose of making our customers more successful. For OpenLane, we are operating with discipline and there are many compelling factors that position us well to continue advancing our strategy for growth, a strategy that is clearly resonating with our customers. First, we are more asset light than we were in 2020 without the cost overhang of U. S. Physical auctions and with very little debt.

Peter Kelly
CEO at OPENLANE

Our platform consolidation work has made us more agile and we can quickly respond to changing environments and deploy new solutions for our customers more effectively. Our technology is a competitive differentiator and we will continue to invest in innovation. We are generating very strong cash flows from operations. We have a strong management team with a proven ability to adapt and lead change while keeping our plan, our strategy and our company moving forward. So once again, we are mindful of the increased uncertainty that exists compared to ninety days ago.

Peter Kelly
CEO at OPENLANE

I will need to see what ultimately remains in place. But considering all of these factors and what we know today, we are maintaining our 2025 adjusted EBITDA guidance of $290,000,000 to $310,000,000 Further details for these guidance metrics are available in our earnings release published earlier today. Looking ahead, I remain very confident that OpenLane will be able to adapt, react and succeed in this environment. That confidence and my confidence in OpenLane's ability to invest in growth, execute our strategy and deliver shareholder value is shared by our management team, by our employees and also by our Board of Directors. And again, the Board has authorized a $250,000,000 share repurchase authorization that will extend through the end of twenty twenty six as a signal of that confidence.

Peter Kelly
CEO at OPENLANE

So with that, I'll turn things over to Ryan Miller before we go to Q and A. Ryan?

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

Thank you, Peter, and good afternoon, everyone. I appreciate you joining the call today and the opportunity to speak with all of you. Openlane delivered another strong quarter by executing on the fundamentals of our business, focusing on our customers and advancing our strategy for growth. Our results reflect the output of strategic investments we've made in both people and technology and clearly evidence the underlying strength of our asset light digital business model. Before I begin, my comments will be on a first quarter year over year basis unless I state otherwise.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

Before comparability purposes, please recall that prior year results include the automotive keys business, which was divested out in Q4 of twenty twenty four. As previously disclosed, this business represented 2% to 3% of prior year revenue and adjusted EBITDA. Consequently, our reported year over year growth rates understate the underlying performance of our continuing operations. Moving to consolidated results, revenue was $460,000,000 up 7%, the fourth consecutive quarter of year over year top line growth reflecting the continued momentum across both the Openline Marketplace and AFC Finance segments. Total cost of services was $242,000,000 up 13%, primarily due to increased marketplace dealer volumes and mix shift.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

Consolidated SG and A for the quarter was $107,000,000 essentially flat year over year. This reflects the successful execution of enterprise cost savings initiatives and includes the incremental technology and go to market investments made throughout 2024 and into 2025. We are very pleased to see that our revenue growth is outpacing our SG and A growth and we continue leaning on our culture of cost discipline to create the financial headroom for further investments in technology, innovation and growth. Together, these factors combined drove consolidated adjusted EBITDA to $83,000,000 an 11% increase over the prior year. This improvement reflects the operating leverage and scalability characteristics inherent in our digital business, our expanding customer base and the differentiated products and services Openlane offers for its customers.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

Turning to the marketplace segment, total volumes were down 2%, driven entirely by a 14% decrease in commercial volumes. That decline was largely offset by double digit growth in the dealer volumes, which increased 15% during the quarter. As Peter mentioned earlier, the commercial decline was directly in line with our expectations and we remain well positioned to capture the opportunity of increased off lease return volumes in 2026 and beyond. On the dealer side, our growth was fueled by the go to market investments we have discussed on previous calls, namely additional sales and customer support roles as well as expanded marketing capabilities. I also want to point out that our volume growth included positive contributions from The United States, Canada and Europe.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

This volume growth drove a marketplace revenue increase of 10% to $351,000,000 Auction fee revenue increased by 14% driven by sales mix and auction fee price increases. Gross profit was up 7% due to strategic pricing actions, product mix and productivity initiatives. The marketplace SG and A increased by 2% driven by incremental go to market investments in the first quarter. All of this led to a marketplace adjusted EBITDA of $37,000,000.06 percent increase. Excluding the divested automotive key business, marketplace adjusted EBITDA would have increased 12%.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

