Q1 2024 OPENLANE Inc Earnings Call

Operator: Good day, and welcome to the Open Lane First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode.

Good day and welcome to the open Lane first quarter 'twenty 'twenty four earnings conference call.

Speaker Change: All participants will be in listen only mode.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to Mike Eliason, Treasurer and Vice President of Investor Relations. Please go ahead.

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

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

Speaker Change: To ask a question you May press Star then one on a touchtone phone.

Speaker Change: To withdraw your question. Please press Star then two.

Speaker Change: Please note this event is being recorded.

Speaker Change: I would now like to turn the conference over to Mike Eliason, Treasurer, and Vice President of Investor Relations. Please go ahead.

Michael Eliason: Thanks, Cindy. Good afternoon. And thank you for joining us today for the Open Lane first quarter 2024 earnings conference call. Today we'll discuss the financial performance of Open Lane for the quarter ended March 31, 2024. After concluding our commentary, we'll take questions from participants.

Thanks, Sandeep good afternoon, and thank you for joining us today for the open Lane first quarter 2024 earnings Conference call today, we'll discuss the financial performance of open Lane for the quarter ended March 31, 2024, after concluding our commentary we will take questions from participants.

Michael Eliason: Before Peter kicks off our discussion, I would like to remind you that this conference call contains forward-looking statements within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect Open Lane's business, prospects, and results of operations, and such risks are fully detailed in our SEC filing. In providing forward-looking statements, the company expressly disclaims any obligation to update these statements.

Michael Eliason: Before Peter kicks off our discussion I would like to remind you that this conference call contains forward looking statements within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 995 investors are cautioned that such forward looking statements involve risks and uncertainties that.

Michael Eliason: May affect open lanes business prospects and results of operations and such risks are fully detailed in our SEC filings and providing forward looking statements. The company expressly disclaims any obligation to update these statements.

Michael Eliason: Let me also mention that throughout this conference call, we will be referencing both GAAP and non-GAAP financial measures. Reconciliations of the non-GAAP financial measures to the applicable GAAP financial measure can be found in the press release that we issued this afternoon, which is also available in the investor relations section of our website. Now I'd like to turn this call over to Open Lane's CEO, Peter Kelly.

Let me also mentioned that throughout this conference call, we will be referencing both GAAP and non-GAAP financial measures reconciliations of the non-GAAP financial measures to the applicable GAAP financial measure can be found in the press release that we issued this afternoon, which is also available in the Investor Relations Sir.

Michael Eliason: <unk> of our website.

Michael Eliason: Now I'd like to turn this call over to open Lane CEO, Peter Kelly Peter Thank.

Peter J. Kelly: Thank you, Mike, and good afternoon, everybody. I'm delighted to be here today to provide you with an update on Open Lane. Joining me is Open Lane's Chief Financial Officer, Brad Lakhia. I will begin with a discussion of our company strategy and how we are positioning Open Lane for growth. Then I'll hand the call over to Brad to cover the majority of our financial and operating metrics for the quarter.

Peter J. Kelly: 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 is open lanes Chief financial Officer, Brad leukemia.

Peter J. Kelly: I will begin with a discussion of our company's strategy and how we're positioning open lane for growth.

Peter J. Kelly: And then I'll hand, the call over to Brad to cover the majority of our financial and operating metrics for the quarter.

Peter J. Kelly: To start, I'm very pleased with the results that Open Lane delivered in the first quarter. On a consolidated basis, we grew Adjusted EBITDA to $75 million, and we also generated $100 million in free cash flow from operations. These Q1 results were largely driven by significantly improved performance in the open lane marketplace, which grew volumes 13% compared to Q1 of last year, grew adjusted EBITDA by 40% on a clean basis, and contributed 47% of our total company adjusted EBITDA during the quarter. AFC was also a strong contributor, generating approximately $40 million of adjusted EBITDA in Q1.

Speaker Change: To start I'm very pleased with the results that open lane delivered in the first quarter.

Brad S. Lakhia: On a consolidated basis, we grew adjusted EBITDA to $75 million.

Brad S. Lakhia: And we also generated $100 million in free cash flow from operations.

Brad S. Lakhia: These Q1 results were largely driven by significantly improved performance of the open lane marketplace, which grew volumes, 13% compared to Q1 of last year grew adjusted EBITDA by 40% on a clean basis and contributed 47% of our total company adjusted EBITDA during the quarter.

Brad S. Lakhia: AFC was also a strong contributor generating approximately $40 million of adjusted EBITDA in Q1.

Peter J. Kelly: These results demonstrate the positive impact of our brand and platform consolidation effort and also the strong scalability characteristics of our company, a leaner, more agile operating model, accelerated innovation, and a differentiated experience that makes wholesale easy for our customers. And I believe that Q1 is a compelling preview of the value that Open Lane is capable of delivering. So, let me turn to our strategy and how we plan to build on this positive momentum.

Brad S. Lakhia: These results demonstrate the positive impact of our brand and platform consolidation efforts and also the strong scalability characteristics of our company.

Brad S. Lakhia: Clean air and more agile operating model accelerated innovation and a differentiated experience that makes wholesale easy for our customers.

Brad S. Lakhia: And I believe that Q1 is a compelling preview of the value that open lane is capable of delivering.

Speaker Change: So let me turn to our strategy and how we plan to build on this positive momentum.

Peter J. Kelly: Open Lane is highly focused on growth, growth in volume and market share, as well as growth in our financial results. We view these goals as complementary, and Open Lane has spent several years transforming our business models to advance them simultaneously. Our strategy for growth is anchored in our purpose, which is to make wholesale easy so our customers can be more successful, and guided by our vision, which is to build the world's greatest digital marketplace for used vehicles.

Open Lane is highly focused on growth growth and volume and market share as well as growth in our financial results.

Speaker Change: We view these goals is complementary and open lane has spent several years transforming our business model to advance them simultaneously.

Speaker Change: Our strategy for growth is anchored in our purpose, which is to make wholesale easy so our customers can be more successful and.

Speaker Change: Guided by our vision, which is to build the world's greatest digital marketplace for used vehicles.

Peter J. Kelly: Open Lane has several strategic advantages that I believe will help us achieve our purpose and vision and further accelerate profitable, scalable growth. These advantages include, first, our expanding volume and share in the commercial and dealer segments. Second, the opportunities enabled by our asset-light digital model. And third, our focus on the customer experience. Let me address each of these individually, and I'll start with volume growth and share. In the first quarter, Open Lane grew its marketplace volumes by 13%, increased gross merchandise value by 17% to $7 billion, and also increased market share. Volume, GMV, and share growth were largely driven by our U.S. business.

Speaker Change: Open late has several strategic advantages that I believe will help it should help us achieve our purpose and vision and further accelerate profitable scalable growth.

Speaker Change: These advantages include first our expanding volume and share in the commercial and leisure segments.

Speaker Change: Second the opportunities enabled by our asset light digital model.

Speaker Change: Third our focus on the customer experience.

Speaker Change: Let me address each of these individually and I'll start with volume growth and share.

In the first quarter open lane grew its marketplace volumes by 13% increased gross merchandise value by 17% to $7 billion.

Speaker Change: And also increased market share the.

Speaker Change: The volume GMP ensure growth were largely driven by our U S business.

Peter J. Kelly: These results, coupled with the financial performance that I referenced earlier, purely demonstrate the strength of our marketplace. And at the heart of that strength is a differentiated mix of commercial and dealer inventory. In terms of commercial off-lease volumes, Open Lane remains a clear market leader. Our commercial office volumes were up substantially in both the United States and Canada during the quarter. And based on AuctionNet industry data, our volume growth meaningfully outperformed the U.S. commercial market, although commercial off-lease supply is still well below pre-pandemic levels.

Speaker Change: These results coupled with the financial performance that I referenced earlier, clearly demonstrate the strength of our marketplace and at the heart of that strength is a differentiated mix of commercial and dealer inventory.

Speaker Change: In terms of commercial off lease volumes open lane remains a clear market leader.

Speaker Change: Our commercial off these volumes were up substantially in both United States and Canada during the quarter.

Speaker Change: And based on auction that industry data, our volume growth meaningfully outperformed the U S commercial market.

Speaker Change: Commercial off lease supply is still well below pre pandemic levels and we expect volumes to remain pressured in the second half of this year and into 2025, given the low level of leases written in 'twenty, one and 'twenty two.

Peter J. Kelly: And we expect volumes to remain pressured in the second half of this year and into 2025, given the low level of leases written in 21 and 22. However, currently, originations of new vehicles are rising. They increased again in the first quarter, making Q1 the fourth quarter in a row where that has happened, and they're expected to increase further throughout 2024. So Open Lane will be a beneficiary of these future off-lease volumes when these leases mature.

Speaker Change: However, currently used originations of new vehicles, a rise at the.

Speaker Change: They increased again in the first quarter, making Q1, the fourth quarter in a row, where that has happened and they are expected to increase further throughout 2024.

Speaker Change: So ultimately it will be a beneficiary of these future off lease volumes from these leases mature.

Peter J. Kelly: Additionally, given the financial results we produced in Q1, with just a modest increase in off-lease volumes, I'm increasingly optimistic about what OpenLin can deliver when off-lease volumes are even more robust. We also see additional growth opportunities in the commercial segment, including expanding the products and services that we offer, growing vehicle consignment from new off-lease, rental, and repo customers, as well as increasing conversion, particularly in higher revenue channels. From a theater volume perspective, we are also well positioned for growth.

Speaker Change: Additionally, given the financial results, we produced in Q1 with just a modest increase in off lease volume I am increasingly optimistic about what open lane can deliver one off lease volumes are even more robust.

We also see additional growth opportunities in the commercial segments, including expanding the products and services that we offer growing vehicle consignment from new off lease rental and retail customers as well as increasing conversion, particularly in higher revenue channels.

From a theater volume perspective, we are also well positioned for growth.

Peter J. Kelly: First, we have a very strong dealer to dealer platform that delivers excellent results for dealer customers in terms of time to sale, cost of sale, and financial outcomes. We are growing the number of franchise and independent dealer registrations across our geography. And through our private label programs, we have the unique ability to transition thousands of franchise private label buyers into multi-channel buyers and sellers on Open Lake. The story with respect to Open Lane's Q1 dealer volumes is nuanced. At an industry level, we saw declines in total dealer volumes sold in the US and, to an even greater degree, in Canada.

Speaker Change: First we have a very strong dealer to dealer platform that delivers excellent results for our dealer customers in terms of time to sale cost of sale and financial outcomes.

Speaker Change: We are growing the number of franchise and independent dealer registrations across our geographies.

So our private label programs, we have the unique ability to transition houses the franchise private label buyers into multichannel buyers and sellers on open late.

Speaker Change: Sorry, with respect to open lanes Q1 dealer volumes as nuanced.

Speaker Change: At an industry level, we saw declines in total dealer volumes sold in the U S and two in Asia, even greater degree in Canada.

Peter J. Kelly: Additionally, we also saw significant growth in commercial vehicle supply in the open lane marketplace. This resulted in some dealers who, in recent periods, would have purchased dealer consigned vehicles, in effect, trading up and purchasing commercially consigned vehicles instead. This is a direct result of our diverse inventory and is actually a positive trend for our marketplace. So the net effect of all of this for Open Lane was as follows.

