Q3 2023 OPENLANE Inc Earnings Call

Yeah.

Good day everyone.

Welcome to the open Lane third quarter 2020 pre earnings conference call.

All participants will be in listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the star followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad.

To withdraw your question. Please press Star then two.

Please note today's event is being recorded.

I would now like to turn the conference over to Mike Eliason, Vice President of Investor Relations. Please go ahead Sir.

Thanks, Rocco good afternoon, and thank you for joining us today for the ultimately third quarter 2023 earnings conference call today, He will discuss the financial performance of opening for the quarter ended September 32023.

After concluding our commentary we will take questions from participants before Peter kicks off our discussion I'd like to remind you that this conference call contains forward looking statements within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995.

You're cautioned that such forward looking statements involve risks and uncertainties.

We expect openings business prospects and results of operations and such risks are fully detailed in our SEC filings provide.

Providing forward looking statements the company expressly disclaims any obligation to update these statements.

Let me also mentioned that throughout this conference call.

I'll be referencing both GAAP and non-GAAP financial measures.

Reconciliations of the non-GAAP financial measures to the.

The applicable GAAP financial measure can be found in the press release that we just issued.

Which will also be available in the Investor Relations section of our website.

Now I'd like to turn the call over to open Lane CEO, Peter Kelly Peter Thank.

Thank you, Mike and good afternoon everybody.

I'm delighted to be here today to provide you with an update on open late.

Joining me on today's call is our Chief Financial Officer, Brad leukemia.

I'm going to begin with open lane third quarter performance and as usual I will speak about our business in two segments, our marketplace segment and the finance segment.

I'm pleased with our Q3 performance and I'm, particularly encouraged by the improved performance of our marketplace business, despite the challenging industry environment.

I believe our Q3 results present compelling evidence that we are successfully evolving our business model to meet the realities of today's market positioning open lane for continued growth and expansion in the future.

During the third quarter, we grew our transaction volumes in both our marketplace and finance segments.

We grew total revenue and gross profit.

We reduced our SG&A.

We invested in technology innovation and product development, and we continue to generate strong cash flows in the business.

And while adjusted EBITDA has declined slightly driven mainly by return to historically normalized loan losses and a fast business.

And marketplace business delivered its best quarter since the divestiture of the U S physical auctions.

Brad will provide more detail around our specific performance later in the call, but I would like to highlight a few key results from open late third quarter.

First growth in both commercial and dealer transactions increased total marketplace volumes by 8% to 339000 vehicles with the total gross merchandise value of approximately $6 billion.

We generated year on year revenue growth of 6% to $416 million with contributions from both our finance and marketplace segments.

Auction fee revenue in the marketplace segment grew by 15%.

Gross profit in the quarter was $200 million that was an increase of 9% from Q3 of last year.

Gross profit represented 56% of revenue excluding purchased vehicles.

And I'd like to specifically call out the marketplace segments here again, where we increased gross profit by 17% year on year, representing 46% of revenues excluding purchased vehicles.

Openly and generated adjusted EBITDA of approximately $68 million in Q3.

27 million was from our marketplace segment. This was a 51% increase versus the third quarter of last year.

$41 million with some of our financings.

I'm very pleased that the marketplace business is now operating at an adjusted EBITDA run rate of over $100 million per year and significantly stronger than one year ago.

Also it is notable that our marketplace segment delivered approximately 40% of our total adjusted EBITA performance of the quarter significantly higher than last year.

Over time, I expect the marketplace segment, who represent over 50% of the total adjusted EBITA performance for open Lane.

Brad will discuss cash flow generation and capital allocation Lytham call, but I do want to highlight the strong cash flow characteristics of our business that were again evident in Q3.

[noise] openly and generated cash flows of $74 million from operating activities in the third quarter.

And as I mentioned last quarter. The company has a strong balance sheet and improved leverage ratio and ample liquidity liquidity to invest in innovation and growth, while still delivering profits and strong cash flows.

Yeah.

I'd now like to update you on our efforts to simplify our business.

Open Lane is committed to making wholesale easy easier.

Easier for customers to do business with us and also easier for our company to innovate and grow.

Cornerstone of this strategy is a rebrand to open lane and the corresponding work to consolidate our marketplace platforms and I'm very pleased that we're already seeing improvements to the customer experience accelerated product development timelines and meaningful reductions in cost.

To support this work we performed extensive market research during the second and third quarters with more than 1000 dealers across the United States and Canada.

And the results are very strongly aligned with our vision for open late.

First inventory selection is very important to our customers. Our combined open lane marketplaces will offer a highly differentiated mix of off lease inventory that is not available on any other digital or physical marketplace and dealer to dealer inventory.

Every age condition of price point.

Another key theme from our customers with ease and we were pleased to hear that our buyers and sellers find our platform is very easy to use.

Once combined the open lane marketplace will offer the most flexible multi format market places in North America, including time sales bid ask listed listings and live bidding auctions that take place nearly everyday of the week.

And finally trust remains an important factor with our customers. So we're highly focused on providing the most reliable condition reports the most responsive customer service and the most dependable supporting services, such as financing and transportation.

I believe we're operating from position of strength in these areas, but we will continue to invest to ensure our customer experience like our inventory remains a positive differentiator for openly.

So I believe that our one marketplace strategies is highly aligned with the preferences of our customers and I'd like to share some specific milestones that we achieved in the third quarter.

Starting with Canada, a combination of the ADESA and trade Rev platforms into a single open lane branded marketplace is now complete and has been successful.

The migration was initiated late in the second quarter and in Q3, a year on year volume growth in Canada.

The growth rate in our marketplace business as a whole.

Since launch we have implemented additional enhancements enhancements to our search and filter capabilities.

As well as the vehicle images are buy and sell functionality and other aspects of the marketplace.

I'm very encouraged by how quickly we were able to develop test and deploy these updates and I think this provides evidence of the direct relationship between simplifying our business and our ability to innovate and quickly respond to the preferences of our customers.

Another benefit of consolidation is our ability to leverage the best products and features from across our different platforms.

For example, today first of November in Canada, We will we launched open lane probe.

A successful trade Rev dealer program that will now be available to all Canadian dealers I hopped on late.

Anticipating dealers receive volume based rebates and access to open lines digital pricing guides and other exclusive tools.

And for open Lane. This expands the highly successful offering that generates non transaction subscription based revenue streams and also increase the stickiness with our customers.

Shifting to United States, we are now only weeks away from launching our consolidated open lane branded marketplace in the U S.

This will combine the off lease open sale inventory from our U S commercial sellers with a broad based dealer to dealer inventory currently available backhaul cars.

This will be a single simplified online experience.

With a number of sale formats to align with the buying habits of our dealers.

By connecting these two marketplaces buyers will have access to more diverse inventory and centers will have even more confidence that they are obtaining the best possible outcomes on the vehicles.

One of the most promising benefits is directly connecting the buyer experience on open the buying experience and openly with the ease of selling vehicles in our marketplace.

A significant portion of the franchise dealers, who have purchased inventories through our private label programs and our open sale do not yet sell vehicles with open lane at the same volume levels.

So the new unified experience those dealers can now purchase off lease inventory, while also seamlessly listing their own wholesale vehicles directly from the law.

And we're excited to get this off the ground and believe this combined marketplace will be well received by our customers.

And then finally in our international business, our rebrand to open Lane in Europe, and the U K is also on track to launch towards the end of this month.

This rebrand bills on the consolidation of our Europe and U K technology platforms that was completed earlier this year.

Our European business continues to perform well and we believe that open lane has an opportunity to capture share by delivering unique differentiated model to a growing base of customers in Europe.

So in summary, I'm looking forward to beginning 2024 with all of our marketplaces and all of our buyers all of our sellers and all of our inventory together under the open Lane Bryant.

As I mentioned earlier platform consolidation is not just about improving the customer experience and accelerate set accelerating innovation. It also affords us meaningful opportunities to reduce our costs by eliminating duplicated technology and avoiding the costs associated with maintaining older and sometimes outdated backend systems.

We're very focused on this and have appointed leadership to advance this consolidation effort where.

We're optimistic about what we can achieve in terms of cost reductions efficiency and also a more streamlined customer experience.

Unknown Executive: Today, and welcome to the Open Lane 3rd quarter of 2023 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signify a conference specialist by pressing the star key followed by zero.

Beyond platform consolidation, our cost management efforts now extends to every department and team across our organization.

During the third quarter, we reduced our total SG&A versus the prior year as well as sequentially.

Unknown Executive: After today's presentation there will be an opportunity to ask questions. To ask a question, you may press star them while on your telephone keypad. To withdraw your question, please press star them too. Please note today's event is being recorded.

And we continue to work through our pipeline of cost saving initiatives.

It's clear to me that our focus on this area is positively contributing to overall performance, particularly the improvement in gross margins and our overall adjusted EBITDA growth and.

And ultimately our cost conscious culture will help create the financial headroom for innovation, which in turn will further accelerate growth and improve our overall performance.

Michael Iason: I would not like to turn the conference over to Michael Iason, please present them in less relations. Please go ahead, sir. Thanks, Rocco.

I'd now like to provide some updates on the macro environments and our perspectives on the industry outlook for the fourth quarter 2024 and longer term.

Peter Keller: Good afternoon, and thank you for joining us today for the Open Lane 3rd quarter 2023 earnings conference call. Today, we'll discuss the financial performance of Open Lane for the quarter ended September 30, 2023. After concluding our commentary, we'll take questions from participants.