As Peter stated, we are very pleased with the ongoing strength and continued growth in our marketplace business. Our dealer business is highly differentiated offering a better, faster, higher value solution at a lower cost. And this has helped drive an expansion in our franchise and independent buyer and seller base. And this combined with the diversity of our inventory, our deep pipeline of innovation and our leading marketplace technology positions us well for continued profitable growth. Turning to our finance segment, floor plan origination volumes were stable year over year, while floor plan curtailments increased 6% and total loan transactions increased by 2%.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

The resulting finance segment revenues were down 2% primarily due to lower interest rates in the first quarter. Net finance margin was $81,000,000 reflecting an annualized yield of 13.9%, up 10 basis points. And we were pleased with the success and completion of several strategic cost initiatives, which helped decrease SG and A by 10%. From a risk management perspective, we are very pleased with the first quarter provision for credit losses of 1.5%, reflecting our industry leading proprietary risk management capability. We continue to target a long term loss rate of 1.5% to 2% and we expect the second quarter to be consistent with that target.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

All of the factors I discussed led to a very strong quarter for the finance business, which contributed $46,000,000 in adjusted EBITDA, an impressive 15% increase over the prior year. Looking ahead, AFC remains a robust high performing business and a key strategic asset to Openlane. It provides dealer liquidity in our marketplace and enhances customer loyalty. It generates superior results in terms of net interest margin, return on assets and return on equity. And we are advancing multiple strategies to further connect and engage with our marketplace customers through IFC.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

Moving on to the balance sheet and capital allocation, strong cash generation is an important and differentiating attribute of the OpenLean business and this was evident again in Q1. In the quarter, we generated approximately $123,000,000 of cash flow from operations and our consolidated net leverage is near zero. This level of cash generation demonstrates the powerful combination of our marketplace and floor plan business segments. Overall, the core of our capital allocation framework remains the same. We continue to prioritize funding of organic investments, while ensuring flexibility for both high return complementary strategic opportunities and shareholder returns.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

Our CapEx investments are funded through cash generated by the business and are expected to be in line with prior year. As mentioned on prior calls, we remain on track to repay the $210,000,000 of senior notes due in June of this year utilizing cash flow from operations and available liquidity. In addition, as Peter mentioned, the Board has approved a new $250,000,000 share repurchase program through 2026, replacing the $100,000,000 program expiring later this year. Our philosophy on share repurchases will remain principal and opportunistic. Summarize the many high points of the first quarter results, dealer volumes grew by 15% in the quarter, the second straight quarter of double digit growth.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

Consolidated adjusted EBITDA grew 11% with strong contributions from both our marketplace and finance segments. AFC continues to be a major contributor to our overall financial performance and is an enabling connector for the marketplace business. Openline continued its consistent track record of strong cash generation during the quarter delivering $123,000,000 of cash flow from operations. We believe our strong performance in the first quarter reinforces the soundness of our strategy, the value we deliver to our customers and the strong scalability characteristics of our digital operating model. As the dealer industry increasingly trends towards digital and as the off lease volumes return in 2026 and beyond, Openlane is well positioned to continue delivering growth and shareholder value.

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

With that, I will turn the call over to the operator for questions.

Operator

Thank you. We will now begin the question and answer session. And your first question today will come from Craig Kennison with Baird. Please go ahead.

Craig Kennison
Director of Research Operations & Senior Research Analyst at Baird

Hey, thank you. A question just on the current dynamic with respect to tariffs and the used environment. Have you seen any pull forward in activity at auction or among your dealer partners as a result of customers trying to get ahead of price increases?

Peter Kelly
CEO at OPENLANE

Yes. Thank you, Craig for that question. I guess the key thing I'd want to leave you with that question is that the strong performance in Q1 was well in place and locked in place well ahead of any pull ahead. We did see increased activity at the retail level. It's been reported in the press.