Speaker Change: Additionally, we also saw significant growth in commercial vehicle supply in the open lane marketplace.

Speaker Change: This resulted in some dealers who in recent periods periods would have purchased dealer consigned vehicles in FX trading up in purchasing commercially consigned vehicles instead.

Speaker Change: This is a direct result of our diverse inventory and is actually a positive trend for our marketplace.

Speaker Change: So the net net of all of this for open Lane was as follows Canada.

Peter J. Kelly: Canada represented the majority of our dealer volume headwinds during the quarter. In the US, we saw increased supply from our network of selling dealers, we increased our D2D market share versus physical auctions, and we grew the total volume of open marketplace transactions in the US. As I look to the future, there are several key factors that will support our dealer volume growth. First, there remains a large addressable market, with the majority of industry volumes still being transacted at physical auction.

Speaker Change: Canada represented the majority of our dealer volume headwinds during the quarter.

Speaker Change: In the U S. We saw increased supply from our network up selling dealers, we increased our <unk> market share versus physical auctions and we grew the total volume of open marketplace transactions in the United States.

Speaker Change: As I look to the future there are seven several key factors that will support our dealer volume growth.

Speaker Change: First there remains a large addressable market with the majority of industry volumes still being transacted at physical auctions.

Peter J. Kelly: We believe we will continue to take share here as our digital marketplace enables faster and easier buying and selling and delivers better outcomes. Also, we now have a single platform experience with a unified sales team focused on growing our new customer base and our wallet share with existing customers. And then finally, we're also highly focused on expanding our relationships with the largest dealer groups in the country. Many still utilize physical auctions, but again, our digital marketplace capabilities have already opened the door to many new opportunities and relationships.

Speaker Change: We believe we will continue to take share here as our digital marketplace enables faster and easier buying and selling and delivers better outcomes.

Speaker Change: Also we now have a single platform experience with a unified sales team focused on growing our new customer base and our wallet share with existing customers.

Speaker Change: And then finally, we're also highly focused on expanding our relationships with the largest dealer groups in the country Manny.

Many still utilize physical auctions, but again, our digital marketplace capabilities have already opened the door to many new opportunities and relationships.

Peter J. Kelly: So, in summary, Open Lane is well positioned with both commercial and dealer customers, and there is growing evidence that having all of the buyers, all of the sellers, and all of the vehicles all in one place creates a more active and vibrant marketplace. In addition to the volume opportunities, I believe we can accelerate growth by capitalizing on the opportunities that are enabled by our asset-light digital model. We continue to make good progress combining disparate tools and technology into a single marketplace platform.

Speaker Change: So in summary, open lane is well positioned with both commercial and dealer customers and there is growing evidence that having all of the buyers all of the sellers on all of the vehicles all in one place creates a more active and vibrant marketplace.

Speaker Change: In addition to the volume opportunities I believe we can accelerate growth by capitalizing on the opportunities that are enabled by our asset light digital model.

Speaker Change: We continue to make good progress combining disparate tools and technology into a single marketplace platform.

Peter J. Kelly: This will reduce our costs over time, but more importantly, it increases our operating leverage and also accelerates the speed at which we can bring new innovations to market. At our core, we are a technology company developing and launching new digital products and features on a regular basis. Let me give you a few examples from this quarter.

This will reduce our costs over time, but more importantly, it increases our operating leverage and also accelerates the speed at which we can bring new innovations to market.

Speaker Change: At our core we are a technology company developing and launching new digital products and features on a regular basis.

Speaker Change: Let me give you a few examples from the quarter.

Peter J. Kelly: As we previewed on our last earnings call, during the first quarter, we launched our new Visual Boost AI condition report technology, which is aimed at improving the accuracy and transparency of condition reports in our marketplace. To date, we believe we're still the only digital marketplace that gives buyers access to an AI-powered inspection visualization on every dealer vehicle listed in our marketplace. Our data has shown that buyers who utilize Visual Boost AI submit twice as many bids and offers on the vehicles that they view.

Speaker Change: As we previewed on our last earnings call. During the first quarter, we launched our new visual boost AI condition report technology, which is aimed at improving the accuracy and transparency of condition reports in our marketplace.

Speaker Change: Today, we believe we're still the only digital marketplace that gives buyers access to an AI powered inspection visualization on every dealer vehicle listed in our marketplace.

Speaker Change: Our data has shown that buyers who utilize visual boost AI submit twice as many bids and offers on the vehicles that they view.

Peter J. Kelly: And more bids lead to more seller confidence that we're achieving the best market outcome possible. One large volume buyer described Visual Boost AI as a game-changing technology, while others said it allows their dealerships to view the car as if I was standing right in front of it.

Speaker Change: And more bids leads to more set our confidence that we're achieving the best market out compostable.

Speaker Change: One large volume buyer described visuals boost AI as a game changing technology.

Speaker Change: Others said it allows their dealerships to view the cars if I was standing right in front of it and several several have mentioned that it helps them buy we think more confidence.

Peter J. Kelly: And several have mentioned that it helps them buy with more confidence. So Visual Boost AI is a powerful differentiator for us that is driving increased trust and transparency on the open lane marketplace. Another Open Lane innovation that was deployed in Q1 is our Absolute Sale feature, which was deployed in the U.S. marketplace. Absolute sale is available to all sellers and visible to all buyers on that marketplace. Once the bidding has reached an acceptable price point for the seller, the seller can click on the absolute sale button to signal to the marketplace that they are now 100% committed to selling this vehicle. After the absolute sale process has been initiated, we typically see buyer bidding increase rapidly because buyers now know that if they submit the highest bid, they're guaranteed to win that vehicle.

Speaker Change: So visual boosts AI is a powerful differentiator for us that is driving increased trust and transparency on the open lane marketplace.

Peter J. Kelly: Sellers like this because it increases buyer engagement on their vehicles, and participating sellers have seen sale prices increase by an average of almost $500 after they have activated the absolute sale feature. Based on this, it's evident that absolute sale is also driving higher marketplace engagement, increased velocity of sale, and better outcomes for sellers. These are just two examples of a very robust and progressive portfolio of innovation that we're investing in to create the greatest digital marketplace for used vehicles.

Speaker Change: Another open lane innovation that was deployed in Q1 is our absolute sales feature this was deployed in the U S marketplace.

Speaker Change: Absolute sale is available to all sellers invisibles, all buyers on that marketplace.

Speaker Change: Once the bidding has reached an acceptable price point to the seller the seller can click on the absolute sale button to signal to the marketplace that this is there are now 100% committed to selling this vehicle.

Speaker Change: After the absolute sale process has been initiated typically we see buyer bidding increasing rapidly because buyers now know that if they submit the highest bids they are guaranteed to win that vehicle.

Speaker Change: Centers like this because it increases buyer engagement on their vehicles and participating sellers have seen sale prices increased by an average of almost $500. After they have activated the absolute sale feature.

Speaker Change: Based on this it's evident that absolute sale is also driving higher marketplace engagement increased velocity of sale and bedrock better outcomes for sellers.

Speaker Change: These are just two examples of a very robust and progressive portfolio of innovations that we're investing in to create the greatest digital marketplace for used vehicles.

Peter J. Kelly: And then finally, let me turn to customer experience, which is an area where I believe there is tremendous opportunity for differentiation and an area that I believe will help drive meaningful growth. During the quarter, we formed a centralized customer experience team that will lead our customer experience strategy across Open Lane and leverage the data, the processes, and best practices from all of our businesses. This team is already advancing a broad portfolio of initiatives with two main goals.

Speaker Change: And then finally, let me turn to customer experience, which is an area where I believe there is tremendous opportunity a differentiation and an area that I believe will help drive meaningful growth.

Speaker Change: During the quarter, we formed a centralized customer experience team that will lead our customer experience strategy across open lane and leverage the data the processes and best practices from all of our business.

Speaker Change: This team is already advancing a broad portfolio of initiatives with two main goals.

Peter J. Kelly: First, address any known customer pain points or issues. And second, identify the new products and features that will help make OpenLanes a preferred platform for buyers and sellers. In the first quarter, we designed a new customer NPS framework that is now being implemented across our business.

Speaker Change: First address any known customer pain points of issues and second identify the new products and features that will help make open lanes, a preferred platform for buyers and sellers.

Speaker Change: In the first quarter, we designed a new customer NPS framework that is now being implemented across our business. This will help us monitor experience delivery more consistently than ever before and will also help us benchmark with other companies and other industries.

Peter J. Kelly: This will help us monitor experience delivery more consistently than ever before, and will also help us benchmark with other companies and other industries. We have also deployed new technology to enhance key aspects of the customer experience and aggregate customer feedback in a way that will help inform and prioritize our product development pipeline. So it's evident that we made positive progress on each of these fronts in the first quarter, growing our volumes, deploying new innovation, and improving the customer experience.

Speaker Change: We also deployed new technology to enhance key aspects of the customer experience and aggregate customer feedback in a way that will help inform and prioritize our product development pipeline.

Speaker Change: Okay.

Speaker Change: So it's evident that we made positive progress on each of these fronts in the first quarter growing our volumes deploying new innovation and improving customer experience.

Peter J. Kelly: It's also evident that when combined, these strategic areas are capable of driving a highly scalable business. In the case of the first quarter, we saw 40% adjusted EBITDA growth, approximately 40% adjusted EBITDA growth in the marketplace on a 13% increase in volume, also with strong cash flows. As I look to the future, Open Lane will build on this strong foundation and lean more heavily into our go-to-market strategy, investing further in sales, marketing, technology, and innovation to continue driving growth.

Speaker Change: It's also evident that when these when combined these strategic areas are capable of driving our highly scalable business.

Speaker Change: In the case of the first quarter, we saw 40% adjusted EBITDA growth approximately 40% adjusted EBITDA growth in the marketplace on a 13% increase in volume also with strong cash flows.

Speaker Change: As I look to the future open Lane will build on this strong foundation and lean more heavily into our go to market strategy.

Investing further into sales marketing technology and innovation to continue driving growth.

Peter J. Kelly: And in terms of our finance business, AFC remains an industry leader and a strategic asset for Open Lane. It increases buyer engagement and stickiness on our marketplace platforms and contributes meaningfully to our bottom line. Consistent with comments on our last call, I believe the risk environment is flattening, and we remain committed to managing risk and growing responsibly in the AFC business. So that was the quarter, but before I hand things over to Brad, I just want to reinforce Open Lane's key strengths in terms of our value proposition for investors and our ability to deliver shareholder value. Open Lane is an asset-light digital marketplace leader for wholesale used vehicles.

Speaker Change: And in terms of our finance business AFC remains an industry leader and a strategic asset for openly.

Speaker Change: It increases buyer engagement and stickiness on our marketplace platforms and contributes meaningfully to our bottomline.

Speaker Change: Consistent with comments on our last call I believe the risk environment is flattening and we remain committed to managing risks and growing responsibly in the AFC business.

Speaker Change: So that was the quarter, but before I hand things over to Brad I just wanted to reinforce open lanes key strengths in terms of our value proposition for investors and our ability to deliver stockholder value.