Our third quarter results were delivered against the backdrop of industry volumes that are still well below normal and well below pre pandemic levels.

Peter Keller: Before Peter Kicks stop our discussion, I'd like to remind you that this conference call contains four looking statements within the meaning of the state hardware provision of the Private Security's litigation reform act of 1995. Investors are cautioned that such four looking statements involve lists and uncertainties that may affect Open Lane's business, prospects, and results of operations. And such risks are fully detailed in our SEC violence and providing four looking statements that company expressly describes any obligation to update these statements.

However, we believe there is increasing evidence that the industry volumes have bottomed out and are beginning to rebound, particularly as it relates to commercial center volumes.

I believe this is supported by the following factors.

New vehicle production, new vehicle sales and new vehicle inventory on dealership lots continue to increase.

In fact, they continue to increase in the third quarter. Despite some disruptions from industry labor actions late in the quarter.

And while each individual metric remains below pre pandemic levels their collective improvement will help balance supply and demand in the used vehicle market over time.

Peter Keller: Let me also mention that throughout this conference call, we'll be referencing both gap and non-gap financial measures. Reconciliation of the non-gap financial measures to the applicable gap financial measure can be found in the press release that we just issued, which will also be available in the investor relations section of our website.

Shifting to used vehicle values, we continue to see downward pressure on prices in the third quarter, although the rate of price decline slowed perhaps driven in part by the industry labor actions that I referenced just a moment ago.

Now that those labor actions appear to have been resolved. We expect continued pressure on used vehicle prices through the end of the year.

Peter Keller: Now, I'd like to turn this call over to Open Lane CEO, Peter Keller. Peter? Thank you, Mike, and good afternoon, everybody. I'm delighted to be here today to provide you with an update on Open Lane. And joining me on today's call is our Chief Financial Officer, Brad Lakia. I'm going to begin with Open Lane's third quarter performance. And as usual, I will speak about our business in two segments, a marketplace segment and a finance segment.

I remain optimistic about the resiliency resiliency of our asset light model and our ability to deliver strong results irrespective of the environment.

Based on our conversations with commercial customers and on the data that we analyzed we believe that new vehicle lease originations increased by double digit percentages in the third quarter compared to the same period last year.

Peter Keller: I'm pleased with our Q3 performance, and I'm particularly encouraged by the improved performance of our marketplace business despite the challenging industry environment. I believe our Q3 results present compelling evidence that we are successfully evolving our business model to meet the realities of today's market, positioning Open Lane for continued growth and expansion in the future. During the third quarter, we grew our transaction volumes in both our marketplace and finance segments. We grew total technology innovation and product development, and we continued to generate strong cash flows in the business.

This is very encouraging as increased volumes of off lease vehicles will be a tailwind for us in the future as those leases mature.

I would also point out that the level of lease originations in the third quarter was still well below pre pandemic levels. So we expect to see further increases in this over time.

Despite the overall price decline for wholesale used vehicles. The majority of off lease vehicles that are maturing today still remain in a strong equity position versus their residual values.

However, this gap is narrowing.

We saw a modest increase in off lease volume supply in the third quarter and this contributed to our overall results.

Peter Keller: And while adjusted EBITDA has climbed slightly, driven mainly by return to historically normalized loan losses in our finance business, Open Lane's marketplace business delivered its best quarter since the divestiture of the U.S, physical auction. Brad will provide more detail around our specific performance later in the call, but I would like to highlight a few key results from Open Lane's third quarter. First, growth in both commercial and deuter transactions increased total marketplace volumes by 8% to 339,000 vehicles, with a total of gross merchandise value approximately $6 billion.

Looking to the future we expect to see a decline in the percentage of vehicles that are in a positive equity position.

Should this happen it will result in a lower percentage of vehicles and purchased by consumers overtime and consequently, more volume flowing into will open in the marketplace.

The precise timing around this is hard to predict but it is something we're watching carefully.

In summary, I believe that the set of facts that I described here points to a slow but steady improvement in wholesale supply.

And an improving environment for openly.

As I said last quarter I believe that the two primary pieces of our growth equation remain intact.

Peter Keller: We generated year-on-year revenue growth of 6% to $416 million, with contributions from both our finance and marketplace segments. Auction fee revenue in the marketplace segment we buy 15%. Gross profit in the quarter was $200 million, that was an increase of 9% from Q3 of last year. Gross profit represented 56% of revenue excluding purchased vehicles, and I'd like to specifically call out the marketplace segment here again where we increase gross profit by 17% a year-on-year, representing 46% of revenue excluding purchased vehicles.

First we believe the digital channels will continue to gain share. Our recent dealer survey support this and we believe that our technology inventory and customer experience will position us well to gain more of that additional share over time.

We also believe that all signs point towards a recovery commercial volume, which given our existing market share in deep commercial set of relationships will result in increased off these commercial vehicles in our marketplaces in the future.

So in terms of our performance outlook for the remainder of this year and.

In our market place segment I expect open lanes volumes in the fourth quarter to increase compared to the fourth quarter of last year.

Peter Keller: Open lane generation of just a debit of approximately $68 million in Q3. 27 million was from the marketplace segment, this was a 51% increase versus the third quarter of last year, and $41 million was from our finance segments. I'm very pleased that the marketplace business is now operating at an adjusted debit our run rate of over $100 million per year, and significantly stronger than one year ago. Also, it's notable that our marketplace segment delivered approximately 40% of our total adjusted debit of performance in the quarter, significantly higher than last year.

This volume growth coupled with strong unit economics that we're currently demonstrating should drive improved financial performance in the marketplace segment.

In the finance segment, we expect continued strong volumes and revenue.

Our Q3 loan loss ratio at AFC was at the higher end of what we believe to be the normal range and generally aligned with the range experienced before the pandemic.

We continue to manage this risk very closely across the portfolio and we have been very deliberate about growing responsibly to ensure that new business. We take on at AFC is very stable.

Overall, we expect continued solid performance may have see even though afc's full year results will be below last year's record levels.

Peter Keller: Over time, I expect the marketplace segment will represent over 50% of the total adjusted debits of performance for open lane. Brad will discuss cash flow generation capital allocationism call, but I do want to highlight the strong cash flow characteristics of our business that were again evident in Q3. Open lane generated cash flows of $74 million from operating activities in the third quarter. As I mentioned last quarter, the company has a strong balance sheet, an improved leverage ratio, and ample liquidity to invest in innovation and growth while still delivering profits in strong cash flows.

Brad will provide a more detailed update on how those factors impact various aspects of our guidance for the remainder of 2023.

As we look beyond this year, we will continue to execute a focused strategy and take actions to control the things that we can control.

We expect to build on our 2023 performance in 2024 and beyond.

We believe that the majority of our growth will be driven by our marketplace segments, but that our finance segment will also grow over 2020 three levels and will remain a very strong contributor to our overall results.

Peter Keller: I'd now like to update you on our efforts to simplify our business. Open lane is committed to making wholesale easy, easier for customers to do business with us, and also easier for our company to innovate and grow. A cornerstone of the strategies are rebrand to open lane, and a corresponding work to consolidate our marketplace platforms. I'm very pleased that we're already seeing improvements to the customer experience, accelerated product development timelines, and meaningful reductions in cost.

So to conclude my remarks. This afternoon I want to reiterate that I believe opened lane has unique and differentiated offerings to the market a compelling business model and a sound strategy for growth.

We are a pure play digital marketplace leader with deep strength with commercial sellers and in the dealer to dealer business.

We have access to a large addressable market in North America and in Europe.

We intend to grow our share in these markets I believe that the macro factors point to an improving outlook for commercial off lease volumes I expect the recovery will take time, but it will come in this recovery plus the continuing secular shift towards digital all points to an exciting future for openly.

Peter Keller: To support this work, we performed extensive market research during the second and third quarters with more than 1,000 dealers across the United States and Canada. And the results are very strongly aligned with our vision for open lane. First, inventory selection is very important to our customers. Our combined open lane marketplaces will offer a highly differentiated mix of awfully simple inventory that is not available at any other digital or physical marketplace, and dealer to dealer inventory at every age, condition, and price point.

We have a robust pipeline of innovation that supports our growth strategy.

Our consolidated core platforms, we will get greater leverage from our technology and product investments and we will focus our energy resources and investments on building the greatest digital marketplace for our customers.

We are profitable and we deliver strong positive cash flows.

Peter Keller: Another key theme from our customers was ease, and we were pleased to hear that our buyers and sellers find our platforms very easy to use. Once combined, the open lane marketplace will offer the most flexible, multi-format marketplaces in North America, including time sales, bid-athglistings, and live bidding options that take place nearly every day per week. And finally, trust remains an important factor within customers. So we're highly focused on providing the most reliable condition reports, the most responsive customer service, and the most dependable supporting services such as financing and transportation.

Our third quarter and year to date results clearly demonstrate that our profitability and cash flow characteristics have improved in spite of the lower than normal volume environment.

And I'm confident they would that they will improve further as we grow our volumes.

Our strong cash flows allow us to invest in our business, while generating additional capital that can be used to pay down debt return capital to shareholders and make strategic investments.

So with that I will now turn the call over to Brad Nokia, who will provide additional detail on our third quarter financial performance Brian.

Thank you Peter and good afternoon, everyone I'll start with our marketplace segment as Peter mentioned, we had strong unit volume growth, which drove a 3% increase in marketplace revenues, excluding purchased vehicles sales.