Peter Kelly
CEO at OPENLANE

I would say starting like the March 20, something like that the last ten days of the quarter and extending into April. So that is true and that was an added benefit. But I would say, Craig, that was incremental to the broader story. The broader story is this was a very strong quarter, where we grew our dealer business 15 organically year on year, growing the seller base, the buyer base, the vehicles listed, the vehicles sold all by double digit volumes, setting new records, etcetera. So very strong performance in D2D.

Peter Kelly
CEO at OPENLANE

I think a strong performance in commercial as well, although volumes were down that was well telegraphed and well communicated for the past number of earnings calls. That's a known fact. So those volumes were very much in line. And then a strong performance on the finance business. So three strong pillars to this business, all I think performed well in Q1.

Peter Kelly
CEO at OPENLANE

I'd say the pull ahead that's been reported was a slight added benefit late in the day, but very much incremental to the overall story of the quarter.

Craig Kennison
Director of Research Operations & Senior Research Analyst at Baird

Thanks. And with respect to that dealer volume growth, I think 15%, To what extent do you attribute that to better awareness of OpenLane? I think you've been under the OpenLane brand as a unified brand for about two years now and I'm curious whether you start to feel some traction there?

Peter Kelly
CEO at OPENLANE

Yes. Thanks, Craig. Listen, I think you're hitting on an important point. I think it's multifaceted, but I think that's one key point. I think the combination of the platforms, one brand, simplifies the equation for the customer, consolidating the marketplace with commercial and dealer inventory creates a unique mix of inventory on this marketplace that no other operator has of high value compelling vehicles for a broad universe of buyers.

Peter Kelly
CEO at OPENLANE

So I think that's part of it. As you know, we also made investments, in the middle of last year, where we sort of increased our go to market investments, particularly in The U. S. And we're seeing those payoffs. So I guess when I look at that dealer business, again, 15% organic growth in dealer volumes, That's our second consecutive quarter back to back, where we've had double digit growth or basically the same growth level.

Peter Kelly
CEO at OPENLANE

We believe we're gaining share, okay? We believe we're outperforming other parts of the industry. We're growing with major dealers, some of the biggest dealers choosing OpenLane. So that's great to see. And again, I think if we look at this big picture overall, this digital dealer to dealer market is still, I would say 30% or less of the overall dealer market.

Peter Kelly
CEO at OPENLANE

So 70% of dealer volume is still physical, although the digital section is taking a little bit more share every year that goes by and obviously we're benefiting from that. So I think we're one of the drivers of that as well. So listen, we're pleased with the results. We're pleased with the strategy. We're pleased with the execution.

Peter Kelly
CEO at OPENLANE

We're going to keep executing, hopefully at the same high level and keep trying to drive that secular shift. And as customers become more and more aware of what we offer, I think the more they like it.

Craig Kennison
Director of Research Operations & Senior Research Analyst at Baird

That's helpful. Thank you.

Peter Kelly
CEO at OPENLANE

Thanks, Greg.

Operator

And your next question today will come from Rajat Gupta with JPMorgan. Please go ahead.

Rajat Gupta
Rajat Gupta
Analyst at JPMorgan Chase

Hey, great. Thanks for taking the question. I just had one first one on Canada. Can you give us a sense of what percentage of vehicles transacted on your platform in Canada or just the industry overall, how many of those vehicles or what percentage typically then get exported to The U. S?

Rajat Gupta
Rajat Gupta
Analyst at JPMorgan Chase

And just how do you think you navigate the impact to the industry from that in this new tariff regime? That was my first question. Just have a quick follow-up on ASC.

Peter Kelly
CEO at OPENLANE

Great. Thanks, Rajat. I'll attempt to answer that here. It's a good question. Obviously, Canada is an important market for us.

Peter Kelly
CEO at OPENLANE

We don't disclose U. S. Versus Canada volumes, but Canada is an important market for us. We're the market leader up there in commercial and in dealer. It's an important part of our business.

Peter Kelly
CEO at OPENLANE

And performance in Canada, was strong in Q1 as well. As I said, we were strong in all our geographies in Q1. So in Canada, I would say a meaningful percentage, but it's certainly less than 20% and in most periods it's less than 15% of the volume we sell, we believe is purchased by exporters who then import those used vehicles into The U. S. So to put a wide range on it, Rajat, ten percent to 20% in most quarters.