Speaker Change: Open Lane as an asset light digital marketplace leader for wholesale used vehicles.

Peter J. Kelly: There is a large addressable market in North America and Europe, and we are well positioned to capture the opportunities to grow both dealer and commercial volumes. Our brand and platform consolidation efforts are enabling us to accelerate innovation and product development. Our focus on operational efficiency gives us the financial headroom to invest in innovation without sacrificing financial results. We are cash flow positive with a strong balance sheet. And we believe our business has the capability to generate meaningful earnings growth over the next several years. With that, I'll hand it over to Brad for a deeper discussion on our operational and financial metrics for the quarter. Brad.

Brad S. Lakhia: There is a large addressable market in North America, and Europe, and we are well positioned to capture the opportunities to grow both dealer and commercial volumes.

Brad S. Lakhia: Our brand and platform consolidation efforts are enable us, enabling us to accelerate innovation and product development.

Brad S. Lakhia: Our focus on operational efficiency gives us the financial headroom to invest in innovation without sacrificing financial results.

Brad S. Lakhia: We are cash flow positive with a strong balance sheet and.

Brad S. Lakhia: And we believe our business has the capability to generate meaningful earnings growth over the next several years.

Brad S. Lakhia: With that I'll hand, it over to Brad for a deeper discussion on our operational and financial metrics in the quarter Brad.

Brad S. Lakhia: Thank you, Peter, and good afternoon, everyone. Before I begin, I'd like to remind everyone that all financial metrics I comment on at a consolidated level and at a total marketplace segment level are on a net revenue basis, which specifically excludes the impact of purchase vehicle sales. In addition, my comments will be on a first-quarter, year-over-year basis unless I state otherwise. As Peter mentioned, we are very pleased with our first quarter

Brad S. Lakhia: Thank you Peter and good afternoon, everyone before I begin I'd like to remind everyone that all financial metrics I comment on at a consolidated level and a total marketplace segment level or on a net revenue basis, which specifically excludes the impact of purchased vehicles sales.

Brad S. Lakhia: In addition, my comments will be on a forced first quarter year over year basis, unless I state otherwise.

Brad S. Lakhia: Peter mentioned, we were very pleased with our first quarter results on a comparable basis. Our consolidated net revenue was up 4% year over year, mainly driven by the 13% unit volume growth in our marketplace segment.

Brad S. Lakhia: On a comparable basis, our consolidated net revenue was up 4% year-over-year, mainly driven by the 13% unit volume growth in our marketplace segment. In our reported results, you will see our net revenue was down 2% as we continue to realize the impact from the transportation accounting change we made in the fourth quarter of last year. This resulted in a $22 million impact on net revenue in the quarter.

Brad S. Lakhia: In our reported results you will see our net revenue was down 2% as we continue to realize the impact from the transportation accounting change we made in the fourth quarter of last year.

Brad S. Lakhia: This resulted in a $22 million impact to net revenue in the quarter.

Brad S. Lakhia: Consolidated gross profit improved $6 million, or 3%, and gross margin improved on a year-over-year basis for the fifth quarter in a row, this time by 270 basis points to 56.5%. Gross profit and margin benefited from higher auction and service fees, higher marketplace volumes, and continued improvements to our cost structure. Consolidated SG&A in the quarter was $109 million, and essentially flat to last year, even though our volumes were up 13%. We believe our digital model and our ongoing cost efforts will allow us to continue to scale efficiently, and we expect absolute SG&A to subsequently remain at these levels for the remainder of the year. Consolidated adjusted EBITDA was $75 million, an increase of $16 million. Last year, we incurred an $11 million charge related to an early stage investment.

Brad S. Lakhia: Consolidated gross profit improved 6 million or 3% and gross margin improved on a year over year basis for the fifth quarter in a row. This time by 270 basis points to 56, 5%.

Brad S. Lakhia: Gross profit and margin benefited from higher auction and service fees higher marketplace volumes and continued improvements to our cost structure.

Brad S. Lakhia: Consolidated SG&A in the quarter was $109 million and essentially flat to last year, even though our volumes were up 13%.

Brad S. Lakhia: We believe our digital model and our ongoing cost efforts will allow us to continue to scale efficiently and we expect absolute SG&A to subsequently remain at these levels for the remainder of the year.

Brad S. Lakhia: Consolidated adjusted EBITDA was $75 million, an increase of $16 million.

Brad S. Lakhia: Last year, we incurred an $11 million charge related to an early stage investment.

Brad S. Lakhia: Accounting for this, Adjusted EBITDA was up $5 million. Turning to the marketplace segment, our total volumes were up primarily driven by our U.S. business. However, our total marketplace dealer volumes declined.

Brad S. Lakhia: Counting for this adjusted EBITDA was up $5 million.

Brad S. Lakhia: Turning to the marketplace segment, our total volumes were up primarily driven by our U S business.

Brad S. Lakhia: Our total marketplace dealer volumes declined and this was primarily driven by our Canadian business.

Brad S. Lakhia: And this was primarily driven by our Canadian business. Similar to late last year, we continue to see Canadian buyers migrate towards commercial vehicles where supply has improved, and we expect this to continue as the overall wholesale mix of commercial and dealer vehicles shifts to pre-pandemic love norms. In terms of pricing and fees, for the third quarter in a row, we saw auction fees grow at double-digit rates.

Brad S. Lakhia: Similar to late last year, we continue to see Canadian buyers migrate towards commercial vehicles or supply has improved.

Brad S. Lakhia: And we expect this to continue as the overall wholesale mix of commercial and dealer vehicles.

Brad S. Lakhia: Shifting to pre DAC pre pandemic loved norms.

Brad S. Lakhia: In terms of pricing and fees for the third quarter in a row, we saw auction fees grow at double digit rates.

Brad S. Lakhia: Total auction fee revenue increased 10% driven by strong volume growth. On a comparable year-over-year basis, services revenue was up 4% driven by higher repossession, inspection, and key service revenue. We continue to focus on driving greater attachment of our ancillary services to our marketplace offerings. However, I want to note that our reported revenues show service revenue down 9%.

Brad S. Lakhia: Total auction fee revenue increased 10% driven by strong volume growth.

On a comparable year over year basis services revenue was up 4% driven by higher repossession inspection and key service revenue.

Brad S. Lakhia: We continue to focus on driving greater attachment of our ancillary services to our marketplace offerings.

Brad S. Lakhia: Want to note that our reported revenues show show service revenue down 9%.

Brad S. Lakhia: Again, primarily due to the transportation accounting change I discussed earlier. The collective positive impact of our volumes, pricing, and disciplined cost management resulted in marketplace adjusted EBITDA of $35 million. Adjusting for the prior year one-time charge, this is approximately a 40% increase and represents 47% of Open Lane's total adjusted EBITDA compared to 36% in the first quarter of last year. However, marketplace SG&A was flat.

Brad S. Lakhia: Again, primarily due to the transportation accounting change I discussed earlier.

Brad S. Lakhia: So collective positive impact of our overall, our volumes pricing and disciplined cost management resulted in marketplace adjusted EBITDA of $35 million.

Brad S. Lakhia: Adjusting for the prior year, one time charge. This is approximately a 40% increase.

Brad S. Lakhia: And represents 47% of open lanes total adjusted EBITDA compared to 36% in the first quarter of last year.

Brad S. Lakhia: And as mentioned in my earlier comments, consolidated comments, we expect similar levels of SG&A for the balance of the year. As Peter said, we are very pleased with these improved results. But more importantly, we believe these improvements are sustainable and position us to deliver further improvements as we capture incremental value from our one marketplace solution. Turning to our finance segment, loan transaction units in the quarter were relatively flat as we continue to balance growth and risk.

Brad S. Lakhia: Marketplace SG&A was flat and as mentioned in my earlier comments consolidated comments, we expect similar levels of SG&A for the balance of the year.

Brad S. Lakhia: As Peter said, we're very pleased with these improved results.

Brad S. Lakhia: But more importantly, we believe these improvements are sustainable and position us to deliver further improvements as we capture incremental value from our one marketplace solution.

Turning to our finance segment loan transaction units in the quarter were relatively flat as we continue to balance growth and risk.

Brad S. Lakhia: Revenues for the quarter were down 2%, primarily driven by increased net credit losses and lower interest income resulting from lower vehicle values within the portfolio. These two factors were also the primary drivers of our finance segment adjusted EBITDA result of $40 million, down $5 million versus last year. The provision for credit losses was 2.3%, which was slightly better than our expectations. The higher loss rate versus historical performance is attributable to the ongoing impact of higher interest rates, declines in used vehicle values, continued consumer inflationary pressures, and tightening retail credit availability.

Brad S. Lakhia: Revenues for the quarter were down 2%, primarily driven by increased net credit losses, and lower interest income, resulting from lower vehicle values within the portfolio.

Brad S. Lakhia: These two factors were also the primary driver of our finance segment adjusted EBITDA result of $40 million.

Brad S. Lakhia: <unk> 5 million versus last year.

Brad S. Lakhia: The provision for credit losses was two 3%, which was slightly better than our expectations. The higher loss rate versus historical performance is attributable to the ongoing impact of higher interest rates declines in used vehicle values continued consumer inflationary pressures.

Brad S. Lakhia: And tightening retail credit availability.

Brad S. Lakhia: We are encouraged by the recent improvements we are seeing and the severity of losses. This is the result of stabilizing fundamentals and proactive risk mitigation actions we have taken over the last year. As I mentioned in our year-end call, we continue to expect the overall first half loss rate to be comparable to the second half of 2023. As a result, as usual, I will provide an updated outlook for our second half 2024 expectations during our next earnings call.

Brad S. Lakhia: We are encouraged by the recent improvements we're seeing in the severity losses. This is the result of stabilizing fundamentals and proactive risk mitigation actions, we have taken over the last year.

Brad S. Lakhia: As I mentioned in our year end call. We continue to expect the overall first half loss rate to be comparable to the second half of 2023.

Brad S. Lakhia: As a result, and as usual I will provide an updated outlook for our second half 'twenty 'twenty four expectations during our next earnings call and.

Brad S. Lakhia: And I'd like to reiterate that our long-term loss rate target of 1.5 to 2% remains unchanged. As Peter and I have said previously, we're very pleased with OpenLean's portfolio of businesses and assets. As it relates to AFC, we value AFC's market leadership.

Brad S. Lakhia: And I'd like to reiterate that our long term loss rate target of 1.5% to 2% remains unchanged.

Brad S. Lakhia: As Peter and I have said previously we're very pleased with open lanes portfolio of businesses and assets as it relates to AFC, we value Afc's market leadership.

Brad S. Lakhia: The synergies with our marketplace and its leading financial performance and cash flow characteristics. Moving to the balance sheet and capital allocation. Consistent with prior quarters, we continue to generate strong cash flow. Cash flow from operating activities was $100 million in the quarter, and our consolidated net leverage was approximately one times adjusted EBITDA. This level of cash generation demonstrates the value of our asset-light, digitally focused marketplace business in combination with our leading floor plan finance business.

Brad S. Lakhia: The synergies with our marketplace and its leading financial performance and cash flow characteristics.