Peter Keller: I believe we're operating from position of strength in these areas, but we will continue to invest to ensure our customer experience, like our inventory, remains a positive differentiator for open lane. Probably believe that our one marketplace strategy is highly aligned with the preferences of our customers, and I'd like to share some specific milestones that we achieved in the third quarter. Starting with Canada, our combination of the Odessa and trade ref platforms into a single open lane branded marketplace is now complete and has been successful.

We also delivered volume increases in both our commercial and dealer channels.

Auction fees per unit increased 6% driven by select fee increases and the introduction of new auction related services.

Marketplace service revenues declined 3% largely due to lower transportation services and the receipt of a royalty payment in the third quarter of last year.

Peter Keller: The migration was initiated late in the second quarter, and in Q3 or Euro, Euro volume growth in Canada, I would paste the growth rate in our marketplace business as a whole. Since launch, we have implemented additional enhancements enhancements to our search and filter capabilities, as well as to vehicle images, our buy and sell functionality and other aspects of the marketplace. I'm very encouraged by how quickly we were able to develop tests and deploy these updates, and I think this provides evidence of the direct relationship between simplifying our business and our ability to innovate and quickly respond to the preferences of our customers.

The overall improvement in the marketplace revenue resulted in a 17% increase in gross profit.

This represents a 530 basis point improvement versus the third quarter of last year.

Again, excluding purchased vehicle revenues. It also represents a 200 basis point improvement sequentially when compared to the second quarter of this year.

In addition, gross gross profit benefited from improved mix and our service related businesses and cost savings initiatives.

Peter Keller: Another benefit of consolidation is our ability to leverage the best products and features from our customers. This is a process across our different platforms. For example, today, first of November, in Canada, we launched OpenLane Pro, a successful trade rev data program that will now be available to all Canadian dealers on OpenLane. Participating dealers receive volume-based rebates and access to OpenLane's digital pricing guides and other exclusive tools. And for OpenLane, this expands the highly successful offering that generates non-fans actions, subscription-based revenue streams, and also increases stickiness with our customers.

As Peter highlighted earlier our marketplace.

Adjusted EBITDA for the quarter was $27 million 9 million higher than the third quarter of last year.

And then also as discussed earlier this was driven by improvements in volume price mix and cost savings initiatives, including lower year over year and sequential SG&A.

Looking at year to date, our marketplace. Adjusted EBITDA was 85 million a $63 million improvement compared to last year.

Peter Keller: Shifting to the United States, we are now only weeks away from launching our consolidation of open-lane branded marketplace in the US. This will combine the off-least OpenSale inventory from our US commercial sellers with the broad-based Deeter-to-Deeter inventory currently available on backup cars. This will be a single, simplified online experience with a number of scale formats to align with the buying habits of our dealers. By connecting these two marketplaces, buyers will have access to more diverse inventory, and sellers will have even more confidence that they are obtaining the best possible outcomes on the vehicles.

And for added context, our dealer to dealer business is profitable and meaningfully contributed to this year to date improvement.

This improvement also supports the 100 million dollar adjusted EBITDA run rate, we highlighted in the second quarter call and Peter mentioned earlier in his comments.

It also reflects our pricing and cost management actions are materializing and.

And provides a window into the volume scalability of the segment.

Turning to our finance segment revenues in the quarter were 100, million% to 1% increase over the prior year.

Peter Keller: One of the most promising benefits is directly connecting the buyer experience on open-to-buying experience in OpenLane with the ease of selling vehicles in our marketplace. A significant portion of the franchise dealers who have purchased inventory through our private label programs and our OpenSale do not yet sell vehicles with OpenLane at the same volume levels. Through the new unified experience, those dealers can now purchase all these inventory while also seamlessly listing their own vehicles directly from the lot.

This was driven by a 2% increase in loan transactions.

Improved fee income per unit and interest rate yields.

Finance segment adjusted EBITDA in the quarter was $41 million compared to $52 million last year. This decrease is explained by a $10 million increase in credit losses, which equates to a 2% loss rate for the quarter.

And as discussed in prior calls this represents a more normalized rate when compared to very favorable fundamentals that enabled a much lower loss rate over the last few years.

Peter Keller: And we're excited to get this off the ground and believe this combined marketplace will be well received by our customers. And then finally, in our international business, our rebrand to OpenLane in Europe and the UK is also on track to launch towards the end of this month. This rebrand builds on the consolidation of our Europe and UK technology platforms that was completed earlier this year. Our European business continues to perform well, and we believe that OpenLane had an opportunity to capture share by delivering a unique, differentiated model to our growing base of customers in Europe.

And with regard to credit loss management I'd like to highlight and emphasize a couple of things. We have noted in prior calls and disclosures.

First our finance business has a very strong service offering that leverages. The combination of our high touch customer relationship model and a data driven risk management process that we believe is industry leading.

Peter Keller: So in summary, I'm looking forward to beginning 2024 with all of our marketplaces and all of our buyers, all of our sellers, and all of our inventory together under the OpenLane brand. As I mentioned earlier, platform consolidation is not just about improving the customer experience and accelerating innovation. It also affords us the meaningful opportunity to reduce our costs by eliminating duplicative technology and avoiding the cost associated with maintaining older and sometimes outdated backend systems.

This combination allows the business to deliver growth while prudently managing risk.

And second as we move through the remainder of this year and into next year, we will be faced with changed changing used car fundamentals and therefore, we will continue to manage a conservative portfolio.

Peter Keller: We're very focused on this and have appointed leadership to advance this consolidation effort. We're optimistic about what we can achieve in terms of cost reductions, efficiency, and also a more streamlined customer experience. Beyond platform consolidation, our cost management efforts now extend to every department and team across our organization. During the third quarter, we reduced our total SGNA versus the prior year, as well as sequentially. And we continue to work through our pipeline of cost saving initiatives.

Over time, we continue to expect the loss rate to be 2% or lower annually. However, actual losses any period could deviate from this range.

Turning to SG&A consolidated SG&A declined, 2% or $25 million compared to the third quarter of 2022.

Again, reflecting the successful execution of our ongoing cost savings initiatives.

And as we previously mentioned the implementation of some of these initiatives include duplicative costs that will roll off throughout the course of 2024 and will help us offset ongoing inflationary pressures.

I would also like to highlight that we expect fourth quarter SG&A to be higher than the fourth quarter of 2022 due to a $9 million reduction in noncash compensation expense that occurred last year.

Peter Keller: It's clear to me that our focus on this area is positively contributing to our overall performance, particularly the improvement of gross margins and our overall adjusted EBITDA growth. And ultimately, our cost conscious culture will help create the financial headroom renovation, which in turn will further accelerate growth and improve our overall performance. I'd now like to provide some updates on the macro environment and our perspectives on the industry outlook for the fourth quarter, 2024, and longer term.

Turning to the balance sheet and capital allocation.

Consistent with the first half of the year, we continue to generate strong cash flow cash flows from operating activities now stand at $216 million year to date.

This level of cash generation demonstrates the value, creating potential of our asset light digitally focused strategy and business model.

Peter Keller: Our third quarter results were delivered against the backdrop of industry volumes that are still well below normal and well below pre-pandemic levels. However, we believe there is increasing evidence that industry volumes have bottomed out and are beginning to rebound, particularly as it relates to commercial center volumes. I believe this is supported by the following factors. New vehicle production, new vehicle sales, and new vehicle inventory on dealership law to continue to increase.

Our cash generation has notably improved our overall liquidity position and further strengthen our balance sheet. This.

This is evidenced by a $131 million reduction in debt net debt since the end of 2022 and a meaningful improvement in our consolidated net leverage ratio, which now stands at approximately one half turn of adjusted EBITDA.

Peter Keller: In fact, they continue to increase in the third quarter despite some disruptions from industry labor actions laid in the quarter. And while each individual metric remains below pre-pandemic levels, their collective improvement will help balance supply and demand in the use of vehicle market over time. Shifting to used vehicle values, we continue to see downward pressure on prices in the third quarter. Although the rate of price declined slowed, perhaps driven in part by the industry labor actions that I referenced just a moment ago.

Given the current macro and industry environment, we will continue to focus on managing a prudent balance sheet, while maintaining and improving our liquidity position.

We will continue to prioritize capital to fund organic investments in our core digitally focused business. While also ensuring we have flexibility for high return complementary strategic investments and shareholder returns.

During the quarter, we completed $22 million in share repurchases and we increased and extended our share repurchase program authorization to $125 million through the end of 2024.

Peter Keller: Now that those labor actions appear to have been resolved, we expect continued pressure on used vehicle prices through the end of the year. I remain optimistic about the resiliency of our asset light model and our ability to deliver strong results with respect to the environment. Based on our conversations with commercial customers and on the data that we analyzed, we believe that new vehicle lease originations increased by double digit percentages in the third quarter compared to the same period last year.

I'll wrap up my comments by addressing a few annual annual guidance items, we're confirming our prior adjusted EBITDA guidance of $250 million to $270 million and as we said last quarter. We continue to believe we are trending to the higher end of this range.

We're also confirming our expected operating adjusted net income per share of between 60 and 70.

Peter Keller: This is very encouraging as increased volumes of off these vehicles will be a tailwind for us in the future as those leases mature. I would also point out that the level of lease originations in the third quarter was still well below pre-pandemic levels, so we expect to see further increases in this over time. Despite the overall price decline for whole-tailed used vehicles, the majority of off these vehicles that are maturing today still remain in a strong equity position versus their residual values.

Finally capital expenditures are now expected to be $55 million compared to our previous expectation of $60 million.