Peter Kelly
CEO at OPENLANE

And sometimes the activity drives up and it drops below that, but that's kind of typical. But we've analyzed this quite carefully. So a few things are interesting to me. One is, if we look at new car retail sales in Canada, about half of those are built in The U. S, okay?

Peter Kelly
CEO at OPENLANE

And if we look at the majority, and I'm talking about the significant majority of vehicles that have been exported from Canada into The U. S, there are vehicles that are originally built in The U. S. And you can tell that by the VIN. So they're not subject to these tariffs.

Peter Kelly
CEO at OPENLANE

So we've had pretty active open discussions with some of our big customers who operate in this business. Volumes are strong. They continue to be strong. I mentioned in my remarks, we've built a tariff filter. That's to enable buyers in our Canadian market to quickly see it and say what vehicles are not subject to tariffs.

Peter Kelly
CEO at OPENLANE

So I guess that's kind of a long way of saying, Rajat, it's something we're paying attention to, but it looks like, the majority of vehicles that are currently being exported are not and will be not subject to tariffs. And this business at least today continues at its sort of normal robust pace.

Rajat Gupta
Rajat Gupta
Analyst at JPMorgan Chase

Understood. That's helpful color. And just a second question was on AFC. I was surprised to see the sharp drop in provisioning there. Just curious what happened.

Rajat Gupta
Rajat Gupta
Analyst at JPMorgan Chase

Is this like a new level going forward? Was there any one time stuff that influenced that, because a pretty strong number there. So any thoughts on the cadence outlook there, would be helpful.

Peter Kelly
CEO at OPENLANE

Yes. Thanks, Rajat. Listen, AFC had a very good quarter. I was very pleased with the results volume growth, strong revenue performance albeit, a slight decline in revenue really driven by where interest rates are at relative to a year ago, and then very strong risk management that delivered the overall result. I guess, Rajat, if you look at the risk management stats over the last, I don't know, quarters, they have been steadily improving.

Peter Kelly
CEO at OPENLANE

So I think Q1 was just another data point along that curve. Although the improvement relative to Q4 was quite strong. So we were pleased with that. When I put it down to listen, I think AFC has the industry leading risk management kind of approach, I believe in the industry. And also I'd say generally in an environment when used vehicle prices are not depreciating or are appreciating that typically reduces the risk at AFC a little bit, because vehicles are holding their value and that diminishes risk.

Peter Kelly
CEO at OPENLANE

So listen, I feel really good about the performance there. I guess, what do we see going forward? We're in the 1.5% to 2% range. That's the range we typically target the business to be in. So I don't really expect it to be below that range for any sort of significant period of time.

Peter Kelly
CEO at OPENLANE

We were targeted being in that range for 2025 overall, and likely for the coming few quarters. Ryan, is there anything you want to add to that or?

Ryan Miller
Ryan Miller
VP - Finance at OPENLANE

No, I think that's correct.

Peter Kelly
CEO at OPENLANE

Yes. Okay. So I think we feel good about the 1.5 to 2% range Rajat.

Rajat Gupta
Rajat Gupta
Analyst at JPMorgan Chase

Awesome. Great. Thanks for all the color and good luck.

Peter Kelly
CEO at OPENLANE

Thank you, Rajat.

Operator

Your next question today will come from Bob Labick with CJS Securities. Please go ahead.

Analyst

Hi, this is Will on for Bob. Can you add some color to the key measures you're taking to gain share independent industry volumes? Are you continuing to add to the sales force or is that on pause with tariffs?

Peter Kelly
CEO at OPENLANE

Well, thank you Will for that. Listen again, pleased with the outcomes we're seeing. And I think the investments we made in the middle of last year were a contributing factor to that. I don't think they were the only factor. I think there's other factors as well, but the combination has been very positive.

Peter Kelly
CEO at OPENLANE

Obviously, we're a very data driven company. So when investments, we track how those investments are performing. So we've got more robust. We've got another ninety days of data against these new investments at this point. Listen, I feel really good about what we've seen.