Brad S. Lakhia: Moving to the balance sheet and capital allocation consistent with prior quarters, we continue to generate strong cash flow.

Brad S. Lakhia: Cash flow from operating activities was $100 million in the quarter and our consolidated net leverage was approximately one times adjusted EBITDA.

Brad S. Lakhia: This level of cash generation demonstrates the value of our asset light digitally focused marketplace business in combination with our leading floor plan finance business.

Brad S. Lakhia: Overall, our capital allocation priorities remained unchanged. We continue to prioritize the funding of organic investments in our core digital businesses, while ensuring flexibility for high return, complementary strategic opportunities, and shareholder returns. At the end of the quarter, we continue to have $125 million remaining on our share repurchase authorization. And looking to the future, we have a $210 million senior note maturing in June of 2025. We intend to use cash flow generated by the business, along with our strong liquidity position, to fund this maturity.

Brad S. Lakhia: Overall, our capital allocation priorities remained unchanged, we continue to prioritize the funding of organic investments in our core digital businesses, while ensuring flexibility for high return complementary strategic opportunities and shareholder returns.

At the end of the quarter, we continue to have a $125 million remaining on our share repurchase authorization.

Brad S. Lakhia: Looking to the future we have a 210 million senior note maturing in June of 2025.

Brad S. Lakhia: We intend to use cash flow generated by the business along with our strong liquidity position to fund this maturity.

Brad S. Lakhia: Wrapping up, our 2024 adjusted EBITDA expectations remain unchanged. We are still guiding to adjust DBDA between $285 and $305 million for the year. Other guidance metrics also remain unchanged and are available in our earnings release. To summarize, we remain pleased with our business and financial performance. We generated $100 million in cash from operations in the quarter, and we were pleased with our overall volume growth. Our finance business credit losses were better than expected, and, on a comparable basis, our marketplace adjusted EBITDA grew approximately 40%, and we believe we are well positioned to continue to deliver continued improvement. With that, I'll turn the call over to the operator for questions.

Brad S. Lakhia: Wrapping up our 2024 adjusted EBITDA expectations remain unchanged.

Brad S. Lakhia: We are still guiding to adjusted EBITDA between 285 and $305 million for the year.

Brad S. Lakhia: Other guidance metrics also remain unchanged and are available in our earnings release.

Brad S. Lakhia: To summarize we remain pleased with the business and financial performance, we generated $100 million of cash from operations in the quarter.

Brad S. Lakhia: And we were pleased with our overall volume growth.

Brad S. Lakhia: Our finance business credit losses were better than expected and finally on a comparable basis, our marketplace. Adjusted EBITDA grew approximately 40% and we believe we are well positioned to continue to deliver continued improvement.

Speaker Change: With that I'll turn the call over to the operator for questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.

Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Rajat Gupta of J.P. Morgan.

Is that any time. Your question has been addressed and you would like to withdraw your question.

Speaker Change: Please press Star then two.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Operator: Go ahead, please. Hi Rajat. I'm sorry. One moment, please. Okay, go ahead Rajat. You're in the question queue. Thank you.

Speaker Change: Our first question comes from Richard Gupta of Jpmorgan go ahead. Please.

Rajat Gupta: Hi, Rajat.

Speaker Change: I'm sorry, one moment please.

Rajat Gupta: Okay go ahead rich at your in the question queue. Thank you.

Operator: Can you hear me now?

Rajat Gupta: Can you hear me now.

Operator: Yes, Rajat, good afternoon.

Rajat Gupta: Yes, good afternoon.

Rajat Gupta: Good afternoon. Thanks for taking the questions. Could you give us a little more color on the trajectory of the dealer-to-dealer volumes in the U.S.? You know, what was your growth rate there, and any color and market share that you can provide for the quarter, and relatedly, you know, any color and profitability of that business as well would be helpful, and I have a follow-up.

Rich: Alright, good afternoon, thanks for taking the questions.

Rich: Could you give me give us a little more color on the trajectory of the dealer to dealer volumes in the U S.

Rich: What was your growth growth rate there.

Any color on market share.

Rich: That you can provide.

Rich: In the quarter and Relatedly any any color on profitability of that business as well would be helpful.

Speaker Change: I'll follow up thanks.

Peter J. Kelly: Thanks, Rajat. So I guess, first of all, just in terms of overall volume, dealer and commercial, we grew 13%. We believe that was a greater growth rate than the industry demonstrated, so we think it's a quarter where we gained share in the industry overall. If I look at U.S. dealer, we saw growth in dealer consignment and volume of vehicles offered for sale. We increased our share vis-à-vis physical auctions. Physical auctions showed a decline in the quarter, and we grew the absolute number of open marketplace transactions in the U.S., the vast majority of which are dealer-to-dealer transactions.

Speaker Change: Thanks for job. So I guess first of all just in terms of overall volume dealer and commercial we grew 13%. We believe that was a greater growth rate than the industry demonstrated so we think it's a quarter, where we gained share in the industry overall.

Speaker Change: If I look at U S dealer, we saw growth in dealer consignment volume of vehicles offered for sale.

Speaker Change: We increased our share vis vis physical auctions physical auction showed a decline in the quarter and we grew the absolute number of open.

Speaker Change: Marketplace transactions in the U S. The vast majority of which are dealer to dealer transactions. So we had a strong quarter. We believe we gained share overall and we believe we gained share in the dealer to dealer segment at least in comparison with physical auctions, which is the only data we have to compare with at this moment.

Peter J. Kelly: So we had a strong quarter. We believe we gained share overall, and we believe we gained share in the dealer-to-dealer segment, at least in comparison with physical auctions, which is the only data we have to compare with at this moment. I'd also say, Rajat, profitability, while we don't break out profitability by business units, our D2D business is profitable in the U.S. and in Canada and making a material contribution to our overall results.

Speaker Change: So generally pleased with that I'd also say Rouge profitability, while we don't break out profitability by the business units our day to day business is profitable in the U S and in Canada.

Speaker Change: And we're making making.

Speaker Change: A material contribution to our overall results and I would say we saw a significant improvement in the profitability of the U S model because in Q1 of last year. It was still an unprofitable business, whereas in Q1 this year it was.

Peter J. Kelly: And I'd say we saw a significant improvement in the profitability of the US model because, in Q1 of last year, it was still an unprofitable business, whereas in Q1 this year, it was a positive contributor.

Speaker Change: It was a positive contributor.

Rajat Gupta: Understood. Thanks for the cover.

Speaker Change: Understood. Thanks for the color.

Speaker Change: And then.

Speaker Change: Maybe just a quick follow up on the previous question.

Peter J. Kelly: And maybe like just a quick follow-up on the previous question, you know, any expected cadence for profitability in the US D2D business, just given that OneQ is typically a seasonally strong quarter. So wondering if we can continue growing profitability there, you know, despite, you know, some of the seasonal dynamics in the second quarter.

Any expected cadence.

Speaker Change: For profitability.

Speaker Change: In the U S. <unk> business, just given <unk> is typically a seasonally strong quarter.

Speaker Change: So wondering like if we can continue.

Speaker Change: Growing profitably there despite the muscle of the seasonal dynamics in the second half.

Peter J. Kelly: Yeah, Rajat, well, first of all, the business transitioned to being a positive contributor to our overall earnings in the middle of last year, I believe, so it's been a number of quarters now. So we expect this to continue, that is certainly the plan of the strategy.

Speaker Change: Yeah, well first of all the business transition to being a positive contributor to our overall earnings in the middle of last year I believe so it's been a number of quarters now. So we expect this to continue that that is certainly the plan on the strategy and again.

Speaker Change: Ed.

Peter J. Kelly: And again, you know, the D2D business has a lot of strengths. This digital model, as I mentioned in my remarks, is getting very good results for customers, high conversion rates, fast time to sale, low cost of sale, and great price outcomes. So we're seeing great feedback from customers, strong adoption, as I said, consignment of vehicles by our selling dealers is increasing. Conversion rates are strong, the business is profitable, so I'm feeling good about that, Rajat.

Speaker Change: The <unk> business has a lot of strengths. This digital model as I mentioned in my remarks is very.

Speaker Change: We're getting very good results for customers high convert high conversion rates high.

Speaker Change: Fast time to sale low cost of sale.

Speaker Change: Great price outcomes.

Speaker Change: So we're seeing great feedback from customers strong adoption as I said consignment of vehicles by our selling dealers is increasing.

Speaker Change: Conversion rates are strong the business is profitable.

So I'm feeling I'm feeling good about that Richard.

Peter J. Kelly: I will say that in the quarter, and this was evident in both the US and Canada, we saw a significant growth in commercial volumes, 30% overall, approximately for the quarter. So, you know, that's positive for a business, for sure. But one of the impacts of that is for a buyer in the marketplace, they're going to see a lot more commercial vehicles than they saw, say, in prior periods. And for a lot of these buyers, commercial vehicles are the more desirable vehicles.

Speaker Change: I will say that in the quarter and this was evident in both U S and Canada, we saw a significant growth in commercial volumes at 30% overall approximately for the quarter.

Speaker Change: So that's positive for our business for sure.

Speaker Change: One of the impacts of that is for a buyer in the marketplace, they're going to see a lot more commercial vehicles and they saw say in prior periods and for a lot of these buyers. The commercial vehicles are the more desirable vehicles.

Peter J. Kelly: So a lot of franchise buyers would rather buy from commercial consignments than from other dealer consignments. So we certainly saw, from a buyer appetite perspective, a trading up, I would describe it, from dealers that might have bought more dealer consignments last year, you know, now that there's more commercial supply. So there's an interplay between those two things; they don't exist in isolation between each other.

So a lot of franchise buyers would rather buy from the commercial consignment then from other dealer consignment. So we certainly saw from a buyer appetite perspective, a trading up I would describe it from dealers that might have bought more dealer consignment last year now Doug now that there's more commercial supply buying more there.

Speaker Change: So there's an interplay between those two things they don't exist in isolation between each other.

Peter J. Kelly: But on a combined basis, as I said, we grew volume 13%. Most of that driven, as I said, by US growth, which was the strongest part of our business here in Q1. I'm very pleased about that. And again, driven a lot by commercial supply as well.

Speaker Change: But on a combined basis as I said, we grew volumes, 13%, obviously most of that driven as I said by U S growth, which was.

Rajat Gupta: Got it. Got it.

Speaker Change: The strongest part of our business here in Q1, I'm very pleased about that and again driven a lot by commercial supply as well.

Peter J. Kelly: And just on the awfully dynamic, you know, given what you're seeing in terms of, you know, return versus retention rates among consumers. How do you think, you know, any updated thoughts on how the dynamic should play out here in the second half once we start to see the drop in lead origination from 2021 onwards? I'm just curious, like, how are you seeing that interplay so far? Based on the return rate?

Got it got it.

Speaker Change: Just on like the off lease dynamic give.

Given what you're seeing in terms of.

Speaker Change: Return worsening retention rates and the consumer.

Speaker Change: Or do you think you know any updated thoughts on like other dynamic should play out here in the second half ones.

Speaker Change: Once we start to lap.

Speaker Change: The drop in meat origination from 'twenty. One onwards, I was just curious like are you seeing that interplay.