With that I'll turn the call back over to Rocco for questions.

Thank you.

To ask a question. Please press Star then one on your telephone keypad.

Would you like to withdraw your question. Please press Star then two.

Peter Keller: However, this gap is narrowing. We saw a modest increase in off these volumes of high in the third quarter and this contributed to our overall results. Looking to the future, we expect to see decline in the percentage of vehicles that are in a positive equity position. Should this happen, it will result in a lower percentage of vehicles been purchased by consumers over time and consequently more volume flowing into a open-line marketplace.

Today's first question comes from Craig Kennison with Baird. Please go ahead.

Hey, Thanks for taking my questions. The first one is on the repo market. Just wondering if you could comment on the impact on your commercial business.

Greg Thank you for that question.

Yes.

We we've seen an increase in repo volume in the industry for sure. Okay. So our repo I would say as a segment is back to I'd say very close to pre pandemic levels at this point.

Peter Keller: The precise timing around this is hard to predict, but it is something we are watching carefully. In summary, I believe that the set of facts that I've described here points to a slow but steady improvement in wholesale supply and an improving environment for openness. As I said last quarter, I believe that the two primary TCs of our growth equation remain intact. First, we believe that digital channels will continue to gain share.

Now the simple fact is while we have some exposure to repos in our services businesses and.

And in Canada, all the repo volumes in Canada relatively lower we do not sell many repossessed vehicles in our digital market places in the U S. So.

Peter Keller: Our recent Dieter surveys support this, and we believe that our technology, inventory, and customer experience will position us well to gain more of that additional share over time. We also believe that all finds point towards the recovery and commercial volume, which given our existing market share, and deep commercial set of relationships will resolve and increase all these commercial vehicles in our marketplaces in the future. So in terms of our performance outlook for the remainder of this year, in our marketplace segment, I expect open lanes volumes in the fourth quarter to increase compared to the fourth quarter of last year.

I'd say, we see repo volumes have increased materially say since 2021 that is for sure.

We benefit from that in our services businesses.

But we don't benefit.

In terms of <unk>.

Number of vehicles sold in our U S tissue market places 'twenty 'twenty significant extent today.

Thank you and then with respect to your off lease business Peter I'd take your point about the positive equity that exists today, but we're not.

That market comes back are you confident that you will capture the same very high percentage of that market through.

Peter Keller: This volume growth coupled with the strong units economics that were currently demonstrating should drive improve financial performance in the marketplace segment. In the finance segment, we expect continued strong volumes in revenue. Our Q3 loan last ratio at AFC was at the higher end of what will believe to be the normal range, and generally aligned with the range experience before the pandemic. We continue to manage this risk very closely across the portfolio, and we have been very delivered about growing responsibly to ensure that new business we take on at AFC is very stable.

Through your platform.

Well.

I guess in a short answer yes, Craig I think I am confident we have.

You know the seller relationships are intact, and we're servicing those customers.

If anything I would say that the percentage of those vehicles that are selling digitally today is higher than pre pandemic.

So the top of the funnel is lower but the conversion rate is higher.

Peter Keller: Overall, we expect continued solid performance from AFC, even though AFCs folder results will be below last year's record levels. Brad will provide a more detailed update on how those factors impact various aspects of our guidance for the remainder of 2023. As you look beyond this year, we will continue to execute a focus strategy and take actions to control the things that we can control. We expect to build on our 2023 performance in 2024 and beyond. We believe that the majority of our growth will be driven by our marketplace segments, but that our finance segment will also grow over 2023 levels, and will remain a very strong contributor to overall results.

And based on my discussions with both sellers I think.

You know, they're very very focused on trying to maximize the online selling percentage for those off lease vehicles now obviously it all remains to be seen but but I think there is arguments day, we could capture and even increased share versus pre pandemic.

Great. Thanks, Peter.

Thanks, Craig.

Thank you and our next question comes from Gary Casino with Barrington Research. Please go ahead.

Hey, good afternoon couple of questions Peter.

Conversion rates somewhat abnormally higher because of the impact of the UAW strike in the quarter or did that not come into play.

Peter Keller: So to conclude my remarks this afternoon, I want to reiterate that I believe open lane has unique and differentiated offerings to the market, a compelling business model and a sound strategy for growth. We are a pure play digital marketplace leader with deep strength with commercial sellers and in the dealer's dealer business. We have access to a large address market in North America and in Europe. We intend to grow our share in these markets.

It didn't really thanks, Gary for the question first of all it didn't really come into play the labor action didn't really start until late in the quarter.

So it didn't really impact you know July or August at all.

I guess, what I would say if we look at so pricing and conversion rates pricing, we saw pricing declining at a fairly fast clip as the quarter started and by the time, we got to the end of the quarter. The rate of decline has had had fallen off wasn't declining at the same rate and I sort of us.

Peter Keller: I believe that the macro factors point to improving outlook for commercial off these volumes. I expect the recovery will take time, but it will come, and this recovery plus the continuing secular shift towards digital, all points to an exciting future for open lane. We have a robust pipeline of innovation that supports our growth strategy. By consolidating our platforms, we will get greater leverage from our technology and product investments, and we will focus our energy resources and investment from building the greatest digital marketplace for our customers.

Assigned that will lead to the UAW action, you know less supply et cetera. We also saw a little bump in conversion I'd say late in the quarter, but probably for the same reason, but it wasn't what I call material.

Peter Keller: We are profitable and we deliver strong positive cash flows. Our third quarter and year-to-date results clearly demonstrate that our profitability and cash flow characteristics have improved in spite of the lower than normal volume environment. And I'm confident that they will improve further as we grow our volumes. Our strong cash flows allow us to invest in our business while generating additional capital that can be used to pay down debt, return capital to shareholders and make strategic investments.

And I'd say conversion rates in the third quarter were generally in line with what we saw in the first half of the year.

Okay, well that's good.

And in terms.

Some pretty good growth in commercial vehicles, I mean could you.

Maybe highlight what segments.

The commercial vehicle market were really strong and the other thing is with.

Brad Lakhia: So with that, I will now turn the call over to Brad LeKia, who will provide additional detail on our third quarter financial performance, Brad. Thank you, Peter, and good afternoon, everyone. I'll start with our marketplace segment. As Peter mentioned, we had strong unit volume growth, which drove a 3% increase in marketplace revenues, excluding purchase vehicle sales. We've also delivered volume increases in both our commercial and dealer channels. Auction fees per unit increase 6% driven by select fee increases and the introduction of new auction related services.

Lease penetration where is that now.

Yeah Okay.

Okay, So a commercial vehicles.

<unk> penetration so that even though the second part of the question too.

So on commercial vehicles, you're right. We did see growth, we actually saw growth in commercial in all of the markets that we operate in.

We saw commercial volume growth in Canada commercial volume growth in the U S and in Europe, Obviously, Europe volumes are less impactful to us but.

Saw strengths there as well.

I've kind of ascribe some of it are quite a bit of the.

To the Oems are able to provide more inventory to those commercial accounts, whether its rental car companies.

You know fleet operators things like that so that's kind of a.

Brad Lakhia: Marketplace service revenues decline 3%, largely due to lower transportation services and the receipt of a royalty payment in the third quarter of last year. The overall improvement in the marketplace revenue resulted in a 17% increase in gross profit. This represents a 530 basis point improvement versus the third quarter of last year. Again, excluding purchase vehicle revenues. It also represents a 200 basis point improvement sequentially when compared to the second quarter of this year.

That has sort of accelerated some deep leading out of commercial business and the weather.

That was badly needed because those customers weren't getting a lot of supply for the last couple of years.

So some of it is that we obviously talked about repossession volume.

And the last question now that the commercial business and then in the off lease space, We did see what we did.

See the equity.

Gap narrow a bit.

While still the majority of cars are being bought out sort of before they get into the remarketing process properly, but we did see that percentage decline a bit in more vehicles flow in in our U S off lease business as well, so I'd say broad based on that front.

Brad Lakhia: In addition, gross profit benefited from improved mix and our service related businesses and cost saving initiatives. As Peter highlighted earlier, our marketplace adjusted even dock of the quarter was 27 million, 9 million higher than the third quarter of last year. And also as discussed earlier, this was driven by improvements in volume, price, mix, and cost savings initiatives, including lower year-rear and sequential SGNA. Looking at year-to-date, our marketplace adjusted even dock was 85 million, a $63 million improvement compared to last year.

And then in terms of lease penetration.

The numbers I was looking at.

Gary we're that.

As best I can determine the volume of leases written in the third quarter was probably up about 30% compared to the volume of leases written in the third quarter last year now.

Got a stitch together some different data sources to get that out what that means in terms of lease penetration can't recall, but I think it's in the twenties.

Brad Lakhia: And for added context, our dealer-to-dealer business is profitable and meaningfully contributed to this year-to-date improvement. This improvement also supports the $100 million adjusted even though run rate we highlighted in the second quarter call and Peter mentioned earlier in his comments. It also reflects our pricing and cost management actions are materializing and provides a window into the volume scalability of the segment.

In the law around about 20% I guess, that's what I should say I also know from talking with customers.

Of our commercial accounts.

At least I would say a number of commercial accounts have.

Clearly told me that they're leasing significantly more vehicles, they're originating significantly more leases than a year ago, that's not true of all of them.

I'd say some of them are kind of flattish with some of the wrap some of them are absolutely higher it depends a little bit on how much that brand is sort of incentivising vehicle sales because that tends to drive leasing.