Peter Kelly
CEO at OPENLANE

I would argue that those investments are not even yet fully up to speed in terms of what they're ultimately capable of, but they're clearly well along that journey at this point. And in terms of making further investments, listen, that's something we're looking at. The dealer to dealer business is one, in my view, one of three important pillars to the overall profitability story at OpenLane. We've got a dealer to dealer business where there's an opportunity to move an industry that's heavily physical into a more digital direction where we're a market leader. So we're investing in that, and showing I think very good outcomes there.

Peter Kelly
CEO at OPENLANE

So I think we will continue to make appropriate investments and I'm not going to be held back by tariffs to be honest with you. We'll be prudent. We'll look at the right what is the right investment for the environment we're in. But then in addition to that, we've got the commercial business. Again, twenty twenty five is a low point.

Peter Kelly
CEO at OPENLANE

We're confident volumes will increase in 2026 and 2027. That has been and will be a great business for this company. We're a market leader there. And then we've got the finance business, which again just had an excellent quarter and has excellent prospects as well. So listen, I think if you look across the board here at this company, I think we're making the right investments.

Peter Kelly
CEO at OPENLANE

I think we're executing well. I think we're measuring those investments and the outcomes and we'll continue to do that across all these three parts of our business.

Analyst

Thank you. And then just one more. Can you add some color to the key learnings from the single platform off lease and dealer car auctions on Openlane?

Peter Kelly
CEO at OPENLANE

Yes, Will. Very good question. Some of that I think is anecdotal and some of it is sort of maybe a little harder to measure. But to the extent we do try to measure it, what can we observe? Well, since we did the combination, we've seen accelerated growth on our D2D.

Peter Kelly
CEO at OPENLANE

Now there's some other investments we made alongside, so it's hard to sort of separate which for which. We've seen our eNPS scores go up. I feel really good about that sorry, not eNPS, NPS, customer NPS scores go up. I feel really good about that because that's a way of measuring, are we performing against our purpose statement? Are we making wholesale easy?

Peter Kelly
CEO at OPENLANE

Are we making our customers more successful? And our customers are telling us, yes, you are. So I think that's very positive. And then things like brand awareness, do customers recognize the brand? Have they heard about Openlane?

Peter Kelly
CEO at OPENLANE

Are we getting that sort of referral customer who's coming to us? And we're seeing increased evidence of all of that. And frankly, talked about these NPS surveys. I'm increasingly seeing commentary in those surveys of dealers telling us, Openlane is my preferred marketplace. The way you guys do it is easy.

Peter Kelly
CEO at OPENLANE

It's the best way. I like it. I want to buy more cars here. And that's very gratifying to me and obviously our team sees those types of feedback as well. So I think listen, the platform consolidation is an important contributing factor.

Peter Kelly
CEO at OPENLANE

I love the brand we have. I love the simplicity of the brand. It has unified our team. I think we're all passionate about what we do here at this company and we're excited for the future of OpenLane.

Analyst

Thank you.

Operator

And your next question today will come from Jeff Licht with Stephens. Please go ahead.

Jeff Lick
Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc

Good afternoon, guys. Thanks very much for taking my question and congrats on a great quarter. I just wanted to hoping we could drill down a little bit on the auction fees per vehicle sold. There was strong increase there. I know you've got some pricing that was in Canada and you're also the low cost provider. So if could just talk a little bit about the pricing environment and what's driving the fee per unit, that'd be helpful.

Peter Kelly
CEO at OPENLANE

Thanks, Jeff. Hey, I appreciate those comments and I'll try to answer your question here. You mentioned OpenLane is a low cost provider. Here's the way I like to think about it. I think OpenLane is a high quality provider.

Peter Kelly
CEO at OPENLANE

We provide excellent outcomes for customers and we do that at a reasonable price. So I think we're sort of very much on the sort of cost quality frontier in terms of offering a superior excellent sort of technology digitally driven out service and outcome at a very reasonable price. That's kind of how I think about it. And I do think big picture, we have pricing opportunity in this business, but I also think we're focused on growing our volumes and growing our share. And I think we saw evidence of all of that in Q1.