Speaker Change: So far yes.

Speaker Change: Based on the return rate.

Peter J. Kelly: Great. Well, obviously, Rajat, and you know this, off-lease volumes are the most significant part of the commercial segment in our business. So, a lot of the increase that we saw in Q1 was driven by an increase in off-lease volume. And that was really driven, Rajat, by, you know, a lower percentage of consumer buyouts of their off-lease vehicles. Again, in normal times, consumer buyouts might be 20-30 percent. But, you know, in the last few years, that has increased to like 70, 80%. We're now seeing that drop again, and that has driven some increased supply.

Speaker Change: Great well, obviously result in you know the off lease volumes as the most significant part of the commercial segment and in our business.

So a lot of the increase that we saw in Q1 was driven by increase in off lease volume and that was really driven <unk> bye.

Speaker Change: A lower percentage of consumer of buyouts of their off lease vehicles again in normal times consumer buyouts might be 20, 30%.

The last few years that increased to like 70, 80%.

We're now seeing that drop again in that that drove some increased increased supply and you can see how that flows through our model drove some of the volume and profitability increases that we talked about but I would also say that in the first quarter, our actual off lease volumes I'd still say, we're about 50% of normal.

Peter J. Kelly: And you can see how that flows through our model and drives some of the volume and profitability increases that we talked about. But I would also say that in the first quarter, our actual off-lease volumes, I'd still say we're about 50% of normal. So still well below what we would characterize as normal or well below pre-pandemic levels.

Speaker Change: So still well below what we would characterize as normal or well below pre pandemic levels.

Peter J. Kelly: You know, if you look to the next, uh, the next period of time here, the next few quarters or, you know, the second half of this year into next year, there's definitely going to be fewer vehicles at the top of the funnel. We understand that. I've got clear data on that from our customers. But offsetting that, we expect the consumer buyout percentage to continue to drop. Okay, and that's going to mean more cars entering remarketing, a higher percentage of cars entering remarketing. And, you know, the interplay of those two factors is difficult to predict with precision.

Speaker Change: As you look to the next.

Speaker Change: The next period of time here in the next few quarters.

Speaker Change: The second half of this year and into next year.

Speaker Change: There is definitely going to be fewer vehicles. The top of the funnel, we understand that have got clear data on that from our customers.

Speaker Change: But offsetting that we expect the consumer buyout percentage to continue to drop.

Speaker Change: Okay, and that's going to mean more cars entering remarketing, a higher percentage of cars entering remarketing and the interplay of those two factors is difficult to predict with precision.

Speaker Change: But I suspect.

Peter J. Kelly: But I suspect, You know, we I don't suspect it will be as bad as what we had to endure in the sort of 2022 and 2023 years. That's that's my own view on it. And that's the feedback I'm also getting from customers. And then, on a very positive note, we're seeing new lease originations increase. I believe in the first quarter, new lease originations increased by approximately 25% compared to Q1 of last year.

Speaker Change: You know I don't suspect it will be as bad as what we had to endure in the sort of 2022 and 2023 year. That's my my own view on it and that's the feedback I'm also getting from customers and then on a very positive note, we're seeing new lease originations increase and I believe in the first quarter new lease originations increased by approximately.

Speaker Change: 25% compared to Q1 of last year that is now the fourth quarter in a row, we've seen increasing.

Peter J. Kelly: That's now the fourth quarter in a row we've seen increasing new lease originations. I'm hearing from our customers, they expect that to continue; they expect to have more incentives and more leasing on vehicles. And that obviously will be very positive for us as those vehicles mature. So, in this off-lease segment, I certainly see the light at the end of the tunnel at this point. I see the increased volume showing up in Q1. That's very positive. I recognize we still have some challenging quarters to get through, but I think we're generally on, you know, a more positive trajectory in that category. I got it.

Speaker Change: New lease originations.

Speaker Change: I'm hearing from our customers. They expect that to continue the inspect they expect to have more incentives and more leasing on vehicles and that obviously was very positive for us as those vehicles mature so.

Speaker Change: In this off lease segment I, certainly see the light at the end of the tunnel at this point.

Speaker Change: I see the increase volume showing up in Q1, that's very positive I recognize we still have some challenging quarters to get through but I think we're generally on.

Speaker Change: A more positive trajectory in that in that category.

Rajat Gupta: Got it. Got it. Great. Great. Thanks. Thanks for all the color and good luck.

Speaker Change: Got it got it great. Thanks for thanks for all the color and good luck.

Speaker Change: Thank you Roger.

Operator: Operator: The next question comes from John Murphy of Bank of America. Go ahead, please.

Speaker Change: The next question comes from John Murphy of Bank of America Go ahead. Please.

John Joseph Murphy: Good afternoon, guys. Peter, just wanted to ask you a question about your comment about market share gains in digital versus physical auctions, especially here in the US, and where you think we are on that. And also, I just wanted to gauge where you guys are on your market share in closed auctions, specifically here in the US, so the shift in the market from physical to digital, and then what your market share is in closed auctions.

John Joseph Murphy: Good afternoon guys.

John Joseph Murphy: Just wanted to.

John Joseph Murphy: Asked a question about your comment about market share.

Speaker Change: Gains.

John Joseph Murphy: In digital versus physical auctions.

John Joseph Murphy: Especially here in the U S and where you think we are on that and then also I just wanted to get a gauge where you guys are on your market share in closed auctions.

John Joseph Murphy: Specifically here in the U S. So the shift in the market from digital from physical to digital and then what your market share isn't closed auctions.

John Joseph Murphy: Yeah.

Peter J. Kelly: Yeah. John, I guess what I'd say when we look at our volumes is, first of all, our volumes are entirely digital; it's a digital marketplace business. And again, if I look at our total volume growth of 13% in Q1, that I believe is greater than the volume growth in the industry overall in Q1. So that would point to increasing market share, you know, on a sort of overall level basis based on the data we're looking at.

Speaker Change: John I guess, what I would say when we look at our our volumes first of all our volumes are entirely digital as a digital marketplace business and again, if I look at our total volume growth of 13% in Q1 that I believe is greater than the volume growth in the industry. Overall in Q1, so that would point to increasing market share.

Peter J. Kelly: And then it's possible to sort of subdivide or estimate how much of that volume is commercial versus dealer. And again, when we look at it through that lens, we believe we outperformed both in the commercial and in the dealer category in the United States during Q1 as well. So that's what we speak to in terms of market share; we think it's a positive quarter in that regard. In terms of, you know, what is the pace of transition?

Speaker Change: On a sort of the overall level.

Speaker Change: Basis based on the data we're looking at and then it's possible to sort of subdivide our estimate how much of that volume is commercial versus dealer and again when we look at it through that lens. We believe we outperformed both in the commercial and in the dealer category in.

Speaker Change: In the United States during Q1 as well so that's what that's what we speak to in terms of market share. We think that's a positive quarter in that regard.

Speaker Change: In terms of what is the pace of transition.

Peter J. Kelly: You know, I was talking about off-lease vehicles. The majority of those off-lease vehicles sell in a digital format. We obviously enable a lot of that for a lot of customers. So the majority of our customers' vehicles are selling online in the digital format, a mix of closed and open. In the dealer-to-dealer category, the majority of vehicles are still selling in a physical format, going to physical auctions. That is still true, I believe, in the United States.

Speaker Change: You know I was talking about off lease vehicles.

Speaker Change: The majority of those off lease vehicles sell in a digital format.

Speaker Change: We enable obviously a lot of that for a lot of customers.

Speaker Change: So the majority of our customers vehicles are selling online on the digital format a mix of closed and open.

Speaker Change: In the dealer to dealer category. The majority vehicles are still selling in a physical format going to physical auctions that is still true I believe in the United States.

Peter J. Kelly: But we see the digital channels gaining share, and again, we believe our Q1 volumes gain share versus physical volumes in the first quarter when it looks just at the D2D category. You know, John, the industry takes time to evolve and adopt new technologies. But I think over time, it will.

Speaker Change: But we see the digital channel is gaining share and again.

Speaker Change: We believe our our Q1 volumes gained share versus physical volumes in the first quarter.

Speaker Change: It looks just at the <unk> category so.

Peter J. Kelly: And these trends are becoming evident. And certainly, when I'm talking to, you know, franchise dealer customers, I think there's an increasing acceptance and understanding among that customer group that digital really is the future, that digital offers a lot of benefits to them, both in terms of time, cost, and price realization. And they're very receptive to, you know, a greater adoption of digital channels as they look to the future.

Speaker Change: John you know the industry it's.

Speaker Change: This industry takes time to evolve and adopt new technologies, but I think over time, it doesn't and these trends become.

Speaker Change: Become evident in certainly when I'm talking to.

Speaker Change: Franchise dealer customers I think there is an increasing acceptance and understanding among that customer group that digital really is the future of digital offers a lot of benefits to them. Both in terms of time cost price realization and they're very receptive to it.

Speaker Change: A greater adoption of digital channels as they look to the future.

John Joseph Murphy: I'm sorry, but can you also comment on your market share in these closed auctions? Because it sounds like we're going to head more in that direction. So it seems like, as more vehicles come off of lease, more of those vehicles are going to be ending in closed auctions than maybe ever before. I think you have a pretty big market share there. Just curious if you could talk about that position. Yeah.

Speaker Change: I'm sorry can you also comment on your market share in these closed auctions because it sounds like we're going to head more in that direction. So it seems like there's more vehicles coming off of lease more of those vehicles are going to be ending in closed auctions and maybe ever before and I think you have a pretty big market share. There just curious if you could talk about that position.

Peter J. Kelly: Yeah, John, good point. Sorry, I missed that. I forgot to answer that part. The majority of the off-lease vehicles we're selling today still sell within these closed auction marketplaces. So that is a fact.

Speaker Change: Yes, John Good point, sorry, I missed that in your in right.

Speaker Change: Forgot to answer that part the majority of the off lease vehicles. We're selling today is to sell within these closed auction marketplaces. So that that is a fact.

Peter J. Kelly: And those are obviously very, very important to our OEMs and franchise dealer networks because a lot of OEMs they want to keep at www.karault.com. Our closed auction technology supports the majority of OEMs and captive finance companies in North America. And I'd also point out customer retention, while it has been a challenging few years in the off-lease segment, and volumes have been, you know, way, way down, down lower than levels I would have ever imagined, candidly, we have not lost customers through that period. We still have those OEM relationships, those captive finance relationships, and those are very positive relationships for us and for our customers.

Speaker Change: And those are obviously very very important to our Oems and franchise and franchise dealer networks, because a lot of Oems they want to keep.

Speaker Change: A high percentage of these vehicles within their franchised dealer network and support the brand and the used car portfolio.

Speaker Change: But importantly, they do also flow into the open.

Speaker Change: And that's an opportunity for us as well as for our customers to liquidate some of the vehicles, there, but youre right. John the closed auctions are very very important and we have the.

Speaker Change: Our closed auction technology supports the majority of the Oems and captive finance companies in North America, and I'd also say just wanted to point to on customer retention while.

Speaker Change: While it has been a challenging few years in the off lease segment and volumes have been.