Brad Lakhia: Turning to our finance segment, revenues in the quarter were 100 million on 1% increase over the prior year. This was driven by a 2% increase in loan transactions, improved fee income for unit and interest rate yields. Finance segment adjusted even dock in the quarter was 41 million compared to 52 million last year. This decrease is explained by a $10 million increase in credit losses, which equates to a 2% loss rate for the quarter.

Okay, and then just lastly, real quickly you cited some the introduction of some new auction related services that help to drive.

Increase in auction fees for vehicles sold could you may be just very briefly discuss what some of these these new services are that you're generating.

Generating fees on.

Yeah, Gary this Brad Thanks for the question.

You know I cannot be a little general with you on where that is it's in our dealer channel largely focused in our U S business is where we've introduced some of these new service offerings.

Brad Lakhia: And as discussed in prior calls, this represents a more normalized rate when compared to very favorable fund metals that enabled a much lower loss rate over the last two years. In regard to credit loss management, I'd like to highlight and emphasize a couple things we have noted in prior calls and disclosures. First, our finance business has a very strong service offering that leverages the combination of a high-touch customer relationship model and a data-driven risk management process that we believe is industry leading.

And it's really I guess really has helped helped us from a volume perspective for sure.

It gives me give some of our customers in a different option or how they want to pay and also has helped us drive some improvements in working capital as well. So it's really kind of a two pronged benefit one.

Where buyers are able to have a more flexible payment option.

And then also from our perspective, we're able to drive some more efficiency in our capital structure.

Brad Lakhia: This combination allows the business to deliver growth while prudently managing risk. And second, as we move through the remainder of this year and into next year, we will be faced with changing used car fundamentals and therefore we will continue to manage a conservative portfolio. Over time, we continue to expect a loss rate to be 2% or lower annually. However, actual losses in any period could deviate from this range.

Okay. Thank you very much.

Thank you Gary.

Thank you and our next question today comes from Bob <unk> with CJS Securities. Please go ahead.

Hi, good afternoon, its actually lead you go to for Bob.

You already commented a little bit on.

Kind of a lease volumes and where they're going but can you break it down a little bit more in terms of just talking about lease volumes in general and then what part of the funnel the off lease cars are going to today and breaking that down between you know.

Brad Lakhia: Turning to SGNA, Consolidated SGNA Dequined 2% or 25 million compared to the third quarter of 2022. Again, reflecting the successful execution of our ongoing cost savings initiatives. And as we previously mentioned, the implementation of some of these initiatives include duplicative costs that will roll off throughout the course of 2024, and will help us offset ongoing inflationary pressures. I would also like to highlight that we expect fourth quarter SGNA to be higher than the fourth quarter of 2022 due to a $9 million reduction in non-cash compensation expense that occurred last year.

The let's see the grounding dealer closed auctions or open a physical.

Yeah. Thanks Lee.

Let me attempt to do that I guess I'll say first of all that in what I would call a more and more.

Normal or typical lease environment.

Which I would say.

20 years pre pandemic would be examples of.

We would typically see something like the following consumers with buyout, maybe 20% to 30% of the maturing volume and then 70% to 80% would enter the remarketing process and.

Brad Lakhia: Turning to the balance sheet and capital allocation, consistent with the first half of the year, we continue to generate strong cash flow. Cash flows from operating activities now stand at $216 million a year to date. This level of cash generation demonstrates the value creating potential of our asset light, digitally focused strategy and business model. Our cash generation has notably improved our overall liquidity position and further strength in our balance sheet. This is evidenced by a $131 million reduction in net debt since the end of 2022, and a meaningful improvement in our consolidated net leverage ratio, which now stands at approximately one half turn of the just to be the top.

Then you'd have some component of that which sells the grounding dealer.

Some into the franchise dealer network some of the open sale and the rest go to physical auction.

What we've seen really over the last two years and continuing through today for the most part is theres been such a run up in used vehicle values.

Yes.

These vehicles are sort of strongly in a in an equity position and the consumer is the percentage of vehicles of consumers buying out is considerably higher.

Then before it's sort of 60 70 in some cases more more than that percent.

And the extent.

Tumor doesn't buy out the car.

A lot of Oems and captive finance companies give the grounding dealer of the same buyout option the consumer has.

Brad Lakhia: Given the current macro and industry environment, we will continue to focus on managing a prudent balance sheet while maintaining and improving our liquidity position. We will continue to prioritize capital to fund organic investments in our core digitally focused business while also ensuring we have flexibility for high return complimentary strategic investments and shareholder returns. During the quarter, we completed 22 million and share repurchases and we increased and extended our share repurchase program authorization to 125 million through the end of 2024.

So if the consumer doesn't buy out the car gets return to the grounding dealer and they exercised that because the paragon as an equity.

So that that has managed for the last.

A couple of years the amount of <unk>.

Vehicles flowing deeper into the channel has been down I'd say by 90% versus what we would've called normal.

And obviously for that to get addressed the equity gap has to decline and all that sort of stuff needs to play out so.

We see that happening, we see that sort of the beginnings of that right now it depends it varies by brand by portfolio right.

Brad Lakhia: I'll wrap up my comments by addressing a few annual annual guidance items. We're confirming our prior adjusted EBITDA guidance of 250 to 270 million. And as we said last quarter, we continue to believe we are trending to the higher end of this range. We're also confirming our expected operating adjusted net income for share of between 60 and 70 cents. And finally, capital expenditures are now expected to be 55 million compared to our previous expectation of 60 million.

But you know what what I, what I see happening as we move into 2024 and 2025.

First of all those leases were written against much higher new vehicle transaction prices, okay, because the vehicles.

The sale price of the car was considerably higher.

So they tend to have higher residual values whitman's contracts.

So the residual value line has trended up and then on the other side of that to be.

Unknown Executive: With that, I'll turn the call back over to Rocco for questions.

The actual value of the vehicle, we're seeing downward pressure on that so I think these two lines are going to converge and get back to a more normal type of environment I hesitate to predict exactly when that can happen.

Unknown Executive: Thank you. If you would like to ask a question, please press star them on on your telephone keypad. If you'd like to withdraw your question, please press star them too.

But I believe it will happen and it will be positive for us as it happens and then the second part of it is obviously the new lease originations.

Craig Kennison: Today's first question, Control Craig, kind of soon with Baird. Please go ahead. Hey, thanks for taking my questions. The first one is on the repo market. Just wondering if you could comment on the impact on your commercial business. Great. Thank you for the question. We see an increase in repo volume in the industry for sure. Okay, so repo, I would say as a segment is back to, I'd say very close to pre-pandemic levels at this point.

And with Oems.

Getting back to sort of full production again and with consumer demand.

Craig Kennison: Now, the simple fact is while we have some exposure to repos in our services business, and in Canada, all the repo volumes in Canada are relatively lower. We do not sell many repossessed vehicles in our digital marketplaces in the US. So I'd say we see repo volumes have increased materially since 2021, that is for sure. We benefit from that in our services businesses, but we don't benefit in terms of numbers of vehicle sold in our US digital marketplaces 2020 significant extent today. Thank you.

Being somewhat weaker.

We're seeing some increase in incentives, we're seeing increase in leasing and that points to a strong.

Off lease volume well into the future.

Great and I think you know I think it's fairly clear that the consensus out. There is this secular you know that there is a secular shift to online dealer to dealer from physical.

Presumably that's going to be a lumpy transition can you speak to maybe your best estimate of.

The physical versus digital volumes in the market.

And their growth year to date, and then how should we think about that going forward into 2024.

Yeah.

Sure.

I guess I guess, what I'd say to that is based on the data we look at and obviously, we're a public some of our digital competitors also report public volumes.

If I look at the U S market.

Our assessment is that.

Peter Keller: And then with respect to your office business, Peter, I take your point about the positive equity that exists today, but you know when that market comes back, are you confident that you will capture the same very high percentage of that market through your platform? Well, I guess in a short answer, yes, Craig, I think I am confident we have, you know, the federal relationships are intact, we're servicing those customers. If anything, I'd say that the percentage of those vehicles that are selling digitally is higher than pre pandemic.

Approximately.

30 ish percent of the volume has transition to sort of fully digital off site model and 70% is is transacting in a physical or more hybrid.

Hybrid model today.

Now Theres also dealer to dealer transactions that don't take place in either of those models that take place sort of informally through wholesalers and other types of channels I'm really just talking about the formal channels. So I think we see digital at parity.

To be honest its been fairly steady at that level for the last year or two because I think there was a little bit of a rebound in the physical coming out of Covid pandemic eased and consumers kind of consumers in many industries kind of went back a little bit more to physical and store type of type of thing, but I think if you correct for that and look over a longer period of <unk>.

Peter Keller: So the top of the funnel is lower, but the conversion rate is higher. And based on my discussions with those sellers, I think, you know, they're very, very focused on trying to maximize the online selling percentage for those off these vehicles. Now obviously it all remains to be seen, but, but I think there's arguments that we could capture and even increase share versus pre pandemic. Great. Thanks, Peter. Thanks, great. Thank you.

Time, you'll still see that there is a.

I believe the steady secular shifts towards digital.

And our interviews with customers our surveys of customers really sort of support that fact.

Particularly talking to franchise dealers I think theres, a clear preference there.

Gary Prestopino: And our next question comes from Gary Prestopino with bearing through research. Please go ahead. Hey, good afternoon. A couple of questions, Peter, were conversion rates somewhat have normally higher because of the impact of the UAW strike in the quarter or did that not come into place? It didn't really, thanks Gary for the question. First of all, it didn't really come into play. The labor action didn't really start until late in the quarter.