Peter Kelly
CEO at OPENLANE

So to get into the specifics, listen, we did see I think 14% growth in auction fee revenue. So maybe that's where pricing has shown up the most. I feel good about that. There was a pricing increase in Canada. Jeff, we did a relatively modest one.

Peter Kelly
CEO at OPENLANE

We did it at the beginning of the quarter. I think that is delivering all of its intended outcomes. So we didn't see any erosion or loss from that. So that's been effective. But also, what I'm really happy to see in Canada is our NPS scores went up, right?

Peter Kelly
CEO at OPENLANE

So the increase in pricing wasn't a negative in any of the sort of customer perception or the relationship we have with our customers. So, we did that in Canada. I guess what I'd say overall Jeff is, I like how we're positioned from a price perspective. Dealers recognize that our fees are very reasonable in an environment where not all of their providers would have the same reasonable fees, let's say. And I think we have opportunity over time.

Peter Kelly
CEO at OPENLANE

So I think we're well positioned there. Pricing, I would say is a lever of future growth, but it's not going to be the most important lever. The other levers would be obviously volume, I think is the important one, volume and share, pricing and then cost management and the scalability of the platform, obviously I think the digital platform has that in space as well.

Jeff Lick
Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc

Well, I certainly didn't mean to imply by saying you're the low cost provider that you were the low quality provider. I was just more implying that 's a gap there that maybe you could close a little bit in terms of pricing if you wanted. And just follow-up on the service revenue, I'm assuming that that's perhaps a little more tied to the commercial units because that was down or any color you could add there?

Peter Kelly
CEO at OPENLANE

Yes, Jeff. And I appreciate that comment as well, by the way. And I didn't mean to imply that you did that. I was just trying to clarify how I see it. So the biggest driver of the service volume decline service revenue decline was the divestiture of the keys business, okay?

Peter Kelly
CEO at OPENLANE

So the keys business was 2% to 3% of revenue and 2% to 3% of EBITDA last year, but all of that is reported within the marketplace segment. So if you think of it as how much a component of Marketplace revenue and Marketplace EBITDA was at last year, it obviously was a higher percentage. We haven't disclosed the specifics, but, that was the biggest single driver. The second item you mentioned the item you mentioned would probably be the number two item, which was as commercial volumes went down, that meant there were fewer off lease vehicles inspected and there were fewer off lease vehicles delivered and those are drivers of service revenue as well. Now that was offset by increased volume of dealer vehicles inspected and dealer vehicles delivered.

Peter Kelly
CEO at OPENLANE

So the keys business was item number one, the item you mentioned was item number two.

Jeff Lick
Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc

Great. Well, and I'll get back in the queue.

Peter Kelly
CEO at OPENLANE

Thank you, Jeff.

Operator

And your next question today will come from Bret Jordan with Jefferies. Please go ahead.

Bret Jordan
Managing Director at Jefferies LLC

Hey, good evening guys. Hi, Bret. On the discussion of pricing, I think you mentioned auction fee revenues were up 14% and gross profit you said was up 7% and I think in the prepared remarks you mentioned pricing investment attached to that delta and you had a price increase in Canada. Was there a price movement in U. S.

Bret Jordan
Managing Director at Jefferies LLC

Market that sort of was pricing the driver of the share gain in any way or is pricing becoming more competitive at all?

Peter Kelly
CEO at OPENLANE

Yes. Thanks, Brett. We didn't make any change in our pricing in The U. S. Market in the quarter, but we did increase our pricing in The U.

Peter Kelly
CEO at OPENLANE

S. Market in, I think the fourth quarter, certainly the latter part of last year. I think it was the fourth quarter. Yes, it was the fourth quarter. So that pricing increase in Q4 would have flowed into Q1 and been a year over year boost to the auction revenue growth.

Peter Kelly
CEO at OPENLANE

And so if I was to look at The U. S. D2D market in Q1, volume grew, so we had healthy volume growth. Revenue per unit also grew, right? Now, we also had some incremental investments against that, the investments we made in sort of Q2, Q3 of last year, which were offset by some other efficiencies in other parts of the business.