Speaker Change: Way way down down lower than levels I would have ever imagined candidly, we have not lost customers through that period, we still have those OEM relationships those captive finance relationships.

Speaker Change: And those are very positive relationships for us and for our customers.

John Joseph Murphy: And as these volumes are coming back, in whatever form they come back, I mean, obviously, it's all going to be digital that you process these vehicles. Can you talk about just what the operating leverage is? I know we're kind of still bouncing off the bottom, so it was a good volume quarter, but our leverage wasn't necessarily huge. But I mean, over time, as you kind of fill up the pipe here and units return to something that might be vaguely normal over time, how should we think about operating leverage as you're selling units?

Speaker Change: Okay.

Speaker Change: And as these volumes are coming back in whatever form they come back I mean, obviously, it's all going to be digital that you process. These vehicles.

Speaker Change: Can you talk about just what the operating leverage is I know, we're kind of still bouncing off the bottom. So it was a good volume quarter, but op leverage wasn't necessarily huge but I mean over time as you kind of fill up the pipe year in units returned to something that might be vaguely normal overtime now how should we think about operate operating leverage.

Speaker Change: Youre showing unit. So I don't know if you may be seeing revenue were up 5% or 10% what kind of flow through you get to EBITDA.

John Joseph Murphy: I don't know if you maybe say revenue was up 5% or 10%. You know, what kind of flow through do you get to EBITDA, or maybe you want to talk at the EBIT level. It's just, you know, things have changed, and the models have changed. I'm just curious if you could talk about what you think that is.

Speaker Change: EBITDA or you mean, when you were talking to EBIT level.

Speaker Change: Things have changed the model has changed I was just curious if you could talk about what you think that is.

Peter J. Kelly: Yeah, I might answer that in sort of qualitative terms. And Brad, if you want to answer any further questions, please do.

Speaker Change: Yes, I might answer that in sort of qualitative terms and Brad if you want to answer it.

Brad S. Lakhia: Further colors that please do but John I guess.

Peter J. Kelly: But, John, having sort of worked in digital businesses for the best part of my career at this point, I think the operating leverage is really, really strong in these models. Because so much of our cost structure is essentially fixed, the cost of our platform, the cost of our, you know, overhead, the cost of our sales team, and the marginal cost for incremental vehicles sold is pretty low. And frankly, I think in Q1, we had really strong evidence of operating leverage.

Speaker Change: Having worked in digital businesses for best part of my career at this point I think the operating leverage is really really strong in these models because so much of our cost structure is essentially fixed the cost of our platform the cost of our.

Speaker Change: Overhead the cost of our sales team and the marginal cost per incremental vehicles sold is pretty low.

Speaker Change: And frankly, I think Q1, we had really strong evidence of operating leverage at the end of the day, we had a 13% volume increase.

Peter J. Kelly: At the end of the day, we had a 13% volume increase but a 40% EBITDA increase in the marketplace segments. And I think that's very, very strong. The other thing, frankly, is, you know, we.

Speaker Change: 40% EBITDA increase in <unk>.

Speaker Change: In the marketplace segments, and I think that's that's very very strong.

Speaker Change: Other thing frankly is we.

Peter J. Kelly: I do model out each month our volume versus our adjusted EBITDA performance in the business, and we continue to take steps to increase that operating leverage. You know, we talked about some of the platform consolidation that we're doing, that reduces our cost, it increases our operating leverage, and it also increases the speed at which we can deploy new innovation. I think this business has a ton of operating leverage. I think we got a glimpse of that in Q1.

Speaker Change: I do model out each month, our volume versus our adjusted EBITDA performance in the in the business and we continue to take steps to increase that operating leverage we talked about some of the platform consolidation that we're doing that reduces our costs as increases our operating leverage it also increases the speed at which we can deploy new innovation. So.

Speaker Change: I think this business has a ton of operating leverage I think we got a glimpse of that in Q1.

Peter J. Kelly: Again, I would reiterate, commercial off-lease volumes, in my view, were still 50% below normal in Q1. So the sort of mental experiment I do is, okay, what if we had that 50% of volume flowing through here? What would the returns look like at that point? They would look, I believe, really, really strong.

Speaker Change: Again, I would reiterate commercial off lease volumes in my view, we're still 50% below normal in Q1.

Speaker Change: So that sort of mental experiment I do is okay. Why don't we have that 50% of volume.

Speaker Change: Going through here about the.

Speaker Change: The returns look like at that point, they would look I believe really really strong now obviously, that's not going to happen in the next quarter, we won't have to wait and work for that but I think that opportunity exists.

Peter J. Kelly: Now, obviously, that's not going to happen. In the next quarter, we're going to have to wait and work for that. But I think that opportunity exists.

Brad S. Lakhia: Brad, I don't know if you want to add anything. Yeah, no, I'll just say, I mean, I commented, John, on our SG&A performance in the quarter compared to last year, overall flat SG&A, you know, and so the revenue, you know, it's kind of the top line unit growth, volume growth, benefit of that. SG&A is certainly much more fixed, as Peter was alluding to, and so I think you can see that in a year-over-year comparison.

Speaker Change: I don't know if you want to add anything yeah, no I'd, just say I mean I commented.

Speaker Change: John on our SG&A performance in the quarter compared to last year overall flat SG&A.

Speaker Change: And so the revenue the top line unit growth volume growth benefit of that.

Speaker Change: SG&A is certainly much more fixed as Peter was alluding to.

Speaker Change: I think you can see that in a year over year comparable.

Brad S. Lakhia: I would also say just to go maybe a little deeper, if you're in the direct expense category, we do have more variable costs as it relates to inspections. So if you think about volumes coming back, inspection costs are more purely variable, not purely variable, but more so, I think that's one. And then I would say in the legacy off-lease private label business, what we let you know, legacy we used to call open lane, that's largely more of a fixed-cost business. So as volumes come back, there's a lot of scalability there.

Speaker Change: I would also say just to go maybe a low level deeper if you're in the direct expense category. We do have more variable costs as it relates to inspections. So do you think about volumes coming back.

Speaker Change: Inspection costs are more purely variable not purely variable, but more so I think that's one and then I would say in the legacy off lease private label business. What we let you legacy you used to call open Lane.

Speaker Change: That's a that's largely more of a fixed cost business.

Speaker Change: So as those volumes come back there is a lot of scalability there.

John Joseph Murphy: Okay, and then just one last one, Peter, you mentioned something about absolute sale, just sort of this neat feature of basically, you know, the vehicle kicking over the reserve and that being kind of disclosed to everybody to create a, you know, a feeding frenzy around that vehicle. You know, what does that ultimately mean to you as far as, you know, getting a converter, you know, something converted that may not have converted before, or the price being higher? What does that actually mean?

Speaker Change: Okay, and then just one last one.

Speaker Change: Peter you mentioned something about absolute sale, just sort of this neat feature of basically vehicle kicking over the reserve and that being kind of disclosed everybody to create a feeding frenzy around that vehicle.

Speaker Change: What does that ultimately mean to you as far as you know getting a convert something converted that may have not converted before or the price higher.

Speaker Change: What does that actually mean and how many other sort of I would call that a neat little trick, it's actually a very smart <unk>.

Peter J. Kelly: And how many other sort of, you know, I would call that a neat little trick. It's actually a very smart feature to turn on. But how many other sort of somewhat simple innovations that are very important? Do you think there are enough out there to drive the business going forward other than big tear-ups in the tech stack?

Speaker Change: <unk> feature to turn on.

Speaker Change: How many other sort of.

Speaker Change: Somewhat simple innovations that are very important do you think there are to make out there to drive the business going forward other than <unk>.

Speaker Change: Big tariffs in the Tech stack.

Peter J. Kelly: Yeah, good point, John. First of all, Absolute Sale. I agree. Listen, you know, we've all been to auctions of different types of products where you see that happening when it's like, okay, you know, it's on the market, it's gonna sell, it draws renewed interest in the sale, and that's what this does. And, by the way, Absolute Sale has become very, very popular. Like In less than three months since deployment, it's now the preferred selling mechanism for most of our franchise dealers in the US marketplace.

Speaker Change: Yeah. Good point, Jon first of all absolutely sale I agree listen you know, we've all been to auctions.

Speaker Change: Types of products, where you see that happening whether it's like okay. It's on the market is going to sell it draws renewed.

Speaker Change: Interest in the in the sale and Thats, what this does and by the way absolute sale has become <unk>.

Speaker Change: Very popular like in less than three months since deployment. It's now the preferred selling mechanism for most of our franchise dealers in the U S marketplace already.

Peter J. Kelly: So we've seen a massive adoption of it, and sellers really like it for that reason. And John, not only do they like the fact that, on average, once they hit the button, they're seeing another $500 on average, or close to that in terms of price realization. But then they get that one car where the car runs up $2,000 or $2,500, and that leaves a real lasting kind of memory in the minds of the sellers. That one car where I press the button, and suddenly it just takes off.

Speaker Change: So we've seen we've seen a massive adoption of it and the sellers, we like it for that reason and John not only do they like the fact that on average once they hit the buttons are seeing another $500 on average.

Speaker Change: Close to that in terms of price realization, but then to get that one car or the car runs up $2000 or $2500 and that leaves a real lasting kind of memory in the in the minds of the seller that one car, where I pressed the button and suddenly it just took off that that's a real kind of Ah ha moment in terms of their experience of the platform. So.

Peter J. Kelly: That's a real kind of "aha" moment in terms of their experience of the platform. So, listen, we're watching it, we think it's driving, we think it's improving, helping improve conversion, helping improve price, helping improve stickiness. So that's positive.

Speaker Change: But listen we're watching it we think it's driving we think its improving helping improve conversion helping improve price.

Speaker Change: Helping improve stickiness so that's positive.

Speaker Change: John without going into specifics listen we're looking at all the opportunities that exist across our marketplace and obviously, we're looking for the the easier to deploy.

Peter J. Kelly: John, without going into specifics, listen. We're looking at all the opportunities that exist across our marketplace, and obviously, we're looking for the easier to deploy ways we can create a value-add or eliminate a pain point. And there are plenty of those available to us, rather than having to re-engineer the whole tech stack. So more to come. I look forward to speaking about more of the innovations on future calls. Thank you very much, guys.

Speaker Change: Ways, we can create a create a value add or eliminate a pinpoint.

Speaker Change: And they're under plenty of those available to us rather than sort of having to sort of re engineered the whole tech stack.

Speaker Change: So more to come I look forward to speaking about more of the innovations on future calls.

John Joseph Murphy: Great. Thank you very much, guys.

Speaker Change: Great. Thank you very much guys.

Speaker Change: Okay.

Speaker Change: John.

Speaker Change: Okay.

Operator: The next question comes from Gary Prestopino of Barrington Research.

John Joseph Murphy: The next question comes from Gary Presto P&L of Barrington Research go ahead. Please.

Gary Frank Prestopino: Peter and Brad, how are you? Gary, how are you? Gary? Um, a couple of questions here.

John Joseph Murphy: Hi.

Gary Presto: Peter Brad how are you.

Gary Presto: Hey, Gary how are you very well.

Gary Presto: A couple of questions here.