From dealers the majority of those dealers prefer to purchase vehicles online they do not put a priority on going attending physical auctions in person anymore and.

We would look to independent dealers.

They're probably not as far along that curve, but I'd say.

There's no question that digital preference is still very well establish there and.

Gary Prestopino: So it didn't really impact, you know, July or August of all. I guess what I'd say, if we look at so pricing and conversion rates pricing, we saw pricing declining at a fairly fast clip as the quarter started. And by the time we got to the end of the quarter, the rate of decline had had had fallen off. It wasn't declining at the same rate. And I sort of assigned that really to the UAW action, you know, less supply, et cetera.

And that is I think gaining all the time as well.

Great I appreciate the color.

Thanks Lee.

And our next question today comes from Bret Jordan with Jefferies. Please go ahead.

Hey, good afternoon guys.

On the block KFC EBIT.

In AFC I guess as we think about the loss rates in the environment that we see today with <unk>.

Obviously margin pressure for the independent used car dealers and higher Floorplan expenses.

Is there a risk that it would go above that sort of 2% loss rate in the short term or because the loans are short term enough you can kind of pull the credit back and reduce your exposure to that.

Gary Prestopino: We also saw a little bump in conversion. I'd say lays in the quarter, but probably for the same reason, but it wasn't what I call material. And I'd say conversion rates in the third quarter were generally lineable, so on the first half of the year. Okay, that's, that's good.

Are there pressures I guess.

Yeah, Yeah. Thanks for the question I think you nailed it with your latter part of your question I mean are they they are short term as you know it's about 60 days on average in terms of our portfolio of tender and we have a lot of.

Gary Prestopino: And in terms of pretty good growth in commercial vehicles, I mean, could you, you know, maybe highlight what segments of the commercial vehicle market were really strong and the other thing is with least penetration. Where is that now? Yeah, okay, so commercial vehicles and these penetrations and they can know the second part of the question, too. So on commercial vehicles, you're right. We did see growth. We actually saw growth in commercial in all of the markets that we operate in.

A lot of levers will have options to be able to pull that back.

I'd also emphasize that more recently over the last year.

With those higher risk profile independent dealers, we have been more risk off with those.

On one hand, and then on the other hand.

Our credit monitoring and risk management processes have been I would say more tuned into them as well to the extent, we do continue to have exposure.

Gary Prestopino: We saw commercial volume growth in Canada, commercial volume growth in the US and in Europe, obviously, Europe volumes are less impactful to us, but, but strong strength there as well. I kind of ascribe some of it or quite a bit of it to, you know, the OEMs are able to provide more inventory to those commercial accounts, whether it's rental car companies, you know, fleet operators, things like that. So that's, there's kind of a, that has sort of accelerated some deep leading out of commercial business.

So.

But to answer your question. There is there is as we said the chance that periodically.

We could move above that 2% range, but let's say here over the meat more immediate near term.

We're feeling pretty comfortable with that.

Okay, and then I guess a question on your comment earlier about the potential to gain share in off lease.

And again.

And then you followed to say that a lot of volume is still sort of in a hybrid model given that you don't really have a physical option enables a more what is the proposition that you have to drive the share gain is it is it economic to you do you do it cheaper what is the off lease.

Gary Prestopino: And the other. You know, that was badly needed because those customers weren't getting a lot of supply for the last couple of years. So some of it is that we obviously talked about repossession volume on the last question. That's commercial business. And then in the awfully space, we did see, you know, we did see the equity gap narrowed it. And while still the majority of cars are being bought out sort of before they get into the remarketing process properly.

Were getting when they are not getting the physical alternatives.

Yes, I think a lot of the benefit of the digital model of it goes to speed efficiency and market efficiencies and well network effects.

<unk>.

Gary Prestopino: But we did see that percentage decline a bit and more vehicles flow in in our US off least business as well. So I'd say broad based on that front. And then in terms of least penetration, the numbers I was looking at, Gary were that as best I can determine the volume of leases written in the third quarter is probably up about 30% compared to the volume of leases written in the third quarter last year.

You know even before the.

The pandemic.

Conversion rate of off lease vehicles in our upstream channel was I think on average 55 ish percent among our U S customers. So it was already more than half of the volume was selling in <unk>.

And our fully digital model.

So.

And it had been trending up over many many years from 30 to 40 to 50, and then 55. So it was already on a long term upward trend I think fundamentally what you offer the seller is hey, these are a good quality vehicles for the most part three year old lower mileage single owner vehicles, you inspect them accurately you put that up in a digital marketplace when we get them.

Gary Prestopino: Now, you know, I've got to stitch together some different data sources to get that what that means in terms of least penetration. I can't recall, but I think it's in the 20s. In the low, you know, around about 20% I guess is what I should say. I also know from talking with customers, you know, some of our commercial accounts. You know, at least I would say a number of commercial accounts have clearly told me that they're leasing significantly more vehicles that they're originating significantly more leases than a year ago.

A lot of buyers and you get true price discovery through a digital marketplace and once the cars and purchased usually you do that very quickly in a very short space of time line.

A few days one day, perhaps on a few days Max and he has delivered the car immediately to the buyer and that's a very efficient process that enables us to to transact a car at a very low cost and the center gets the benefit of network effects nationwide.

Gary Prestopino: That's not true of all of them. I'd say some of them are kind of flatish, but some of them are absolutely higher. It depends a little bit on how much that brand is sort of intensifying vehicle sales because that tends to drive leasing.

Nationwide network of buyers opportunity to sell the car to the franchise dealer network potential broader network of buyers as well so if anything our capability. There has just gone up because we've got.

Brad Lakhia: Okay, and then just lastly, real quickly, you cited some the introduction of some new auction related services that help to drive increase in auction fees for vehicle sold. Could you maybe just very briefly discuss what some of these new services are that you're generating fees on? Yeah, Gary, this Brad. Thanks for the question. You know, I can be a little general with you on where that is. It's in our dealer channel largely focused in our US business is where we've introduced some of these new service offerings.

Honestly a lot more buyers online today than we had in 2018 to 2019, so we've got a much more liquid marketplace.

Brad Lakhia: And it's really, I guess, really has helped us from a volume perspective for sure gives the gives some of our customers a different option or how they want to pay and also has helped us drive some improvements in working capital as well. So it's really kind of a two-pronged benefit. One, you know, where buyers are able to have a more flexible payment option. And then also from our perspective, we're we're able to drive some more efficiency in our capital structure. Okay, thank you very much. Thank you, Gary. Thank you.

Yes.

I'd say I'd also didn't say these sellers have kind of got accustomed to not sending many cars to the physical auctions over the last three years, because they haven't had a whole lot of vehicles, making that part of the process. So I think they have a preference to maintain the strongest possible upstream.

Upstream online conversion rate.

Obviously, a lot of this remains to be seen but.

I think the digital channel has some unique advantages here.

And I think those would be.

Very evident as these volumes recover.

Okay, great. Thank you.

Thank you Brad Thank you and our next.

Question comes from Rajat Gupta with Jpmorgan. Please go ahead.

Great. Thanks for taking the question.

I have one question on just the dealer consignment volumes.

It was up 3% year over year, I think you mentioned, Canada outperformed that.

Lee Jagoda: And our next question for you comes from Bob Lovett with CJA Securities. Please go ahead. Hi, good afternoon. It's actually lead your go to for Bob. I think you already commented a little bit on kind of lease volumes and where they're going. But can you break it down a little bit more in terms of just talking about lease volumes in general and then what part of the funnel the off lease cars are going to today and breaking that down between, you know, the less the grounding dealer closed auctions or, you know, open or physical. Yeah, thanks, Lee. Let me attempt to do that.

That number.

Would you be able to give us some color on.

U S industrial did.

On the <unk> side and <unk>.

Any way to characterize like what your market share growth might've been.

And what you're doing in the U S. In the third quarter and I have one follow up. Thanks. Thanks, Roger I appreciate that so first of all.

When I spoke about Canada, I was speaking about Canada in the aggregate commercial and dealer.

I actually think in the third quarter.

Peter Keller: I guess I'll say first of all that in what I would call a more a normal or typical lease environment, which I'd say the 20 years pre-pandemic would be examples of. We would typically see something like the following. Consumers would buy out maybe 20 to 30 percent of the maturing volume, and then 70 to 80 percent would enter the remarketing process. And then you'd have some components of that which sells the ground in dealer, some into the franchise theater network, some on the open sale and the rest go to physical auction.

Our U S dealer to dealer year on year growth rate in our Canadian we're very similar in fact, I think the U S might have been slightly higher than Canada.

Just to be clear so 3% is the average I think the U S might've been slightly better than that.

So the number I talked about with the aggregate commercial and dealer.

And then we don't break out the specific numbers by by geography.

Got it.

But you know the U S. As the majority of our dealer to dealer volume for sure.

Got it and just like what any way to characterize like what your market share might have been.

Peter Keller: What we've seen really over the last two years and continuing through today for the most part is there's been such a run-up in used vehicle values that these vehicles are sort of strongly in an equity position. And the consumer, the percentage of vehicles that the consumer is buying out is considerably higher than before. It's sort of 60, 70 in some cases more than that percent. And the extent the consumer doesn't buy out the car.

Our growth there.

The us forces the overall due to the industry.

Hi, good afternoon.

The 3%, which compares to like how much for the overall industry.

In the third quarter.

Yes.