Peter Kelly
CEO at OPENLANE

So that was kind of the equation around that. But, listen, I think healthy volume growth, we believe we're gaining growing volume organically, growing our share, growing our dealer not only the volume, but also maybe more important to me is number of active sellers, number of active buyers and then obviously improving the E and PS and the customer experience as well, was important.

Bret Jordan
Managing Director at Jefferies LLC

Okay. And then I guess a big picture question that sort of relates to the tariffs and maybe you can flash back to 2022 when we had another external driver of used car values. But if new car ASPs go up and used becomes sought after commodity, do dealers put fewer cars to consignment or does that increase the churn of used vehicles as everybody is competing for this for inventory?

Peter Kelly
CEO at OPENLANE

Yes. It's a good question Brett. And I don't think we're looking at a 2022 I think all these situations are different, but there are some things to be thoughtful about when it comes to what we're looking at. To me, a key question is how much inventory, particularly new car inventory do dealers have on their lot relative to demand?

Peter Kelly
CEO at OPENLANE

If dealers lots are relatively full, then when they get trade ins associated with selling a new retail car, they're likely to wholesale a decent percentage of those trade ins, right? If their new car lot is relatively empty, then they're going to look at all those empty spaces and say, man, I need to start beefing up my used car business, right? So, I think we've got to sort of look at that. We did see because of the sort of pull ahead in retail that we saw in the last ten days of March and the first two weeks of April, I do believe inventory at dealers lots declined a little bit, but I think it was sort of relatively modest from like I think I saw a fifty five day supply down to fifty one or something like that and don't quote me on those numbers, but I think it's of that order. But that's one thing I would look at is how what is the total volume of new car sales, how relatively full are dealers lots and that will tend to drive how many vehicles they commit to the wholesale channel.

Bret Jordan
Managing Director at Jefferies LLC

Great. Thank you.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Peter Kelly for any closing remarks.

Peter Kelly
CEO at OPENLANE

Well, thank you, Nick, and thank you to everybody on the call for being with us here today and for your interest in our company. Again, as I look ahead, I think Openlane is very well positioned to navigate the current environment, advance our strategy for growth and deliver sustained shareholder value. As we look at the Q1 results, think it's clear that our marketplace and finance business are executing very well, generating very strong cash flows and, we've got this company in a situation we've got very little debt at this point. As a product of all we know about the industry and our performance, we are maintaining our 2025 guidance And we're also we spoke to the new share repurchase authorization, the upsizing of that to $250,000,000 I look forward to updating you all on OpenLane's strategy, innovation and performance again on our next quarter's call in about ninety days from now. Thank you all. Have a great evening.

Operator

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Executives
    • Jared Harnish
      Jared Harnish
      Head of Financial Planning and Analysis
    • Ryan Miller
      Ryan Miller
      VP - Finance
Analysts
Powered by Quartr

Key Takeaways

  • Record Q1 results with consolidated revenue up 7%, adjusted EBITDA of $83 million (+11%), and $123 million in operating cash flow, driven by strong Marketplace and Finance performance.
  • In the Marketplace segment, dealer-to-dealer volumes rose 15% year-over-year (second straight quarter of double-digit growth), outpacing physical auctions and capturing market share.
  • The Finance segment (AFC) grew total transactions, held the loan-loss rate to 1.5% (the lowest since Q4 2022), and delivered a 15% increase in adjusted EBITDA, leveraging cross-sell synergies with the Marketplace.
  • OpenLane’s asset-light digital strategy—focused on expanding its Marketplace, advancing technology, and enhancing customer experience—positions it for the expected rebound in commercial off-lease volumes in 2026.
  • Management is maintaining full-year 2025 guidance of $290 million–$310 million adjusted EBITDA, has boosted its share-repurchase authorization to $250 million, and is actively planning across multiple tariff scenarios.
AI Generated. May Contain Errors.
Earnings Conference Call
OPENLANE Q1 2025
00:00 / 00:00

Transcript Sections