Peter J. Kelly: The commercial vehicle growth was, you know, really sensational. Was the bulk of that what you're seeing returning, Lisa? Or are there other buckets that are also starting to come back for you?

Gary Presto: The commercial vehicle growth was really sensational.

Gary Presto: The bulk of that what you are seeing returning walk lease or are there. Other buckets that are also starting to come back for you.

Gary Frank Prestopino: A good question, Gary. You know, off lease is the biggest category. We saw growth in rental consignment and sales. We saw growth in commercial in all our geographies, Europe, Canada, and North America. So it is off lease is the most of it. We saw growth in all categories. That'd be the short answer.

Peter: Good question, Gary off lease is the biggest category, we saw growth in rental consignment in sales.

Gary Presto: We saw growth in commercial in all our geographies Europe, Canada and North America.

Speaker Change: So it is it is.

Speaker Change: <unk> is the most of it we saw growth in all categories that that would be the short answer.

Peter J. Kelly: Okay, that's fine. And then, as I'm looking at my numbers here, it looks like your gross auction proceeds were up about 17%. It looks like your gross auction proceeds per vehicle are up about 3.5%. So obviously, that's the impact of selling a lot more commercial vehicles. But yet, your auction fees per vehicle were down about 2.4%. Unknown Speaker So could you maybe square that with me? I mean, I think if you're selling a higher-priced car, your auction fees for vehicles should be going higher. Now,

Gary Presto: Okay, that's fine and then.

Speaker Change: As I'm looking at my numbers here it looks like your gross auction proceeds or up about almost 17%.

Gary Presto: It looks like your gross auction proceeds per vehicle were up about three 5%. So obviously, that's the impact of selling a lot more commercial vehicles, but yet your auction fees per vehicle were down about two 4%.

Gary Presto: So could you maybe square that with me I mean, I think if youre selling a higher price car your auction fees for vehicles should be going higher.

Gary Presto: Is there some distortion in there from the Canadian business that you purchased.

Gary Frank Prestopino: No, but a good observation. You are correct.

Speaker Change: No, but good good observation you are correct.

Speaker Change: So <unk> increased 17% volume increase.

Gary Presto: 13% of the GMB per vehicle was up.

Gary Presto: 4% or $3 seven whatever the number right Ed I think it's probably accurate.

Gary Presto: It's really driven by what John spoke to increased volume.

Gary Presto: Commercial vehicles a.

Peter J. Kelly: So GMV increased 17 percent, volume increased [inaudible] A higher percentage of those are selling in closed sales where we have a lower revenue per unit, lower auction fee revenue per unit. But Gary offsetting that, we also have a lower direct cost per unit as well. So those commercial cars tend to come with lower or lower gross profit margins but sometimes with higher gross profit margins. So I kind of look at it as volumes grew 13%, and I think auction fees grew 10% in the quarter. So there was a little bit of dilution in the auction fee per vehicle. Okay, that's helpful. Thank you.

Gary Presto: Higher percentage of those are selling in the closed sales, where we have a lower revenue per unit lower auction fee revenue per unit.

Gary Presto: But Gary offsetting that we also have a lower direct costs per unit as well so Dave those commercial cars tend to come with lower <unk>.

Gary Presto: But sometimes with higher gross profit margin.

Gary Presto: Percentage margin.

Gary Presto: So I think so I kind of I kind of look at it as volumes grew 13% I think auction fees grew 10% in the quarter. So there was a little bit of dilution in auction fee per vehicles.

Gary Frank Prestopino: Got it. Okay, that's helpful. Thank you.

Speaker Change: Got it okay. That's helpful. Thank you.

Gary Presto: Youre welcome Gerry Thank you.

Operator: The next question comes from Greg Kennison of Baird. Go ahead, please.

Gary Presto: The next question comes from Craig Kennison of Baird go ahead. Please.

Craig R. Kennison: Yeah, thanks for taking my question. It's Craig from Baird. Just a quick follow up on absolute sale. I'm guessing the seller can set that feature to on prior to the sale, or is that something they have to monitor in real time?

Craig R. Kennison: Yes, Thanks for taking my question, it's Craig from Baird.

Craig R. Kennison: Just a quick follow up on absolute sale I'm guessing the seller can set that feature to the.

Craig R. Kennison: To on.

Craig R. Kennison: Prior to the sale or is that something you have to monitor in real time.

Peter J. Kelly: Craig, thank you. Good. Good. Good to hear from you again.

Speaker Change: Great. Thank you good good good to hear from you again.

Speaker Change: <unk>.

Craig R. Kennison: So the way it's deployed, at least initially, the seller sort of manually activates the absolute sale button when they believe they've got enough sort of action on the vehicle that gives them the confidence to say, hey, this car is going to sell no matter what. Given its popularity, we're exploring exactly what you said, Craig, of how can we set up some automated rules that enable this to be activated either immediately in the auction or once a certain price level has been attained without the seller having to actively engage. So these are all part of the roadmap, Craig. I confess I don't know the exact timeline for either of those two items. It's possible one of them may be live already, but that's the plan.

Speaker Change: So the way it is deployed at least initially.

Speaker Change: The seller sort of manually activates the absolute sale button.

Speaker Change: When they believe they've got enough sort of action on the vehicle.

Speaker Change: That gives them the confidence they hated that this car is going to sell no matter what okay. So that was our initial deployment.

Speaker Change: Given its popularity we're exploring exactly what you said Craig of can be set up some automated rules that enabled us to be activated either.

Speaker Change: Immediately in the auction or once a certain price level has been attained without the seller having to actively engage so.

Speaker Change: These are all part of the roadmap Craig.

Speaker Change: I don't I confess I don't know the exact timeline of either of those two items, it's possible one of the maybe live already but.

Speaker Change: But that's the plan.

Peter J. Kelly: And then, you know, naturally, you're going to get some growth if we see the off-lease cycle turn positive for you. But I'm curious about your sales effort and where you're focusing those sales dollars. Are you trying to add more dealers to the network, or are you focused more on increasing the number of volumes and the amount of cars you can sell through your existing fleet network of dealers?

Speaker Change: Thank you for that and then naturally.

Speaker Change: Naturally youre going to get some growth if we see the off lease cycle turn positive for you, but I'm curious about your sales effort and where are you focusing those.

Speaker Change: Sales dollars are you trying to add more dealers to.

Speaker Change: To the network or are you focus more on increasing the number of volume and the amount of cars you can do your existing network of dealers.

Speaker Change: Sure.

Craig R. Kennison: Craig, thank you. Listen, I think one of the strengths of the business is that we have a very strong network of participating dealers. In all, in all our geographies, tens of thousands of dealers active, you know, each month and each quarter, you know, on our business. You know, I mentioned, given the traction we're seeing and the one marketplace leaning more into our go-to-market efforts, I would say principally, Craig, increasing the size of the network.

Speaker Change: Greg Thank you listen I think one of the.

Speaker Change: The strength of the business is we have a very strong network of participating dealers.

Speaker Change: And in all in all our geographies tens of thousands of dealers active.

Speaker Change: Each month and each quarter on our business.

Speaker Change: I mentioned, given the traction we're seeing and the one marketplace leaning in more into our go to market efforts I would say principally Craig increasing the size of the network.

Craig R. Kennison: You know, I mentioned we've got a lot of private label franchise buyers, franchise dealers who are buyers that are not yet sellers. So how do we, you know, work with those and convince them that Open Lane is a great place to sell their vehicles as well? So there's opportunities there, converting buyers into sellers and then obviously getting a greater share of the wallet, you know, with the customers who already have. So we've got initiatives, you know, really addressing all of those aspects. But obviously, the size and scale of the network, both on the sell side and the buy side, are obviously important.

Speaker Change: I mentioned, we've got a lot of private label franchise buyers franchise dealers, who are buyers that are not yet sellers. So how do we.

Speaker Change: With those and convinced them that open lane as a great place to sell their vehicles as well so theres opportunities there converting buyers into sellers.

Speaker Change: And then obviously getting greater share of wallet.

Speaker Change: With the customers who already have so we've got initiatives.

Speaker Change: Really addressing all of those aspects, but obviously the size and scale of the network. Both on the sell side on the buy side is obviously an important one.

Speaker Change: That's great Hey, thank you.

Craig R. Kennison: That's great. Hey, thank you.

Peter J. Kelly: Great. Hey,

Speaker Change: Thanks, Greg.

Operator: The next question comes from Bob Labick of CJS Securities. Go ahead, please.

Speaker Change: The next question comes from Bob <unk> of S. I'm, sorry C. J S. Securities go ahead. Please.

Robert James Labick: Great. Thank you. Good afternoon. Hi, Bob.

Bob: Great. Thank you good afternoon.

Peter J. Kelly: Hi, I wanted to dig in further. Obviously, a lot's been addressed so far, but just digging a little further on the off-lease. Equity in off-lease vehicles is, you know, kind of stubbornly high in 24. It's picked up a little bit, I think, even since the end of last year, but it's obviously down a lot since the beginning of 23.

Bob: Hi, Bob Hi, I wanted to dig in further obviously, a lot's been addressed so far but just thinking a little further on the off lease equity in off lease vehicles is kind of stubbornly high in 24, it's picked up a little bit I think even since the end of last year.

Bob: But it's obviously down a lot since then.

Bob: 'twenty three so how does that <unk>.

Bob: <unk> into the lessee, retaining the vehicle or the grounding dealer buying the vehicle, meaning keeping them from going to auction or is equity and leases low enough now.

Robert James Labick: So how does that factor into the lessee retaining the vehicle or the grounding dealer buying the vehicle, meaning keeping them from going to auction? Is equity in leases low enough now that we're kind of normalized? Or is there more benefit for you to come as that equity in leases continues to revert back to prior norms of zero to negative?

Bob: That were kind of normalized or is there more benefit for you to come as that equity and leases continues to revert back to prior.

Bob: Norms of zero to negative.

Peter J. Kelly: Yeah, Bob, great question. So I liked your phrase, stubbornly high. It has been stubbornly high, I agree with that. From my point of view, very, very stubbornly high, but that's where it's been. But it has declined, and that is leading to an increased percentage of vehicles being returned. However, the percentage being returned is still way below normal.

Speaker Change: Yes, Bob Great question.

Bob: So I'd like to phrase stubbornly high it has been stubbornly high I agree with that.

Bob: From my view very very stubborn Lehigh, but that's where it's been.

Bob: But it has declined.

Bob: And that is leading to an increased percentage of vehicles being returned however, the percentages being returned is still way below normal.

Peter J. Kelly: So that's why our volumes, as I've said, are still about 50% below what I'd say, our off-lease volume is still about 50% below normal, even with the increase in Q1. Then Bob, in terms of the timing, you know, in Q1, typically we have a spring market phenomenon, as you know, in our industry, and that typically supports prices in Q1. So the equity gap didn't really decline that much in Q1. In fact, by some metrics, it increased a little bit again, like it did in Q1 of last year.

Bob: That's why our volumes as I've said are still about 50% below what I would say our off lease volumes still about 50% below normal even even with the increase in Q1.

Speaker Change: Then Bob in terms of the timing in Q1, typically we theres a spring market phenomenon as you know in our industry and that typically supports prices in Q1, so the equity gap.