Reauthorizing the number I can share on this call we do track market share vis vis we track market share in lots of different ways. I mentioned, the 70 30 physical versus digital so we look at that in our component of that in total we also look as our or our share of just the digital.

Peter Keller: A lot of OEMs and captive finance companies give the ground in dealer the same buy-out option the consumer has. So if the consumer doesn't buy out the car it gets returned to the ground in dealer and they exercise that because the car again is in equity. So that has meant that for the last, a couple of years, the amount of vehicle flowing deeper into the channel has been down I'd say by 90 percent versus what we would have called normal.

Piece.

And I also think our competitors haven't reported numbers for the quarter, yet so I don't have the full set of facts for Q3.

I would say that our share has been fairly stable over the past period of time.

And.

And obviously, we believe that as a segment the digital dealer to dealer segment will grow we think we're very well positioned to gain share as part of that as well.

Peter Keller: And obviously for that to get addressed the equity gap has to decline and all that sort of stuff needs to play out. So we see that happening. We see the sort of beginnings of that right now. It depends. It varies by brand by portfolio. But what I see happening is we move into 2024 and 2025. First of all, those leases were written against much higher new vehicle transaction prices because the vehicle's the fail price of the car was considerably higher.

Got it got it that's helpful. And then just on the fourth quarter implied guidance implies call it $50 million of EBITDAR.

I wasn't sure if that is just like the seasonal drop that you're expecting from third quarter end.

Any way to dissect how much of that is coming from the marketplace forces AFC.

The fourth quarter.

Yeah, Roger Thanks for the question I think so yes $50 million it would imply 50 million on the low side.

Peter Keller: So they can't have higher residual values written into the contract. So the residual value line has trended up. And then on the other side of that the actual value of the vehicle we're seeing downward pressure on that. So I think these two lines are going to converge and get back to a more normal type of environment. I hesitate to predict exactly when that's going to happen. But I believe it will happen and it'll be positive for us as it happens.

As I mentioned earlier, we're we're feeling believing that we would trend more to the high side. So.

Call It 50 to 60.

There is seasonality in Q4, so it does certainly reflect that.

And what was I'm, sorry, the second or third part of your question.

Okay.

If it's a 60 million should we assume that the third quarter I guess, Oh, sorry, another best in the marketplace.

Peter Keller: And then the second part of it is obviously the new lease origination. And with OEMs, you know, getting back to sort of flow production again and with consumer demand being somewhat weaker, we're seeing some increase in incentives. We're seeing increase in leasing. And that points to a strong, you know, off lease volume will into the future. Great.

AFC trends are similar sequentially.

Yes, I mean, Peter highlighted.

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Q3 result marketplace represented 40% of our total adjusted EBITDA and I think you could model.

Lee Jagoda: And I think, you know, I think it's fairly clear that, you know, the consensus out there is the secular, you know, that there is a secular shift to online dealer to dealer from physical. Presumably, that's going to be a lumpy transition. Can you speak to maybe your best estimate of the physical versus digital volumes in the market and their growth year to date? And then how should we think about that going forward into 2024?

Something similar for Q4.

Got it.

Helpful.

I'll jump back in queue, thanks for taking the questions.

Thanks Roger.

Thank you and our next question today comes from Daniel <unk> with Stephens. Please go ahead.

Yeah, Hey, good evening, everybody. Thanks, taking my questions.

Yeah.

Peter You mentioned, maybe some of the benefits of consolidation in Canada, you know the ability to innovate and grow you gave some examples are those tools you introduced in Canada able to be exported to the U S. Maybe once that consolidation has actually occurred in the U S and maybe if you could give some other examples of in the U S. What are some of the opportunities you see that you could ask.

Lee Jagoda: Yeah. I guess, I guess, Lee, what I stated that is based on the data we look at and obviously we're public some of our digital competitors also report public volumes. If I look at the US market, our assessment is that, you know, approximately 30% of the volume has transitioned to sort of fully digital off-site model and 70% is is transacting in a physical or more hybrid hybrid model today. Now there's also dealer to your transactions that don't take place in either of those models, that take place, you know, sort of informally through wholesalers and other types of channels.

Innovate that you couldn't do before the integration to open line.

Thanks, Gail good question.

So.

Sure. The first part of your question are those transferable to the U S. I would say, yes to an extent.

It's.

So I would characterize what we've done in Canada right now we've migrated sort of trade Rev and ADESA to one consolidated platform and we're obviously doing what we're doing in the U S getting through one consult consolidated open sale platform there too.

Lee Jagoda: So I'm really just talking about the formal channel. So I think we see digital at 30. To be honest, it's been fairly steady at that level for the last year or two because I think there was a little bit of a rebound in the physical coming out of COVID, as a pandemic eased and, you know, consumers kind of, consumers in many industries kind of went back a little bit more to physical and historic type of thing.

We still have to do more of our back end consolidation should really get to one more unified platform and I spoke about that in my remarks. So others can do there's some fairly significant technology lift to make that happen, but we're very focused on that we got teams working on that and I'm confident we'll get there and that'll have a lot of benefits for our company. So I'd say today some of them are easy.

Lee Jagoda: But I think if you correct for that and look over a longer period of time, you'll still see that there's a, I believe, a steady, secular shift towards digital. And our interviews with customers are surveys of customers really sort of support that fact, particularly talking to franchise dealers. I think there's a clear preference there. From dealers, the majority of those dealers prefer to purchase vehicle one line. They do not put a priority on going, attending physical auctions in person anymore.

Transfer some of them will take more work, but over time.

It will all become more transferable.

I would characterize that.

You know when I think about the U S.

I mentioned, our dealer survey work you know.

One of the things I found really gratifying about that as the dealers were very positive about how our system and I should say our systems are open lane private label system, but also our backlog car system, how easy it is to understand how easy is to navigate how easy it is to do business on those platforms.

Lee Jagoda: And when we look at independent dealers, they're probably not as far along that curve. But I'd say there's no question. The digital preference is still very well established there and is, I think, gaining all the time as well. Great. Appreciate the color.

Unknown Executive: Thank you.

And I think that's very encouraging because we put a lot of partner effort in making sure that there's a lot of technology equity, we try to keep that behind the scenes and not not in front of the customer make it easy for the customer.

I think we got high marks on that.

Bret Jordan: I don't know. Next question today comes from Brad Jordan with Jeffries. Please go ahead. Hey, good afternoon, guys. On the KFC. In AFC, I guess as we think about the loss rates and the environment that we see today with, you know, obviously, margin pressure for the independent use card dealers and higher floor plan expenses, is there a risk that it would go above that sort of 2% loss rate in the short term or because the loans are short-term enough, you can kind of pull the credit back and reduce your exposure to their pressures, I guess.

I'm excited by the opportunity to be able to put the off lease cars into a much more liquid marketplace. One that has more buyers.

The one that has more established I'll call auction type sale formats.

Bret Jordan: Yeah, thanks for the question. I think you nailed it with your latter part of your question. I mean, they are short-term, as you know, it's about 60 days on average, in terms of our portfolio tender. And we have a lot of, a lot of levers, a lot of options to be able to pull that back. I would also emphasize that more recently over the last year, you know, with those higher risk profile independent dealers, we've been more risk off with those on one hand and then on the other hand, our credit monitoring and risk management processes have been, I would say, more tuned into them as well, to the extent we do continue to have exposure.

Because historically.

Our private label and upstream business kind of operated more like a click and buy kind of situation you. The car at a certain price do you want to buy it or not but.

Wasn't really a price discovery kind of channel it more was a here's the price take it or leave it.

But as we as we migrate to this new platform, we have that capability, but we also have true sort of auction type formats that are widely used by buyers and sellers. So I know that some of our commercial customers are very excited to start sort of experimenting in that and trying to drive again, a higher conversion rate get more conversion rate.

Bret Jordan: So, but to answer your question, there is, as we said, you know, the chance that periodically, we couldn't move above that 2% range, but let's say, here over the immediate near term, we're feeling pretty comfortable with that.

Through this sort of auction type price discovery format.

That's one example.

There are numerous others, but that would be one that I think could be impactful for us over time.

Okay. That's helpful. And then maybe a longer term just financial question I know the market's upside down today, but as we think about a return of off lease. Historically. These are ARPA accretive you maybe got a thousand dollars, including recon in revenue versus 200, and an open online auction.

Without the recall and maybe on the back end I guess should we expect just less or a pool of accretion or can you maybe help frame up the unit economics between all fleets and dealer to dealer as more of your volume shifts back to commercial in the coming years.

Peter Keller: Okay, and then I guess a question that you're commenting earlier about the potential to gain share and loss lease. You know, and again, you've been then you followed to say that a lot of volume is still serving a hybrid model, given that you don't really have a physical option anymore. What is the proposition that you have to drive the share gain? Is it is an economic view? Do you do it cheaper?

Yes. Thanks, I know, it's probably hard to me hard for me to go into detail on that on this call, but what I would say in general terms is that those commercial.

Off lease vehicles will tend to be lower our pud, but higher gross profit.

So we you know.

The revenue per car tends to be less but our touch points on the cars also with us. So we don't have as much direct cost to get to that one.

Peter Keller: You know, what is the off lease seller getting when they're not getting the physical alternative? Yeah, I think a lot of the benefit of the digital model goes to speed efficiency and, you know, market efficiency is a well network effects. You know, even before the pandemic, the conversion rate of off lease vehicles and upstream channel was, I think on average, 55% among our US customers. So it was already more than half of the volume was selling in a, you know, in a fully digital model.

I can also say is that business historically was very profitable.

Well beyond its current level of profitability.

So I'm confident that as those volumes return.

Unquestionably a good thing for our business.

It changed the Arco metrics a bit yes.

Will it improve the gross profit margin in percentage terms I think yes.

But it will absolutely improve the overall profitability of our company for sure.

Got it okay, well well well get more details again I appreciate all the color best of luck.

Thank you Daniel appreciate that so I think that's properties.

Peter Keller: So, and it had been trending up over many, many years from, you know, 30 to 40 to 50 and then 55. So it was already on a long term up with trend. I think, fundamentally, what you offer the seller is, hey, these are good quality vehicles for the most part, three year old nor mileage single owner vehicles. You inspect them accurately. You put that up in a digital marketplace where you get a lot of buyers and you get true price discovery through a digital marketplace.

All of the questions, we've got time for Rocco.

Yes, Sir that's correct. Please proceed.

Okay, great. Thank you so <unk>.

Appreciate everybody's time today appreciate all the good questions you know.

As I said at the outset of this call I'm pleased with the third quarter performance and I believe the results speak for themselves.

I will say that we're focused on closing out this year strong executing our strategy as I've described it on this call and others and growing this business in 2024 and beyond.

Peter Keller: And once the car is in purchase, you do that very quickly in a very short space of time like a few days, one day, perhaps a few days max and then you deliver the car immediately to the buyer. And that's a very efficient process and enables us to transact a car at a very low cost and the center gets the benefit of network effects nationwide network of buyers, opportunity to sell the cars of franchise theater network into a broader network of buyers as well.

Really appreciate you all joining today's call and I look forward to updating you on our continued progress in our next call early in the new year. Thank you all very much.

Thank you. This concludes today's call you may now disconnect your lines and have a wonderful day.

Okay.

Peter Keller: So, if anything, our capability there has just gone up because we've got, honestly, a lot more buyers online today than we had in 2018 or 2019. So, we've got a much more liquid marketplace and I'd say I'd also then say these sellers have kind of got accustomed to not sending many cars to the physical auctions over the last three years because they haven't had a whole lot of vehicles making that far in the process.

[music].

Peter Keller: So, I think they have a preference to maintain the strongest possible upstream, you know, upstream online conversion rate. Obviously a lot of this remains to be seen, but I think the digital channel has unique advantages here and I think those would be very evident as we fall into cover.

Unknown Executive: Great, thank you. Thank you, bro.

Unknown Executive: Thank you.

Rajat Gupta: And the next question comes from Jacques Gupta with JP Morgan, please go ahead. Great, thanks for taking the question. I had one question on just the dealer confinement volumes. It was up 3% earlier. I think you mentioned Canada outperformed that number. Would you be able to give us some color on what the US industry did on the D2D side and any way to characterize what your market share growth might have been in the US in the third quarter and have one follow up.

Rajat Gupta: Thanks, Rajat. I appreciate that. So first of all, when I spoke about Canada, I was speaking about Canada in the aggregate commercial and dealer. I actually think in the third quarter, our US dealer to Deeter year on your growth rate and our Canadian were very similar. In fact, I think the US might have been slightly higher than Canada, just to be clear. So if 3% is the average, I think the US might have been slightly better than that.

Rajat Gupta: So the number I talked about was the aggregate commercial and dealer. And then we don't break out the specific numbers by Jarvis. But, you know, the US is the majority of our dealer to Deeter bottom for sure. God, and just like what any way to guidelines, like what your market share might have been, growth there in the US, voices, the overall D2D industry. Negative what the 3% would compare to like how much for the overall industry in the third quarter.

Rajat Gupta: The reason the number I can share on this call, we do track market share vis-a-vis, you know, we track market share in lots of different ways. I mentioned the 70-30 physical versus digital. So we look at that and our component of that in total, we also look as our share of just the digital piece. And I also think our competitors haven't reported numbers for the quarter yet. So it's, I don't have the full set of facts for Q3.

Rajat Gupta: I would say that our share has been fairly stable over the past period of time. And obviously we believe that as a segment, the digital dealer to Deeter segment will grow, we think we're very well positioned to gain share as part of that as well. Got it, got it, that's helpful.

Rajat Gupta: And just on the fourth quarter implied guidance, you know, it implies like 50 million, but I wasn't sure, you know, that is just like the seasonal drop that you're expecting from quarter and. Any way to dissect how much of that is coming from the marketplace, which is a Fc for quarter. Yeah, Richard, thanks for the question. I think so yeah, you know, 50 million, it would imply 50 million on the low side.

Rajat Gupta: As I mentioned earlier, we're, we're feeling believing that we would trend more to the high side. So, you know, call it 50 to 60. There is seasonality in Q4, so it does certainly reflect that. And what was, I'm sorry, the second or third part of your question. Uh, just, you know, if it's a 60 million, it should be assumed that the quarter of death, it's another death of the marketplace and. AFC trends are similar sequentially, I was. Yeah, I mean, Peter highlighted in the Q3 result marketplace represented 40% of our total adjusted EBITDA and I think you could model and assume something similar for Q4. That's helpful.

Unknown Executive: I'll jump back in here. Thanks for the question. Thanks for driving.

Daniel Imbro: Thank you. And our next question today, how's from Daniel Embroer with Stevens, please go ahead. Yeah.

Peter Keller: Hey, good evening, everybody. Thanks again, our questions. Peter, you mentioned maybe some of the benefits of consolidation in Canada, you know, the ability to innovate and grow. You gave some examples. Are those tools you introduced in Canada able to be exported to the US maybe once second solidations actually occurred in the US? And maybe if you give some other examples of in the US, what are some of the opportunities you see that you could actually innovate?

Peter Keller: That you that you couldn't do before the integration open line? Thanks, Dale, good question. So, to your first part of your question, are those transferable to the US? I would say yes to an extent. So, I would characterize what we've done in Canada right now. We've migrated sort of trade revenue deaths at the one consolidated platform. And we're obviously doing what we're doing in the US getting to one consolidate open sale platform there too.

Peter Keller: We still have to do more of our back in consolidation to really get to one more unified platform. And I spoke about that in my remarks. So there's. There's some fairly significant technology lifts to make that happen. We're very focused on that. We got teams working on that and I'm confident we'll get there and that will have a lot of benefits to our company. So I'd say today some of them are easy to transfer.

Peter Keller: Some of them will take more work, but over time, it'll all become more transferable. Is this how I would characterize that? You know, when I think about the US. Yes, I mentioned our dealer survey work, you know, one of the things I found really gratifying about that is the dealers were very positive about how key our system. And I should say our systems are open lane private label system, but also our back lot cars system, how easy it is to understand how easy is to navigate how easy is to do business on those platforms.

Peter Keller: And I think that's very encouraging because we put a lot of thought in effort and making sure that there's a lot of technology. We try to keep that behind the scenes and not not in front of the customer, make it easy for the customer. So I think we got high marks on that. I'm excited by the opportunity to be able to put the off lease cars into a much more liquid marketplace.

Peter Keller: One that has more buyers. And the one that has more established I'll call auction types sale formats because historically. Our private label and upstream business kind of operated more like a click and buy kind of situation. The car has a certain price. Do you want to buy it or not. But it wasn't really a price discovery kind of channel it more was a. Here's the price, take it or leave it. But as we migrate to this new platform, we have that capability, but we also have true sort of auction type formats that are widely used by buyers and sellers.

Peter Keller: So I know that some of our commercial customers are very excited to start sort of experimenting in that and trying to drive again a higher conversion rate, get more conversion rate through this sort of auction type price discovery format. So that's one example. There are numerous others, but that would be one that I think could be impactful for us over time. Okay, that's helpful.

Peter Keller: And then maybe a longer term, just financial question, I know the markets upside down today. But as we think about a return of off lease. Historically, these are are pretty creative. You maybe got a thousand dollars, including recon and revenue versus 200 in an open on mine auction. Without the Recon, maybe on the back end, I guess should we expect just less R-Poo accretion, or can you maybe help frame out the Uniteconomics between off-leads and dealer to dealer as more of your volume shifts back to commercial in the coming years?

Peter Keller: Thanks, Dan. It's probably hard for me to go into detail on that on this call, but what I would say in general terms is that those commercial up-off-least vehicles will tend to be lower R-Poo but higher girls profit. So the revenue per car tends to be less, but our touch points on the car is also less. So we don't have as much direct cost against that. What I can also say is that business historically was very profitable, well beyond its current level of profitability.

Peter Keller: So I'm confident that as those volumes return, it's unquestionably a good thing for our business. Will it change the R-Poo metrics a bit? Yes. Will it improve the girls profit margin in percentage terms? I think yes. But it will absolutely improve the overall profitability of our company, for sure. Okay. We'll get more details we go. I appreciate all the color. That's a lot. Thank you, Daniel. Appreciate that.

Unknown Executive: So I think that's all the questions we've got time for Rocco. Yes, sir. That's correct. Please proceed. Okay. Great. Thank you. So again, appreciate everybody's time today. Appreciate all the good questions. You know, as I said at the outset of this call, I'm pleased with the third quarter performance, and I believe the results speak for themselves. I will say that we're focused on closing out this year strong, executing our strategy as I've described it on this call and others, and growing this business in 2024 and beyond. I really appreciate you all joining today's call, and I look forward to updating you on our continued progress in our next call, early in the new year. Thank you all very much. Thank you.

Unknown Executive: This is this call. You may not have seen it before on a wonderful day.