Bob: Didn't really declined that much in Q1 in fact by some metrics increased a little bit again.

Bob: Like it did in Q1 of last year.

Bob: But.

Peter J. Kelly: But, the expectation, I think, from speaking to, you know, some of our finance customers is that the equity gap, this equity gap, will, over time, continue to decline. And I think, you know, two reasons for that one. One is, you know, continued downward pressure on new and used vehicle prices as, you know, dealers have more cars on their lots as manufacturers put more incentives on new cars that flows through into downward pressure on used vehicle prices.

Bob: The expectation I think from speaking to.

Bob: <unk> finance customers as that is the equity get this equity gap will overtime continue to decline.

Bob: And I think two reasons for that one is continued downward pressure on used vehicle prices as dealers have more cars on their lot as manufacturers put more incentives on new cars that flows through into being downward pressure on used vehicle prices. So theres probably.

Peter J. Kelly: So there's probably some level of that that will still take place here. And then secondly, as we're sort of lapping new cohorts of leases that were written, they were sold at higher prices, higher average transaction prices, and leased at higher residual values. I think the expectation, Bob, is that ultimately this will all kind of revert to normal, but it's going to take time. But we're obviously dealing with that and obviously trying to maximize our performance given the constraints that exist at the moment. But I'm pleased with at least some of the breaks that we saw in Q1.

Bob: Some level of that that will still take place here and then secondly, as we're sort of lapping new cohorts of leases that were written.

Bob: They were sold at higher prices higher at higher average transaction prices and leased at higher residual values. So.

Speaker Change: I think the expectation Bob is that ultimately this will all kind of revert to normal, but it's going to take time.

Bob: And.

Bob: But you know we're you know.

Bob: We're obviously.

Bob: Dealing with that and.

Bob: I was trying to maximize our performance given the constraints that exist at the moment, but I'm pleased with at least.

Bob: Some of the breaks that we saw in Q1.

Robert James Labick: Okay, great. I know it was fantastic commercial volume despite the higher equity. And then it kind of relates to dealer growth. I know, you know, you mentioned this potential trade-off: if someone's on the site, and you could get a commercial car dealer car, you take the commercial car. And that's because that'll impact dealer cars as well. But it's been hard to come by for dealer growth for you guys for a little while now. What, what's going to change? What has to change, and what will change to get dealer car volumes up in absolute volume?

Speaker Change: Okay, Great I noticed it was fantastic commercial volume despite the higher equity and then so kind of.

Speaker Change: Related to that the dealer growth.

Speaker Change: I know you mentioned this potential trade off if someone's on the street and you could get it commercial car dealer car or you take the commercial part.

Bob: So that'll impact dealer cars as well, but it's been hard to come by for dealer to dealer growth for you guys for a little while now what what's going to change what has to change.

Bob: We will change to get.

Bob: Dealer car volumes up in absolute volume.

Peter J. Kelly: Yeah, so good question, Bob. Listen, I agree with your comment.

Speaker Change: Yeah. So good question, Bob listen I agree with your comment I think dealer volume growth has been hard to come by and I would say probably in the industry. The dealer volume growth has been more flat in the at an industry level as well in fact that an industry dealer volumes at our physical auctions were down in Q1.

Robert James Labick: I think dealer volume growth has been hard to come by. And I would say, probably in the industry, the dealer volume growth has been more flat at an industry level as well. In fact, at an industry level, dealer volumes and physical auctions were down in Q1, based on the data we have.

Bob: Based on the data we have so.

Peter J. Kelly: Listen, what I'd say Bob is we launched our one marketplace open lane late in Q4. So really, Q1 was the first full quarter where we had that offering in the market. I'm pleased with the performance of that marketplace. We grew our open sale transactions in aggregate compared to Q1 of last year. So that's positive.

Bob: Listen I Hope I'd say, Bob is we launched our one marketplace open lane in late in Q4. So really Q1 was the first full quarter, where we had that offering in market.

Speaker Change: I'm pleased with the performance of that marketplace. We grew our open sale transactions in aggregate compared to Q1 of last year. So that's positive obviously a lot of that growth was driven by commercial but dealer consignment was also very strong we saw increased consignment from dealers.

Peter J. Kelly: Obviously, a lot of that growth was driven by commercial, but dealer consignment was also very strong. We saw increased consignment from dealers. We gained share vis-à-vis physical auctions in Q1. So I'm encouraged by that. I'm also encouraged by the reaction we're getting from customers. So, you know, what are we doing?

Bob: We gained share vis vis physical auctions in Q1.

Bob: So I'm encouraged by that I'm also encouraged by the reaction, we're getting into customer getting from customers. So.

Peter J. Kelly: I think things like I mentioned, absolute sale, improving condition reports, those are things that we're doing. We're increasing our dialogue and focus with some of the largest dealer groups in the industry, making some positive progress there as well. And, you know, we're looking at our sales and marketing, you know, operations. We've had a brand change to Open Lane, but there's still a bit of a brand awareness about who Open Lane is. And, oh, I didn't really know you had this great dealer to dealer solution.

Bob: What are we doing I think things like I mentioned absolute sale improving condition report those are those are things that we're doing we're increasing our dialog and focus with some of the largest dealer groups in the industry.

Bob: So positive.

Bob: Our progress there as well and we're looking at our sales and marketing.

Bob: The operations, we've had a brand change to open land theres still a bit of a brand awareness who is open lane, although I didn't really know you had this great dealer to dealer solutions. So we've heard that as we've done some research and we've got some areas, where maybe we could use an extra person or two on the ground in certain regions of the country. So all of these things are being addressed.

Peter J. Kelly: So we've heard that as we've done some research, and we've got some areas where maybe we could use an extra person or two on the ground in certain regions of the country. So all of these things are being addressed, and obviously, it's a top focus of mine and of this company to continue to grow this part of the business, particularly in an era when we think the industry is fundamentally shifting in a more digital direction.

Bob: And obviously, it's a top focus of mine and of this company.

Bob: To continue to grow this part of the business, particularly in an era, where we think the industry is fundamentally shifting in a more digital direction.

Robert James Labick: Okay, I really appreciate that. Thank you. Thank you, Bob.

Speaker Change: Okay Super I appreciate that thank you.

Speaker Change: Thank you Bob.

Operator: I think we have time for one more question. Okay, the last question is from Bret Jordan of Jeffries. Go ahead, please. Thanks, guys. I'll make it quick.

Speaker Change: I think we have time for one more question.

Operator: Okay, the last question is from Bret Jordan of Jeffries. Go ahead, please.

Speaker Change: Okay. The last question is from Bret Jordan of Jefferies Go ahead. Please.

Bret David Jordan: Thanks, guys I'll make it quick as you look at the off lease volumes in next year is the trough year in lease returns and I guess, you would make some assumptions about equity gap in buyout rates do you see your off lease business growing in in 'twenty five.

Speaker Change: Given it's a trough year in units, but with the lower buyouts that are likely coming offset that.

Bret David Jordan: So Bret, great question. And thank you for that. This is a scenario where it's possible to model, and it's very difficult to predict with confidence, is how I describe it. So we obviously have done quite a detailed amount of modeling around this and various sorts of scenario planning. And I guess what I'd say, Bret, is my current assessment is that the interplay of the two things that you just mentioned, the lower volumes at the top of the funnel, but also the higher percentage of consumer buyout. I think in most scenarios that we model, that will be a net positive for us. There are some scenarios where maybe it's more of a wash, or maybe it's more flat.

Speaker Change: So Brett Great question and thank you for that.

Speaker Change: This is a scenario where it's.

Speaker Change: Is it possible to model and it's very difficult to predict with confidence is how I'd describe it. So we obviously have done quite a detailed amount of modeling around this and various sort of scenario planning and I guess, what I would say Brett as my current assessment is that.

Speaker Change: The interplay of the two things that you just mentioned the lower volumes at the top of the funnel, but also the hot the lower percentage of consumer buyouts.

Speaker Change: I think in most scenarios that we model that will be a net positive for us there are some scenarios, where maybe it's more of a wash maybe it's more flat, but there are plenty of scenarios, where if you.

Peter J. Kelly: But there are plenty of scenarios where if you apply what I think is a reasonable judgment to the situation, our volumes can still move in a positive direction. Now, that remains to be seen. I'm not committing to that on this call.

Speaker Change: Apply what I think is a reasonable judgment to the situation our volumes can still move in a positive direction now that remains to be seen I'm not committing to that on this call.

Peter J. Kelly: But, obviously, we do a lot of planning, and we were looking at it through that lens. And then, you know. The positive news, I just want to reiterate that again, is that we're now four quarters into increasing lease originations. And I believe in Q1 lease originations increased by about 25% versus Q1 of last year. So the trough is a fact, but it also comes to an end, and leasing is rebounding, while new vehicle incentives are increasing. The number of new vehicles on dealer's lots is increasing, and volumes of off-lease vehicles will increase. And frankly, that is not too far away at this point.

Speaker Change: But obviously, we do a lot of planning and we were looking looking at it through that lens and then.

Speaker Change: The positive news I just want to reiterate that again is that we're now four quarters into increasing lease originations and I believe in Q1 lease originations increased by about 25% versus Q1 of last year. So the trough as a fact, but it also comes to an end.

Speaker Change: And leasing is rebounding.

Speaker Change: New vehicle incentives are increasing.

Speaker Change: A number of new vehicles on dealers' lots are increasing and volumes of off lease vehicles will increase and frankly that is not too far away at this point, we can see the light at the end of the tunnel and I think that'll be very positive for this company.

Peter J. Kelly: We can see the light at the end of the tunnel, and I think that'll be very positive for this company. I think we're in a great position to serve our customer base as those volumes come to market. Thank you, Bret. So, I think that concludes our questions.

Speaker Change: I think we're in a great position to serve our customer base.

Speaker Change: As those volumes come to market.

Speaker Change: Great. Thank you.

Speaker Change: Thank you Brett.

Speaker Change: So I think that concludes our questions.

Peter J. Kelly: So before we end the call, I just would like to acknowledge Michael Eliason, our Treasurer and Vice President of Investor Relations. Mike will be retiring from Open Lane before our next hearings call. Mike has been with this company for 25 years and has always kept our investor community updated and informed on Open Lane's performance and all of the transactions and transformations that we've gone through over the past years. So Mike, a sincere thank you for your many contributions to Open Lane as well as to our investors, and we wish you all the very best.

Speaker Change: Before we end the call I, just would like to acknowledge Mike Eliason, our treasurer and Vice President of Investor Relations, Mike will be retiring from open Lane before our next earnings call. Mike has been with this company for 25 years and has always kept our investor community updated and informed and open lines performance and all of the transactions and transformation that we've gone through over the last over the past.

Speaker Change: Years, So Mike a sincere. Thank you for your many contributions to open lane as well as to our investors and we wish you all the very best.

Peter J. Kelly: To the audience, thank you for joining us today. I look forward to speaking to you again on our next call and sharing more about how OpenLane is making wholesale easy so our customers can be more successful.

Speaker Change: To the audience. Thank you for joining us today I look forward to speaking to you again on our next call and sharing more about how open lane is making wholesale easy so our customers can be more successful. Thank you very much.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.